RIVERVIEW BANCORP INC quarterly report, Q2 FY2020

Riverview Bancorp, Inc. — Form 10-Q Summary

Reporting period: Quarter ended September 30, 2019, the second quarter of Riverview’s fiscal 2020 year (not calendar Q2). The filing also reports six-month results against the six months ended September 30, 2018. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions.

Business context and key financial metrics

Riverview is a Washington-based community banking and financial services company serving markets in Washington and Oregon. Its strategy emphasizes commercial and construction lending, core deposits, and fee income through its Trust Company.

Metric	Three months ended September 30, 2019	Six months ended September 30, 2019
Interest and dividend income	$12.9 million	$25.4 million
Net interest income	$11.7 million	$23.2 million
Net interest margin	4.36%	4.35%
Non-interest income	$3.2 million	$6.3 million
Non-interest expense	$9.0 million	$18.2 million
Net income	$4.5 million; diluted EPS $0.20	$8.7 million; diluted EPS $0.38

At September 30, 2019, total assets were $1.173 billion, net loans were $869.9 million, deposits were $982.3 million, and shareholders’ equity was $143.1 million.
Cash and cash equivalents were $48.9 million. Available-for-sale and held-to-maturity securities totaled approximately $163.7 million and $31,000, respectively.
FHLB advances were zero at quarter-end, down from $56.6 million at March 31, 2019; junior subordinated debentures were $26.6 million.
For the six months, operating cash flow was $12.2 million, investing cash flow was positive $14.3 million, and financing cash flow was negative $0.6 million. Cash increased $25.9 million to $48.9 million.
The Bank was categorized as well capitalized: total capital ratio 17.27%, CET1 ratio 16.02%, and Tier 1 leverage ratio 11.79%. Management reported available liquidity sources of $678.9 million, including borrowing capacity subject to collateral and other conditions.

Material changes versus comparable periods

Quarterly net income rose to $4.5 million from $4.2 million a year earlier; six-month net income was nearly unchanged at $8.7 million versus $8.7 million. Six-month diluted EPS was $0.38 in both periods.
Net interest income declined $59,000 for the quarter and $259,000 for the six months year over year. Net interest margin fell from 4.39% to 4.36% for the quarter and from 4.43% to 4.35% for the six months, primarily reflecting higher deposit costs.
Quarterly non-interest income increased $329,000 and six-month non-interest income increased $596,000, led by service charges and asset management fees. Non-interest expense increased $88,000 and $263,000, respectively, principally from salaries and data processing.
Compared with March 31, 2019, deposits increased $57.2 million and net loans increased $5.2 million. Commercial real estate, commercial business, and multifamily balances grew, while construction and consumer balances declined.
The allowance for loan losses was $11.4 million, or 1.30% of loans, versus $11.5 million, or 1.31%, at March 31. No provision was recorded for the six-month period. Nonperforming loans were $1.5 million, 0.17% of loans, essentially unchanged from March 31.
Accumulated other comprehensive income improved by $2.8 million over the six months, mainly from unrealized gains on available-for-sale securities; shareholders’ equity increased $10.0 million.

Outlook, commentary, and risks

Management anticipated continued organic loan growth and cited generally positive local economic conditions. Its stated priorities include growing commercial lending and core deposits, maintaining asset quality, controlling costs, and expanding fee income. No numerical earnings or margin guidance was provided.
Commercial and construction loans were 89.9% of total loans; commercial real estate alone represented 53.51%. Management notes these lending categories can carry higher credit risk and greater interest-rate sensitivity than residential mortgages.
Management considered the allowance adequate, but cautioned that weaker local conditions, regulatory findings, or falling collateral values could require a material increase. Three TDR loans totaling about $1.2 million were not paying as agreed at September 30.
Commitments to extend credit, unused lines, undisbursed loan funds, and standby letters of credit totaled $165.5 million. Management expected sufficient funds to meet current commitments. The company also disclosed loan-sale representations and warranties; it considered potential losses remote.
The company adopted the new lease standard on April 1, 2019, recording $4.7 million of operating lease right-of-use assets and $4.8 million of operating lease liabilities at September 30. Management expected the future adoption of the expected-credit-loss standard to increase the allowance, but had not estimated the amount.
Risks highlighted include borrower and real estate credit deterioration, interest-rate and funding-cost changes, deposit competition, regulatory actions, liquidity conditions, operating expenses, technology and third-party disruptions, and potential goodwill impairment. Management reported no material litigation effects, no material change in risk factors, and effective disclosure controls.

Important facts for investors to verify

Confirm the reporting-period label: this is the quarter ended September 30, 2019 (fiscal Q2 FY2020), despite the request metadata identifying “2019 Q2.”
Track deposit pricing and funding costs, net interest margin, and whether deposit growth remains sufficient to support lending without renewed wholesale borrowing.
Review commercial real estate concentration, classified and nonperforming loans, TDR performance, collateral values, and allowance adequacy.
Assess the quality and sustainability of loan growth and fee-income growth against rising personnel, technology, and other operating costs.
Monitor the effect and timing of expected-credit-loss accounting adoption, as the company anticipated an allowance increase but had not quantified it.