Riverview Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2020; balance-sheet comparisons are to March 31, 2020. Amounts are in U.S. dollars unless noted.
Business context and financial performance
Riverview is a community-focused bank serving Washington and Oregon, with commercial real estate and business lending as core activities and a trust and asset-management subsidiary. Commercial and construction loans were 92.9% of total loans at December 31, 2020.
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Net interest income | $11.5 million | $11.5 million | $33.7 million | $34.7 million |
| Provision for loan losses | None | None | $6.3 million | None |
| Non-interest income | $2.8 million | $3.2 million | $8.3 million | $9.5 million |
| Non-interest expense | $9.1 million | $9.2 million | $26.6 million | $27.4 million |
| Net income | $4.0 million | $4.1 million | $7.1 million | $12.9 million |
| Diluted earnings per share | $0.18 | $0.18 | $0.32 | $0.57 |
| Net interest margin | 3.40% | 4.23% | 3.46% | 4.31% |
For the quarter, net income was nearly level year over year. For the nine-month period, net income fell about 45%, primarily reflecting the $6.3 million loan-loss provision and lower non-interest income. The margin decline reflected lower asset yields, including the low-rate environment and PPP loans; falling funding costs partly offset the pressure. Nine-month cash provided by operating activities was $16.1 million, compared with $17.7 million a year earlier. Cash and cash equivalents increased $193.9 million to $235.8 million.
Financial position, liquidity and capital
- Total assets were $1.436 billion, up from $1.181 billion at March 31, 2020. Deposits rose $246.5 million to $1.237 billion; management attributed growth to PPP proceeds, stimulus payments, increased saving and reduced withdrawals.
- Net loans were $912.3 million, up $13.4 million. Gross loans included $80.8 million of PPP loans; commercial real estate loans increased while construction, consumer and multifamily balances declined.
- The allowance for loan losses was $19.2 million, or 2.06% of total loans, versus $12.6 million, or 1.38%, at March 31. Nonperforming loans fell to $393,000 from $1.4 million. Criticized assets rose to $46.5 million from $1.4 million, mainly due to risk-rating changes on pandemic-affected loans.
- Cash, certificates of deposit held for investment and available-for-sale securities totaled $389.3 million, or 27.1% of assets. The Bank had no FHLB or Federal Reserve advances outstanding and reported $224.9 million of FHLB and $52.4 million of Federal Reserve borrowing capacity, subject to collateral and other conditions.
- The Bank was categorized as well capitalized. Its total capital ratio was 17.58%, CET1 ratio 16.32% and leverage ratio 9.80% at December 31, 2020.
- Junior subordinated debentures were $26.7 million. Shareholders’ equity was $151.9 million. The company paid $3.3 million in dividends and repurchased 295,900 shares for $1.4 million during the nine months.
Material changes, outlook and risks
- COVID-19 remains a material source of uncertainty for borrowers, the economy and company results; management said the ultimate impact could not be reliably estimated. The filing provides no specific earnings or margin guidance.
- At December 31, eight commercial loans totaling $26.6 million had approved COVID-related payment deferrals, down from 13 loans totaling $49.7 million at September 30. Two consumer and mortgage loans totaling $462,000 also had deferrals. These modifications were not treated as TDRs under applicable relief guidance.
- Riverview originated $113.5 million of PPP loans through the initial program. At December 31, outstanding PPP balances were $82.4 million, with $1.6 million of unamortized fees; 198 loans totaling $35.1 million had received forgiveness approval. The Bank began processing PPP2 applications in January 2021.
- Management identifies commercial lending and real-estate exposure as key credit risks. Pandemic-sensitive balances included hotels/motels of $107.5 million, retail strip centers of $84.9 million and restaurants/fast food of $14.4 million. Further economic deterioration could require additional loan-loss provisions.
- Goodwill was $27.1 million. The October 2020 impairment test found no impairment, but management cautioned that sustained adverse economic or market conditions could trigger a future charge.
- Other disclosed risks include interest-rate and LIBOR transition exposure, deposit retention, regulatory examinations, and technology, cybersecurity and third-party service disruptions. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- Commitments totaled $147.1 million, including $122.5 million of undisbursed loan funds and unused lines, $22.6 million of loan-originating commitments and $2.0 million of standby letters of credit. Management said ordinary-course litigation was not expected to have a material effect.
Important facts for investors to verify
- Whether PPP forgiveness and fee recognition, as well as PPP2 activity, materially change loan balances, revenues or liquidity.
- Whether criticized assets, pandemic-related deferrals and commercial real-estate exposures lead to additional provisions, charge-offs or deterioration in the allowance.
- Whether deposit growth persists and excess cash can be redeployed without further weakening net interest margin.
- How interest rates and the LIBOR transition affect asset yields, deposit costs and the company’s floating-rate debentures.
- Whether goodwill valuation assumptions remain supportable if the company’s share price, market conditions or operating results weaken.