FVCBankcorp(FVCB) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements FVCBankcorp's Q2 2023 net income declined to $4.2 million due to higher interest expenses, with year-to-date results impacted by a securities loss and CECL adoption Consolidated Balance Sheets Total assets remained stable at $2.34 billion, with deposits increasing by $257.9 million to offset FHLB advances, while net loans grew and stockholders' equity rose by $8.7 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and equivalents | $75,004 | $81,553 | | Securities available-for-sale | $231,204 | $278,069 | | Loans, net | $1,884,372 | $1,824,394 | | Total Assets | $2,344,372 | $2,344,322 | | Liabilities & Equity | | | | Total Deposits | $2,088,042 | $1,830,162 | | FHLB Advances | $0 | $235,000 | | Total Liabilities | $2,133,321 | $2,141,940 | | Total Stockholders' Equity | $211,051 | $202,382 | Consolidated Statements of Income Net income for Q2 2023 decreased to $4.2 million due to lower net interest income, while year-to-date net income dropped to $4.9 million, primarily impacted by a $4.6 million securities sale loss Income Statement Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $27,203 | $19,026 | $52,537 | $36,249 | | Total Interest Expense | $12,815 | $2,239 | $24,135 | $4,411 | | Net Interest Income | $14,388 | $16,787 | $28,402 | $31,838 | | Provision for credit losses | $618 | $1,185 | $860 | $1,535 | | Total Noninterest (Loss) Income | $891 | $645 | $(3,736) | $2,269 | | Net Income | $4,233 | $6,425 | $4,854 | $13,039 | | Diluted EPS | $0.23 | $0.35 | $0.27 | $0.71 | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income for Q2 2023 improved to $6.3 million from a $3.6 million loss, driven by positive other comprehensive income, with year-to-date comprehensive income reaching $10.7 million Comprehensive Income (Loss) Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $4,233 | $6,425 | $4,854 | $13,039 | | Total Other Comprehensive Income (Loss) | $2,100 | $(9,978) | $5,805 | $(27,149) | | Total Comprehensive Income (Loss) | $6,333 | $(3,553) | $10,659 | $(14,110) | Consolidated Statements of Cash Flows Net cash provided by operating activities was $5.5 million, with a $6.9 million outflow from financing activities due to FHLB repayment, resulting in a $1.0 million net increase in cash and equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,488 | $6,454 | | Net cash (used in) provided by investing activities | $2,487 | $(179,201) | | Net cash (used in) provided by financing activities | $(6,947) | $159,864 | | Net increase (decrease) in cash | $1,028 | $(12,883) | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, including the CECL adoption's $2.8 million impact on retained earnings, a Q1 2023 balance sheet repositioning, and the completion of the LIBOR to SOFR transition - The company adopted the Current Expected Credit Loss (CECL) model on January 1, 2023, recording a net reduction of retained earnings of $2.8 million. This included a $2.9 million increase in the allowance for credit losses on loans and a $0.8 million increase to the reserve for unfunded commitments[27][56] - In Q1 2023, the company sold available-for-sale securities with a book value of $40.3 million, realizing a pre-tax loss of $4.6 million. The proceeds were used to pay down high-cost FHLB advances and fund new loans[79] - As of June 30, 2023, the company has completed its transition away from LIBOR for all its financial instruments, with new benchmark rates based on SOFR[232] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the decline in Q2 2023 net income due to compressed net interest margin and strategic losses, highlighting strong asset quality, balance sheet repositioning, and robust capital levels Results of Operations Q2 2023 net income declined to $4.2 million, and year-to-date net income dropped to $4.9 million, primarily due to decreased net interest income, a securities sale loss, and increased noninterest expenses Key Performance Metrics | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $4.2 | $6.4 | $4.9 | $13.0 | | Diluted EPS | $0.23 | $0.35 | $0.27 | $0.71 | | Annualized ROA | 0.73% | 1.21% | 0.42% | 1.26% | | Annualized ROE | 8.17% | 12.93% | 4.70% | 12.78% | - Excluding the loss on securities sales and merger-related expenses, non-GAAP commercial bank operating earnings were $8.4 million for the first six months of 2023, compared to $13.1 million for the same period in 2022[237] Discussion and Analysis of Financial Condition Total assets remained stable at $2.34 billion, with a strategic shift in funding mix to increase deposits and pay down FHLB advances, while asset quality improved, and capital and liquidity remained strong - Total deposits increased by $257.9 million (14%) to $2.09 billion at June 30, 2023, from year-end 2022. This was used to pay down all FHLB advances, which stood at $235.0 million at year-end[298][338] - Asset quality improved significantly, with nonperforming loans falling to $1.4 million (0.06% of total assets) at June 30, 2023, from $4.5 million (0.19% of total assets) at December 31, 2022[304] - Liquidity is strong, with total available borrowing capacity of approximately $813 million from the FHLB, FRB, and federal funds lines. The liquidity position was 172% of estimated uninsured deposits as of June 30, 2023[357] Quantitative and Qualitative Disclosures About Market Risk This item is not required for the current filing - Quantitative and Qualitative Disclosures About Market Risk are not required for this report[366] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the last fiscal quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[367] - No changes occurred in the company's internal control over financial reporting during the last fiscal quarter that materially affected, or are likely to materially affect, these controls[368] PART II — OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings, nor is management aware of any threatened proceedings - As of the filing date, the company is not involved in any material legal proceedings[371] Risk Factors No material changes to risk factors have been reported since the Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes in risk factors are reported since the last Annual Report on Form 10-K[372] Unregistered Sales of Equity Securities and Use of Proceeds The Board renewed the share repurchase program for up to 1.3 million shares, with 24,798 shares repurchased in Q2 2023 at an average price of $9.16 per share - The Board of Directors renewed a share repurchase program on March 16, 2023, authorizing the buyback of up to 1,300,000 shares of common stock[378] Share Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2023 | 0 | — | | May 2023 | 24,798 | $9.16 | | June 2023 | 0 | — | | Total Q2 | 24,798 | $9.16 | Other Information and Exhibits The company reported no defaults on senior securities, no mine safety disclosures, and no other material information, with exhibits including officer certifications and XBRL data - There were no defaults upon senior securities (Item 3), no mine safety disclosures (Item 4), and no other information to report (Item 5)[375][377][378] - Exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and financial data in XBRL format (101, 104)[380]