FVCBankcorp(FVCB) - 2022 Q4 - Annual Report

Part I Business FVCBankcorp, Inc. operates as a bank holding company, FVCbank, providing commercial banking services in the Washington D.C. and Baltimore areas, with a focus on commercial real estate lending and strategic growth initiatives - The Company operates as a bank holding company primarily through its subsidiary, FVCbank, serving commercial and retail customers in the Washington, D.C. and Baltimore metropolitan areas[18] - Key strategic moves include the 2018 acquisition of Colombo Bank to expand its physical presence and a 2021 investment in Atlantic Coast Mortgage, LLC (ACM) for a 27.7% ownership stake as of December 31, 2022, which also includes a warehouse lending facility[19][21] - The company's primary market is characterized by strong economic indicators, including high household incomes and unemployment rates below the national average, supported by the presence of the federal government and a diverse business landscape[22][23][24] - Lending activities are concentrated in commercial real estate, which constituted 67.8% of total loans as of December 31, 2022. The company also has special expertise in government contract financing[36][40][47] Risk Factors The company faces market, credit, strategic, and operational risks, including interest rate sensitivity, commercial real estate concentration, and regulatory compliance challenges - Market risks include sensitivity to economic conditions, interest rate changes that affect net interest income, high inflation impacting costs and borrower repayment ability, and the transition from LIBOR to SOFR[125][128][132] - A substantial portion of the loan portfolio consists of real estate-related loans concentrated in the Washington, D.C. metropolitan area, exposing the company to risks from adverse changes in this specific market[141][143] - As of December 31, 2022, commercial real estate loans, as defined for regulatory purposes, represented 405% of total risk-based capital, exceeding the 300% regulatory guidance threshold and requiring heightened risk management[161] - Operational risks include dependence on third-party information technology systems, particularly a long-term contract with Fidelity National Information Services, Inc. for core data processing, and significant cybersecurity threats[170][171] - The company operates in a highly regulated industry, subject to extensive laws from federal and state agencies that govern capital requirements, business activities, and compliance, which can be difficult and costly[184][185] Properties The company's main office is in Fairfax, Virginia, operating ten branch offices and one loan production office, mostly leased - The main executive office is located at 11325 Random Hills Road, Fairfax, Virginia[194] - The company operates a total of ten branch offices and one loan production office. It leases all properties except for its branch in Baltimore, Maryland, which it owns[194] Legal Proceedings The company is not currently involved in any material legal proceedings, nor is management aware of any threatened actions - The Company is not currently party to any material legal proceedings[196] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities FVCB common stock trades on Nasdaq, with no current dividend policy, a recent stock split, and a share repurchase program - The company's common stock is listed on the Nasdaq Capital Market under the symbol "FVCB"[199] - The company has not paid cash dividends and does not currently intend to, instead retaining earnings to finance growth. Dividend payments are also subject to regulatory limitations[200][201] - A five-for-four stock split, in the form of a 25% stock dividend, was approved on December 15, 2022, and paid on January 31, 2023[203] - A stock repurchase program was adopted in March 2022 to buy back up to 1,351,075 shares. For the year ended December 31, 2022, 37,454 shares were repurchased at a total cost of $730 thousand[204][205] Management's Discussion and Analysis of Financial Condition and Results of Operations FVCB experienced asset and net income growth in 2022, driven by loan expansion and improved net interest margin, while managing increased loan loss provisions and noninterest income decline Key Financial Highlights (2022 vs 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $2.34 billion | $2.20 billion | | Total Loans, net | $1.84 billion | $1.50 billion | | Total Deposits | $1.83 billion | $1.88 billion | | Net Income | $25.0 million | $21.9 million | | Diluted EPS | $1.35 | $1.20 | | Net Interest Margin | 3.19% | 3.09% | | Return on Average Assets | 1.18% | 1.11% | | Return on Average Equity | 12.34% | 10.92% | | Nonperforming Assets / Total Assets | 0.19% | 0.16% | - Net interest income increased by 13% to $65.2 million in 2022, driven by strong loan growth and a rising interest rate environment, which increased the yield on interest-earning assets[227][237][250] - The company recorded a $2.6 million provision for loan losses in 2022, compared to a $500 thousand reversal in 2021, primarily to support the significant growth in the loan portfolio[227][261] - Noninterest income decreased to $2.8 million from $4.3 million in 2021, mainly due to a loss of $659 thousand from its minority interest in Atlantic Coast Mortgage (ACM), compared to income of $1.5 million in the prior year[227][268] - In February 2023, the company executed a balance sheet de-leveraging strategy by selling $40.3 million in lower-yielding investment securities to pay down high-cost FHLB advances and fund higher-yielding loans, expecting to improve future net interest margin[278] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2022 and 2021, detailing financial position, operations, cash flows, and comprehensive accounting policy disclosures Consolidated Statements of Condition Total assets grew to $2.34 billion in 2022, driven by loan growth, while total liabilities increased and stockholders' equity slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,344,322 | $2,202,924 | | Cash and equivalents | $81,553 | $240,958 | | Securities (AFS & HTM) | $278,333 | $357,876 | | Loans, net | $1,824,394 | $1,490,020 | | Goodwill and intangibles, net | $7,790 | $8,052 | | Total Liabilities | $2,141,940 | $1,993,128 | | Total Deposits | $1,830,162 | $1,883,769 | | FHLB advances | $235,000 | $25,000 | | Subordinated notes, net | $19,565 | $19,510 | | Total Stockholders' Equity | $202,382 | $209,796 | Consolidated Statements of Income Net income increased to $25.0 million in 2022, driven by higher net interest income, despite increased loan loss provisions and lower noninterest income Consolidated Income Statement Highlights (in thousands) | Account | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net Interest Income | $65,244 | $57,947 | | Provision for (reversal of) loan losses | $2,629 | $(500) | | Noninterest Income | $2,834 | $4,302 | | Noninterest Expenses | $34,460 | $34,540 | | Net Income | $24,984 | $21,933 | | Earnings per share, diluted | $1.35 | $1.20 | Notes to Consolidated Financial Statements These notes detail accounting policies, including CECL adoption, and provide comprehensive breakdowns of loans, investments, deposits, and capital adequacy - The company adopted the Current Expected Credit Losses (CECL) model on January 1, 2023. The initial adjustment was not significant to the overall allowance for credit losses or shareholders' equity[409][434] - The loan portfolio is segmented into originated and acquired loans, with acquired loans from the Colombo acquisition initially measured at fair value. As of Dec 31, 2022, total loans were $1.84 billion, with commercial real estate being the largest segment at $1.10 billion[467] - The Bank is subject to minimum regulatory capital requirements and is considered "well capitalized" under prompt corrective action regulations as of December 31, 2022[539][544] Bank Capital Ratios (as of Dec 31, 2022) | Capital Ratio | Actual | Minimum Requirement (w/ Buffer) | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Total risk-based capital | 13.28% | > 10.50% | > 10.00% | | Tier 1 risk-based capital | 12.45% | > 8.50% | > 8.00% | | Common equity tier 1 capital | 12.45% | > 7.00% | > 6.50% | | Leverage capital ratio | 10.75% | > 4.00% | > 5.00% | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[606] - Based on an assessment using the 2013 COSO framework, management believes the Company's internal control over financial reporting was effective as of December 31, 2022[608] - No material changes in the Company's internal control over financial reporting occurred during the fourth quarter of 2022[611] Part III Directors, Executive Officers, Compensation, and Corporate Governance This section incorporates proxy statement information on directors, executive compensation, security ownership, and provides equity compensation plan details - Information regarding Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees is incorporated by reference from the Company's Proxy Statement for the 2023 Annual Meeting of Shareholders[615][616][617] Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to Be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity Compensation Plans Approved by Stockholders | 1,621,920 | $6.82 | 157,263 | Part IV Exhibit and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications - Lists all exhibits filed with the report, including Articles of Incorporation, Bylaws, form of Subordinated Note, employment agreements, and stock plans[623] - Includes required certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[623] - The consent of the independent registered public accounting firm, Yount, Hyde & Barbour, P.C., is filed as Exhibit 23.1[623]