Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2014, the third quarter of fiscal 2015 (fiscal year ending March 31, 2015). The filing is unaudited. Unless stated otherwise, amounts below are in U.S. dollars.
Business context and financial performance
Riverview is a community banking and financial services company operating primarily in Washington and Oregon. It gathers deposits and lends mainly to commercial businesses and real estate borrowers; it also provides trust and asset-management services.
| Metric | Three months ended Dec. 31, 2014 | Prior-year quarter | Nine months ended Dec. 31, 2014 | Prior-year nine months |
|---|---|---|---|---|
| Net interest income | $6.718 million | $6.028 million | $19.797 million | $18.282 million |
| Net interest margin | 3.58% | 3.29% | 3.55% | 3.39% |
| Net income | $1.149 million | $0.801 million | $2.973 million | $2.782 million |
| Diluted earnings per share | $0.05 | $0.04 | $0.13 | $0.12 |
| Non-interest income | $2.264 million | $2.384 million | $6.697 million | $6.517 million |
| Non-interest expense | $7.646 million | $7.611 million | $23.055 million | $24.501 million |
The company recorded loan-loss recaptures of $0.4 million in the quarter and $1.05 million for the nine months, versus no recapture in the prior-year quarter and a $2.5 million recapture in the prior-year nine-month period. Income-tax expense was $0.587 million for the quarter and $1.516 million year to date, compared with none and $0.016 million, respectively, in the prior-year periods.
Financial position, cash flow and liquidity
- Assets and lending: Total assets were $828.4 million at December 31, 2014, versus $824.5 million at March 31, 2014. Net loans rose to $567.4 million from $520.9 million, reflecting $31.6 million of net organic growth and a $14.9 million increase in purchased auto-loan pools. Total deposits were $689.3 million, slightly below $690.1 million at March 31.
- Cash and securities: Cash declined to $22.0 million from $68.6 million. Available-for-sale mortgage-backed securities rose to $101.2 million from $78.6 million as cash was redeployed. Cash and available-for-sale investments totaled $167.6 million, or 20.2% of assets.
- Cash flows, nine months: Operating activities provided $5.2 million; investing activities used $52.8 million; financing activities provided $1.0 million. Cash decreased $46.6 million to $22.0 million. Investing outflows included securities purchases and net loan growth.
- Debt and capital: Liabilities included $22.7 million of junior subordinated debentures, $2.1 million of FHLB advances, and $2.3 million of capital lease obligations. Shareholders’ equity was $101.9 million, up from $98.0 million at March 31. The Bank was categorized as well capitalized under its heightened OCC requirements; actual total risk-based capital and leverage ratios were 15.59% and 10.72%, respectively, against well-capitalized thresholds of 12.0% and 9.0%.
- Funding capacity: The company reported $492.9 million of available liquidity, including borrowing capacity. It had $2.1 million of FHLB advances and no FRB borrowings or wholesale-brokered deposits. Reciprocal CDARS/ICS deposits were $28.7 million. These figures include contingent sources and should not be read as cash on hand.
Material changes and management commentary
- Quarterly and year-to-date net interest income increased, principally due to a larger average loan and securities balance and lower deposit costs. Year-to-date net interest margin improved to 3.55% from 3.39%.
- Year-to-date non-interest expense fell $1.4 million, chiefly as REO costs, FDIC insurance premiums and prior-year data-processing conversion costs declined. Salaries and benefits increased $1.3 million, partly reflecting expanded lending staffing and restored incentive plans.
- Asset quality improved from March 31: nonperforming assets fell to $9.3 million from $21.8 million, and REO declined to $1.6 million from $7.7 million. The allowance for loan losses was $11.7 million, or 2.02% of loans, versus $12.6 million, or 2.35%. Nonperforming loans were $7.7 million; the allowance covered 151.39% of them.
- Management said it expects organic loan growth to increase during fiscal 2015 and plans to expand commercial lending, core deposits and fee income while controlling costs and maintaining regulatory capital. The company closed one Portland in-store branch in October 2014.
- Purchased automobile loans totaled $37.5 million; three loans totaling $44,000 were non-accrual. Management also reported $22.2 million of TDRs, of which $16.8 million were accruing; it said all were paying as agreed except two defaults since modification.
Risks, contingencies and unusual items
- Management cautioned that local economic weakness, falling real-estate values, loan delinquencies, borrower performance, interest-rate changes, deposit competition and regulatory actions could adversely affect earnings, asset quality or liquidity. Commercial and real-estate lending growth brings credit and interest-rate exposure.
- The company had $106.7 million in off-balance-sheet commitments, including $30.6 million to originate loans, $75.4 million in undisbursed funds and unused lines, and $0.8 million in standby letters of credit. It reported $92.3 million of time deposits maturing within one year.
- Loans under sale-related warranties totaled $117.2 million; management considered potential loss remote and recorded no liability. Ordinary-course litigation was not expected by management to have a material effect.
- The company paid $4.0 million of previously deferred interest on its debentures during the quarter. Interest had been deferred beginning in fiscal 2011; the debentures remain outstanding at $22.7 million.
- The annual goodwill test found no impairment; goodwill remained $25.6 million. Management noted that future adverse changes could still lead to impairment. No specific numerical earnings guidance was provided, and management said interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether loan growth, particularly commercial real estate and purchased auto loans, is accompanied by stable underwriting and credit performance.
- Whether the decline in nonperforming assets and REO continues, and whether the $11.7 million loan-loss allowance remains adequate as the portfolio expands.
- How much of reported liquidity is immediately available versus dependent on collateral, borrowing facilities, or deposit retention.
- The effect of the $4.0 million deferred-interest payment and the terms, ongoing interest cost and repayment capacity for the $22.7 million debentures.
- Whether the stated fiscal-2015 loan-growth outlook and planned commercial/deposit strategies translate into sustainable earnings without weakening capital or liquidity.