Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2022; comparisons are with the periods ended December 31, 2021, or with March 31, 2022 for balance-sheet measures. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
Business context
Riverview is a Washington-based community banking and financial services company serving markets in southwest Washington and Oregon. Its lending is concentrated in commercial real estate, commercial business and construction loans. The filing is unaudited and notes that nine-month results are not necessarily indicative of full-year results.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Three months ended Dec. 31, 2021 | Nine months ended Dec. 31, 2022 | Nine months ended Dec. 31, 2021 |
|---|---|---|---|---|
| Net interest income | $13.7 | $12.1 | $39.8 | $35.7 |
| Net interest margin | 3.48% | 2.96% | 3.30% | 3.05% |
| Non-interest income | $3.0 | $3.1 | $9.2 | $9.8 |
| Non-interest expense | $9.8 | $9.3 | $29.4 | $26.6 |
| Net income | $5.2 | $5.5 | $15.1 | $17.7 |
| Diluted earnings per share | $0.24 | $0.25 | $0.69 | $0.80 |
- Quarterly interest and dividend income rose to $14.4 million from $12.6 million; nine-month income rose to $41.7 million from $37.4 million. Higher investment-security and bank-deposit yields contributed to the increase.
- Profit declined year over year in both periods. The prior-year periods included loan-loss provision recaptures of $1.3 million for the quarter and $4.0 million for nine months. Prior-year nine-month results also included a $0.5 million BOLI death benefit and a $1.0 million gain on premises and equipment.
- Non-interest expense increased, reflecting wage and employee-benefit pressures and higher occupancy and depreciation costs. Nine-month expenses also lacked the prior-year premises-sale gain.
Financial position, cash flow and liquidity
- Balance sheet at Dec. 31, 2022: total assets were $1.599 billion, down from $1.740 billion at March 31, 2022. Net loans were $1.002 billion, up from $975.9 million; deposits were $1.366 billion, down from $1.534 billion.
- Cash and cash equivalents fell to $24.3 million from $241.4 million. The decline reflected deposit withdrawals and investing activity. For the nine months, operating cash flow was $15.0 million, investing cash outflow was $87.5 million, financing cash outflow was $144.6 million, and cash decreased $217.1 million.
- Deposit outflows were attributed mainly to competition and pricing pressures; savings and money-market balances declined. Core branch deposits were 97.7% of deposits, and the company reported no brokered deposits at either balance-sheet date.
- The Bank had $32.3 million of FHLB advances outstanding, versus none at March 31, 2022. Reported additional borrowing capacity was $299.6 million at the FHLB and $52.7 million at the Federal Reserve, subject to collateral and other conditions. Management reported total available liquidity of $818.2 million, or 51.2% of assets.
- Shareholders’ equity was $152.0 million, down from $157.2 million. The decrease included $11.6 million of after-tax other comprehensive loss related to available-for-sale securities, $4.9 million of share repurchases and $3.9 million of dividends, partly offset by $15.1 million of net income.
- Net interest margin improved year over year, but the company reported substantial unrealized losses on securities: $28.4 million on available-for-sale securities and $37.4 million on held-to-maturity securities at Dec. 31, 2022. Management attributed the losses primarily to higher market interest rates and said it had the ability and intent to hold securities until recovery.
Asset quality, outlook and other material matters
- The allowance for loan losses was $14.6 million, or 1.43% of loans, versus $14.5 million, or 1.47%, at March 31, 2022. No provision was recorded for the nine months ended Dec. 31, 2022; the comparable 2021 period had a $4.0 million recapture. Management considered the allowance adequate but warned that economic deterioration, regulatory examinations or falling collateral values could require additions.
- Nonperforming assets were $12.6 million, or 0.79% of assets, compared with $22.1 million, or 1.27%, at March 31, 2022. Most of the reported balance—$12.4 million—was government-guaranteed SBA or USDA loans affected by a third-party servicing-transfer and certificate-conversion delay. The company said it expected repayment under the guarantees and continued working through the reconciliation process.
- Commercial and construction loans were 89.9% of total loans. Commercial real estate alone represented 55.3%. The company’s stated strategy is to grow commercial lending and core deposits, preserve asset quality, control expenses and expand fee income. Management also cited the higher credit risk and interest-rate sensitivity of commercial lending.
- No specific earnings guidance was provided. The company expected approximately $1.8 million in capital expenditures for the remainder of fiscal 2023 and said it expected to continue quarterly dividends at $0.06 per share, subject to Board discretion. A $2.5 million repurchase authorization runs through May 28, 2023, subject to completion and market conditions; $81,000 had been repurchased by Dec. 31, 2022.
- The Bank was categorized as well capitalized, with a 16.71% total risk-based capital ratio. The company said it expects CECL adoption in fiscal 2024 to change its allowance processes and anticipated that the allowance may change, but the amount was not yet known.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material change in the risk factors in its prior annual report. Ordinary-course litigation was not expected by management to have a material effect.
Important facts for investors to verify
- Whether deposit outflows persist, and how deposit pricing and funding costs affect net interest margin and liquidity.
- Progress resolving the SBA/USDA servicing-transfer issue, including the timing and treatment of the $12.4 million in government-guaranteed loans reported as past due.
- Changes in commercial real estate and construction credit quality, loan concentrations, delinquencies and allowance adequacy.
- The potential effects of securities’ unrealized losses, interest-rate movements and CECL adoption on capital, earnings and reported credit-loss allowances.
- Execution of the share-repurchase and dividend plans, subject to liquidity needs, capital requirements and Board discretion.