Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three months ended June 30, 2020, Riverview’s fiscal first quarter of fiscal 2021. The filing’s balance-sheet comparisons are to March 31, 2020; income and cash-flow comparisons are to the three months ended June 30, 2019. Amounts below are in U.S. dollars.
Business context and key financial results
Riverview is a community banking and financial services company operating primarily in Washington and Oregon. It gathers deposits and makes commercial business, commercial real estate, construction, residential, and consumer loans; its subsidiary also provides trust and asset management services.
| Metric | June 2020 quarter / June 30, 2020 | Comparison |
|---|---|---|
| Interest and dividend income | $12.24 million | $12.56 million in prior-year quarter |
| Net interest income | $11.13 million | $11.47 million in prior-year quarter |
| Net interest margin | 3.65% | 4.33% in prior-year quarter |
| Non-interest income | $2.62 million | $3.14 million in prior-year quarter |
| Non-interest expense | $8.69 million | $9.19 million in prior-year quarter |
| Provision for loan losses | $4.50 million | None in prior-year quarter |
| Net income / diluted EPS | $480,000 / $0.02 | $4.19 million / $0.18 in prior-year quarter |
| Net cash from operating activities | $5.54 million | $6.55 million in prior-year quarter |
Total assets were $1.38 billion, up from $1.18 billion at March 31. Net loans were $985.6 million, compared with $898.9 million; deposits were $1.16 billion, compared with $990.4 million. Cash and cash equivalents were $157.8 million, versus $42.0 million. Available-for-sale securities were $137.7 million, down from $148.3 million.
At June 30, the company had $30.0 million of FHLB advances, versus none at March 31, and $26.7 million of junior subordinated debentures. Total shareholders’ equity was $147.5 million, compared with $148.8 million. Cash and cash equivalents, certificates of deposit held for investment, and available-for-sale securities totaled $295.8 million, or 21.5% of assets. The Bank reported regulatory capital ratios above well-capitalized thresholds, including a 17.40% total risk-based capital ratio and a 10.55% Tier 1 leverage ratio.
Material changes and operating trends
- Quarterly earnings fell substantially, primarily because of the $4.5 million loan-loss provision related to COVID-19 uncertainty, as well as lower non-interest income. The lower provision-adjusted earnings were partly offset by reduced non-interest expense.
- Loans grew $86.8 million during the quarter, largely reflecting $110.3 million of SBA Paycheck Protection Program loans outstanding at June 30. Deposits increased $168.3 million, driven in part by PPP proceeds deposited into customer accounts and reduced customer withdrawals. The company said it used FHLB advances to supplement PPP funding.
- The allowance for loan losses increased to $17.1 million, or 1.70% of total loans, from $12.6 million, or 1.38%. Nonperforming loans were $1.3 million, or 0.13% of total loans, compared with $1.4 million, or 0.15%, at March 31.
- Net interest margin contracted year over year as yields on interest-earning assets declined; lower short-term rates and the mix of PPP loans contributed. Non-interest income also fell, with lower service charges and trust asset management fees.
- Financing cash flows included a $168.3 million net deposit increase and $30.0 million of borrowings. Investing activities used $85.3 million, principally reflecting net loan originations. The company repurchased 295,900 shares during the quarter; it reported that all 500,000 shares authorized under its repurchase program had been repurchased by April 17.
Outlook, risks, and unusual items
- Management provided no specific earnings or financial forecast. It said the duration and effects of the COVID-19 downturn were uncertain and could affect borrower repayment, collateral values, operations, and future results.
- As of June 30, the company reported 141 qualifying COVID-related loan modifications with $171.7 million in outstanding balances, generally involving payment deferrals. Separately, it reported payment deferrals for 98 commercial loans totaling $161.6 million and 43 consumer and mortgage loans totaling $10.1 million; extensions and additional requests followed after quarter-end. Eligible CARES Act modifications were not classified as TDRs, but remain subject to credit evaluation.
- The Bank had $110.3 million of PPP loans outstanding; these loans were excluded from the allowance because they were fully SBA-guaranteed. PPP balances included $3.2 million of unamortized fees. Forgiveness, repayment timing, and fee recognition may affect future loan balances and income.
- COVID-sensitive exposures included hotels and motels of $108.1 million (10.8% of loans), retail strip centers of $82.1 million (8.2%), and restaurants/fast food of $17.2 million (1.6%). Commercial and construction loans represented 91.7% of total loans. Management noted that this lending has higher credit risk than traditional residential lending.
- Management’s June goodwill assessment found it more likely than not that the Bank reporting unit’s fair value exceeded carrying value. A sustained adverse economic environment or decline in the company’s stock price and market capitalization could trigger a future impairment charge.
- Liquidity sources included $204.2 million of additional FHLB borrowing capacity and $57.1 million of FRB borrowing capacity, subject to collateral and other conditions. Total reported available liquidity was $769.0 million. Commitments and unused credit lines totaled $139.3 million.
- Management considered the allowance adequate but cautioned that deteriorating economic conditions, regulatory examinations, or falling collateral values could require additional provision. The company also said the expected adoption of the CECL credit-loss standard may increase the allowance; the amount was not yet known.
Important facts for investors to verify
- Whether COVID-related deferrals are extended and how borrowers perform when payments resume; track nonperforming loans, criticized assets, and the allowance against portfolio exposures.
- PPP loan forgiveness and SBA reimbursement progress, including the timing and recognition of deferred fees.
- Whether deposit growth and liquidity remain durable as PPP funds are spent or withdrawn, and whether borrowing capacity remains available on acceptable terms.
- Whether margin pressure, service-fee income, trust assets under management, and expenses improve or weaken in subsequent quarters.
- Any change in goodwill impairment assumptions, regulatory capital, dividends, or share-repurchase activity.