FVCBankcorp Inc.

01/24/2020 | Press release | Distributed by Public on 01/24/2020 08:36

FVCbankcorp, Inc. Announces Earnings for Fourth Quarter and Year End 2019

Fairfax, VA-FVCBankcorp, Inc. (NASDAQ:FVCB) (the 'Company') today reported fourth quarter 2019 net income of $3.7 million, or $0.25 diluted earnings per share, compared to $1.4 million, or $0.10 diluted earnings per share, for the quarterly period ended December 31, 2018. Weighted-average common shares outstanding for the diluted earnings per share calculations were 14.8 million and 14.7 million for the three months ended December 31, 2019 and 2018, respectively.

For the year ended December 31, 2019, net income was $15.8 million, or $1.07 per diluted earnings per share, compared to $10.9 million, or $0.85 diluted earnings per share, for the year ended December 31, 2018.

The Company believes the reporting of non-GAAP earnings which excludes merger-related expenses, losses on sales of securities, and losses on loans held for sale, are more reflective of the Company's operating performance and future performance ('Operating Earnings'). The Company incurred merger-related expenses associated with its acquisition of Colombo Bank ('Colombo') totaling $133 thousand for the year ended December 31, 2019, and $2.7 million and $3.3 million for the three and twelve months ended December 31, 2018, respectively. During the fourth quarter of 2019, the Company reclassed a portion of its consumer unsecured loan portfolio as held for sale, and recorded a loss on the market value adjustment totaling $145 thousand. This portfolio was purchased by the Company within the last two years and is not performing as expected, with recorded net charge-offs totaling $647 thousand for the year ended December 31, 2019. Lastly, during the fourth quarter of 2018, the Company sold $10.9 million in securities available-for-sale at a loss of $462 thousand to reinvest those funds in higher yielding securities. Excluding the above items, net of tax, Operating Earnings for the three months ended December 31, 2019 and 2018 were $3.8 million and $3.9 million, respectively, or $0.26 per diluted share for each of the quarters ended December 31, 2019 and 2018, as earnings were impacted by a flat yield curve and three rate cuts by the Federal Open Market Committee of the Federal Reserve during 2019. For the years ended December 31, 2019 and 2018, Operating Earnings were $16.0 million and $13.9 million, respectively, or $1.08 per diluted share for each of the years ended December 31, 2019 and 2018. See the reconciliation of net income (GAAP) to Operating Earnings (non-GAAP) in the Company's 'Summary Consolidated Income Statements' below.

Return on average assets was 0.98% and return on average equity was 8.39% for the fourth quarter of 2019. For the comparable quarterly December 31, 2018 period, return on average assets was 0.42% and return on average equity was 3.65%. For the years ended December 31, 2019 and 2018, return on average assets was 1.09% and 0.94%, respectively. Return on average equity for the years ended December 31, 2019 and 2018 was 9.32% and 9.29%, respectively. On an Operating Earnings basis, annualized return on average assets and return on average equity for the three months ended December 31, 2019 were 1.01% and 8.64% and were 1.16% and 10.07% for the same period in 2018. On an Operating Earnings basis, return on average assets and return on average equity for the year ended December 31, 2019 were 1.11% and 9.45% and were 1.20% and 11.87% for the year ended December 31, 2018.

Selected Highlights

  • Strong Loan Growth. Year-over-year loan growth was $133.8 million, or 12% from December 31, 2018 to December 31, 2019. The Company had loans held for sale totaling $11.2 million at December 31, 2019 compared to none for 2018.
  • Strong Year-Over-Year Deposit Growth. Year-over-year, deposit growth was $123.3 million, or 11% from December 31, 2018 to December 31, 2019. Noninterest-bearing deposits increased $72.9 million, or 31% during 2019 and represent 24% of the total deposit base at December 31, 2019. Total deposits decreased $32.0 million, to $1.29 billion at December 31, 2019, from September 30, 2019, a result of customer funds being withdrawn as anticipated.
  • Continued Earnings Growth. Net income increased $2.3 million to $3.7 million for the fourth quarter of 2019 as compared to the same 2018 period. Net income for the year ended December 31, 2019 was $15.8 million, an increase of $5.0 million, or 46%, as compared to $10.9 million for the year ended December 31, 2018. Net interest income increased $8.2 million, or 21% to $48.1 million for the year ended December 31, 2019 as compared to 2018. See below under 'Income Statement' for information on changes to the Company's net interest margin.
  • Improved Tangible Book Value. Tangible book value per share at December 31, 2019 was $12.26, a 12% increase from $10.93 at December 31, 2018.

'2019 was a challenging year as a result of the competitive interest rate environment. We have been successful in adding core relationships as demonstrated by the growth in loan originations during the fourth quarter of 2019. We are starting 2020 with strong loan and deposit pipelines and believe our ability to execute quickly will drive quality earnings growth as we continue to be purposefully selective of originations in our construction and commercial real estate portfolios,' stated David W. Pijor, Chairman and CEO.

Balance Sheet

Total assets increased to $1.54 billion at December 31, 2019 compared to $1.35 billion at December 31, 2018, an increase of $185.7 million, or 14%. Loans receivable, net of deferred fees, totaled $1.27 billion at December 31, 2019, compared to $1.14 billion at December 31, 2018, an increase of $133.8 million, or 12%. During the fourth quarter, loan originations totaled approximately $121.3 million, of which $87.1 million funded during the quarter, reflecting strong loan growth. Total loans, net of deferred fees, totaled $1.27 billion at December 31, 2019, an increase of $27.1 million, or 9% annualized, from September 30, 2019.

Loans held for sale totaled $11.2 million at December 31, 2019, and are comprised of the Company's unsecured consumer loan portfolio that the Company has purchased during the last two years. As previously mentioned, the earnings stream provided by this portfolio was not as expected, as the Company recorded net charge-offs of $647 thousand during 2019. The Company anticipates selling these loans before the end of the first quarter of 2020.

Investment securities increased $16.3 million to $141.6 million at December 31, 2019, compared to $125.3 million at December 31, 2018.

Total deposits increased to $1.29 billion at December 31, 2019 compared to $1.16 billion at December 31, 2018, an increase of $123.3 million, or 11%. Core deposits, which represent total deposits less wholesale deposits, increased $107.7 million, or 10%, to $1.19 billion at December 31, 2019 compared to $1.08 billion at December 31, 2018. Wholesale deposits totaled $100.0 million, or 8% of total deposits, at December 31, 2019, an increase of $15.6 million from December 31, 2018. Noninterest-bearing deposits increased $72.9 million to $306.2 million at December 31, 2019 from $233.3 million at December 31, 2018, and represented 24% of total deposits at December 31, 2019.

Income Statement

Net interest income totaled $11.8 million, an increase of $19 thousand, for the quarter ended December 31, 2019, compared to the year ago quarter, and decreased by $256 thousand, or 2% compared to the third quarter of 2019, a result of decreased loan yields. The Company's net interest margin decreased 31 basis points to 3.28% for the quarter ended December 31, 2019 compared to 3.59% for the quarter ended December 31, 2018. On a linked quarter basis, net interest margin decreased 13 basis points from 3.41% for the three months ended September 30, 2019. During the fourth quarter of 2019, the yield on earning assets decreased 15 basis points to 4.69% compared to the third quarter of 2019. The Company had excess liquidity which reduced yield on earning assets by 6 basis points, a result of the lower yields earned on those investments. In addition, the loan portfolio repriced as a result of one 25 basis point rate cut, resulting in a decrease in loan yields by 8 basis points to 5.05% as compared to 5.13% for the third quarter of 2019. Acquired loan accretion included in loan interest income, which represents the expected amortization of the acquired loan portfolio, was $156 thousand for the three months ended December 31, 2019. This compares to $43 thousand in acquired loan accretion realized for the three months ended September 30, 2019, as several large acquired loan payoffs occurred during the third quarter of 2019. Acquired loan accretion included in loan interest income from the fourth quarter of 2018 totaled $169 thousand.

The cost of interest-bearing liabilities increased 2 basis points to 1.95% for the fourth quarter of 2019, compared to 1.93% for the third quarter of 2019, and increased 33 basis points from the year ago quarter. The cost of deposits, which includes noninterest-bearing deposits, decreased 1 basis point to 1.41% for the fourth quarter of 2019 as compared to 1.42% for the third quarter of 2019, and 1.16% for the fourth quarter of 2018, reflecting the increased rate environment during the first half of 2019. The Company had several large customer transactions that occurred at the end of the second quarter of 2019, prior to the Federal Reserve rate cuts, which impacted the cost of interest checking and time deposits for the third and fourth quarters of 2019.

For the year ended December 31, 2019, net interest income was $48.1 million compared to $39.8 million for the year ended December 31, 2018, an increase of $8.2 million, or 21%. Net interest margin was 3.48% and 3.51% for the years ended December 31, 2019 and 2018, respectively.

Noninterest income totaled $589 thousand and $166 thousand for the quarters ended December 31, 2019 and 2018, respectively. Fee income from loans was $81 thousand, a decrease of $168 thousand for the quarter ended December 31, 2019 compared to 2018, primarily a result of a decrease in loan swap fee income. Service charges on deposit accounts and other fee income totaled $404 thousand for the fourth quarter of 2019, an increase of 50%, or $134 thousand, from the year ago quarter. This increase in deposit fee income resulted from the increase in core deposit relationships, both organic and acquired, year over year. In each of the fourth quarters of 2019 and 2018, the Company recorded losses on sales of assets. The loss on the loans held for sale portfolio recorded during the fourth quarter of 2019 was $145 thousand. During the fourth quarter of 2018, the Company recorded a loss on the sale of securities available-for-sale of $462 thousand.

Noninterest income for the year-to-date period ended December 31, 2019 was $2.5 million, compared to $1.7 million for the 2018 year-to-date period, an increase of $885 thousand, or 53%, which was primarily driven by service charges on deposit accounts, income related to bank-owned life insurance, and other fee income.

Noninterest expense totaled $7.3 million for the quarter ended December 31, 2019, compared to $9.4 million for the same three-month period of 2018. Merger-related expenses of $2.7 million for the acquisition of Colombo were recorded during the three months ended December 31, 2018. Salary and compensation related expenses increased $506 thousand, or 13%, for the quarter ended December 31, 2019, compared to the same three month period of 2018, resulting from the increase in staffing (both business development and back-office support) and the variable component of incentive compensation. Increases in data processing and network administration and state franchise taxes for the quarter ended December 31, 2019 compared to the same three month period of 2018 is primarily growth related. On a linked quarter basis, noninterest expense decreased $29 thousand from the three months ended September 30, 2019. For the years ended December 31, 2019 and 2018, noninterest expense was $28.9 million and $26.4 million, respectively, the increase of which relates directly to the addition of Colombo to the Company's expense structure and increases in staffing year-over-year.

The efficiency ratio for Operating Earnings, which excludes merger-related expenses, losses on loans held for sale and securities sold, for the quarter ended December 31, 2019 was 58.4%, an increase from 54.3% from the year ago quarter. The efficiency ratios for Operating Earnings for the years ended December 31, 2019 and 2018, were 56.6% and 55.1%, respectively.

The Company recorded a provision for income taxes of $902 thousand for the three months ended December 31, 2019, compared to $224 thousand for the same period of 2018. The effective tax rates for the three months ended December 31, 2019 and 2018 were 19.5% and 13.7%, respectively. For the year ended December 31, 2019, provision for income taxes was $4.2 million compared to $2.2 million for the year ended December 31, 2018. The effective tax rates for the years ended December 31, 2019 and 2018 were 20.9% and 17.1%, respectively. The effective tax rates in each period presented are less than the Company's statutory rate of 21% primarily because of discrete tax benefits recorded as a result of exercises of nonqualified stock options during 2018 and 2019.

Asset Quality

The Company recorded a provision for loan losses of $465 thousand for the three months ended December 31, 2019, compared to $930 thousand for the year ago quarter. Year-to-date provision expense for 2019 was $1.7 million compared to $1.9 million for the 2018 year-to-date period. Nonperforming loans and loans ninety days or more past due at December 31, 2019 totaled $10.7 million, or 0.70% of total assets, of which $979 thousand related to acquired loans. This compares to $10.4 million in nonperforming loans and loans ninety days or more past due at September 30, 2019, or 0.67% of total assets. All of the Company's nonperforming loans are secured and have specific reserves totaling $393 thousand, representing the expected losses associated with those loans. Included in nonperforming loans is one loan totaling $3.9 million which is collateralized by property that is under a purchase and sales agreement that the Company expects will close during the first quarter of 2020, and for which the Company expects to receive full repayment. There were no new troubled debt restructurings ('TDR') at December 31, 2019. Nonperforming assets (including other real estate owned, or OREO) to total assets was 0.95% at December 31, 2019 compared to 0.91% for September 30, 2019. The property that is recorded as OREO is also under a purchase and sales agreement which is expected to close during 2020. No loss is expected on the sale of OREO.

The allowance for loan losses to total loans was 0.81% for each of the periods ended December 31, 2019 and December 31, 2018. The allowance for loan losses on the Company's originated loan portfolio, excluding the credit mark on acquired loans, was 0.88% of loans outstanding at December 31, 2019. Net charge-offs of $303 thousand were recorded during the fourth quarter of 2019 which were primarily related to the Company's purchased consumer unsecured loan portfolio, which the Company intends to sell during the first quarter of 2020, and recorded the necessary mark to market adjustment in the fourth quarter of 2019.

About FVCbankcorp Inc.

FVCBankcorp, Inc. is the holding company for FVCbank, a wholly-owned subsidiary of FVCB which commenced operations in November 2007. FVCbank is a $1.54 billion Virginia-chartered community bank serving the banking needs of commercial businesses, nonprofit organizations, professional service entities, their owners and employees located in the greater Baltimore and Washington D.C., metropolitan areas. Locally owned and managed, FVCbank is based in Fairfax, Virginia, and has 11 full-service offices in Arlington, Ashburn, Fairfax, Manassas, Reston and Springfield, Virginia, Washington D.C., and Baltimore, Bethesda, Rockville and Silver Spring, Maryland. For more information on the Company's selected financial information, please visit the Investor Relations page of FVCBankcorp Inc.'s website, www.fvcbank.com.

Caution About Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited, statements of goals, intentions, and expectations as to future trends, plans, events or results of the Company's operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such as 'may,' 'will,' 'anticipates,' 'believes,' 'expects,' 'plans,' 'estimates,' 'potential,' 'continue,' 'should,' and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. These forward-looking statements are based on current beliefs that involve significant risks, uncertainties, and assumptions. Factors that could cause the Company's actual results to differ materially from those indicated in these forward-looking statements, include, but are not limited to, the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and in other periodic and current reports filed with the Securities and Exchange Commission. Because of these uncertainties and the assumptions on which the forward-looking statements are based, actual operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company's past results are not necessarily indicative of future performance.

Summary Consolidated Statements of Condition (Dollars in thousands)

(Unaudited)

% Change Current % Change From
12/31/2019 9/30/2019 Quarter 12/31/2018 Year Ago
Cash and due from banks $14,916 $19,424 -23.2 % $9,435 58.1 %
Interest-bearing deposits at
other financial institutions 18,226 92,986 -80.4 % 34,060 -46.5 %
Investment securities 141,589 136,532 3.7 % 125,298 13.0 %
Restricted stock, at cost 6,017 6,017 0.0 % 5,299 13.5 %
Loans held for sale, at fair value Loans, net of fees: 11,198 - - 100.0 % - - 100.0 %
Commercial real estate 819,802 757,619 8.2 % 682,203 20.2 %
Commercial and industrial 114,924 124,666 -7.8 % 137,080 -16.2 %
Commercial construction 214,949 214,816 0.1 % 152,526 40.9 %
Consumer residential 109,560 121,173 -9.6 % 132,280 -17.2 %
Consumer nonresidential 11,291 25,131 -55.1 % 32,654 -65.4 %
Total loans, net of fees 1,270,526 1,243,405 2.2 % 1,136,743 11.8 %
Allowance for loan losses (10,231) (10,068) 1.6 % (9,159) 11.7 %
Loans, net 1,260,295 1,233,337 2.2 % 1,127,584 11.8 %
Premises and equipment, net 1,939 2,029 -4.4 % 2,271 -14.6 %
Goodwill and intangibles, net 8,689 8,119 7.0 % 8,443 2.9 %
Bank owned life insurance (BOLI) 37,069 26,820 38.2 % 16,406 125.9 %
Other real estate owned 3,866 3,866 0.0 % 4,224 -8.5 %
Other assets 33,491 36,066 -7.1 % 18,556 80.5 %
Total Assets $1,537,295 $1,565,196 -1.8 % $1,351,576 13.7 %
Deposits:
Noninterest-bearing $306,235 $294,825 3.9 % $233,318 31.3 %
Interest-bearing checking 302,755 349,574 -13.4 % 312,446 -3.1 %
Savings and money market 222,383 273,244 -18.6 % 221,286 0.5 %
Time deposits 354,362 327,098 8.3 % 310,985 13.9 %
Wholesale deposits 99,987 72,979 37.0 % 84,405 18.5 %
Total deposits 1,285,722 1,317,720 -2.4 % 1,162,440 10.6 %
Other borrowed funds 25,000 15,000 66.7 % - - 100.0 %
Subordinated notes, net of
issuance costs 24,487 24,467 0.1 % 24,407 0.3 %
Other liabilities 23,008 32,940 -30.2 % 6,393 259.9 %
Stockholders' equity 179,078 175,069 2.3 % 158,336 13.1 %
Total Liabilities & Stockholders'
Equity $1,537,295 $1,565,196 -1.8 % $1,351,576 13.7 %

Summary Consolidated Income Statements (In thousands, except per share data) (Unaudited)

For the Years Ended
% Change
From
12/31/2019 12/31/2018 Year Ago
Net interest income $48,063 $39,814 20.7 %
Provision for loan losses 1,720 1,920 -10.4 %
Net interest income after provision for loan losses 46,343 37,894 22.3 %
Noninterest income:
Fees on Loans 582 722 -19.4 %
Service charges on deposit accounts 890 635 40.2 %
Gains on calls of securities held-to-maturity 3 - - 100.0 %
Loss on sale of securities available-for-sale - - (462) -100.0 %
Loss on loans held for sale (145) - - 100.0 %
BOLI income 662 438 51.1 %
Other fee income 554 328 68.9 %
Total noninterest income 2,546 1,661 53.3 %
Noninterest expense:
Salaries and employee benefits 17,047 14,008 21.7 %
Occupancy and equipment expense 3,400 2,524 34.7 %
Data processing and network administration 1,638 1,233 32.8 %
State franchise taxes 1,696 1,184 43.2 %
Professional fees 826 649 27.3 %
Merger and acquisition expense 133 3,339 -96.0 %
Other operating expense 4,137 3,511 17.8 %
Total noninterest expense 28,877 26,448 9.2 %
Net income before income taxes 20,012 13,107 52.7 %
Income tax expense 4,184 2,238 87.0 %
Net Income $15,828 $10,869 45.6 %
Earnings per share - basic $1.15 $0.93 23.7 %
Earnings per share - diluted $1.07 $0.85 25.9 %
Weighted-average common shares outstanding - basic 13,816,997 11,714,668

12,821,757

$10,869

3,339

- -

- - 462

(788)

$13,882

$1.18

$1.08

1.20%

11.87%

55.10%

Weighted-average common shares outstanding - diluted 14,825,489
Reconciliation of Net Income (GAAP) to Operating Earnings (Non

GAAP net income reported above

-GAAP):

$15,828

Add: Merger and acquisition expense above 133
Add: Loss on loans held for sale 145
Subtract: (Gains) on calls of securities held-to-maturity (3)
Add: Loss on sales of securities available-for-sale - -
Subtract: provision for income taxes associated with non-GAAP adjustments (63)
Net Income, excluding above merger and acquisition charges $16,040
Earnings per share - basic (excluding merger and acquisition
charges) $1.16
Earnings per share - diluted (excluding merger and acquisition
charges) $1.08
Return on average assets (non-GAAP operating earnings) 1.11%
Return on average equity (non-GAAP operating earnings) 9.45%
Efficiency ratio (non-GAAP operating earnings) 56.64%

Average Statements of Condition and Yields on Earning Assets and Interest-Bearing Liabilities (Dollars in thousands)

(Unaudited)

For the Three Months Ended

12/31/2019 9/30/2019 12/31/2018
AverageAverage AverageAverage AverageAverage
BalanceYield BalanceYield BalanceYield
Interest-earning assets:

Loans receivable, net of fees (1)

Commercial real estate $765,2374.80 % $770,7524.81 % $668,6094.91 %
Commercial and industrial 111,7535.95 % 129,1745.86 % 127,5205.86 %
Commercial construction 217,3185.38 % 194,3275.73 % 148,7455.81 %
Consumer residential 116,0134.73 % 122,9584.98 % 130,2225.09 %
Consumer nonresidential 23,8627.29 % 24,1497.34 % 26,4437.23 %
Total loans 1,234,1835.05 % 1,241,3605.13 % 1,101,5395.22 %
Investment securities (2)(3) 145,7302.70 % 137,1532.71 % 136,0992.69 %
Interest-bearing deposits at
other financial institutions 50,4841.74 % 27,9722.40 % 67,9352.08 %
Total interest-earning assets 1,430,3974.69 % 1,406,4854.84 % 1,305,5734.79 %
Non-interest earning assets:

Cash and due from banks

10,727 10,221 3,459
Premises and equipment, net Accrued interest and other

assets

2,022

80,989

2,073

74,685

2,172

39,404

Allowance for loan losses (10,011) (10,034) (8,617)
Total Assets $1,514,124 $1,483,430 $1,341,991
Interest-bearing liabilities:

Interest checking

$317,5521.50 %

$324,6581.46 %

$259,2021.32 %

Savings and money market 241,9121.35 % 255,0461.41 % 303,3751.18 %
Time deposits 339,0542.44 % 318,0562.37 % 302,8381.89 %
Wholesale deposits 68,7872.31 % 67,3762.45 % 33,5571.79 %
Total interest-bearing deposits 967,3051.84 % 965,1361.82 % 898,9721.47 %
Other borrowed funds 15,9261.77 % 18,8142.04 % 15,6932.35 %
Subordinated notes, net of
issuance costs 24,4746.40 % 24,4546.41 % 24,3946.42 %
Total interest-bearing liabilities 1,007,7051.95 % 1,008,4041.93 % 939,0591.62 %
Noninterest-bearing liabilities:

Noninterest-bearing deposits

303,516 278,354 242,528
Other liabilities 25,323 23,523 5,883
Stockholders' equity 177,580 173,149 154,521

Total Liabilities and Stockholders'

Equity$1,514,124$1,483,430$1,341,991

Net Interest Margin3.28 %3.41 %3.59 %

(1)Non-accrual loans are included in average balances.

(2)The average yields for investment securities are reported on a fully taxable-equivalent basis at a rate of 22.5%.

(3)The average balances for investment securities includes restricted stock.