Riverview Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the quarter ended September 30, 2014 (fiscal 2015 second quarter) and the six months then ended. Riverview is a Washington- and Oregon-focused community banking company, principally gathering deposits and making commercial, commercial real estate, construction, residential and consumer loans. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance and condition
| Metric | Quarter ended September 30, 2014 | Six months ended September 30, 2014 |
|---|---|---|
| Net interest income | $6.72 | $13.08 |
| Net income | $1.08; diluted EPS $0.05 | $1.82; diluted EPS $0.08 |
| Net interest margin | 3.61% | 3.54% |
| Recapture of loan losses | $0.35 | $0.65 |
- Quarterly net income increased from $0.34 million in the prior-year quarter. Six-month net income declined from $1.98 million a year earlier.
- For the six months, operating cash flow was $6.24 million, investing cash flow was negative $56.53 million, and financing cash flow was positive $12.70 million. Cash fell $37.59 million to $30.99 million, primarily as cash was deployed into securities.
- At September 30, total assets were $841.5 million, net loans $540.8 million, deposits $702.6 million, and total equity $100.8 million. Since March 31, loans rose $19.8 million and deposits rose $12.6 million.
- Loan growth included $14.7 million of net organic growth and a $5.2 million net increase in purchased auto loans. Available-for-sale mortgage-backed securities rose to $120.7 million from $78.6 million after $50.2 million of purchases.
- Nonperforming assets fell to $15.4 million, or 1.84% of assets, from $21.8 million, or 2.64%, at March 31. The allowance for loan losses was $12.0 million, 2.17% of total loans, versus $12.6 million, or 2.35%. Allowance coverage of nonperforming loans increased to 102.21% from 89.25%.
- The Bank was classified as well capitalized. Actual total risk-based capital was 16.78%, Tier 1 risk-based capital 15.52%, and Tier 1 leverage 10.97%. The filing notes elevated well-capitalized thresholds of 12% total risk-based and 9% leverage.
- Liquidity included $204.2 million of cash and available-for-sale investments and reported total available liquidity of $496.3 million, or 59.0% of assets. There were no FHLB or Federal Reserve advances and no wholesale-brokered deposits; available credit capacity was reported at $179.4 million from FHLB and $44.7 million from the Federal Reserve.
Material changes and management commentary
- Net interest income increased $0.62 million for the quarter and $0.83 million for the six months versus the prior-year periods. Management attributed improvement chiefly to growth in investment securities and lower deposit costs; deposit interest cost fell to 0.25% for the six-month period from 0.38%.
- Six-month noninterest expense decreased $1.48 million to $15.41 million, mainly because of lower REO expenses, prior-year core-system conversion costs, and lower FDIC insurance premiums. Salaries and benefits increased $0.78 million, partly reflecting lending-team staffing and reinstated incentive plans.
- Noninterest income rose $0.30 million for the six months, including higher service charges and asset-management fees, partly offset by lower gains on loan sales as mortgage refinancing activity declined. RAMCorp assets under management were $363.7 million, up from $347.5 million a year earlier.
- Management said local economic conditions had improved, though recovery remained modest and uneven. It expected organic loan growth to increase in fiscal 2015 and intended to emphasize commercial lending and core deposits. The company closed an in-store Portland-area branch in October 2014; the filing cites a $111,000 one-time branch-closure expense.
- The Federal Reserve written agreement was rescinded on August 22, 2014 following asset-quality and Bank-condition improvements. The filing nevertheless reports OCC-agreed higher capital thresholds for the Bank.
Risks, contingencies and unusual items
- Riverview had deferred interest on $22.7 million of junior subordinated debentures since fiscal 2011; deferred interest totaled $3.9 million at September 30, 2014. The deferral restricts common-stock dividends and, management cautioned, could impair access to wholesale funding or debt financing.
- Credit risks remain, particularly from real-estate collateral, commercial real estate concentration and local economic or property-value deterioration. Nonperforming assets improved, but management cautioned that future deterioration or regulatory examinations could require higher loan-loss allowances.
- Total off-balance-sheet commitments were $105.0 million, including $85.1 million of undisbursed loan funds and unused lines, $19.1 million of loan-originating commitments, and $0.8 million of standby letters of credit. Management expected sufficient funds to meet current loan commitments.
- The company held a Level 3 pooled trust-preferred security valued at $1.9 million. Its valuation depends on significant assumptions, including default and discount rates; four underlying issuers had defaulted. Management reported no additional other-than-temporary impairment charge for the period.
- Management reported ordinary-course litigation that it did not expect to materially affect financial position, results or liquidity. It also stated that risk factors were not materially changed from the prior annual report.
Important facts for investors to verify
- Whether loan growth and the planned shift toward higher-yielding commercial lending can be sustained without weakening underwriting or asset quality.
- Whether declining nonperforming assets and the loan-loss recapture reflect durable credit improvement, and whether the $12.0 million allowance remains adequate.
- How continued interest deferral on the $22.7 million debentures affects dividend restrictions, funding access and eventual repayment obligations.
- Whether securities deployment and reported borrowing capacity provide adequate liquidity under adverse deposit, collateral or market conditions.
- Whether the Level 3 trust-preferred valuation assumptions and the remaining real-estate-related exposures could lead to additional losses or impairment.