SACRAMENTO, CA — River City Bank (the Bank) reported net income of $6.1 million, or $4.20 per diluted share, for the quarter ending June 30, 2020, which compares to the $6.5 million, or $4.44 per diluted share, for the same period in 2019. Net income was $13.4 million or $9.16 per diluted share for the six months ending June 30, 2020, which compares to the $12.4 million or $8.51 per diluted share for the six months ending June 30, 2019.
The improved net income for the six months versus the prior year period was driven by a $7 million or 23% increase to net interest income from higher loan balances. Average loan outstandings, including Paycheck Protection Program (PPP) loans were $461 million higher than the prior year period, thereby increasing loan interest and fee income. PPP loans originated in the second quarter totaled $283 million as of June 30, 2020. Partially, offsetting the higher level of loan interest and fee income were the following:
- Provision for loan losses of $5.5 million or $3.5 million higher than the prior year period. Approximately $4.3 million of this provision can be attributed to the exceptional loan growth (over $200 million, excluding the PPP loans which are guaranteed by the US Government’s Small Business Administration), with the remaining $1.2 million primarily due to some Covid-19 caused deterioration in loan quality.
- Mark to market on the interest rate swaps resulting in a loss of $1.5 million for the six months ending June 30, 2020 compared to zero for the prior year period. The Bank entered into these swap agreements to hedge the interest rate risk associated with its ongoing origination of medium-term fixed rate loans. Because certain of the Bank’s interest rate 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.
“Until an effective vaccine is developed and widely distributed amongst the population, we believe that the California economy will be seriously stressed; we are very pleased to be entering this period with solid asset quality metrics”, said Steve Fleming, president and chief executive officer of River City Bank. “Through our disciplined and financially conservative loan underwriting and diligent management of the portfolio, we have reported no non-performing loans over the past three consecutive quarters. Perhaps even more importantly is the minimal number of loan modifications that we have had to make as a result of the COVID-19 pandemic.” The COVID-19 related loan modifications through June 30, 2020 consisted of the following:
- Consumer: One residential mortgage loan with an outstanding balance of only $6,278 had its P&I payments deferred to October 2020.
- C&I: One loan with an outstanding balance of $1.3 million had its P&I payments deferred to July 15, 2020.
- CRE: Seven loans with an aggregate outstanding balance of $24 million have been making interest only payments for three months.
“In addition to the exceptional loan growth noted above, we also experienced outstanding deposit growth of $542 million or 25% during the first half of 2020”, said Steve Fleming. “It should be noted that some of this deposit growth is temporary in nature due to an extension in the tax filing due date from April 15 to July 15 and the recent funding of the PPP loans into deposit accounts at the Bank. Nevertheless, we are very pleased with the trust placed in us by our deposit customers, which has allowed us to continue our robust lending into the communities we serve. Though our branches remain open to provide services to our customers, given the health risks associated with COVID-19, we are continuing to protect our staff through minimizing the number of customers that can enter a branch at one time and are following California’s guidelines for wearing masks and social distancing.”
“Operational efficiency remains a core competency for the Bank, as evidenced by our 36 percent efficiency ratio for the six months ending June 30, 2020” said Anker Christensen, chief financial officer of River City Bank. “Though our total non-interest expense has increased over the prior year period, our focus on managing expenses continues to be evident by our continued low efficiency ratio.”
Shareholders’ equity for River City Bank on June 30, 2020, increased $16.5 million to $253 million, when compared to the $237 million as of December 31, 2019. The increase was driven by current year retained earnings and a $3.5 million increase in accumulated other comprehensive income as the decline in short and medium term interest rates resulted in increased unrealized gains in our 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 8.7% as of June 30, 2020.
