Riverview Bancorp, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended March 31, 2019. Although the request metadata says “2018 Q4,” this filing covers FY2019; it also includes unaudited quarterly data, including the quarter ended March 31, 2019. Amounts below are in U.S. dollars.
Business context
Riverview is a community banking and financial services company operating primarily in southwest Washington and Oregon. Its lending strategy emphasizes commercial business, commercial real estate and construction loans; it also provides trust and asset-management services. At year-end, the Bank operated 18 branches. Commercial and construction loans were 89.5% of total loans.
Financial performance and position
| Metric | FY2019 / March 31, 2019 | Comparable FY2018 / March 31, 2018 |
|---|---|---|
| Interest and dividend income | $49.1 million | $45.0 million |
| Net interest income | $46.3 million | $42.6 million |
| Net interest margin | 4.38% | 4.08% |
| Non-interest income | $11.9 million | $11.0 million |
| Non-interest expense | $35.7 million | $35.6 million |
| Net income / diluted EPS | $17.3 million / $0.76 | $10.2 million / $0.45 |
| Return on average assets / equity | 1.51% / 13.86% | 0.90% / 8.78% |
| Total assets | $1.157 billion | $1.152 billion |
| Net loans | $864.7 million | $800.6 million |
| Deposits | $925.1 million | $995.7 million |
| Shareholders’ equity | $133.1 million | $116.9 million |
Operating cash flow was $20.2 million; investing cash flow was negative $25.0 million and financing cash flow was negative $17.0 million. Cash and cash equivalents declined $21.8 million to $23.0 million, primarily as funds were used to support loan growth. The allowance for loan losses was $11.5 million, or 1.31% of loans; the year included a $50,000 provision and $641,000 in net recoveries.
At March 31, 2019, FHLB advances were $56.6 million, versus none a year earlier. Junior subordinated debentures were $26.6 million on the balance sheet (contractual amount before a purchase-accounting adjustment: $27.8 million). Management reported $202.0 million in cash, certificates of deposit and available-for-sale securities, and total available funding sources of $605.3 million, subject to collateral and other conditions. The Bank was categorized as well capitalized: total risk-based capital was 16.88% and the leverage ratio was 11.56%.
Material changes and notable items
- Net income rose about 69%, supported by higher net interest and non-interest income and a lower effective tax rate. Net interest margin increased 30 basis points, mainly reflecting loan growth and improved loan yields.
- Net loans increased $64.0 million, led by a $51.3 million increase in construction loans and a $25.1 million increase in commercial business loans. Construction loans, including undisbursed commitments, reached $153.7 million.
- Deposits declined $70.6 million amid local competition and pricing pressure; core branch deposits fell $71.1 million. The Company had no wholesale-brokered deposits at year-end.
- Nonperforming assets fell to $1.5 million, or 0.13% of assets, from $2.7 million, or 0.24%. Classified loans declined to $6.3 million from $7.4 million.
- The effective tax rate was 23.0%, versus 43.1% in FY2018. FY2018 included a $1.6 million net tax charge associated with the Tax Act’s deferred-tax remeasurement.
- FY2019 included a $70,000 gain on the sale of Longview branch deposits and a $355,000 gain on sale of the branch property, recorded in other non-interest income and as a reduction of other non-interest expense, respectively.
- The March 2019 quarter reported net income of $4.2 million, versus $3.0 million in the March 2018 quarter; quarterly diluted EPS was $0.19 versus $0.13.
Outlook, risks and contingencies
Management expected continued organic loan growth and said it would continue selected construction lending while proactively managing portfolio growth. It also emphasized core-deposit growth, asset quality, cost control and increased fee income. The filing provides no formal numeric earnings or revenue guidance.
Key exposures include concentration in commercial real estate and construction lending, local economic and property-market conditions, deposit competition, liquidity and funding costs, and interest-rate movements. Commercial real estate concentrations were 337% of total risk-based capital under the filing’s cited supervisory measure. The filing’s interest-rate model estimated a 5.5% decline in net interest income over 12 months under a 300-basis-point rate increase, followed by a 3.3% increase over 24 months; results depend on model assumptions. Management also identified LIBOR transition uncertainty and the expected adoption of CECL as risks; it anticipated CECL could increase the allowance, but had not quantified the effect.
Commitments and contingent exposures included $183.0 million of total commitments, including $62.8 million of undisbursed construction loans and $139.8 million of undisbursed loan funds and unused lines as separately reported in the commitments note. The Company serviced $149.4 million of loans for others and had $111.4 million of loans under FHLMC representations and warranties; management considered potential losses remote. Ordinary-course litigation was not expected by management to have a material effect. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether deposit outflows and funding costs continued, and how the Bank replaced deposits while supporting loan growth.
- Construction and commercial real estate portfolio growth, borrower/property concentration, and performance of undisbursed commitments.
- Credit trends, including nonperforming and classified loans, recoveries, TDRs, and allowance adequacy.
- Actual sensitivity of net interest income and funding costs to rate changes, including the LIBOR transition for variable-rate debentures.
- The eventual CECL allowance impact and the balance-sheet effect of lease-standard adoption, which the Company estimated would add about $5.6 million to other assets and liabilities.
- Dividend capacity and parent-company liquidity: the parent reported $4.2 million in cash, and its ability to fund obligations depends substantially on Bank distributions and regulatory constraints.