Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2019; comparative results are for the periods ended December 31, 2018. Balance-sheet comparisons are to March 31, 2019. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless stated otherwise.
Business context
Riverview is a community-focused bank serving markets in Washington and Oregon, with commercial and construction lending, deposit-taking, and trust and asset-management services. Commercial and construction loans were 90.0% of total loans at December 31, 2019. Management’s stated strategy emphasizes commercial loan growth, core deposits, asset quality, expense management, and expanding fee income.
Financial performance and condition
| Metric | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2019 | Comparison |
|---|---|---|---|
| Net income | $4.1 million | $12.9 million | Down 5.9% and 1.6%, respectively, year over year |
| Diluted EPS | $0.18 | $0.57 | $0.19 and $0.58 in prior-year periods |
| Net interest income | $11.5 million | $34.7 million | Down $0.2 million and $0.5 million year over year |
| Net interest margin | 4.23% | 4.31% | 4.41% and 4.42% in prior-year periods |
| Non-interest income | $3.2 million | $9.5 million | Up 15.9% and 12.2% year over year |
| Non-interest expense | $9.2 million | $27.4 million | Up 5.1% and 2.6% year over year |
- Revenue and margin drivers: Interest and dividend income increased to $12.8 million for the quarter and $38.2 million year to date, largely reflecting higher average loan balances. Higher deposit costs—particularly the cost of interest-bearing deposits—more than offset the income growth and compressed margins.
- Fee income: Growth in service charges and asset-management fees lifted non-interest income. Trust Company assets under management reached $1.2 billion, up from $646 million at March 31, primarily due to one large client added during the quarter.
- Balance sheet: Total assets were $1.184 billion, up from $1.157 billion at March 31. Net loans were $875.1 million, up $10.4 million; deposits were $990.5 million, up $65.4 million. Shareholders’ equity was $145.8 million, versus $133.1 million.
- Credit quality: Nonperforming loans were $1.5 million, or 0.17% of total loans. The allowance for loan losses was $11.4 million, 1.29% of loans, with coverage of nonperforming loans of 753.66%. No loan-loss provision was recorded for the nine-month period; net charge-offs were $24,000. Classified loans declined to $3.1 million from $6.0 million a year earlier.
- Cash flow and liquidity: Nine-month operating cash flow was $17.7 million; investing activities provided $15.7 million and financing activities provided $5.8 million. Cash and cash equivalents rose $39.2 million to $62.1 million. Cash, certificates of deposit held for investment, and available-for-sale securities totaled $218.1 million, or 18.4% of assets. Management reported total available liquidity of $676.4 million, including borrowing capacity.
- Debt and capital: FHLB advances were zero at December 31, down from $56.6 million at March 31, as deposit growth enabled repayment. Junior subordinated debentures were $26.6 million. The Bank was categorized as “well capitalized”; its total capital ratio was 17.66%, Tier 1 leverage ratio 12.05%, and CET1 ratio 16.41%.
Material changes and unusual items
- Deposits increased 7.1% from March 31, while net loans grew 1.2%. The company had no wholesale-brokered deposits at either balance-sheet date, and core branch deposits were 97.6% of total deposits at December 31.
- The prior-year comparison included a $355,000 gain on sale of land and a building related to the Longview branch closure; no such gain occurred in the current periods. This contributed to the reported increase in other expense year over year.
- Investment securities declined to $155.8 million from $178.3 million, principally due to repayments, maturities, and sales. Management reported no other-than-temporary impairment; unrealized losses were attributed primarily to market interest-rate changes.
- The company adopted the lease accounting standard (ASC 842) on April 1, 2019, recording operating lease right-of-use assets of $4.3 million and operating lease liabilities of $4.4 million at December 31.
Outlook, risks, and contingencies
No quantitative earnings or financial guidance is provided. Management reported steady loan demand and anticipates continued organic loan growth, while emphasizing core-deposit growth and relationship banking. It described local economic and real-estate conditions as generally positive. These statements are expectations, not guarantees.
- Key exposures include credit deterioration, especially given the portfolio’s concentration in commercial and commercial real-estate lending; changes in real-estate values and local economic conditions; competition for deposits; and interest-rate movements that could pressure funding costs and net interest margin.
- The company had $155.8 million of off-balance-sheet commitments, including loan commitments, unused lines, undisbursed loan funds, and standby letters of credit. Management expected available funds to meet current commitments.
- Management expects adoption of the current expected credit loss standard (CECL) to increase the allowance for loan losses, but the amount was not yet known. One $851,000 commercial real-estate TDR was on nonaccrual; other TDRs were reported as paying as agreed.
- Management said ordinary-course litigation was not expected to materially affect financial position, results, or liquidity. The filing reported no material changes to previously disclosed risk factors and no material change in market-risk disclosures.
Important facts for investors to verify
- Whether deposit pricing and mix, as well as funding costs, continue to affect net interest margin and earnings.
- Whether the unusually large addition to Trust Company assets under management is retained and translates into recurring fee revenue.
- Whether loan growth—particularly commercial real-estate growth—remains consistent with credit standards, and whether criticized, delinquent, or nonperforming loans change.
- The eventual CECL allowance impact and any effect on capital or reported earnings.
- How much of stated liquidity is readily available under actual collateral and borrowing conditions, and how the $155.8 million of commitments are drawn or funded.