Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2017 (quarterly results compared with the three months ended June 30, 2016; balance-sheet comparisons are to March 31, 2017). Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context
Riverview is a community bank serving markets in Washington and Oregon, with commercial and real estate lending and a trust and asset management subsidiary. Results include the acquired MBank assets and liabilities from the February 17, 2017 purchase-and-assumption transaction. The Trust Company opened a second office in Lake Oswego in April 2017.
Financial performance and condition
- Earnings: Net income was $2.65 million, or $0.12 per diluted share, versus $1.70 million, or $0.08, a year earlier. Pretax income was $4.00 million versus $2.52 million.
- Revenue and margins: Net interest income was $10.43 million, up 33.4%; net interest margin was 4.09%, up from 3.74%. Interest and dividend income was $11.02 million versus $8.26 million. Non-interest income was $2.74 million versus $2.51 million.
- Expenses and credit costs: Non-interest expense rose to $9.17 million from $7.82 million, primarily reflecting MBank-related staffing, branch, professional-fee, and systems costs. The loan-loss provision was zero in both periods.
- Cash flow: Operating activities provided $2.24 million, investing activities used $25.73 million, and financing activities used $7.01 million. Cash and cash equivalents declined $30.51 million to $34.11 million.
- Balance sheet: Total assets were $1.125 billion, down from $1.134 billion at March 31. Net loans increased to $786.9 million from $768.9 million, including organic growth and purchased SBA loans. Deposits declined to $973.5 million from $980.1 million; core branch deposits were 97.3% of deposits, and there were no brokered deposits.
- Credit quality: Nonperforming assets were $3.09 million, or 0.27% of assets, essentially unchanged from March 31. The allowance was $10.60 million, or 1.33% of total loans; coverage of nonperforming loans was 379.55%. Net recoveries were $69,000 for the quarter.
- Debt, liquidity, and capital: Junior subordinated debentures were $26.4 million and the capital lease obligation was $2.45 million; there were no FHLB or FRB advances at quarter-end. Cash plus available-for-sale securities totaled $250.2 million, or 22.2% of assets. The company reported $710.0 million of total available liquidity, including borrowing capacity subject to collateral and other conditions. The Bank was classified as well capitalized; its total capital ratio was 14.41% and Tier 1 leverage ratio was 9.79%.
- Equity: Shareholders’ equity was $113.9 million, up from $111.3 million, primarily reflecting quarterly earnings, partly offset by $507,000 of declared dividends.
Changes and management commentary
- Year-over-year earnings growth reflected higher net interest and non-interest income, partly offset by acquisition-related operating expenses. The MBank loan portfolio and discount accretion contributed to higher net interest margin.
- Management reported steady local loan demand and anticipated continued organic loan growth. Its strategy emphasizes commercial and construction lending, core deposits, relationship banking, asset quality, and expense control; the reported efficiency ratio was 69.7%.
- Management attributed the absence of a loan-loss provision to net recoveries and lower delinquent, nonperforming, and classified loan levels, together with improved real estate values. It nevertheless cautioned that economic deterioration, regulatory reviews, or falling collateral values could require higher reserves.
- Management expected adoption of the future expected-credit-loss standard (ASU 2016-13) to change allowance processes and anticipated the allowance may increase. No quantified estimate was provided.
- No formal earnings or financial guidance was provided. The filing states that quarterly results are not necessarily indicative of full-year results.
Risks, contingencies, and notable items
- The loan book is concentrated in commercial real estate and other real-estate-related lending; management identifies property-value declines, local economic weakness, interest-rate changes, and refinancing conditions as risks. Nonperforming loans included $2.79 million, with $2.41 million of nonperforming TDRs; four defaulted TDR loans were identified.
- Off-balance-sheet commitments totaled $173.3 million, including $132.5 million of unused lines and undisbursed funds. The company also had $118.9 million of loans under warranty and reported a $27,000 allowance for FHLMC loans; management considered potential warranty losses remote.
- The company is involved in ordinary-course litigation, which management did not expect to have a material adverse effect. No material risk-factor changes were reported.
- The annual goodwill assessment found no impairment; goodwill was $27.1 million. Management noted that adverse changes in business conditions, forecasts, or market values could lead to a future impairment.
- Shareholders approved a new equity incentive plan on July 26, 2017, reserving 1.8 million shares. Disclosure controls were assessed as effective, with no materially affecting control changes reported during the quarter.
Important facts for investors to verify
- Whether acquired MBank loan yields and discount accretion remain supportive of net interest margin, and how integration costs trend after the systems conversion completed in May.
- Subsequent loan growth, funding and deposit trends, and the concentration and performance of commercial real estate, construction, and purchased SBA loans.
- Changes in nonperforming loans, TDR defaults, classified loans, recoveries, and allowance adequacy, including any effects of regulatory review.
- Actual liquidity available against deposit maturities and $173.3 million of commitments, including the collateral and other conditions on borrowing capacity.
- The eventual allowance impact and implementation readiness for ASU 2016-13, and any developments affecting goodwill valuation or contingent claims.