Business context and reporting period
Riverview Bancorp, Inc. is a Washington- and Oregon-focused community banking company, with commercial and real estate lending, deposit services, and a trust and asset-management subsidiary. This Form 10-Q covers the quarter and six months ended September 30, 2021, the second quarter of fiscal 2022. Comparisons below are with the corresponding 2020 periods unless otherwise noted; balance-sheet comparisons are with March 31, 2021. Amounts are in U.S. dollars.
Financial and operating highlights
- Quarter earnings: Net income was $6.43 million, or $0.29 per diluted share, versus $2.54 million, or $0.11, a year earlier. For the six months, net income was $12.19 million, or $0.55 per diluted share, versus $3.02 million, or $0.14.
- Revenue and margin: In the quarter, interest and dividend income was $12.97 million and non-interest income was $3.07 million. GAAP net interest income rose to $12.38 million from $11.06 million. Net interest margin fell to 3.12% from 3.33%; for the six months it was 3.09% versus 3.48%.
- Credit costs and expenses: The company recorded a $1.10 million loan-loss provision recapture for the quarter and a $2.70 million recapture for the six months, compared with provisions of $1.80 million and $6.30 million in the respective 2020 periods. Quarterly non-interest expense was $8.19 million, versus $8.84 million.
- Balance sheet: Total assets were $1.72 billion, up from $1.55 billion at March 31. Deposits rose to $1.51 billion from $1.35 billion. Net loans declined to $898.0 million from $924.1 million, while cash and cash equivalents increased to $368.1 million from $265.4 million. Shareholders’ equity was $159.8 million, compared with $151.6 million.
- Cash flow: For the six months, operating activities provided $8.24 million; investing activities used $62.31 million; and financing activities provided $156.78 million. Cash increased by $102.71 million to $368.12 million.
- Debt and liquidity: Junior subordinated debentures totaled $26.8 million. The bank had no FHLB or Federal Reserve advances outstanding and reported available borrowing capacity of $238.5 million at the FHLB and $42.9 million at the Federal Reserve, subject to collateral and other conditions. Cash, certificates of deposit, and available-for-sale securities totaled $646.6 million, or 37.7% of assets. The bank was categorized as well capitalized; its total capital ratio was 17.42% and its Tier 1 leverage ratio was 9.08%.
- Asset quality: Nonperforming assets were $490,000, or 0.03% of assets, versus $571,000 at March 31. The allowance for loan losses was $16.5 million, or 1.80% of loans, down from $19.2 million, or 2.03%. Commercial real estate loans represented 62.0% of total loans.
Material changes versus comparable periods
- Earnings increased substantially, mainly reflecting loan-loss recaptures rather than provisions, higher net interest income, and unusual gains and benefits described below.
- Net interest margin declined despite higher net interest income. Management cited a low-rate environment, lower yields on new loans and securities, PPP loan yields, and a larger balance of low-yielding cash.
- Deposit growth and increased investment-security purchases drove asset growth. The loan balance fell, principally as PPP loans were forgiven and repaid; commercial real estate and one-to-four-family balances increased, partly offset by reductions in other loan categories.
- The allowance decreased amid management’s assessment of improving economic conditions and credit metrics. Nonperforming assets also declined modestly.
Outlook, commentary, risks, and unusual items
- Outlook: The filing provides no quantified earnings or margin guidance. Management’s stated strategy is to grow commercial lending and core deposits, expand fee income and the Trust Company, manage credit quality and expenses, and selectively pursue branch and other expansion opportunities. A Ridgefield, Washington branch was expected to open in winter 2021.
- Unusual items: The company recognized a $1.0 million gain from selling its former Montavilla branch building and land in September, presented as a reduction of non-interest expense. Six-month non-interest income included a $500,000 BOLI death benefit. These items contributed to reported results and may not recur.
- COVID-19 and PPP: The company reported no COVID-related loan modifications on deferral at September 30. PPP loans outstanding totaled $33.9 million, including unamortized fees; forgiveness and fee recognition affect loan income. PPP loans are SBA-guaranteed, subject to program requirements.
- Principal risks: Risks include deterioration in local or national economic conditions, commercial real estate and other borrower credit quality, interest-rate and funding changes, deposit retention, regulatory actions, cybersecurity and third-party disruptions, and potential goodwill impairment. Management said its September goodwill assessment indicated fair value exceeded carrying value, while noting sustained adverse conditions could trigger impairment. The company also cited LIBOR transition exposure for its floating-rate debentures.
- Contingencies and controls: Loan commitments, unused lines, and standby letters of credit totaled $173.1 million. Management did not expect ordinary-course litigation to have a material effect. It reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much future earnings depend on loan-loss recaptures, the branch-sale gain, BOLI proceeds, and PPP fee recognition.
- Whether margin pressure persists as cash balances, loan and securities yields, and deposit costs change.
- Credit trends in the sizable commercial real estate portfolio, including the substandard and other loans of concern disclosed in the filing.
- Deposit growth, funding concentration, and the availability and collateral requirements of contingent borrowing capacity.
- The timing and amount of any allowance increase upon adoption of the expected-credit-loss standard; management anticipated an increase but said its magnitude was not yet known.