Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2016. The balance sheet is compared with March 31, 2016; operating results are compared with the corresponding 2015 periods. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance
| Metric | Three months ended Dec. 31, 2016 | Three months ended Dec. 31, 2015 | Nine months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2015 |
|---|---|---|---|---|
| Net interest income | $8.5 million | $7.5 million | $24.4 million | $21.8 million |
| Net interest margin (fully tax-equivalent) | 3.75% | 3.69% | 3.73% | 3.67% |
| Net income | $2.0 million | $1.7 million | $5.4 million | $5.0 million |
| Diluted earnings per share | $0.09 | $0.08 | $0.24 | $0.22 |
| Non-interest income | $2.3 million | $2.4 million | $7.4 million | $7.2 million |
| Non-interest expense | $7.9 million | $7.3 million | $24.1 million | $22.4 million |
- Higher net interest income, primarily from loan growth, was the main driver of year-over-year earnings improvement. Nine-month 2015 results included an $800,000 loan-loss recapture; there was no loan-loss provision in the first nine months of 2016.
- Quarterly non-interest income declined $84,000, mainly because of lower asset management fees. Nine-month non-interest income included a $407,000 BOLI death benefit and a $240,000 impairment charge on a collateralized debt obligation (CDO).
- Non-interest expense rose $502,000 for the quarter and $1.7 million for nine months. Higher salaries and professional fees contributed; nine-month 2016 expense also included a $500,000 litigation settlement and costs related to the pending MBank transaction.
Financial position, cash flow and liquidity
- Total assets were $985.7 million at December 31, 2016, up from $921.2 million at March 31, 2016. Net loans increased to $654.1 million from $614.9 million; deposits rose to $840.4 million from $779.8 million.
- Available-for-sale securities increased to $207.3 million from $150.7 million, while cash and cash equivalents declined to $28.3 million from $55.4 million. Management attributed the cash decrease primarily to deploying excess cash into securities and funding loan growth.
- Nine-month cash flows: $12.3 million provided by operations, $98.3 million used in investing, and $58.9 million provided by financing. Cash decreased $27.1 million to $28.3 million.
- At quarter-end, cash plus available-for-sale securities totaled $246.8 million, or 25.0% of assets. The Bank reported no FHLB or FRB advances and no brokered deposits; available borrowing capacity was $232.0 million at the FHLB and $62.2 million at the FRB. Management reported total available liquidity of $679.7 million, or 69.0% of assets.
- Total liabilities were $876.3 million and shareholders’ equity was $109.4 million. Junior subordinated debentures totaled $22.7 million and the capital lease obligation was $2.5 million. The Bank was classified as “well capitalized”; its total capital ratio was 15.93% and leverage ratio was 10.81%.
Asset quality and material changes
- Nonperforming assets were $3.1 million, or 0.31% of total assets, compared with $3.3 million, or 0.36%, at March 31, 2016. Nonperforming loans were $2.8 million; the allowance for loan losses was $10.3 million, or 1.55% of total loans, with coverage of nonperforming loans at 369%.
- Loans 30–89 days past due were $901,000, versus $611,000 at March 31, 2016. Total TDRs were $12.1 million; three modified loans totaling approximately $1.7 million had defaulted after modification.
- The loan portfolio remained concentrated in commercial real estate: commercial and construction loans totaled $549.9 million, including $397.3 million in commercial real estate. Management noted that these loans generally carry greater credit and interest-rate risk than traditional residential mortgages.
- Unrealized losses on available-for-sale securities increased substantially as market interest rates rose. Accumulated other comprehensive income moved from positive $1.1 million at March 31 to a loss of $1.9 million at December 31. Management considered the portfolio’s unrealized losses temporary, apart from the impaired CDO.
Outlook, transaction and risks
- Riverview had agreed to acquire certain MBank assets and assume certain liabilities in a cash transaction, and to assume Merchants Bancorp’s trust-preferred obligations. The transaction was subject to regulatory approval and customary closing conditions, and was expected to close in the quarter ending March 31, 2017. The company expected to acquire approximately $118 million of loans, primarily commercial and commercial real estate.
- Management described continued organic loan and core-deposit growth as strategic priorities, with an emphasis on commercial lending, relationship banking, expense control and fee income. The Trust Company opened a second office in Portland in January 2017. Management reported an efficiency ratio of 75.6% at December 31, 2016, down from 98.0% at March 31, 2014.
- Management cited improving local real estate and economic conditions, but warned that deterioration in local markets, collateral values, borrower performance, funding access, interest rates, regulatory actions, or transaction approvals and integration could adversely affect results. The allowance depends on estimates and may need to increase if credit conditions worsen.
- The company reported no material change in risk factors from its prior Form 10-K. It stated that ordinary-course litigation was not expected to have a material effect. Goodwill impairment testing found no impairment, but management noted future adverse conditions could lead to a charge.
Investor facts to verify
- Whether the MBank transaction received required approvals, closed as expected, and delivered the anticipated assets, liabilities, costs and benefits.
- Subsequent trends in commercial real estate and construction lending, delinquencies, TDR performance, nonperforming assets, and allowance adequacy.
- Whether deposit growth and the reported borrowing facilities continue to support liquidity as loan commitments are funded and deposits mature.
- The effect of rising interest rates on net interest margin, adjustable-rate loans, securities valuations and accumulated other comprehensive income.
- How recurring earnings compare with results that included the one-time BOLI death benefit, litigation settlement, CDO impairment and prior-year loan-loss recapture.