River City Bank Q3 Earnings Call Highlights

Key Points

• Adjusted third-quarter earnings were $18.3 million, or $1.29 per share, excluding the after-tax impact of a $17.1 million pretax gain from interest-rate swap valuations. Management cautioned that these mark-to-market gains can reverse and said adjusted results better reflect core operations.
• River City Bank expanded its balance sheet, with assets up 16% year over year, loans up 3.7% sequentially and deposits up 15% year over year. Management expects full-year loan growth at the upper end of the mid-single-digit range, driven primarily by commercial real estate lending.
• Credit quality remained exceptionally strong, with no nonperforming loans, delinquencies, charge-offs or other real estate owned. Net interest margin improved to 2.39%, while management expects modest additional expansion in the fourth quarter despite competitive pricing and potentially higher deposit costs.

River City Bank NASDAQ: RCBC reported third-quarter net income of $30.6 million, or $2.16 per share, in its first earnings release as a public company following its August Nasdaq initial public offering. The reported results included a $17.1 million pre-tax gain from changes in the fair value of undesignated interest-rate swaps.

President and Chief Executive Officer Steve Fleming said the derivatives were used to manage interest-rate risk tied to fixed-rate commercial real estate loans, but their quarterly mark-to-market movements do not reflect the bank's core operating results. Excluding the after-tax impact of the swap gain, adjusted net income was $18.3 million, or $1.29 per share. Adjusted return on average assets was 1.15%, while adjusted return on average equity was 12.63%.

“The mark-to-market was positive and large during Q3. It could be negative and large next quarter,” Fleming said, adding that the bank views results excluding the gains or losses as a clearer measure of operating performance.

Balance Sheet Growth and Lending Activity

Total assets reached $6.4 billion at Sept. 30, increasing $339 million, or 5.6%, from the prior quarter and $907 million, or 16%, from a year earlier. Loans increased $172 million, or 3.7%, during the third quarter, following approximately 1% growth during the first half of 2026. Gross loan originations totaled about $238 million.

Fleming attributed the acceleration partly to the bank's seasonal lending pattern, noting that River City Bank typically originates about 65% of its loans in the second half of the year. Management expects loan growth for the full year at the upper end of the mid-single-digit range, although Fleming said the lending environment remains highly competitive and continues to pressure pricing.

Chief Financial Officer Brian Killeen said third-quarter loan production carried an average yield of about 5.6%. Fleming also said some borrowers who had delayed refinancing in hopes of lower rates opted to lock in financing as those expectations diminished. Borrowers have increasingly favored five-year fixed-rate and floating-rate loans over 10-year fixed-rate loans to preserve refinancing flexibility, he said.

The bank's lending growth has primarily come from commercial real estate. Fleming said multifamily remains the largest segment of its CRE portfolio, followed by retail, largely grocery-anchored shopping centers, and industrial properties. River City Bank has largely avoided office lending for the past six years, aside from occasional medical office projects.

Deposits, Margin and Liquidity

Total deposits rose $239 million, or 4.4%, from the second quarter and $753 million, or 15%, from the prior-year period. Deposit growth during 2026 was evenly split between commercial depositors and clean-energy-sector clients, according to Fleming. The bank ended the quarter with no wholesale funding.

During the question-and-answer session, Killeen said that excluding community choice aggregation customers, nearly all third-quarter deposit growth came from existing commercial customers, including long-standing commercial and industrial depositors. He noted that average noninterest-bearing deposits increased during the quarter partly because of seasonal activity among community choice aggregation customers, but management does not expect a continuing improvement trend in those balances during the fourth quarter.

Net interest income was $37.8 million, up 6.5% from the second quarter and 2% from a year earlier. Net interest margin increased 5 basis points sequentially to 2.39%, reflecting higher yields on average interest-earning assets and a 3-basis-point decline in cost of funds. The margin remained below the 2.71% reported a year earlier, which Killeen attributed largely to interest-bearing deposits growing faster than loans and the bank holding excess cash or short-term securities.

River City Bank's cost of deposits was 2.73%, compared with 2.77% in the prior quarter. Killeen said the bank expects a mild increase in deposit costs in the fourth quarter because roughly $2 billion of public deposits are tied to an index. He said management expects net interest margin to increase by a couple of basis points in the fourth quarter and forecast a 2.40% to 2.45% range for 2027 based on current expectations.

At quarter-end, the bank held approximately $1.5 billion in cash and investment securities and had about $2.3 billion of available borrowing capacity. It also had $2.6 billion in notional interest-rate swaps outstanding, with about 84% designated as fair-value hedges and 16% undesignated.

Credit Quality and Expenses

Credit quality remained strong, with zero nonperforming loans, virtually no delinquent loans, no charge-offs and no other real estate owned as of Sept. 30. The allowance for credit losses totaled $111 million, or 2.3% of total loans, unchanged from the prior quarter. The bank recorded a $3.7 million provision for credit losses, including loans and unfunded commitments, compared with $1.5 million in the second quarter, primarily because of loan originations.

Noninterest expense totaled $11.2 million, declining 6.1% from the prior quarter and rising only $39,000 from the prior-year quarter. Killeen said the sequential decline reflected lower professional fees after elevated IPO-related costs in the second quarter, as well as lower stock compensation expense. He cautioned that the current quarterly expense run rate was somewhat low because of certain accrual adjustments and said a level between the start-of-year run rate and the third-quarter amount was a more appropriate expectation.

Core pretax, pre-provision income was $29 million, up from $25 million in the prior quarter and $28 million a year earlier. The adjusted efficiency ratio was 28%, compared with 32% in the second quarter. Book value per share rose 14% year over year to slightly more than $42.

River City Bank repurchased $1.6 million of common stock during the quarter at an average price of $51 per share. Capital ratios included a 9.4% Tier 1 leverage ratio, a 13.3% common equity Tier 1 ratio and a 14.6% total risk-based capital ratio.

About River City Bank (NASDAQ:RCBC)

River City Bank is a California-based commercial bank that provides banking and financial services to businesses, professionals, nonprofit organizations and individuals. The bank focuses on relationship-based banking and offers commercial and real estate lending, business and personal deposit accounts, treasury management and online banking services.

Founded in 1973, River City Bank is headquartered in Sacramento and serves customers primarily throughout Northern California. Its banking activities include providing credit facilities for commercial enterprises and real estate projects, along with cash-management and other financial solutions designed to support business operations.

River City Bank operates through its banking offices and digital channels, serving markets that include the Sacramento region and the San Francisco Bay Area.

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