FVCBankcorp, Inc. (NASDAQ: FVCB) (the “Company”) today reported record net income of $6.5 million, or $0.44 diluted earnings per share, for the fourth quarter of 2021 compared to $5.0 million, or $0.36 diluted earnings per share, for the quarterly period ended December 31, 2020, an increase of 30%. For the year ended December 31, 2021, the Company reported record net income of $21.9 million, or $1.50 diluted earnings per share, compared to $15.5 million, or $1.10 diluted earnings per share, for the same period of 2020, an increase of $6.4 million, or 41%. Net income for the three and twelve months ended December 31, 2021 includes the impact of merger-related expenses of $338 thousand and $1.4 million, respectively, which are associated with the Company’s previously announced proposed merger (the “Merger”) with Blue Ridge Bankshares, Inc. (NYSEAM:BRBS) (“Blue Ridge”) mutually terminated by the Company and Blue Ridge on January 20, 2022.

Annualized return on average assets was 1.27% and annualized return on average equity was 12.55% for the fourth quarter of 2021. For the comparable quarterly December 31, 2020 period, annualized return on average assets was 1.11% and annualized return on average equity was 10.68%. For the year ended December 31, 2021, return on average assets was 1.11% and return on average equity was 10.92% compared to return on average assets of 0.91% and return on average equity of 8.48% for the year ended December 31, 2020.

Operating earnings, which exclude merger-related expenses, net of tax, for the three months ended December 31, 2021 and 2020 were $6.8 million and $5.0 million, respectively, an increase of $1.8 million, or 35%. Diluted earnings per share excluding merger-related expenses, net of tax, for the three months ended December 31, 2021 and 2020 were $0.46 and $0.36, respectively. On a linked quarter basis, operating earnings increased $930 thousand, or 16%, for the three months ended December 31, 2021 as compared to the operating earnings for the three months ended September 30, 2021. Operating earnings return on average assets for the three months ended December 31, 2021 and 2020 was 1.32% and 1.11%, respectively. Operating earnings return on average equity for the three months ended December 31, 2021 and 2020 was 13.06% and 10.68%, respectively. The Company believes that operating earnings is a financial measure that is more reflective of the Company’s operating performance than net income. Operating earnings is 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.

For the years ended December 31, 2021 and 2020, operating earnings (which excludes merger-related expenses and accelerated debt issuance costs during 2021, and branch closure costs recorded during 2020) was $23.3 million and $15.9 million, respectively, an increase of $7.4 million, or 47%. Diluted earnings per share on an operating earnings basis for the years ended December 31, 2021 and 2020 were $1.60 and $1.13, respectively. Operating earnings return on average assets for the years ended December 31, 2021 and 2020 was 1.18% and 0.93%, respectively. Operating earnings return on average equity for the years ended December 31, 2021 and 2020 was 11.62% and 8.71%, respectively.

Selected Highlights for Fourth Quarter and Year End 2021

• Strong Loan Growth. Loans receivable, net of deferred fees and excluding loans made under the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”), totaled $1.48 billion at December 31, 2021, compared to $1.31 billion at December 31, 2020, an increase of $162.6 million, or 12%. During the fourth quarter of 2021, when excluding PPP loans, loans receivable, net of deferred fees, increased $64.9 million, or 18% annualized.
• Strong Credit Quality Metrics. During the fourth quarter of 2021, past due loans 30 days or more decreased to $301 thousand from $652 thousand at September 30, 2021, a decrease of $351 thousand, or 54%. No commercial loans were past due at December 31, 2021. Nonperforming assets decreased to 0.16% of total assets or $3.5 million at December 31, 2021, compared to 0.52% or $9.5 million at December 31, 2020, and decreased $4.0 million, or 53%, from September 30, 2021. The Company sold its other real estate owned property totaling $3.9 million during the fourth quarter of 2021 and recorded a gain on the sale totaling $236 thousand.
• Strong Core Deposit Growth. Deposits increased 23% year over year, of which noninterest-bearing deposits increased 46%. During the quarter ended December 31, 2021, noninterest-bearing deposits increased $32.6 million, or 24% annualized, to $581.3 million, representing 31% of total deposits at December 31, 2021.
• Increased Net Interest Income. Net interest income increased $1.1 million to $15.2 million for the fourth quarter of 2021, compared to $14.1 million for the same 2020 period. Net interest margin was 3.13% for the quarter ended December 31, 2021, compared to 3.28% for the year ago quarter of 2020 and 2.97% for the third quarter of 2021.
• Increased Noninterest Income. Noninterest income increased 49% to $1.8 million for the quarter ended December 31, 2021, compared to $740 thousand for the year ago quarter ended December 31, 2020, and compared to $1.1 million for the linked quarter ended September 30, 2021. The increase in noninterest income is primarily related to the Company’s minority interest in Atlantic Coast Mortgage, LLC (“ACM”), which contributed $1.1 million to noninterest income for the fourth quarter of 2021 and $1.5 million for the year ended December 31, 2021.
• Improved Efficiency Ratio. The efficiency ratio, excluding merger-related expenses, for the three months ended December 31, 2021 was 51.4%, an improvement from 53.1% for the year ago quarter ended December 31, 2020. For the year ended December 31, 2021, the Company’s efficiency ratio, excluding merger-related expenses and accelerated debt issuance costs improved to 52.8% from 54.3% for the year ended December 31, 2020 (which excludes branch impairment costs recorded during 2020). A reconciliation of non-GAAP financial measures to their most comparable financial measure in accordance with GAAP can be found in the tables below.

“Our reported record earnings, double-digit loan and deposit growth, and solid credit metrics for 2021 drives strong momentum into 2022. Our team is poised to continue our growth trajectory and we are excited to execute on opportunities we see in 2022 and beyond,” stated David W. Pijor, Chairman and CEO.

On January 20, 2022, the Company announced the mutual agreement with Blue Ridge to terminate their merger agreement, previously announced on July 14, 2021. The termination was approved by both companies’ boards of directors after careful consideration of the proposed transaction, the progress made towards completing the merger, and the companies’ ability to fully realize the benefits they expected to achieve through the merger. The parties have agreed that each company will bear its own costs and expenses in connection with the terminated transaction, and that neither party will pay any termination fee as a result of the mutual decision to terminate the merger agreement.

Balance Sheet

Total assets were $2.20 billion at December 31, 2021, an increase of $381.4 million, or 21%, compared to $1.82 billion at December 31, 2020. During the quarter ended December 31, 2021, total assets increased $205.0 million, or 10%.

Loans receivable, net of deferred fees were $1.50 billion at December 31, 2021 compared to $1.47 billion at December 31, 2020. Excluding PPP loans, loans receivable, net of deferred fees totaled $1.48 billion at December 31, 2021, an increase of $162.6 million, or 12%, compared to $1.31 billion at December 31, 2020. For the quarter, loans receivable, net of deferred fees and excluding PPP loans increased $64.9 million, or 18% annualized. During the second quarter of 2021, the Company began originating loans under a warehouse lending facility to ACM, which contributed $30.2 million to fourth quarter 2021 loan growth, and totaled $72.0 million at December 31, 2021. During the fourth quarter of 2021, loans receivable, net of fees and excluding PPP loans and the warehouse lending facility, increased $34.7 million, or 10% annualized. Loans originated during the fourth quarter of 2021 totaled $134.9 million, of which $97.0 million were funded.

PPP loans, net of fees, totaled $28.1 million at December 31, 2021, a decrease from $58.2 million at September 30, 2021, and a decrease from $153.0 million at December 31, 2020. Loans forgiven during the fourth quarter of 2021 totaled $30.1 million, and totaled $124.8 million for the year ended December 31, 2021. Net deferred fees associated with PPP loans totaled $568 thousand at December 31, 2021.

Investment securities were $358.0 million at December 31, 2021, an increase of $231.6 million compared to $126.4 million at December 31, 2020. Investment securities increased $87.8 million during the three months ended December 31, 2021. The Company has been investing in fixed income securities funded through its increase in deposits and PPP forgiveness to deploy excess liquidity to optimize net interest margin.

Total deposits were $1.88 billion at December 31, 2021, an increase of $351.3 million, or 23%, from $1.53 billion at December 31, 2020. For the quarter, total deposits increased $174.3 million, or 41% annualized. Noninterest-bearing deposits were $581.3 million at December 31, 2021, an increase of $32.6 million, or 24% annualized, for the quarter ended December 31, 2021, and increased $182.2 million, or 46%, for the year ended December 31, 2021. A portion of the Company’s demand and interest checking deposit growth during the fourth quarter of 2021 was related to short-term deposits, which are expected to be withdrawn during the first quarter of 2022. Wholesale deposits continue to be at historic lows totaling $35.0 million, or 2% of total deposits, at December 31, 2021, a decrease of $15.0 million from December 31, 2020.

The Company’s bank subsidiary, FVCbank, remains well-capitalized at December 31, 2021 with a tier 1 leverage ratio of 10.53%.

Income Statement

Net income for the three months ended December 31, 2021 was $6.5 million, an increase of $1.5 million, or 30%, compared to $5.0 million for the same period of 2020. Operating income, a non-GAAP measure that excludes merger-related expenses of $262 thousand, net of tax, for the three months ended December 31, 2021 was $6.8 million, an increase of $1.8 million, or 35%, when compared to the same period of 2020. A reconciliation of GAAP to non-GAAP financial measures can be found in the tables below. For the year ended December 31, 2021, net income was $21.9 million, an increase of $6.4 million, or 41%, compared to $15.5 million for the same period of 2020. Operating income, a non-GAAP measure that excludes merger-related expenses and accelerated debt issuance costs totaling $1.4 million, net of tax, for the year ended December 31, 2021 was $23.3 million, an increase of $7.4 million, or 47%, when compared to the same period of 2020, which excludes branch impairment losses of $535 thousand, net of tax.

Net interest income totaled $15.2 million, an increase of $1.1 million, or 8%, for the quarter ended December 31, 2021, compared to the year ago quarter, and increased by $759 thousand, or 5%, compared to the third quarter of 2021. Interest expense on deposits decreased $409 thousand for the three months ended December 31, 2021 compared to the same period of 2020. The decrease in deposit costs were a result of continued targeted rate reductions and the repricing of the Company’s time deposits to lower interest rates upon renewal. Interest income includes loan mark accretion on acquired loans totaling $114 thousand, $62 thousand, and $335 thousand for the three months ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

Net interest income for the three months ended December 31, 2021 benefited from PPP loan income, which contributed $899 thousand to interest income, of which $517 thousand was related to recognition of net deferred fees on forgiven loans, compared to $1.2 million for the fourth quarter of 2020. This also compares to interest income from PPP loans of $1.2 million for the third quarter of 2021, which included recognition of net deferred fees of $712 thousand on forgiven loans. Remaining net deferred fees related to PPP loan originations totaled $568 thousand at December 31, 2021 and are being recognized in interest income over the remaining lives of the PPP loans, or sooner upon PPP loan forgiveness or repayment.

For the years ended December 31, 2021 and 2020, net interest income was $58.0 million and $52.6 million, respectively, an increase of $5.3 million, or 10%, year-over-year. Net interest income was impacted by accelerated debt issuance costs of $380 thousand for the year ended December 31, 2021, a result of the September 2021 redemption of the Company’s subordinated debt issued in 2016. Interest expense on deposits decreased $4.7 million for the year ended December 31, 2021 compared to the same period of 2020. Interest income includes loan mark accretion on acquired loans totaling $455 thousand and $1.1 million for the years ended December 31, 2021 and December 31, 2020, respectively. PPP loan income contributed $5.4 million to interest income, of which $3.0 million was related to recognition of net deferred fees on forgiven loans for the year ended December 31, 2021. This compares to interest income from PPP loans of $3.0 million for the year ended December 31, 2020.

The Company’s net interest margin decreased 15 basis points to 3.13% for the quarter ended December 31, 2021, compared to 3.28% for the quarter ended December 31, 2020. On a linked quarter basis, net interest margin increased 16 basis points from 2.97% for the three months ended September 30, 2021. The accelerated debt issuance costs recorded during the third quarter of 2021 decreased net interest margin by 8 basis points. PPP forgiveness and strong deposit growth have impacted net interest margin. The Company continues to deploy excess liquidity through growth in both the Company’s loan and investment securities portfolios.

The average yield on total loans for the fourth quarter of 2021 was 4.33%, compared to 4.42% for the linked quarter ended September 30, 2021, and 4.36% for the year ago quarter. Net deferred fees recognized from PPP loan forgiveness has contributed to the average yield of the loan portfolio, as the yield on PPP loans increased to 8.23% for the fourth quarter of 2021, compared to 2.95% for the year ago quarter ended December 31, 2020, and 6.08% for the linked quarter ended September 30, 2021.

Cost of interest-bearing deposits for the fourth quarter of 2021 was 0.63%, compared to 0.84% for the fourth quarter of 2020, a decrease of 21 basis points, or 25%, primarily as a result of the Company having aggressively decreased its deposit rates to offset the repricing of its variable rate loan portfolio. The cost of deposits, which includes noninterest-bearing deposits, decreased 17 basis points to 0.43% for the fourth quarter of 2021 as compared to 0.60% for the fourth quarter of 2020, and increased 1 basis point from 0.42% for the linked third quarter of 2021.

Net interest margin for the year ended December 31, 2021 was 3.09%, a decrease of 19 basis points from the year ended December 31, 2020. The average yield on total loans for the year ended December 31, 2021 was 4.37%, compared to 4.46% a year ago. Cost of interest-bearing deposits for the year ended December 31, 2021 was 0.66%, a decrease of 52 basis points from 1.18% for the year ended December 31, 2020. The cost of deposits, which includes noninterest-bearing deposits, decreased 41 basis points, or 48%, to 0.45% for the year ended December 31, 2021 compared to 0.86% for the year ended December 31, 2020.

Noninterest income totaled $1.8 million and $740 thousand for the quarters ended December 31, 2021 and 2020, respectively. The increase in noninterest income is primarily attributable to the Company’s income associated with its investment in ACM, recording $1.1 million during the fourth quarter of 2021. Fee income from loans was $36 thousand for the quarter ended December 31, 2021, compared $34 thousand for the fourth quarter of 2020. Service charges on deposit accounts and other fee income totaled $382 thousand for the fourth quarter of 2021, a decrease of $60 thousand, from the year ago quarter. Income from bank-owned life insurance decreased $16 thousand to $248 thousand for the three months ended December 31, 2021 compared to $264 thousand for the same period of 2020. Noninterest income for the year-to-date period ended December 31, 2021 was $4.3 million, compared to $2.9 million for the 2020 year-to-date period, an increase of $1.4 million, or 49%, which was primarily driven by the aforementioned income associated with the Company’s membership interest in ACM.

Noninterest expense totaled $9.0 million for the quarter ended December 31, 2021, compared to $7.9 million for the same three-month period of 2020, an increase of $1.1 million, or 14%. On a linked quarter basis, noninterest expense was $9.4 million for the quarter ended September 30, 2021, a decrease of $422 thousand, or 4%. The third and fourth quarters of 2021 include merger-related expenses of $1.1 million and $338 thousand, respectively. Salaries and benefits expense increased $796 thousand and $540 thousand compared to the year ago and linked quarters, respectively, which are primarily related to additions to business development staff earlier in the year and associated accruals for incentive compensation during the fourth quarter of 2021. Legal expenses related to loan workouts (which is included in other operating expense on the income statement) increased $50 thousand during the fourth quarter of 2021 when compared to the year ago quarter. The Company recorded a gain on the sale of its other real estate owned during the fourth quarter of 2021 totaling $236 thousand, which is recorded in noninterest expense.

For the years ended December 31, 2021 and 2020, noninterest expense was $34.5 million and $30.8 million, respectively, an increase of $3.7 million, or 12%, primarily as a result of the aforementioned merger-related expenses and additions to business development staffing and associated increases in incentive accruals. Excluding these merger-related expenses, noninterest expense was $33.1 million for the year ended December 31, 2021, an increase of $2.9 million, or 10%, compared to $30.2 million (excluding branch closure impairment charges) for the year ended December 31, 2020.

The efficiency ratio, excluding merger-related expenses, for the quarter ended December 31, 2021 was 51.4%, a decrease from 53.1% for the quarter ended December 31, 2020 and a decrease from 52.3% for the linked quarter ended September 30, 2021. The efficiency ratios for the years ended December 31, 2021 and 2020, excluding merger-related costs and accelerated subordinated debt issuance costs recorded during 2021, and branch closure costs recorded during 2020, were 52.8% and 54.3%, respectively. A reconciliation of GAAP to non-GAAP financial measures can be found in the tables below.

The Company recorded a provision for income taxes of $2.0 million for the three months ended December 31, 2021, compared to $1.5 million for the same period of 2020. The effective tax rates for the three months ended December 31, 2021 and 2020 were 23.3% and 22.6%, respectively. The effective tax rate for the fourth quarter of 2021 is greater than the Company’s combined federal and state statutory rate of 22.5% primarily because of nondeductible merger-related expenses recognized during the quarter. For the years ended December 31, 2021 and 2020, provision for income taxes was $6.3 million and $4.2 million, respectively.

Asset Quality

The Company released $500 thousand in reserves for its allowance of loan losses for the three months and year ended December 31, 2021, compared to recording no provision for loan losses for the year ago quarter and $5.0 million for the year ended December 31, 2020. 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 decrease in the provision for loan losses for the three months ended December 31, 2021 is primarily related to the improvement in certain credit quality metrics during the fourth quarter of 2021; specifically, a reduction in the Company’s past due loans and specific reserves for certain watchlist loans which improved in credit quality during the quarter. In addition, the Company completed reviews of its COVID-impacted portfolio segments and reduced certain qualitative factors as a result of the improved performance of these portfolio segments.

The allowance for loan losses to total loans, excluding PPP loans, was 0.94% at December 31, 2021, compared to 1.14% at December 31, 2020. 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 0.99% at December 31, 2021 compared to 1.27% at December 31, 2020.

Nonperforming loans and loans 90 days or more past due at December 31, 2021 totaled $3.5 million, or 0.16% of total assets. This compares to $5.6 million in nonperforming loans and loans 90 days or more past due at December 31, 2020, or 0.31% of total assets. All of the Company’s nonperforming loans are secured and have specific reserves totaling $186 thousand, representing the expected losses associated with those loans. The Company has one troubled debt restructuring at December 31, 2021 totaling $92 thousand, which is a consumer residential loan. During the fourth quarter of 2021, the Company sold its other real estate owned property, recording a gain on the sale of $236 thousand.

About FVCBankcorp, Inc.

FVCBankcorp, Inc. is the holding company for FVCbank, a wholly-owned subsidiary that commenced operations in November 2007. FVCbank is a $2.20 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, deposit attrition, operating costs, customer losses and other disruptions as a result of the termination of the merger agreement with Blue Ridge; the outcome of any legal proceedings that may be instituted against the Company related to the termination of the merger agreement; reputational risk and potential adverse reactions the Company’s customers, suppliers, employees or other business partners, including those resulting from the termination of the merger agreement; general competitive, economic, political and market conditions; the impact of the COVID-19 pandemic and associated efforts to limit the spread of the virus; and the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 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.