RIVERVIEW BANCORP INC quarterly report, Q2 FY2023

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Riverview Bancorp, Inc. — Form 10-Q Summary

Reporting period: Fiscal quarter and six months ended September 30, 2022; comparative results are for the same periods in 2021. Balance-sheet comparisons are against March 31, 2022. Amounts are in U.S. dollars; financial statement figures are generally in millions unless noted.

Financial performance and condition

  • Quarterly results: Net income was $5.2 million ($0.24 diluted EPS), versus $6.4 million ($0.29) a year earlier. Net interest income was $13.4 million; non-interest income was $3.1 million.
  • Six-month results: Net income was $9.8 million ($0.45 diluted EPS), versus $12.2 million ($0.55). Net interest income was $26.1 million; non-interest income was $6.3 million.
  • Margins and expenses: Net interest margin rose to 3.30% for the quarter and 3.21% for six months, from 3.12% and 3.09%, respectively. Quarterly non-interest expense was $9.8 million, up from $8.2 million; six-month expense was $19.6 million, up from $17.3 million.
  • Loans and credit: Net loans grew to $996.5 million from $975.9 million. The allowance for loan losses was $14.6 million, or 1.44% of loans. Nonperforming assets were $21.0 million, or 1.25% of total assets, and included $20.7 million of government-guaranteed SBA/USDA loans affected by a servicing-transfer delay.
  • Deposits and liquidity: Deposits declined to $1.489 billion from $1.534 billion. Cash and cash equivalents were $114.2 million, down from $241.4 million. Cash, short-term certificates of deposit and available-for-sale securities totaled $328.1 million. The Bank reported $924.8 million of available liquidity, including borrowing capacity subject to collateral and other conditions.
  • Cash flow, six months: Operating activities provided $8.8 million; investing activities used $84.5 million; financing activities used $51.5 million. Cash decreased $127.2 million to $114.2 million.
  • Debt and capital: Junior subordinated debentures totaled $26.9 million; the Bank had no FHLB or Federal Reserve advances at quarter-end. The Bank was categorized as well capitalized, with total capital of 16.48% and CET1 of 15.23% of risk-weighted assets.
  • Equity and securities: Shareholders’ equity fell to $147.2 million from $157.2 million, chiefly reflecting $12.5 million of after-tax unrealized losses on available-for-sale securities, share repurchases and dividends. Available-for-sale securities had $29.6 million of gross unrealized losses; held-to-maturity securities had $39.5 million.

Changes versus comparable periods

  • Quarterly and six-month net income declined year over year. Management attributed the decrease principally to the absence of prior-year loan-loss provision recaptures ($1.1 million for the quarter; $2.7 million for six months), a $0.5 million prior-year BOLI death benefit, and prior-year gains on premises and equipment of approximately $1.0 million.
  • Net interest income and net interest margin improved year over year, supported by higher investment-security and bank-deposit yields and lower deposit costs. Higher market rates also increased interest expense on floating-rate debentures.
  • Six-month non-interest income declined by $0.4 million, primarily because the prior-year BOLI death benefit did not recur; higher asset-management fees partly offset the decline.
  • Loans increased, while deposits and cash declined. The securities portfolio grew, but rising rates drove substantial unrealized valuation losses and lower accumulated equity.
  • The Company repurchased 690,494 shares for $4.8 million during the six months and completed its $5.0 million repurchase program.

Outlook, commentary and risks

  • Management’s strategy emphasizes commercial and construction lending, core relationship deposits, asset quality, cost management and growth in Trust Company fee income. Commercial and construction loans were 89.5% of total loans at September 30.
  • No specific earnings or margin guidance is provided. Management expects approximately $2.1 million of capital expenditures during the remainder of fiscal 2023 and expects to continue quarterly dividends at $0.06 per share, subject to Board discretion.
  • Management considers securities losses temporary, citing interest-rate movements and its ability and intent to hold securities until recovery. A further rate increase or need to sell could affect values and capital.
  • The $20.7 million of past-due government-guaranteed loans reflects a third-party servicing-transfer and reconciliation delay. Management expects principal and interest to be paid under the guarantees; the loans remain accruing and are excluded from the allowance calculation.
  • Key risks include inflation, recession or slower growth, interest-rate and deposit competition, credit deterioration and falling collateral values, concentration in commercial real estate, liquidity and funding conditions, regulatory actions, and the transition from LIBOR. The Company is preparing for CECL adoption; management expects the allowance to change, but the amount is not yet known.
  • The Company reported no material change in risk factors from its prior 10-K, no material litigation expected to affect its financial condition, and effective disclosure controls as of September 30, 2022.

Important facts for investors to verify

  1. Progress and timing of the SBA/USDA servicing-transfer reconciliation, and whether the reported past-due balances change.
  2. Deposit trends, cash usage, and the availability and collateral requirements of reported borrowing capacity.
  3. Interest-rate sensitivity, deposit repricing, and the effect of unrealized securities losses on tangible equity and liquidity.
  4. Commercial real estate and construction credit quality, criticized/classified loan trends, and adequacy of the allowance, particularly as CECL implementation approaches.
  5. Whether earnings growth can offset higher operating costs and whether the dividend and capital-return plans remain consistent with capital and liquidity needs.