SACRAMENTO, CA – Apr. 19, 2017—River City Bank (the Bank) reported net income of $4.2 million, or $2.93 per diluted share, for the quarter ending March 31, 2017, which compares to the $2.8 million, or $1.92 per diluted share, for the same period in 2016. The prior year quarter benefited from an interest recovery of $596,000 from a nonaccrual loan that was fully repaid; however, that benefit was more than fully offset by the $1.7 million mark-to-market (MTM) loss on the Bank’s interest rate swap contracts (swaps). The current quarter reflects a MTM swap gain of $270,000.
“Our exceptionally strong loan growth over the past two years continued into the first quarter of 2017 with a net increase of $88 million, or 6.9 percent in total gross loans, since the end of 2016,” said Steve Fleming, president and chief executive officer of River City Bank. “The loan growth reflects our continued expansion in all three of our geographic markets: Central Valley, Bay Area and Southern California. Still, we believe that this commercial real estate refinancing cycle is approaching its conclusion and, as such, we expect a significant slowdown in our loan growth going forward.”
The superior loan growth has been essential to the expansion of the Bank’s net interest income, which increased 17 percent, or nearly $2 million, compared to the prior year quarter after excluding the non-recurring interest recovery noted above. Additionally, the Bank’s net interest margin declined only slightly from 2.95 percent in the prior year quarter to 2.89 percent in the current quarter after adjusting for the non-recurring interest recovery in 2016. The Bank’s commitment to asset quality coupled with the benign credit environment are reflected in the steady decline from an already low 0.87 percent non-performing loans to total gross loans as of March 31, 2015 to 0.19 percent and 0.07 percent as of March 31, 2016 and 2017, respectively.
In addition to the loan growth, the other noteworthy movement on the Bank’s balance sheet was the $94 million growth in deposits in the first quarter of 2017.
Medium term interest rates changed minimally since the prior year end, resulting in a modest MTM swap gain in the current quarter. This compared favorably to the MTM swap loss of $1.7 million in the prior year quarter due to the pronounced decline in medium-term interest rates between December 31, 2015, and March 31, 2016. The Bank entered these swap agreements to hedge the interest rate risk associated with its ongoing origination of long-term fixed rate loans. Because these swaps were not designed to receive hedge accounting treatment, these swaps have to be carried on the balance sheet at their fair market value with any changes in value recorded in the income statement.
“Operational efficiency is a core competency for the Bank, as evidenced by our 43 percent efficiency ratio for the quarter ending March 31, 2017,” said Anker Christensen, chief financial officer of River City Bank. “Though managing expenses continues to be a priority for the management team, the continued improvement in our efficiency ratio for the current quarter has been primarily driven by revenue growth. Our current efficiency ratio represents a significant improvement from the 56 percent reported in the prior year quarter (49 percent after excluding the impact of the $1.7 million MTM swap loss).”
Shareholders’ equity for River City Bank on March 31, 2017, increased $3.8 million to $174.4 million, when compared to the $170.6 million as of December 31, 2016. The increase was driven through increased retained earnings. The Bank’s capital ratios remain well above the regulatory definitions for being Well Capitalized. Common Equity Tier 1, Tier 1 Leverage and Total Risk-based capital ratios were 10.9 percent, 9.4 percent and 12.8 percent, respectively, as of March 31, 2017.
