Riverview Bancorp, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2016. Although the request metadata refers to 2015 Q4, this filing is an annual report for fiscal 2016; the filing also provides unaudited results for the quarter ended March 31, 2016. Riverview is a community banking company serving southwest Washington and parts of Oregon, with banking and trust and investment services operations.
Financial performance and condition
| Metric | FY2016 / March 31, 2016 | Prior comparable period |
|---|---|---|
| Net income | $6.36 million; diluted EPS $0.28 | FY2015: $4.49 million; diluted EPS $0.20 |
| Net interest income | $29.21 million; net interest margin 3.67% | FY2015: $26.71 million; 3.59% |
| Non-interest income | $9.38 million | FY2015: $8.88 million |
| Non-interest expense | $29.95 million | FY2015: $30.74 million |
| Cash flows | Operating $11.08 million; investing use $70.66 million; financing $56.32 million; cash decreased $3.26 million | FY2015: operating $5.56 million; cash decreased $9.92 million |
| Total assets / loans, net | $921.2 million / $614.9 million | March 31, 2015: $858.8 million / $569.0 million |
| Deposits / shareholders’ equity | $779.8 million / $108.3 million | March 31, 2015: $720.9 million / $103.8 million |
| Allowance / asset quality | Allowance $9.9 million, or 1.58% of loans; nonperforming assets $3.3 million, or 0.36% of assets | Allowance 1.86%; nonperforming assets $6.9 million, or 0.81% of assets |
| Capital / debt | Bank total risk-based capital 16.07%; Tier 1 leverage 11.18%. Junior subordinated debentures $22.7 million; capital lease obligation $2.5 million | Bank total risk-based capital 15.89%; leverage 10.89% |
Reported net income increased 42% year over year. The filing attributes improvement to higher net interest income, increased fees and service charges, lower expenses, and continued improvement in asset quality. The year included a $1.15 million recapture of loan losses; net recoveries were $273,000. The filing reports no FHLB advances or Federal Reserve borrowings outstanding at year-end. Cash and available-for-sale securities totaled $222.9 million; management reported total available funding sources of $601.8 million, subject to collateral and other conditions.
Material changes and business developments
- Net loans grew $45.9 million, including $43.2 million of net organic growth concentrated in commercial business, commercial real estate and multifamily lending, plus a $2.7 million net increase in purchased automobile loans.
- Commercial and construction loans were 79.3% of total loans. Commercial and multifamily real estate lending remained a major concentration; the Bank reported relevant CRE concentration at 285% of total risk-based capital.
- Deposits increased $59.0 million. Core branch deposits represented 95.8% of deposits, and the company reported no wholesale-brokered deposits.
- Available-for-sale securities increased to $150.7 million from $112.5 million. The portfolio was principally agency-backed securities; the company reported no other-than-temporary impairment charge.
- Nonperforming loans fell to $2.7 million from $5.3 million, and classified loans fell to $4.3 million from $13.3 million. REO declined to $595,000; the company recorded $369,000 of REO write-downs and sold $937,000 of REO during the year.
- RAMCorp acquired the remaining minority ownership interest for $1.5 million, making it wholly owned. Its assets under management were $389.1 million, down from $409.3 million.
Outlook, risks and unusual items
Management intends to continue growing commercial lending and core customer deposits, managing problem assets and expenses, and selectively expanding in its Pacific Northwest markets. It planned to continue originating construction loans to selected customers in fiscal 2017. The filing provides no quantified earnings or revenue guidance.
- Credit and concentration risk: Commercial real estate, construction and land lending can be sensitive to local economic conditions, collateral values, project completion and refinancing availability. Construction commitments included $42.7 million of undisbursed funds. Management cautions that a weaker regional economy or falling property values could increase losses and the loan-loss provision.
- Indirect auto lending: $37.4 million of purchased automobile loans were concentrated through a single dealership group outside the company’s primary market area; servicing is retained by the seller.
- Interest-rate risk: Management describes the balance sheet as slightly asset-sensitive, but its model projects net interest income down 3.5% over 12 months under a 300-basis-point rate increase, then up 7.1% over 24 months. Results depend on assumptions, including deposit repricing and loan floors.
- Liquidity and funding: $76.8 million of certificates of deposit were due to mature within one year; loan commitments, unused lines and undisbursed construction funds were also substantial. Borrowing capacity depends on acceptable collateral and availability of counterparties.
- Valuation and contingencies: A $1.8 million trust-preferred CDO was classified as Level 3 because its market was inactive; valuation depends on management assumptions about defaults, repayments and discount rates. Management reported one $1.3 million commercial real estate TDR that had defaulted after restructuring. Litigation was described as ordinary-course and not expected to have a material effect.
- Dividends and capital: The company declared $0.065 per share in fiscal 2016. Bank distributions to the parent are subject to regulatory limits; deferral of interest on the debentures would prohibit common cash dividends during the deferral period.
The company reported unqualified audit opinions on its financial statements and internal control over financial reporting. It also reported that disclosure controls were effective as of March 31, 2016.
Key facts for investors to verify
- Whether loan growth and deposit growth can continue without weakening underwriting standards or increasing funding costs.
- The composition, performance and collateral coverage of the commercial real estate, construction, TDR and purchased-auto portfolios, including the single defaulted TDR.
- Whether the $9.9 million allowance remains adequate as the loan portfolio expands and local conditions or regulatory assessments change.
- The assumptions supporting the Level 3 CDO valuation and management’s conclusion that no impairment is required.
- The timing and actual usability of reported liquidity and borrowing capacity, and the impact of deposit maturities and unfunded commitments.
- The effect of interest-rate movements on net interest income, deposit costs and adjustable-rate borrowers, compared with management’s modeled scenarios.