FVCBankcorp(FVCB) - 2020 Q3 - Quarterly Report

PART I Item 1. Financial Statements This section presents the unaudited consolidated financial statements for FVCBankcorp, Inc. for the period ended September 30, 2020, including balance sheets, income statements, and detailed notes on accounting policies and financial data Consolidated Balance Sheets Total assets grew to $1.79 billion by September 30, 2020, a 16.7% increase from $1.54 billion, primarily driven by increased net loans and funded by higher total deposits Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,794,172 | $1,537,295 | | Loans, net | $1,483,078 | $1,260,295 | | Total Liabilities | $1,609,682 | $1,358,217 | | Total Deposits | $1,514,348 | $1,285,722 | | Total Stockholders' Equity | $184,490 | $179,078 | Consolidated Statements of Income Net income for Q3 2020 was $3.9 million, a slight decrease from Q3 2019, while the nine-month net income of $10.5 million declined due to a substantial increase in the provision for loan losses Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $13,595 | $12,092 | $38,501 | $36,228 | | Provision for loan losses | $1,700 | $235 | $4,516 | $1,255 | | Net Income | $3,874 | $4,093 | $10,487 | $12,104 | | Earnings per share, diluted | $0.28 | $0.28 | $0.74 | $0.82 | Notes to Consolidated Financial Statements This section details accounting policies and financial figures, highlighting the impact of COVID-19, PPP participation, loan deferrals, portfolio composition, and a $20 million subordinated notes private placement - The company is actively managing risks associated with the COVID-19 pandemic, including offering payment deferrals to borrowers and participating in the Paycheck Protection Program (PPP)[30][31][33] - As of September 30, 2020, the company had originated 755 PPP loans totaling $170.3 million, net of deferred fees. These loans are fully guaranteed by the U.S. government, and no allowance for loan losses has been recorded for them[43][45] - The company executed 277 loan payment deferrals on outstanding balances of $360.2 million in response to COVID-19. These short-term deferrals are not considered troubled debt restructurings (TDRs) per interagency guidance[42][55] - On October 13, 2020, the company completed a private placement of $20 million in 4.875% Fixed to Floating Subordinated Notes due 2030, structured to qualify as Tier 2 capital[183] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance and condition, focusing on COVID-19 impacts, asset and deposit growth, declining net interest margin, increased loan loss provisions, stable asset quality, and strong capital and liquidity Financial Overview and COVID-19 Impact Total assets grew 16.7% to $1.79 billion by September 30, 2020, driven by PPP loans, while nine-month net income declined to $10.5 million due to increased loan loss provisions and branch closure costs, with loan deferrals significantly decreasing - Total assets increased by $256.9 million (16.7%) to $1.79 billion at September 30, 2020, from December 31, 2019, primarily due to PPP loan originations[215] - The company originated 755 PPP loans for approximately $170.3 million, net of deferred fees, as of September 30, 2020[219] Loan Payment Deferral Status | Date | Deferred Loan Balance | Number of Loans | | :--- | :--- | :--- | | June 30, 2020 | $360.2 million | 277 | | September 30, 2020 | $118.7 million | 57 | | October 31, 2020 | $37.6 million | 22 | Results of Operations Net interest income increased to $13.6 million in Q3 2020, though net interest margin declined to 3.30%, while the provision for loan losses significantly increased to $4.5 million for the nine-month period, and noninterest expense rose due to branch closure costs - Net interest margin decreased to 3.30% for Q3 2020 from 3.41% in Q3 2019. The decrease was attributed to the low interest rate environment, excess liquidity, and the impact of low-yielding PPP loans[253][260] - Provision for loan losses increased to $4.5 million for the nine months ended September 30, 2020, compared to $1.3 million for the same period in 2019, primarily due to economic conditions resulting from the COVID-19 pandemic[280] - Noninterest expense for the nine months ended September 30, 2020, included a one-time impairment charge of $676 thousand related to the closure of two branch office locations[287] Financial Condition and Asset Quality Total loans grew 17.9% to $1.50 billion and deposits increased 17.8% to $1.51 billion, while asset quality remained stable with nonperforming assets decreasing to 0.66%, and the allowance for loan losses increased to 1.15% reflecting a cautious outlook Asset Quality Metrics | Metric | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Nonperforming Assets (NPAs) | $11,871 thousand | $14,591 thousand | | NPAs / Total Assets | 0.66% | 0.95% | | Allowance for loan losses / NPLs | 181.84% | 95.39% | - The allowance for loan losses to total originated loans (excluding PPP loans) was 1.15% at September 30, 2020, an increase from 0.87% at December 31, 2019, reflecting a more cautious outlook[280] Capital Resources and Liquidity The company maintained a strong capital position with a CBLR of 11.02% and increased tangible book value per share to $13.06, while robust liquidity was supported by $206.8 million in liquid assets and significant borrowing capacity - The Bank adopted the Community Bank Leverage Ratio (CBLR) framework and reported a CBLR of 11.02% at September 30, 2020, exceeding the regulatory requirement to be considered well-capitalized[343][345] - In Q1 2020, the company repurchased 487,531 shares for $7.3 million but has since temporarily suspended the program due to COVID-19 uncertainty[344] - Liquidity is strong, with liquid assets of $206.8 million and additional borrowing capacity of approximately $102.9 million from the FHLB and $136.6 million from the FRB[358] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by ALCO, with simulations indicating a neutral asset/liability position and minimal impact on net interest income from a +/- 100 basis point rate shock Interest Rate Sensitivity Analysis (1-Year Horizon) | Change in Interest Rates (bps) | % Change in Net Interest Income (Sept 30, 2020) | | :--- | :--- | | +400 | -0.80% | | +200 | -0.94% | | +100 | -0.76% | | -100 | +0.60% | Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[379] PART II — OTHER INFORMATION Risk Factors This section highlights significant risks from the COVID-19 pandemic, including increased loan losses, collateral value deterioration, net interest margin pressure, operational disruptions, and decreased demand for banking products, with the ultimate impact remaining highly uncertain - The primary updated risk factor relates to the COVID-19 pandemic, which could adversely affect business, financial condition, and operations through increased loan losses, reduced net interest margin, and operational challenges[384][385] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2020, the company repurchased and cancelled 487,531 shares for $7.3 million, but the share repurchase program has since been temporarily suspended due to COVID-19 related market volatility and economic uncertainty - For the nine months ended September 30, 2020, the company repurchased 487,531 shares of common stock for $7.3 million, all of which occurred in the first quarter[389] Other Items (Legal Proceedings, Defaults, Mine Safety, Other Information, Exhibits) The company reports no material legal proceedings, no defaults upon senior securities, and no mine safety disclosures, with a list of exhibits provided - The company is not party to any material legal proceedings and reports no defaults upon senior securities[382][390]