Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2011, the first quarter of fiscal 2012. Unaudited consolidated results include Riverview Community Bank and subsidiaries. Unless otherwise indicated, amounts are in millions.
Financial performance and position
| Metric | Quarter ended June 30, 2011 | Comparable period / change |
|---|---|---|
| Net interest income | $8.83 | $9.02 a year earlier, down 2.1% |
| Net interest margin | 4.66% | 4.79% a year earlier |
| Provision for loan losses | $1.55 | $1.30 a year earlier |
| Non-interest income | $1.90 | $2.24 a year earlier |
| Non-interest expense | $8.16 | $7.27 a year earlier, up $0.89 |
| Net income | $0.71 | $1.77 a year earlier, down about 60% |
| Basic and diluted EPS | $0.03 | $0.16 a year earlier |
Interest income declined $0.88 million year over year, reflecting lower average loan balances and yields. Lower deposit costs reduced interest expense by $0.69 million, partly offsetting that decline. The average deposit cost fell to 0.81% from 1.25%. Higher salaries, marketing, and real-estate-owned (REO) costs contributed to increased operating expenses. The prior-year EPS comparison is affected by weighted-average shares increasing from 10.7 million to 22.3 million following the prior-year stock offering.
At June 30, total assets were $885.6 million, up $26.4 million from March 31. Net loans were $677.3 million, deposits $742.9 million, and total equity $108.3 million. Cash was $70.0 million, compared with $51.8 million at March 31. The quarter generated $2.1 million in operating cash flow; investing used $9.9 million and financing provided $26.0 million, resulting in an $18.3 million increase in cash.
Credit quality, capital, debt, and liquidity
Nonperforming assets were $40.3 million, or 4.55% of assets, versus $39.9 million, or 4.65%, at March 31. Nonperforming loans rose to $13.1 million from $12.3 million; REO was $27.2 million. Loans 30–89 days past due increased to 2.82% of loans from 1.13%. The allowance for loan losses increased to $16.1 million, or 2.32% of loans, and covered 122.49% of nonperforming loans. Net charge-offs were $0.46 million, down from $3.39 million a year earlier. Management considered the allowance adequate but cautioned that further economic or collateral deterioration, or regulatory review, could require additional provision.
The Bank reported an 11.02% Tier 1 leverage ratio and a 14.72% total risk-based capital ratio, above the minimums imposed under its regulatory memorandum of understanding (MOU); the filing describes the Bank as “well capitalized” under prompt corrective action standards. The Bank had no FHLB or Federal Reserve advances and no wholesale-brokered deposits at quarter-end. It reported $70.0 million of cash and access to borrowing capacity subject to collateral and lender conditions.
Junior subordinated debentures were $22.7 million. The Company continued deferring interest payments, with $1.6 million deferred at June 30. The deferral restricts common-stock dividends and, management noted, could affect access to wholesale funding or debt financing.
Material changes, outlook, and notable items
- After the July 21 earnings release, an updated appraisal on property securing three loans led to a $0.6 million increase in the loan-loss allowance and provision, recorded in the June quarter.
- Management cited persistent weakness in local housing and commercial property conditions and said credit costs could remain elevated. It noted signs of stabilization, including lower local unemployment and improved home-sales or inventory measures, but warned that renewed economic weakness could increase delinquencies, nonperforming assets, provisions, and charge-offs.
- The loan portfolio remains concentrated in commercial and construction lending. Land development and speculative construction exposure totaled $68.8 million; management continued to emphasize reducing problem assets while seeking growth in commercial, multifamily, and higher-quality residential lending.
- A pooled trust-preferred security had a $1.99 million unrealized loss; four underlying issuers had defaulted and eight were in deferral. The Company estimated a 45% expected default rate, recorded no additional other-than-temporary impairment this quarter, and classified the security as Level 3 due to significant unobservable valuation inputs.
- The Bank and Company remained subject to regulatory MOUs requiring elevated capital levels and other controls, including regulatory non-objection for specified capital, dividend, and debt actions. Management stated it believed the entities were in compliance.
- The Company and Bank adopted a plan to convert the Bank to a Washington-chartered commercial bank and reorganize the Company as a bank holding company; required regulatory approvals were pending.
- No specific earnings or financial guidance was provided. Management described strategic priorities including asset-quality management, core deposit growth, expense control, commercial lending, and selective expansion.
Most important facts for investors to verify
- Whether loan delinquencies, classified loans, nonperforming assets, and REO improve, particularly in land development and construction lending.
- Whether the $16.1 million allowance remains adequate and how the appraised collateral and subsequent $0.6 million provision affect credit trends.
- Progress toward MOU requirements and the Bank’s capital ratios, including any regulatory restrictions or required actions.
- Duration and terms of the $22.7 million debenture interest deferral, the accumulated deferred interest, and its implications for dividends and funding access.
- Performance of the impaired pooled trust-preferred security and the sensitivity of its estimated value to default, repayment, and discount-rate assumptions.
- Whether operating expenses moderate and net interest income and margin stabilize as the loan mix, deposit costs, and interest rates change.