Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2013 (the second quarter of fiscal 2014). Unaudited consolidated results; amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Three months ended Sept. 30, 2013 | Prior-year quarter | Six months ended Sept. 30, 2013 | Prior-year six months |
|---|---|---|---|---|
| Interest income | $6.8 million | $8.6 million | $13.6 million | $17.9 million |
| Net interest income | $6.1 million | $7.8 million | $12.3 million | $15.9 million |
| Net interest margin | 3.37% | 4.31% | 3.44% | 4.26% |
| Non-interest income | $1.9 million | $2.3 million | $4.1 million | $4.8 million |
| Non-interest expense | $7.6 million | $7.8 million | $16.9 million | $16.1 million |
| Net income | $341,000 | $1.8 million | $2.0 million | $7,000 |
| Diluted earnings per share | $0.02 | $0.08 | $0.09 | $0.00 |
Quarterly earnings fell year over year as lower loan balances and loan yields reduced interest income and net interest margin. Six-month earnings improved substantially, principally because the company recorded a $2.5 million loan-loss provision recapture, compared with a $4.5 million provision in the prior-year period. The quarter had no loan-loss provision or recapture. Data-processing costs rose following implementation of a new core banking platform; six-month non-interest expense increased $802,000.
- Cash flow: For the six months, operating activities provided $2.6 million, investing activities used $12.1 million, and financing activities provided $8.4 million. Cash decreased $1.1 million to $114.3 million. Prior-year investing cash flow was positive $90.6 million, including $31.4 million from loan sales.
- Balance sheet and liquidity: At September 30, total assets were $788.9 million, deposits $672.8 million, and total equity $81.6 million. Cash was $114.3 million, or 14.5% of assets. Management reported total available liquidity of $524.8 million, or 66.5% of assets, including contingent borrowing capacity subject to collateral and counterparty terms.
- Loans and credit: Net loans were $509.4 million, down from $520.4 million at March 31, 2013. Nonperforming assets fell to $29.7 million from $36.8 million; nonperforming loans were $16.2 million. The allowance for loan losses was $13.7 million, 2.62% of loans, versus $15.6 million, or 2.92%, at March 31. Six-month net recoveries were $553,000.
- Capital and debt: The Bank reported a 10.20% Tier 1 leverage ratio and 16.03% total risk-based capital ratio, above OCC-agreed minimums of 9.00% and 12.00%. Junior subordinated debentures totaled $22.7 million. The company continued deferring interest; $3.5 million was deferred and accrued at September 30.
Material changes and management outlook
- Deposits increased $9.0 million from March 31; core branch deposits represented 95.6% of total deposits. The company reported no wholesale-brokered deposits and no outstanding FHLB or FRB advances.
- The investment portfolio expanded as excess cash was directed into available-for-sale investment and mortgage-backed securities. Management reported no additional other-than-temporary impairment charge in the quarter.
- Management plans to pursue measured loan growth, emphasizing commercial business and owner-occupied commercial real estate lending, while continuing to reduce problem assets and land-development exposure. It also seeks core deposit growth, expense control, and increased fee income through asset management and customer services. No quantified earnings or revenue guidance was provided.
- Management described local economic recovery as modest and uneven. It cited improving home sales, values and commercial vacancy rates, but warned that continued economic or real-estate deterioration could increase problem loans, credit costs, and liquidity pressure.
- The Bank remains subject to an OCC written agreement covering, among other matters, credit oversight, criticized-asset reduction, capital planning, and quarterly reporting. The company is also subject to a Federal Reserve written agreement requiring prior approval for specified dividends, debt actions, and payments on its debentures. Management stated it believed it was complying with both agreements.
- Deferred debenture interest restricts common-stock dividends. The filing also identifies risks from real-estate collateral values, loan concentrations, interest rates, funding access, regulatory actions, and the valuation of impaired loans, real estate owned, securities, and goodwill. Ordinary-course litigation was not expected by management to have a material adverse effect.
Key investor verification points
- Assess whether the $2.5 million loan-loss recapture is sustainable and how earnings perform without further reserve releases.
- Review credit quality, including the $16.2 million of nonperforming loans, $13.5 million of real estate owned, $16.9 million of troubled debt restructurings, and the adequacy of the allowance.
- Monitor net interest margin and loan yields as the loan portfolio contracts and assets are shifted toward lower-yielding cash and securities.
- Confirm continued compliance with OCC and Federal Reserve agreements, capital thresholds, and restrictions on dividends and debenture payments.
- Evaluate the quality and availability of reported liquidity, including collateral-dependent borrowing capacity and the $123.7 million of certificates of deposit scheduled to mature within one year.
- Review valuation assumptions for the pooled trust-preferred security and other Level 3 assets, as well as the deferred-tax-asset valuation allowance.