SACRAMENTO, CA — River City Bank (the Bank) reported net income of $16.4 million, or $11.10 per diluted share, for the quarter ending March 31, 2022, which compares favorably to the $15.6 million, or $10.62 per diluted share, for the same period in 2021. The improved net income versus the prior year quarter was driven by:
- $7.0 million in mark-to-market gains on interest rate swaps for the quarter ending March 31, 2022 compared to a gain of $6.8 million for the prior year quarter. The Bank entered into these swap agreements to hedge the interest rate risk associated with its ongoing origination of medium-term fixed rate commercial real estate loans. If the Bank had been able to obtain hedge accounting treatment for these swaps, the mark-to-market gains would not have been recognized for the quarter as they were offset by losses on the loans being hedged.
- $6.9 million gain on sale derived from a true-up related to earn-out provisions from the sale of an investment in the prior year quarter. The initial gain recognized on the sale of this investment in the prior year quarter was $3.4 million.
- Higher loan balances – Average loans outstandings, excluding PPP loans, were $455 million higher than the prior year, thereby increasing net interest income.
Partially mitigating the above were the following factors:
- $443,000 deferred loan fees earned on Paycheck Protection Program (PPP) loans for which the outstanding loan balances were forgiven by the Small Business Administration in the current quarter compared to $2.0 million recognized in the prior year quarter.
- $6.4 million provision for loan losses during the current quarter compared to the $3.0 million provision for loan losses recorded in the prior year quarter.
Our asset quality remains strong with virtually no delinquencies or non-performing loans, however, we made a sizeable provision to our loan loss reserve in the first quarter due to concerns with rising inflation, the war in Ukraine, and potential impacts to the office segment of commercial real estate from a reduction in demand as employers continue to provide work-from-home opportunities,” said Steve Fleming, president and chief executive officer. “Nevertheless, we believe we can prudently continue to grow our loan portfolio as we focus more on commercial loans secured by multi-family and industrial properties, as well as expanding our geographic footprint to other western states outside of California.”
“Operational efficiency remains a core competency for the Bank, as evidenced by our 33 percent efficiency ratio after excluding the swap MTM and investment gains noted above for the quarter ending March 31, 2022” said Anker Christensen, chief financial officer of River City Bank. “Our total non-interest expense has remained stable compared to the prior year period as evidence of our focus on managing expenses.”
Shareholders’ equity for River City Bank on March 31, 2022 increased $5.4 million to $313 million, when compared to the $308 million as of December 31, 2021. The increase was driven by current year retained earnings, offset somewhat by an $11.1 million decrease in accumulated other comprehensive income as the increase in short and medium-term interest rates resulted in unrealized losses in the Bank’s investment securities portfolio. The Bank’s capital ratio remains well above the regulatory definition for being Well Capitalized with a Tier 1 Leverage Ratio of 9.0% as of March 31, 2022.
