FVCBankcorp, Inc. Announces First Quarter 2020 Earnings

FVCBankcorp, Inc. FVCB (the "Company") today reported first quarter 2020 net income of $3.7 million, or $0.26 diluted earnings per share, compared to $3.9 million, or $0.27 diluted earnings per share, for the quarterly period ended March 31, 2019, primarily as a result of increased provision for loan losses recorded during the first quarter of 2020. Net revenues, which includes net interest income plus noninterest income, for the three months ended March 31, 2020 was $12.9 million, an increase of $402 thousand, from $12.5 million for the year ago quarter ended March 31, 2019.

Return on average assets was 0.96% and return on average equity was 8.29% for the first quarter of 2020. For the comparable quarterly March 31, 2019 period, return on average assets was 1.16% and return on average equity was 9.74%.

First Quarter Selected Highlights

• Improved Credit Quality Metrics. During the first quarter of 2020, watchlist credits decreased from $31.3 million at December 31, 2019 to $13.6 million, a decrease of $17.7 million, or 56%, as a result of aggressive management of watchlist credits and loan payoffs. Nonperforming loans and loans past due 90 days or more and still accruing were 0.56% of total assets at March 31, 2020, compared to 0.70% at December 31, 2019.
• Continued Growth in Loan Portfolio. Total loans, net of fees, totaled $1.28 billion at March 31, 2020, an increase of $11.6 million, from December 31, 2019. Loan growth for the first quarter of 2020 was constrained by the aforementioned watchlist credit payoffs. Year-over-year loan growth was $103.2 million, or 9%, from March 31, 2019 to March 31, 2020.
• Strong Core Deposit Growth. Core deposits, which excludes wholesale deposits, increased $33.8 million, to $1.22 billion at March 31, 2020, or 11% annualized, from December 31, 2019. Noninterest-bearing deposits represent 24% of the core deposit base at March 31, 2020.
• Increased Net Interest Income and Margin. Net interest income increased $447 thousand to $12.2 million for the first quarter of 2020, compared to $11.8 million for the same 2019 period. Net interest margin was 3.37% for the quarter ended March 31, 2020, compared to 3.65% for the year ago quarter of 2019, impacted by the decreases in the targeted fed funds rate of 225 basis points over the past 12 months. On a linked quarter basis, net interest margin has increased from 3.28% for the fourth quarter of 2019. Improvement in net interest margin from the linked quarter was primarily a result of a decrease in the cost of funds by 12 basis points from the prior quarter.
• Increased Provision for Loan Losses. As a result of the current economic conditions related to COVID-19, the Company recorded a provision for loan losses of $1.1 million during the first quarter of 2020. Given the uncertainty of the impact of the COVID-19 pandemic to our customers at this stage of the crisis, the Company will continue to monitor conditions and may increase the provision expense during the balance of 2020 as conditions warrant.
• Share Repurchase Program. During the quarter ended March 31, 2020, the Company repurchased and cancelled a total of 487,531 shares of common stock at an average price of $14.90. The Company has suspended stock repurchases at this time.
• Well-Capitalized Bank. The capital ratios at the Company's subsidiary bank, FVCbank, remain well-capitalized at March 31, 2020 with a Tier 1 Leverage Ratio of 12.06%; a Common Equity Tier 1 Ratio of 12.75%; and a Total Risk-Based Capital Ratio of 13.52%.
• Improved Efficiency Ratio. Efficiency ratio for the three months ended March 31, 2020 was 55.9%, an improvement from 59.0% for the quarter ended December 31, 2019.

"We began 2020 well positioned for growth with strong loan and deposit pipelines. We were able to execute on those expected originations until the economy was disrupted by the global health crisis. In mid-March, we began reaching out to our customers assisting them with loan payment deferrals and continued these efforts by participating in the Paycheck Protection Program ("PPP") launched by the U.S. Treasury and Small Business Administration. To date, we have originated almost 400 PPP loans for approximately $132 million. We continue to assist existing and new customers as we navigate through these unprecedented times," stated David W. Pijor, Chairman and CEO.

COVID-19 Pandemic Impact to Loan Portfolio

The Company has evaluated its exposure to credit risks directly related to the COVID-19 pandemic and has identified the following subgroups of industry segments most impacted by the pandemic as of March 31, 2020:

The Company is closely 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. During its assessment of the allowance for loan losses, the Company addressed the credit risks associated with these subgroups of industry segments.

The Company has implemented loan payment deferral programs to allow customers who were required to close or reduce business operations to defer loan principal and interest payments for generally up to 90 days. As of April 17, 2020, loan payment deferrals on loans totaling $83.6 million have been recorded.

The Company believes that as a result of its focused and deliberate underwriting discipline since its inception in addition to the active dialogue the Company has with its borrowers, the Company has the ability and necessary flexibility to assist its customers through this pandemic.

Balance Sheet

Total assets increased to $1.60 billion at March 31, 2020 compared to $1.54 billion at December 31, 2019, an increase of $65.5 million, or 4%. Loans receivable, net of deferred fees, totaled $1.28 billion at March 31, 2020, compared to $1.27 billion at December 31, 2019, an increase of $11.6 million, or 1%. During the first quarter of 2020, loan originations totaled approximately $94.3 million, of which $65.8 million funded during the quarter. Loans held for sale totaled $9.6 million at March 31, 2020, compared to $11.2 million at December 31, 2019.

Investment securities decreased $14.6 million to $127.0 million at March 31, 2020, compared to $141.6 million at December 31, 2019. During the three months ended March 31, 2020, the Company sold $10.1 million in mortgage-backed securities available-for-sale, recording gains of $97 thousand. These securities were sold as they had larger premiums susceptible to prepayment risk, decreasing future interest income.

Total deposits increased to $1.34 billion at March 31, 2020 compared to $1.29 billion at December 31, 2019, an increase of $58.3 million, or 5%. Core deposits, which represent total deposits less wholesale deposits, increased $33.8 million, or 3%, to $1.22 billion at March 31, 2020 compared to $1.19 billion at December 31, 2019. Wholesale deposits totaled $124.5 million, or 9% of total deposits at March 31, 2020, an increase of $24.5 million from December 31, 2019. Noninterest-bearing deposits decreased $18.4 million to $287.8 million at March 31, 2020 from $306.2 million at December 31, 2019, and represented 21% of total deposits, or 24% of core deposits, at March 31, 2020.

Income Statement

Net income for the three months ended March 31, 2020 was $3.7 million, compared to $3.9 million for the same period of 2019, and $3.7 million for the quarter ended December 31, 2019.

Net interest income totaled $12.2 million, an increase of $447 thousand, for the quarter ended March 31, 2020, compared to the year ago quarter, and increased by $375 thousand, or 3%, compared to the fourth quarter of 2019, a result of decreased cost of funds. The impact to interest income from the accretion of loan marks on acquired loans was $163 thousand and $115 thousand for the three months ended March 31, 2020 and 2019, respectively. In addition, net interest income for the three months ended March 31, 2020 benefited from $181 thousand in prepayment penalties and payoff of loans previously on nonaccrual, compared to $16 thousand in prepayment penalties for the three months ended March 31, 2019.

The Company's net interest margin decreased 28 basis points to 3.37% for the quarter ended March 31, 2020 compared to 3.65% for the quarter ended March 31, 2019. On a linked quarter basis, net interest margin increased 9 basis points from 3.28% for the three months ended December 31, 2019.

For the three months ended March 31, 2020, the effective yield on average earning assets decreased 24 basis points to 4.65% compared to the first quarter of 2019, a result of the current low interest rate environment. The cost of average interest-bearing liabilities increased 4 basis points for the three months ended March 31, 2020 compared to the same period of 2019. The cost of interest-bearing liabilities decreased 12 basis points to 1.83% for the first quarter of 2020, compared to 1.95% for the fourth quarter of 2019. The cost of deposits, which includes noninterest-bearing deposits, decreased 11 basis point to 1.30% for the first quarter of 2020 as compared to 1.41% for the fourth quarter of 2019.

Noninterest income totaled $693 thousand and $738 thousand for the quarters ended March 31, 2020 and 2019, respectively. Fee income from loans was $396 thousand, an increase of $49 thousand, for the quarter ended March 31, 2020 compared to 2019, primarily a result of a slight increase in loan swap fee income. Service charges on deposit accounts and other fee income totaled $368 thousand for the first quarter of 2020, an increase of 29%, or $82 thousand, from the year ago quarter. This increase in deposit fee income resulted from the increase in core deposit relationships year over year. Income from bank-owned life insurance increased $178 thousand to $283 thousand for the three months ended March 31, 2020 compared to $105 thousand for the same period of 2019, primarily as a result of purchasing additional policies during 2019.

During the three months ended March 31, 2020, the Company recorded gains on sales of investment securities available-for-sale totaling $97 thousand, compared to none for the same period of 2019. The loss on the loans held for sale portfolio recorded during the three months ended March 31, 2020 was $451 thousand, compared to none recorded for the comparable 2019 period. The Company classified its consumer unsecured portfolio as held for sale during the fourth quarter of 2019 and, as a result of current market conditions, the market for these types of loans receded during the first quarter.

Noninterest expense totaled $7.2 million for the quarter ended March 31, 2020, compared to $6.9 million for the same three-month period of 2019. On a linked quarter basis, noninterest expense decreased $125 thousand from the three months ended December 31, 2019. During the first quarter of 2020, the Company made efforts to maintain or reduce certain expenses where possible resulting in only a 4% increase in noninterest expense year-over-year, and a 2% decrease on a linked quarter basis.

The efficiency ratio for the quarter ended March 31, 2020 was 55.9%, an increase from 55.2% for the year ago quarter and a decrease from 59.0% for the three months ended December 31, 2019.

The Company recorded a provision for income taxes of $896 thousand for the three months ended March 31, 2020, compared to $1.2 million for the same period of 2019. The effective tax rates for the three months ended March 31, 2020 and 2019 were 19.4% and 22.8%, respectively. The effective tax rate for the three months ended March 31, 2020 is less than the Company's combined federal and state statutory rate of 22% primarily because of discrete tax benefits recorded as a result of exercises of nonqualified stock options during 2020.

Asset Quality

The Company recorded a provision for loan losses of $1.1 million for the three months ended March 31, 2020, compared to $515 thousand for the year ago quarter. The increase in the provision for loan losses for the three months ended March 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. The Company is not required to implement the provisions of the current expected credit losses accounting standard until January 1, 2023, and is continuing to account for the allowance for loans losses under the incurred loss model.

The allowance for loan losses to total loans was 0.88% at March 31, 2020, compared to 0.81% for the period ended December 31, 2019. The allowance for loan losses on the Company's originated loan portfolio, excluding the credit mark on acquired loans, was 0.95% at March 31, 2020. Net charge-offs of $71 thousand were recorded during the first quarter of 2020 which were primarily related to the payoff of one of the Company's nonaccrual loans during the quarter.

Nonperforming loans and loans ninety days or more past due at March 31, 2020 totaled $8.9 million, or 0.56% of total assets, of which $786 thousand related to acquired loans net of their credit marks. This compares to $10.7 million in nonperforming loans and loans ninety 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 $387 thousand, representing the expected losses associated with those loans. The Company has no troubled debt restructurings at March 31, 2020. Nonperforming assets (including other real estate owned) to total assets was 0.80% at March 31, 2020 compared to 0.95% for December 31, 2019.

Capital Management

On February 4, 2020, the Company's Board of Directors approved the adoption of a share repurchase program pursuant to which the Company may purchase up to 1,112,165 shares of the Company's issued and outstanding shares of common stock, or approximately 8% of outstanding shares as of December 31, 2019. For the three months ended March 31, 2020, the Company repurchased and cancelled a total of 487,531 shares of common stock at an average price of $14.90. Due to the uncertainty related to the potential economic impact of the COVID-19 pandemic, the Company has temporarily suspended stock repurchases. The Company continues to be well-capitalized at March 31, 2020.

About FVCBankcorp, Inc.

FVCBankcorp, Inc. is the holding company for FVCbank, a wholly-owned subsidiary that commenced operations in November 2007. FVCbank is a $1.60 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. 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, 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.

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