Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, the first quarter of fiscal 2022. Income and cash-flow comparisons are against the three months ended June 30, 2020; balance-sheet comparisons are against March 31, 2021. Amounts are in U.S. dollars.
Business context and financial results
Riverview is a community banking and financial services company operating mainly in Washington and Oregon. Its lending is concentrated in commercial real estate and commercial business loans, alongside deposit banking and trust and asset-management services.
| Metric | June 2021 quarter | Comparable 2020 quarter or prior date |
|---|---|---|
| Net interest income | $11.3 million | $11.1 million |
| Net interest margin | 3.07% | 3.65% |
| Non-interest income | $3.6 million | $2.6 million |
| Non-interest expense | $9.1 million | $8.7 million |
| Net income / diluted EPS | $5.8 million / $0.26 | $0.5 million / $0.02 |
| Total assets | $1.617 billion | $1.549 billion at March 31, 2021 |
| Loans, net of allowance | $871.9 million | $924.1 million at March 31, 2021 |
| Deposits | $1.413 billion | $1.346 billion at March 31, 2021 |
| Cash and cash equivalents | $334.7 million | $265.4 million at March 31, 2021 |
| Shareholders’ equity | $157.0 million | $151.6 million at March 31, 2021 |
Cash flow, credit, debt and liquidity
- Operating cash flow was $1.2 million; investing cash flow was positive $2.8 million; financing cash flow was positive $65.3 million. Cash increased $69.3 million during the quarter.
- Net interest income increased modestly, but margin contracted 58 basis points year over year. The filing attributes pressure to low rates, lower-yielding PPP loans and cash balances, and asset yields declining faster than liability costs.
- The company recorded a $1.6 million loan-loss provision recapture, versus a $4.5 million provision in the prior-year quarter. The allowance was $17.6 million, or 1.98% of total loans, at June 30, 2021.
- Nonperforming loans were $383,000, or 0.02% of assets, compared with $571,000 at March 31, 2021. Management considered the allowance adequate but cautioned that economic or credit deterioration could require increases.
- Junior subordinated debentures totaled $26.8 million; there were no FHLB or Federal Reserve advances outstanding. The company reported $603.8 million in cash, certificates of deposit and available-for-sale securities, plus available secured borrowing capacity. Management reported total available liquidity of $1.1 billion.
- The Bank was categorized as “well capitalized.” Its total risk-based capital ratio was 17.49%, CET1 ratio 16.23%, and leverage ratio 9.37% at June 30, 2021.
- Off-balance-sheet commitments totaled $155.4 million, principally unused loan funds and lines of credit. The filing states the company expects sufficient funds to meet current loan commitments.
Material changes and unusual items
- Net income rose substantially year over year, primarily reflecting the swing from a loan-loss provision to a recapture and a $479,000 non-taxable BOLI death benefit. These items make the earnings comparison less indicative of underlying recurring performance.
- Non-interest income grew $965,000 year over year, including the BOLI death benefit and higher fees and service charges. Non-interest expense increased $452,000, mainly from salaries and employee benefits and data processing.
- Loans declined $52.2 million from March 31, chiefly as PPP forgiveness repayments reduced PPP balances; deposits rose $66.9 million. PPP loans outstanding, net of deferred fees, were reported at $57.6 million in the MD&A.
- Available-for-sale securities increased as the company purchased $65.2 million during the quarter. The company reported unrealized securities gains in other comprehensive income and said it recognized no other-than-temporary impairment.
- The company repurchased 73,367 shares for $493,000 under a new $5.0 million authorization, with approximately $4.5 million remaining. It paid a $0.05-per-share dividend.
Outlook, risks and contingencies
- No quantified earnings or revenue guidance is provided. Management’s stated strategy is to grow commercial lending and core deposits, maintain asset quality, expand fee income and manage expenses. A third new branch, in Ridgefield, Washington, was expected to open in fall 2021.
- Management noted generally improving local employment and housing conditions, while emphasizing uncertainty from COVID-19 and its effects on customers, credit quality and the broader economy. The filing identifies interest-rate and margin changes, deposit retention, commercial real-estate and other credit exposures, regulation, technology and cybersecurity, and competition among principal risks.
- At June 30, the company reported one COVID-related commercial loan payment deferral with a $563,000 balance; it was not classified as a TDR under applicable relief guidance. The filing also describes PPP exposure and remaining forgiveness processing.
- Management’s June 30 goodwill assessment concluded that impairment was not more likely than not. Sustained adverse economic conditions or declines in share price and market capitalization could trigger a future impairment charge.
- Management said ordinary-course litigation was not expected to materially affect financial position, results or liquidity. No material risk-factor changes from the prior Form 10-K were reported.
- The company noted that adoption of the expected-credit-loss standard (CECL) was scheduled for fiscal years beginning after December 15, 2022 and anticipated an increase in the allowance, although the amount was not yet determined.
Important facts for investors to verify
- Whether earnings remain strong after separating recurring operations from the $1.6 million reserve recapture and $479,000 BOLI death benefit.
- How loan growth, PPP forgiveness and deposit trends affect net interest margin, funding costs and future earnings.
- Whether credit quality and the allowance remain appropriate, especially across the company’s commercial real-estate concentration and other loans of concern.
- How the share-repurchase authorization, dividends and capital ratios evolve, and whether liquidity and secured borrowing capacity remain available.
- How CECL implementation changes the allowance and whether COVID-related borrower relief or broader economic conditions create further credit risk.