Business Overview and History
FVCBankcorp, Inc. (FVCB) is a community-oriented, locally-owned and managed commercial bank that has carved out a niche for itself in the Washington, D.C. and Baltimore metropolitan areas. With a focus on small and medium-sized businesses, professionals, and individuals, FVCBankcorp has steadily grown its footprint and reputation over the past 15 years since its inception in 2007.
FVCBankcorp, Inc. was formed in 2015 as a bank holding company under the Bank Holding Company Act of 1956. The company is headquartered in Fairfax, Virginia and conducts its business activities through the branch offices of its wholly owned subsidiary bank, FVCbank. FVCbank was organized under the laws of the Commonwealth of Virginia in 2007 to engage in a general banking business serving the Washington, D.C. and Baltimore metropolitan areas.
FVCbank commenced operations on November 27, 2007 and is a member of the Federal Reserve System. As a member, it is subject to the regulations of the Board of Governors of the Federal Reserve and the State Corporation Commission of Virginia, undergoing periodic examinations by these regulatory authorities.
The Company has faced some key challenges over the years. In 2020, it recorded a $676,000 write-off related to the closure of a branch location. Additionally, in 2023 the Company recorded losses of $15.6 million on the sale of available-for-sale investment securities. Despite these challenges, the Company has maintained a disciplined approach to credit quality and risk management, which has contributed to its track record of low historical credit losses.
In August 2021, the Bank made an investment in Atlantic Coast Mortgage, LLC (ACM) for $20.4 million, obtaining a 28.7% ownership interest. The Bank provides a warehouse lending facility to ACM, which includes a construction-to-permanent financing line, and has developed portfolio mortgage products to diversify its held for investment loan portfolio. This strategic move allowed FVCBankcorp to diversify its loan portfolio and provide additional services to its clients. The partnership has proven beneficial, with the bank’s income from its minority membership interest in ACM totaling $426,000 for the nine months ended September 30, 2024.
FVCBankcorp’s loan portfolio is primarily composed of commercial real estate (57% of total loans as of September 30, 2024), commercial and industrial (16%), and commercial construction (9%) loans. The bank’s commercial real estate portfolio is well-diversified by asset type and geographic concentration, with a focus on high-quality, well-established borrowers. As of September 30, 2024, the bank’s regulatory commercial real estate concentration, including construction loans, was 385% of its total risk-based capital, well within regulatory guidelines.
Financial Performance and Ratios
For the nine months ended September 30, 2024, FVCBankcorp reported net income of $10.16 million, or $0.55 per diluted share, compared to $8.89 million, or $0.49 per diluted share, for the same period in 2023. The increase in net income was primarily driven by higher net interest income, which rose to $40.68 million from $41.74 million in the prior-year period, as the bank was able to effectively manage its funding costs in the rising interest rate environment.
FVCBankcorp’s net interest margin improved to 2.57% for the nine months ended September 30, 2024, compared to 2.53% for the same period in 2023, as the bank focused on increasing the yield on its loan portfolio while controlling the cost of deposits. The bank’s cost of deposits, including non-interest-bearing deposits, was 2.92% for the nine-month period, up from 2.38% in the prior-year period.
The bank’s asset quality metrics remain strong, with nonperforming loans totaling $3.56 million, or 0.16% of total assets, as of September 30, 2024, compared to $1.83 million, or 0.08% of total assets, as of December 31, 2023. The allowance for credit losses on loans was $19.07 million, or 1.02% of total loans, as of September 30, 2024, compared to $18.87 million, or 1.03%, as of December 31, 2023.
For the most recent fiscal year (2023), FVCBankcorp reported revenue of $42.14 million, net income of $3.82 million, operating cash flow of $16.27 million, and free cash flow of $16.06 million. In the most recent quarter (Q3 2024), the company achieved revenue of $29.23 million, net income of $4.67 million, operating cash flow of -$8.70 million, and free cash flow of -$8.64 million. Year-over-year, revenue grew by 7% and net income increased by 16%.
The increase in net income for Q3 2024 was primarily driven by an increase in net interest income of $0.88 million, or 7%, due to an increase in loan yields and higher balances. The provision for credit losses was a release of $0.20 million compared to a release of $0.73 million in Q3 2023. Noninterest income increased $0.59 million to $0.82 million, mainly due to higher income from the company’s minority membership interest in Atlantic Coast Mortgage, LLC. Noninterest expense increased $0.15 million, or 2%, to $9.20 million.
Liquidity
FVCBankcorp’s capital ratios remain well above regulatory well-capitalized thresholds, with a common equity Tier 1 capital ratio of 13.48% and a total risk-based capital ratio of 14.52% as of September 30, 2024. The bank’s tangible book value per share stood at $12.27 as of the same date, up from $11.77 as of December 31, 2023.
As of the most recent reporting period, FVCBankcorp’s debt-to-equity ratio was 0.08, indicating a conservative leverage position. The company held $10.05 million in cash and cash equivalents. FVCBankcorp has several available credit lines, including a $491 million secured line with the Federal Home Loan Bank (FHLB), a $155 million secured line with the Federal Reserve, and $185 million in unsecured federal funds purchased lines. These credit facilities provide ample liquidity to support the bank’s operations and potential growth initiatives.
The company’s current ratio stood at 1.57, while its quick ratio was 1.61, both indicating strong short-term liquidity and the ability to meet current obligations.
Risks and Challenges
Like any financial institution, FVCBankcorp faces a variety of risks, including credit risk, interest rate risk, and operational risk. The bank’s concentration in commercial real estate lending, while well-managed, exposes it to potential downturns in the local real estate market. Additionally, the bank’s reliance on net interest income makes it susceptible to changes in the interest rate environment and the ability to effectively manage its funding costs.
Pandemic-related risks, such as the potential for increased loan delinquencies and defaults, also remain a concern. However, FVCBankcorp’s disciplined underwriting practices and proactive monitoring of its loan portfolio have helped mitigate these risks thus far.
Business Segments and Product Offerings
FVCBankcorp operates primarily through its wholly-owned subsidiary, FVCbank, offering a range of traditional bank loan and deposit products and services to both commercial and retail customers. The company’s primary business segments include:
Commercial and Industrial Lending: This segment represented 16% of FVCB’s total loan portfolio as of September 30, 2024. The company provides financing to small and medium-sized businesses, commercial real estate developers and builders, government contractors, non-profit organizations, and professionals.
Commercial Construction Lending: Construction loans comprised 9% of FVCB’s total loan portfolio as of the end of the third quarter of 2024. The bank finances the development of various commercial real estate projects, including office buildings, retail centers, multi-family properties, and industrial facilities.
Consumer Real Estate Lending: Residential mortgage and home equity loans made up 18% of FVCB’s total loans as of September 30, 2024. These products cater to the company’s retail customer base.
Geographic Focus
FVCB is primarily focused on the metropolitan Washington D.C. and Baltimore markets. As a small regional bank, they do not have significant operations outside of this geographic area. This concentrated focus allows the bank to leverage its local expertise and relationships to drive growth and maintain strong asset quality.
Outlook and Conclusion
Despite the challenges facing the banking industry, FVCBankcorp has demonstrated its ability to navigate the environment and deliver consistent financial performance. The bank’s focus on relationship-driven commercial banking, coupled with its prudent risk management practices, has positioned it well for continued growth and stability.
Looking ahead, FVCBankcorp’s management team remains committed to enhancing shareholder value through organic loan and deposit growth, strategic investments, and disciplined expense management. The bank’s recent performance, strong capital position, and well-diversified loan portfolio suggest that FVCBankcorp is well-equipped to weather the current economic landscape and capitalize on future opportunities.
The company’s strategic investment in Atlantic Coast Mortgage, LLC has already shown positive results, contributing to increased noninterest income. This partnership, along with the bank’s focus on its core commercial lending segments, provides a solid foundation for future growth.
FVCBankcorp’s strong liquidity position, with multiple available credit lines and a conservative debt-to-equity ratio, provides flexibility to pursue growth opportunities and navigate potential economic headwinds. The bank’s continued focus on maintaining strong asset quality and effective cost management should help sustain profitability in the coming periods.
As FVCBankcorp continues to execute its business strategy and capitalize on its strong market position in the Washington D.C. and Baltimore metropolitan areas, it remains well-positioned to deliver value to its shareholders and maintain its status as a leading community bank in the region.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.