FVCBankcorp, Inc.
Annual Report 2015

Plain-text annual report

Connecting business and the community 2015 Annual Report 1 Annual Report 2015Building relationships that build our community FVCBankcorp, Inc. and Subsidiary Consolidated Financial Report Fairfax, Virginia | December 31, 2015 MARCH 10, 2016 Dear Shareholder: I am delighted to update you on your Bank’s financial performance during 2015. We recently reported consolidated earnings of $5.4 million for 2015, or $0.80 diluted earnings per share, an increase of $1.3 million, or 31.1% compared with 2014 net income of $4.1 million, or $0.63 diluted earnings per share. 2015 was a milestone year for FVCbank as our team achieved record loan growth and earnings in one of the most vibrant markets in the country. We continue to win relationships and embrace our commitment to provide the best quality and service to our customers. The record earnings for the year reflect our executed business plan to improve operating efficiency as we increase our earning assets and grow into our infrastructure. In October, we formed FVCBankcorp, Inc. (the Company), now the holding company of FVCbank. As a result, you were asked to exchange your FVCbank stock for shares of FVCBankcorp, Inc. The Company remains “well-capitalized” under the new Basel III guidelines adopted in 2015. The holding company was formed to allow for flexibility in raising capital in the future to optimize shareholder value. Total assets increased to $736.8 million compared with $604.8 million as of December 31, 2015 and 2014, respectively, an increase of 21.8%. Loans receivable totaled $623.6 million as of December 31, 2015, compared with $509.9 million as of December 31, 2014, an increase of $113.6 million, or 22.3%. During the fourth quarter of 2015, loans increased $61.2 million, representing annualized growth in excess of 40%. Total deposits increased $122.4 million, or 24.3% to $626.6 million as of December 31, 2015, compared with $504.2 million as of December 31, 2014. Non-interest bearing deposits comprise 20.6% of total deposits and increased $24.0 million, or 22.8% for the year. Wholesale deposits totaling $55.4 million, or 8.8% of total deposits, increased $11.0 million, while customer deposits increased $111.4 million for the 2015 year. We continue to leverage our suite of cash management products and high-touch service to new and existing customers as part of our relationship banking strategy. Net interest income totaled $22.9 million, an increase of $3.7 million, or 19.3% for the year ended December 31, 2015, compared with the prior year. The Company’s net interest margin was 3.69% and 3.63% for the years ended December 31, 2015, and 2014, respectively. The improved net interest margin primarily results from growth in loans receivable year over year. Non-interest income declined to $1.1 million from $1.2 million for the years ended December 31, 2015, and 2014, respectively, due to the gain on the sale of an SBA loan totaling $196 thousand recognized in the 2014 fourth quarter. Management has implemented new initiatives to enhance non-interest income, while maintaining our commitment to be a low fee bank for our customers. We continue to attract high-performing experienced individuals as we grow prudently and soundly. Non-interest expenses increased $1.4 million, or 10.4% for the 2015 year. Salary and compensation related expenses increased $977 thousand, or 12.5%, while other operating expenses increased $408 thousand, or 7.4%, for the same period. The efficiency ratio improved to 61.5%, compared with 65.2%, for the years ended December 31, 2015, and 2014, respectively, reflecting the Company’s early investment in technology and experienced bankers. Asset quality remains strong. We reported non-performing assets and loans ninety days or more past due of $2.6 million, or 0.35% of total assets, compared with $1.6 million, or 0.26%, as of December 31, 2015, and 2014, respectively. Management continues its conservative credit culture through proactive monitoring and early identification of potential problem loans. We plan to open a new branch location in Loudoun County in the first half of this year and look for other opportunities to expand our footprint throughout the Washington D.C. Metropolitan area. We are excited about 2016 as we start the year with momentum, and we are well positioned to consider opportunities in our market area to further enhance shareholder value. We continue to be rewarded by our shareholders who have selected us as their banker. We are committed to providing personalized customer service to each one of you. We welcome the opportunity to win your trust and your business. Best Regards. David W. Pijor Chairman, President and Chief Executive Officer David W. Pijor Chairman L. Burwell Gunn Vice Chairman DIRECTORS Scott Laughlin Sidney G. Simmonds Tom L. Patterson Daniel M. Testa Devin Satz Philip “Trey” R. Wills III Lawrence W. Schwartz EXECUTIVE OFFICERS David W. Pijor Chairman, President & Chief Executive Officer Patricia A. Ferrick Executive Vice President & Chief Financial Officer B. Todd Dempsey Executive Vice President & Chief Operating Officer Jack Novak Executive Vice President & Chief Marketing Officer Bill Byers Executive Vice President & Chief Lending Officer Michael G. Nassy Executive Vice President & Chief Credit Officer REGIONAL LENDING OFFICERS Alissa Curry Briggs Senior Vice President Regional Lending Executive Michelle L. Buckles Senior Vice President Compliance James D. Holter Senior Vice President Information Technology Terry R. Frey Senior Vice President Loan Administration Christopher O. Turley Senior Vice President Regional Lending Executive Joshua F. Steele Senior Vice President Lending Brian R. Tower Senior Vice President Lending Huong K. Van Senior Vice President Lending Steffany R. Watson Senior Vice President Cash Management James C. Elliot Senior Vice President Regional Lending Executive Lance D. Nobles Senior Vice President Regional Lending Executive OFFICERS Alberta A. Gibson Senior Vice President Director of Human Resources Michael Y. Huang Senior Vice President Finance Jacqueline S. Marbell-Edson Senior Vice President Loan Administration Farideh Mullafiroze Senior Vice President Business Development Todd E. Lattimer Senior Vice President Lending LOAN AND DEPOSIT GROWTH INCREASING PROFITABILITY SELECTED FINANCIAL DATA For the year ended December 31 (unaudited) (dollars in thousands, except per share data) Selected Balances Total assets Total deposits Total loans Other borrowings Allowance for loan losses Total shareholders’ equity Summary Results of Operations Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest income Noninterest expense Income before taxes Income tax expense (benefit) Net income Per Share Data* Net income, basic Net income, diluted Book value Tangible Book value Shares outstanding Significant Ratios Net interest margin Efficiency Ratio Return on average assets Return on average equity Total capital (to risk weighted assets) Common equity Tier 1 capital (to risk weighted assets) Tier 1 capital (to risk weighted assets) Tier 1 (to average assets) Asset Quality Nonperforming assets and loans 90+ past due Nonperforming assets and loans 90+ past due to total assets Allowance for loan losses to loans Allowance for loan losses to nonperforming assets Net (recovery) charge-offs Net (recovery) charge-offs to average loans *Adjusted for 5-for-4 stock split in 2015 2015 2014 2013 2012 2011 $ 736,807 $ 604,756 $ 506,717 $ 422,761 $ 261,037 626,640 623,559 35,650 (6,239) 72,752 504,220 509,938 32,500 (5,565) 66,815 429,990 411,040 14,500 (4,792) 60,903 378,702 331,428 2,500 (3,757) 39,143 223,369 213,361 2,500 (2,754) 33,785 $ 26,557 $ 22,473 $ 18,491 $ 15,095 $ 3,665 22,892 1,073 21,819 1,161 14,701 8,279 2,860 5,419 3,288 19,185 886 18,299 1,313 13,316 6,296 2,162 4,133 2,960 15,531 803 14,728 1,025 12,228 3,525 1,297 2,228 2,515 12,580 1,227 11,353 1,098 10,168 2,283 805 1,478 $ $ $ $ 0.84 0.80 11.21 11.19 $ $ $ $ 0.64 0.63 10.30 10.27 $ $ $ $ 0.39 0.38 9.41 9.38 $ $ $ $ 0.35 0.34 8.82 8.78 $ $ $ $ 12,169 2,293 9,875 649 9,226 469 8,253 1,442 (558) 2,000 0.57 0.56 8.26 8.26 6,490,420 6,488,123 6,470,915 4,435,995 4,090,476 3.69% 61.46% 0.85% 7.70% 12.20% 11.25% 11.25% 10.82% 3.63% 65.21% 0.76% 6.45% 13.62% N/A 12.53% 10.96% 3.59% 74.78% 0.50% 4.21% 15.89% N/A 14.71% 12.58% 4.09% 74.46% 0.47% 4.11% 12.29% N/A 11.13% 9.16% 4.15% 79.76% 0.81% 7.51% 14.27% N/A 13.14% 12.44% $ 2,559 $ 1,601 $ 2,988 $ 4,623 $ 5,902 0.35% 1.00% 0.26% 1.09% 0.59% 1.17% 1.09% 1.13% 2.26% 1.29% 243.81% 347.51% 160.37% 81.27% 46.67% $ 399 $ 113 $ (231) $ 225 $ -- 0.07% 0.03% (0.06%) 0.07% 0.00% FVCBankcorp, Inc. and Subsidiary Consolidated Financial Report Fairfax, Virginia | December 31, 2015 CONTENTS Independent Auditor’s Report ................................................................................................ 1 Consolidated Financial Statements Consolidated balance sheets .............................................................................................................. 2 Consolidated statements of income ................................................................................................. 3 Consolidated statements of comprehensive income .................................................................... 4 Consolidated statements of cash flows............................................................................................ 5 Consolidated statements of changes in stockholders’ equity .................................................... 6 Notes to consolidated financial statements .................................................................................... 7 INDEPENDENT AUDITOR’S REPORT To the Board of Directors FVCBankcorp, Inc. Fairfax, Virginia Certified Public Accountants and Consultants Report on the Financial Statements We have audited the accompanying consolidated financial statements of FVCBankcorp, Inc. and its subsidiary, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the years then ended and the related notes to the consolidated financial statements, (collectively, financial statements). Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FVCBankcorp, Inc. and its subsidiary as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Winchester, Virginia March 10, 2016 1 FVCBankcorp, Inc.CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets December 31, 2015 and 2014 ASSETS 2015 2014 Cash and due from banks Federal funds sold Interest-bearing deposits at other financial institutions Securities held-to-maturity (fair market value of $2,244,390 in 2015) Securities available for sale, at fair market value Restricted stock, at cost Loans, net of allowance for loan losses of $6,238,606 for 2015 and $5,564,669 for 2014 Premises and equipment, net Accrued interest receivable Prepaid expenses Deferred tax asset, net Core deposit intangible Bank owned life insurance (BOLI) Other assets $ 5,257,136 $ 5,066,808 -- 23,442,934 2,246,992 65,547,520 4,048,000 13,895 10,915,209 -- 62,697,398 3,887,250 617,320,037 504,372,951 1,511,900 1,908,487 648,459 3,684,617 139,400 10,524,789 527,148 1,744,607 1,576,142 738,804 3,210,400 159,800 10,199,352 173,226 LIABILITIES AND STOCKHOLDERS’ EQUITY 2015 2014 Total assets $ $ 736,807,419 $ $ 604,755,842 Liabilities Deposits: Noninterest-bearing Interest-bearing checking, savings and money market Time deposits FHLB advances Accrued interest payable Accrued expenses and other liabilities Commitments and Contingent Liabilities Stockholders’ Equity Preferred stock: $ 129,078,409 $ 105,126,136 285,622,930 211,938,452 200,354,779 198,739,453 Total deposits $ 626,639,791 $ 504,220,368 35,650,000 32,500,000 132,743 1,633,195 153,062 1,067,479 Total liabilities $ 664,055,729 $ 537,940,909 $0.01 par value, authorized 1,000,000 shares; no shares issued and outstanding in 2015 and 2014 Common stock: $0.01 and $5.00 par value, authorized 10,000,000 shares; 6,490,420 and 5,190,498 shares issued and outstanding in 2015 and 2014, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive (loss), net See Notes to Consolidated Financial Statements. Total stockholders’ equity Total liabilities and stockholders’ equity $ $ $ $ -- -- 64,904 25,952,490 62,343,894 10,956,822 (613,930) 72,751,690 736,807,419 $ $ $ $ 35,728,331 5,537,751 (403,639) 66,814,933 604,755,842 2 Annual Report 2015Consolidated Statements of Income For the Years Ended December 31, 2015 and 2014 Interest and Dividend Income Interest and fees on loans Interest and dividends on securities held-to-maturity Interest and dividends on securities available-for-sale Dividends on restricted stock Interest on deposits at other financial institutions Interest on federal funds sold Total interest and dividend income Interest Expense Interest on deposits Interest on federal funds purchased Interest on short-term debt Interest on long-term debt Net Interest Income Provision for loan losses Net interest income after provision for loan losses Noninterest Income Service charges on deposit accounts Gains on sale of securities available for sale Gains on sale of loans BOLI income Other fee income 2015 2014 $ 25,340,584 $ 21,197,541 40,058 998,877 145,453 32,081 -- -- 1,074,950 142,476 2,173 55,747 26,557,053 $ $ 22,472,887 2015 2014 3,618,983 $ 3,247,751 428 11,869 33,250 319 7,456 32,248 $ $ $ $ $ $ $ 2015 2014 22,892,523 $ 1,072,820 19,185,113 885,685 21,819,703 $ $ 18,299,428 2015 2014 565,963 $ 67,482 -- 325,437 202,021 651,919 77,222 196,114 199,351 188,259 Total interest expense $ 3,664,530 $ 3,287,774 Total noninterest income $ $ 1,160,903 $ $ 1,312,865 3 FVCBankcorp, Inc.Noninterest Expenses Salaries and employee benefits Occupancy and equipment expense Data processing and network administration State franchise taxes FDIC insurance Audit, legal and consulting fees Director fees Marketing, business development and advertising Postage, courier and telephone Internet banking Loan related expenses Dues, memberships and publications Printing and supplies State assessments Bank insurance Bank charges Core deposit intangible amortization Other operating expenses 2015 2014 $ 8,807,837 $ 1,950,856 7,830,511 1,939,042 838,663 680,297 367,168 331,540 279,128 256,475 195,111 150,471 138,747 109,225 102,282 100,409 84,826 65,025 20,400 223,278 841,498 628,121 319,182 287,939 228,636 238,527 206,469 117,105 38,356 94,214 109,828 78,859 77,756 70,058 20,400 189,891 Total noninterest expenses Net income before income tax expense Income tax expense Net income Earnings per share, basic Earnings per share, diluted $ $ $ $ $ $ 14,701,738 $ 13,316,392 8,278,868 $ 6,295,901 2,859,797 $ 2,162,413 5,419,071 0.84 0.80 $ $ $ 4,133,488 0.64 0.63 See Notes to Consolidated Financial Statements. Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2015 and 2014 Net Income Other comprehensive income (loss): Unrealized gain (loss) on securities available for sale, net of tax $(85,388) and $609,242, respectively Reclassification adjustment for gains realized in income, net of tax $22,944 and $26,255, respectively Total other comprehensive income (loss) Total comprehensive income See Notes to Consolidated Financial Statements. 2015 2014 5,419,071 $ 4,133,488 (165,753) 1,182,647 (44,538) (210,291) 5,208,780 $ $ (50,967) 1,131,680 5,265,168 $ $ $ 4 Annual Report 2015Consolidated Statements of Cash Flows For the Years Ended December 31, 2015 and 2014 Cash Flows From Operating Activities Reconciliation of net income to net cash provided by operating activities: Net income Depreciation Provision for loan losses Net amortization of premium of securities Net amortization of deferreds and purchase premiums Stock-based compensation expense BOLI income Realized gains on securities sales Realized gains on loan sales Deferred income tax (benefit) Core deposits intangible amortization Changes in assets and liabilities: (Increase) in accrued interest receivable, prepaid expenses and other assets Increase (decrease) in accrued interest payable, accrued expenses and other liabilities Net cash provided by operating activities Cash Flows From Investing Activities Maturities of certificates of deposits purchased for investment (Increase) decrease in interest-bearing deposits at other financial institutions Purchases of securities held-to-maturity Purchases of securities available for sale Proceeds from sales of securities available for sale Proceeds from maturities and calls of securities available for sale Proceeds from prepayments of securities available for sale Net (purchase) of restricted stock Net (increase) in loans Proceeds from recovery of charged off loans Purchases of BOLI (Purchases) of premises and equipment 2015 2014 $ 5,419,071 $ 4,133,488 563,579 1,072,820 199,397 170,136 705,000 (325,437) (67,482) -- (365,885) 20,400 535,251 885,685 142,717 471,834 481,000 (199,351) (77,222) (196,114) (193,905) 20,400 $ $ (595,922) (342,812) 545,397 (103,060) 7,341,074 $ 5,557,911 1,000,000 $ (12,527,725) (2,246,047) (31,874,397) 19,513,845 913,043 7,145,904 (160,750) 750,000 13,769,596 -- (29,757,681) 15,663,566 3,419,655 5,766,326 (945,500) (114,201,576) (99,296,346) 11,534 -- (330,872) 10,000 (10,000,001) (268,461) Net cash (used in) investing activities $ (132,757,041) $ (100,888,846) 5 FVCBankcorp, Inc.Cash Flows From Financing Activities Net increase in noninterest-bearing, interest-bearing checking, savings, and money market deposits Net increase in time deposits (Decrease) in federal funds purchased Increase in FHLB advances Cash paid in lieu of fractional shares Common stock issuance, net of offering costs Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental Disclosures of Cash Flow Information Cash payments for interest Cash payments for income taxes Supplemental Disclosures of Noncash Investing Activity Unrealized gains (losses) on securities available for sale See Notes to Consolidated Financial Statements. 2015 2014 $ 109,220,424 $ 69,090,668 13,198,999 -- 3,150,000 (3,348) 26,325 125,592,400 176,433 $ $ 5,140,194 (3,000,000) 21,000,000 -- 165,291 92,396,153 (2,934,782) 5,080,703 8,015,485 5,257,136 $ $ 5,080,703 3,644,211 2,625,000 $ $ 3,332,507 2,331,000 (318,623) $ 1,714,667 $ $ $ $ $ $ $ Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended December 31, 2015 and 2014 SHARES COMMON STOCK ADDITIONAL PAID-IN CAPITAL RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TOTAL Balance at December 31, 2013 $ 5,176,732 $ 25,883,660 $ 35,150,870 $ 1,404,263 $ (1,535,319) $ 60,903,474 Net income Other comprehensive income Common stock issuance for options exercised Stock-based compensation expense, net of tax benefit of $65,387 -- -- -- -- -- -- 13,766 68,830 96,461 -- -- 481,000 4,133,488 -- 4,133,488 -- -- -- 1,131,680 1,131,680 -- -- 165,291 481,000 Balance at December 31, 2014 $ 5,190,498 $ 25,952,490 $ 35,728,331 $ 5,537,751 $ (403,639) $ 66,814,933 Net income Other comprehensive loss -- -- -- -- -- -- 5-for-4 stock split 1,297,485 6,487,425 (6,490,773) Common stock issuance for options exercised Par value change from $5.00 to $0.01 Stock-based compensation expense, net of tax benefit of $90,526 2,437 12,185 14,140 -- -- (32,387,196) 32,387,196 -- 705,000 5,419,071 -- -- -- -- -- -- (210,291) -- -- -- -- 5,419,071 (210,291) (3,348) 26,325 -- 705,000 Balance at December 31, 2015 $ 6,490,420 $ 64,904 $ 62,343,894 $ 10,956,822 $ (613,930) $ 72,751,690 See Notes to Consolidated Financial Statements. 6 Annual Report 2015Notes to Consolidated Financial Statements Note 1 Organization and Summary of Significant Accounting Policies Organization FVCBankcorp, Inc. (the “Company”), a Virginia corporation, was formed in 2015 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Fairfax, Virginia. The Company conducts its business activities through the branch offices of its wholly owned subsidiary bank, First Virginia Community Bank (the “Bank”). The Company exists primarily for the purposes of holding the stock of its subsidiary, the Bank. Stock Split and Par Value On March 23, 2015, the Company declared a five-for-four common stock split. The earnings per share for the years ended December 31, 2015 and 2014 have been retroactively adjusted for this split as if it occurred on January 1, 2014. On October 30, 2015, the Company reduced the par value of its common stock from $5.00 per share to $0.01 per share. Cash and Cash Equivalents The Bank was organized under the laws of the Commonwealth For purposes of the statements of cash flows, cash and cash of Virginia to engage in a general banking business serving the equivalents include cash on hand, amounts due from banks and community in and around Fairfax, Virginia. The Bank commenced federal funds sold. Generally, federal funds are purchased and regular operations on November 27, 2007, and is a member of sold for one day periods. the Federal Reserve System and the Federal Deposit Insurance Corporation. It is subject to the regulations of the Federal Securities Reserve System and the State Corporation Commission of Virginia. Consequently, it undergoes periodic examinations by these regulatory authorities. Principles of Consolidation The consolidated financial statements include the accounts of FVCBankcorp, Inc. and its wholly owned subsidiary. All material intercompany balances and transactions have been eliminated in consolidation. Significant Accounting Policies Debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost. Securities not classified as held-to-maturity, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Restricted stock, such as Federal Reserve Bank stock, Federal Home Loan Bank (FHLB) stock and Community Bankers’ Bank stock, is carried at cost, based on the redemption provisions of these correspondent banks. Purchase premiums and discounts are recognized in interest income The accounting and reporting policies of the Company are in using the interest method over the terms of the securities. Declines accordance with accounting principles generally accepted in the in the fair value of available-for-sale securities below their cost that United States of America and conform to general practices within are deemed to be other than temporary are reflected in earnings the banking industry. The more significant of these policies are as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) whether the Company intends to sell the security, whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized costs basis and whether the Company expects to recover the security’s entire cost basis. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. summarized below. 7 FVCBankcorp, Inc.Loans Allowance for Loan Losses The Company grants commercial real estate, commercial non-real The allowance for loan losses is a valuation allowance for estate and consumer loans to its customers. A substantial portion of probable incurred credit losses. Loan losses are charged against the loan portfolio includes commercial loans throughout the greater the allowance when management believes the uncollectibility of Washington, D.C. metropolitan area, initially focusing on the counties a loan balance is confirmed. Subsequent recoveries, if any, are of Arlington, Fairfax, Loudoun and Prince William, Virginia. The ability credited to the allowance. Management estimates the allowance of the Company’s debtors to honor their contracts is dependent upon balance required using past loan loss experience, the nature and the real estate and general economic conditions in this area. volume of the portfolio, information about specific borrower The recorded investment in loans that management has the intent and ability to hold represents the customers unpaid principal balances, net of partial charge-offs. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees and certain direct costs are deferred and the net amount is amortized as an adjustment of the related loans’ yield. The Company is amortizing these amounts over the loans’ contractual lives. Past due status is monitored based on customers’ contractual payment status for all loans. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan becomes 90 days delinquent unless the credit is well-secured and in process of collection. Non-performing loans are placed either on nonaccrual status pending further collection efforts or charged off if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on loans in nonaccrual status is accounted for on the cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Troubled Debt Restructurings situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Charge-offs of loans are made by portfolio segment at the time that the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs is consistently applied to each segment. The allowance consists of specific, general and unallocated reserves. Specific reserves relate to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to be discounted at the loan’s effective interest rate, or measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the fair value of the collateral. Larger balance, non-homogeneous loans are individually evaluated for possible impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present In situations where, for economic or legal reasons related to a value of estimated future cash flows using the loan’s existing rate borrower’s financial condition, the Company may grant a concession or at the fair value of collateral if repayment is expected solely from to the borrower that it would not otherwise consider, the related loan the collateral. Smaller balance, homogeneous loans are collectively is classified as a troubled debt restructuring (TDR). The Company evaluated for impairment. strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, the Company measures any impairment on the restructuring as noted above for impaired loans. The Company recognizes interest income on impaired loans based on its existing methods of recognizing interest income on nonaccrual loans. Loans, for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired with measurement of impairment based on expected future cash flows discounted using the loan’s effective rate immediately prior to the restructuring. 8 Annual Report 2015General reserves cover non-impaired loans and are based on peer Foreclosed Properties group historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions; changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; Assets acquired through, or in lieu of, loan foreclosure are held for sale. At the time of acquisition, these properties are recorded at fair value less estimated selling costs, with any write down charged to the allowance for loan losses. Subsequent to foreclosure, valuations of the assets are periodically performed by management. Adjustments are made for subsequent decline in the fair market value of the assets less selling costs. Revenue and expenses from operations and valuation changes are included in net expenses from foreclosed assets. The Company had no foreclosed assets during the years ended December 31, 2015 and 2014. concentrations of credit and the effect of other external factors The Company had no consumer mortgage loans secured by such as competition and legal and regulatory requirements. residential real estate properties for which formal foreclosure The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of losses inherent in the loan portfolio. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used for estimating the specific and general losses in the loan portfolio. proceedings were in process as of December 31, 2015. Bank Owned Life Insurance The Company has purchased life insurance policies on certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance date, which is the cash surrender value. Portfolio segments identified by the Company include commercial real estate, commercial and industrial, commercial construction, Transfers of Financial Assets consumer residential, consumer nonresidential and consumer construction. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to income, collateral type and loan-to-value ratios for consumer loans. The Company uses the same segments and classes for analyzing adequacy of general allowances. Premises and Equipment Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed surrendered when (1) the assets have been isolated from the Company — put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them Leasehold improvements, computer software, furniture, fixtures before their maturity or the ability to unilaterally cause the holder and equipment are stated at cost less accumulated depreciation. to return specific assets. Depreciation is computed using the straight-line method over the assets’ estimated useful lives or life of lease. Estimated useful Use of Estimates lives are 10 years for leasehold improvements and 3 to 7 years for computer software, furniture, fixtures and equipment. Intangible Assets In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities The Company’s intangible assets were acquired in the acquisition as of the date of the balance sheet and reported amounts of revenue of 1st Commonwealth. ASC 350, Intangibles-Goodwill and Other and expenses during the reporting period. Actual results could (ASC 350), prescribes accounting for intangible assets subsequent differ from those estimates. Material estimates that are particularly to initial recognition. Acquired intangible assets (such as core deposit susceptible to significant change in the near term relate to the intangibles) are separately recognized if the benefit of the assets can determination of the allowance for loan losses, the valuation of be sold, transferred, licensed, rented, or exchanged, and amortized deferred tax assets, and the fair value of financial instruments. over their useful lives. Intangible assets related to acquisition are amortized. The core deposit intangible asset, based on an independent valuation, is being amortized over its estimated life of 10 years. 9 FVCBankcorp, Inc. Income Taxes Stock Compensation Plans Deferred taxes are provided on a liability method whereby deferred Authoritative accounting guidance requires that the compensation tax assets and liabilities are recognized for deductible temporary cost relating to share-based payment transactions be recognized in differences. Temporary differences are the differences between the the financial statements. That cost is measured based on the fair reported amounts of assets and liabilities and their tax basis. Deferred value of the equity or liability instruments issued. The guidance covers tax assets are reduced by a valuation allowance when, in the opinion a wide range of share-based compensation arrangements including of management, it is more likely than not that some portion or all of stock options, restricted share plans, performance-based awards, the deferred tax assets will not be realized. Deferred tax assets and share appreciation rights, and employee share purchase plans. The liabilities are adjusted for the effects of changes in tax laws and rates guidance requires entities to measure the cost of employee services on the date of enactment. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of recognized in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. The Company uses the Black-Scholes option-pricing model to meet the fair value objective as outlined in the accounting literature. Retirement Plan Employee 401(k) expense is the amount of matching contributions paid by the Company. 401(k) expense was $172,095 and $164,277 for the years ended December 31, 2015 and 2014, respectively. Earnings Per Share all relevant information. The determination of whether or not a tax Basic earnings per share represent income available to common position has met the more-likely-than-not recognition threshold shareholders divided by the weighted-average number of common considers the facts, circumstances, and information available at the shares outstanding during the period. Diluted earnings per share reporting date and is subject to management’s judgment. Deferred tax reflect additional common shares that would have been outstanding assets are reduced by a valuation allowance if, based on the weight of if dilutive potential common shares had been issued, as well as any evidence available, it is more likely than not that some portion or all of adjustment to income that would result from the assumed issuance. a deferred tax asset will not be realized. Advertising Costs The Company follows the policy of charging all of advertising to expense as incurred. Potential common shares that may be issued by the Company consist solely of outstanding stock options, and are determined using the treasury method. Reclassifications Comprehensive Income (Loss) Comprehensive income consists of net income and other comprehensive income. Other comprehensive income (loss) includes unrealized gains (losses) on securities available-for-sale, which are Certain prior year amounts have been reclassified to conform to the current year’s method of presentation. None of these reclassifications were significant. Recent Accounting Pronouncements also recognized as separate components of equity. Items reclassified In June 2014, the FASB issued ASU No. 2014-12, “Compensation — out of accumulated other comprehensive income (loss) to net income Stock Compensation (Topic 718): Accounting for Share-Based relate solely to realized gains (losses) on sales of securities available- Payments When the Terms of an Award Provide That a Performance for-sale and appear under the caption “Gains on sale of securities Target Could Be Achieved after the Requisite Service Period.” available-for-sales” in the Company’s statements of income Fair Value of Financial Instruments Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 14. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates. 10 Annual Report 2015The new guidance applies to reporting entities that grant employees per-share data applicable to the extraordinary item. The amendments share-based payments in which the terms of the award allow a in this ASU are effective for fiscal years, and interim periods within performance target to be achieved after the requisite service period. those fiscal years, beginning after December 15, 2015. A reporting The amendments in the ASU require that a performance target that entity may apply the amendments prospectively. A reporting entity affects vesting and that could be achieved after the requisite service also may apply the amendments retrospectively to all prior periods period be treated as a performance condition. Existing guidance in presented in the financial statements. Early adoption is permitted “Compensation — Stock Compensation (Topic 718),” should be applied provided that the guidance is applied from the beginning of the to account for these types of awards. The amendments in this ASU fiscal year of adoption. The Company does not expect the adoption are effective for annual periods and interim periods within those of ASU 2015-01 to have a material impact on its consolidated annual periods beginning after December 15, 2015. Early adoption financial statements. is permitted and reporting entities may choose to apply the amendments in the ASU either on a prospective or retrospective basis. The Company does not expect the adoption of ASU 2014-12 to have a material impact on its consolidated financial statements. In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU are intended to improve targeted areas of consolidation guidance for legal entities such as limited In August 2014, the FASB issued ASU No. 2014-15, “Presentation partnerships, limited liability corporations, and securitization of Financial Statements — Going Concern (Subtopic 205-40): structures (collateralized debt obligations, collateralized loan Disclosure of Uncertainties about an Entity’s Ability to Continue as obligations, and mortgage-backed security transactions). In addition a Going Concern.” This update is intended to provide guidance about to reducing the number of consolidation models from four to two, the management’s responsibility to evaluate whether there is substantial new standard simplifies the FASB Accounting Standards Codification™ doubt about an entity’s ability to continue as a going concern and to and improves current GAAP by placing more emphasis on risk of provide related footnote disclosures. Management is required under loss when determining a controlling financial interest, reducing the new guidance to evaluate whether there are conditions or events, the frequency of the application of related-party guidance when considered in the aggregate, that raise substantial doubt about the determining a controlling financial interest in a variable interest entity entity’s ability to continue as a going concern within one year after (VIE), and changing consolidation conclusions for public and private the date the financial statements are issued when preparing financial companies in several industries that typically make use of limited statements for each interim and annual reporting period. If conditions partnerships or VIEs. The amendments in this ASU are effective for or events are identified, the ASU specifies the process that must be public business entities for fiscal years, and interim periods within followed by management and also clarifies the timing and content those fiscal years, beginning after December 15, 2015. Early adoption of going concern footnote disclosures in order to reduce diversity is permitted, including adoption in an interim period. ASU 2015- in practice. The amendments in this ASU are effective for annual 02 may be applied retrospectively in previously issued financial periods and interim periods within those annual periods beginning statements for one or more years with a cumulative-effect adjustment after December 15, 2016. Early adoption is permitted. The Company to retained earnings as of the beginning of the first year restated. The does not expect the adoption of ASU 2014-15 to have a material Company does not expect the adoption of ASU 2015-02 to have a impact on its consolidated financial statements. material impact on its consolidated financial statements. In January 2015, the FASB issued ASU No. 2015-01, “Income In April 2015, the FASB issued ASU No. 2015-03, “Interest — Statement — Extraordinary and Unusual Items (Subtopic 225-20): Imputation of Interest (Subtopic 835-30): Simplifying the Simplifying Income Statement Presentation by Eliminating the Presentation of Debt Issuance Costs.” The amendments in this Concept of Extraordinary Items.” The amendments in this ASU ASU are intended to simplify the presentation of debt issuance eliminate from U.S. GAAP the concept of extraordinary items. costs. These amendments require that debt issuance costs related Subtopic 225-20, Income Statement - Extraordinary and Unusual to a recognized debt liability be presented in the balance sheet as Items, required that an entity separately classify, present, and a direct deduction from the carrying amount of that debt liability, disclose extraordinary events and transactions. Presently, an event consistent with debt discounts. The recognition and measurement or transaction is presumed to be an ordinary and usual activity of the guidance for debt issuance costs are not affected by the amendments reporting entity unless evidence clearly supports its classification as in this ASU. The amendments in this ASU are effective for public an extraordinary item. If an event or transaction meets the criteria business entities for financial statements issued for fiscal years for extraordinary classification, an entity is required to segregate the beginning after December 15, 2015, and interim periods within those extraordinary item from the results of ordinary operations and show fiscal years. Early adoption is permitted for financial statements the item separately in the income statement, net of tax, after income that have not been previously issued. The Company does not expect from continuing operations. The entity also is required to disclose the adoption of ASU 2015-03 to have a material impact on its applicable income taxes and either present or disclose earnings- consolidated financial statements. 11 FVCBankcorp, Inc.In April 2015, the FASB issued ASU No. 2015-05, “Intangibles — 1) Requires equity investments (except those accounted for under Goodwill and Other — Internal-Use Software (Subtopic 350- the equity method of accounting, or those that result in consolidation 40): Customer’s Accounting for Fees Paid in a Cloud Computing of the investee) to be measured at fair value with changes in Arrangement.” The amendments in this ASU provide guidance to fair value recognized in net income. 2) Requires public business customers about whether a cloud computing arrangement includes entities to use the exit price notion when measuring the fair value a software license. If a cloud computing arrangement includes a of financial instruments for disclosure purposes. 3) Requires software license, then the customer should account for the software separate presentation of financial assets and financial liabilities by license element of the arrangement consistent with the acquisition measurement category and form of financial asset (i.e., securities of other software licenses. If a cloud computing arrangement does or loans and receivables). 4) Eliminates the requirement for not include a software license, the customer should account for the public business entities to disclose the method(s) and significant arrangement as a service contract. The amendments do not change assumptions used to estimate the fair value that is required to be the accounting for a customer’s accounting for service contracts. As disclosed for financial instruments measured at amortized cost. a result of the amendments, all software licenses within the scope of The amendments in this ASU are effective for public companies Subtopic 350-40 will be accounted for consistent with other licenses for fiscal years beginning after December 15, 2017, including interim of intangible assets. The amendments in this ASU are effective for periods within those fiscal years. The Company is currently assessing public business entities for annual periods, including interim periods the impact that ASU 2016-01 will have on its consolidated within those annual periods, beginning after December 15, 2015. Early financial statements. adoption is permitted. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The Company does not expect the adoption of ASU 2015-05 to have a material impact on its consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-01, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments In August 2015, the FASB issued ASU No. 2015-14, “Revenue from arising from a lease, measured on a discounted basis; and (2) A right- Contracts with Customers (Topic 606): Deferral of Effective Date.” of-use asset, which is an asset that represents the lessee’s right to The amendments in ASU 2015-14 defer the effective date of ASU use, or control the use of, a specified asset for the lease term. Under 2014-09 for all entities by one year. Public business entities, certain the new guidance, lessor accounting is largely unchanged. Certain not-for-profit entities, and certain employee benefit plans should targeted improvements were made to align, where necessary, lessor apply the guidance in ASU 2014-09 to annual reporting periods accounting with the lessee accounting model and Topic 606, Revenue beginning after December 15, 2017, including interim reporting from Contracts with Customers. The amendments in this ASU are periods within that reporting period. Earlier application is permitted effective for fiscal years beginning after December 15, 2018, including only as of annual reporting periods beginning after December 15, interim periods within those fiscal years. Early application is permitted 2016, including interim reporting periods within that reporting upon issuance. Lessees (for capital and operating leases) and lessors period. All other entities should apply the guidance in ASU 2014-09 (for sales-type, direct financing, and operating leases) must apply a to annual reporting periods beginning after December 15, 2018, and modified retrospective transition approach for leases existing at, or interim reporting periods within annual reporting periods beginning entered into after, the beginning of the earliest comparative period after December 15, 2019. All other entities may apply the guidance presented in the financial statements. The modified retrospective in ASU 2014-09 earlier as of an annual reporting period beginning approach would not require any transition accounting for leases that after December 15, 2016, including interim reporting periods within expired before the earliest comparative period presented. Lessees that reporting period. All other entities also may apply the guidance and lessors may not apply a full retrospective transition approach. in ASU 2014-09 earlier as of an annual reporting period beginning The Company is currently assessing the impact that ASU 2016-02 after December 15, 2016, and interim reporting periods within annual will have on its consolidated financial statements. reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU 2014-09. The Company does not expect the adoption of ASU 2015-14 (or ASU 2014-09) to have a material impact on its consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 12 Annual Report 2015Note 2 Restrictions on Cash and Amounts due From Banks The Company is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2015 and 2014, these reserve balances amounted to $0 and $0, respectively. There were no Federal Reserve balances at December 31, 2015 and 2014. 13 FVCBankcorp, Inc. Note 3 Securities Amortized cost and fair values of securities held-to-maturity and securities available-for-sale as of December 31, 2015 and 2014, are as follows: Held-to-maturity Securities of state and local municipalities tax exempt Securities of U.S. government and federal agencies 2015 AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED (LOSSES) FAIR VALUE $ 263,141 $ 4,048 $ -- $ 267,189 1,983,851 69 (6,719) 1,977,201 Total Held-to-maturity Securities $ 2,246,992 $ 4,117 $ (6,719) $ 2,244,390 Available-for-sale Securities of U.S. government and federal agencies Securities of state and local municipalities tax exempt Securities of state and local municipalities taxable $ 1,500,000 $ -- $ (16,062) $ 1,483,938 1,726,350 2,249 (234) 1,728,365 1,306,314 1,686 -- 1,308,000 Corporate securities 2,000,000 -- (59,130) 1,940,870 Certificates of deposit SBA pass-through securities 985,000 380,583 7,411 -- -- 992,411 (9,439) 371,144 Mortgage-backed securities 37,403,209 17,760 (261,189) 37,159,780 Collateralized mortgage obligations 21,176,262 6,905 (620,155) 20,563,012 Total Available-for-sale Securities $ 66,477,718 $ 36,011 $ (966,209) $ 65,547,520 Available-for-sale Securities of U.S. government and federal agencies Securities of state and local municipalities taxable 2014 AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED (LOSSES) FAIR VALUE $ 4,239,131 $ 346 $ (71,752) $ 4,167,725 1,321,954 -- (32,129) 1,289,825 Certificates of deposit 2,235,000 10,238 (687) 2,244,551 SBA pass-through securities 446,151 -- (17,069) 429,082 Mortgage-backed securities 25,067,769 143,487 (188,672) 25,022,584 Collateralized mortgage obligations 29,998,968 54,723 (510,060) 29,543,631 Total Available-for-sale Securities $ 63,308,973 $ 208,794 $ (820,369) $ 62,697,398 Annual Report 2015 14 At December 31, 2015 and 2014, securities with a market value of $957,951 and $987,971 were pledged to secure borrowings at the Federal Reserve Bank. At December 31, 2015 and 2014, securities with a market value of $5,144,064 and $13,427,812 were pledged to secure borrowings at the Federal Home Loan Bank of Atlanta. At December 31, 2015 and 2014, securities with a market value of $41,963,694 and $20,622,479 were pledged to secure public deposits with the Treasury Board of Virginia at the Community Bankers’ Bank. The following table shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2015 and 2014, respectively. The reference point for determining when securities are in an unrealized loss position is month-end. Therefore, it is possible that a security’s market value exceeded its amortized cost on other days during the past twelve-month period. Available-for-sale securities that have been in a continuous unrealized loss position are as follows: AT DECEMBER 31, 2015: LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES $ -- $ -- $ 1,483,938 $ (16,062) $ 1,483,938 $ (16,062) Securities of U.S. government and federal agencies Securities of state and local municipalities tax exempt 288,490 (234) Corporate securities 1,940,870 (59,130) SBA pass-through securities -- -- Mortgage-backed securities 33,795,118 (252,341) -- -- 371,144 1,184,231 -- -- (9,439) 288,490 (234) 1,940,870 371,144 (59,130) (9,439) (8,848) 34,979,349 (261,189) Collateralized mortgage obligations 9,893,597 (223,514) 8,845,178 (396,641) 18,738,775 (620,155) Total $ 45,918,075 $ (535,219) $ 11,884,491 $ (430,990) $ 57,802,566 $ (966,209) AT DECEMBER 31, 2014: LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL Securities of U.S. government and federal agencies Securities of state and local municipalities taxable Certificates of deposits SBA pass-through securities FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES $ -- $ -- $ 3,667,379 $ (71,752) $ 3,667,379 $ (71,752) 807,525 (14,429) 482,300 (17,700) 1,289,825 (32,129) 244,313 -- (687) -- -- -- 429,082 (17,069) 244,313 429,082 (687) (17,069) Mortgage-backed securities 6,056,708 (24,442) 5,741,066 (164,230) 11,797,774 (188,672) Collateralized mortgage obligations 9,013,341 (78,180) 14,939,826 (431,880) 23,953,167 (510,060) Total $ 16,121,887 $ (117,738) $ 25,259,653 $ (702,631) $ 41,381,540 $ (820,369) As of December 31, 2015, the Company had one held-to-maturity security in an unrealized loss position of less than twelve months. The fair value of the security was with $993,281 and the unrealized loss was $6,719. There were no held-to-maturity securities as of December 31, 2014. 15 FVCBankcorp, Inc.Securities of U.S. government and federal agencies: The unrealized decline in market value is attributable to changes in interest rates and losses were caused by interest rate increases. The contractual terms not credit quality, and because the Company does not intend to sell of these investments do not permit the issuer to settle the securities the investments and it is not more likely than not that the Company at a price less than the amortized cost basis of the investments. will be required to sell the investments before recovery of their Because the Company does not intend to sell the investments and amortized cost basis, which may be maturity, the Company does it is not more likely than not that the Company will be required to sell not consider those investments to be other-than-temporarily the investments before recovery of their amortized cost basis, which impaired at December 31, 2015. may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2015. Mortgage-backed securities: The unrealized losses on the Company’s investment in mortgage-backed securities were caused by interest Securities of state and local municipalities: The unrealized losses rate increases. The contractual cash flows of those investments are on the investments in securities of state and local municipalities guaranteed by an agency of the U.S. Government. Accordingly, it is were caused by interest rate increases. The contractual terms of expected that the securities would not be settled at a price less than those investments do not permit the issuer to settle the securities the amortized cost basis of the Company’s investments. Because the at a price less than the amortized cost basis of the investments. decline in market value is attributable to changes in interest rates and Because the Company does not intend to sell the investments not credit quality, and because the Company does not intend to sell and it is not more likely than not that the Company will be required the investments and it is not more likely than not that the Company to sell the investments before recovery of their amortized cost will be required to sell the investments before recovery of their basis, which may be maturity, the Company does not consider amortized cost basis, which may be maturity, the Company does those investments to be other-than-temporarily impaired at not consider those investments to be other-than-temporarily December 31, 2015. impaired at December 31, 2015. Corporate securities: The unrealized losses on the investments in Collateralized mortgage obligations (CMOs): The unrealized loss corporate securities were caused by interest rate increases. The associated with CMOs was caused by interest rate increases. The contractual terms of those investments do not permit the issuer to contractual cash flows of these investments are guaranteed by an settle the securities at a price less than the amortized cost basis of agency of the U.S. Government. Accordingly, it is expected that the the investments. Because the Company does not intend to sell the securities would not be settled at a price less than the amortized cost investments and it is not more likely than not that the Company basis of the Company’s investments. Because the decline in market will be required to sell the investments before recovery of their value is attributable to changes in interest rates and not credit quality, amortized cost basis, which may be maturity, the Company does and because the Company does not intend to sell the investments and not consider those investments to be other-than-temporarily it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2015. impaired at December 31, 2015. Certificates of deposit: The unrealized losses on the Company’s investment in fully-insured certificates of deposits were caused by interest rate increases. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2015. SBA pass-through securities: The unrealized losses on the Company’s investment in SBA pass-through securities were caused by interest rate increases. Repayment of the principal on those investments is guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the 16 Annual Report 2015 The amortized cost and fair value of securities available-for-sale as of December 31, 2015, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties. HELD-TO-MATURITY AVAILABLE-FOR-SALES AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE Less than 1 year $ After 1 year through 5 years After 5 years through 10 years After 10 years $ -- -- $ -- -- 1,983,851 263,141 1,977,201 267,189 245,000 $ 5,946,706 5,893,524 54,392,488 246,337 5,886,164 5,814,856 53,600,163 Total $ 2,246,992 $ 2,244,390 $ 66,477,718 $ 65,547,520 For the years ended December 31, 2015 and 2014, proceeds from maturities, calls and principal repayments of securities were $8,058,947 and $9,185,981, respectively. During 2015 and 2014, proceeds from sales of securities available-for-sale amounted to $19,513,845 and $15,663,566, gross realized gains were $144,215 and $126,670 and gross realized losses were $76,733 and $49,448, respectively. Note 4 Loans and Allowance for Loan Losses A summary of loan balances by type follows: Commercial real estate Commercial and industrial Commercial construction Consumer residential Consumer nonresidential Consumer construction Less: Allowance for loan losses Unearned income and unamortized premiums 2015 2014 $ 376,426,381 $ 325,040,726 89,502,318 49,833,719 84,463,861 19,127,221 3,855,706 82,373,936 24,160,267 66,227,782 11,615,337 -- $ 623,209,206 $ 509,418,048 6,238,606 (349,437) 5,564,669 (519,572) Loans, net $ $ 617,320,037 $ $ 504,372,951 An analysis of the allowance for loan losses for the years ended December 31, 2015 and 2014 follows: COMMERCIAL REAL ESTATE COMMERCIAL & INDUSTRIAL COMMERCIAL CONSTRUCTION CONSUMER RESIDENTIAL CONSUMER NONRESIDENTIAL CONSUMER CONSTRUCTION UNALLOCATED TOTAL 2015 Allowance for credit losses: Beginning Balance $ 3,721,334 $ 1,276,356 $ 233,751 $ 204,790 $ 66,204 $ (98,396) (312,021) 11,534 -- -- -- -- -- -- -- -- -- -- $ 62,234 $ 5,564,669 -- -- (410,417) 11,534 367,370 478,003 67,743 77,175 32,408 23,327 26,794 1,072,820 Charge-offs Recoveries Provision Ending Balance $ 4,001,842 $ 1,442,338 $ 301,494 $ 281,965 $ 98,612 $ 23,327 $ 89,028 $ 6,238,606 2014 Allowance for credit losses: Beginning Balance $ 3,725,137 $ 786,921 $ 78,143 $ 177,212 $ 9,134 $ 2,996 $ 12,173 $ 4,791,716 Charge-offs Recoveries Provision (112,625) 10,000 98,822 -- -- -- -- -- -- (10,107) -- -- -- -- -- (122,732) 10,000 489,435 155,608 27,578 67,177 (2,996) 50,061 885,685 Ending Balance $ 3,721,334 $ 1,276,356 $ 233,751 $ 204,790 $ 66,204 $ -- $ 62,234 $ 5,564,669 17 FVCBankcorp, Inc.The following table presents the recorded investment in loans and impairment method as of December 31, 2015 and 2014 by portfolio segment: Commercial Real Estate Commercial & Industrial Commercial Construction Consumer Residential Consumer Nonresidential Consumer Construction Unallocated Total 2015 Allowance for credit losses: Ending Balance: Individually evaluated for impairment Collectively evaluated for impairment $ 686,667 $ 590,355 $ -- $ -- $ -- $ -- $ -- $ 1,277,022 3,315,175 851,983 301,494 281,965 98,612 23,327 89,028 4,961,584 $ 4,001,842 $ 1,442,338 $ 301,494 $ 281,965 $ 98,612 $ 23,327 $ 89,028 $ 6,238,606 Financing receivables: Ending Balance: Individually evaluated for impairment Collectively evaluated for impairment $ 4,875,051 $ 4,048,385 $ -- $ 110,262 $ -- $ -- $ -- $ 9,033,698 371,551,330 85,453,933 49,833,719 84,353,599 19,127,221 3,855,706 -- 614,175,508 $ 376,426,381 $ 89,502,318 $ 49,833,719 $ 84,463,861 $ 19,127,221 $ 3,855,706 $ -- $ 623,209,206 Commercial Real Estate Commercial & Industrial Commercial Construction Consumer Residential Consumer Nonresidential Consumer Construction Unallocated Total 2014 Allowance for credit losses: Ending Balance: Individually evaluated for impairment Collectively evaluated for impairment $ 281,120 $ 474,993 $ -- $ -- $ -- $ -- $ -- $ 756,113 3,440,214 801,363 233,751 204,790 66,204 -- 62,234 4,808,556 $ 3,721,334 $ 1,276,356 $ 233,751 $ 204,790 $ 66,204 $ -- $ 62,234 $ 5,564,669 Financing receivables: Ending Balance: Individually evaluated for impairment Collectively evaluated for impairment $ 3,318,469 $ 2,606,878 $ -- $ 121,805 $ -- $ -- $ -- $ 6,047,152 321,722,257 79,767,058 24,160,267 66,105,977 11,615,337 -- -- 503,370,896 $ 325,040,726 $ 82,373,936 $ 24,160,267 $ 66,227,782 $ 11,615,337 $ -- $ -- $ 509,418,048 18 Annual Report 2015Impaired loans by class as of December 31, 2015 and 2014 are summarized as follows: Recorded Investment 2015 Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With an allowance recorded: Commercial real estate $ 1,144,670 $ 1,187,663 $ 686,667 $ 1,196,200 $ Commercial and industrial 1,024,744 1,024,743 590,355 1,444,976 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 2,169,414 $ 2,212,406 $ 1,277,022 $ 2,641,176 $ 123,153 64,722 58,431 -- -- -- -- 3,730,381 $ 3,730,381 $ 3,023,641 3,037,842 -- 110,262 -- -- -- 116,737 -- -- $ 6,864,284 $ 6,884,960 $ -- -- -- -- -- -- -- $ 3,644,452 $ 3,690,837 -- 116,737 -- -- 188,026 112,221 -- -- -- -- $ 7,452,026 $ 300,247 Commercial construction Consumer residential Consumer nonresidential Consumer construction With no related allowance: Commercial real estate Commercial and industrial Commercial construction Consumer residential Consumer nonresidential Consumer construction $ $ Recorded Investment 2014 Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With an allowance recorded: Commercial real estate $ 770,365 $ 803,708 $ 281,120 $ 818,694 $ Commercial and industrial 473,839 474,992 474,993 487,896 Commercial construction Consumer residential Consumer nonresidential Consumer construction With no related allowance: Commercial real estate Commercial and industrial Commercial construction Consumer residential Consumer nonresidential Consumer construction $ $ -- -- -- -- -- -- -- -- -- -- -- -- 1,244,204 $ 1,278,700 $ 756,113 2,548,104 $ 2,553,086 $ 2,133,039 -- 121,805 -- -- 2,179,073 -- 121,805 -- -- $ 4,802,948 $ 4,853,964 $ 26,617 19,525 -- -- -- -- -- -- -- -- $ $ 1,306,590 $ 46,142 2,568,511 $ 2,438,442 -- 122,835 -- -- 133,485 96,112 -- 6,710 -- -- $ 5,129,788 $ 236,307 -- -- -- -- -- -- -- No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure. 19 FVCBankcorp, Inc.The Company categorizes loans into risk categories based on Substandard: Loans classified as substandard are inadequately relevant information about the ability of borrowers to service protected by the current net worth and paying capacity of the their debt such as current financial information, historical payment obligor or of the collateral pledged, if any. Loans so classified experience, collateral adequacy, credit documentation, and current have a well-defined weakness or weaknesses that jeopardize economic trends, among other factors. The Company analyzes loans the liquidation of the debt. They are characterized by the individually by classifying the loans as to credit risk. This analysis enhanced possibility that the institution will sustain some typically includes larger, non-homogeneous loans such as commercial loss if the deficiencies are not corrected. real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings: Doubtful: Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection Pass: Loans listed as pass include larger non-homogeneous loans not or liquidation in full, based on currently known facts, conditions meeting the risk rating definitions below and smaller, homogeneous and values, improbable. loans not assessed on an individual basis. Special Mention: Loans classified as special mention have a potential considered uncollectible and of such little value that their weakness that deserves management’s close attention. If left continuance as loans is not warranted. Even though partial uncorrected, these potential weaknesses may result in deterioration recovery may be achieved in the future, it is neither practical of the repayment prospects for the loan or of the institution’s credit nor desirable to defer writing off these loans. Loss: Loans classified as loss include those loans which are position at some future date. Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of December 31, 2015 and 2014: AS OF DECEMBER 31, 2015 Commercial Real Estate Commercial & Industrial Commercial Construction Consumer Residential Consumer Nonresidential Consumer Construction Total Grade: Pass $ 369,211,680 $ 82,337,794 $ 49,833,719 $ 84,353,599 $ 19,127,221 $ 3,855,706 $ 608,719,719 Special mention 3,536,698 4,363,035 Substandard 3,678,003 2,801,489 Doubtful Loss -- -- -- -- -- -- -- -- -- 110,262 -- -- -- -- -- -- -- -- -- -- 7,899,733 6,589,754 -- -- Total $ 376,426,381 $ 89,502,318 $ 49,833,719 $ 84,463,861 $ 19,127,221 $ 3,855,706 $ 623,209,206 AS OF DECEMBER 31, 2014 Commercial Real Estate Commercial & Industrial Commercial Construction Consumer Residential Consumer Nonresidential Consumer Construction Total Grade: Pass $ 317,316,585 $ 77,206,789 $ 24,160,267 $ 66,105,977 $ 11,615,337 $ Special mention 4,405,672 2,560,269 Substandard 3,318,469 2,606,878 Doubtful Loss -- -- -- -- -- -- -- -- -- 121,805 -- -- -- -- -- -- Total $ 325,040,726 $ 82,373,936 $ 24,160,267 $ 66,227,782 $ 11,615,337 $ -- -- -- -- -- -- $ 496,404,955 6,965,941 6,047,152 -- -- $ 509,418,048 20 Annual Report 2015Past due and nonaccrual loans presented by loan class were as follows as of December 31, 2015 and 2014: AS OF DECEMBER 31, 2015 30–59 days past due 60–89 days past due 90 days or more past due Total past due Current Total loans 90 days past due and still accruing Nonaccruals $ 445,418 $ -- $ -- $ 445,418 $ 375,980,963 $ 376,426,381 $ -- $ 1,144,670 Commercial real estate Commercial and Industrial Commercial construction Consumer residential Consumer nonresidential Consumer construction 1,791,576 -- 162,716 -- -- -- -- -- 9,860 -- Total $ 2,399,710 $ 9,860 $ -- -- -- -- -- -- 1,791,576 87,710,742 89,502,318 -- 49,833,719 49,833,719 162,716 84,301,145 84,463,861 9,860 19,117,361 19,127,221 -- 3,855,706 3,855,706 $ 2,409,570 $ 620,799,636 $ 623,209,206 $ -- -- -- -- -- -- 1,303,841 -- 110,262 -- -- $ 2,558,773 AS OF DECEMBER 31, 2014 30–59 days past due 60–89 days past due 90 days or more past due Total past due Current Total loans 90 days past due and still accruing Nonaccruals 106,645 $ 190,942 $ -- $ 297,587 $ 324,743,139 $ 325,040,726 $ -- $ 266,852 232,514 922,684 1,155,198 81,218,738 82,373,936 40,447 1,172,285 -- -- -- 24,160,267 24,160,267 99,647 121,805 221,452 66,006,330 66,227,782 2,030 2,726 -- -- -- -- 4,756 11,610,581 11,615,337 -- -- -- -- -- -- -- -- 121,805 -- -- Commercial real estate Commercial and Industrial $ Commercial construction Consumer residential Consumer nonresidential Consumer construction -- -- -- Total $ 108,675 $ 525,829 $ 1,044,489 $ 1,678,993 $ 507,739,055 $ 509,418,048 $ 40,447 $ 1,560,942 There were overdrafts of $79,819 and $1,218,892 at December 31, 2015 and 2014 which have been reclassified from deposits to loans. At December 31, 2015 and 2014, loans with a carrying value of $92,764,019 and $34,979,641 were pledged to the Federal Home Loan Bank of Atlanta. 21 FVCBankcorp, Inc. There were no troubled debt restructuring that subsequently defaulted during the year ended December 31, 2015. During the year ended December 31, 2014, there was one troubled debt restructuring that subsequently defaulted for $10,107 in the consumer nonresidential loan category. A summary of activity in troubled debt restructurings presented by loan class follows for the year ended December 31, 2015: Troubled Debt Restructurings Commercial real estate Commercial and industrial Commercial construction Consumer residential Consumer nonresidential Consumer construction Troubled Debt Restructurings Commercial real estate Commercial and industrial Commercial construction Consumer residential Consumer nonresidential Consumer construction FOR THE YEAR ENDED DECEMBER 31, 2015 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment $ 2 2 3,494,920 $ 861,288 3,567,476 861,288 -- -- -- -- -- -- -- -- Total 4 $ 4,356,208 $ 4,428,764 FOR THE YEAR ENDED DECEMBER 31, 2014 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment $ 1 1 -- 1 -- -- 76,860 $ 293,259 -- -- 10,107 -- Total 3 $ 380,226 $ 76,860 293,259 -- -- 10,107 -- 380,226 As of December 31, 2015 and 2014, the Company has a recorded investment in troubled debt restructurings of $5,074,007 and 1,794,962, respectively. The concessions made in troubled debt restructurings were extensions of the maturity dates or reductions in the stated interest rate for the remaining original life of the debt. Annual Report 2015 22 Note 5 Premises and Equipment A summary of the cost and accumulated depreciation of premises and equipment follows: Leasehold improvements Furniture, fixtures and equipment Computer software Less: accumulated depreciation 2015 2014 $ $ 2,331,233 $ 2,833,725 253,637 5,418,596 3,906,696 1,511,900 $ 2,323,813 2,553,972 209,939 5,087,724 3,343,117 1,744,607 For the years ended December 31, 2015 and 2014, depreciation expense was $563,579 and $535,251, respectively. As of December 31, 2015, the Company has a non-cancellable lease In May 2013, the Company entered into a 10-year lease agreement agreement for the operating headquarters. The lease states that if the to operate a branch in Springfield, Virginia. The lease, which is Company holds possession of the premises after the expiration date, cancellable with penalty, expires August 31, 2023. The lease the Company shall become a tenant on a month-to-month basis. The contains an option to extend for two five-year periods. monthly rental payment shall continue as provided unless notice is given. The lease expires December 31, 2017. In January 2008, the Company entered into a non-cancellable lease Total rent expense for the years ended December 31, 2015 and 2014 amounted to $981,577 and $983,007, respectively. agreement to operate a branch in Manassas, Virginia. The lease The minimum base rent for the remainder of the leases expires December 31, 2017. The lease contains an option to extend are as follows: for two five-year periods. In December 2010, the Company entered into a five-year lease agreement to operate a branch in Reston, Virginia. The lease, which is cancellable with penalty, expires December 31, 2020. The lease contains an option to extend for two five-year periods. 2016 2017 2018 2019 2020 In October 2012, the Company assumed the remaining term of a non- Thereafter cancellable 10-year lease agreement to operate a branch in Arlington, Virginia. The lease expires on July 31, 2018. The lease contains an option to extend for two five-year periods. As part of the acquisition accounting, the Company recorded a liability for the terms of the lease relative to the market terms at the time of the acquisition. The liability is accreted against rent expense over the remaining lease term. 1,097,743 999,715 256,935 89,762 92,231 258,235 2,794,621 $ $ 23 FVCBankcorp, Inc.The minimum base rent for the remainder of the leases are as follows: Note 6 Time Deposits Remaining maturities on certificates of deposit are as follows: 2016 $ 2017 2018 2019 2020 122,732,703 40,780,588 39,886,963 5,377,802 3,160,396 $ 211,938,452 Total time deposits of $250,000 and greater were $50,884,076 and $52,459,472 at December 31, 2015 and 2014, respectively. Note 7 Deposit Concentrations At December 31, 2015 and 2014, the Company had one customer relationship, whose related balance on deposit exceeded 5% of outstanding deposits. This customer relationship comprises 8% of outstanding deposits at December 31, 2015 and 10% of outstanding deposits at December 31, 2014. Brokered deposits totaled $98,959,198 and $76,972,714 at December 31, 2015 and 2014, respectively. Note 8 Federal Home Loan Bank (FHLB) Advances and Other Borrowings FHLB advances at December 31, 2015 consist of the following: Amount Weighted Average Rule Daily rate advances maturing: 2016 $ 33,150,000 $ Fixed rate advances maturing: 2017 Total FHLB advances $ 2,500,000 35,650,000 $ 0.49% 1.33% 0.55% At December 31, 2015, advances are collateralized by securities with a market value of $5,144,064, 1-4 family residential loans with a book value of $2,916,873, multi-family residential loan with a book value of $7,756,334, home equity lines of credit with a book value of $10,711,014 and commercial real estate loans with book value of $71,379,798. The remaining lendable collateral value at December 31, 2015 totaled $34,233,408. The Company has unsecured lines of credit with correspondent banks totaling $37,000,000 and $22,000,000 at December 31, 2015 and 2014, available for overnight borrowing. At December 31, 2015 and 2014, these lines of credit with correspondent banks were not drawn upon. Note 9 Related Party Transactions Officers, directors and their affiliates had borrowings of $3,447,180 and $1,181,159 at December 31, 2015 and 2014 with the Company. During the years ended December 31, 2015 and 2014, total principal additions were $2,669,976 and $247,146 and total principal payments were $403,955 and $1,983,976, respectively. Related party deposits amounted to $20,523,012 and $27,887,131 at December 31, 2015 and 2014, respectively. 24 Annual Report 2015Note 10 Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 are presented below: Deferred Tax Assets Allowance for loan losses Net operating loss carryforward Bank premises and equipment and deferred rent Unrealized loss on securities available for sale Directors – nonqualified stock options Organizational and start-up expenses Acquisition accounting adjustments Non-accrual loan interest Deferred Tax Liabilities: Deferred loan fees 2015 2014 $ 2,071,280 $ 1,804,757 475,031 391,382 316,267 272,368 122,554 111,388 43,154 $ $ $ $ 3,803,424 (118,807) (118,807) 3,684,617 $ $ $ $ Net Deferred Tax Assets 503,251 362,015 207,935 181,843 140,274 119,927 18,196 3,338,198 (127,798) (127,798) 3,210,400 As part of the 2012 acquisition, the Company acquired approximately $1.7 million of unused net operating carryforwards. The Company may utilize the carryforwards, subject to certain limitations, through 2032. The income tax expense charged to operations for the years ended December 31, 2015 and 2014 consists of the following: Current tax expense Deferred tax benefit 2015 2014 $ $ 3,225,682 (365,885) 2,859,797 $ $ 2,356,318 (193,905) 2,162,413 Income tax expense (benefit) differed from amounts computed by applying the U.S. federal income tax rate of 34% to income, excluding bargain purchase gain, before income tax expense as a result of the following: Computed “expected” tax expense Increase (decrease) in income taxes resulting from: Non-deductible expense Tax free income Other 2015 2014 2,814,815 $ 2,140,606 157,448 (110,649) (1,817) 105,468 (67,779) (15,882) 2,859,797 $ 2,162,413 $ $ The Company files income tax returns in the U.S. federal jurisdiction. With few exceptions, the Company is no longer subject to U.S. federal examination by tax authorities for years prior to 2012. 25 FVCBankcorp, Inc.Note 11 Financial Instruments with Off-Balance Sheet Risk The Company is party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. At December 31, 2015 and 2014, the following financial instruments were outstanding which contract amounts represent credit risk: Commitments to grant loans Unused commitments to fund loans and lines of credit Commercial and standby letters of credit 2015 2014 $ $ 6,716,250 128,093,674 2,131,978 $ $ 23,978,293 96,679,991 974,762 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Commercial and standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments, if deemed necessary. The Company maintains its cash accounts with the Federal Reserve and correspondent banks. The total amount of cash on deposit in correspondent banks exceeding the federally insured limits was $1,235 and $75,924 at December 31, 2015 and 2014, respectively. Annual Report 2015 26 Note 12 Minimum Regulatory Capital Requirements Banks and bank holding companies are subject to various regulatory are calculated using Basel I rules, which were effective until January 1, capital requirements administered by the federal banking agencies. 2015. Management believes as of December 31, 2015, the Company Failure to meet minimum capital requirements can initiate certain meets all capital adequacy requirement to which they are subject. mandatory, possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance- sheet items as calculated under regulatory accounting practices. A financial institution’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2015 and 2014, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions The final rules implementing Basel Committee on Banking or events since that notification that management believes have Supervision’s capital guidelines for U.S. banks (Basel III rules) became changed the institution’s category. effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. As a part of the new requirements, the Common Equity Tier 1 Capital ratio is calculated and utilized in the assessment of capital for all institutions. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. Capital amounts and ratios for December 31, 2014 Federal and state banking regulations place certain restrictions on dividends paid by the Company. The total amount of dividends which may be paid at any date is generally limited to retained earnings of the Company. The Bank’s actual capital amounts and ratios are also presented in the table. ACTUAL MINIMUM CAPITAL REQUIREMENT WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO $ $ $ $ $ $ $ 79,485 12.20% 73,246 73,246 73,246 11.25% 11.25% 10.82% 69,622 13.62% 64,057 12.53% 64,057 10.96% $ $ $ $ $ $ $ (Amounts in thousands) 52,102 8.00% 39,076 29,307 27,083 6.00% 4.50% 4.00% 40,884 8.00% 20,442 4.00% 23,381 4.00% $ $ $ $ $ $ $ 65,127 10.00% 52,102 42,333 33,854 8.00% 6.50% 5.00% 51,105 10.00% 30,663 6.00% 29,226 5.00% As of December 31, 2015: Total Risk Based Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Common Tier 1 (CET 1) Tier 1 Capital (to Average Assets) As of December 31, 2014: Total Risk Based Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) 27 FVCBankcorp, Inc.Note 13 Stock-Based Compensation Plan The Company’s 2008 Stock Option Plan (the Plan), which is The fair value of each option award is estimated on the date of grant shareholder-approved, was adopted to advance the interests of using a Black-Scholes option-pricing model for determining fair value. the Company by providing selected key employees of the Company, The model employs the following assumptions: their affiliates, and directors with the opportunity to acquire shares of common stock. The Plan granted options to purchase 3,000 shares of common stock to each of the 21 organizing shareholders of the Company, who had funds at risk during the Company’s organizational » Dividend yield — calculated as the ratio of historical dividends paid per share of common stock to the stock price on the date of grant; period and assumed the financial risk that the Company would not » Expected life (term of options) — based on the open. These shares immediately vested upon grant. average contractual life and vesting schedule for the The maximum number of shares with respect to which awards may be made is 931,250 shares of common stock, subject to adjustment for certain corporate events. On June 26, 2014, the shareholders approved an amendment to the Amended and Restated 2008 Stock Plan to respective options; » Expected volatility — based on the monthly historical volatility of the stock price of similar banks over the expected life of the options; increase the number of shares authorized for issuance under the » Risk-free interest rate — based upon the U.S. Treasury Plan by 437,500 shares. Option awards are generally granted with an bill rate in effect at date of grant for bonds with a maturity exercise price equal to the market price of the Company’s stock at the equal to the expected life of the options. date of grant, generally vest annually over three years of continuous service and have ten year contractual terms. At December 31, 2015, 24,655 shares were available to grant under the Plan. Dividend yield Expected life (in years) Expected volatility Risk-free interest rate 2015 2014 -- 6.5 25% 1.73% -- 6.4 – 6.6 15% – 25% 2.02% A summary of option activity under the Plan as of December 31, 2015, and changes during the year then ended is presented below: Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (1) Outstanding at January 1, 2015 1,055,436 $ Granted Exercised Forfeited or expired Outstanding at December 31, 2015 Exercisable at December 31, 2015 249,637 (2,437) (3,833) 1,298,803 787,552 $ $ 10.32 13.39 10.94 12.10 10.91 10.10 7.27 $ 2,140,469 6.82 5.67 $ $ 8,236,569 5,631,846 (1) The aggregate intrinsic value of stock options represents the total The compensation cost that has been charged to income for the pre-tax intrinsic value (the amount by which the current market value plan was $705,000 and $481,000 for 2015 and 2014, respectively. of the underlying stock exceeds the exercise price of the option) that As of December 31, 2015, there was unamortized compensation would have been received by the option holders had all option holders expense of $1,219,074 that will be amortized over 30 months. Tax exercised their options on December 31, 2015. This amount changes benefits recognized for qualified stock options during 2015 and based on changes in the market value of the Company’s stock. 2014 totaled $90,526 and $65,387. The weighted average grant date fair value of options granted Stock option information has been retroactively adjusted for the during the years ended December 31, 2015 and 2014 was $3.93 five-for-four stock split declared in March 2015. and $3.26, respectively. 28 Annual Report 2015Note 14 Fair Value Measurements Determination of Fair Value Fair Value Hierarchy The Company uses fair value measurements to record fair value In accordance with this guidance, the Company groups its financial adjustments to certain assets and liabilities and to determine fair assets and financial liabilities generally measured at fair value in value disclosures. In accordance with Fair Value Measurements and three levels, based on the markets in which the assets and liabilities Disclosures topic of FASB ASC, the fair value of a financial instrument are traded and the reliability of the assumptions used to determine is the price that would be received to sell an asset or paid to transfer fair value. a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted Level 1: Valuation is based on quoted prices in active markets for identical assets and liabilities. market prices for the Company’s various financial instruments. In Level 2: Valuation is based on observable inputs including quoted cases where quoted market prices are not available, fair values are prices in active markets for similar assets and liabilities, quoted prices based on estimates using present value or other valuation techniques. for identical or similar assets and liabilities in less active markets, and Those techniques are significantly affected by the assumptions model-based valuation techniques for which significant assumptions used, including the discount rate and estimates of future cash flows. can be derived primarily from or corroborated by observable data in Accordingly, the fair value estimates may not be realized in an the market. immediate settlement of the instrument. Level 3: Valuation is based on model-based techniques that use one The fair value guidance provides a consistent definition of fair value, or more significant inputs or assumptions that are unobservable in which focuses on exit price in an orderly transaction (that is, not a the market. forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements: Securities available for sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2). 29 FVCBankcorp, Inc. The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014: Description Balance as of December 31, 2015 Fair Value Measurements at December 31, 2015 Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Available-for-sales Securities of U.S. government and federal agencies $ 1,483,938 $ Securities of state and local municipalities tax exempt Securities of state and local municipalities taxable Corporate securities Certificates of deposit SBA pass-through securities Mortgage-backed securities Collateralized mortgage obligations 1,728,365 1,308,000 1,940,870 992,411 371,144 37,159,780 20,563,012 Total Available-for-sale Securities $ 65,547,520 $ -- -- -- -- -- -- -- -- -- $ 1,483,938 $ 1,728,365 1,308,000 1,940,870 992,411 371,144 37,159,780 20,563,012 $ 65,547,520 $ -- -- -- -- -- -- -- -- -- Description Balance as of December 31, 2014 Fair Value Measurements at December 31, 2014 Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Available-for-sales Securities of U.S. government and federal agencies $ 4,167,725 $ Securities of state and local municipalities Certificates of deposit SBA pass-through securities 1,289,825 2,244,551 429,082 Mortgage-backed securities 25,022,584 Collateralized mortgage obligations 29,543,631 Total Available-for-Sale Securities $ 62,697,398 $ -- -- -- -- -- -- -- $ 4,167,725 $ 1,289,825 2,244,551 429,082 25,022,584 29,543,631 $ 62,697,398 $ -- -- -- -- -- -- -- 30 Annual Report 2015Certain financial assets are measured at fair value on a nonrecurring The vast majority of the collateral is real estate. The value of real basis in accordance with GAAP. Adjustments to the fair value of these estate collateral is determined utilizing a market valuation approach assets usually result from the application of lower-of-cost-or-market based on an appraisal conducted by an independent, licensed accounting or write-downs of individual assets. appraiser outside of the Company using observable market data The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements: Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. (Level 2). However, if the collateral is a house or building in the process of construction, has the value derived by discounting comparable sales due to lack of similar properties, or is discounted by the Company due to marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Statements of Income. The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period: Description Balance as of December 31, 2015 Fair Value Measurements at December 31, 2015 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Impaired Loans, net of valuation allowance $ 892,392 $ -- $ -- $ 892,392 Description Balance as of December 31, 2014 Fair Value Measurements at December 31, 2014 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Impaired Loans, net of valuation allowance $ 488,091 $ -- $ -- $ 488,091 The following table displays quantitative information about Level 3 Fair Value Measurements for December 31, 2015 and 2014: Quantitative information about Level 3 Fair Value Measurements for December 31, 2015 Assets Fair Value Valuation Technique(s) Unobservable Input Range 434,389 Business asset value 458,003 Discounted appraised value Liquidation costs Market discount 5% – 100% 10% – 12% Quantitative information about Level 3 Fair Value Measurements for December 31, 2014 Fair Value Valuation Technique(s) Unobservable Input Range 130,016 Business asset value 358,075 Discounted appraised value Liquidation costs Market discount Liquidation costs 20 – 75% 7% 20% Impaired Loans Assets Impaired Loans $ $ $ $ 31 FVCBankcorp, Inc.The fair value of a financial instrument is the current amount that Loans Receivable would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (for example, one to four family residential), credit-card loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for business real estate and business loans are estimated using a discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein: Bank Owned Life Insurance Cash and Due from Banks and Federal Funds Sold officers of the Company. The cash values of the policies are estimated The carrying amounts of cash and due from banks and federal funds sold approximate their fair value. using information provided by insurance carriers. These policies are carried at their cash surrender values, which approximates fair values. Bank owned life insurance represents insurance policies on senior Securities Accrued Interest Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or third party vendor pricing models. The carrying amount of accrued interest approximates fair value. Deposits The carrying amounts of deposit liabilities payable on demand, consisting of NOW accounts, money market deposits, and saving Interest-Bearing Deposits at Other Financial Institutions deposits approximate fair value. Fair value of fixed-rate certificates The carrying amounts of interest-bearing deposits at other financial institutions payable on demand, consisting of money market deposits, approximate fair value. Fair value of fixed-rate certificates of deposit is estimated based on discounted cash flow analyses using the remaining maturity of the underlying accounts and interest rates currently offered on certificates of deposit with similar of deposit is estimated based on discounted cash flow analyses using the remaining maturity of the underlying accounts and interest rates currently offered on certificates of deposit with similar original maturities. FHLB Advances original maturities. Restricted Stock The carrying amount of Federal Reserve Bank stock, Federal Home Loan Bank stock and Community Bankers’ Bank Stock approximates fair value based on redemption provisions. The fair value of FHLB advances is estimated based on discounted cash flow analysis using the remaining maturity of the underlying accounts and interest rates currently offered of advance with similar original maturities. Off-Balance Sheet Financial Instruments At December 31, 2015 and 2014, the fair values of loan commitments and standby letters of credit are immaterial. Therefore, they have not been included in the following table. 32 Annual Report 2015Carrying Amount Fair Value Measurements at December 31, 2015 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Unobservable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and due from banks $ 5,257,136 $ 5,257,136 $ 23,442,934 23,442,934 Interest-bearing deposits at other institutions Securities held-to-maturity Securities available for sale Restricted stock Loans, net Bank owned life insurance Accrued interest receivable 2,246,992 65,547,520 4,048,000 617,320,037 10,524,789 1,908,487 Financial Liabilities: Checking, savings and money market accounts $ 414,701,339 $ Time deposits FHLB advances Accrued interest payable 211,938,452 35,650,000 132,743 $ -- -- 2,244,390 65,547,520 4,048,000 -- -- -- -- -- -- 619,338,000 10,524,789 1,908,487 $ 414,701,339 $ 211,798,000 35,428,000 132,743 -- -- -- -- -- Carrying Amount Fair Value Measurements at December 31, 2014 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Unobservable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and due from banks $ 5,066,808 $ 5,066,808 $ 13,895 13,895 10,915,209 10,915,209 Fed funds sold Interest-bearing deposits at other institutions Securities available for sale Restricted stock Loans, net Bank owned life insurance Accrued interest receivable 62,697,398 3,887,250 504,372,951 10,199,352 1,576,142 Financial Liabilities: Checking, savings and money market accounts $ 305,480,915 $ Time deposits FHLB advances Accrued interest payable 198,739,453 32,500,000 153,062 33 $ -- -- -- 62,697,398 3,887,250 -- -- -- -- -- -- 507,417,000 10,199,352 1,576,142 $ 305,480,915 $ 199,457,000 32,520,000 153,062 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- FVCBankcorp, Inc.Note 15 Earnings Per Share Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of stock which then shared in the earnings of the Company. Earnings per share has been retroactively adjusted for the five-for-four stock split declared in March 2015. The following shows the weighted average number of shares used in computing earnings per share and the effect of weighted average number of shares of dilutive potential common stock. Dilutive potential common stock has no effect on income available to common shareholders. There were 249,637 and 329,450 shares, respectively, excluded from 2015 and 2014 the calculation because their effects were anti-dilutive. Net income Weighted average number of shares Options effect of dilutive securities Weighted average diluted shares Note 16 Subsequent Events 2015 2014 5,419,071 $ 6,488,525 289,777 6,778,302 0.84 0.80 $ $ 4,133,488 6,480,601 100,601 6,581,203 0.64 0.63 $ $ $ Basic EPS Diluted EPS In preparing the financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through March 10, 2016, the date the financial statements were available to be issued. Annual Report 2015 34 LOCATIONS Headquarters 11325 Random Hills Road, Suite 240 Fairfax, VA 22030 Phone: 703.436.3800 Arlington Branch 2500 Wilson Boulevard, Suite 100 Arlington, VA 22201 Phone: 703.387.5050 Ashburn Branch 43800 Central Station Drive, Suite 150 Ashburn, VA 20147 Fairfax Branch 11325 Random Hills Road, Suite 100 Fairfax, VA 22030 Phone: 703.436.3800 Manassas Branch 7900 Sudley Road Manassas, VA 20109 Phone: 703.656.7300 Reston Branch 11260 Roger Bacon Drive, Suite 101 Reston, VA 20190 Phone: 703.436.3880 Springfield Branch 6975 Springfield Boulevard Springfield, VA 22150 Phone: 703.672.2590 

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