FVCBankcorp, Inc. Announces Earnings for Fourth Quarter and Year End 2020

FVCBankcorp, Inc. (NASDAQ:FVCB) (the “Company”) today reported fourth quarter 2020 net income of $5.0 million, or $0.36 diluted earnings per share, compared to $3.7 million, or $0.25 diluted earnings per share, for the quarter ended December 31, 2019. Net revenues, which include net interest income plus noninterest income, for the three months ended December 31, 2020 were $14.9 million, an increase of $2.5 million, from $12.4 million for the year ago quarter ended December 31, 2019.

For the year ended December 31, 2020, the Company reported net income of $15.5 million, or $1.10 diluted earnings per share, compared to $15.8 million, or $1.07 diluted earnings per share, for the same period of 2019. Net revenues for the year ended December 31, 2020 were $55.5 million, an increase of $4.9 million, from $50.6 million for the year ended December 31, 2019.

The Company believes the reporting of earnings to exclude branch closing impairment charges, gains on sales of securities, and merger and acquisition expenses are more reflective of the Company’s operating performance (“Operating Earnings”). Operating Earnings is not a measurement that is in accordance with generally accepted accounting principles in the United States (“GAAP”). Operating Earnings for the three months ended December 31, 2020 was $5.0 million, or $0.36 diluted earnings per share, compared to $3.7 million, or $0.25 diluted earnings per share, for the three months ended December 31, 2019. Operating Earnings for the year ended December 31, 2020 was $15.9 million, or $1.13 diluted earnings per share, compared to $15.9 million, or $1.07 diluted earnings per share, for the year ended December 31, 2019. A reconciliation of Operating Earnings can be found in the tables below.

Both the three and twelve month periods ended December 31, 2020 have been impacted by elevated provision for loan losses. In addition, during the second quarter of 2020, the Company announced the closure of two branch locations, which resulted in one-time branch closure costs of $676 thousand ($534 thousand after tax). The Company began to realize the benefits of annualized cost savings of approximately $350 thousand related to occupancy expense beginning in the fourth quarter of 2020. Other annual savings of approximately $250 thousand include salaries and benefits expense as the employees for each of these locations have filled current vacant positions within the Company, reducing the need to hire additional personnel.

Annualized return on average assets was 1.11% and annualized return on average equity was 10.68% for the fourth quarter of 2020. For the comparable quarterly period ended December 31, 2019, annualized return on average assets was 0.98% and annualized return on average equity was 8.39%. For the years ended December 31, 2020 and 2019, return on average assets was 0.91% and 1.09%, respectively. Return on average equity for the years ended December 31, 2020 and 2019 were 8.48% and 9.32%, respectively. On an Operating Earnings basis, annualized return on average assets and annualized return on average equity for the three months ended December 31, 2020 were 1.11% and 10.68%, respectively, and were 0.98% and 8.39%, respectively, for the same period in 2019. On an Operating Earnings basis, return on average assets and return on average equity for the year ended December 31, 2020 were 0.93% and 8.71%, respectively, and were 1.10% and 9.38%, respectively, for the year ended December 31, 2019.

Fourth Quarter Selected Highlights

• Increased Pre-Tax Pre-Provision Income. For the three months ended December 31, 2020 and 2019, pre-tax pre-provision income (which also excludes branch closure costs and gains on sales of securities) was $7.0 million and $5.1 million, respectively, an increase of $1.9 million or 37.0%. On a linked quarter basis, pre-tax pre-provision income was $6.6 million for the three months ended September 30, 2020. Pre-tax pre-provision annualized return on average assets for the three months ended December 31, 2020 and 2019 were 1.54% and 1.34%, respectively. For the years ended December 31, 2020 and 2019, pre-tax pre-provision income were $25.2 million and $21.7 million, respectively, an increase of $3.5 million. A reconciliation of pre-tax pre-provision income, a non-GAAP financial measure, can be found in the tables below.
• Strong Core Deposit Growth. Core deposits, which exclude wholesale deposits, increased $296.8 million to $1.48 billion at December 31, 2020, an increase of 25.0%, from December 31, 2019. Noninterest-bearing deposits represent 26.9% of core deposits at December 31, 2020.
• Stable Net Interest Margin. Net interest margin for the quarter ended December 31, 2020 was 3.28% compared to 3.30% for the quarter ended September 30, 2020, and 3.28% for the year ago quarter of 2019. Excluding the impact of Paycheck Protection Program (“PPP”) loans and excess liquidity during the fourth quarter of 2020, net interest margin for the three months ended December 31, 2020 would have been 3.49%. Cost of deposits, which includes noninterest-bearing deposits, for the fourth quarter of 2020 was 0.60%, compared to 1.40% for the fourth quarter of 2019, a decrease of 80 basis points, or 57.1%.
• Significant Decrease in Payment Deferred Loans. As of January 15, 2021, approximately 0.86% of the total loan portfolio, or $12.6 million, continue under COVID-19 deferrals. This compares to modified loans of $360.2 million, or 24.4% of the total loan portfolio, reported at June 30, 2020.
• Reduced Levels of Past Due and Nonperforming loans. Loans past due 90 days or more and still accruing totaled $272 thousand at December 31, 2020, compared to $1.0 million at December 31, 2019. Nonperforming loans and loans past due 90 days or more and still accruing were $5.6 million, or 0.31% of total assets, at December 31, 2020, compared to $10.7 million, or 0.70% of total assets, at December 31, 2019.
• Improved Efficiency Ratio. Efficiency ratio for the three months ended December 31, 2020 was 53.1%, an improvement from 58.4% for the year ago quarter ended December 31, 2019. For the year ended December 31, 2020, the Company’s efficiency ratio improved to 55.6% from 56.9% for the year ended December 31, 2019.

“2020 was a challenging year, but despite this, we achieved record quarterly earnings for the fourth quarter and we are pleased with ultimately matching operating earnings in 2020 as compared to 2019. We continue to monitor the credit quality of those loans that were previously part of our loan deferral program as all but a few have returned to making their contractual payments. As the second round of PPP loans begin to ramp up, we will continue to work with our customers to help gain funding and assist the needs of our community as we persist through this pandemic and challenging economy,” stated David W. Pijor, Chairman and CEO.

COVID-19 Pandemic Impact to Loan Portfolio

As a result of the COVID-19 pandemic, the Company implemented loan payment deferral programs to allow customers who were required to close or reduce business operations to defer loan principal and interest payments primarily for 90 days. During the second quarter of 2020, the Company modified 277 loans for a total outstanding principal balance of $360.2 million, or 24.4% of the total loan portfolio. At January 15, 2021, remaining payment deferred loans totaled $12.6 million, or 0.86% of the total loan portfolio, comprising eight loans. One loan is a hotel participation loan totaling $9.7 million, one loan is mixed use commercial real estate totaling $1.2 million, one loan is SBA guaranteed totaling $334 thousand, four loans are unsecured totaling $149 thousand, and three mortgage loans which total $1.3 million. For those real estate loans with approved payment deferrals, these loans are collateralized and are appropriately reserved for in the allowance for loan losses.

The Company is closely and proactively monitoring the effects of the pandemic on its loan and deposit customers and is focused on assessing risks within the loan portfolio and working with customers to minimize losses. The Company considers pandemic impacted loans to include commercial real estate loans to hotels, churches, and certain retail and special purpose asset classes. During its assessment of the allowance for loan losses, the Company addressed the credit risks associated with these pandemic impacted segments and those loan customers that have requested payment deferrals.

Balance Sheet

Total assets increased to $1.82 billion at December 31, 2020 compared to $1.54 billion at December 31, 2019, an increase of $284.2 million, or 18.5%.

Loans receivable, net of deferred fees, totaled $1.47 billion at December 31, 2020, compared to $1.27 billion at December 31, 2019, an increase of $195.6 million, or 15.4%. PPP loans originated and funded, net of fees, totaled $153.0 million, a decrease from $170.3 million at September 30, 2020, as the Company is starting to record loan forgiveness. During the fourth quarter of 2020, loan originations, excluding PPP loans, totaled approximately $81.7 million, of which $50.0 million funded during the quarter. For the full year 2020, net loan growth, excluding PPP loans, is $42.6 million, or 3.4%.

Investment securities decreased $15.2 million to $126.4 million at December 31, 2020, compared to $141.6 million at December 31, 2019.

Total deposits increased to $1.53 billion at December 31, 2020 compared to $1.29 billion at December 31, 2019, an increase of $246.8 million, or 19.2%. Core deposits, which represent total deposits less wholesale deposits, increased $296.8 million, or 25.0%, to $1.48 billion at December 31, 2020 compared to $1.19 billion at December 31, 2019. The increase in core deposits reflects new customer relationships as well as growth in existing customer accounts and, to a lesser extent, deposits remaining from PPP funds. Wholesale deposits totaled $50.0 million, or 3.3% of total deposits at December 31, 2020, a decrease of $50.0 million from December 31, 2019. Noninterest-bearing deposits increased $92.8 million, or 30.3%, to $399.1 million at December 31, 2020 from $306.2 million at December 31, 2019, and represented 26.0% of total deposits, or 26.9% of core deposits, at December 31, 2020.

The Company’s bank subsidiary, FVCbank, remains well-capitalized at December 31, 2020 with a community bank leverage ratio of 11.62%.

Income Statement

Net income for the three months ended December 31, 2020 was $5.0 million, compared to $3.7 million for the same period of 2019, and $3.9 million for the quarter ended September 30, 2020. For the year ended December 31, 2020, net income was $15.5 million, compared to $15.8 million for the same period of 2019. Both the three and twelve month periods of 2020 were impacted by increased provision for loan losses.

Net interest income totaled $14.1 million, an increase of $2.3 million, or 19.3%, for the quarter ended December 31, 2020, compared to the year ago quarter, and increased by $524 thousand, or 3.9%, compared to the third quarter of 2020, a result of significant decreases in the cost of deposits. Interest expense on deposits decreased $2.2 million for the three months ended December 31, 2020 compared to the same period of 2019, and decreased $383 thousand compared to the three months ended September 30, 2020. The impact to interest income from the accretion of loan marks on acquired loans was $335 thousand and $156 thousand for the three months ended December 31, 2020 and 2019, respectively. The increase in income related to loan mark accretion was a result of improved cash flows for acquired loans during the three months ended December 31, 2020. In addition, net interest income for the three months ended December 31, 2020 benefited from PPP loan origination, which contributed $1.2 million to interest income, of which $330 thousand was related to accelerated accretion from forgiven loans. Remaining net deferred fees related to PPP originations totaled $2.8 million at December 31, 2020 and are being recognized in interest income over the remaining lives of the PPP loans, or sooner upon PPP loan forgiveness or payment. For the year ended December 31, 2020 and 2019, net interest income was $52.6 million and $48.1 million, respectively, an increase of $4.6 million, year-over-year.

The Company’s net interest margin for each of the three months ended December 31, 2020 and 2019 was 3.28%, unchanged despite the decreases in the targeted fed funds rate of 150 basis points during March 2020. On a linked quarter basis, net interest margin decreased 2 basis points from 3.30% for the three months ended September 30, 2020. Excluding the impact of PPP loans (a decrease of 4 basis points) and excess liquidity (a decrease of 17 basis points) during the fourth quarter of 2020, net interest margin for the three months ended December 31, 2020 would have been 3.49%. The average yield for the loan portfolio for the fourth quarter of 2020 was 4.54% (excluding PPP loans) compared to 5.05% for the year ago quarter, and 4.76% (excluding PPP loans) for the quarter ended September 30, 2020. Cost of interest-bearing deposits for the fourth quarter of 2020 was 0.84%, compared to 1.84% for the fourth quarter of 2019, a decrease of 100 basis points, or 54.4%, primarily as a result of the Company having aggressively decreased its deposit rates during 2020 in order to offset the repricing of the variable rate loan portfolio.

Noninterest income totaled $740 thousand and $589 thousand for the quarters ended December 31, 2020 and 2019, respectively. Fee income from loans was $34 thousand for the quarter ended December 31, 2020, compared to $81 thousand for the same period of 2019. Service charges on deposit accounts and other fee income totaled $442 thousand for the fourth quarter of 2020, compared to $404 thousand for the year ago quarter. Income from bank-owned life insurance increased $15 thousand to $264 thousand for the three months ended December 31, 2020, compared to $249 thousand for the same period of 2019, primarily as a result of purchasing additional policies during 2019. Noninterest income for the year ended December 31, 2020 was $2.9 million, compared to $2.5 million for the year ended December 31, 2019, an increase of $345 thousand, or 13.6%, which was primarily driven by an increase in service charges on deposit accounts and other fee income, and income from bank-owned life insurance, and offset by fair value losses on loans held for sale of $451 thousand recorded during the first quarter of 2020 before these loans were transferred to the held for investment portfolio.

Noninterest expense totaled $7.9 million for the quarter ended December 31, 2020, compared to $7.3 million for the same three-month period of 2019, an increase of $551 thousand, or 7.5%. The increase in noninterest expense compared to the year ago quarter was primarily related to an increase in data processing and network administration expense of $120 thousand, which is related to planned network infrastructure upgrades for 2020, an increase of $140 thousand for loan related expenses, and an increase in FDIC insurance of $188 thousand (which was a result of assessment credits expiring in 2019). The Company has invested in technology in its efforts to reduce certain expenses where possible. For the year ended December 31, 2020 and 2019, noninterest expense, excluding branch closure charges, was $30.2 million and $28.9 million, respectively, an increase of $1.3 million, or 4.5%, which was less than the Company’s targeted expense growth for 2020.

The efficiency ratio for the quarter ended December 31, 2020 was 53.1%, a decrease from 58.4% for the year ago quarter. The efficiency ratios for year ended December 31, 2020 and 2019, excluding branch closure costs and merger expense from 2019, were 54.3% and 56.8%, respectively.

The Company recorded a provision for income taxes of $1.5 million for the three months ended December 31, 2020, compared to $902 thousand for the same period of 2019. The effective tax rates for the three months ended December 31, 2020 and 2019 were 22.6% and 19.5%, respectively. The effective tax rate for the 2019 period is less than the Company’s combined federal and state statutory rate of 21.5% primarily because of discrete tax benefits recorded as a result of exercises of nonqualified stock options.

Asset Quality

The Company recorded a provision for loan losses of $500 thousand for the three months ended December 31, 2020, compared to $465 thousand for the year ago quarter. The Company is not required to implement the provisions of the current expected credit losses (“CECL”) accounting standard until January 1, 2023, and is continuing to account for the allowance for loans losses under the incurred loss model. Provision for loan losses for the year ended December 31, 2020 and 2019 were $5.0 million and $1.7 million, respectively. The increase in the provision for loan losses for the year ended December 31, 2020 is primarily related to growth in the loan portfolio and increases in qualitative factors related to the economic uncertainties caused by the COVID-19 pandemic, including an increase in specific reserves.

The allowance for loan losses to total loans, excluding PPP loans, was 1.14% at December 31, 2020, compared to 0.81% at December 31, 2019. The effective reserve coverage, which includes both the allowance for loan losses and the remaining unaccreted fair value discount on acquired loans, to total loans, excluding PPP loans, was 1.27% at December 31, 2020. Net charge-offs of $98 thousand recorded during the fourth quarter of 2020 were primarily related to purchased consumer unsecured loans.

Nonperforming loans and loans 90 days or more past due at December 31, 2020 totaled $5.6 million, or 0.31% of total assets. This compares to $10.7 million in nonperforming loans and loans 90 days or more past due at December 31, 2019, or 0.70% of total assets. All of the Company’s nonperforming loans are secured and have specific reserves totaling $2.1 million, representing the expected losses associated with those loans. The Company has one troubled debt restructuring at December 31, 2020 totaling $97 thousand which is a consumer residential loan. Nonperforming assets (including other real estate owned) to total assets was 0.52% at December 31, 2020 compared to 0.95% for December 31, 2019.

Completion of $20 Million Subordinated Notes Offering

On October 13, 2020, the Company announced the completion of its private placement of $20 million of its 4.875% Fixed to Floating Subordinated Notes due 2030 (the “Notes”) to certain qualified institutional buyers and accredited investors. The Notes have a maturity date of October 15, 2030 and carry a fixed rate of interest of 4.875% for the first five years. Thereafter, the Notes will pay interest at 3-month SOFR plus 471 basis points, resetting quarterly. The Notes include a right of prepayment without penalty on or after October 15, 2025. The Notes have been structured to qualify as Tier 2 capital for regulatory purposes. The Company plans to use the proceeds from the placement of the Notes for general corporate purposes, to include supporting capital ratios at the Company’s subsidiary, FVCbank, and potential repayment of a portion of the $25.0 million outstanding subordinated debt callable June 30, 2021.

About FVCBankcorp, Inc.

FVCBankcorp, Inc. is the holding company for FVCbank, a wholly-owned subsidiary that commenced operations in November 2007. FVCbank is a $1.82 billion asset-sized 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. FVCbank is based in Fairfax, Virginia, and has 9 full-service offices in Arlington, Fairfax, Manassas, Reston and Springfield, Virginia, Washington D.C., and Baltimore, Bethesda, and Rockville, 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, 2019 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.