Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2015. Although the request metadata says “2015 Q2,” the filing is for Riverview’s fiscal second quarter of fiscal 2016 (the quarter ended September 30). Financial statement amounts below are in millions unless stated otherwise.
Business context
Riverview is a Washington-based community banking company operating primarily in southwest Washington and Oregon through Riverview Community Bank and related subsidiaries. It gathers deposits and lends mainly to commercial businesses, commercial real estate, multifamily, construction, residential and consumer customers. Management’s strategy emphasizes commercial lending, core deposits, expense discipline and growth in fee-based services.
Financial performance and position
| Metric | Three months ended Sept. 30, 2015 | Six months ended Sept. 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Interest and dividend income | $7.60 | $15.16 | $7.21 / $14.08 |
| Net interest income | $7.16 | $14.29 | $6.72 / $13.08 |
| Net interest margin | 3.64% | 3.67% | 3.61% / 3.54% |
| Non-interest income | $2.22 | $4.77 | $2.22 / $4.43 |
| Non-interest expense | $7.28 | $15.03 | $7.67 / $15.41 |
| Net income | $1.65 | $3.25 | $1.08 / $1.82 |
| Diluted earnings per share | $0.07 | $0.14 | $0.05 / $0.08 |
Loan-loss recaptures were $0.30 million for the quarter and $0.80 million for the six months, versus $0.35 million and $0.65 million, respectively, a year earlier. Six-month net income also benefited from lower non-interest expense, particularly lower real-estate-owned (REO) expenses. The six-month effective tax rate was 32.7%, compared with 33.7% in 2014.
- Balance sheet: Total assets were $896.3 million at September 30, up from $858.8 million at March 31, 2015. Net loans were $585.8 million, up from $569.0 million; deposits were $757.0 million, up from $720.9 million.
- Funding and liquidity: Cash and cash equivalents were $68.9 million. Cash plus available-for-sale investments totaled $224.7 million, or 25.1% of assets. The company reported no FHLB or FRB advances and no wholesale-brokered deposits at quarter-end; disclosed borrowing capacity was $205.3 million at FHLB and $45.3 million at FRB.
- Cash flow: For the six months, operating cash flow was $3.8 million, investing cash outflow was $29.5 million, and financing cash flow was $35.9 million. Cash increased $10.2 million to $68.9 million. Deposit growth supplied $36.1 million of financing cash; dividends paid were $0.5 million.
- Debt and capital: Junior subordinated debentures were $22.7 million; capital lease obligations were $2.5 million. The Bank was classified as “well capitalized,” with a 16.45% total risk-based capital ratio and an 11.22% Tier 1 leverage ratio, above the stated well-capitalized thresholds of 12.0% and 9.0%.
- Asset quality: Nonperforming assets were $4.7 million, or 0.52% of assets, versus $6.9 million, or 0.81%, at March 31. The allowance for loan losses was $10.1 million, 1.70% of loans, and covered nonperforming loans by 268.18%. Total troubled debt restructurings (TDRs) were $19.2 million, of which $16.1 million were accruing.
Material changes and management commentary
- Net interest income rose 6.6% for the quarter and 9.2% for the six-month period versus 2014; management attributed the improvement mainly to higher average loan balances and yields, alongside lower deposit costs.
- Commercial real estate loans increased to $331.4 million from $299.7 million at March 31. Total commercial and construction loans rose to $476.0 million from $453.2 million, while real-estate construction loans declined to $17.3 million from $30.5 million.
- Available-for-sale mortgage-backed securities increased to $118.8 million from $96.7 million as the company invested excess cash; purchases totaled $34.0 million over six months.
- Management reported improving local economic and housing indicators and plans to pursue organic commercial loan and core-deposit growth. It also noted that payoffs had outpaced originations in some recent quarters and that future growth depends on loan demand and execution.
- Riverview held $28.5 million in purchased automobile loans at September 30 and bought an additional $14.8 million pool in October 2015. Thirteen loans totaling $172,000 were on non-accrual at quarter-end. Management said further purchases in fiscal 2016 would depend on underwriting and concentration criteria.
Outlook, risks, contingencies and unusual items
The filing provides strategic priorities but no specific earnings, revenue or margin guidance. Management expects to continue focusing on commercial lending, relationship deposits, fee income and cost control. It cautions that results may be affected by credit conditions, real estate values, interest rates, competition, deposit retention, regulation and the ability to control expenses.
- Commercial real estate represented 55.62% of total loans, creating exposure to property values, local economic conditions and sector concentration. Management also noted that many new commercial loans carry adjustable rates, higher yields or shorter terms and can involve greater credit risk than traditional fixed-rate residential loans.
- Loan commitments, unused lines and standby letters of credit totaled $126.5 million. Loans under representations and warranties totaled $118.0 million; management considered potential losses remote and recorded no related liability.
- A pooled trust-preferred security of $1.8 million was classified as Level 3 and had $151,000 of unrealized losses. Four underlying issuers had defaulted; management estimated a 44% expected default rate and reported no additional other-than-temporary impairment charge for the quarter or six-month period.
- One modified commercial real estate TDR of $1.3 million had defaulted after modification. The filing also reports ordinary-course litigation, which management did not expect to have a material effect.
- Goodwill was $25.6 million; management reported no impairment in its latest assessment. Future impairment remains possible if business conditions, forecasts or market valuations deteriorate.
- The filing lists an August 2015 standstill agreement with Ancora Advisors and related parties as an exhibit; its terms are not summarized in the financial discussion.
Important facts for investors to verify
- Whether loan growth and higher net interest margin persist, particularly as deposit pricing and market interest rates change.
- Credit performance and concentration in commercial real estate, purchased auto loans, TDRs and classified loans; also monitor the allowance and any further loan-loss recaptures.
- Whether deposit growth remains primarily core and locally sourced, and whether disclosed borrowing facilities remain available on acceptable terms.
- The terms and implications of the August 2015 standstill agreement, and subsequent developments in the automobile-loan portfolio purchased in October.
- Any changes in commitments, litigation, collateral values, or the status of the trust-preferred security and goodwill assessment.