FVCBankcorp reported its financial results for the second quarter of 2024.
Second Quarter Selected Financial Highlights
- Increase in Net Income. For the three months ended June 30, 2024, the Company recorded net income of $4.2 million, or $0.23 diluted earnings per share. Compared to the linked quarter, net income increased $2.8 million, from $1.3 million for the three months ended March 31, 2024.
- Increase in Net Interest Income and Margin. Net interest margin increased 12 basis points, or 5%, to 2.59% for the second quarter of 2024, compared to 2.47% for the first quarter of 2024. Net interest income increased $877 thousand to $13.7 million, or 7%, compared to $12.8 million for the first quarter of 2024. Interest income increased $1.1 million, or 4%, quarter-over-quarter while interest expense only increased $266 thousand, or 2%, for the same period.
- Strong Deposit Growth. Core deposits, which exclude wholesale deposits, increased $121.5 million during the quarter ended June 30, 2024, or 8%. Total deposits increased $111.5 million, or 6%, during the second quarter of 2024, to end at $1.97 billion at June 30, 2024, compared to $1.86 billion at March 31, 2024.
- Solid Credit Quality. Loans past due 30 days or more decreased to $2.5 million at June 30, 2024, compared to $3.9 million at March 31, 2024, a decrease of 35%. The Company recorded net recoveries of $5 thousand during the second quarter of 2024.
- Sound, Well Capitalized Balance Sheet. All of FVCbank’s (the “Bank”) regulatory capital components and ratios were well in excess of thresholds required to be considered “well capitalized”, with total risk-based capital to risk-weighted assets of 14.13% at June 30, 2024, compared to 13.83% at December 31, 2023. The tangible common equity (“TCE”) to tangible assets (“TA”) ratio for the Bank increased to 9.56% at June 30, 2024, from 8.70% at June 30, 2023. The Bank’s investment securities are classified as available-for-sale, and therefore the unrealized losses on these securities is fully reflected in the TCE/TA ratio.
For each of the three months ended June 30, 2024 and 2023, the Company recorded net income of $4.2 million, or $0.23 diluted earnings per share. Compared to the linked quarter, net income increased $2.8 million for the three months ended June 30, 2024, from $1.3 million for the three months ended March 31, 2024. For the six months ended June 30, 2024, the Company reported net income of $5.5 million, or $0.30 diluted earnings per share, compared to net income of $4.9 million, or $0.27 diluted earnings per share for the six months ended June 30, 2023.
Commercial bank operating earnings (non-GAAP), which exclude the nonrecurring taxes on the surrender of the Company’s BOLI policies recorded during the first quarter of 2024, for the three months ended June 30, 2024 and March 31, 2024 were $4.2 million and $3.7 million, respectively, an increase of $429 thousand, or 12%. Diluted commercial bank operating earnings per share (non-GAAP) for the three months ended June 30, 2024 and March 31, 2024 were $0.23 and $0.20, respectively.
For the three months ended June 30, 2024 and March 31, 2024, pre-tax pre-provision operating income (non-GAAP), which also excludes the nonrecurring taxes on the BOLI surrender was $5.5 million and $4.6 million, respectively, an increase of $984 thousand, or 22%.
The Company considers commercial bank operating earnings and pre-tax pre-provision operating income useful comparative financial measures of the Company’s operating performance over multiple periods. Both commercial bank operating earnings and pre-tax pre-provision operating income are determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). A reconciliation of non-GAAP financial measures to their most comparable financial measure in accordance with GAAP can be found in the tables below.
Management Comments
David W. Pijor, Esq., Chairman and Chief Executive Officer of the Company, said:
“Two consecutive quarters of margin and net interest income improvement demonstrates that our disciplined approach to loan and deposit pricing is effective. We continue to acquire new customer relationships which supports our focus to further diversify both our loan and deposit portfolios. As a result of our efforts this quarter, we originated over $41 million in new loans and $176 million in new non-maturity deposit accounts. These achievements are a result of the dedication of our bankers who are committed to provide the best service to our clients each day. Lastly, we are pleased that our partners at Atlantic Coast Mortgage (“ACM”) have recorded net income for the second quarter and year-to-date in this challenging mortgage environment.”
Statement of Condition
Total assets were $2.30 billion at June 30, 2024 and $2.19 billion at December 31, 2023, an increase of $108.6 million, or 5%. Compared to June 30, 2023, total assets decreased $45.2 million from $2.34 billion, year-over-year.
Loans receivable, net of deferred fees, were $1.89 billion at June 30, 2024, $1.83 billion at December 31, 2023, and $1.90 billion at June 30, 2023. For the three months ended June 30, 2024, loans receivable, net of fees, increased $34.2 million, or 2%, of which $19.6 million of this increase is related to the warehouse line held by ACM. Excluding the warehouse line, loans increased $14.6 million for the quarter ended June 30, 2024. During the second quarter of 2024, loan originations totaled $41.1 million with a weighted average rate of 8.38% and loan renewals totaled $15.4 million with a weighted average rate of 8.95%. Loans that paid off during the second quarter of 2024 totaled $42.5 million and had a weighted average rate of 6.39%.
Investment securities were $162.4 million at June 30, 2024, $171.9 million at December 31, 2023, and $231.5 million at June 30, 2023. The decrease in investment securities during the quarter ended June 30, 2024 was primarily a result of $4.6 million in principal repayments and maturities. For the six months ended June 30, 2024, the investment securities portfolio decreased $9.4 million, primarily due to principal paydowns and an increase in the portfolio’s unrealized losses totaling $2.0 million.
Total deposits were $1.97 billion at June 30, 2024, $1.85 billion at December 31, 2023, and $2.09 billion at June 30, 2023. Compared to March 31, 2024, total deposits increased $111.5 million, or 6%. Noninterest-bearing deposits were $373.8 million at June 30, 2024, or 19.0% of total deposits, and decreased $20.3 million during the second quarter of 2024, as customers continue to shift to interest-bearing deposit products. At June 30, 2024, core deposits, which exclude wholesale deposits, increased $121.5 million, or 8%. As a member of the IntraFi Network, the Bank offers products to its customers who seek to maximize FDIC insurance protection (“reciprocal deposits”). At June 30, 2024 and December 31, 2023, reciprocal deposits totaled $255.4 million and $254.1 million, respectively, and are considered part of the Company’s core deposit base.
The Company continues to have consistent core deposit inflows each quarter, including the second quarter of 2024, with new non-maturity deposit accounts totaling $176.0 million (which includes $18.4 million in new noninterest-bearing deposits) compared to $112.6 million (which includes $21.0 million in noninterest-bearing deposits) for the first quarter of 2024. Title and escrow-related deposits increased $51.8 million from March 31, 2024 to June 30, 2024, which was attributable to improved title and escrow related activity during the second quarter of 2024. The Company continues to see growth in its new and existing deposit relationships going into the third quarter of 2024.
Total wholesale funding decreased $10.0 million, or 3%, during the second quarter of 2024. Wholesale funding includes wholesale deposits totaling $249.8 million and other borrowed funds totaling $57.0 million at June 30, 2024. Average wholesale funding totaled $349.6 million for the quarter ended June 30, 2024 and had a weighted average rate of 3.70%, compared to $413.2 million with a weighted average rate of 4.01% for the quarter ended March 31, 2024. The Bank used higher-cost short-term wholesale funding sources during the second quarter of 2024 to supplement intra-quarter deposit activity. At June 30, 2024, wholesale funding totaled $306.9 million and had a weighted average rate of 3.47% (including $250 million in pay-fixed/receive-floating interest rate swaps at an average rate of 3.25%).
Shareholders’ equity at June 30, 2024 was $226.5 million, an increase of $9.4 million, or 4%, from December 31, 2023. Year-to-date 2024 earnings contributed $5.5 million to the increase in shareholders’ equity. Common stock issued for stock options exercised contributed $1.9 million to shareholders’ equity for the 2024 year-to-date period. Accumulated other comprehensive loss decreased $2.0 million for the 2024 year-to-date period, which was primarily related to the change in the Company’s other comprehensive income associated with its interest rate swaps at June 30, 2024.
Book value per share at June 30, 2024 and December 31, 2023 was $12.45 and $12.19, respectively. Tangible book value per share (a non-GAAP financial measure which is defined in the tables below) at June 30, 2024 and December 31, 2023 was $12.04 and $11.77, respectively. Tangible book value per share, excluding accumulated other comprehensive loss (a non-GAAP financial measure which is defined in the tables below), at June 30, 2024 and December 31, 2023 was $13.26 and $13.12, respectively.
The Bank was well-capitalized at June 30, 2024, with total risk-based capital ratio of 14.13%, common equity tier 1 risk-based capital ratio of 13.09%, and tier 1 leverage ratio of 11.31%.
Asset Quality
For each of the three and six months ended June 30, 2024, the Company recorded a provision for credit losses totaling $206 thousand, compared to provisions of $618 thousand and $860 thousand for the three and six months ended June 30, 2023, respectively. The allowance for credit losses (“ACL”) to total loans, net of fees, was 1.02% at June 30, 2024, compared to 1.03% at December 31, 2023.
The Company has maintained disciplined credit guidelines during the rising interest rate environment. The Company proactively monitors the impact of rising interest rates on its adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Nonaccrual loans and loans 90 days or more past due at June 30, 2024 totaled $3.0 million, or 0.13% of total assets, compared to $1.8 million, or 0.08% of total assets, at December 31, 2023. The increase in nonperforming loans at June 30, 2024 is primarily a result of one commercial & industrial loan relationship that was placed on nonaccrual during the first quarter of 2024. The Company had no other real estate owned at June 30, 2024.
The Company recorded net recoveries of $5 thousand and $35 thousand for the three and six months ended June 30, 2024, respectively. At June 30, 2024 and December 31, 2023, the ACL was $19.2 million and $18.9 million, respectively. ACL coverage to nonperforming loans decreased to 603% at June 30, 2024, compared to 1032% at December 31, 2023 as a result of the $1.2 million increase in nonperforming loans during 2024.
At June 30, 2024, commercial real estate loans totaled $1.08 billion, or 57% of total loans, net of fees, and construction loans totaled $165 million, or 9% of total loans, net of fees. Included in commercial real estate loans are loans secured by office buildings totaling $136.4 million, or 7% of total loans, which are located in the Virginia and Maryland suburbs of the Company’s market area. Retail shopping centers totaled $260.8 million, or 14% of total loans, at June 30, 2024. Multi-family housing totaled $178.2 million, or 9% of total loans, at June 30, 2024. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. The Company manages this portion of the portfolio in a disciplined manner, and has comprehensive policies to monitor, measure, and mitigate its loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. The following table provides further stratification of these and additional classes of real estate loans at June 30, 2024 (dollars in thousands).
The loans shown in the above table exhibit strong credit quality, reflecting only one classified delinquency at June 30, 2024 totaling $851 thousand. During its assessment of the allowance for credit losses, the Company addressed the credit risks associated with these portfolio segments and believes that as a result of its conservative underwriting discipline at loan origination and its ongoing loan monitoring procedures, the Company has appropriately reserved for possible credit concerns in the event of a downturn in economic activity.
Minority Investment in Mortgage Banking Operation
In August 2021, the Company acquired a membership interest in ACM to diversify its loan portfolio while providing competitive residential mortgage products to its customers and to generate additional revenue. The Company’s investment in ACM is reflected as a nonconsolidated minority investment, and as such, the Company’s income generated from the investment is included in non-interest income. For the three months ended June 30, 2024 and 2023, the Company reported income of $351 thousand and $20 thousand, respectively, an increase of $331 thousand. For the six months ended June 30, 2024 and 2023, the Company recorded income of $148 thousand compared to a loss of $781 thousand, respectively, related to its investment in ACM. ACM management is continuing to evaluate opportunities to further reduce expenses and increase revenues.
Income Statement
The Company recorded net income of $4.2 million for both of the three months ended June 30, 2024 and June 30, 2023.
Net interest income increased $879 thousand, or 7%, to $13.7 million for the quarter ended June 30, 2024, compared to the first quarter of 2024, and decreased $717 thousand, or 5%, compared to the year ago quarter. Compared to the year ago quarter ended June 30, 2023, the decrease in net interest income for the second quarter of 2024 is primarily due to an increase in funding costs, which have increased precipitously as a result of Federal Reserve monetary policy coupled with the need to meet intense competition from market area banks, brokerages and the U.S. Treasury.
The Company’s net interest margin increased 12 basis points to 2.59% for the quarter ended June 30, 2024 compared to 2.47% for the linked quarter ended March 31, 2024 and decreased only 1 basis point from 2.60% for the year ago quarter ended June 30, 2023. The increase in net interest margin is a result of continued improvement in the yields of the Company’s loan portfolio and its management to control funding costs.
On a linked quarter basis, interest income increased $1.1 million, or 4%, for the second quarter of 2024 compared to the quarter ended March 31, 2024. Total interest income increased $767 thousand, or 3%, for the second quarter of 2024 compared to the same quarter of 2023. The year ago quarter included recovered loan interest of $338 thousand from an impaired loan that was fully recovered. Interest income on loans increased $1.5 million, or 6%, for the three months ended June 30, 2024, compared to the same period of 2023. Compared to the linked quarter, interest income on loans increased $1.1 million, or 5%, for the three months ended June 30, 2024, primarily as a result of an increase in average loans and an increase in loan yields. Loan yields increased 12 basis points to 5.62% for the three months ended June 30, 2024 compared to the three months ended March 31, 2024, and increased 27 basis points compared to the year ago quarter. Yield on earning assets increased 38 basis points to 5.27% for the three months ended June 30, 2024 compared to the same period of 2023, partially as a result of the balance sheet repositionings completed during 2023 along with the repricing of the Company’s variable rate loan portfolio and new loan originations.
At June 30, 2024, approximately $404 million, or 27%, of the Company’s commercial loan portfolio is expected to reprice in the next 12 months, which is comprised of the following: $94.6 million in fixed rate commercial loans, and $28.5 million in variable rate commercial loans, with an additional $281.1 million in floating rate loans priced currently at market rates. Within the following 24-36 months, $202.9 million in fixed rate commercial loans will reprice and an additional $85.6 million in variable rate commercial loans will reprice, representing 19% of the current loan portfolio. In the near term, the Company’s efforts to attain appropriate yields on new originations and the repricing of the commercial loan portfolio are expected to provide continued improvement in loan yields.
On a linked quarter basis, interest expense increased $266 thousand, or 2%, for the second quarter of 2024 compared to the quarter ended March 31, 2024. Total interest expense for the three months ended June 30, 2024 was $14.3 million compared to $12.8 million for the year ago quarter ended June 30, 2023, an increase of $1.5 million, or 12%. Interest expense on deposits increased $353 thousand for the three months ended June 30, 2024 compared to the three months ended March 31, 2024, reflecting the increase in volume of deposits during the second quarter of 2024 in addition to the Company’s continued focus on maintaining core deposit pricing. Compared to the year ago quarter ended June 30, 2023, interest expense on deposits increased $882 thousand for the three months ended June 30, 2024. The cost of deposits for the second quarter of 2024 was 2.88% compared to 2.82% for the first quarter of 2024, an increase of 6 basis points compared to an increase of 47 basis points from 2.41% for the year-ago second quarter.
The Company’s cumulative deposit beta (calculated comparing the change in deposit interest rates from March 31, 2022 to June 30, 2024 including noninterest-bearing deposits and excluding wholesale deposits) remained at approximately 42% for each of June 30, 2024, March 31, 2024, and December 31, 2023, since the Federal Reserve began increasing short-term interest rates.
Net interest income for the six months ended June 30, 2024 and 2023 was $26.5 million and $28.4 million, respectively, a decrease of $1.9 million, or 7%, year-over-year. Interest income increased $2.3 million, or 4%, to $54.8 million for the six months ended June 30, 2024 as compared to $52.5 million for the comparable 2023 period. Interest expense totaled $28.3 million for the six months ended June 30, 2024, an increase of $4.2 million, compared to $24.1 million for the six months ended June 30, 2023. The Company’s net interest margin for the six months ended June 30, 2024 was 2.59% compared to 2.60% for the year-ago six month period of 2023.
Noninterest income for the three months ended June 30, 2024 totaled $871 thousand compared $891 thousand for the three months ended June 30, 2023 and $395 thousand for the three months ended March 31, 2024.
Fee income from loans was $38 thousand for the quarter ended June 30, 2024, compared to $169 thousand for the second quarter of 2023, which included income from back-to-back loan swap transactions entered into during the second quarter of 2023. Service charges on deposit accounts totaled $279 thousand for the second quarter of 2024, compared to $232 thousand for the year ago quarter, and $261 thousand for the three months ended March 31, 2024. Income from bank-owned life insurance decreased $296 thousand to $66 thousand for the three months ended June 30, 2024, compared to $362 thousand for the same period of 2023, a direct result of the surrendered BOLI that occurred during the first quarter of 2024. As previously mentioned, income from the Company’s minority interest in ACM totaled $351 thousand for the three months ended June 30, 2024, compared to income of $20 thousand for the same period of 2023, and compared to a loss of $203 thousand for the linked quarter ended March 31, 2024.
For the year-to-date period ended June 30, 2024, the Company recorded noninterest income totaling $1.3 million, compared to a loss of $3.7 million for the six months ended June 30, 2023, which was primarily associated with its securities sales transaction executed during the first quarter of 2023.
Noninterest expense totaled $9.0 million for the quarter ended June 30, 2024, a decrease of $207 thousand, or 2%, compared to $9.2 million for the year ago quarter ended June 30, 2023. On a linked quarter basis, noninterest expense increased $371 thousand, or 4%, from $8.6 million for the three months ended March 31, 2024.
The decrease for the second quarter of 2024 was primarily related to salaries and benefits expense which decreased $402 thousand when compared to the year ago quarter. Salary expense was the main driver for these decreases, a result of reduced staffing and process improvement through the use of technology. On a linked quarter basis, salaries and benefits expense increased $159 thousand, or 4%, for the three months ended June 30, 2024, primarily as a result of an increase to the incentive accruals for the quarter. Full-time equivalent employees have decreased from 129 at June 30, 2023, and from 118 at December 31, 2023 to 113 at June 30, 2024.
Occupancy expense decreased $95 thousand to $515 thousand for the three months ended June 30, 2024 compared to the year ago quarter ended June 30, 2023, primarily as a result of the office space reduction efforts completed during 2023. Internet banking and software expense increased $147 thousand to $730 thousand for the second quarter of 2024 compared to the quarter ended June 30, 2023, primarily as a result of the implementation of enhanced customer software solutions. Other operating expenses totaled $1.6 million for second quarter of 2024 compared to $1.5 million for the year ago quarter ended June 30, 2023. The Company continues to identify and assess opportunities to reduce operating expenses.
For the six months ended June 30, 2024 and 2023, noninterest expense was $17.6 million and $18.2 million, respectively, a decrease of $592 thousand, or 3%, primarily as a result of the aforementioned decreases in salaries and benefits expenses and occupancy expense.
The efficiency ratio for core bank operating earnings, excluding 2023 losses on the sale of available-for-sale investment securities, for the quarters ended June 30, 2024, March 31, 2024, and June 30, 2023, was 61.9%, 65.4%, and 60.2%, respectively. For the six months ended June 30, 2024 and 2023, the efficiency ratio for core bank operating earnings was 63.6% and 62.3%, respectively. A reconciliation of the aforementioned efficiency ratio, a non-GAAP financial measure, can be found in the tables below.
The Company recorded a provision for income taxes of $1.2 million for each of the three months ended June 30, 2024 and June 30, 2023. For the six months ended June 30, 2024 and 2023, provision for income taxes was $4.4 million and $739 thousand, respectively. The year-to-date 2024 period includes an additional $2.4 million which is associated with the Company’s surrendering of its BOLI policies that occurred during the first quarter of 2024.
About FVCBankcorp, Inc.
FVCBankcorp, Inc. is the holding company for FVCbank, a wholly-owned subsidiary that commenced operations in November 2007. FVCbank is a $2.30 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 8 full-service offices in Arlington, Fairfax, Manassas, Reston and Springfield, Virginia, Washington, D.C., and Baltimore, and Bethesda, Maryland.
For more information about the Company, please visit the Investor Relations page of FVCBankcorp, Inc.’s website, www.fvcbank.com.
