SACRAMENTO, CA, January 27, 2017—River City Bank reported net income of $4.7 million, or $3.27 per diluted share, for the three-month period ending December 31, 2016, which compares to the $4.0 million, or $2.77 per diluted share, for the same period in 2015. The Bank posted record net income of $14.9 million, or $10.34 per diluted share, for the year ending December 31, 2016, which was $2.4 million more than the $12.5 million, or $8.76 per diluted share, for the year ending December 31, 2015.
“In addition to record earnings for 2016, we also reported record loan growth of over $304 million,” stated Steve Fleming, president and chief executive officer of River City Bank. “Over the last two years, our team of highly talented bankers has expanded the Bank’s relationships with existing clients and added high-quality new clients to the Bank resulting in a 66 percent increase in gross loans since December 31, 2014. This expansion of market share stems from maintaining our strong market position and brand in the Sacramento area and our continued penetration into the Bay Area and Southern California commercial real estate markets.”
Asset quality continued to be a high priority for the Bank, with nonperforming loans to total gross loans declining from an already low 0.35 percent as of December 31, 2015, to 0.08 percent as of December 31, 2016. Other real estate owned (i.e. real estate obtained by the Bank via foreclosure) as of December 31, 2016, amounted to only $3 million. Notwithstanding the excellent asset quality, the Bank made loan loss provisions of almost $4 million in 2016 due to the above-noted loan growth.
Loan growth propelled net interest income $8.6 million higher for the year ending December 31, 2016, versus the same period in 2015. It should be noted that net interest income for 2016 benefited from $916,000 in interest recoveries from two nonaccrual loans which paid off during 2016. These interest recoveries, combined with the Bank’s superior loan growth, are the reason the Bank’s net interest margin increased from 2.97 percent to 3.01 percent for the years ending December 31, 2015, and December 31, 2016, respectively, despite the negative impact of the continued low level of interest rates.
In addition to the accelerated loan growth, another factor affecting the performance for the three- and twelve-month periods ending December 31, 2016 pertains to the mark-to-market (MTM) of the Bank’s interest rate swap contracts (swaps). Due to recent increases in medium-term interest rates during the three- and twelve-month periods ending December 31, 2016, the Bank incurred a MTM gain of $2.5 million and $649,000, respectively. This compares favorably to the $740,000 MTM gain and $338,000 MTM loss for the same periods in 2015. The Bank entered these swaps to hedge the interest rate risk associated with its ongoing origination of medium-term fixed rate commercial real estate loans. Because these swaps were not designed to receive hedge accounting treatment, these swaps must be carried on the balance sheet at fair market value with any changes in value recorded in the income statement. It should also be noted that the increase in interest rates in 2016 caused a mark-to-market decrease in the Bank’s securities fair value, resulting in a $707,000 decrease (net of taxes) from December 31, 2015, to December 31, 2016, in the Accumulated Other Comprehensive Income in the equity section of the Bank’s balance sheet.
“Our significant loan growth over the last two years has expanded our net interest income as noted above and, together with our continued vigilance in managing expenses, has led to a 46 percent efficiency ratio for 2016 compared to 52 percent for 2015,” stated Anker Christensen, chief financial officer of River City Bank. “Managing expenses continues to be a necessity in this historically low interest rate environment, which pressures our revenues.”
Shareholders’ equity for River City Bank on December 31, 2016, increased almost $13 million to $171 million, when compared to the $158 million as of December 31, 2015. The increase was driven by retained earnings and partially offset by the previously noted decrease in Accumulated Other Comprehensive Income. The Bank’s capital ratios remain well above the regulatory definitions for being Well Capitalized. Tier 1 Leverage, Common Equity Tier 1, and Total Risk-Based Capital Ratios were 9.8 percent, 11.3 percent, and 13.3 percent, respectively, as of December 31, 2016.
