FVCBankcorp, Inc. (NASDAQ: FVCB) (the “Company”) today reported second quarter 2021 net income of $5.2 million, or $0.36 diluted earnings per share, compared to $2.9 million, or $0.21 diluted earnings per share, for the quarterly period ended June 30, 2020, an increase of 79%. Net revenues, which include net interest income plus noninterest income, for the three months ended June 30, 2021 were $14.9 million, an increase of $1.5 million, from $13.4 million for the year ago quarter ended June 30, 2020.

For the six months ended June 30, 2021, the Company reported net income of $10.7 million, or $0.74 diluted earnings per share, compared to $6.6 million or $0.46 diluted earnings per share, for the same period of 2020, a year-over-year increase of $4.1 million, or 62%. Net income for the six months ended June 30, 2020 included elevated loan loss provisioning of $2.8 million and $676 thousand in one-time branch closure costs. Net revenues for the six months ended June 30, 2021 were $29.7 million, an increase of $3.4 million, from $26.3 million for the six months ended June 30, 2020.

For the three months ended June 30, 2021 and 2020, pre-tax pre-provision income (which excludes branch closure costs recorded during 2020) was $6.6 million and $6.1 million, respectively, an increase of $583 thousand or 10%. On a linked quarter basis, pre-tax pre-provision income was $7.0 million for the three months ended March 31, 2021. The decrease on a linked quarter basis was a result of an increase in noninterest expense during the second quarter of 2021, which is more fully discussed below. Pre-tax pre-provision annualized return on average assets for the three months ended June 30, 2021 and 2020 was 1.36% and 1.41%, respectively. For the six months ended June 30, 2021 and 2020, pre-tax pre-provision income (which excludes branch closure costs recorded during 2020) was $13.6 million and $11.8 million, respectively, an increase of $1.8 million, or 16%. Pre-tax pre-provision annualized return on average assets for the six months ended June 30, 2021 and 2020 was 1.43% and 1.44%, respectively. The Company believes the reporting of non-generally accepted accounting principles (“non-GAAP”) pre-tax pre-provision earnings to exclude branch closing impairment charges taken during 2020 are more reflective of the Company’s operating performance. A reconciliation of pre-tax pre-provision income can be found in the tables below.

Annualized return on average assets was 1.06% and annualized return on average equity was 10.41% for the second quarter of 2021. For the comparable quarterly June 30, 2020 period, annualized return on average assets was 0.67% and annualized return on average equity was 6.41%. For the year-to-date June 30, 2021 period, annualized return on average assets was 1.13% and annualized return on average equity was 10.96% compared to annualized return on average assets of 0.81% and annualized return on average equity of 7.35% for the six months ended June 30, 2020.

On July 14, 2021, the Company announced the signing of a definitive merger agreement with Blue Ridge Bankshares, Inc. (“Blue Ridge” NYSE: BRBS) (the “Merger”), pursuant to which the companies will combine in an all-stock merger of equals, subject to customary closing conditions including shareholder and regulatory approvals. In connection with the Merger, FVCbank, the Company’s wholly-owned commercial banking subsidiary, will be merged with and into Blue Ridge Bank, National Association (“Blue Ridge Bank”), the wholly-owned commercial banking subsidiary of Blue Ridge, with Blue Ridge Bank as the surviving bank.

Second Quarter Selected Highlights

• Record Quarterly 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 $1.37 billion at June 30, 2021, compared to $1.28 billion at March 31, 2021, an increase of $91.4 million, or 28% annualized. During the second quarter of 2021, the Company began originating loans under a warehouse lending facility, which contributed $58.0 million to quarterly loan growth.
• Improved on Credit Quality Metrics. During the second quarter of 2021, past due loans 30 days or more decreased to $2.2 million from $5.5 million at March 31, 2021. Nonperforming loans and loans past due 90 days or more and still accruing were 0.21% of total assets at June 30, 2021, compared to 0.31% at December 31, 2020, and decreasing $954 thousand from March 31, 2021.
• Strong Core Deposit Growth. Core deposits, which exclude wholesale deposits, increased $85.6 million, to $1.65 billion at June 30, 2021, or 22% annualized, from March 31, 2021. Noninterest-bearing deposits were $500.7 million at June 30, 2021, representing 30% of total deposits at June 30, 2021.
• Increased Net Interest Income. Net interest income increased $1.5 million to $14.2 million for the second quarter of 2021, compared to $12.7 million for the same 2020 period. Net interest margin was 3.07% for the quarter ended June 30, 2021, compared to 3.16% for the year ago quarter of 2020 and 3.22% for the first quarter of 2021, as increased excess liquidity continues to impact net interest margin for the second quarter of 2021.

“Record loan growth during the second quarter is not only attributable to the improvement in our local economy, but also a result of the efforts of our experienced business development team. While a portion of this loan growth was a result of our new warehouse lending facility, we also approved loan originations of close to $100 million this quarter, of which, $75 million funded. Our commitment to the markets we serve continues to drive over 10% deposit growth during 2021. With our robust pipeline of loan originations, we anticipate sustained double-digit loan growth for the remainder of 2021. We are also excited about our planned transformational merger with Blue Ridge Bankshares and look forward to realizing the promise of creating the fourth largest Virginia-based community bank,” stated David W. Pijor, Chairman and CEO.

Balance Sheet

Total assets increased to $1.98 billion at June 30, 2021 compared to $1.82 billion at December 31, 2020, an increase of $153.8 million, or 8%. Loans receivable, net of deferred fees and excluding PPP loans, totaled $1.37 billion at June 30, 2021 and $1.31 billion at December 31, 2020, an increase of $61.7 million, or 5%. Loans receivable, net of deferred fees, and excluding PPP loans, increased $91.4 million during the three months ended June 30, 2021. During the second quarter of 2021, the Company began originating loans under a warehouse lending facility, which contributed $58.0 million to quarterly loan growth. During the second quarter of 2021, loan originations, excluding PPP loans and warehouse lending originations, totaled approximately $95.3 million, of which $74.9 million funded during the quarter.

PPP loans, net of fees, totaled $99.5 million at June 30, 2021, a decrease from $163.5 million at March 31, 2021 and $153.0 million at December 31, 2020. Loans forgiven during the second quarter of 2021 totaled $70.9 million, and totaled $120.1 million year-to-date 2021. Remaining PPP loans originated during 2020 totaled $37.2 million at June 30, 2021. Net deferred fees associated with PPP loans totaled $2.4 million at June 30, 2021.

Investment securities increased $74.3 million to $200.7 million at June 30, 2021, compared to $126.4 million at December 31, 2020. During the three months ended June 30, 2021, the Company purchased $75.7 million in mortgage-backed securities to invest excess liquidity and improve net interest margin.

Total deposits increased to $1.68 billion at June 30, 2021 compared to $1.53 billion at December 31, 2020, an increase of $147.7 million, or 10%. Core deposits, which represent total deposits less wholesale deposits, increased $162.7 million, or 11%, to $1.65 billion at June 30, 2021 compared to $1.48 billion at December 31, 2020. Wholesale deposits totaled $35.0 million, or 2% of total deposits at June 30, 2021, a decrease of $15.0 million from December 31, 2020. Noninterest-bearing deposits increased $101.6 million to $500.7 million at June 30, 2021 from $399.1 million at December 31, 2020, and represented 30% of total deposits at June 30, 2021.

The Company’s bank subsidiary, FVCbank, remains well-capitalized at June 30, 2021 with a community bank leverage ratio of 11.48%.

Income Statement

Net income for the three months ended June 30, 2021 was $5.2 million, an increase of $2.3 million, or 79%, compared to $2.9 million for the same period of 2020. For the six months ended June 30, 2021, net income was $10.7 million, compared to $6.6 million for the same period of 2020. Both the three and six months’ periods of 2020 were impacted by increased provision for loan losses and impairment on branch closures totaling $676 thousand.

Net interest income totaled $14.2 million, an increase of $1.5 million, for the quarter ended June 30, 2021, compared to the year ago quarter, and increased by $143 thousand, compared to the first quarter of 2021. Interest expense on deposits decreased $1.3 million for the three months ended June 30, 2021 compared to the same period of 2020, and decreased $147 thousand compared to the three months ended March 31, 2021. All decreases 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 $146 thousand, $132 thousand, and $126 thousand for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively. Lastly, net interest income for the three months ended June 30, 2021 benefited from PPP loan income, which contributed $1.5 million to interest income, of which $811 thousand was related to recognition of net deferred fees on forgiven loans. This compares to interest income from PPP loans of $1.8 million for the first quarter of 2021, which included recognition of net deferred fees of $927 thousand on forgiven loans. Remaining net deferred fees related to PPP loan originations totaled $2.4 million at June 30, 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 six months ended June 30, 2021 and 2020, net interest income was $28.2 million and $24.9 million, respectively, an increase of $3.3 million, year-over-year.

The Company’s net interest margin decreased 9 basis points to 3.07% for the quarter ended June 30, 2021 compared to 3.16% for the quarter ended June 30, 2020. On a linked quarter basis, net interest margin decreased 15 basis points from 3.22% for the three months ended March 31, 2021. Excess liquidity continues to compress net interest margin, decreasing margin by 27 basis points during the second quarter of 2021. Despite the growth in both the Company’s loan and investment securities portfolios to deploy excess liquidity, the Company’s continued strong deposit growth offset this asset growth during the second quarter of 2021. The average yield on total loans for the second quarter of 2021 was 4.36%, compared to 4.38% for the linked quarter ended March 31, 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 4.26% for the second quarter of 2021, compared to 2.63% for the year ago quarter ended June 30, 2020.

Cost of interest-bearing deposits for the second quarter of 2021 was 0.66%, compared to 1.20% for the second quarter of 2020, a decrease of 54 basis points, or 45%, primarily as a result of the Company having aggressively decreased its deposit rates during 2020 to offset the repricing of its variable rate loan portfolio. The cost of deposits, which includes noninterest-bearing deposits, decreased 6 basis points to 0.45% for the second quarter of 2021 as compared to 0.51% for the first quarter of 2021, and decreased 41 basis points from 0.86% for the year ago quarter of 2020.

Noninterest income totaled $685 thousand and $687 thousand for the quarters ended June 30, 2021 and 2020, respectively. Fee income from loans was $27 thousand, a decrease of $19 thousand, for the quarter ended June 30, 2021 compared to the second quarter of 2020. Service charges on deposit accounts and other fee income totaled $408 thousand for the second quarter of 2021, an increase of 14%, or $49 thousand, from the year ago quarter, primarily resulting from an increase in analysis fees. Income from bank-owned life insurance decreased $32 thousand to $250 thousand for the three months ended June 30, 2021 compared to $282 thousand for the same period of 2020. Noninterest income for the year-to-date period ended June 30, 2021 was $1.5 million, compared to $1.4 million for the 2020 year-to-date period, an increase of $95 thousand, or 7%, which was primarily driven by an increase in service charges on deposit accounts and other fee income, and offset by fair value losses on loans held for sale of $451 thousand recorded during the first quarter of 2020.

Noninterest expense totaled $8.2 million for the quarter ended June 30, 2021, compared to $8.0 million for the same three-month period of 2020, an increase of $230 thousand, or 3%. On a linked quarter basis, noninterest expense was $7.9 million for the quarter ended March 31, 2021, an increase of $346 thousand, or 4%. The increase in noninterest expense compared to the year ago quarter was primarily related to an increase in salaries and benefits expense of $476 thousand, which is primarily related to additions to business development staff and associated accruals for incentive compensation during the second quarter of 2021. In addition, professional fees increased $296 thousand to $503 thousand for the three months ended June 30, 2021 compared to $207 thousand for the year ago quarter as the Company recognized expenses related to its announced merger with Blue Ridge. These increases in noninterest expense during the quarter ended June 30, 2021 as compared to the same period of 2020 were partially offset by the branch impairment charges totaling $676 thousand that were recorded during the second quarter of 2020. Loan legal expenses of $193 thousand were recognized during the second quarter of 2021, which contributed to the increase in noninterest expense on a linked quarter basis. For the six months ended June 30, 2021 and 2020, noninterest expense, was $16.1 million and $15.2 million, respectively, an increase of $903 thousand, or 6%, primarily as a result of the aforementioned additions to business development staffing and associated increases in incentive accruals and the increase in professional fees associated with merger and acquisition costs.

The efficiency ratio for the quarter ended June 30, 2021 was 55.3%, an increase from 54.7% for the quarter ended June 30, 2020 (excluding branch closure costs), primarily as a result of increased professional fees recorded for the proposed merger with Blue Ridge. The efficiency ratios for the six months ended June 30, 2021 and 2020, excluding branch closure costs recorded during 2020 were 54.2% and 55.3%, respectively.

The Company recorded a provision for income taxes of $1.5 million for the three months ended June 30, 2021, compared to $754 thousand for the same period of 2020. The effective tax rates for the three months ended June 30, 2021 and 2020 were 22.2% and 20.7%, respectively. The effective tax rates for each of the three months ended June 30, 2021 and 2020 are less than the Company’s combined federal and state statutory rate of 22.5% primarily because of discrete tax benefits recorded as a result of exercises of nonqualified stock options during 2021 and 2020. For the six months ended June 30, 2021 and 2020, provision for income taxes was $2.9 million and $1.7 million, respectively.

Asset Quality

The Company recorded no provision for loan losses for the three months ended June 30, 2021, compared to $1.8 million for the year ago quarter. 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 June 30, 2021 is primarily related to the improvement in certain credit quality metrics during the second quarter of 2021, specifically, a reduction in the Company’s past due loans and specific reserves for certain watchlist loans which saw improvements in credit quality during the quarter. No provision for loan losses was recorded for the six months ended June 30, 2021 compared to $2.8 million for the six months ended June 30, 2020.

The allowance for loan losses to total loans, excluding PPP loans, was 1.04% at June 30, 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 1.22% at June 30, 2021 compared to 1.27% at December 31, 2020. Net charge-offs of $62 thousand recorded during the second quarter of 2021 were related to purchased unsecured consumer loans.

Nonperforming loans and loans 90 days or more past due at June 30, 2021 totaled $4.1 million, or 0.21% 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 $1.1 million, representing the expected losses associated with those loans. The Company has one troubled debt restructuring at June 30, 2021 totaling $95 thousand which is a consumer residential loan. Nonperforming assets (including other real estate owned) to total assets was 0.40% at June 30, 2021 compared to 0.52% for December 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 $1.98 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 ability to close the Merger on the expected terms and schedule; difficulties, delays and unforeseen costs in completing the Merger and in integrating the company’s and Blue Ridge’s businesses; the ability to realize cost savings and other benefits of the Merger; business disruption during the pendency of or following the Merger, 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.