FVCBankcorp(FVCB) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for FVCBankcorp, Inc. as of September 30, 2023, and for the three and nine months then ended, including balance sheets, statements of income, comprehensive income, cash flows, and changes in stockholders' equity, along with accompanying notes, noting the adoption of the Current Expected Credit Loss (CECL) accounting standard on January 1, 2023, which resulted in a $2.8 million net reduction to retained earnings Consolidated Balance Sheets Total assets decreased slightly to $2.31 billion at September 30, 2023, from $2.34 billion at December 31, 2022, primarily driven by a decrease in securities available-for-sale and FHLB advances, largely offset by an increase in total deposits, while total stockholders' equity increased to $211.2 million from $202.4 million over the same period Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $2,305,472 | $2,344,322 | | Loans, net | $1,830,664 | $1,824,394 | | Securities available-for-sale | $216,146 | $278,069 | | Total Liabilities | $2,094,226 | $2,141,940 | | Total deposits | $1,995,971 | $1,830,162 | | FHLB advances | $50,000 | $235,000 | | Total Stockholders' Equity | $211,246 | $202,382 | Consolidated Statements of Income Net income for the third quarter of 2023 was $4.0 million, a significant decrease from $7.0 million in the third quarter of 2022, and for the nine months ended September 30, 2023, net income was $8.9 million, down from $20.1 million year-over-year, primarily due to a substantial increase in interest expense ($14.1M in Q3 2023 vs $3.6M in Q3 2022), which outpaced the growth in interest income, leading to lower net interest income Income Statement Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $13,335 | $17,526 | $41,737 | $49,364 | | (Recovery of) Provision for credit losses | $(729) | $365 | $132 | $1,900 | | Total noninterest (loss) income | $225 | $575 | $(3,511) | $2,844 | | Net Income | $4,039 | $7,043 | $8,892 | $20,080 | Earnings Per Share | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | EPS, basic | $0.23 | $0.40 | $0.50 | $1.15 | | EPS, diluted | $0.22 | $0.38 | $0.49 | $1.09 | Consolidated Statements of Comprehensive Income (Loss) The company reported a total comprehensive loss of $33 thousand for Q3 2023, a significant improvement from a loss of $3.3 million in Q3 2022, and for the nine months ended September 30, 2023, total comprehensive income was $10.6 million, compared to a loss of $17.5 million in the prior-year period, driven by a reclassification adjustment for realized securities losses and smaller unrealized losses on securities available for sale Comprehensive Income (Loss) Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $4,039 | $7,043 | $8,892 | $20,080 | | Total other comprehensive (loss) | $(4,072) | $(10,388) | $1,733 | $(37,537) | | Total comprehensive income (loss) | $(33) | $(3,345) | $10,625 | $(17,457) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities was $11.7 million, net cash from investing activities was $37.6 million, primarily due to $35.8 million in proceeds from the sale of available-for-sale securities, and net cash used in financing activities was $49.0 million, driven by a $185.0 million net decrease in FHLB advances, partially offset by a $155.9 million net increase in time deposits, resulting in a net increase in cash and cash equivalents of $307 thousand Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,740 | $13,894 | | Net cash provided by (used in) investing activities | $37,615 | $(83,692) | | Net cash (used in) provided by financing activities | $(49,048) | $57,005 | | Net increase (decrease) in cash | $307 | $(12,793) | Notes to Unaudited Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial statement components, including the adoption of the CECL standard on January 1, 2023, which resulted in a $2.8 million net reduction to retained earnings, and the Q1 2023 balance sheet repositioning through the sale of $40.3 million in securities at a $4.6 million pre-tax loss to reduce high-cost debt - The company adopted the CECL standard (ASU 2016-13) 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 an $800 thousand increase to the reserve for unfunded commitments[27][56] - In Q1 2023, the company sold available-for-sale investment securities with a book value of $40.3 million, realizing a pre-tax loss of $4.6 million. The proceeds were used to reduce high-cost FHLB advances and fund higher-yielding commercial loans[78] - As of September 30, 2023, the company had no financial instruments indexed to LIBOR, having completed its transition to Alternative Reference Rates (ARRs) like SOFR[234] - The company's investment in Atlantic Coast Mortgage, LLC (ACM) resulted in a loss of $650 thousand for Q3 2023 and $1.4 million for the nine months ended September 30, 2023[22][286] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting the impact of the rising interest rate environment which compressed the net interest margin due to rapidly increasing funding costs, while maintaining strong credit quality and a solid capital and liquidity position by successfully reducing wholesale funding and growing core deposits Results of Operations For Q3 2023, net income decreased to $4.0 million from $7.0 million in Q3 2022, primarily due to a 24% drop in net interest income to $13.3 million, with the net interest margin compressing significantly to 2.39% from 3.38% year-over-year as the cost of interest-bearing deposits surged to 3.40% from 0.88%, while noninterest income fell due to a larger loss from the minority interest in ACM, and noninterest expense saw a modest 5.2% increase driven by higher FDIC insurance and software costs Q3 Performance Summary | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Income | $4.0 million | $7.0 million | | Diluted EPS | $0.22 | $0.38 | | Return on Average Assets (ROA) | 0.70% | 1.32% | | Return on Average Equity (ROE) | 7.57% | 13.87% | - The net interest margin decreased to 2.39% for Q3 2023 from 3.38% in Q3 2022, primarily due to the cost of interest-bearing deposits increasing 252 basis points to 3.40%[257] - For the nine months ended Sep 30, 2023, non-interest income was a loss of $3.5 million, primarily due to a $4.6 million loss on the sale of securities and a $1.4 million loss from the investment in ACM[286][289] - FDIC insurance expense increased 178.1% in Q3 2023 compared to Q3 2022, due to the FDIC increasing the assessment rate to replenish its deposit insurance fund[292][293] Financial Condition and Asset Quality Total assets remained stable at $2.31 billion as of September 30, 2023, with the loan portfolio seeing minimal growth, increasing by 0.3% to $1.85 billion, while asset quality improved significantly, with nonperforming loans decreasing by 66% to $1.5 million (0.07% of total assets) from $4.5 million at year-end 2022, and the allowance for credit losses on loans as a percentage of total loans increased to 1.06% from 0.87% at year-end, reflecting the adoption of CECL Asset Quality Metrics | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Nonperforming Loans (NPLs) | $1,510 thousand | $4,493 thousand | | NPLs / Total Assets | 0.07% | 0.19% | | Allowance for credit losses / NPLs | 1,248.28% | 357.00% | - Special mention loans decreased to $811 thousand at September 30, 2023, from $10.4 million at December 31, 2022, primarily due to two relationships totaling $9.6 million paying off[304] - The commercial real estate portfolio, including office and retail, exhibited strong credit quality with no delinquencies and no classified loans at September 30, 2023[313] Capital Resources and Liquidity The company's capital and liquidity positions remain strong, with shareholders' equity increasing to $211.2 million and tangible book value per share rising to $11.44 from $11.14 at year-end 2022, as all of the Bank's regulatory capital ratios exceeded "well capitalized" minimums, including a Total risk-based capital ratio of 13.93%, and robust liquidity supported by growth in core deposits, access to wholesale funding, significant available borrowing capacity of $481.6 million with the FHLB and $135.9 million with the FRB, and improved estimated uninsured deposits at 31.8% of total deposits Bank's Regulatory Capital Ratios (as of Sep 30, 2023) | Ratio | Actual | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Total risk-based capital | 13.93% | > 10.00% | | Tier 1 risk-based capital | 12.92% | > 8.00% | | Common equity tier 1 capital | 12.92% | > 6.50% | | Leverage capital ratio | 10.62% | > 5.00% | Tangible Book Value Per Share (Non-GAAP) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Tangible book value per common share | $11.44 | $11.14 | - As of September 30, 2023, the Bank had additional borrowing capacity of approximately $481.6 million from the FHLB and $135.9 million from the FRB[357] - Estimated uninsured deposits (excluding collateralized deposits) improved to 31.8% of total deposits at September 30, 2023, down from 39.7% at December 31, 2022[352] Quantitative and Qualitative Disclosures About Market Risk The company states that this section is not required for this filing, as is permitted for smaller reporting companies - The company indicates that this disclosure is not required[366] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the period covered by the report, 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 September 30, 2023[367] - No material changes to internal control over financial reporting occurred during the quarter[368] PART II — OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings, nor is it aware of any threatened material legal proceedings - The company reports it is not party to any material legal proceedings[371] Risk Factors There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors from the last Annual Report on Form 10-K are reported[372] Issuer Purchases of Equity Securities The company renewed its share repurchase program on March 16, 2023, authorizing the purchase of up to 1,300,000 shares of its common stock through March 31, 2024, with no shares repurchased during the three months ended September 30, 2023 - The Board of Directors renewed the share repurchase program, authorizing the purchase of up to 1,300,000 shares. The program expires on March 31, 2024[380] - No shares were repurchased during the three months ended September 30, 2023[374] Other Information (Items 3-6) The company reports no defaults upon senior securities, no mine safety disclosures, and no other material information to disclose under Item 5, with a list of exhibits filed with the report, including officer certifications and XBRL data, provided under Item 6 - The company reported no defaults on senior securities (Item 3), no mine safety disclosures (Item 4), and no other information (Item 5)[375][377][378] - Item 6 lists the exhibits filed with the 10-Q, including officer certifications and XBRL data[383]