Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter ended December 31, 2021, the company’s fiscal third quarter of fiscal 2022; year-to-date figures cover the nine months ended that date. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context and financial position
Riverview is a community banking and financial services company operating primarily in Washington and Oregon. Its business includes commercial and real estate lending, deposit gathering, and trust and asset management services.
- Total assets were $1.683 billion at December 31, 2021, up from $1.549 billion at March 31, 2021. Net loans were $947.1 million, up $23.0 million; deposits were $1.473 billion, up $127.4 million.
- Commercial and construction loans represented 90.7% of total loans. Loan growth included commercial real estate and business lending and purchased one-to-four-family loans; SBA Paycheck Protection Program loans declined to $14.3 million from $93.4 million as forgiveness repayments reduced balances.
- Shareholders’ equity was $163.1 million, compared with $151.6 million at March 31. The Bank was categorized as “well capitalized”; its total capital ratio was 16.72% and leverage ratio was 9.10%.
Results and key metrics
| Metric | Three months ended Dec. 31, 2021 | Prior-year quarter | Nine months ended Dec. 31, 2021 | Prior-year period |
|---|---|---|---|---|
| Interest and dividend income | $12.6 million | $12.3 million | $37.4 million | $36.5 million |
| Net interest income | $12.1 million | $11.5 million | $35.7 million | $33.7 million |
| Non-interest income | $3.1 million | $2.8 million | $9.8 million | $8.3 million |
| Net income | $5.5 million | $4.0 million | $17.7 million | $7.1 million |
| Diluted earnings per share | $0.25 | $0.18 | $0.80 | $0.32 |
| Net interest margin | 2.96% | 3.40% | 3.05% | 3.46% |
- Quarterly net income rose 37%; nine-month net income more than doubled. The year-to-date comparison benefited substantially from a $4.0 million loan-loss recapture versus a $6.3 million provision in the prior-year period. The current period also included a $1.0 million gain on sale of a former branch property and a $0.5 million BOLI death benefit.
- Margins contracted despite higher net interest income: asset yields fell faster than funding costs, with low-yield cash balances, lower new loan and securities yields, and PPP loan effects weighing on performance. The quarterly net interest margin was 2.96%, down 44 basis points year over year.
- For the nine months, non-interest expense was essentially flat at $26.6 million. The reported effective tax rate was 22.6%, compared with 22.0% in the prior-year period.
- Nine-month operating cash flow was $10.0 million; investing cash outflow was $157.4 million and financing cash inflow was $121.9 million. Cash and cash equivalents declined $25.6 million to $239.9 million.
Liquidity, debt and asset quality
- Cash, short-term certificates of deposit and available-for-sale securities totaled $422.4 million, or 25.1% of assets. Management reported total available liquidity of $981.9 million, including unused borrowing capacity; the Bank had no outstanding Federal Reserve or FHLB advances. Available capacity was $42.8 million at the Federal Reserve and $285.5 million at the FHLB, subject to collateral and other conditions.
- Junior subordinated debentures were $26.8 million. The company reported no wholesale-brokered deposits. Core branch deposits were 97.0% of total deposits.
- The allowance for loan losses was $15.2 million, or 1.58% of loans, down from $19.2 million, or 2.03%, at March 31. Management attributed the reduction mainly to improving economic conditions. Net charge-offs for the nine months were insignificant on an annualized basis.
- Nonperforming assets were $1.84 million, or 0.11% of assets, versus $0.57 million at March 31. The increase primarily reflected purchased SBA-guaranteed loans with delayed payments during a third-party servicing transfer; the company expected these loans to leave nonperforming status after the transfer. The allowance covered 824.62% of nonperforming loans.
Outlook, risks and unusual items
- No specific earnings or financial guidance was provided. Management’s stated strategy is to grow commercial lending and core deposits, expand fee income through trust and asset management services, maintain asset quality, and selectively expand its branch footprint. The Ridgefield, Washington branch was expected to open in the fourth quarter of fiscal 2022.
- Key exposures include commercial real estate and business credit risk, economic and property-market deterioration, interest-rate and margin sensitivity, deposit competition and liquidity, regulatory actions, and operational and cybersecurity risks. The filing also highlights the COVID-19 pandemic and the transition away from LIBOR as uncertainties.
- Investment securities had $5.9 million of aggregate unrealized losses at December 31; management attributed these mainly to market-rate increases and said it had the ability and intent to hold the securities until recovery. During the quarter, $85.8 million of securities were transferred from available-for-sale to held-to-maturity classification, with no gain or loss recognized.
- Off-balance-sheet commitments totaled $155.7 million, including $124.2 million of undisbursed loan funds and unused lines, $29.7 million of loan-originating commitments, and $1.8 million of standby letters of credit. Management expected sufficient funds to meet current commitments.
- Management reported no material changes to previously disclosed risk factors or market-risk disclosures. Ordinary-course litigation was not expected to have a material effect. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the purchased SBA loan servicing transfer was completed and the related loans were removed from nonperforming status.
- Whether credit quality, the allowance, and charge-offs support the sizeable loan-loss recapture, particularly if local or national economic conditions weaken.
- How deposit growth and excess cash evolve, and whether asset yields and net interest margin stabilize as interest rates and funding costs change.
- The sustainability of earnings excluding the branch-sale gain, BOLI death benefit, and loan-loss recapture.
- The timing and estimated effect of adopting the expected-credit-loss standard (CECL); management said the allowance impact was not yet quantifiable.