Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2015; comparative income and cash-flow data are for the corresponding 2014 periods. Balance-sheet comparisons are to March 31, 2015. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context and financial performance
Riverview is a Washington- and Oregon-focused community banking and financial services company. Its business centers on gathering deposits and making commercial business, commercial real estate, construction, residential real estate, and consumer loans. Management’s strategy prioritizes commercial lending, core deposits, fee income, asset quality, and controlled expenses.
| Metric | Three months ended Dec. 31, 2015 | Nine months ended Dec. 31, 2015 | Comparison with 2014 |
|---|---|---|---|
| Net interest income | $7.5 million | $21.8 million | Up $0.8 million and $2.0 million, respectively |
| Net interest margin | 3.69% | 3.67% | Up from 3.58% and 3.55% |
| Net income | $1.7 million | $5.0 million | Up from $1.1 million and $3.0 million |
| Diluted earnings per share | $0.08 | $0.22 | Up from $0.05 and $0.13 |
| Non-interest income | $2.4 million | $7.2 million | Up $0.2 million and $0.5 million |
| Non-interest expense | $7.3 million | $22.4 million | Down $0.3 million and $0.7 million |
| Loan-loss provision/(recapture) | No provision or recapture | $0.8 million recapture | 2014 included recaptures of $0.4 million and $1.1 million |
For the nine-month period, higher net interest income reflected loan growth and improved loan yields; lower deposit costs also helped. Fee and service-charge growth and asset-management fees supported non-interest income. Lower REO costs, professional fees, and FDIC insurance expense contributed to lower operating expenses.
Financial position, cash flow, and capital
- Assets and lending: Total assets were $886.2 million, up from $858.8 million at March 31, 2015. Net loans were $600.5 million, up from $569.0 million. Commercial and construction loans totaled $479.0 million; commercial real estate was the largest loan category.
- Deposits and funding: Deposits increased to $747.6 million from $720.9 million. The company reported no wholesale-brokered deposits; core branch deposits were 96.3% of total deposits. Junior subordinated debentures were $22.7 million, unchanged; there were no FHLB or FRB advances at period-end.
- Cash and liquidity: Cash and cash equivalents fell to $29.0 million from $58.7 million as funds were deployed into securities and lending. Cash plus available-for-sale securities totaled $201.0 million, or 22.7% of assets. Reported available borrowing capacity was $59.0 million at the FRB and $215.2 million at the FHLB; total stated available liquidity, including funding sources, was $583.8 million.
- Cash flow: For the nine months, operating activities provided $8.2 million, investing activities used $62.0 million, and financing activities provided $24.1 million. Cash declined $29.7 million to $29.0 million.
- Credit quality: Nonperforming assets declined to $4.3 million, or 0.49% of assets, from $6.9 million, or 0.81%. The allowance for loan losses was $10.2 million, 1.67% of loans, versus $10.8 million, 1.86%; allowance coverage of nonperforming loans rose to 258.13% from 202.37%.
- Capital and equity: Shareholders’ equity was $106.0 million, up from $103.8 million. The Bank was categorized as “well capitalized”; its total risk-based capital ratio was 16.08% and Tier 1 leverage ratio 11.11%. The OCC rescinded the Bank’s previously imposed higher minimum capital-ratio requirements in December 2015.
Changes, outlook, and risks
- RAMCorp repurchased and retired the remaining minority-held shares during the quarter, increasing the Bank’s ownership from 90% to 100%; the equity impact was a $1.5 million reduction, including the noncontrolling interest.
- The company purchased an additional $14.8 million pool of indirect auto loans in October; purchased auto loans totaled $40.9 million. Management said it may purchase more during fiscal 2016, subject to underwriting, investment, and concentration limits.
- Management described improving local economic and housing conditions and anticipated organic loan growth, while noting that loan payoffs have at times exceeded originations. It provided no specific earnings, revenue, or margin guidance.
- Key exposures include commercial real estate and other real-estate-secured lending, local economic and collateral-value changes, interest-rate and funding competition, and the performance of purchased auto loans sourced through one dealership group outside the core market. Management cautioned that loan-loss reserves may need to increase if credit conditions or collateral values deteriorate.
- At December 31, commitments totaled $100.6 million, including $85.6 million of undisbursed loan funds and unused lines, $13.4 million of loan-origination commitments, and $1.6 million of standby letters of credit. Loans under representations and warranties totaled $117.0 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 reported no additional impairment charge on its pooled trust-preferred security and no goodwill impairment. The trust-preferred security is valued using significant unobservable inputs; management estimated that a 71% default rate would trigger additional impairment, versus its then-current estimated 44% rate. These estimates are judgment-sensitive.
Important facts for investors to verify
- Whether loan growth, deposit growth, and net interest margin remain sustainable as rates, competition, and loan prepayments change.
- Credit quality trends in commercial real estate, land development, troubled debt restructurings, and the purchased auto-loan portfolio; also assess the adequacy of the allowance.
- Whether reported liquidity and borrowing capacity remain accessible under changing collateral values and counterparty terms, and how the $100.6 million of commitments are funded.
- The assumptions behind the fair value and impairment assessments for the trust-preferred security and goodwill.
- The filing covers nine months and states that interim results are not necessarily indicative of the full fiscal year; no formal financial guidance was provided.