Riverview Bancorp, Inc. — Form 10-Q Summary
Period: Three months ended June 30, 2014, the company’s fiscal first quarter of fiscal 2015. Unaudited consolidated results include Riverview Community Bank and subsidiaries. The filing metadata’s “2014 Q1” label differs from the period stated in the filing.
Financial performance
| Metric | Quarter ended June 30, 2014 | Prior-year quarter |
|---|---|---|
| Net income | $0.74 million | $1.64 million |
| Diluted earnings per share | $0.03 | $0.07 |
| Net interest income, before loan-loss recapture | $6.36 million | $6.15 million |
| Net interest margin | 3.46% | 3.51% |
| Total non-interest income | $2.21 million | $2.25 million |
| Total non-interest expense | $7.74 million | $9.24 million |
| Loan-loss recapture | $0.30 million | $2.50 million |
Net income fell 55% year over year. Lower non-interest expense and interest expense partly offset the much smaller loan-loss recapture and a higher income-tax provision. Net interest income rose 3.3%, while margin narrowed 5 basis points; management attributed the margin pressure mainly to loan repricing and a higher average balance of lower-yielding cash and short-term investments. Interest expense declined $170,000 as deposit costs fell.
Balance sheet, cash flow and capital
- Assets and loans: Total assets were $824.6 million at June 30, essentially unchanged from March 31. Net loans rose to $534.7 million from $520.9 million, reflecting $6.1 million of organic growth and a $7.7 million net increase in purchased auto loans.
- Deposits and liquidity: Deposits declined $3.4 million to $686.6 million; there were no wholesale-brokered deposits. Cash declined to $41.6 million from $68.6 million as the company invested in securities. Cash, certificates of deposit held for investment and available-for-sale securities totaled approximately $196.0 million. The company reported total available liquidity of $512.9 million, including unused borrowing capacity.
- Cash flow: Operating activities provided $3.6 million; investing activities used $27.1 million and financing activities used $3.5 million. Cash decreased $27.0 million during the quarter.
- Debt: Junior subordinated debentures were $22.7 million. The company continued deferring interest payments, with $3.8 million accumulated at quarter-end. No FHLB or Federal Reserve advances were outstanding. Capital lease obligations were $2.3 million.
- Equity and regulatory capital: Shareholders’ equity increased to $99.4 million from $98.0 million. The Bank reported a 10.93% Tier 1 leverage ratio and a 16.58% total risk-based capital ratio, above its regulatory agreement thresholds of 9% and 12%, respectively; the filing classified the Bank as well capitalized.
Asset quality and changes versus prior periods
- Nonperforming assets declined to $19.0 million, or 2.30% of assets, from $21.8 million, or 2.64%, at March 31. Nonperforming loans were $13.1 million; real estate owned was $5.9 million.
- The allowance for loan losses was $12.3 million, 2.25% of loans, versus $12.6 million, 2.35%, at March 31. The allowance covered 94.09% of nonperforming loans. Management recorded a $300,000 recapture, citing lower problem-loan levels, reduced charge-offs, recoveries and stabilizing property values.
- Loans past due 90 days or more were all on non-accrual status; none were 90 days past due and accruing. Total troubled debt restructurings were $22.4 million, of which $13.0 million were accruing.
- Non-interest expense fell $1.5 million year over year, mainly due to lower REO costs, prior-year core-system conversion costs and lower FDIC premiums. Salaries and benefits rose $304,000 with increased lending staff and reinstated incentive plans.
Outlook, management commentary and risks
- Management anticipated increased organic loan growth in fiscal 2015 and emphasized commercial business and commercial real estate lending, core deposits, expense control and fee income. This is a business outlook, not quantified earnings guidance.
- The company purchased an additional $8.7 million pool of automobile loans in the quarter and said it had no immediate plans for further pool purchases. One purchased auto loan of $27,000 was non-accrual.
- In July 2014, the company announced plans to close one Portland in-store branch, expecting minimal customer and deposit impact.
- The Bank remains subject to elevated OCC capital requirements, and the holding company remains subject to a Federal Reserve written agreement requiring prior notice and approval for specified dividends, debt actions and payments on debentures. Deferring debenture interest restricts common dividends and may affect access to wholesale funding or debt financing.
- Risks include credit deterioration, real estate values, interest-rate and funding changes, regulatory examinations or restrictions, deposit retention, and the company’s ability to control costs. Management noted that local economic recovery remained modest and uneven. It reported no material litigation impact, no material change in risk factors, and effective disclosure controls.
- The company reported no additional other-than-temporary impairment on its pooled trust-preferred security. That Level 3 asset is exposed to underlying issuer defaults and relies on management estimates; agency and mortgage-backed securities also had unrealized losses management considered temporary.
Key facts for investors to verify
- Whether loan growth, especially commercial real estate and purchased auto lending, can continue without worsening delinquencies, classified loans or losses.
- Whether asset-quality improvement supports future allowance recaptures, and how sensitive that conclusion is to collateral values and economic conditions.
- The sustainability of earnings given lower loan yields, narrower net interest margin, and the large year-over-year change in loan-loss recaptures.
- Liquidity and funding assumptions, including the availability of reported borrowing capacity and the effects of deferred debenture interest and regulatory restrictions.
- The timing and customer/deposit effects of the announced branch closure, and whether cost reductions offset rising personnel costs.