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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
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 incorporation (I.R.S. Employer
or organization) I.D. Number)
900 Washington St., Ste. 900,Vancouver, Washington 98660
-------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 693-6650
-------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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 mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
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 per share, 4,829,144 shares outstanding as of January 31, 2005.
FORM 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
--------------------- ----
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of December 31, 2004 and March 31, 2004 1
Consolidated Statements of Income
Three and Nine Months Ended December 31, 2004 and 2003 2
Consolidated Statements of Shareholders' Equity
for the Year Ended March 31, 2004 and the
Nine Months Ended December 31, 2004 3
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 2004 and 2003 4
Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended December 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6-15
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-30
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 30
Item 4: Controls and Procedures 31
Part II. Other Information 32-33
-----------------
SIGNATURES 34
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND MARCH 31, 2004
DECEMBER 31, MARCH 31,
(In thousands, except share data)(Unaudited) 2004 2004
- -----------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of $40,914
and $32,334) $ 55,423 $ 47,907
Loans held for sale 140 407
Investment securities available for sale, at fair
value (amortized cost of $29,324 and $32,751) 29,438 32,883
Mortgage-backed securities held to maturity, at
amortized cost (fair value of $2,455 and $2,591) 2,407 2,517
Mortgage-backed securities available for sale, at fair
value (amortized cost of $12,645 and $10,417) 12,696 10,607
Loans receivable (net of allowance for loan losses of
$4,391 and $4,481) 398,421 381,127
Real estate owned - 742
Prepaid expenses and other assets 1,262 1,289
Accrued interest receivable 1,874 1,786
Federal Home Loan Bank stock, at cost 6,119 6,034
Premises and equipment, net 8,416 9,735
Deferred income taxes, net 2,827 2,736
Mortgage servicing rights, net 518 624
Goodwill 9,214 9,214
Core deposit intangible, net 611 758
Bank owned life insurance 12,521 12,121
-------- --------
TOTAL ASSETS $ 541,887 $ 520,487
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposit accounts $ 427,649 $ 409,115
Accrued expenses and other liabilities 5,645 5,862
Advance payments by borrowers for taxes and insurance 75 328
Federal Home Loan Bank advances 40,000 40,000
-------- --------
Total liabilities 473,369 455,305
SHAREHOLDERS' EQUITY:
Serial preferred stock, $.01 par value; 250,000 authorized,
issued and outstanding, none - -
Common stock, $.01 par value; 50,000,000 authorized,
issued and outstanding:
December 31, 2004-5,001,579 issued, 4,829,144 outstanding 50 50
March 31, 2004-4,974,979 issued, 4,777,911 outstanding
Additional paid-in capital 40,847 40,187
Retained earnings 28,956 26,330
Unearned shares issued to employee stock ownership trust (1,443) (1,598)
Accumulated other comprehensive (loss) income 108 213
-------- --------
Total shareholders' equity 68,518 65,182
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 541,887 $ 520,487
======== ========
See notes to consolidated financial statements.
1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data) Three Months Ended Nine Months Ended
(Unaudited) December 31, December 31,
- ------------------------------------------------------------------------------
2004 2003 2004 2003
INTEREST INCOME: ------ ------ ------ ------
Interest and fees on loans receivable $6,883 $6,673 $20,506 $19,069
Interest on investment securities 162 146 498 301
Interest on mortgage-backed securities 158 143 482 478
Other interest and dividends 293 229 633 701
------ ------ ------ ------
Total interest income 7,496 7,191 22,119 20,549
------ ------ ------ ------
INTEREST EXPENSE:
Interest on deposits 1,438 1,230 3,741 3,564
Interest on borrowings 509 499 1,509 1,491
------ ------ ------ ------
Total interest expense 1,947 1,729 5,250 5,055
------ ------ ------ ------
Net interest income 5,549 5,462 16,869 15,494
Less provision for loan losses 70 - 260 70
------ ------ ------ ------
Net interest income after provision for
loan losses 5,479 5,462 16,609 15,424
------ ------ ------ ------
NON-INTEREST INCOME:
Fees and service charges 1,127 954 3,439 3,372
Asset management fees 286 229 815 666
Gain on sale of loans held for sale 97 198 409 789
Gain on sale of other real estate owned - 1 - 49
Loss on impairment of securities (1,349) - (1,349) -
Loan servicing income (expense) 11 (2) 45 149
Gain on sale of premises and equipment - - 829 -
Bank owned life insurance 124 - 400 -
Other 27 39 73 59
------ ------ ------ ------
Total non-interest income 323 1,419 4,661 5,084
------ ------ ------ ------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,796 2,575 8,029 7,324
Occupancy and depreciation 749 782 2,261 2,137
Data processing 254 233 740 675
Amortization of core deposit intangible 33 121 148 310
Advertising and marketing 165 183 638 696
FDIC insurance premium 14 24 44 49
State and local taxes 116 110 391 317
Telecommunications 79 64 213 185
Professional fees 143 147 395 341
Other 394 331 1,330 1,049
------ ------ ------ ------
Total non-interest expense 4,743 4,570 14,189 13,083
------ ------ ------ ------
INCOME BEFORE FEDERAL INCOME TAXES 1,059 2,311 7,081 7,425
PROVISION FOR FEDERAL INCOME TAXES 299 772 2,220 2,468
------ ------ ------ ------
NET INCOME $ 760 $ 1,539 $ 4,861 $ 4,957
====== ====== ====== ======
Earnings per common share:
Basic $ 0.16 $ 0.32 $ 1.01 $ 1.08
Diluted 0.16 0.32 1.00 1.06
Weighted average number of shares
outstanding:
Basic 4,824,731 4,757,750 4,809,290 4,594,958
Diluted 4,900,108 4,844,247 4,883,628 4,673,038
Cash Dividends Per Share $ 0.155 $ 0.14 $ 0.465 $ 0.42
See notes to consolidated financial statements.
2
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2004
AND THE NINE MONTHS ENDED DECEMBER 31, 2004(Unaudited)
Unearned
Shares
Issued to
Employee Unearned Accumulated
Common Stock Additional Stock Shares Other
---------------- Paid-In Retained Ownership Issued to Comprehensive
(In thousands, except share data) Shares Amount Capital Earnings Trust MRDP Income(Loss) Total
- ----------------------------------------------------------------------------------------------------------------------------
Balance March 31, 2003 4,358,704 $ 46 $33,525 $ 22,389 $ (1,804) $ (15) $ 370 $ 54,511
Cash dividends($0.56 per share) - - - (2,613) - - - (2,613)
Exercise of stock options 40,281 1 484 - - - - 485
Stock repurchased and retired (81,500) (1) (1,509) - - - - (1,510)
Stock issued in connection with
acquisition 430,655 4 7,343 7,347
Earned ESOP shares 24,633 - 271 - 206 - - 477
Tax benefit, stock option and MDRP - - 73 - - - - 73
Earned MRDP shares 5,138 - - - - 15 - 15
--------- ------- ------- -------- --------- --------- ----------- --------
4,777,911 50 40,187 19,776 (1,598) - 370 58,785
Comprehensive income:
Net income - - - 6,554 - - - 6,554
Other comprehensive income:
Unrealized holding loss on
securities of $157 (net of $81
tax effect) - - - - - - (157) (157)
--------
Comprehensive income - - - - - - - 6,397
--------- ------- ------- -------- --------- --------- ----------- --------
Balance March 31, 2004 4,777,911 50 40,187 26,330 (1,598) - 213 65,182
Cash dividends ($0.465 per share) - - - (2,235) - - - (2,235)
Exercise of stock options 26,600 - 350 - - - - 350
Earned ESOP shares 24,633 - 234 - 155 - - 389
Tax benefit, stock option - - 76 - - - - 76
--------- ------- ------- -------- --------- --------- ----------- --------
4,829,144 50 40,847 24,095 (1,443) - 213 63,762
Comprehensive income:
Net income - - - 4,861 - - - 4,861
Other comprehensive income:
Unrealized holding loss on
securities of $995 (net of $512
tax effect) less reclassification
adjustment for net impairment
loss included in net
income of $890 - - - - - - (105) (105)
(net of $459 tax effect) --------
Comprehensive income - - - - - - - 4,756
--------- ------- ------- -------- --------- --------- ----------- --------
Balance December 31, 2004 4,829,144 $ 50 $40,847 $28,956 $ (1,443) $ - $ 108 $ 68,518
========= ======= ======= ======== ========= ========= =========== ========
See notes to consolidated financial statements.
3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
(In thousands) (Unaudited) 2004 2003
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,861 $ 4,957
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 1,171 1,641
Mortgage servicing rights write-up impairment (22) (304)
Provision for loan losses 260 70
(Benefit) provision for deferred income taxes (38) 237
Noncash expense related to ESOP 389 353
Noncash expense related to MRDP - 15
Noncash loss on impairment of securities 1,349
Increase in deferred loan origination fees, net of
amortization 172 669
Federal Home Loan Bank stock dividend (85) (182)
Origination of loans held for sale (18,152) (43,706)
Proceeds from sales of loans held for sale 18,478 44,888
Net gain on loans held for sale, sale of real estate
owned, and premises and equipment (1,040) (699)
Changes in assets and liabilities:
Decrease (Increase) in prepaid expenses and other assets 1,835 (2,949)
(Decrease) increase in accrued interest receivable (88) 195
Decrease in accrued expenses and other liabilities (880) (815)
-------- --------
Net cash provided by operating activities 8,210 4,370
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (296,382) (232,828)
Principal repayments/refinance on loans 279,532 245,679
Purchase of investment securities available for sale - (11,000)
Purchase of mortgage-backed securities available for sale (5,000) (4,937)
Principal repayments on mortgage-backed securities
available for sale 2,769 6,823
Principal repayments on investment securities available
for sale 75 -
Proceeds from call or maturity of investment securities
available for sale 2,000 250
Principal repayments on mortgage-backed securities held
to maturity 110 632
Purchase of premises and equipment (348) (380)
Acquisition, net of cash received - 7,206
Purchase of first mortgage or improvement of REO (47) (159)
Purchase bank-owned life insurance - (9,000)
Proceeds from sale of real estate owned and premises and
equipment 122 654
-------- --------
Net cash (used in) provided by investing activities (17,169) 2,940
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 18,534 (20,302)
Dividends paid (2,155) (1,821)
Repurchase of common stock - (1,510)
Proceeds from Federal Home Loan Bank advances 15,100 -
Repayment of Federal Home Loan Bank advances (15,100) -
Net decrease in advance payments by borrowers (254) (179)
Proceeds from exercise of stock options 350 422
-------- --------
Net cash provided by (used in) financing activities 16,475 (23,390)
-------- --------
NET INCREASE (DECREASE) IN CASH 7,516 (16,080)
CASH, BEGINNING OF PERIOD 47,907 60,858
-------- --------
CASH, END OF PERIOD $ 55,423 $ 44,778
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ 5,290 $ 5,158
Income taxes 2,275 2,170
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned $ - $ 688
Dividends declared and accrued in other liabilities 748 668
Financed sale of real estate owned 578 -
Receivable due to sale & leaseback of branch 2,391 -
Fair value adjustment to securities available for sale (159) (599)
Income tax effect related to fair value adjustment 54 204
Noncash loss on impairment of securities 1,349 -
Common stock issued upon business combination - 7,347
See notes to consolidated financial statements.
4
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
-------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
(In thousands)
Net Income $ 760 $ 1,539 $ 4,861 $ 4,957
Other Comprehensive Income (Loss)
Change in fair value of securities
available for sale of less
reclassification adjustment for
net impairment included in net income 613 (654) (105) (396)
------ ------ ------ ------
Comprehensive Income $ 1,373 $ 885 $ 4,756 $ 4,561
====== ====== ====== ======
See notes to consolidated financial statements.
5
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Quarterly Reports on 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
("GAAP"). 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.
Annual Report on Form 10-K for the year ended March 31, 2004. The results of
operations for the three and nine months ended December 31, 2004 are not
necessarily indicative of the results which may be expected for the fiscal year
ending March 31, 2005. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Riverview Bancorp, Inc. and Subsidiary
include all the accounts of Riverview Bancorp, Inc. (the "Company") and the
consolidated accounts of its wholly-owned subsidiary, Riverview Community Bank
(the "Bank"), the Bank's wholly-owned subsidiary, Riverview Services, Inc., and
the Bank's majority-owned subsidiary, Riverview Asset Management Corp. ("RAM
Corp."). All inter-company transactions and balances have been eliminated in
consolidation.
3. STOCK-BASED COMPENSATION
At December 31, 2004, the Bank had two stock-based employee compensation plans.
The Bank accounts for those plans under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, no stock-based
compensation cost is reflected in net income as all options granted under the
Bank's plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net income and earnings per share if the Bank had applied the fair value
recognition provision of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation" to stock-based compensation
awards:
Three Months Nine Months
Ended December 31, Ended December 31,
-------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Net income (in thousands):
As reported $ 760 $1,539 $4,861 $4,957
Deduct: Total stock based compensation
expense determined under fair value
based method for all options, net of
related tax benefit (23) (17) (70) (50)
------ ------ ------ ------
Pro forma 727 1,522 4,791 4,907
Earnings per common share - basic:
As reported $ 0.16 $ 0.32 $ 1.01 $ 1.08
Pro forma 0.15 0.32 1.00 1.07
Earnings per common share - fully diluted:
As reported $ 0.16 $ 0.32 $ 1.00 $ 1.06
Pro forma 0.15 0.31 0.98 1.05
6
4. 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 the impact of 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 from assumed vesting of shares awarded but not
released under the Company's Management Recognition Development Plan ("MRDP")
plan. Employee Stock Ownership Plan ("ESOP") shares are not considered
outstanding for earnings per share purposes until they are committed to be
released.
Three Months Nine Months
Ended December 31, Ended December 31,
--------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Basic EPS computation:
Numerator-Net income $ 760,000 $1,539,000 $4,861,000 $4,957,000
Denominator-Weighted average
common shares outstanding 4,824,731 4,757,750 4,809,290 4,594,958
Basic EPS $ 0 .16 $ 0.32 $ 1 .01 $ 1.08
========= ========= ========= =========
Diluted EPS computation:
Numerator-Net Income $ 760,000 $1,539,000 $4,861,000 $4,957,000
Denominator-Weighted average
common shares outstanding 4,824,731 4,757,750 4,809,290 4,594,958
Effect of dilutive stock options 75,377 86,497 74,338 73,095
Effect of dilutive MRDP shares - - - 2,820
Weighted average common shares --------- --------- --------- ---------
and common stock equivalents 4,900,108 4,844,247 4,883,628 4,670,873
Diluted EPS $ 0.16 $ 0.32 $ 1.00 $ 1.06
========= ========= ========= =========
5. INVESTMENT SECURITIES
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
--------- ---------- ---------- -------
December 31, 2004
- -----------------
Trust Preferred $ 5,000 $ 19 $ - $ 5,019
U.S. Agency securities 9,000 - (37) 8,963
U.S. Government Equity securities 11,351 - - 11,351
Municipal bonds 3,973 132 - 4,105
--------- ---------- ---------- -------
Total $29,324 $ 151 $ (37) $29,438
========= ========== ========== =======
March 31, 2004
- --------------
Trust Preferred $ 5,000 $ 19 $ - $ 5,019
U.S Agency securities 11,000 194 - 11,194
U.S. Government Equity securities 12,700 - (300) 12,400
Municipal bonds 4,051 219 - 4,270
--------- ---------- ---------- -------
Total $32,751 $ 432 $ (300) $32,883
========= ========== ========== =======
7
The contractual maturities of investment securities available for sale are as
follows (in thousands):
Amortized Estimated
December 31, 2004 Cost Fair Value
----------------- ---------- ----------
Due after one year through five years $ 10,940 $ 11,008
Due after five years through ten years - -
Due after ten years (1) 18,384 18,430
---------- ----------
Total $ 29,324 $ 29,438
========== ==========
(1) Includes U.S. Government equity securities with an amortized cost and
estimated fair value of $11,351 that are redeemable by the agencies
every two years on the respective dividend reset dates.
Investment securities with an amortized cost of $13.9 million and $16.5 million
and a fair value of $13.8 million and $16.3 million at December 31, 2004 and
March 31, 2004, respectively, were pledged as collateral for advances at the
Federal Home Loan Bank ("FHLB") of Seattle. The Bank pledged investment
securities with an amortized cost of $1,148,000 and $500,000 and a fair value
of $1,210,000 and $504,000 at December 31, 2004 and March 31, 2004,
respectively, as collateral for treasury tax and loan funds.
Information pertaining to securities with gross unrealized losses at December
31, 2004, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, are as follows (in
thousands):
Less than 12 months
12 months or longer Total
----------------------------------------------------
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
----- ------ ----- ------ ----- ------
U.S. Agency securities $8,963 $ (37) $ - $ - $8,963 $ (37)
Total temporarily ----- ------ ----- ------ ----- ------
impaired securities $8,963 $ (37) $ - $ - $8,963 $ (37)
====== ====== ===== ====== ===== ======
The Company has evaluated these securities and has determined that the decline
in the value is temporary and not related to any company or industry specific
event. The Company has the ability and intent to hold the securities for a
reasonable period of time for a forecasted recovery of the amortized cost in the
event of a more favorable market interest rate environment.
The Company realized no gains or losses on sales of investment securities
available for sale for the nine-month periods ended December 31, 2004 and 2003.
In the fiscal third quarter 2005, the Company recorded an other-than-temporary
impairment charge of $890,000 after-tax, or $0.18 per diluted share related to
certain Fannie Mae and Freddie Mac preferred stock that it holds.
6. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2004 Cost Gains Losses Value
- ----------------- --------- ---------- ---------- -------
Real estate mortgage investment
conduits $ 1,802 $ 33 $ - $ 1,835
FHLMC mortgage-backed securities 267 5 - 272
FNMA mortgage-backed securities 338 10 - 348
--------- ---------- ---------- -------
Total $ 2,407 $ 48 $ - $ 2,455
========= ========== ========== =======
March 31, 2004
- --------------
Real estate mortgage investment
conduits $ 1,802 $ 55 $ - $ 1,857
FHLMC mortgage-backed securities 332 8 - 340
FNMA mortgage-backed securities 383 11 - 394
--------- ---------- ---------- -------
Total $ 2,517 $ 74 $ - $ 2,591
========= ========== ========== =======
8
The contractual maturities of mortgage-backed securities classified as held to
maturity are as follows (in thousands):
Amortized Estimated
December 31, 2004 Cost Fair Value
----------------- ---------- ----------
Due after one year through five years $ 24 $ 25
Due after five years through ten years 26 27
Due after ten years 2,357 2,403
---------- ----------
Total $ 2,407 $ 2,455
========== ==========
Mortgage-backed securities held to maturity with an amortized cost of $1.8
million and $1.8 million and a fair value of $1.9 million and $1.9 million at
December 31, 2004 and March 31, 2004, respectively, were pledged as collateral
for governmental public funds held by the Bank. Mortgage-backed securities held
to maturity with an amortized cost of $282,000 and $332,000 and a fair value of
$289,000 and $341,000 at December 31, 2004 and March 31, 2004, respectively,
were pledged as collateral for treasury tax and loan funds held by the Bank. The
real estate mortgage investment conduits consist of Freddie Mac and Fannie Mae
securities.
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2004 Cost Gains Losses Value
- ----------------- --------- ---------- ---------- -------
Real estate mortgage investment
conduits $ 2,032 $ 38 $ - $ 2,070
FHLMC mortgage-backed securities 10,350 37 (33) 10,354
FNMA mortgage-backed securities 263 9 - 272
--------- ---------- ---------- -------
Total $ 12,645 $ 84 $ (33) $12,696
========= ========== ========== =======
March 31, 2004
- --------------
Real estate mortgage investment
conduits $ 2,943 $ 72 $ - $ 3,015
FHLMC mortgage-backed securities 7,086 104 - 7,190
FNMA mortgage-backed securities 388 14 - 402
--------- ---------- ---------- -------
Total $ 10,417 $ 190 $ - $ 10,607
========= ========== ========== =======
The contractual maturities of mortgage-backed securities available for sale are
as follows (in thousands):
Amortized Estimated
December 31, 2004 Cost Fair Value
----------------- ---------- ----------
Due after one year through five years $ 1,800 $ 1,830
Due after five years through ten years 8,910 8,893
Due after ten years 1,935 1,973
---------- ----------
Total $ 12,645 $ 12,696
========== ==========
Expected maturities of mortgage-backed securities held to maturity and 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 available for sale with an amortized cost of $12.4
million and $9.9 million and a fair value of $12.4 million and $10.1 million at
December 31, 2004 and March 31, 2004, respectively, were pledged as collateral
for advances at the FHLB. Mortgage-backed securities available for sale with an
amortized cost of $66,000 and $105,000 and a fair value of $69,000 and $111,000
at December 31, 2004 and March 31, 2004, respectively, were pledged as
collateral for treasury tax and loan funds held by the Bank.
9
Information pertaining to securities with gross unrealized losses at December
31, 2004, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, are as follows (in
thousands):
Less than 12 months
12 months or longer Total
----------------------------------------------------
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
----- ------ ----- ------ ----- ------
Mortgage-backed
securities $4,576 $ (33) $ - $ - $4,576 $ (33)
Total temporarily ----- ------ ----- ------ ------ ------
impaired securities $4,576 $ (33) $ - $ - $4,576 $ (33)
===== ====== ===== ====== ====== ======
The Company has evaluated these securities and has determined that the decline
in the value is temporary and not related to any company or industry specific
event. The Company has the ability and intent to hold the securities for a
reasonable period of time for a forecasted recovery of the amortized cost in the
event of a more favorable market interest rate environment.
The Company realized no gains or losses on sales of mortgage-backed securities
available for sale for the nine months ended December 31, 2004 and 2003.
7. LOANS RECEIVABLE
Loans receivable excluding loans held for sale, consisted of the following (in
thousands):
December 31, March 31,
2004 2004
----------- ---------
Residential:
One-to-four-family $ 38,297 $ 44,194
Multi-family 3,856 5,074
Construction:
One-to-four-family 64,448 78,094
Commercial real estate 1,453 1,453
Commercial 57,154 57,702
Consumer:
Secured 29,849 26,908
Unsecured 1,788 1,689
Land 31,035 27,020
Commercial real estate 207,979 177,785
------- -------
435,859 419,919
Less:
Undisbursed portion of loans 30,067 31,204
Deferred loan fees 2,980 3,107
Allowance for loan losses 4,391 4,481
------- -------
Loans receivable, net $ 398,421 $ 381,127
======= =======
Most of the Bank's business activity is with customers located in the states of
Washington and Oregon. Loans and extensions of credit outstanding at one time to
one borrower are generally limited by federal regulation to 15% of the Bank's
shareholders' equity, excluding accumulated other comprehensive income. As of
December 31, 2004 and March 31, 2004, the Bank had no loans to one borrower in
excess of the regulatory limit and also had no individual industry
concentrations of credit.
10
8. ALLOWANCE FOR LOAN LOSSES
A reconciliation of the allowance for loan losses is as follows (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Beginning balance $ 4,424 $ 5,205 $ 4,481 $ 2,739
Provision for losses 70 - 260 70
Charge-offs (105) (333) (501) (575)
Recoveries 2 13 151 51
Acquisition - - - 2,639
Net change in allowance for unfunded
loan commitments and lines of credit - - - (39)
------ ------ ------ ------
Ending balance $ 4,391 $ 4,885 $ 4,391 $ 4,885
====== ====== ====== ======
Changes in the allowance for unfunded loan commitments and lines of credit were
as follows (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Beginning balance $ 207 $ 214 $ 191 $ 175
Net change in allowance for unfunded
loan commitments and lines of credit 20 - 36 39
------ ------ ------ ------
Ending balance $ 227 $ 214 $ 227 $ 214
====== ====== ====== ======
The allowance for unfunded loan commitments is included in other liabilities on
the consolidated balance sheets. Beginning the quarter ending June 30, 2004,
the provision for unfunded commitments was charged to non-interest expense and
prior to this it was charged to the allowance for loan losses. The change was
made to be consistent with regulatory accounting.
At December 31, 2004 and March 31, 2004, the Company's recorded investment in
impaired loans was $782,000 and $1.3 million respectively. As of December 31,
2004, there were no loans classified as impaired requiring an allowance for loan
losses in accordance with SFAS 114 (as amended by SFAS 118). A loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts (principal and interest) due according to the contractual
terms of the loan agreement. When a loan has been identified as being impaired,
the amount of the impairment is measured by using discounted cash flows, except,
when, as a practical expedient, the current fair value of the collateral,
reduced by costs to sell is used. The average investment in impaired loans was
approximately $1.1 million, $1.0 million and $1.2 million during the nine months
ended December 31, 2004, and 2003 and the year ended March 31, 2004,
respectively. Interest income recognized on impaired loans was $4,000, none and
$44,000 for the nine months ended December 31, 2004, and 2003 and the year ended
March 31, 2004, respectively. There were no loans past due 90 days or more
and still accruing interest at December 31, 2004 and March 31, 2004.
9. LOANS HELD FOR SALE
The Company identifies loans held for sale at the time of origination, which are
carried at the lower of aggregate cost or net realizable value. Market values
are derived from available market quotations for comparable pools of mortgage
loans. Adjustments for unrealized losses, if any, are charged to income.
11
10. MORTGAGE SERVICING RIGHTS
The following table is a summary of the activity in mortgage servicing rights
("MSRs") and the related allowance for the periods indicated and other related
financial data (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Balance at beginning of period, net $ 564 $ 718 $ 624 $ 629
Additions 26 36 97 166
Amortization (76) (87) (225) (431)
Change in valuation allowance 4 1 22 304
------ ------ ------ ------
Balance at end of period, net $ 518 $ 668 $ 518 $ 668
====== ====== ====== ======
Valuation allowance at beginning
of period $ 88 $ 110 $ 106 $ 413
Change in valuation allowance (4) (1) (22) (304)
------ ------ ------ ------
Valuation allowance balance at end
of period $ 84 $ 109 $ 84 $ 109
====== ====== ====== ======
The Company evaluates MSRs for impairment by stratifying MSRs based on the
predominant risk characteristics of the underlying financial assets. At
December 31, 2004 and March 31, 2004, the fair value of MSRs totaled $844,000
and $669,000, respectively. The December 31, 2004 fair value was estimated using
various discount rates and a range of PSA values (the Bond Market Association's
standard prepayment values) that ranged from 153 to 1,506.
Amortization expense for the net carrying amount of MSRs at December 31, 2004 is
estimated as follows (in thousands):
Year Ending
March 31,
-----------------
2005 $ 57
2006 162
2007 99
2008 91
2009 73
After 2009 36
-----
Total $ 518
=====
11. CORE DEPOSIT INTANGIBLE
Net unamortized core deposit intangible totaled $611,000 at December 31, 2004
and $879,000 at December 31, 2003. Amortization expense related to the core
deposit intangible during the three months ended December 31, 2004 and 2003
totaled $32,000 and $121,000, respectively.
Remaining amortization expense for the net core deposit intangible at December
31, 2004 is estimated to be as follows (in thousands):
Year Ending
March 31,
-----------------
2005 $ 32
2006 116
2007 98
2008 83
2009 71
After 2009 211
-----
Total $ 611
=====
12
12. BORROWINGS
Borrowings are summarized as follows (in thousands):
At December 31, 2004 At March 31, 2004
-------------------- -----------------
Federal Home Loan Bank advances $40,000 $40,000
Weighted average interest rate: 4.98% 4.88%
Borrowings have the following maturities at December 31, 2004 (in thousands):
Year Ending
March 31,
-----------------
2006 $ 15,000
2007 20,000
2008 5,000
--------
Total $ 40,000
========
13. NEW ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
which is an Amendment of FASB Statement Nos. 123 and 95 SFAS No. 123R changes,
among other things, the manner in which share-based compensation, such as stock
options, will be accounted for by both public and non-public companies, and will
be effective as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. For public companies, the cost of employee
services received in exchange for equity instruments including options and
restricted stock awards generally will be measured at fair value at the grant
date. The grant date fair value will be estimated using option-pricing models
adjusted for the unique characteristics of those options and instruments,
unless observable market prices for the same or similar options are available.
The cost will be recognized over the requisite service period, often the vesting
period, and will be remeasured subsequently at each reporting date through
settlement date.
The changes in accounting will replace existing requirements under SFAS No. 123,
"Accounting for Stock-Based Compensation," and will eliminate the ability to
account for share-based compensation transactions using APB Opinion No. 25,
"Accounting for Stock Issued to Employees," which does not require companies to
expense options if the exercise price is equal to the trading price at the date
of grant. The accounting for similar transactions involving parties other than
employees or the accounting for employee stock ownership plans that are subject
to American Institute of Certified Public Accountants ("AICPA") Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," would
remain unchanged.
14. COMMITMENTS AND CONTINGENCIES
Off-balance Sheet Arrangements. 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, commercial and consumer loans, and 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. Because some commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. 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. The allowance for unfunded loan commitments was $227,000 at
December 31, 2004.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily used to support public and private borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. Collateral held varies and is
required in instances where the Bank deems necessary.
13
The following is a summary of commitments and contingent liabilities with
off-balance sheet risk as of December 31, 2004:
Contract or
(In Thousands) Notional
-------------- Amount
-----------
Commitments to originate loans
Adjustable $ 18,115
Fixed 1,469
Standby letters of credit 346
Undisbursed portion of loan funds 30,067
Unused lines of credit 76,169
-----------
Total $ 126,166
===========
At December 31, 2004, the Company had firm commitments to sell $140,000 of
residential loans to Freddie Mac. These agreements are short-term, fixed-rate
commitments and no material gain or loss is likely.
Other Contractual Obligations. In connection with certain asset sales, the 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 Bank may have an obligation to repurchase the assets or
indemnify the purchaser against loss. As of December 31, 2004, loans under
warranty totaled $123.5 million, which substantially represents the unpaid
principal balance of the Company's loans serviced for others portfolio. The
Bank believes that the potential for loss under these arrangements is remote.
Accordingly, no contingent liability is recorded in the financial statements.
At December 31, 2004, scheduled maturities of certificates of deposit, FHLB
advances and future minimum operating lease commitments were as follows (in
thousands):
Within 1-3 4-5 Over 5 Total
1 year Years Years Years Balance
------ ----- ----- ------ -------
Certificates of deposit $75,453 $30,063 $27,923 $ 4,476 $137,915
FHLB advances 15,000 25,000 - - 40,000
Operating leases 1,047 1,785 1,671 1,942 6,445
------- ------- ------- ------- --------
Total other contractual
obligations $91,500 $56,848 $29,594 $ 6,418 $184,360
======= ======= ======= ======= ========
The Company is party to litigation arising in the ordinary course of business.
In the opinion of management, these actions will not have a material adverse
effect, if any, on the Company's financial position, results of operations, or
liquidity.
15. ACQUISITION
On July 18, 2003, the Company completed the acquisition of Today's Bancorp, Inc.
Each share of Today's Bancorp was exchanged for 0.826 shares of the Company's
common stock, or $13.64 in cash, or a combination thereof, resulting in the
issuance of 430,655 new shares. Total stock and cash consideration for Today's
Bancorp was $17.2 million. 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 values. Core deposit
intangible is being amortized using an accelerated method over ten years.
Goodwill, the excess of the purchase price over net fair value of the assets and
liabilities acquired, was recorded at $9.2 million. The goodwill is not tax
deductible because this was a nontaxable transaction. The purchased assets and
assumed liabilities were recorded as follows (in thousands):
Assets
------
Cash $ 17,054
Investments 6,895
Building and equipment 1,130
14
Loans 85,427
Core deposit intangible 820
Goodwill 9,214
Other, net 1,768
-------
Total Assets 122,308
Liabilities
-----------
Deposits $(105,113)
Net Acquisition costs $ 17,195
Less:
Stock issued in acquisition (7,347)
Cash Acquired (17,054)
Cash used in acquisition, net
of cash acquired $ 7,206
The following unaudited pro forma financials for the three and nine months ended
December 31, 2004 and 2003 assume that the Today's Bancorp acquisition occurred
as of April 1, 2003, 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 Pro Forma Financial
Information for Information for
the Three Months the Nine Months
Ended December 31, Ended December 31,
2004 2003 2004 2003
-------------------------------------------
(in thousands, (in thousands
except per share data) except per share data)
Net Interest Income $ 5,549 $ 5,462 $16,869 $16,596
Non-interest Income 323 1,419 4,661 5,182
Non-interest Expense 4,743 4,570 14,189 14,424
Net Income $ 760 $ 1,539 $ 4,861 $ 5,138
Earnings per common share:
Basic $ 0.16 $ 0.32 $ 1.01 $ 1.08
Diluted 0.16 0.32 1.00 1.06
16. PROPOSED ACQUISITION
On November 9, 2004, the Company announced the signing of a definitive agreement
for the acquisition of American Pacific Bank by merger with the Bank. Upon
completion of the merger, shareholders of American Pacific Bank will be entitled
to receive either cash or shares of the Company's common stock in exchange for
each share of American Pacific Bank common stock. The aggregate consideration
payable to stockholders of American Pacific Bank will be composed of
approximately $17.6 million in cash (including cash paid to stock option
holders) and 788,593 shares of the Company's common stock. These amounts are
subject to adjustment for any American Pacific Bank stock options that are
exercised prior to the closing of the merger. The transaction is intended
to qualify as a tax-free exchange for federal income tax purposes. As a result,
the shares of the Company's common stock issued in exchange for American Pacific
Bank common stock, will be received by shareholders on a tax-free basis. The
transaction will increase the Company's assets from $525 million as of September
30, 2004, to approximately $648 million, and will increase its number of banking
offices from 14 to 17. Pursuant to the merger agreement, American Pacific Bank
has agreed to pay the Company a termination fee of $1.2 million in the event the
merger agreement is terminated under certain conditions, including any agreement
between American Pacific Bank and a third party to engage in a merger or
consolidation.
The merger, which has been unanimously approved by the directors of both
companies, is subject to certain conditions, including the approval of the
shareholders of American Pacific Bank, the receipt of regulatory approvals, and
the registration of the shares to be issued in the merger with the
Securities and Exchange Commission. The merger is expected to be completed in
the first or second calendar quarter of 2005.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
Management's Discussion and Analysis and other portions of this report contain
certain "forward-looking statements" concerning the future operations of the
Company. Management desires to take advantage of the "safe harbor"
15
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing the Company of the
protections of such safe harbor with respect to all "forward-looking statements"
contained in our Quarterly Report. The Company has used "forward-looking
statements" to describe future plans and strategies, including its expectations
of the Company's future financial results. Management'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
general economic climate in the Company's market area and the country as a
whole, the ability of the Company to control costs and expenses, deposit flows,
demand for mortgages and other loans, real estate values and vacancy rates, the
ability of the Company to efficiently incorporate acquisitions into its
operations, competition, loan delinquency rates, and changes in federal and
state regulation. These factors should be considered in evaluating the
"forward-looking statements," and undue reliance should not be placed on such
statements. The Company undertakes no obligation to publish revised forward-
looking statements to reflect the occurrence of unanticipated events or
circumstances after the date hereof.
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 ("GAAP") in the preparation of the Company's Consolidated Financial
Statements. The Company has identified four policies, that as a result of
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 determining the allowance for loan
losses, the impairment of goodwill, the valuation of the mortgage servicing
rights and the impairment of investments. These policies and the judgments,
estimates and assumptions are described in greater detail in subsequent sections
of Management's Discussions and Analysis and in the Notes to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K for
the year ended March 31, 2004. 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 the Company's
results of operations or financial condition.
Allowance for Loan Losses
- -------------------------
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 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.
Goodwill
- --------
Goodwill is initially recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired. Goodwill is presumed to have an indefinite useful life and is
tested, at least annually, for impairment at the reporting unit level. We
perform an annual review in the fourth quarter of each year, or more frequently
if indicators of potential impairment exist, to determine if the recorded
goodwill is impaired. Our impairment review process compares the fair value of
the Bank to its carrying value, including the goodwill related to the Bank. If
the fair value exceeds the carrying value, goodwill of the Bank unit is not
considered impaired and no additional analysis is necessary. As of December 31,
2004, there have been no events or changes in circumstances that would indicate
a potential impairment.
Mortgage Servicing Rights
- -------------------------
The Company stratifies its MSRs based on the predominant characteristics of the
underlying financial assets, including coupon interest rate and contractual
maturity of the mortgage. 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
16
differ and any difference may have a material effect on the fair value. Thus,
any measurement of fair value of MSRs is limited by the existing conditions and
assumptions made as of the date of analysis. Those assumptions may not be
appropriate if they are applied to a different time.
Future expected net cash flows from servicing a loan in the servicing portfolio
would not be realized if the loan is paid off earlier than anticipated.
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 the Company's MSRs to
impairment. MSR impairment is recorded in the amount that the estimated fair
value is less than the MSRs' carrying value on a strata by strata basis.
Investment Valuation
- --------------------
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 for which the fair
value is less than the carrying value. The review includes determining whether
certain indicators demonstrate 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 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 (loss), 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.
An impairment shall be deemed other-than-temporary unless positive evidence
indicating that the 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 to hold that security to maturity, no
other-than-temporary impairment is recognized.
General
A progressive, community-oriented financial institution, the Company emphasizes
local, personal service to residents of its primary market area, which
encompasses Clark, Cowlitz, Klickitat and Skamania Counties in Washington State.
The Company is engaged primarily in the business of attracting deposits from the
general public and using these funds to originate loans for commercial and
consumer purposes in its primary market area.
The Company continues to change the composition of its loan portfolio and
deposit base as part of the transition to commercial banking. Commercial real
estate loans and commercial loans have grown from 17.04% and 5.87% of the loan
portfolio at March 31, 2000, to 48.05% and 13.11% at December 31, 2004.
The Company's strategic plan includes the diversification of its loan portfolio
to include a larger portion of commercial and commercial real estate loans.
Targeting the commercial banking customer base, specifically small- and medium-
sized businesses, professionals and wealth building individuals within the
Company's primary market
17
area, is an objective of the Company. Significant portions of the growing
commercial loan portfolio carry adjustable rates, higher yields or shorter
terms, and higher credit risk than traditional fixed-rate mortgages. The
strategic plan stresses increased emphasis on non-interest income, including
increased fees for asset management and deposit service charges. This focus is
designed to enhance earnings and reduce interest rate risk.
A related goal is to increase the proportion of personal and business checking
account deposits and provide a more complete range of financial services to
customers in the local communities. Whether increasing loan portfolio size or
deposit base, the Company will continue to emphasize controlled growth. 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, which is one of the fastest growing
counties in the state, according to the U.S. Census Bureau 2000 census.
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. The Company's efficiency ratios reflect this investment and will
remain relatively high by industry standards for the foreseeable future due to
the emphasis on growth and local, personal service. Control of non-interest
expenses remains a high priority for the Company's management.
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 in house processing of
checks and production of images has supported the Bank's increased service to
customers and at the same time has increased efficiency. The Company continues
to experience growth in customer use of the online banking services. 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 web site is www.riverviewbank.com .
---------------------
Market Area
With its home office and six branches in Vancouver, Washington and branch
offices in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale
and Longview, the Company continues to provide local, personal service to its
customers. The 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, RAM Corp., located
in downtown Vancouver. Riverview Mortgage, a mortgage broker division of the
Company, originates mortgage (including construction) loans for various mortgage
companies in the Portland metropolitan area, as well as for the Company.
Commercial and business banking services are offered by the Business and
Professional Banking Division located at the downtown Vancouver branch.
Vancouver, located in Clark County, is north of Portland, Oregon. Several large
employers including Sharp Microelectronics, Hewlett Packard, Georgia Pacific,
Underwriters Laboratory and Wafer Tech are located in Clark County. In addition
to the expanding industry base, the Columbia River Gorge is a popular tourist
destination, generating revenue for all the communities with the area. As a
result, Southwest Washington's economy has become less dependent on the timber
industry.
Comparison of Financial Condition at December 31, 2004 and March 31, 2004
At December 31, 2004, the Company had total assets of $541.9 million, compared
with $520.5 million at March 31, 2004. The increase in total assets was
primarily due to an increase in net loans receivable.
Cash, including interest-earning accounts, totaled $55.4 million at December 31,
2004, compared to $47.9 million at March 31, 2004. The increase is reflected
in the increase in deposit accounts.
Loans held for sale decreased $267,000 to $140,000 at December 31, 2004,
compared to $407,000 at March 31, 2004. The decrease reflects the variable
demand for residential loan financing. As interest rates fall, loan volume
18
shifts to fixed rate production. Conversely, in a rising interest rate
environment, loan volume will shift to adjustable rate production. The Company
originates fixed-rate residential loans for sale in the secondary market and
retains the related loan servicing rights. Selling fixed interest rate mortgage
loans allows the Company to reduce the interest rate risk associated with
long term, fixed interest rate products. It also frees up funds to make new
loans and diversify the loan portfolio. We continue to service the loans we
sell, maintaining the customer relationship and generating ongoing non-interest
income.
Loans receivable, net, were $398.4 million at December 31, 2004, compared to
$381.1 million at March 31, 2004. Commercial real estate loans increased $30.2
million, consumer loans increased $3.0 million and land loans increased $4.0
million, which offset decreases of $13.6 million in net residential construction
loans and $5.9 million in residential loans. A substantial portion of the
Company's loan portfolio is secured by real estate, either as primary or
secondary collateral, located in its primary market areas.
Investment securities available-for-sale totaled $29.4 million at December 31,
2004, compared to $32.9 million at March 31, 2004. The decrease of $3.5 million
was primarily due to pay downs and impairment loss
Mortgage-backed securities held-to-maturity totaled $2.4 million at December 31,
2004, a slight decrease from $2.5 million at March 31, 2004.
Mortgage-backed securities available-for-sale were $12.7 million at December 31,
2004, compared to $10.6 million at March 31, 2004. The $2.1 million net
increase reflects $5.0 million in purchases and $2.9 million in pay downs and
unrealized market gains and losses.
Bank-owned life insurance increased to $12.5 million at December 31, 2004, from
$12.1 million at March 31, 2004. The $400,000 increase reflects an increase in
cash surrender value of the policies.
Prepaid expenses and other assets were $1.3 million at December 31, 2004 and
March 31, 2004.
Deposit accounts totaled $424.6 million at December 31, 2004, compared to $409.1
million at March 31, 2004. Wholesale deposits decreased by $10 million for the
nine months ended December 31, 2004 and core deposits increased by $28.5
million. The total average outstanding balance of checking accounts, savings
and money market accounts ("transaction accounts") increased 9.3% to
$281.5 million for the quarter ended December 31, 2004, compared to $257.6
million for the quarter ended March 31, 2004. Transaction accounts represented
66.8% and 65.3% of average total outstanding balance of deposits for the
quarters ended December 31, 2004 and March 31, 2004, respectively. The
quarterly average outstanding balance of certificates of deposit increased $3.2
million to $139.9 million, compared to $136.7 million for the quarter ended
March 31, 2004.
FHLB advances were $40.0 million at both December 31, 2004 and March 31, 2004.
Shareholders' Equity and Capital Resources
Shareholders' equity increased $3.3 million to $68.5 million at December 31,
2004 from $65.2 million at March 31, 2004. The increase was primarily as a
result of the $4.8 million total comprehensive income, $350,000 exercise of
stock options and $389,000 earned ESOP shares, partially offset by $2.2 million
in cash dividends paid to shareholders.
The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision ("OTS"), its primary federal regulator.
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 Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance sheet items
as calculated in accordance with regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk, weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total capital to
risk-weighted assets, Tier I capital to risk-weighted assets, core capital to
total assets and tangible capital to tangible assets (set forth in the table
below). Management believes the Bank meets all capital adequacy requirements to
which it was subject at December 31, 2004.
19
As of December 31, 2004, the most recent notification from the OTS categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized," the Bank must
maintain minimum total capital and Tier I capital to risk weighted assets,
core capital to total assets and tangible capital to tangible assets (set forth
in the table below). There are no conditions or events since that notification
that management believes have changed the Bank's category.
The 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 Purposes Action Provision
-----------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2004
Total Capital:
(To Risk Weighted Assets) $55,486 12.48% $35,560 8.0% $44,450 10.0%
Tier I Capital:
(To Risk Weighted Assets) 51,095 11.50 17,780 4.0 26,670 6.0
Tier I Capital:
(To Adjusted Tangible Assets) 51,095 9.75 15,722 3.0 26,204 5.0
Tangible Capital:
(To Tangible Assets) 51,095 9.75 7,861 1.5 N/A N/A
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
March 31, 2004
Total Capital:
(To Risk Weighted Assets) $53,952 12.78% $33,760 8.0% $42,200 10.0%
Tier I Capital:
(To Risk Weighted Assets) 49,471 11.72 16,880 4.0 25,320 6.0
Tier I Capital:
(To Adjusted Tangible Assets) 49,471 9.81 15,125 3.0 25,209 5.0
Tangible Capital:
(To Tangible Assets) 49,471 9.81 7,563 1.5 N/A N/A
The following table is a reconciliation of the Bank's capital, calculated
according to generally accepted accounting principles to regulatory tangible and
risk-based capital at December 31, 2004 (in thousands):
Equity $ 61,220
Net unrealized securities loss (109)
Goodwill and other intangibles (9,964)
Servicing asset (52)
---------
Tangible capital 51,095
Allowance for loan losses 4,391
---------
Total capital $ 55,486
=========
Liquidity
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans, the sale of loans, maturing securities
and FHLB advances. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
20
The Bank must maintain an adequate level of liquidity to ensure the availability
of sufficient funds to fund loan originations and deposit withdrawals, satisfy
other financial commitments and to take advantage of investment opportunities.
The Bank generally maintains sufficient cash and short-term investments to meet
short-term liquidity needs. At December 31, 2004, cash totaled $55.4 million,
or 10.23% of total assets. The Bank has a line of credit with the FHLB of
Seattle. The line of credit is 30% of total assets to the extent the Bank
provides qualifying collateral and holds sufficient FHLB stock. At December 31,
2004, the Bank had $40.0 million of outstanding advances from the FHLB of
Seattle under an available credit facility of $154.4 million, limited to
available collateral.
Sources of capital and liquidity for the Company on a stand-alone basis include
distributions from the Bank and the issuance of debt or equity. Dividends and
other capital distributions from the Bank are subject to regulatory
restrictions.
Off-Balance Sheet Arrangements and Other Contractual Obligations
Through the normal course of operations, the Company has entered into certain
contractual obligations and other commitments. Our obligations generally relate
to funding of operations through deposits and borrowings as well as leases for
premises. Our commitments generally relate to our lending operations.
The Company has obligations under long-term operating leases, principally for
building space and land. Lease terms generally cover a five-year period, with
options to extend, and are non-cancelable.
The Company has commitments to originate fixed and variable rate mortgage loans
to customers. Because some commitments expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Undisbursed loan funds and unused lines of credit include funds not disbursed,
but committed to construction projects and home equity and commercial lines of
credit. Standby letters of credit are conditional commitments issued by us to
guarantee the performance of a customer to a third party.
For further information regarding the company's off-balance sheet arrangements
and other contractual obligations, see Note 14 of the Notes to the Consolidated
Financial Statements.
Asset Quality
The allowance for loan losses was $4.4 million at December 31, 2004 and $4.5
million at March 31, 2004. Management believes the allowance for loan losses at
December 31, 2004 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 estimated
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 and 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 tend to be more vulnerable to adverse conditions in the real estate
market and deteriorating economic conditions.
Non-performing assets were $782,000, or 0.14% of total assets at December 31,
2004, compared with $2.0 million, or 0.39% of total assets at March 31, 2004.
The $782,000 balance of non-accrual loans is composed of two residential real
estate loans, two commercial real estate loans, two commercial loans and one
consumer loan. The following table sets forth information regarding the
Company's non-performing assets.
21
December 31, 2004 March 31, 2004
----------------- --------------
(dollars in thousands)
Loans accounted for on a nonaccrual basis:
Residential real estate $ 235 $ 24
Commercial real estate 309 309
Land - 31
Commercial 77 872
Consumer 161 65
------- -------
Total 782 1,301
------- -------
Accruing loans which are contractually
past due 90 days or more - -
------- -------
Total of nonaccrual and 90 days past due loans 782 1,301
------- -------
Real estate owned (net) - 742
------- -------
Total nonperforming assets $ 782 $ 2,043
======= =======
Total loans delinquent 90 days or more to net loans 0.19% 0.34%
Total loans delinquent 90 days or more to total assets 0.14% 0.25%
Total nonperforming assets to total assets 0.14% 0.39%
Comparison of Operating Results for the Three Months Ended December 31, 2004 and
2003
Financial Highlights. Net income for the three months ended December 31, 2004
was $760,000, or $0.16 per basic share ($0.16 per diluted share), compared to
net income of $1.5 million, or $0.32 per basic share ($0.32 per diluted share)
for the three months ended December 31, 2003. Earnings were lower for the three
months ended December 31, 2004 as a result of the after-tax other-than-temporary
non-cash charges of $461,000 for Freddie Mac preferred stock and $429,000 for
Fannie Mae preferred stock. Excluding the impairment charge, net income
increased 7% to $1.7 million, or $0.34 per diluted share. Average interest-
earning assets increased 2.7% and average interest-bearing liabilities increased
1%.
The annualized return on average assets was 0.56% for the three months ended
December 31, 2004, compared to 1.18% for the three months ended December 31,
2003. The annualized return on average equity was 4.36% for third quarter,
compared to 9.52% for the same period in the prior year. For the current
quarter, the annualized return on average assets excluding the impairment charge
was 1.22% and the annualized return on average equity excluding the impairment
was 9.47%. In addition, the efficiency ratio (excluding intangible asset
amortization and impairment charge), which is defined as the percentage of
non-interest expenses to total revenue, was 64.61% compared to 63.86% for the
three months ended December 31, 2003.
Net Interest Income. The Company's profitability depends primarily on its net
interest income, which is the difference between the income it receives on
interest-earning assets and its cost of funds, which consists of interest paid
on deposits and borrowings. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The level of
non-interest income and expenses also affects the Company's profitability.
Non-interest income includes deposit service fees, income associated with
the origination and sale of mortgage loans, brokering loans, loan servicing
fees, income from real estate owned, net gains on sales of assets, bank-owned
life insurance income and asset management fee income. Non-interest expenses
22
include compensation and benefits, occupancy and equipment expenses, deposit
insurance premiums, data servicing expenses and other operating costs. The
Company's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government legislation and regulation, and monetary and fiscal policies.
Net interest income for the three months ended December 31, 2004 was $5.5
million, representing an $87,000, or a 1.6% increase, compared to the same prior
year period. This improvement reflected a 2.8% increase in the average balance
of interest-earning assets (primarily increases in the average balance of
commercial loans, commercial real estate loans, mortgage backed securities and
daily interest-bearing assets, partially offset by a decrease in the average
balance of residential mortgage loans and investment securities) to $484.2
million. The average balance of interest-bearing liabilities increased by $3.1
million to $394.9 million. The increase in savings and money market accounts
was off-set by the decreases in NOW accounts and certificates of deposit
accounts. The ratio of average interest-earning assets to average interest-
bearing liabilities increased to 122.6% in the three-month period ended December
31, 2004 from 120.2% in the same prior year period. The ratio indicates that
the interest-earning asset growth is being funded less by interest-bearing
liabilities as compared to capital and non-interest-bearing demand deposits.
Interest Income. Interest income totaled $7.5 million and $7.2 million, for the
three months ended December 31, 2004 and 2003, respectively. Average
interest-earning assets increased $13.1 million to $484.2 million for the three
months ended December 31, 2004 from $471.1 million for the same period in 2003.
The yield on interest-earning assets was 6.18% for the three months ended
December 31, 2004 compared to 6.09% for the three months ended December 31,
2003. The increased yield reflects the higher yields received on investment
securities and daily interest-bearing assets at December 31, 2004 as compared to
December 31, 2003.
Interest Expense. Interest expense was $1.9 million for the three months ended
December 31, 2004 and $1.7 million for the three months ended December 31, 2003.
Average interest-bearing liabilities increased $3.1 million to $394.9 million
for the three months ended December 31, 2004 from $391.8 million for the same
prior year period. The weighted average interest rate on total deposits was
1.61% and 1.39% for the three months ended December 31, 2004 and 2003,
respectively. The weighted average interest rate of FHLB borrowings was 5.06%
for the three months ended December 31, 2004 from 4.95% for same period in the
prior year. The level of liquidity in the third quarter of fiscal year 2005
allowed the runoff of high interest rate deposits acquired in the acquisition of
Today's Bancorp and held the FHLB borrowings stable at $40.0 million.
The following table sets forth, for the periods indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spread,
ratio of interest-earning assets to interest-bearing liabilities and net
interest margin.
23
Three Months Ended December 31,
-------------------------------------------------
2004 2003
----------------------- -----------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ----- ------- --------- -----
(Dollars in thousands)
Interest-earning assets:
Residential mortgage loans $117,815 $ 2,229 7.51% $139,783 $ 2,662 7.56%
Commercial and consumer
loans 278,191 4,654 6.64 233,100 4,011 6.83
------- --------- ----- ------- --------- -----
Total net loans (1) 396,006 6,883 6.90 372,883 6,673 7.10
Mortgage-backed securities(2) 15,415 159 4.09 12,306 143 4.61
Investment securities(2), (3) 30,684 281 3.63 32,695 248 3.01
Daily interest-bearing assets 35,977 190 2.10 47,288 105 0.88
Other earning assets 6,119 31 2.01 5,928 59 3.95
Total interest- ------- --------- ----- ------- --------- -----
earning assets 484,201 7,544 6.18 471,100 7,228 6.09
Non-interest-earning assets:
Office properties and
equipment, net 8,500 10,304
Other non-interest-earning
assets 44,236 35,935
------- -------
Total assets $536,937 $517,339
======= =======
Interest-bearing liabilities:
Regular savings accounts $33,499 46 0.54 $ 28,650 40 0.55
NOW accounts 103,036 227 0.87 104,796 217 0.82
Money market accounts 78,438 240 1.21 71,551 150 0.83
Certificates of deposit 139,914 925 2.62 146,847 823 2.22
------- --------- ----- ------- --------- -----
Total deposits 354,887 1,438 1.61 351,844 1,230 1.39
Other interest-bearing
liabilities 40,000 510 5.06 40,000 499 4.95
Total interest-bearing ------- --------- ----- ------- --------- -----
liabilities 394,887 1,948 1.96 391,844 1,729 1.75
Non-interest-bearing liabilities:
Non-interest-bearing deposits 66,570 57,589
Other liabilities 6,390 3,779
------- -------
Total liabilities 467,847 453,212
Shareholders' equity 69,090 64,127
Total liabilities and ------- -------
shareholders' equity $536,937 $517,339
======= =======
Net interest income $ 5,596 $ 5,499
===== =====
Interest rate spread 4.22% 4.34%
==== ====
Net interest margin 4.59% 4.63%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 122.62% 120.23%
====== ======
Tax Equivalent Adjustment $ 48 $ 37
======= ========
(1) Includes non-accrual loans.
(2) For purposes of the computation of average yield on investments available
for sale, historical cost balances were utilized, therefore, the yield
information does not give effect to change in fair value that are reflected
as a component of shareholders' equity.
(3) Includes tax equivalent adjustment in interest income.
24
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company for the quarter ended December 31, 2004.
Variances that were immaterial have been allocated based upon the percentage
relationship of changes in volume and changes in rate to the total net change.
Three Months Ended December 31,
-------------------------------
2004 vs 2003
-------------------------------
Increase (Decrease)
Due to Total
------------------ Increase
Volume Rate (Decrease)
-------- ------ --------
(In thousands)
Interest Income:
Residential mortgage loans $ (416) $ (17) $ (433)
Commercial and consumer loans 757 (114) 643
Mortgage-backed securities 33 (17) 16
Investment securities (1) (16) 49 33
Daily interest-bearing (30) 115 85
Other earning assets 2 (30) (28)
-------- ------ --------
Total interest income 330 (14) 316
-------- ------ --------
Interest Expense:
Regular savings accounts 7 (1) 6
NOW accounts (4) 14 10
Money market accounts 15 75 90
Certificates of deposit (40) 142 102
Other interest-bearing liabilities - 11 11
-------- ------ --------
Total interest expense (22) 241 219
-------- ------ --------
Net interest income (1) $ 352 $ (255) $ 97
======== ====== ========
(1) Taxable equivalent
Provision for Loan Losses. The provision for loan losses for the three-month
period ended December 31, 2004 was $70,000, compared to zero for the same period
in the prior year. Net charge-offs for the current period were $103,000,
compared to $320,000 for the same period of the prior year. The ratio of
allowance for loan losses to total net loans was 1.09% at December 31, 2004,
compared to 1.29% at December 31, 2003. Net charge-offs to average net loans for
the three-month period ended December 31, 2004 decreased to 0.10% from 0.34% for
the same period in the prior year. Improvement continues to be made both in
the dollar amount of loans classified and the mix of classified loans at
December 31, 2004 as compared to December 31, 2003. Loans classified as
substandard and doubtful were $7.0 million at December 31, 2004 compared to $7.3
million at December 31, 2003. Management considered the allowance for loan
losses at December 31, 2004 to be adequate to cover probable losses inherent in
the loan portfolio based on the assessment of various factors affecting the loan
portfolio.
Non-Interest Income. Non-interest income was $323,000 for the quarter ended
December 31, 2004 compared to $1.4 million for the quarter ended December 31,
2003. Non-interest income was lower for the three months ended March 31, 2004
as a result of the after-tax other-than-temporary non-cash charges of $650,000
for Freddie Mac preferred stock and $699,000 for Fannie Mae preferred stock.
Excluding the impairment charge, non-interest income increased 17.8% to $1.7
million, or $0.34 per diluted share.
Reduced mortgage refinance activity resulted in gains on the sale of loans
decreasing $101,000 for the quarter ended December 31, 2004 to $97,000 from
$198,000 for the quarter ended December 31, 2003. For the same periods, loan
servicing income also included amortization of mortgage servicing rights of
$76,000 and $87,000, respectively. The decrease in amortization is due to the
reduction of early payoffs of loans sold with servicing retained. Asset
management services income was $286,000 for the quarter ended December 31, 2004,
compared to $229,000 for the quarter ended December 31, 2003. RAMCorp. had
$164.7 million in total assets under management at December 31, 2004, compared
to $138.1 million at December 31, 2003.
25
Non-Interest Expense. Non-interest expense increased $173,000, or 3.8%, to $4.7
million for the three month period ended December 31, 2004, compared to $4.6
million for the three months ended December 31, 2003. One measure of a bank's
ability to contain non-interest expense is the efficiency ratio. It is
calculated by dividing total non-interest expense (less intangible asset
amortization) by the sum of net interest income plus non-interest income (less
intangible asset amortization, impairment charge and lower of cost or market
adjustments). The Company's efficiency ratio excluding intangible asset
amortization, impairment charge, and lower cost or market adjustments was 64.61%
for the three months ended December 31, 2004, compared to 63.86% for the same
period in the prior year.
The principal component of the Company's non-interest expense is salaries and
employee benefits. For the three months ended December 31, 2004, salaries and
employee benefits, which include mortgage broker commission compensation, was
$2.8 million, an 8.6% increase over the three months ended December 31, 2003
total of $2.6 million. Full-time equivalent employees increased to 195 at
December 31, 2004 from 181 at December 31, 2003. The majority of the increase
in full-time equivalent employees is due to increased staffing at retail
branches.
The July 2003 acquisition of Today's Bancorp and the related acquisition of
$105.1 million in deposits accounts created an $820,000 core deposit intangible
("CDI"), representing the excess of cost over fair market of acquired deposits.
The CDI is being amortized over a ten-year life using an accelerated
amortization method. The amortization expense was $32,000 for the three months
ended December 31, 2004 and $39,000 for the same period in the prior year.
The acquisition of the Hazel Dell and Longview branches from the Resolution
Trust Corporation in fiscal 1995 and the related acquisition of $42.0 million in
customer deposits created a $3.2 million CDI. The amortization expense was none
for the three months ended December 31, 2004 compared to $82,000 for the prior
year period. As of June 30, 2004, this CDI was fully amortized.
Provision for Federal Income Taxes. Provision for federal income taxes was
$299,000 for the three months ended December 31, 2004, compared to $772,000 for
the three months ended December 31, 2003 as a result of lower income before
taxes. The effective tax rate for three months ended December 31, 2004 was 28.2%
compared to 33.4% for the three months ended December 31, 2003. The effective
tax rate declined from the prior quarter, reflecting the impact of the purchase
of bank-owned life insurance.
Comparison of Operating Results for the Nine Months Ended December 31, 2004 and
2003
Financial Highlights. Net income for the nine months ended December 31, 2004
was $4.9 million, or $1.01 per basic share ($1.00 per diluted share), compared
to net income of $5.0 million, or $1.08 per basic share ($1.06 per diluted
share) for the nine months ended December 31, 2003. The Company's fiscal year
2005 operating results reflect growth in average interest earning-assets and
interest-bearing liabilities, combined with an $828,000 pre-tax gain on the sale
and leaseback of the Company's Camas branch and operations center, that was
partially offset by the $1.3 million pre-tax other-than-temporary impairment
charge related to Fannie Mae and Freddie Mac preferred stock.
The annualized return on average assets was 1.24% for the nine months ended
December 31, 2004, compared to 1.37% for the nine months ended December 31,
2003. For the same periods, the annualized return on average common equity was
9.53% compared to 10.85%. In addition, the efficiency ratio excluding the
intangible asset amortization, which is defined as the percentage of non-
interest expenses to total revenue, was 64.61% compared to 61.78% for the nine
months ended December 31, 2003.
The annualized return on average assets excluding the impairment charge was
1.46% for the current year-to-date period compared to 1.37% for the same period
in the prior year. The annualized return on average equity excluding the
impairment charge was 11.28% for the nine-month period compared to 10.85% for
the same period a year ago. The efficiency ratio excluding the intangible asset
amortization and impairment charge was 60.83% for the nine months ended December
31, 2004 compared to 61.78% for the same period in the prior year.
Net Interest Income. Net interest income for the nine months ended December 31,
2004 was $16.9 million, representing a $1.4 million, or a 8.9% increase,
compared to the same prior year period. This improvement reflected a 7.2%
increase in the average balance of interest-earning assets to $471.3 million,
consisting primarily of increases in the average balance of commercial loans,
consumer loans and investment securities, partially offset by a decrease in the
average balance of residential mortgage loans and daily interest-earning assets.
The increase in interest-earning assets was offset by a 7.3% increase in average
balance of interest-bearing liabilities (an increase in all deposit
26
categories) to $383.7 million. The ratio of average interest-earning assets to
average interest-bearing liabilities decreased slightly to 122.84% in the nine-
month period ended December 31, 2004 from 122.95% in the same prior year period.
The ratio indicates that the interest-earning asset growth is being funded more
by interest-bearing liabilities as compared to capital and non-interest-bearing
demand deposits.
Interest Income. Interest income totaled $22.1 million and $20.5 million, for
the nine months ended December 31, 2004 and 2003, respectively. Average
interest-earning assets increased $31.6 million to $471.3 million for the nine
months ended December 31, 2004 from $439.7 million for the same period in 2003.
The yield on interest-earning assets was 6.27% for the nine months ended
December 31, 2004 compared to 6.24% for the nine months ended December 31, 2003.
The increased yield reflects the mixture of interest rate changes experienced
during this period in the prime rate and other indexes used to price existing
variable rate loans and new fixed and adjustable loan originations.
Interest Expense. Interest expense was $5.3 million and $5.1 million for the
nine months ended December 31, 2004 and 2003, respectively. Average
interest-bearing liabilities increased $26.1 million to $383.7 million for the
nine months ended December 31, 2004 from $357.6 million for the same prior year
period. The lack of change in interest expense reflects the fact that lower
rates of interest paid on deposits were offset by the increased balance of
deposits when comparing average balances at December 31, 2004 and December 31,
2003. The weighted average interest rate on total deposits decreased to 1.45%
for the nine months ended December 31, 2004 from 1.49% for the same period in
the prior year. The weighted average interest rate of FHLB borrowings increased
to 4.96% for the nine months December 31, 2004 from 4.95% for same period in the
prior year. The level of liquidity in the first nine months of fiscal year 2005
reflects the runoff of $10.1 million of high interest rate wholesale deposits
acquired in the acquisition of Today's Bancorp and stabilized the FHLB
borrowings at $40.0 million.
27
The following table sets forth, for the periods indicated, information regarding
average balances of assets and liabilities as well as the total dollar amounts
of interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities, resultant yields, interest rate spread,
ratio of interest-earning assets to interest-bearing liabilities and net
interest margin.
Nine Months Ended December 31,
-------------------------------------------------
2004 2003
----------------------- -----------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ----- ------- --------- -----
(Dollars in thousands)
Interest-earning assets:
Residential mortgage loans $125,510 $ 7,165 7.58% $148,577 $ 8,620 7.70%
Commercial and consumer
loans 266,072 13,341 6.66 200,580 10,449 6.91
------- --------- ----- ------- --------- -----
Total net loans (1) 391,582 20,506 6.95 349,157 19,069 7.25
Mortgage-backed securities(2) 15,981 482 4.00 13,062 478 4.86
Investment securities(2)(3) 31,824 837 3.49 26,266 606 3.06
Daily interest-bearing assets 25,866 316 1.62 45,413 326 0.95
Other earning assets 6,077 117 2.56 5,804 182 4.16
Total interest-earning ------- --------- ----- ------- --------- -----
assets 471,330 22,258 6.27 439,702 20,661 6.24
Non-interest-earning assets:
Office properties and
equipment, net 8,895 10,072
Other non-interest-earning
assets 41,373 30,237
------- -------
Total assets $521,598 $480,011
======= =======
Interest-bearing liabilities:
Regular savings accounts $ 31,683 131 0.55 $ 27,150 124 0.61
NOW accounts 101,725 613 0.80 94,926 636 0.89
Money market accounts 73,684 593 1.07 64,770 443 0.91
Certificates of deposit 136,247 2,404 2.34 130,789 2,361 2.40
------- --------- ----- ------- --------- -----
Total deposits 343,339 3,741 1.45 317,635 3,564 1.49
Other interest-bearing
liabilities 40,364 1,509 4.96 40,000 1,491 4.95
Total interest-bearing ------- --------- ----- ------- --------- -----
liabilities 383,703 5,250 1.82 357,635 5,055 1.88
Non-interest-bearing liabilities:
Non-interest-bearing deposits 64,144 58,307
Other liabilities 6,056 3,439
------- -------
Total liabilities 453,903 419,381
Shareholders' equity 67,695 60,630
Total liabilities and ------- -------
shareholders' equity $521,598 $480,011
======== ========
Net interest income $17,008 $15,606
======= =======
Interest rate spread 4.45% 4.36%
==== ====
Net interest margin 4.79% 4.71%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 122.84% 122.95%
====== ======
Tax Equivalent Adjustment $ 139 $ 112
======= =======
(1) Includes non-accrual loans.
(2) For purposes of the computation of average yield on investments available
for sale, historical cost balances were utilized, therefore, the yield
information does not give effect to change in fair value that are reflected
as a component of shareholders' equity.
(3) Includes tax equivalent adjustment in interest income.
28
The following table sets forth the effects of changing rates and volumes on net
interest income of the Company for the nine months ending December 31, 2004.
Variances that were immaterial have been allocated based upon the percentage
relationship of changes in volume and changes in rate to the total net change.
Nine Months Ended December 31,
-------------------------------
2004 vs 2003
-------------------------------
Increase (Decrease)
Due to Total
------------------ Increase
Volume Rate (Decrease)
-------- ------ --------
(In thousands)
Interest Income:
Residential mortgage loans $ (1,319) $ (136) $ (1,455)
Commercial and consumer loans 3,297 (405) 2,892
Mortgage-backed securities 96 (92) 4
Investment securities (1) 139 92 231
Daily interest-bearing (178) 168 (10)
Other earning assets 9 (74) (65)
-------- ------ --------
Total interest income 2,044 (447) 1,597
-------- ------ --------
Interest Expense:
Regular savings accounts 20 (13) 7
NOW accounts 44 (67) (23)
Money market accounts 66 84 150
Certificates of deposit 98 (55) 43
Other interest-bearing liabilities 14 4 18
-------- ------ --------
Total interest expense 242 (47) 195
-------- ------ --------
Net interest income (1) $ 1,802 $ (400) $ 1,402
======== ====== ========
(1) Taxable equivalent
Provision for Loan Losses. The provision for loan losses for the nine-month
period ended December 31, 2004 was $260,000, compared to $70,000 for the same
period in the prior year. Net charge-offs for the current period were $350,000,
compared to $524,000 for the same period of last year. The ratio of allowance
for loan losses to total net loans decreased to 1.09% from 1.29% at December 31,
2003. The acquisition of Today's Bancorp in July 2003 added $2.6 million to the
allowance for loan losses. Net charge-offs to average net loans for the
nine-month period ended December 31, 2004 decreased to 0.12% from 0.20% for the
same period in the prior year. During the nine months ended December 31, 2004,
management evaluated known and inherent risks in the loan portfolio. Management
considered the allowance for loan losses at December 31, 2004 to be adequate to
cover probable losses inherent in the loan portfolio based on the assessment of
various factors affecting the loan portfolio.
Non-Interest Income. Non-interest income decreased $423,000 or 8.3% for the
nine months ended December 31, 2004 to $4.7 million from $5.1 million for the
nine months ended December 31, 2003. The decrease reflects the pre-tax
other-than-temporary non-cash charges of $699,000 for Freddie Mac preferred
stock and $650,000 for Fannie Mae preferred stock taken during the third fiscal
quarter of 2005. This decrease was partially offset by the pre-tax gain on the
sale and leaseback of the Camas branch and operations center of $828,000 during
the first fiscal quarter of 2005 and the increase in the cash surrender value of
bank-owned life insurance of $400,000. The bank-owned life insurance was
purchased in December 2003. This increase was partially offset by the reduction
in residential loan refinance activity in the nine months ended December 31,
2004 compared to the same period in the prior year as reflected in the reduced
gain on sale of loans held for sale.
Reduced mortgage refinance activity resulted in gains on the sale of loans
decreasing $380,000 for the nine months ended December 31, 2004 to $409,000 from
$789,000 for the same prior year period. The decrease in loan servicing income
of $104,000 for the same period also reflects the decrease in mortgage
refinancing activity. Loan servicing income for the nine months ended December
31, 2004 includes a $22,000 write-up to the market value of mortgage servicing
rights as compared to a $304,000 write-up in market value of mortgage servicing
rights for the same prior year period. For the same periods, loan servicing
income also included amortization of mortgage servicing rights of
29
$225,000 and $431,000, respectively. The decrease in amortization is due to the
reduction of early payoffs of loans sold with servicing retained. Asset
management services income was $815,000 for the nine months ended December 31,
2004, compared to $666,000 for the nine months ended December 31, 2003.
RAMCorp. had $164.7 million in total assets under management at December 31,
2004, compared to $138.1 million at December 31, 2003.
Non-Interest Expense. Non-interest expense increased $1.1 million, or 8.5%, to
$14.2 million for the nine month period ended December 31, 2004, compared to
$13.1 million for the nine months ended December 31, 2003. The Company's
efficiency ratio excluding intangible asset amortization and lower cost or
market adjustments was 64.61% for the nine months ended December 31, 2004,
compared to 61.78% for the same period in the prior year. Excluding the net of
intangible amortization and impairment charge, the efficiency ratio for the
current nine months was 60.83%.
The principal component of the Company's non-interest expense is salaries and
employee benefits. For the nine months ended December 31, 2004, salaries and
employee benefits, which include mortgage broker commission compensation, was
$8.0 million, a 9.6% increase over the nine months ended December 31, 2003 total
of $7.3 million. Full-time equivalent employees increased to 195 at December 31,
2004 from 181 at December 31, 2003. The majority of the increase in full-time
equivalent employees is due to additional branch personnel. The July 2003,
acquisition of Today's Bancorp contributed to increases in occupancy,
depreciation, data processing, telecommunication and other expense.
The acquisition of Today's Bancorp and the related acquisition of $105.1 million
in deposits accounts created an $820,000 core deposit intangible ("CDI"),
representing the excess of cost over fair market of acquired deposits. The CDI
is being amortized over a ten-year life using an accelerated amortization
method. The amortization expense was $105,000 for the nine months ended December
31, 2004 and $64,000 for the like period a year ago.
The acquisition of the Hazel Dell and Longview branches from the Resolution
Trust Corporation in fiscal 1995 and the related acquisition of $42.0 million in
customer deposits created a $3.2 million CDI. The amortization expense was
$42,000 for the nine months ended December 31, 2004 compared to $245,000 for the
prior year period. As of June 30, 2004, this CDI was fully amortized.
Other non-interest expense was $1.3 million, or a 26.8% increase over the nine
months ended December 31, 2003 total of $1.0 million. The majority of the
increase over the prior period was due to the termination of a former Today's
Bancorp branch operating lease. A loss of $107,000 was incurred to write off
the remaining net book value of the leasehold improvements of the branch.
Provision for Federal Income Taxes. Provision for federal income taxes was $2.2
million for the nine months ended December 31, 2004, compared to $2.5 million
for the nine months ended December 31, 2003 as a result of higher income before
taxes. The effective tax rate for nine months ended December 31, 2004 was 31.4%
compared to 33.2% for the nine months ended December 31, 2003. The effective
tax rate declined from the prior quarter, reflecting the impact of the purchase
of bank-owned life insurance and additional investments in municipal securities.
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 analyses 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 year ended March 31, 2004.
30
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 Rule 13a-15(e)
or 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.
31
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a
material adverse effect, if any, on the Company's financial position,
results of operations, or liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
The following table summarizes the Company's share repurchases for the
quarter ended December 31, 2004.
Total Number of Maximum Number
Shares Purchased of Shares that
Average as Part of May Yet Be
Total Number of Price Paid Publicly Announced Purchased Under
Period Shares Purchased per Share Program the Program(1)
10/01/04-10/31/04 - $ - - 133,204
11/1/31-11/30/04 - - - 133,204
12/1/04-12/31/04 - - - 133,204
---------- -------- ------- -------
Total - $ - - 133,204
========== ======== ======= =======
(1) In September 2002, the Company announced a stock repurchase of up
to 5%, or 214,000 shares of its outstanding common stock. This
program expires when all shares under the plan have been
repurchased.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits
--------
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 Karen Nelson(2)
10.4 Severance Agreement with John A. Karas(3)
10.5 Employee Severance Compensation Plan(2)
32
10.6 Employee Stock Ownership Plan(4)
10.7 Management Recognition and Development Plan(5)
10.8 1998 Stock Option Plan(5)
10.9 1993 Stock Option and Incentive Plan(5)
10.10 2003 Stock Option Plan (6)
31.1 Certifications of the Chief Executive 0fficer Pursuant to Section
302 of the Sarbanes-Oxley Act
31.2 Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act
32 Certification of the Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
_____________
(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 December 31, 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 Annual Report on 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.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIVERVIEW BANCORP, INC.
By: /s/ Patrick Sheaffer By: /s/ Ron Dobyns
-------------------- ---------------
Patrick Sheaffer Ron Dobyns
Chairman of the Board Senior Vice President
Chief Executive Officer (Chief Financial and Accounting
(Principal Executive Officer) Officer)
Date: February 8, 2005 Date: February 8, 2005
34
Exhibit 31.1
- ------------
Section 302 Certification
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 quarterly 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 change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fiscal fourth quarter
in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, 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 registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness 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 data 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: February 8, 2005 /s/Patrick Sheaffer
---------------------
Patrick Sheaffer
Chairman and Chief Executive Officer
35
Exhibit 31.2
- ------------
Section 302 Certification
I, Ron Dobyns, 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 quarterly 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 change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fiscal fourth quarter
in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, 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 registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness 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 data 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: February 8, 2005 /s/Ron Dobyns
---------------
Ron Dobyns
Chief Financial Officer
36
Exhibit 32
----------
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/ Ron Dobyns
-------------------- ---------------
Patrick Sheaffer Ron Dobyns
Chief Executive Officer Chief Financial Officer
Dated: February 8, 2005
37