Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
- ------- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File Number: 0-22957
RIVERVIEW BANCORP, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1838969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 Washington, Suite 900 Vancouver, WA 98660
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (360)693-6650
Indicate by check whether the registrant: (1)has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
---- ----
Indicate by check whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes No X
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: Common Stock, $.01 par value---4,727,640 shares as of
October 15, 2003.
Form 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
--------------------- ----
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 2003 and March 31, 2003 1
Consolidated Statements of Income: Three and Six
Months Ended September 30, 2003 and 2002 2
Consolidated Statements of Shareholders' Equity
for the Year Ended March 31, 2003 and the
Six Months Ended September 30, 2003 3
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2003 and 2002 4
Notes to Consolidated Financial Statements 5-16
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16-29
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 30
Item 4: Controls and Procedures 30
Part II. Other Information 31
SIGNATURES 33
Part I. Financial Information
Item I. Financial statements (Unaudited)
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND MARCH 31, 2003
SEPTEMBER 30, MARCH 31,
(In thousands, except share data) (Unaudited) 2003 2003
- ------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$57,641 and $42,464) $ 84,597 $ 60,858
Loans held for sale 1,606 1,501
Investment securities available for sale, at
fair value (amortized cost of $31,290 and $20,265) 32,008 20,426
Mortgage-backed securities held to maturity, at
amortized cost (fair value of $2,863 and $3,403) 2,799 3,301
Mortgage-backed securities available for sale, at
fair value (amortized cost of $8,375 and $12,669) 8,609 13,069
Loans receivable (net of allowance for loan losses
of $5,205 and $2,739) 369,668 300,310
Real estate owned 1,077 425
Prepaid expenses and other assets 779 854
Accrued interest receivable 1,856 1,492
Federal Home Loan Bank stock, at cost 5,927 5,646
Premises and equipment, net 10,392 9,703
Deferred income taxes, net 2,908 1,321
Mortgage servicing rights, net 718 629
Goodwill 9,204 -
Core deposit intangible, net 999 369
--------- ---------
TOTAL ASSETS $ 533,147 $ 419,904
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposit accounts $ 425,498 $ 320,742
Accrued expenses and other liabilities 4,121 4,364
Advance payments by borrowers for taxes and insurance 295 287
Federal Home Loan Bank advances 40,000 40,000
--------- ---------
Total liabilities 469,914 365,393
COMMITMENTS AND CONTINGENCIES (NOTE 14)
SHAREHOLDERS' EQUITY:
Serial preferred stock, $.01 par value; 250,000
authorized, issued and outstanding, none - -
Common stock, $.01 par value; 50,000,000 authorized
September 30, 2003 - 4,954,479 issued, 4,727,640 outstanding
March 31, 2003 - 4,585,543 issued, 4,358,704
outstanding 50 46
Additional paid-in capital 39,725 33,525
Retained earnings 24,531 22,389
Unearned shares issued to employee stock ownership
trust (1,701) (1,804)
Unearned shares held by the management recognition
and development plan - (15)
Accumulated other comprehensive income 628 370
--------- ---------
Total shareholders' equity 63,233 54,511
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 533,147 $ 419,904
========= =========
See notes to consolidated financial statements.
1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
(In thousands, except share data) September 30, September 30,
(Unaudited) 2003 2002 2003 2002
- ------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans
receivable $ 6,727 $ 6,060 $ 12,396 $ 11,973
Interest on investment securities 88 30 155 58
Interest on mortgage-backed
securities 154 367 335 816
Other interest and dividends 258 353 472 743
------- ------- -------- --------
Total interest income 7,227 6,810 13,358 13,590
------- ------- -------- --------
INTEREST EXPENSE:
Interest on deposits 1,325 1,461 2,334 3,055
Interest on borrowings 497 646 992 1,776
------- ------- -------- --------
Total interest expense 1,822 2,107 3,326 4,831
------- ------- -------- --------
Net interest income 5,405 4,703 10,032 8,759
Less provision for loan losses - 82 70 327
------- ------- -------- --------
Net interest income after
provision for loan losses 5,405 4,621 9,962 8,432
------- ------- -------- --------
NON-INTEREST INCOME:
Fees and service charges 1,245 1,034 2,418 1,962
Asset management services 214 178 437 370
Gain on sale of loans held for sale 287 265 591 614
Gain on sale of other real estate
owned 45 9 48 29
Loan servicing income (expense) 259 (241) 151 (341)
Other (1) 19 20 40
------- ------- -------- --------
Total non-interest income 2,049 1,264 3,665 2,674
------- ------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,500 2,035 4,749 4,069
Occupancy and depreciation 769 642 1,355 1,234
Data processing 238 207 442 417
Amortization of core deposit
intangible 107 81 189 163
Marketing expense 244 221 513 410
FDIC insurance premium 13 11 25 22
State and local taxes 113 101 207 191
Telecommunications 73 54 121 98
Professional fees 105 87 194 205
Other 416 278 718 600
------- ------- -------- --------
Total non-interest expense 4,578 3,717 8,513 7,409
------- ------- -------- --------
INCOME BEFORE FEDERAL INCOME TAXES 2,876 2,168 5,114 3,697
PROVISION FOR FEDERAL INCOME TAXES 958 674 1,696 1,131
------- ------- -------- --------
NET INCOME $ 1,918 $ 1,494 $ 3,418 $ 2,566
======= ======= ======== ========
Earnings per common share:
Basic $ 0.41 $ 0.34 $ 0.76 $ 0.58
Diluted 0.41 0.34 0.75 0.58
Weighted average number of shares
outstanding:
Basic 4,653,314 4,345,985 4,513,117 4,392,947
Diluted 4,728,250 4,414,320 4,585,921 4,450,357
Cash dividends per share $ 0.140 $ 0.125 $ 0.280 $ 0.250
See notes to consolidated financial statements.
2
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2003
AND THE SIX MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)
Unearned
Shares Accum-
Issued to ulated
Employee Other
Common Addi- Stock Unearned Compre-
Stock tional Owner- Shares hensive
(In thousands, except ---------------- Paid-in Retained ship Issued to Income
per share data) Shares Amount Capital Earnings Trust MRDP (Loss) Total
- ---------------------------------------------------------------------------------------------------------
Balance, April 1, 2002 4,458,456 $ 47 $ 35,725 $ 20,208 $ (2,010) $ (218) $ (75) $ 53,677
Cash dividends - - - (2,178) - - - (2,178)
Exercise of stock options 46,577 - 417 - - - - 417
Stock repurchased and
retired (196,100) (1) (2,881) - - - - (2,882)
Earned ESOP shares 24,633 - 166 - 206 - - 372
Tax benefit associated
with MRDP - - 98 - - - - 98
Earned MRDP shares 25,138 - - - - 203 - 203
--------- ---- -------- -------- -------- -------- ------- --------
4,358,704 46 33,525 18,030 (1,804) (15) (75) 49,707
Comprehensive income
Net Income - - - 4,359 - - - 4,359
Other Comprehensive Income:
Unrealized holding gain on
securities of $966 (net of
$498 tax effect) less re-
classification adjustment
for net losses included in
net income of $1,411 ( net
of $727 tax effect) - - - - - - 445 445
Total comprehensive income - - - - - - - 4,804
--------- ---- -------- -------- -------- -------- ------- --------
Balance, March 31, 2003 4,358,704 46 33,525 22,389 (1,804) (15) 370 54,511
Cash dividends - - - (1,276) - - - (1,276)
Exercise of stock options 19,781 - 220 - - - - 220
Stock repurchased and
retired (81,500) (1) (1,509) (1,510)
Stock issued in connection
with acquisition (Note 15) 430,655 5 7,343 7,348
Earned ESOP shares - - 121 - 103 - - 224
Tax benefit associated
with MRDP 25 25
Earned MRDP shares - - - - - 15 - 15
--------- ---- -------- -------- -------- -------- ------- --------
4,727,640 50 39,725 21,113 (1,701) - 370 59,557
Comprehensive income
Net Income - - - 3,418 - - - 3,418
Other Comprehensive Loss:
Unrealized holding gains
on securities of $258
(net of $133 tax effect) - - - - - - 258 258
Total comprehensive income - - - - - - - 3,676
--------- ---- -------- -------- -------- -------- ------- --------
Balance, September 30, 2003 4,727,640 $ 50 $ 39,725 $ 24,531 $ (1,701) $ - $ 628 $ 63,233
========= ==== ======== ======== ======== ======== ======= ========
See notes to consolidated financial statements.
3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOES
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(In thousands) (Unaudited) 2003 2002
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,418 $ 2,566
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,091 830
Mortgage servicing rights impairment (303) 383
Provision for losses on loans 70 327
Origination of loans held for sale (34,511) (18,541)
Proceeds from sales of loans held for sale 34,485 19,803
Provision (credit) for deferred income taxes 35 (57)
Noncash expense related to ESOP benefit 224 180
Noncash expense related to MRDP benefit 16 187
Decrease in deferred loan origination fees, net
of amortization 460 267
Federal Home Loan Bank stock dividend (123) (161)
Net gain on sale of loans, real estate owned and
premises and equipment (503) (611)
Changes in assets and liabilities:
Decrease in prepaid expenses and other assets 132 224
Decrease in accrued interest receivable 213 263
Decrease in accrued expenses and other liabilities (1,313) (775)
--------- ---------
Net cash provided by operating activities 3,391 4,885
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (139,348) (120,678)
Principal repayments on loans 155,070 112,277
Principal repayments on mortgage-backed securities
held to maturity 501 562
Principal repayments on mortgage-backed securities
available for sale 4,778 11,133
Purchase of investment securities available for sale (5,000) (5,000)
Proceeds from call or maturity of investment
securities available for sale 250 -
Purchase of premises, equipment and other (250) (103)
Acquisition, net of cash received 7,215 -
Purchase of first mortgage or improvement to REO (113) -
Proceeds from sale of real estate 43 1,173
--------- ---------
Net cash provided by (used in) investing activities 23,146 (636)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts (357) 38,157
Dividends paid (1,159) (1,044)
Repurchase of common stock (1,510) (2,599)
Repayment of Federal Home Loan Bank advances - (29,500)
Net increase in advance payments by borrowers 8 24
Proceeds from exercise of stock options 220 31
--------- ---------
Net cash (used in) provided by financing activities (2,798) 5,069
--------- ---------
NET INCREASE IN CASH 23,739 9,318
CASH, BEGINNING OF PERIOD 60,858 22,492
--------- ---------
CASH, END OF PERIOD $ 84,597 $ 31,810
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 3,392 $ 5,033
Income taxes 1,500 1,212
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned $ 308 $ 373
Dividends declared and accrued in other liabilities 663 539
Fair value adjustment to securities available for
sale 391 308
Income tax effect related to fair value adjustment (133) (105)
Common stock issued upon business combination 7,348
See notes to consolidated financial statements.
4
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
--------------------------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with accounting principles
generally accepted in the United States of America. However, all adjustments
that are, in the opinion of management, necessary for a fair presentation of
the interim unaudited financial statements have been included. All such
adjustments are of a normal recurring nature.
The unaudited consolidated financial statements should be read in conjunction
with the audited financial statements included in the Riverview Bancorp, Inc.
2003 Annual Report on Form 10-K. The results of operations for the three and
six months ended September 30, 2003 are not necessarily indicative of the
results which may be expected for the entire fiscal year.
(2) Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements of Riverview
Bancorp, Inc. and Subsidiary (the "Company") include all the accounts of
Riverview Bancorp, Inc. and the consolidated accounts of its wholly-owned
subsidiary, Riverview Community Bank (the "Community Bank"), and the Community
Bank's majority-owned subsidiary, Riverview Asset Management Corporation
("RAMCORP.") and wholly-owned subsidiary Riverview Services, Inc. All
references to the Company herein include the Community Bank where applicable.
All inter-company balances and transactions have been eliminated upon
consolidation.
(3) Stock Based Compensation
------------------------
In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation --
Transition and Disclosure, an amendment of FASB Statement No. 123, was issued.
This Statement amends Financial Accounting Standards Board ("FASB") Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results.
Effective March 31, 2003, and in accordance with Statement No. 148, the
Company elected to continue to account for stock-based awards under the
guidance of Accounting Principles Board ("APB") Opinion No. 25.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value method consistent with Statement No. 123 for
all periods presented, the Company's net income per share would have been
reduced to the pro forma amounts indicated below:
5
Three Months Ended
September 30,
-------------------------
2003 2002
----------- -----------
Net income:
As reported $ 1,918,000 $ 1,494,000
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all
awards, net of related tax effects (54,000) (45,OOO)
----------- -----------
Pro forma $ 1,864,000 $ 1,449,000
=========== ===========
Earnings per common share - basic:
Earnings per common share - basic $ 0.41 $ 0.34
Pro forma 0.40 0.33
Earnings per common share - fully diluted:
As reported 0.41 0.34
Pro forma 0.39 0.33
Six Months Ended
September 30,
-------------------------
2003 2002
----------- -----------
Net income:
As reported $ 3,418,000 $ 2,566,000
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all
awards, net of related tax effects (103,000) (90,000)
----------- -----------
Pro forma $ 3,315,000 $ 2,476,000
=========== ===========
Earnings per common share - basic:
Earnings per common share - basic $ 0.76 $ 0.58
Pro forma 0.72 0.56
Earnings per common share - fully diluted:
As reported 0.75 0.58
Pro forma 0.73 0.56
(4) Comprehensive Income
--------------------
Comprehensive income is defined as the change in equity during a period from
transactions and other events from nonowner sources. Comprehensive income is
the total of net income and other comprehensive income, which for the Company
6
is comprised of unrealized gains and losses on securities available for sale
adjusted for gains and losses on securities available for sale included in
non-interest income.
For the three months and six months ended September 30, 2003, the Company's
total comprehensive income was $2.7 million and $3.7 million, respectively,
compared to $1.6 million and $2.8 million for the three and nine months ended
September 30, 2002, respectively.
Total comprehensive income for the three and six months ended September 30,
2003 is comprised of net income of $1.9 million and $3.4 million and other
comprehensive gains of $802,000 and $258,000, net of tax effect, respectively.
Other comprehensive income for the three months and six months ended September
30, 2003 consists of unrealized securities gain of $802,000 and $258,000, net
of tax effect.
Total comprehensive income for the three and six months ended September 30,
2002 is comprised of net income of $1.5 million and $2.6 million and other
comprehensive income of $77,000 and $203,000, net of tax effect, respectively.
Other comprehensive income for the three months and six months ended September
30, 2002 consists of unrealized securities gains of $77,000 and $203,000, net
of tax effect.
(5) Earnings Per Share
------------------
Basic earnings per share ("EPS") is computed by dividing net income applicable
to common stock by the weighted average number of common shares outstanding
during the period, without considering any dilutive items. Diluted EPS is
computed by dividing net income applicable to common stock by the weighted
average number of common shares and common stock equivalents for items that
are dilutive, net of shares assumed to be repurchased using the treasury stock
method at the average share price for the Company's common stock during the
period. Common stock equivalents arise from assumed conversion of outstanding
stock options and awarded but not released Management Recognition and
Development Plan ("MRDP") shares. Employee Stock Ownership Plan ("ESOP")
shares are not considered outstanding for EPS purposes until they are
committed to be released.
Three Months Ended
September 30,
-----------------------------
2003 2002
----------- -----------
Basic EPS computation:
Numerator-Net Income $ 1,918,000 $ 1,494,000
Denominator-Weighted average common
shares outstanding 4,653,314 4,345,985
Basic EPS $ 0. 41 $ 0. 34
=========== ===========
Diluted EPS computation:
Numerator-Net Income $ 1,918,000 $ 1,494,000
Denominator-Weighted average
common shares outstanding 4,653,314 4,345,985
Effect of dilutive stock options 71,671 51,744
Effect of dilutive MRDP 3,265 16,591
----------- -----------
Weighted average common shares
and common stock equivalents 4,728,250 4,414,320
Diluted EPS $ 0.41 $ 0.34
=========== ===========
7
Six Months Ended
September 30,
-----------------------------
2003 2002
----------- -----------
Basic EPS computation:
Numerator-Net Income $ 3,418,000 $ 2,566,000
Denominator-Weighted average
common shares outstanding 4,513,117 4,392,947
Basic EPS $ 0. 76 $ 0. 58
=========== ===========
Diluted EPS computation:
Numerator-Net Income $ 3,418,000 $ 2,566,000
Denominator-Weighted average
common shares outstanding 4,513,117 4,392,947
Effect of dilutive stock options 69,675 43,087
Effect of dilutive MRDP 3,129 14,323
----------- -----------
Weighted average common shares
and common stock equivalents 4,585,921 4,450,357
Diluted EPS $ 0.75 $ 0.58
=========== ===========
(6) Investment Securities
---------------------
There were no sales of investment securities classified as held to maturity
during the periods ended September 30, 2003, and 2002.
The amortized cost and approximate fair value of investment securities
available for sale consisted of the following (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2003
Trust preferred securities $ 5,000 $ 6 $ - $ 5,006
U.S. Treasury securities 4,025 4 - 4,029
Agency securities 7,002 15 - 7,017
Equity securities 12,700 500 - 13,200
School district bonds 2,563 193 - 2,756
-------- ----- ----- --------
$ 31,290 $ 718 $ - $ 32,008
======== ===== ===== ========
March 31, 2003
Trust Preferred $ 5,000 $ - $ (25) $ 4,975
Equity securities 12,700 - - 12,700
School district bonds 2,565 186 - 2,751
-------- ----- ----- --------
$ 20,265 $ 186 $ (25) $ 20,426
======== ===== ===== ========
Investment securities with an amortized cost of $15.0 million and $12.7
million and a fair value of $15.5 million and $12.7 million at September 30,
2003 and March 31, 2003, respectively, were pledged as collateral for advances
at the Federal Home Loan Bank. Investment securities with an amortized cost
of $500,000 and $753,000, and a fair value of $505,000 and $760,000 at
September 30, 2003 and March 31, 2003, respectively, were pledged as
collateral for government public funds held by the Community Bank.
8
The contractual maturities of securities available for sale are as follows (in
thousands):
Amortized Estimated
September 30, 2003 Cost Fair Value
--------- ----------
Due in one year or less $ 4,025 $ 4,029
Due after one year through five years 7,910 7,997
Due after five years through ten years 1,038 1,130
Due after ten years 18,317 18,852
-------- --------
$ 31,290 $ 32,008
======== ========
(7) Mortgage-backed Securities
--------------------------
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2003
REMICs $ 1,802 $ 40 $ - $ 1,842
FHLMC mortgage-backed securities 416 8 - 424
FNMA mortgage-backed securities 581 16 - 597
------- ----- ----- -------
$ 2,799 $ 64 $ - $ 2,863
======= ===== ===== =======
March 31, 2003
REMICs $ 1,803 $ 57 $ - $ 1,860
FHLMC mortgage-backed securities 589 13 - 602
FNMA mortgage-backed securities 909 32 - 941
------- ----- ----- -------
$ 3,301 $ 102 $ - $ 3,403
======= ===== ===== =======
The contractual maturities of mortgage-backed securities classified as held to
maturity are as follows (in thousands):
Amortized Estimated
September 30, 2003 Cost Fair Value
--------- ----------
Due in one or less $ 184 $ 188
Due after one year through five years 62 65
Due after five years through ten years 9 10
Due after ten years 2,544 2,600
------- -------
$ 2,799 $ 2,863
======= =======
Mortgage-backed securities held to maturity with an amortized cost of $2.0
million and $2.2 million and a fair value of $2.0 million and $2.3 million at
September 30, 2003 and March 31, 2003, respectively, were pledged as
collateral for governmental public funds held by the Community Bank.
Mortgage-backed securities held to maturity with an amortized cost of $358,000
and $385,000 and a fair value of $367,000 and $399,000 at September 30, 2003
and March 31, 2003, respectively, were pledged as collateral for treasury tax
and loan funds held by the Community Bank. The real estate mortgage investment
conduits ("REMICs") consist of Federal Home Mortgage Corporation ("FHLMC"),
Federal National Mortgage Association ("FNMA") and privately issued
securities.
9
Expected maturities of mortgage-backed securities held to maturity will differ
from contractual maturities because borrowers may have the right to prepay
obligations with or without prepayment penalties.
There were no sales of mortgage-backed securities held to maturity during the
periods ended September 30, 2003 and 2002.
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2003
REMICs $ 4,046 $ 95 $ - $ 4,141
FHLMC mortgage-backed securities 3,784 124 - 3,908
FNMA mortgage-backed securities 545 15 - 560
-------- ----- ------ --------
$ 8,375 $ 234 $ - $ 8,609
======== ===== ====== ========
March 31, 2003
REMICs $ 6,327 $ 100 $ (6) $ 6,421
FHLMC mortgage-backed securities 5,811 286 - 6,097
FNMA mortgage-backed securities 531 20 - 551
-------- ----- ------ --------
$ 12,669 $ 406 $ (6) $ 13,069
======== ===== ====== ========
The contractual maturities of mortgage-backed securities available for sale
are as follows (in thousands):
Amortized Estimated
September 30, 2003 Cost Fair Value
--------- ----------
Due in one year or less $ 78 $ 79
Due after one year through five years 4,369 4,503
Due after ten years 3,928 4,027
$ 8,375 $ 8,609
Expected maturities of mortgage-backed securities available for sale will
differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties.
Mortgage-backed securities with an amortized cost of $7.7 million and $11.9
million and a fair value of $7.9 million and $12.2 million at September 30,
2003 and March 31, 2003, respectively, were pledged as collateral for advances
at the Federal Home Loan Bank. Mortgage-backed securities with an amortized
cost of $274,000 and a fair value of $283,000 at September 30, 2003 were
pledged as collateral for governmental public funds held by the Community
Bank. Mortgage-backed securities with an amortized cost of $151,000 and
$316,000 and a fair value of $159,000 and $327,000 at September 30, 2003 and
March 31, 2003, respectively, were pledged as collateral for treasury tax and
loan funds held by the Community Bank.
(8) Loans Receivable
----------------
Loans receivable consisted of the following (in thousands):
10
September 30, March 31,
2003 2003
--------- ---------
Residential:
One- to- four family $ 49,838 $ 58,498
Multi-family 5,615 6,313
Construction:
One- to- four family 71,210 70,397
Multi-family 2,100 2,100
Commercial real estate 2,075 4,531
Commercial 62,849 34,239
Consumer:
Secured 28,726 23,458
Unsecured 1,960 1,334
Land 30,891 34,630
Commercial real estate 155,000 101,672
--------- ---------
410,264 337,172
Less:
Undisbursed portion of loans 32,299 31,222
Deferred loan fees 3,092 2,901
Allowance for loan losses 5,205 2,739
--------- ---------
Loans receivable, net $ 369,668 $ 300,310
========= =========
(9) Allowance for Loan Losses
-------------------------
A reconciliation of the allowances for loan losses is as follows (in
thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Beginning balance $ 2,793 $ 2,748 $ 2,739 $ 2,537
Provision for losses - 82 70 327
Charge-offs (227) (147) (242) (184)
Recoveries 38 6 38 9
Acquisition 2,639 - 2,639 -
Net change in allowance for
unfunded loan commitments and
lines of credit (38) - (39) -
-------- -------- -------- --------
Ending balance $ 5,205 $ 2,689 $ 5,205 $ 2,689
======== ======== ======== ========
At September 30, 2003 and March 31, 2003, the Company's recorded investment in
loans for which impairment has been recognized under the guidance of Statement
of Financial Accounting Standards ("SFAS") No. 114 and SFAS No. 118 was $1.2
million and $323,000, respectively. The allowance for loan losses in excess of
specific reserves is available to absorb losses from all loans, although
allocations have been made for certain loans and loan categories as part of
management's analysis of the allowance. The average investment in impaired
loans was approximately $716,000, $1.7 million and $323,000 during the six
months ended September 30, 2003, September 30, 2002 and the year ended March
31, 2003 respectively.
(10) Loans held for Sale
-------------------
The Company identifies loans held for sale at the time of origination and they
are carried at the lower of aggregate cost or net realizable value. Market
values are derived from available market quotations for comparable pools of
11
mortgage loans. Adjustments for unrealized losses, if any, are charged to
income.
(11) Intangible Assets
-----------------
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, on
April 1, 2002. SFAS No. 142 provides that goodwill is no longer amortized and
the value of an identifiable intangible asset must be amortized over its
useful life, unless the asset is determined to have an indefinite life.
During the quarter ended September 30, 2003, the Company's purchase of Today's
Bancorp, Inc. ("Today's Bancorp") resulted in the recording of $9.2 million of
goodwill (see note 16 for further details). The Company will review this
balance on an annual basis for impairment. The annual test for impairment
will be a two-step process. The first step will be to compare the current
fair value of Today's with its fair value on the purchase date. If the
current fair value exceeds the purchase fair value, goodwill will not be
considered to be impaired and the test is completed. If the purchase fair
value is greater than the current fair value, the implied value of the
goodwill will be analyzed against the carrying value of the goodwill. Any
noted impairment losses will be taken at that time.
The Company also has identifiable intangible assets of core deposit intangible
and mortgage servicing rights ("MSR") that will continue to be amortized. As
part of the Today's acquisition, core deposit intangibles increased $820,0000.
Intangible asset balances (excluding MSR) consisted of the following (in
thousands):
September 30, 2003
------------------------------------
Carrying Accumulated
Amount Amortization Net
--------- ------------- -----
Core deposit intangible $ 4,088 $ 3,089 $ 999
======= ======= =====
March 31, 2003
------------------------------------
Carrying Accumulated
Amount Amortization Net
--------- ------------- -----
Core deposit intangible $ 3,269 $ 2,900 $ 369
======= ======= =====
Amortization Expense
Quarter Ended September 30,
2003 2002
----------------------------
Core deposit intangible $ 107 $ 81
===== ====
Amortization Expense
Six Months Ended
September 30,
2003 2002
--------------------------
Core deposit intangible $ 189 $ 163
===== =====
12
The value of the MSR asset is subject to prepayment risk. Future expected net
cash flows from servicing a loan in the servicing portfolio are not realized
if the loan pays off earlier than anticipated. If loans payoff earlier than
anticipated there is no economic benefit because loans in our servicing
portfolio do not contain penalty provisions for early payoff.
An estimated fair value of MSR is determined quarterly using a discounted cash
flow model. The model estimates the present value of the future net cash
flows of the servicing portfolio based on various factors, such as servicing
costs, servicing income, expected prepayments speeds, discount rate, loan
maturity and interest rate. MSR impairment is recorded in the amount that the
estimated fair value is less than the MSR carrying value.
Changes in balance of MSR, net of valuation, were as follows (in thousands):
Three Months Ended September 30,
2003 2002
--------------------------------
Beginning balance $ 481 $ 867
Additions 60 95
Amortization (165) (67)
Impairment adjustment 342 (259)
------ ------
Total $ 718 $ 636
====== ======
Allowance at beginning of period $ 452 $ 217
Provision for impairment (342) 259
------ ------
Allowance at end of period $ 110 $ 476
====== ======
Six Months Ended September 30,
2003 2002
-------------------------------
Beginning balance $ 629 $ 912
Additions 131 234
Amortization (345) (127)
Impairment adjustment 303 (383)
------ ------
Total $ 718 $ 636
====== ======
Allowance at beginning of period $ 413 $ 93
Provision for impairment (303) 383
------ ------
Allowance at end of period $ 110 $ 476
====== ======
Amortization expense for the net carrying amount of intangible assets at
September 30, 2003 is estimated to be as follows (in thousands):
Fiscal year
----------------------
2004 $ 399
2005 370
2006 227
2007 190
2008 171
Beyond
5 years 360
------
Total $1,717
======
13
(12) Borrowings
----------
Borrowings are summarized as follows (in thousands):
September 30, March 31,
2003 2003
------------ --------
Federal Home Loan Bank advances $40,000 $40,000
======= =======
Weighted average interest rate: 4.87% 5.53%
==== ====
Borrowings have the following maturities at September 30, 2003 (in thousands):
Fiscal Year
-----------
2003 $ -
2004 -
2005 -
2006 15,000
2007 20,000
2008 5,000
--------
$ 40,000
========
(13) Shareholders' Equity
--------------------
Repurchase of Common stock
In September 2002, the Company announced a stock repurchase of up to 5%, or
214,000 shares, of its outstanding common stock. At September 30, 2003,
81,500 shares had been repurchased at an average cost of $18.53 per share.
In July 2001, the Company received regulatory approval to repurchase up to 10%
or 465,504 shares of its outstanding shares at June 30, 2001. At September 30,
2003, 465,504 shares had been repurchased at an average cost of $12.93 per
share. Because the Company is a Washington corporation and the State of
Washington treats all treasury stock as retired upon purchase, all purchases
of treasury stock reduce stock issued and the cost of treasury stock acquired
is charged to par value and paid-in capital.
(14) Recently Issued Accounting Pronouncements
-----------------------------------------
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Such
instruments may have been previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Adoption of this standard has not had a
significant effect on the Company's reported equity.
14
(15) Commitments and Contingencies
-----------------------------
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments generally include commitments to originate
mortgage, consumer and commercial loans. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The Company's maximum exposure to
credit loss in the event of nonperformance by the borrower is represented by
the contractual amount of those instruments. The Company uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are conditional, and are honored for up to 45
days subject to the Company's usual terms and conditions. Collateral is not
required to support commitments.
At September 30, 2003, the Company had commitments to originate fixed ate
mortgages of $2.7 million at interest rates ranging from 4.250% to 7.375%. At
September 30, 2003 adjustable rate mortgage loan commitments were $2.6 million
at an average interest rate of 6.183%. The undisbursed balance of mortgage
loans closed was $32.3 million at September 30, 2003. Consumer loan
commitments totaled $1.2 million and unused lines of consumer credit totaled
$17.5 million at September 30, 2003. Commercial real estate loan commitments
totaled $11.3 million and unused lines of commercial real estate credit
totaled $16.9 million at September 30, 2003. Commercial loan commitments
totaled $440,000 and unused commercial lines of credit totaled $26.4 million
at September 30, 2003.
The allowance for unfunded commitments was $213,972 at September 30, 003.
At September 30, 2003, the Company had firm commitments to sell $1.6 million
of residential loans to FHLMC. These agreements are short term fixed rate
commitments and no material gain or loss is likely.
In connection with certain asset sales, the Community Bank typically makes
representations and warranties about the underlying assets conforming to
specified guidelines. If the underlying assets do not conform to the
specifications, the Community Bank may have an obligation to repurchase the
assets or indemnify the purchaser against loss. As of September 30, 2003,
loans under warranty totaled $121.6 million, which substantially represents
the unpaid principal balance of the Community Bank's loans serviced for others
portfolio. The Community Bank believes that the potential for loss under
these arrangements is remote. Accordingly, no contingent liability is
recorded in the financial statements.
The Company is a party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a
material effect, if any, on the Company's financial position, results of
operations, or liquidity.
(16) ACQUISITION
-----------
On July 18, 2003 the Company completed the acquisition of Today's Bancorp.
Each share of Today's Bancorp was exchanged for 0.826 shares of the Company's
15
common stock, or $13.64 in cash, or combination thereof resulting in the
issuance of 430,655 new shares. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the assets and liabilities of
Today's Bancorp were recorded at their respective fair value. Goodwill, the
excess of the purchase price over the net fair value of the assets and
liabilities acquired, was recorded at $9.2 million. The merger of the two
community-oriented institutions will give the combined company a stronger
presence as a business and retail commercial bank in the growing Vancouver and
Clark County market area.
The following unaudited pro forma financials for the three and six months
ended September 30, 2003 and 2002 assumes that the Today's Bancorp acquisition
occurred as of March 31, 2002, after giving effect to certain adjustments.
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the results of operations which may occur in the
future or that would have occurred had the Today's Bancorp acquisition been
consummated on the date indicated.
Pro Forma Financial Information for the
Three Months Ended September 30,
2003 2002
--------------------------------
(in thousands)
Net Interest Income $ 5,594 $ 5,694
Non-interest Income 2,055 1,320
Non-interest Expense 4,888 4,542
------- -------
Net Income $ 2,148 $ 1,552
======= =======
Pro Forma Financial Information for the
Six Months Ended September 30,
2003 2002
------------------------------
(in thousands)
Net Interest Income $ 11,157 $ 11,189
Non-interest Income 3,763 2,777
Non-interest Expense 9,822 8,966
Net Income $ 3,636 $ 3,068
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Clause. This report on Form 10-Q contains certain
"forward-looking statements." The Company desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and is including this statement for the express purpose of availing
itself of the protection of such safe harbor with respect to forward-looking
statements. These forward-looking statements, which are included in
Management's Discussion and Analysis, describe future plans or strategies and
include the Company's expectations of future financial results. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements. The Company's ability to
predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the economic climate in the Company's market area and the country as a
whole, loan delinquency rates, the Company's ability to integrate the
acquisition of Today's Bancorp, Inc. and efficiently manage expenses, and
changes in federal and state regulation and other risks detailed in the
Company's reports filed
16
with the Securities and Exchange Commission. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
Critical Accounting Policies
The Company has established various accounting policies that govern the
application of accounting principles generally accepted in the United States
of America in the preparation of the Company's consolidated financial
statements. The Company has identified three policies that due to judgments,
estimates and assumptions inherent in those policies are critical to an
understanding of the Company's consolidated financial statements. These
policies relate to the methodology for the determination of the allowance for
loan losses, the valuation of mortgage servicing rights and the impairment of
investments. These policies and the judgments, estimates and assumptions are
described in greater detail in Management's Discussion and Analysis and in
Note 1, Note 6 and Note 8 to the Consolidated Financial Statements included in
the Company's 2003 Annual Report on Form 10-K. Management believes that the
judgments, estimates and assumptions used in the preparation of the Company's
consolidated financial statements are appropriate given the factual
circumstances at the time. However, given the sensitivity of the Company's
consolidated financial statements to these critical accounting policies, the
use of other judgments, estimates and assumptions could result in material
differences in our results of operations or financial condition.
The allowance for loan losses is maintained at a level sufficient to provide
for probable loan losses based on evaluating known and inherent risks in the
loan portfolio. The allowance is provided based upon management's continuing
analysis of the pertinent factors underlying the quality of the loan
portfolio. These factors include changes in the size and composition of the
loan portfolio, actual loan loss experience, current and anticipated economic
conditions, and detailed analysis of individual loans for which full
collectibility may not be assured. The detailed analysis includes techniques
to estimate the fair value of loan collateral and the existence of potential
alternative sources of repayment. The appropriate allowance level is estimated
based upon factors and trends identified by management at the time the
consolidated financial statements are prepared.
The Company stratifies its MSRs based on the predominant characteristics of
the underlying financial assets. An estimated fair value of MSRs is determined
quarterly using a discounted cash flow model. The model estimates the present
value of the future net cash flows of the servicing portfolio based on various
factors, such as servicing costs, servicing income, expected prepayments
speeds, discount rate, loan maturity and interest rate. The effect of changes
in market interest rates on estimated rates of loan prepayments represents the
predominant risk characteristic underlying the MSRs portfolio.
The Company's methodology for estimating the fair value of MSRs is highly
sensitive to changes in assumptions. For example, the determination of fair
value uses anticipated prepayment speeds. Actual prepayment experience may
differ and any difference may have a material effect on the risk. Thus, any
measurement of MSRs fair value is limited by the conditions existing and
assumptions made as of a particular point in time. Those assumptions may not
be appropriate if they are applied to a different point in time.
Future expected net cash flows from servicing a loan in the servicing
portfolio would not be realized if the loan pays off earlier than anticipated.
17
Moreover, because most loans within the servicing portfolio do not contain
penalty provisions for early payoff, the Company will not receive a
corresponding economic benefit if the loan pays off earlier than expected.
MSRs are the discounted present value of the future net cash flows projected
from the servicing portfolio. Accordingly, prepayment risk subjects our MSRs
to impairment. MSRs impairment is recorded in the amount that the estimated
fair value is less than the MSRs carrying value.
The Company's determination of impairment for various types of investments
accounted for in accordance with SFAS No. 115 is predicated on the notion of
other-than-temporary. The key indicator that an investment may be impaired is
that the fair value of the investment is less than its carrying value. Each
reporting period the Company reviews those investments that the fair value is
less than their carrying value. The review includes determining whether
certain indicators indicated the fair value of the investment has been
negatively impacted. These indicators include deteriorating financial
condition, regulatory, economic or technological changes, downgrade by a
rating agency and length of time the fair value has been less than carrying
value. If any indicators of impairment are present, management determines the
fair value of the investment and compares to its carrying value. If the fair
value of the investment is less than the carrying value of the investment, the
investment is considered impaired and a determination must be made as to
whether the impairment is other-than-temporary.
Securities held to maturity are carried at cost, adjusted for amortization of
premiums and accretion of discounts, which are recognized in interest income
using the interest method. If the cost basis of these securities is
determined to be other-than-temporary impaired, the amount of the impairment
is charged to operations.
Securities available for sale are carried at fair value. Premiums and
discounts are amortized using the interest method over the remaining period to
contractual maturity. Unrealized holding gains and losses, or valuation
allowances established for net unrealized losses, are excluded from earnings
and reported as a separate component of shareholders' equity as accumulated
other comprehensive income, net of income taxes, unless the security is deemed
other-than-temporary impaired. If the security is determined to be
other-than-temporary impaired, the amount of the impairment is charged to
operations.
The Company's underlying principle in determining whether impairment is other-
than temporary is an impairment shall be deemed other-than-temporary unless
positive evidence indicating that an investment's carrying value is
recoverable within a reasonable period of time outweighs negative evidence to
the contrary. Evidence that is objectively determinable and verifiable is
given greater weight than evidence that is subjective and/or not verifiable.
Evidence based on future events will generally be less objective as it is
based on future expectations and therefore is generally less verifiable or not
verifiable at all. Factors considered in evaluating whether a decline in
value is other-than-temporary include, (a) the length of time and the extent
to which the fair value has been less than amortized cost, (b) the financial
condition and near-term prospects of the issuer and (c) our intent and ability
to retain the investment for a period of time. In situations in which the
security's fair value is below amortized cost but it continues to be probable
that all contractual terms of the security will be satisfied, and that the
decline is due solely to changes in interest rates (not because of increased
credit risk), and the Company asserts that it has positive intent and ability
18
to hold that security to maturity, no other-than-temporary impairment is
recognized.
General
The Company is a progressive community-oriented, financial institution, which
emphasizes local, personal service to residents of its primary market area.
The Company considers Clark, Cowlitz, Klickitat and Skamania counties of
Washington as its primary market area. The Company is engaged primarily in the
business of attracting deposits from the general public and using such funds
in its primary market area to originate mortgage loans secured by one- to
four- family residential real estate, one- to four- family residential real
estate construction, commercial real estate and non-mortgage loans providing
financing for business ("commercial") and consumer purposes. Commercial real
estate loans and commercial loans have grown from 5.22% and 0.93% of the loan
portfolio, respectively, in fiscal year 1998 to 38.29% and 15.32%
respectively, at September 30, 2003. During the current quarter, the Company
completed the acquisition of Today's Bancorp by merger that had been announced
on February 6, 2003. Total gross loans acquired in the acquisition were $87.3
million, consisting of $44.4 million of commercial real estate loans, $35.0
million of commercial loans and $7.9 million of consumer loans. The Company
continues to change the composition of its loan portfolio and deposit base as
part of its migration to commercial banking, subject to market conditions. The
consolidation among financial institutions in the Company's primary market
area has created a significant gap in the ability of the resulting financial
institutions to serve customers. The Company's strategic plan includes
targeting this customer base, specifically small and medium size businesses,
professionals and wealth building individuals. In pursuit of these goals, the
Company will emphasize controlled growth and the diversification of its loan
portfolio to include a higher portion of commercial and commercial real estate
loans. A related goal is to increase the proportion of personal and business
checking account deposits used to fund these new loans. Significant portions
of these new loan products carry adjustable rates, higher yields, or shorter
terms and higher credit risk than the traditional fixed-rate mortgages. The
strategic plan stresses increased emphasis on non-interest income, including
increased fees for asset management, mortgage banking and deposit service
charges. The strategic plan is designed to enhance earnings, reduce interest
rate risk, and provide a more complete range of financial services to
customers and the local communities the Company serves. The Company is well
positioned to attract new customers and to increase its market share given
that the administrative headquarters and nine of its thirteen branches are
located in Clark County, the fastest growing county in the State of Washington
according to the U.S Census Bureau.
In order to support its strategy of growth, without compromising its local,
personal service to its customers and a commitment to asset quality, the
Company has made significant investments in experienced branch, lending, asset
management and support personnel and has incurred significant costs in
facility expansion. Control of non-interest expenses remains a high priority
for the management of the Company.
The Company continuously reviews new products and services to give its
customers more financial options. With an emphasis on growth of non-interest
income and control of non-interest expense, all new technology and services
are reviewed for business development and cost saving purposes. The Company
continues to experience growth in the customer usage of the online banking
19
services and its check image services to its customers. Customers are able to
conduct a full range of services on a real-time basis, including balance
inquiries, transfers and electronic bill-paying. This online service has also
enhanced the delivery of cash management services to commercial customers. The
internet banking branch web site is www.riverviewbank.com.
The Company conducts operations from its home office in Vancouver and thirteen
branch offices in Camas, Washougal, Stevenson, White Salmon, Battle Ground,
Goldendale, Vancouver (six branch offices) and Longview, Washington. The
Company's market area for lending and deposit taking activities encompasses
Clark, Cowlitz, Skamania and Klickitat counties, throughout the Columbia River
Gorge area. The Company operates a trust and financial services company,
RAMCORP., located in downtown Vancouver, Washington. Riverview Mortgage, a
mortgage broker division of the Company originates mortgage loans (including
construction loans) for various mortgage companies predominantly in the
Portland metropolitan area, as well as for the Company. The Business and
Professional Banking Division located at the downtown Vancouver main branch
and at Cascade Park offers commercial and business banking services. Vancouver
is located in Clark County, which is just north of Portland, Oregon.
Several businesses are located in the Vancouver area because of the favorable
tax structure and relatively lower energy costs in Washington as compared to
Oregon. Washington has no state income tax and Clark County operates a public
electric utility that provides relatively lower cost electricity. Located in
the Vancouver area are Sharp Electronics, Hewlett Packard, Georgia Pacific,
Underwriters Laboratory and Wafer Tech, as well as several support industries.
In addition to this industrial base, the Columbia River Gorge Scenic Area has
been a source of tourism, which has transformed the area from its past
dependence on the timber industry.
The Company, a Washington corporation, was organized on June 23, 1997 for the
purpose of becoming the holding company for Riverview Community Bank (formerly
Riverview Savings Bank, FSB) upon Riverview Savings Bank's reorganization as a
wholly owned subsidiary of the Company resulting from the conversion of
Riverview, M.H.C. from a federal mutual holding company to a stock holding
company ("Conversion and Reorganization"). The Conversion and Reorganization
was completed on September 30, 1997. Riverview Savings Bank, FSB changed its
name to Riverview Community Bank effective June 29, 1998.
Financial Condition
At September 30, 2003, the Company had total assets of $533.1 million compared
with $419.9 million at March 31, 2003. The increase in total assets reflects
the acquisition of Today's Bancorp.
At September 30, 2003, the Company had $410.3 million in gross loans, an
increase of $73.1 million compared to $337.2 million at March 31, 2003. One-
to four- family residential mortgage loans decreased $8.7 million to $49.8
million at September 30, 2003 from $58.5 million at March 31, 2003 as a result
of management's plan to sell most of the fixed mortgage loans to the FHLMC and
retain the loan servicing of such loans. Commercial loans increased $28.6
million to $62.8 million at September 30, 2003 from $34.2 million at March 31,
2003. The $28.6 million increase reflects the $35.0 million of commercial
loans acquired in the Today's Bancorp acquisition. Commercial real estate
loans increased $53.3 to $155.0 million at September 30, 2003 from $101.7
million at March 31, 2003. The $53.3 million increase reflects the $44.4
million of commercial real estate loans acquired in the Today's Bancorp
20
acquisition. Commercial real estate construction loans increased $28.6 million
to $62.8 million at September 30, 2003 from $34.2 million at March 31, 2003.
Land loans decreased $3.7 million to $30.9 million at September 30, 2003 from
$34.6 million at March 31, 2003. Loans receivable (Note 8) provides a detailed
analysis of the gross loan portfolio at September 30, 2003 as compared to the
gross loan portfolio at March 31, 2003. Consumer, commercial, and land loans
carry higher interest rates and generally a higher degree of credit risk
compared to one- to four- family residential mortgage loans.
Low interest rates continue to cause high prepayments in the Company's REMICs
and mortgage-backed securities portfolio. These high prepayments have
accelerated the decrease in the balance of REMICs and mortgage-backed
securities. Mortgage-backed Securities (Note 7) provides the balance detail.
The Today's Bancorp acquisition increased the available for sale portfolio
market value by $4.0 million in U.S. Treasuries and $2.6 million in agencies.
Deposits totaled $425.5 million at September 30, 2003 compared to $320.7
million at March 31, 2003 an increase of $104.8 million. The acquisition of
Today's Bancorp increased deposits by $104.5 million of which $67.4 million
were certificates of deposits and $37.1 million were transaction accounts. The
Company continues to experience flow of funds out of certificates of deposits
and flow of funds into transaction accounts. The year to date total average
outstanding balance of checking accounts, Now accounts and money market
accounts ("transaction accounts") increased 43.7% to $236.4 million at
September 30, 2003, compared to $164.5 million at March 31, 2003. Total
average transaction account balances compared to average total deposit
balances for the six months ended September 30, 2003 was 65.8% compared to
54.4% for the twelve month period ended March 31, 2003.
FHLB advances totaled $40.0 million at both September 30, 2003 and March 31,
2003.
Capital Resources
Total shareholders' equity increased $8.7 million to $63.2 million at
September 30, 2003 compared to $54.5 million at March 31, 2003. The activity
in shareholders' equity for the first six months of fiscal year 2004 was $3.4
million in earnings, dividends of $1.3 million, exercise of stock options
$220,000, stock repurchased $1.5 million, stock issued in connection with
acquisition $7.3 million, earned ESOP shares $224,000, earned MRDP shares of
$25,000, MRDP tax benefit $15,000 and $258,000 increase in net unrealized gain
on securities available for sale, net of tax benefit.
The Company is not subject to any regulatory capital requirements. The
Community Bank, however, is subject to various regulatory capital requirements
implemented by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators, that if undertaken could have a direct
material effect on the Company and the Community Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Community Bank must meet specific capital guidelines
that involve quantitative measures of the Community Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Community Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
21
Quantitative measures established by regulation to ensure capital adequacy
require the Community Bank to maintain amounts and ratios of tangible and core
capital to adjusted total assets and of total risk-based capital to risk-
weighted assets of 1.5%, 3.0%, and 8.0%, respectively. As of September 30,
2003, the Community Bank met all capital adequacy requirements to which it was
subject.
As of September 30, 2003, the most recent notification from the Office of
Thrift Supervision ("OTS") categorized the Community Bank as "well
capitalized" under the regulatory framework for prompt corrective action. To
be categorized as "well capitalized," the Community Bank must maintain minimum
core and total risk-based capital ratios of 5.0% and 10.0%, respectively. At
September 30, 2003, the Community Bank's tangible, core and risk-based total
capital ratios amounted to 9.81%, 9.81%, and 14.0%, respectively. There are no
conditions or events since that notification that management believes have
changed the Community Bank's category.
The Community Bank's actual and required minimum capital amounts and ratios
are presented in the following table (dollars in thousands):
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provision
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of September 30,
2003
Total Capital:
(To Risk Weighted
Assets) $56,342 14.01% $32,177 8.0% $40,221 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 51,087 12.70 N/A N/A 24,133 6.0
Core Capital:
(To Total Assets) 51,087 9.81 15,619 3.0 26,032 5.0
Tangible Capital:
(To Tangible
Assets) 51,087 9.81 7,810 1.5 N/A N/A
As of March 31, 2003
Total Capital:
(To Risk Weighted
Assets) $50,893 15.89% $25,629 8.0% $32,037 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 48,154 15.03 N/A N/A 19,222 6.0
Core Capital:
(To Total Assets) 48,154 11.66 12,389 3.0 20,649 5.0
Tangible Capital:
(To Tangible
Assets) 48,154 11.66 6,195 1.5 N/A N/A
The following table is a reconciliation of the Community Bank's capital,
calculated according to generally accepted accounting principles, to
regulatory tangible and risk-based capital at September 30, 2003 (in
thousands):
22
Equity $61,990
Net unrealized gain on securities
available for sale, net of tax (628)
Goodwill (9,204)
Core deposit intangible asset (999)
Deferred tax and servicing asset (72)
-------
Tangible capital 51,087
45% of unrealized gain on AFS equities 225
General valuation allowance 5,205
Allowance excess (175)
-------
Total capital $56,342
=======
Liquidity
The Financial Regulatory Relief and Economic Efficiency Act of 2000 repealed
the statutory liquidity requirement for savings associations, citing the
requirement as unnecessary effective July 18, 2001. In light of this action,
the OTS repealed its liquidity regulations, with some exceptions. These
exceptions provide that savings associations must continue to maintain
sufficient liquidity to ensure safe and sound operation and the appropriate
level of liquidity will vary depending on the activities in which the savings
association engages. Management does not believe this rule change has had any
adverse impact on the Community Bank's operations.
Sources of capital and liquidity for the Company on a stand-alone basis
include distributions from the Community Bank. Dividends and other capital
distributions from the Community Bank are subject to regulatory restrictions.
Cash, including interest-earning overnight investments, was $84.6 million at
September 30, 2003 compared to $60.8 million at March 31, 2003. The $23.8
million increase in interest-earning overnight investments is attributable to
the increase liquidity caused by the high level of prepayment experienced in
the Company's mortgage loan portfolio and mortgage-backed securities
portfolio. Investment securities and mortgage-backed securities available for
sale at September 30, 2003 were $32.0 million and $8.6 million, respectively,
compared to $20.4 million and $13.1 million, respectively, at March 31, 2003.
See "Financial Condition."
Asset Quality
The allowance for loan losses was $5.2 million at September 30, 2003, compared
to $2.7 million at March 31, 2003. Management believes the allowance for loan
losses at September 30, 2003 is adequate to cover probable credit losses
existing in the loan portfolio at that date. No assurances, however, can be
given that future additions to the allowance for loan losses will not be
necessary. The allowance for loan losses is maintained at a level sufficient
to provide for probable loan losses based on evaluating known and inherent
risks in the loan portfolio. Pertinent factors considered include size and
composition of the portfolio, actual loss experience, industry trends,
23
industry data, current economic conditions, and detailed analysis of
individual loans. The appropriate allowance level is estimated based upon
factors and trends identified by management at the time the consolidated
financial statements are prepared. Commercial loans are considered to involve
a higher degree of credit risk than one- to four- family residential loans,
and to be more vulnerable to adverse conditions in the real estate market and
deteriorating economic conditions.
Non-performing assets were $2.9 million, or 0.55% of total assets at September
30, 2003 compared with $748,000, or 0.18% of total assets at March 31, 2003.
The $1.6 million balance of non-accrual loans is composed of one land loan
totaling $400,000, three commercial real estate loans totaling $332,000 and
eight commercial loans totaling $863,000. The following table sets forth
information with respect to the Company's non-performing assets at the dates
indicated:
September 30, March 31,
2003 2003
------------- ---------
(Dollars in thousands)
Loans accounted for on
a non-accrual basis:
Real Estate
Residential $ - $ 301
Commercial 332 -
Land 400 -
Commercial 863 -
Consumer - 22
-------- --------
Total 1,595 323
-------- --------
Accruing loans which are
contractually past due 90 days
or more 265 -
-------- --------
Total of non-accrual and 90 days
past due loans 1,860 323
-------- --------
Real estate owned (net) 1,077 425
-------- --------
Total non-performing assets $ 2,937 $ 748
======== ========
Total loans delinquent 90 days
or more to net loans 0.50% 0.11%
Total loans delinquent 90 days
or more to total assets 0.35 0.08
Total non-performing assets to
total assets 0.55 0.18
Comparison of Operating Results for the Three Months Ended
September 30, 2003 and 2002
The Company's net income depends primarily on its net interest income, which
is the difference between interest earned on its loans and investments and the
interest paid on interest-bearing liabilities. Net interest income is
determined by (a) the difference between the yield earned on interest-earning
24
assets and rates paid on interest-bearing liabilities (interest rate spread)
and (b) the relative amounts of interest-earning assets and interest-bearing
liabilities. The Company's interest rate spread is affected by regulatory,
economic and competitive factors that influence rates, loan demand and deposit
flows. Net interest margin is calculated by dividing net interest income by
the average interest-earning assets. Net interest income and net interest
margin are affected by changes in interest rates, volume and the mix of
interest-earning assets and interest-bearing liabilities, and the level of
non-performing assets. The Company's net income is also affected by the
generation of non-interest income, which primarily consists of fees and
service charges, loan servicing income, gains and losses on sales of
securities, gains and losses from sale of loans and other income. In
addition, net income is affected by the level of operating expenses and
establishment of a provision for loan losses.
Net income for the three months ended September 30, 2003 was $1.9 million, or
$0.41 per basic share ($0.41 per diluted share) compared to net income of $1.5
million, or $0.34 per basic share ($0.34 per diluted share) for the same
period in fiscal 2003. Net interest income increased $702,000, or 14.9%, to
$5.4 million for the current quarter as compared to $4.7 million during the
same prior year period. Non-interest income includes a $342,000 write-up to
market value of mortgage servicing reflecting the reduction experienced in
prepayments for the second quarter of fiscal year 2004 compared to a $259,000
write down in market value of mortgage servicing in the same prior year
period.
The increase in net interest income was the result of the increased volume of
earning-assets primarily due to the increase in non-mortgage loans. The
increased volume of interest-bearing liabilities partially offset this
increase in net interest income. The impact of the lower interest rates was
similar for both the interest-earning assets and interest-bearing liabilities.
The total quarterly average outstanding balance of transaction accounts
increased $79.7 million, or 43.9%, to $261.4 million at September 30, 2003,
compared to $181.7 million at September 30, 2002. The quarterly average
outstanding balance of certificates of deposit increased 27.0% to $146.3
million from $115.7 million at September 30, 2003 and September 30, 2002,
respectively, reflecting the Today's Bancorp acquisition. The payoff of FHLB
advances in the third quarter of fiscal year 2003 also contributed to the
increase of net interest income.
Net interest income increased $753,000 as a result of the change in volume of
average interest-earning assets and liabilities for the three months in fiscal
2004 compared to the same fiscal 2003 period. The change in interest rates for
this same period of comparison decreased net interest income $43,000. The
interest rate spread on a tax equivalent basis decreased from 4.58% for the
three month period ended September 30, 2002 to 4.35% for the three month
period ended September 30, 2003. The net interest margin decreased to 4.65%
during the second quarter ended September 30, 2003 from 5.09% for the second
quarter ended September 30, 2002.
Interest income for the three months ended September 30, 2003 was $7.2
million, an increase of $417,000, or 6.12% from the $6.8 million interest
income for the same period in the prior fiscal year. The yield on
interest-earning assets for the second quarter of fiscal year 2004 was 6.21%
compared to 6.54% for the same three month period in fiscal year 2003. The
lower second quarter fiscal 2004 yield reflects the lower interest rate
environment. The higher interest income in the second quarter of fiscal year
2004 as
25
compared to the same period in fiscal year 2003 reflects the increase in the
balance of interest-earning assets.
Average interest-earning assets increased to $469.1 million for the three
months ended September 30, 2003 from $372.8 million for the three months ended
September 30, 2002. The increase in the average quarterly balance of
interest-earning assets consisted of decreases in mortgage loans and
mortgage-backed securities offset by increases in non-mortgage loans, daily
interest bearing investments and investment securities. Interest income
increased $1.1 million as a result of the increase in the current quarter's
volume of average interest-earning assets as compared to the volume of average
interest-earning assets in the same fiscal 2003 period.
Interest expense decreased $285,000, or 13.5%, to $1.8 million for the three
months ended September 30, 2003 as compared to $2.1 million for the three
months ended September 30, 2002. The cost of average interest-bearing
liabilities for the second quarter of year 2004 was 1.86% compared to 2.76%
for the same three month period in fiscal year 2003. The lower interest
expense for the three-month period ended September 30, 2003 is the result of
the previously mentioned change in the deposit mix, lower interest rates as
well as the reduction of FHLB borrowings in the third quarter of fiscal year
2003 compared to the same period in the prior year. Average interest-bearing
liabilities increased to $393.4 million at September 30, 2003, from $303.8
million for the second quarter ended September 30, 2002. The interest expense
impact of the $89.6 million increase in average interest-earning liabilities
of $318,000 was more than offset by the $1.1 million interest income impact of
the $96.3 million increase in average interest-bearing assets. The increase in
the average balance of interest-bearing liabilities was the result of an
increase in the average balances of certificates of deposit and growth in
transaction accounts partially offset by a decrease in FHLB borrowings.
Growth in NOW accounts was used to repay $25.0 million in FHLB borrowings in
the third quarter of fiscal 2003.
The change in interest rates between the periods resulted in a $43,000
decrease in net interest income. This quarterly comparison of the impact of
the changes in interest rates illustrates how similar the asset sensitivity
and liability sensitivity impact is on the balance sheet for this period of
comparison. The decrease in interest rates increased net interest income as a
result of repricing the liabilities, especially money market accounts,
certificates of deposit and FHLB borrowings which was similar to the impact of
the repricing of loans and securities. Floors (minimum interest rates) and
fixed rates in the loans and securities helped to reduce the interest rate
sensitivity of the assets.
The provision for loan losses for the three-month period ended September 30,
2003 was zero compared to $82,000 for the same period in the prior year.
There was $189,000 in net charge-offs during the three months ended September
30, 2003 compared to $141,000 in net charge-offs for the three months ended
September 30, 2002. The lower loan loss provision in the second quarter of
fiscal year 2004 reflects the change in mix of classified loans resulting from
the improvement in loan grades on a particular borrower at September 30, 2003
as compared to September 30, 2002. There were no significant changes in
estimation, assumptions or reallocations of allowance for the three months
ended September 30, 2003 and 2002. Based upon management's analysis of
historical and anticipated loss rates, current loan growth, and other factors
considered, the allowance for loan losses at September 30, 2003 is believed to
be adequate for the losses inherent in the loan portfolio.
26
The 62.1% increase in non-interest income to $2.0 million for the quarter
ended September 30, 2003 compared to $1.3 million for the quarter ended
September 30, 2002, reflects increased fee income from deposit service
charges, mortgage broker fees, asset management fees, gains on sale of loans
held for sale and a write up to market value of mortgage servicing rights
assets. The recent increase in long-term interest rates environment has
decreased prepayment on residential mortgages, which has lengthened the
duration on mortgage servicing rights assets. In the second quarter of fiscal
year 2004 mortgage servicing rights were written up to market value with a
$342,000 credit to non-interest income as compared to a $259,000 impairment
charge to non-interest income for the same period in the prior year.
Non-interest expense increased $861,000 to $4.6 million for the three months
ended September 30, 2003 from $3.7 million for the three months ended
September 30, 2002. Non-capitalizable costs resulting from the Company's
merger with Today's Bancorp were not material to the Company in the second
quarter of fiscal year 2004. Salaries and employee benefits increased $465,000
to $2.5 million for the quarter ended September 30, 2003 from the same quarter
in the prior year. There were 35 more full-time equivalent employees during
the fiscal year 2004 second quarter over the fiscal year 2003 second quarter.
The increase in full-time equivalents reflects the Today's Bancorp acquisition
and expansion in the Company's ability to provide loans. The second quarter
of fiscal year 2004 salaries and employee benefits also reflect the increases
in mortgage broker commissions when compared to the same period in the prior
year.
The provision for federal income taxes for the second quarter of fiscal year
2004 was $958,000, resulting in an effective tax rate of 33.3%, compared to
$674,000 and 31.1% for the same quarter of fiscal year 2003. The 2.2% increase
in the effective tax rate for three months ended September 30, 2003 is
primarily attributable to the impact of the ESOP market value adjustment and
reduced tax exempt income.
Comparison of Operating Results for the Six Months Ended
September 30, 2003 and 2002
Net income for the six months ended September 30, 2003 was $3.4 million, or
$0.76 per basic share ($0.75 per diluted share) compared to net income of $2.6
million, or $0.58 per basic share ($0.58 per diluted share), for the same
period in fiscal year 2003. Net interest income increased $1.2 million to
$10.0 million for the six months ended September 30, 2003, compared to $8.8
million for the six months ended September 30, 2002. Non-interest income
includes a $303,000 market write up and a $383,000 market write down for
mortgage servicing rights for the first six months of fiscal year 2004 and
2003, respectively.
The increase in net interest income was the result of the increased volume of
earning-assets primarily due to the increase in non-mortgage loans. The
increased volume of interest-bearing liabilities partially offset this
increase in net interest income. The impact of the lower interest rates had
more of an impact in reducing the expense of interest-bearing liabilities as
compared to reducing interest income from interest-earning assets. The total
six month average outstanding balance for transaction accounts increased 35.7%
to $236.4 million at September 30, 2003, compared to $174.2 million at
September 30, 2002. The six month average outstanding balance for
certificates of deposit increased 7.3% to $122.7 million from $114.3 million,
respectively, at September 30, 2003 and September 30, 2002. The increase in
27
the average balance of certificates of deposit reflects the acquisition of
Today's Bancorp $67.4 million balance of certificates of deposit. The payoff
of FHLB advances also contributed to the increase of net interest income.
Average interest-earning assets increased to $423.9 million for the six months
ended September 30, 2003 from $379.5 million for the six months ended
September 30, 2002. The increase in the six month average balance of
interest-earning assets consisted of decreases in mortgage loans and
mortgage-backed securities offset by increases in non-mortgage loans, daily
interest bearing investments and investment securities. Interest income
increased $953,000 as a result of the increase in the current six month volume
of average interest-earning assets as compared to the volume of average
interest-earning assets in the same fiscal 2003 period.
The change in interest rates decreased net interest income $190,000 in the
current period as compared to the same fiscal 2003 period. The interest rate
spread increased from 4.13% for the six month period in fiscal year 2003 to
4.37% for the six month period in fiscal year 2004. The net interest margin
increased to 4.76% during the six month period ended September 30, 2003 from
4.69% for the six month period ended September 30, 2002. The increased margin
is the result of the change in the balance sheet mix of assets and liabilities
that more than offset the more rapid repricing in interest-bearing liabilities
as compared to interest earning assets.
Interest income for the six months ended September 30, 2003 was $13.4 million,
a decrease of $232,000, or 1.7%, from $13.6 million for the same period in
2002. Yield on interest-earning assets for the first six months of the fiscal
year 2004 was 6.32% compared to 7.23% for the same six month period in fiscal
year 2003. The lower fiscal year 2004 yield on interest-earning assets
reflects the lower interest rate environment in the current period as compared
to the same period a year ago. The lower interest income for the six month
period ended September 30, 2003 as compared to the same period in the prior
year resulted from lower interest rates of interest-earning assets more than
offsetting increased balances.
Interest expense for the six months ended September 30, 2003 was $3.3 million,
a decrease of $1.5 million, or 31.1% from $4.8 million for the same period in
2002. The cost of interest-bearing liabilities for the first six months of
fiscal year 2004 was 1.95% compared to 3.10% for the first six months of
fiscal year 2003. The decreased interest expense reflects the change in mix of
liabilities and the reduced interest rate environment when the current six
month period is compared to the same period a year ago. The balance sheet mix
of liabilities continues to have growth in transaction accounts and a
resulting a lower cost of funds. Transaction accounts total six month average
outstanding balance increased 29.9% to $177.7 million at September 30, 2003,
compared to $136.8 million at September 30, 2002. The six month average
outstanding balance for certificates of deposit increased 7.3% to $122.7
million at September 30, 2003 from $114.3 million at September 30, 2002
primarily as result of the Today's Bancorp acquisition. A decrease in
long-term mortgage interest rates during the first six months of fiscal year
2004 has led to higher prepayment rates on both the mortgage loan portfolio
and the mortgage-backed securities portfolio. The resultant increase in
payments has reduced the Community Bank's utilization of FHLB advances, which
has contributed to the reduction in interest expense.
The provision for loan losses was $70,000 and net charge-offs was $204,000
during the six months ended September 30, 2003 compared to a $327,000
provision for loan losses and net charge-offs of $175,000 during the six
28
months ended September 30, 2002. The ratio of allowance for loan losses to
period end net loans at September 30, 2003, increased to 1.38% from 0.90% at
both September 30, 2002 and March 31, 2003. The Today's Bancorp acquisition
was the primary reason for the increase in the allowance. Today's Bancorp had
an allowance for loan losses of $2.6 million which reflected it's higher risk
commercial loans. The ratio of total non-performing assets to total assets
increased from 0.46% at September 30, 2002 and 0.18% at March 31, 2003 to
0.55% at September 30, 2003. Non-accrual loans decreased from $1.7 million at
September 30, 2002 to $1.6 million at September 30, 2003. The decrease
reflects decreased non-accrual loan balances in residential real estate and
consumer partially offset by increased non-accrual loan balances in
commercial, commercial real estate land and land. Real estate owned increased
from $93,000 at September 30, 2002 to $1.1 million at September 30, 2003. The
increase reflects the addition of four properties consisting of a single
family, land development, land and single family construction loans. The lower
loan loss provision in the first six months of fiscal year 2004 reflects the
change in mix in classified loans resulting from the improvement in loan
grades on a particular borrower at September 30, 2003 as compared to September
30, 2002. There were no significant changes in estimation, assumptions or
reallocations of the allowance for the six months ended September 30, 2003 and
2002, respectively. Based upon management's analysis of historical and
anticipated loss rates, current loan growth, and other factors considered, the
allowance for loan losses at September 30, 2003 is believed to be adequate for
the losses inherent in the loan portfolio.
Non-interest income increased $991,000 or 37.0% to $3.7 million for the six
months ended September 30, 2003, compared to $2.7 million for the same period
in 2002. In the first six months of fiscal year 2004, mortgage servicing
rights were written up to market value with a $303,000 credit to non-interest
income as compared to a $383,000 impairment charge to non-interest income for
the same period in the prior year. Increased non-interest income is the
result of service charge income, trust fee income, fees from ATMs, brokered
loan fees and mortgage service right write up partially offset by the lower
gains on loans sales.
Non-interest expense increased $1.1 million, or 14.9%, to $8.5 million for the
six months ended September 30, 2003 from $7.4 million for the six months ended
September 30, 2002. The $1.1 million increase reflects the addition of eight
full-time equivalent employees, increased mortgage broker commissions,
increased occupancy expenses, data processing cost and marketing costs which
are required to continue to provide local personal service. Full time
equivalent employees increased to 178 at September 30, 2003 compared to 143 at
September 30, 2002. The increase in full-time equivalents reflects the Today's
Bancorp acquisition and expansion in the Company's ability to provide loans.
The fiscal year 2004 salaries and employee benefits also reflect the increases
in mortgage broker commissions when compared to the same period in the prior
year. Salaries and employee benefits increased $680,000 to $4.7 million for
the six months ended September 30, 2003 as compared to $4.1 million for the
same period in 2002.
The provision for federal income taxes for the six months ended September 30,
2003 was $1.7 million resulting in an effective tax rate of 33.2%, compared to
$1.1 million and 30.6% for the same period a year ago. The 2.6% increase in
the effective tax rate for six months ended September 30, 2003 is primarily
attributable to the impact of the ESOP market value adjustment and reduced tax
exempt income.
29
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our Asset Liability Committee is responsible for implementing the interest
rate risk policy, which sets forth limits established by the Board of
Directors of acceptable changes in net interest income, and the portfolio
value from specified changes in interest rates. The OTS defines net portfolio
value as the present value of expected cash flows from existing assets minus
the present value of expected cash flows from existing liabilities plus the
present value of expected cash flows from existing off-balance sheet
contracts. Our Asset Liability Committee reviews, among other items, economic
conditions, the interest rate outlook, the demand for loans, the availability
of deposits and borrowings, and our current operating results, liquidity,
capital and interest rate exposure. In addition, the Asset Liability
Committee monitors asset and liability characteristics on a regular basis and
performs analysis to determine the potential impact of various business
strategies in controlling interest rate risk and other potential impact of
these strategies upon future earnings under various interest rate scenarios.
Based on these reviews, our Asset Liability Committee formulates a strategy
that is intended to implement the objectives contained in our business plan
without exceeding losses in net interest income and net portfolio value limits
set forth in our interest rate risk policy.
There has not been any material change in the market risk disclosures
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2003.
ITEM 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of
the Company's disclosure controls and procedures (as defined in Section 13(a)-
15(e) and 15d 15(e) of the Securities Exchange Act of 1934 was carried out
under the supervision and with the participation of the Company's Chief
Executive Officer, Chief Financial Officer and several other members of the
Company's senior management as of the end of the period covered by this
report. The Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as currently
in effect are effective in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the
Securities and Exchange Act of 1934 is (i) accumulated and communicated to the
Company's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms.
(b) Changes in Internal Controls: There was no change in the Company's
internal control over financial reporting during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
30
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Riverview Bancorp, Inc. held its annual meeting of shareholders on
July 16, 2003. A brief description of each matter voted on and the
results of the shareholder voting are set forth below.
1. The election of two directors
set forth below:
For Against
--------- ---------
Robert K. Leick 3,452,136 126,467
Gary R. Douglass 3,568,688 9,915
For Against
--------- ---------
2. Approval of the 2003
Stock Option Plan 3,310,695 214,921
Each of the following directors who were not up for re-election at the annual
meeting of shareholders will continue to serve as directors:
Patrick Sheaffer, Ronald A. Wysaske, Edward R. Geiger, Michael D. Allen, Paul
L. Runyan
Item 5. Other Information
-----------------
Not applicable
31
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant(1)
3.2 Bylaws of the Registrant(1)
4 Form of Certificate of Common Stock of the Registrant(1)
10.1 Employment Agreement with Patrick Sheaffer(2)
10.2 Employment Agreement with Ronald A. Wysaske(2)
10.3 Severance Agreement with Michael C. Yount(2)
10.4 Severance Agreement with Karen Nelson(2)
10.5 Severance Agreement with John A. Karas(3)
10.6 Employee Severance Compensation Plan(2)
10.7 Employee Stock Ownership Plan(4)
10.8 Management Recognition and Development Plan(5)
10.9 1998 Stock Option Plan(5)
10.10 1993 Stock Option and Incentive Plan(5)
10.11 2003 Stock Option Plan (6)
21 Subsidiaries of Registrant(4)
31.1 Certifications of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
31.2 Certifications of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
32 Certifications of Section 906 of the Sarbanes-Oxley Act
(b) Reports on Form 8-K: Forms 8-K and 8-K/A were filed on July 28
and September 12, 2003, respectively announcing the acquisition
of Today's Bancorp. The 8-K/A included pro forma financial
information and incorporated Today's Bancorp December 31, 2002
and 2001 audited financial information.
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-30203), and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, and incorporated herein by
reference.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended March 31, 2002, and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Form 10-K for the year ended
March 31, 1998, and incorporated herein by reference.
(5) Filed on October 23, 1998, as an exhibit to the Registrant's Registration
Statement on Form S-8, and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Definitive Annual Meeting Proxy
Statement for the 2003 Annual Meeting of Shareholders, and incorporated
herein by reference.
32
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIVERVIEW BANCORP, INC.
DATE: November 5, 2003 BY: /S/ Patrick Sheaffer
Patrick Sheaffer
President and Chief Executive Officer
DATE: November 5, 2003 BY: /S/ Ronald Wysaske
Ronald Wysaske
Executive Vice President/Treasurer
33
EXHIBIT 31.1
Certification of the Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act
34
I, Patrick Sheaffer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riverview Bancorp,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially effect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 5, 2003 /S/ Patrick Sheaffer
Patrick Sheaffer
President and Chief Executive Officer
35
EXHIBIT 31.2
Certification of the Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act
36
I, Ronald Wysaske, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riverview Bancorp,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any changes in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially effect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 5, 2003 /S/ Ronald Wysaske
Ronald Wysaske
Chief Financial Officer
37
EXHIBIT 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
38
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF
RIVERVIEW BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned herby certify, pursuant to Section 906 of the Sarbanes-Oxley
act of 2002 and in connection with this quarterly report on Form 10-Q that:
1. the report fully complies with the requirements of sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all
material respects, the company's financial condition and results
of operations.
/S/ Patrick Sheaffer /S/ Ronald Wysaske
Patrick Sheaffer Ronald Wysaske
Chief Executive Officer Chief Financial Officer
Dated: November 5, 2003
39