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 September 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-22957
RIVERVIEW BANCORP, INC.
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(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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. Check one:
Large accelerated filer ( ) Accelerated filer (X) Non-accelerated filer ( )
Indicate by check mark whether the registrant is a shell corporation (as
defined in Exchange Act Rule 12b-2). Yes No X
----- -----
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, 11,575,472 shares outstanding as of October 31, 2006.
Form 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
--------------------- ------
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 2006 and March 31, 2006 1
Consolidated Statements of Income
Three Months and Six Months Ended September 30, 2006 and 2005 2
Consolidated Statements of Shareholders' Equity
Six Months Ended September 30, 2006 and Year Ended March 31,
2006 3
Consolidated Statements of Comprehensive Income
Six Months Ended September 30, 2006 and 2005 4
Consolidated Statements of Cash Flows
Six Months Ended September 30, 2006 and 2005 5
Notes to Consolidated Financial Statements 6-16
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-30
Item 3: Quantitative and Qualitative Disclosures About Market Risk 30
Item 4: Controls and Procedures 30-31
Part II. Other Information 32-33
-----------------
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sale of Equity Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits
SIGNATURES 34
Certifications
Exhibit 31.1
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Exhibit 31.2
------------
Exhibit 32
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND MARCH 31, 2006
(In thousands, except share and per SEPTEMBER 30, MARCH 31,
share data) (Unaudited) 2006 2006
------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$15,198 and $7,786) $ 43,453 $ 31,346
Loans held for sale 197 65
Investment securities available for sale, at fair
value (amortized cost of $23,017 and $24,139) 22,963 24,022
Mortgage-backed securities held to maturity, at
amortized cost (fair value of $1,495 and $1,830) 1,477 1,805
Mortgage-backed securities available for sale, at
fair value (amortized cost of $7,608 and $8,436) 7,404 8,134
Loans receivable (net of allowance for loan losses
of $8,263 and $7,221) 690,650 623,016
Prepaid expenses and other assets 2,021 2,210
Accrued interest receivable 4,117 3,058
Federal Home Loan Bank stock, at cost 7,350 7,350
Premises and equipment, net 21,011 19,127
Deferred income taxes, net 3,716 3,771
Mortgage servicing intangible, net 368 384
Goodwill 25,572 25,572
Core deposit intangible, net 799 895
Bank owned life insurance 13,349 13,092
-------- --------
TOTAL ASSETS $844,447 $763,847
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits accounts $640,404 $606,964
Accrued expenses and other liabilities 7,921 8,768
Advanced payments by borrowers for
taxes and insurance 377 358
Federal Home Loan Bank advances 90,000 46,100
Junior subordinated debenture 7,217 7,217
Capital lease obligations 2,737 2,753
-------- --------
Total liabilities 748,656 672,160
COMMITMENTS AND CONTINGENCIES (See Note 15) - -
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:
September 30, 2006 - 11,575,480 issued,
11,575,472 outstanding 116 57
March 31, 2006 - 11,545,380 issued,
11,545,372 outstanding
Additional paid-in capital 57,794 57,316
Retained earnings 39,134 35,776
Unearned shares issued to employee stock
ownership trust (1,083) (1,186)
Accumulated other comprehensive loss (170) (276)
-------- --------
Total shareholders' equity 95,791 91,687
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $844,447 $763,847
======== ========
See notes to consolidated financial statements.
1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
(In thousands, except share September 30, September 30,
and per share data) (Unaudited) 2006 2005 2006 2005
------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans
receivable $ 14,834 $ 11,010 $ 28,603 $ 20,607
Interest on investment
securities - taxable 221 195 442 381
Interest on investment
securities - non-taxable 42 43 84 86
Interest on mortgage-backed
securities 109 138 223 283
Other interest and dividends 96 250 148 504
---------- ---------- ---------- ----------
Total interest income 15,302 11,636 29,500 21,861
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 4,908 3,059 9,130 5,530
Interest on borrowings 1,267 482 2,230 1,138
---------- ---------- ---------- ----------
Total interest expense 6,175 3,541 11,360 6,668
---------- ---------- ---------- ----------
Net interest income 9,127 8,095 18,140 15,193
Less provision for loan losses 600 450 950 900
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 8,527 7,645 17,190 14,293
---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Fees and service charges 1,449 1,598 2,780 3,084
Asset management fees 455 342 891 706
Gain on sale of loans held
for sale 111 77 183 203
Gain on sale of real estate owned - - - 21
Loan servicing income (expense) 36 (8) 81 19
Gain on sale of credit card
portfolio 66 304 133 304
Bank owned life insurance 129 122 257 242
Other 45 47 81 90
---------- ---------- ---------- ----------
Total non-interest income 2,291 2,482 4,406 4,669
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,532 3,441 7,367 6,840
Occupancy and depreciation 1,135 883 2,209 1,686
Data processing 222 373 557 738
Amortization of core deposit
intangible 46 55 96 104
Advertising and marketing expense 356 306 658 537
Federal Deposit Insurance
Corporation insurance premium 13 17 37 32
State and local taxes 133 148 288 283
Telecommunications 101 99 213 162
Professional fees 198 388 376 752
Other 536 551 1,240 1,223
---------- ---------- ---------- ----------
Total non-interest expense 6,272 6,261 13,041 12,357
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,546 3,866 8,555 6,605
PROVISION FOR INCOME TAXES 1,573 1,304 2,951 2,222
---------- ---------- ---------- ----------
NET INCOME $ 2,973 $ 2,562 $ 5,604 $ 4,383
========== ========== ========== ==========
Earnings per common share:
Basic $ 0.26 $ 0.23 $ 0.50 $ 0.39
Diluted 0.26 0.22 0.49 0.39
Weighted average number of
shares outstanding:
Basic 11,302,927 11,309,322 11,289,143 11,107,745
Diluted 11,473,750 11,443,810 11,463,125 11,242,686
Cash Dividends Per Share $ 0.10 $ 0.085 $ 0.195 $ 0.170
See notes to consolidated financial statements.
2
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2006
AND THE SIX MONTHS ENDED SEPTEMBER 30, 2006
Unearned
Shares Accum-
Issued to ulated
Employee Other
Common Addi- Stock Compre-
Stock tional Owner- hensive
(In thousands, except ---------------- Paid-in Retained ship Income
share data) Shares Amount Capital Earnings Trust (Loss) Total
---------------------------------------------------------------------------------------------------------
Balance April 1, 2005 10,031,498 $ 50 $41,112 $29,874 $(1,392) $(122) $69,522
Cash dividends ($0.17
per share) - - - (3,836) - - (3,836)
Exercise of stock options 37,144 - 314 - - - 314
Stock repurchased and
retired (100,000) - (1,227) - - - (1,227)
Stock issued in connection
with acquisition 1,576,730 7 16,706 - - - 16,713
Earned ESOP shares - - 352 - 206 - 558
Tax benefit, stock option - - 59 - - - 59
---------- ---- ------- ------- ------- ----- -------
11,545,372 57 57,316 26,038 (1,186) (122) 82,103
Comprehensive income:
Net income - - - 9,738 - - 9,738
Other comprehensive income:
Unrealized holding loss
on securities of $154
(net of $79 tax effect) - - - - - (154) (154)
-------
Total comprehensive income - - - - - - 9,584
---------- ---- ------- ------- ------- ----- -------
Balance March 31, 2006 11,545,372 $ 57 $57,316 $35,776 $(1,186) $(276) $91,687
========== ==== ======= ======= ======= ===== =======
Stock split - 58 - (58) - - -
Cash dividends ($0.195
per share) - - - (2,188) - - (2,188)
Exercise of stock options 30,100 1 260 - - - 261
Earned ESOP shares - - 218 - 103 - 321
---------- ---- ------- ------- ------- ----- -------
11,575,472 116 57,794 33,530 (1,083) (276) 90,081
Comprehensive income:
Net income - - - 5,604 - - 5,604
Other comprehensive income:
Unrealized holding gain on
securities of $106 (net
of $55 tax effect) - - - - - 106 106
-------
Total comprehensive income - - - - - - 5,710
---------- ---- ------- ------- ------- ----- -------
Balance September 30, 2006 11,575,472 $116 $57,794 $39,134 $(1,083) $(170) $95,791
========== ==== ======= ======= ======= ===== =======
See notes to consolidated financial statements.
3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Six Months
(In thousands) (Unaudited) Ended September 30, Ended September 30,
------------------------------------------------------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Net income $2,973 $2,562 5,604 $4,383
Other comprehensive income:
Change in fair value of
securities available for sale,
net of tax 162 (53) 106 21
------ ------ ------ ------
Total comprehensive income $3,135 $2,509 $5,710 $4,404
====== ====== ====== ======
See notes to consolidated financial statements.
4
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS Ended SEPTEMBER 30, 2006 and 2005
(In thousands) (Unaudited) 2006 2005
------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,604 $ 4,383
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,121 855
Mortgage servicing rights valuation adjustment (13) (11)
Provision for loan losses 950 900
Provision for deferred income taxes - 142
Noncash expense related to ESOP 321 263
Increase in deferred loan origination fees, net
of amortization 52 335
Origination of loans held for sale (8,077) (9,160)
Proceeds from sales of loans held for sale 7,961 9,704
Net gain on loans held for sale, sale of real
estate owned, mortgage-backed securities, investment
securities and premises and equipment (176) (206)
Income from bank owned life insurance (257) (242)
Changes in assets and liabilities:
Prepaid expenses and other assets 24 (412)
Accrued interest receivable (1,059) (121)
Accrued expenses and other liabilities (953) 1,647
--------- ---------
Net cash provided by operating activities 5,498 8,077
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (283,589) (314,354)
Principal repayments/refinance on loans 215,072 282,789
Proceeds from call, maturity, or sale of investment
securities available for sale 1,110 5,250
Principal repayments on investment securities
available for sale 37 37
Purchase of investment securities available for sale - (4,996)
Principal repayments on mortgage-backed securities
available for sale 828 1,709
Principal repayments on mortgage-backed securities
held to maturity 327 141
Purchase of premises and equipment (2,755) (1,954)
Acquisition, net of cash received - (14,663)
Proceeds from sale of real estate owned and premises
and equipment 2 273
--------- ---------
Net cash used in investing activities (68,968) (45,768)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 33,440 63,047
Dividends paid (2,026) (1,709)
Proceeds from borrowings 186,300 -
Repayment of borrowings (142,400) (29,000)
Principal payments under capital lease obligation (16) -
Net increase in advance payments by borrowers 19 12
Proceeds from exercise of stock options 260 108
--------- ---------
Net cash provided by financing activities 75,577 32,458
--------- ---------
NET INCREASE (DECREASE) IN CASH 12,107 (5,233)
CASH, BEGINNING OF PERIOD 31,346 61,719
--------- ---------
CASH, END OF PERIOD $ 43,453 $ 56,486
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 10,733 $ 6,548
Income taxes 3,491 1,704
SUPPLEMENTAL DISCLOSURE OF BANK ACQUISITION
Issuance of common stock - (16,713)
Investments acquired - 1,417
Fair value of loans receivable acquired - 119,536
Other assets acquired - 3,372
Deposits assumed - (79,755)
Borrowings and other liabilities assumed - (30,334)
Goodwill - 17,140
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared and accrued in other
liabilities $ 1,118 $ 958
Fair value adjustment to securities available
for sale 161 32
Increased construction in process in accounts
payable - 937
Income tax effect related to fair value adjustment (55) (11)
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. 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, 2006 ("2006 Form
10-K"). The results of operations for the six months ended September 30, 2006
are not necessarily indicative of the results which may be expected for the
fiscal year ending March 31, 2007. 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.
On August 24, 2006 the Riverview Bancorp. Inc. common stock was split 2-for-1
in the form of a 100% stock dividend. Shareholders received one additional
share for every share owned. The Board of Directors ("Board") declared the
stock split on July 27, 2006 and the record date was August 10, 2006. All
share and per share amounts (including stock options) in the Consolidated
Financial Statements and accompanying notes were restated to reflect the
split.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Riverview Bancorp, Inc. and its
wholly-owned subsidiary (the "Company")[Not sure I understand distinction
between Company and Bancorp) include all the accounts of the parent company,
Riverview Bancorp, Inc. ("Bancorp") 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 PLANS AND STOCK-BASED COMPENSATION
In July 1998, shareholders of the Company approved the adoption of the 1998
Stock Option Plan ("1998 Plan"). The 1998 Plan was effective October 1, 1998
and will expire on the tenth anniversary of the effective date, unless
terminated sooner by the Board. Under the 1998 Plan, the Company may grant
both incentive and non-qualified stock options up to 714,150 shares of its
common stock to officers, directors and employees. The exercise price of each
option granted under the 1998 Plan equals the fair market value of the
Company's stock on the date of the grant with a maximum term of ten years from
date of grant and options vest zero to five years. At September 30, 2006,
there were options for 36,962 shares available for the grant under the 1998
Plan.
In July 2003, shareholders of the Company approved the adoption of the 2003
Stock Option Plan ("2003 Plan"). The 2003 Plan was effective July 2003 and
will expire on the tenth anniversary of the effective date, unless terminated
sooner by the Board. Under the 2003 Plan, the Company may grant both incentive
and non-qualified stock options up to 458,554 shares of its common stock to
officers, directors and employees. The exercise price of each option granted
under the 2003 Plan equals the fair market value of the Company's stock on the
date of grant with a maximum term of ten years from date of grant and options
vest over zero to five years. At September 30, 2006, there were options for
144,554 shares available for grant under the 2003 Plan.
On March 15, 2006, 314,000 stock options from the 2003 Plan were granted to
officers and directors. Each option was granted at the fair market value of
the Company's stock on the date of grant with a maximum term of 10 years from
date of grant and were fully vested at grant date.
All stock options have an exercise price that is equal to the fair market
value of Company's stock on the date the options were granted. Options granted
under the 2003 Plan generally vest over a zero to five year vesting period.
Stock options granted have a 10-year maximum term. Options previously issued
under the 1998 Plan are fully vested.
6
The following table presents information on stock options outstanding for
the periods shown.
Six Months Ended Year Ended
September 30, 2006 March 31, 2006
----------------------------------------------------------
Number of Weighted Average Number of Weighted Average
Shares Exercise Price Shares Exercise Price
--------- ---------------- --------- ----------------
Balance, beginning
of period 755,846 $ 9.68 454,990 $ 7.18
Grants - - 354,000 12.70
Options Exercised (30,100) 7.90 (53,144) 8.48
Forfeited (14,000) 10.05 - -
------- -------
Balance, end of
period 711,746 $ 9.74 755,846 $ 9.68
The following table presents information on stock options outstanding for the
periods shown, less estimated forfeitures.
Six Months Ended Year Ended
September 30, 2006 March 31, 2006
--------------------------------------------
Intrinsic value of options
exercised in the period $158,350 $159,070
Stock options fully vested and
expected to vest:
Number 707,666 748,166
Weighted average exercise price $9.74 $9.67
Aggregate intrinsic value $2,654,666 $2,774,511
Weighted average contractual
term of options 6.51 years 7.25 years
Stock options vested and currently
exercisable
Number 675,546 690,886
Weighted average exercise price $9.73 $9.64
Aggregate intrinsic value $2,542,501 $2,584,305
Weighted average contractual
term of options 6.15 years 6.52 years
Effective April 1, 2006 the Company began recognizing compensation expense for
stock options with the adoption of Statement of Financial Accounting Standards
("SFAS") No. 123 (Revised), "Share-Based Payment," ("SFAS 123R"), using the
modified prospective method. The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes based stock option
valuation model. The fair value of all awards was amortized on a straight-line
basis over the requisite service periods, which are generally the vesting
periods. The Black-Scholes model uses the assumptions listed in the table
below. The expected life of options granted represents the period of time that
they are expected to be outstanding. The expected life is determined based on
historical experience with similar options, giving consideration to the
contractual terms and vesting schedules. Expected volatility was estimated at
the date of grant based on the historical volatility of the Company's stock.
Expected dividends are based on dividend trends and the market value of the
Company's stock at the time of grant. The risk-free interest rate for periods
within the contractual life of the options is based on the U.S Treasury yield
curve in effect at the time of the grant. There were no options granted
during the six months ended September 30, 2006.
Risk Free Expected Expected Expected
Interest Rate Life (years) Volatility Dividends
------------- ------------ ---------- ---------
Fiscal 2006 4.67% 10.00 26.32% 3.07%
7
For the quarter ended September 30, 2006, the Company recognized pre-tax
compensation expense related to stock options of approximately $11,000. For
the six months ended September 30, 2006, the Company recognized pre-tax
compensation expense related to stock options of approximately $21,000. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions established in
SFAS 123R to stock-based compensation awards in the prior period.
Three months ended Six months ended
September 30, 2005 September 30, 2005
------------------ ------------------
Net Income:
As reported $2,562 $4,383
Deduct: Total stock based compensation
expense determined under fair value
based method for all options, net of
related tax benefit (17) (105)
------ ------
Pro forma $2,545 $4,278
====== ======
Earnings per common share - basic:
As reported $ 0.23 $ 0.39
Pro forma 0.23 0.39
Earnings per common share-fully diluted:
As reported $ 0.22 $ 0.39
Pro forma 0.22 0.38
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 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. Employee Stock Ownership Plan ("ESOP") shares are not
considered outstanding for earnings per share purposes until they are
committed to be released.
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Basic EPS computation:
Numerator-net income $ 2,973,000 $ 2,562,000 $ 5,604,000 $ 4,383,000
Denominator-weighted
average common shares
outstanding 11,302,927 11,309,322 11,289,143 11,107,745
Basic EPS $ 0.26 $ 0.23 $ 0.50 $ 0.39
=========== =========== =========== ===========
Diluted EPS computation:
Numerator-net income $ 2,973,000 $ 2,562,000 $ 5,604,000 $ 4,383,000
Denominator-weighted
average common shares
outstanding 11,302,927 11,309,322 11,289,143 11,107,745
Effect of dilutive stock
options 170,823 134,488 173,982 134,941
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents 11,473,750 11,443,810 11,463,125 11,242,686
Diluted EPS $ 0.26 $ 0.22 $ 0.49 $ 0.39
=========== =========== =========== ===========
8
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
--------- ---------- ---------- ---------
September 30, 2006
------------------
Trust Preferred $ 5,000 $ 38 $ - $ 5,038
Agency securities 14,163 - (137) 14,026
Municipal bonds 3,854 45 - 3,899
------- ---- ----- -------
Total $23,017 $ 83 $(137) $22,963
======= ==== ===== =======
March 31, 2006
--------------
Trust Preferred $ 5,000 $ 44 $ - $ 5,044
Agency securities 15,246 - (218) 15,028
Municipal bonds 3,893 57 - 3,950
------- ---- ----- -------
Total $24,139 $101 $(218) $24,022
======= ==== ===== =======
The contractual maturities of investment securities available for sale are as
follows (in thousands):
Amortized Estimated
September 30, 2006 Cost Fair Value
--------- ----------
Due in one year or less $14,207 $14,073
Due after one year through five years 1,888 1,908
Due after five years through ten years 274 284
Due after ten years 6,648 6,698
------- -------
Total $23,017 $22,963
======= =======
Investment securities with an amortized cost of $9.1 million and $10.2 million
and a fair value of $9.0 million and $10.1 million at September 30, 2006 and
March 31, 2006, respectively, were pledged as collateral for advances at the
Federal Home Loan Bank ("FHLB") of Seattle. Investment securities with an
amortized cost of $1.1 million and $1.1 million and a fair value of $1.2
million and $1.2 million at September 30, 2006 and March 31, 2006,
respectively, were pledged as collateral for treasury tax and loan funds held
by the Bank. Investment securities with an amortized cost of $492,000 and
$495,000 and a fair value of $499,000 and $504,000 at September 30, 2006 and
March 31, 2006, respectively, were pledged as collateral for governmental
public funds held by the Bank. Investment securities with an amortized cost of
$5.0 million and $5.0 million and a fair value of $5.0 million and $5.0
million at September 30, 2006 and March 31, 2006, respectively, were pledged
as collateral for borrowings from the discount window at the Federal Reserve
Bank of San Francisco.
The fair value of temporarily impaired securities, the amount of unrealized
losses and the length of time these unrealized losses existed as of September
30, 2006 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
----- ------ ----- ------ ----- ------
Agency securities $ - $ - $14,026 $(137) $14,026 $(137)
The fair value of temporarily impaired securities, the amount of unrealized
losses and the length of time these unrealized losses existed as of March 31,
2006 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
----- ------ ----- ------ ----- ------
Agency securities $6,124 $(61) $8,904 $(157) $15,028 $(218)
The Company has evaluated these securities and has determined that the decline
in the value is temporary. The decline in value is not related to any company
or industry specific event. The Company anticipates full recovery of amortized
cost with respect to these securities at maturity or sooner 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
six-month periods ended September 30, 2006 and 2005.
9
6. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2006
------------------
Real estate mortgage
investment conduits $1,149 $12 $ - $1,161
FHLMC mortgage-backed
securities 124 1 - 125
FNMA mortgage-backed
securities 204 5 - 209
------ --- ----- ------
Total $1,477 $18 $ - $1,495
====== === ===== ======
March 31, 2006
--------------
Real estate mortgage
investment conduits $1,402 $18 $ - $1,420
FHLMC mortgage-backed
securities 138 2 - 140
FNMA mortgage-backed
securities 265 5 - 270
------ --- ----- ------
Total $1,805 $25 $ - $1,830
====== === ===== ======
The contractual maturities of mortgage-backed securities classified as held to
maturity are as follows (in thousands):
Amortized Estimated
September 30, 2006 Cost Fair Value
------------------ --------- ----------
Due after one year or less $ - $ -
Due after one year through five years - -
Due after five years through ten years 23 23
Due after ten years 1,454 1,472
------ ------
Total $1,477 $1,495
====== ======
Mortgage-backed securities held to maturity with an amortized cost of $1.2
million and $1.4 million and a fair value of $1.2 million and $1.4 million at
September 30, 2006 and March 31, 2006, respectively, were pledged as
collateral for governmental public funds held by the Bank. Mortgage-backed
securities held to maturity with an amortized cost of $145,000 and $199,000
and a fair value of $148,000 and $203,000 at September 30, 2006 and March 31,
2006, respectively, were pledged as collateral for treasury tax and loan funds
held by the Bank. The real estate mortgage investment conduits consist of
Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") and Federal
National Mortgage Association ("FNMA" or "Fannie Mae") securities.
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
September 30, 2006 Cost Gains Losses Value
------------------ --------- ---------- ---------- ---------
Real estate mortgage
investment conduits $1,188 $18 $ (5) $1,201
FHLMC mortgage-backed
securities 6,288 - (218) 6,070
FNMA mortgage-backed
securities 132 2 (1) 133
------ --- ----- ------
Total $7,608 $20 $(224) $7,404
====== === ===== ======
March 31, 2006
--------------
Real estate mortgage
investment conduits $1,326 $19 $ (6) $1,339
FHLMC mortgage-backed
securities 6,951 - (316) 6,635
FNMA mortgage-backed
securities 159 2 (1) 160
------ --- ----- ------
Total $8,436 $21 $(323) $8,134
====== === ===== ======
The contractual maturities of mortgage-backed securities available for sale
are as follows (in thousands):
Amortized Estimated
September 30, 2006 Cost Fair Value
------------------ --------- ----------
Due after one year or less $ 97 $ 97
Due after one year through five years 77 78
Due after five years through ten years 6,758 6,535
Due after ten years 676 694
------ ------
Total $7,608 $7,404
====== ======
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.
10
Mortgage-backed securities available for sale with an amortized cost of $7.5
million and $8.3 million and a fair value of $7.3 million and $8.0 million at
September 30, 2006 and March 31, 2006, respectively, were pledged as
collateral for FHLB advances. Mortgage-backed securities available for sale
with an amortized cost of $6,000 and $17,000 and a fair value of $6,000 and
$18,000 at September 30, 2006 and March 31, 2006, respectively, were pledged
as collateral for treasury tax and loan funds held by the Bank.
The fair value of temporarily impaired securities, the amount of unrealized
losses and the length of time these unrealized losses existed as of September
30, 2006 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
----- ------ ----- ------ ----- ------
Real estate mortgage
investment conduits $ - $ - $ 461 $ (5) $ 461 $ (5)
FHLMC mortgage-backed
securities 91 (1) 5,979 (217) 6,070 (218)
FNMA mortgage-backed
securities 23 (1) - - 23 (1)
---- --- ------ ----- ------ -----
Total temporarily
impaired
securities $114 $(2) $6,440 $(222) $6,554 $(224)
==== === ====== ===== ====== =====
The fair value of temporarily impaired mortgage-backed securities, the amount
of unrealized losses and the length of time these unrealized losses existed as
of March 31, 2006 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
----- ------ ----- ------ ----- ------
Real estate mortgage
investment conduits $523 $(6) $ - $ - $ 523 $ (6)
FHLMC mortgage-backed
securities 66 (1) 6,543 (315) 6,609 (316)
FNMA mortgage-backed
securities 17 (1) - - 17 (1)
---- --- ------ ----- ------ -----
Total temporarily
impaired
securities $606 $(8) $6,543 $(315) $7,149 $(323)
==== === ====== ===== ====== =====
The Company has evaluated these securities and has determined that the decline
in the value is temporary. The decline in value is not related to any company
or industry specific event. The Company anticipates full recovery of amortized
cost with respect to these securities at maturity or sooner 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
six months ended September 30, 2006 and 2005.
7. LOANS RECEIVABLE
Loans receivable excluding loans held for sale consisted of the following (in
thousands):
September 30, March 31,
2006 2006
------------ --------
Residential:
One-to-four family $ 34,552 $ 32,488
Multi-family 3,219 2,157
Construction:
One-to-four family 91,051 81,572
Commercial real estate 51,510 47,079
Commercial 66,008 59,834
Consumer:
Secured 31,484 29,781
Unsecured 1,141 1,415
Land 62,989 49,558
Commercial real estate 361,244 330,705
-------- --------
703,198 634,589
Less:
Deferred loan fees, net 4,285 4,352
Allowance for loan losses 8,263 7,221
-------- --------
Loans receivable, net $690,650 $623,016
======== ========
11
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
(loss). As of September 30, 2006 and March 31, 2006, the Bank had no loans to
one borrower in excess of the regulatory limit and also had no individual
industry concentrations of credit.
8. ALLOWANCE FOR LOAN LOSSES
A reconciliation of the allowance for loan losses is as follows (in
thousands):
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Beginning balance $7,626 $6,526 $7,221 $4,395
Provision for losses 600 450 950 900
Charge-offs - (253) (3) (511)
Recoveries 37 29 95 80
Allowance transferred from APB
acquisition - - - 1,888
------ ------ ------ ------
Total allowance for loan losses 8,263 6,752 8,263 6,752
Allowance for unfunded commitments 385 408 385 408
------ ------ ------ ------
Allowance for credit losses $8,648 $7,160 $8,648 $7,160
====== ====== ====== ======
Changes in the allowance for unfunded loan commitments and lines of credit
were as follows (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Beginning balance $376 $329 $362 $253
Net change in allowance for
unfunded loan commitments and
lines of credit 9 79 23 155
---- ---- ---- ----
Ending balance $385 $408 $385 $408
==== ==== ==== ====
The allowance for unfunded loan commitments is included in accrued expenses
and other liabilities on the Consolidated Balance Sheets. The provision for
unfunded commitments is charged to non-interest expense.
At September 30, 2006 and March 31, 2006, the Company's recorded investment in
impaired loans was $1.7 million and $415,000 respectively. At September 30,
2006, an allowance for credit losses of $239,000 was determined in accordance
with the SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The
average investment in impaired loans was $1.1 million, $1.1 million and
$889,000 during the six months ended September 30, 2006, September 30, 2005
and the year ended March 31, 2006 respectively. Interest income recognized on
impaired loans was $44,000, $40,000 and $100,000 for the six months ended
September 30, 2006, September 30, 2005, and the year ended March 31, 2006,
respectively. There were no loans past due 90 days or more and still accruing
interest at September 30, 2006 and March 31, 2006.
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.
12
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 Six Months Ended
September 30, September 30,
---------------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Balance at beginning of period, net $372 $458 384 $ 470
Additions 43 26 68 65
Amortization (46) (71) (97) (132)
Change in valuation allowance (1) 1 13 11
---- ---- ---- -----
Balance at end of period, net $368 $414 $368 $ 414
==== ==== ==== =====
Valuation allowance at beginning
of period $ 46 $ 74 60 $ 84
Change in valuation allowance 1 (1) (13) (11)
---- ---- ---- -----
Valuation allowance at end of period $ 47 $ 73 $ 47 $ 73
==== ==== ==== =====
The Company evaluates MSRs for impairment by stratifying MSRs based on the
predominant risk characteristics of the underlying financial assets. At
September 30, 2006 and March 31, 2006, the fair value of MSRs totaled $1.1
million. The September 30, 2006, 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 129 to 428.
Remaining amortization expense for the net carrying amount of MSRs at
September 30, 2006 is estimated as follows (in thousands):
Year Ending
March 31,
-------------------
2007 $ 78
2008 107
2009 84
2010 45
2011 29
After 2011 25
----
Total $368
====
11. CORE DEPOSIT INTANGIBLE
Net unamortized core deposit intangible totaled $799,000 at September 30, 2006
and $895,000 at March 31, 2006. Amortization expense related to the core
deposit intangible during the six months ended September 30, 2006 and 2005
totaled $96,000 and $104,000, respectively.
Remaining amortization expense for the net core deposit intangible at
September 30, 2006 was estimated to be as follows (in thousands):
Year Ending
March 31,
-------------------
2007 $ 88
2008 155
2009 131
2010 111
2011 95
After 2011 219
----
Total $799
====
12. BORROWINGS
Borrowings are summarized as follows (in thousands):
At September 30, 2006 At March 31, 2006
--------------------- -----------------
Federal Home Loan Bank advances $90,000 $46,100
Weighted average interest rate: 5.34% 4.65%
13
Borrowings have the following maturities at September 30, 2006 (in thousands):
2007 85,000
2008 5,000
-------
Total $90,000
=======
13. JUNIOR SUBORDINATED DEBENTURE
Riverview Bancorp Statutory Trust I (the "Trust"), a wholly-owned subsidiary
trust established by the Company, issued $7.0 million of Floating Rate Capital
Securities (the "Trust Preferred Securities") in December 2005 with a
liquidation value of $1,000 per share. The Trust Preferred Securities are due
in 30 years, redeemable at par after five years and pay distributions at a
floating rate based on London Interbank Offered Rate ("LIBOR"). The Trust
Preferred Securities represent undivided beneficial interests in the Trust,
which was established for the purpose of issuing the Trust Preferred
Securities. The Trust Preferred Securities were sold in a private transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Act") and have not been registered under the Act. The Trust Preferred
Securities may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
The Trust used the proceeds from the sale of the $7.0 million of Trust
Preferred Securities and the sale of $217,000 of the trust's common securities
to the Company to purchase $7.2 million of Floating Rate Junior Subordinated
Debentures ("Debentures") of the Company. The Company's obligations under the
Debentures and related documents, taken together, constitute a full and
unconditional guarantee by the Company of the obligations of the trust. The
Trust Preferred Securities are mandatory redeemable upon the maturity of the
Debentures, or upon earlier redemption as provided by the Debenturess. The
Company has the right to redeem the Debentures in whole or in part after year
5 on any coupon date, at a redemption price specified by the Debentures plus
any accrued but unpaid interest to the redemption date.
The Debentures issued by the Company to the Trust totaling $7.0 million, are
reflected in the Company's Consolidated Balance Sheets in the liabilities
section at September 30, 2006, under the caption "Junior subordinated
debenture." Interest expense on the Debentures is recorded in the interest
expense on borrowings in the Consolidated Statements of Income. The Company
recorded $217,000 in other assets in the Consolidated Balance Sheets at
September 30, 2006, for the common capital securities issued by the Trust.
Proceeds from the Trust Preferred Securities totaling $5.0 million were
invested in the Bank and the Company retained the remaining $2.0 million for
general corporate purposes.
14
The following table is a summary of the terms of the Trust Preferred
Securities at September 30, 2006:
Amount
Issuance Out- Rate Initial Rate at Maturing
Date standing Type (1) Rate 9/30/06 Date
-------- -------- -------- ------- ------- --------
Issuance trust (Dollars in thousands)
--------------
Riverview Bancorp,
Inc. Statutory
Trust 1 12/2005 $7,000 Variable 5.88% 6.75% 12/2035
(1) The Trust Preferred Securities reprice quarterly.
The Trust Preferred Securities qualify as Tier 1 capital of the Bancorp to the
extent permitted by Federal Reserve Board regulations.
14. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
SFAS 157 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 is effective for the Company on April 1,
2008 and is not expected to have a material effect on the Company's
consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulleting No. 108 ("SAB 108"). SAB 108 provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a potential current year
misstatement. Prior to SAB 108, Companies might evaluate the materiality of
financial-statement misstatements using either the income statement or balance
approach, with the income statement approach focusing on new misstatements
added in the current year, and the balance sheet approach focusing on the
cumulative amount of misstatement present in a company's balance sheet.
Misstatements that would be material under one approach could be viewed as
immaterial under another approach, and not be corrected. SAB 108 now requires
that companies view financial statement misstatements as material if they are
material according to either the income statement or balance sheet approach.
SAB 108 is effective for the Company for all financial statements issued by
the Company after November 15, 2006 and is not expected to have a material
effect on the Company's consolidated financial statements.
In July 2006, FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No 109 ("FIN
48"). FIN 48 establishes a recognition threshold and measurement for income
tax positions recognized in an enterprise's financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also
prescribes a two-step evaluation process for tax positions. The first step is
recognition and the second is measurement. For recognition, an enterprise
judgmentally determines whether it is more-likely-than-not that a tax position
will be sustained upon examination, including resolution of related appeals or
litigation processes, based on the technical merits of the position. If the
tax position meets the more-likely-than-not recognition threshold it is
measured and recognized in the financial statements. If a tax position does
not meet the more-likely-than-not recognition threshold, the benefit of that
position is not recognized in the financial statements. Tax positions that
meet the more-likely-than-not recognition threshold at the effective date of
FIN 48 may be recognized or, continue to be recognized, upon adoption of this
Interpretation. The cumulative effect of applying the provisions of FIN 48
shall be reported as an adjustment to the opening balance of retained earnings
for that fiscal year. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company is currently analyzing the effects of FIN 48.
15
15. 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 $385,000 at September 30, 2006.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those 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 loan facilities to customers. Collateral held
varies and is required in instances where the Bank deems necessary.
The following is a summary of commitments and contingent liabilities with
off-balance sheet risk as of September 30, 2006 (in thousands):
Contract or
Notional
Amount
----------
Commitments to originate loans:
Adjustable-rate $ 42,309
Fixed-rate 4,924
Standby letters of credit 1,989
Undisbursed loan funds, and unused lines of credit 189,977
--------
Total $239,199
========
At September 30, 2006 the Company had firm commitments to sell $197,000 of
residential loans to FHLMC. 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. At September 30, 2006,
loans under warranty totaled $111.7 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 September 30, 2006 scheduled maturities of certificates of deposit, FHLB
advances and future minimum operating lease commitments were as follows (in
thousands):
Over Over
Within 1-3 3-5 Over Total
1 Year Years Years 5 Years Balance
------ ----- ----- ------- -------
Certificates of deposit $144,972 $51,391 $6,133 $3,917 $206,413
FHLB advances 85,000 5,000 - - 90,000
Operating leases 1,632 3,173 1,932 4,696 11,433
-------- ------- ------ ------ --------
Total other contractual
obligations $231,604 $59,564 $8,065 $8,613 $307,846
======== ======= ====== ====== ========
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. 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 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 the safe harbor with respect to all forward-looking statements contained in
this Quarterly Report. The Company has used forward-looking statements to
describe future plans and strategies, including its expectations of future
financial results. Management's ability to predict results or the effect of
future plans or strategies is
16
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, pricing of
products and services, real estate values and vacancy rates, the ability of
the Company to efficiently incorporate acquisitions into its operations,
competition, loan delinquency rates, technological factors affecting
operations 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
and specifically disclaims any obligation to publish revised forward-looking
statements to reflect the occurrence of unanticipated events or circumstances
after the date hereof. These risks could cause our actual results for 2006 and
beyond to differ materially from those expressed in any forward-looking
statements by, or on behalf of, the Company.
As used throughout this report, the terms "we", "our", "us", or the "Company"
refer to Riverview Bancorp, Inc. and its consolidated subsidiaries.
Critical Accounting Policies
Critical accounting policies and estimates are discussed in our 2006 Form 10-K
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operation Critical Accounting Policies." That discussion
highlights estimates the Company makes that involve uncertainty or potential
for substantial change. There have not been any material changes in our
critical accounting policies and estimates as compared to that contained in
our disclosure in the Company's 2006 Form 10-K.
Non-GAAP Financial Information
This report contains certain financial information determined by methods other
than in accordance with accounting principles generally accepted in the United
States of America (GAAP). These measures include net interest income on a
fully tax equivalent basis and net interest margin on a fully tax equivalent
basis. Our management uses these non-GAAP measures in its analysis of our
performance. The tax equivalent adjustment to net interest income recognizes
the income tax savings when comparing taxable and tax-exempt assets and
assumes a 34% tax rate. Management believes that it is a standard practice in
the banking industry to present net interest income and net interest margin on
a fully tax equivalent basis, and accordingly believes that providing these
measures may be useful for peer comparison purposes. These disclosures should
not be viewed as substitutes for the results determined to be in accordance
with GAAP, nor are they necessarily comparable to non-GAAP performance
measures that may be presented by other companies. Reconciliations of net
interest income on a fully tax equivalent basis to net interest income and net
interest margin [not clear what is being shown in the table] on a fully tax
equivalent basis to net interest margin are contained in the tables under
"Interest Expense." [amend as appropriate and add explanation re efficiency
ratio]
Executive Overview
Financial Highlights. Net income for the three months ended September 30,
2006 was $3.0 million, or $0.26 per basic share ($0.26 per diluted share),
compared to net income of $2.6 million, or $0.23 per basic share ($0.22 per
diluted share) for the three months ended September 30, 2005. Net interest
income after provision for loan losses increased $882,000 compared to the same
quarter last year. Non-interest income increased in the categories of asset
management fees, gain on sale of loans held for sale, loan servicing income
and bank-owned life insurance. These increases were partially offset by
decreases in fees and service charges and a smaller gain on sale of credit
card portfolio. The Company's operating results also reflect the fact that
non-interest expenses were relatively unchanged at $6.3 million for the
periods ended September 30, 2006 and 2005.
The annualized return on average assets was 1.45% for the three months ended
September 30, 2006, compared to 1.40% for the three months ended September 30,
2005. For the same periods, the annualized return on average common equity was
12.22% compared to 11.36% respectively. The efficiency ratio, which is
defined as the percentage of non-interest expenses to total revenue excluding
intangible asset amortization, was 54.31% for the second quarter of fiscal
2007 as compared to 58.28% for the same period last year.
The Company is a progressive community-oriented financial institution, which
emphasizes local, personal service to residents of its primary market area.
The Company considers Clark, Cowlitz, Klickitat and Skamania counties of
Washington along with Multnomah and Marion counties of Oregon as its primary
market area. The Company is engaged primarily in the business of attracting
deposits from the general public and using these funds in its primary market
area to originate mortgage loans secured by commercial real estate, one- to
four- family residential real estate, multi-family construction loans for
these types of properties, and non-mortgage loans providing financing for
business or "commercial" and consumer purposes. Commercial real estate loans
(including commercial real estate construction loans) and commercial loans
have grown from 30.0% and 7.98% of the loan portfolio, respectively, at March
31, 2002 to 58.7% and
17
9.4% of the loan portfolio, respectively, at September 30, 2006. A
significant increase in loans came from the April 2005 acquisition of American
Pacific Bank ("APB") . The Company's strategic plan includes targeting the
commercial banking customer base in its primary market area, specifically
small and medium size businesses, professionals and wealth building
individuals. In pursuit of these goals, the Company emphasizes controlled
growth and the diversification of its loan portfolio to include a significant
amount of commercial and commercial real estate loans. A related goal is to
increase the proportion of personal and business checking account deposits
used to fund these new loans. Significant portions of our commercial and
commercial real estate loans carry adjustable rates, higher yields or shorter
terms and higher credit risk than traditional fixed-rat one- to four- family
residential mortgages. Our strategic plan also stresses increased emphasis on
non-interest income, including asset management fees and deposit service
charges. Our strategic plan is designed to enhance earnings, reduce interest
rate risk and provide a more complete range of financial services to customers
and the local communities the Company serves. We believe we are well
positioned to attract new customers and to increase our market share given
that our administrative headquarters and ten of our 17 branches are located
in Clark County, one of the fastest growing counties in the State of
Washington according to the U.S. Census Bureau. The Company's acquisition of
APB positions it for growth in the vibrant Portland, Oregon market as well.
In order to support our strategy of growth without compromising local,
personal service to customers and its 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 and in our infrastructure. The Company's non-interest
expense reflect this investment and will remain relatively high as a
percentage of our average assets for the foreseeable future due to the
emphasis on growth and local, personal service. Controlling our non-interest
expenses remains a high priority for the Company's management.
The Company continuously reviews new products and services to provide its
customers more financial options. With our emphasis on the growth of
non-interest income and control of non-interest expense, all new technology
and services are generally reviewed for business development and cost saving
purposes. In-house processing of checks and check imaging 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
online banking services. Our customers are able to conduct a full range of
services on a real-time basis, including balance inquiries, transfers and
electronic bill paying. Our online service has also enhanced the delivery of
cash management services to commercial customers.
With our home office and six branches located in Vancouver, Washington and
branch offices located in Camas, Washougal, Stevenson, White Salmon, Battle
Ground, Goldendale and Longview, Washington, the Company continues to provide
local, personal service to its customers located in Southwest Washington. The
acquisition of APB resulted in three offices in Oregon, two in the Portland
metropolitan area and one in Aumsville, Oregon. The market area for lending
and deposit taking activities encompasses Clark, Cowlitz, Skamania and
Klickitat Counties throughout the Columbia River Gorge area of Washington, and
Multnomah and Marion Counties in Oregon.
The Company operates a trust and financial services company, RAMCorp., 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 Bank.
Riverview Services, Inc. acts as trustee for deeds of trust on mortgage loans
granted by the Bank. Business banking services are offered by the Business
and Professional Banking Division located at both the downtown Vancouver and
Portland branches.
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 Southwestern
Washington. Major employers in Portland include Intel Corp., Providence Health
System, Fred Meyer, Legacy Health System and Kaiser Permanente. In addition
to the expanding industry base, the Columbia River Gorge is a popular tourist
destination, generating revenue for all the communities within the area. As a
result, the area's economy has become less dependent on the timber industry.
Comparison of Financial Condition at September 30, 2006 and March 31, 2006
At September 30, 2006, the Company had total assets of $844.4 million,
compared with $763.8 million at March 31, 2006. The $80.6 million increase in
total assets was primarily attributable to the organic growth in the loan
portfolio and increase in cash.
Cash, including interest-earning accounts, totaled $43.4 million at September
30, 2006, compared to $31.3 million at March 31, 2006.
Loans held for sale at September 30, 2006 totaled $197,000, compared to
$65,000 at March 31, 2006. The balance of loans held for sale can vary
significantly from period to period reflecting the interest rate environment,
loan demand by borrowers, and loan origination for sale by mortgage brokers
versus loan origination for the Company's loan portfolio. The Company
originates fixed-rate residential loans for sale in the secondary market and
retains the related loan servicing
18
rights. Selling fixed interest rate mortgage loans allows the Company to
reduce the interest rate risk associated with long term, fixed interest rate
products. The sale of loans also makes additional funds available to make new
loans and diversify the loan portfolio. The Company continues to service the
loans it sells, maintaining the customer relationship and generating ongoing
non-interest income.
Loans receivable, net, totaled $690.7 million at September 30, 2006, compared
to $623.0 million at March 31, 2006, an increase of $67.6 million. Increases
were experienced in residential loans of $3.1 million, one-to-four family
construction loans of $9.5 million, commercial real estate construction loans
of $4.4 million, commercial of $6.2 million, land of $13.4 million and
commercial real estate of $30.5 million. A substantial portion of the loan
portfolio is secured by real estate, either as primary or secondary
collateral, located in the Company's primary market areas.
Investment securities available-for-sale totaled $23.0 million at September
30, 2006, compared to $24.0 million at March 31, 2006. The decrease was
attributable to maturities and scheduled cash flows.
Mortgage-backed securities available-for-sale totaled $7.4 million at
September 30, 2006, compared to $8.1 million at March 31, 2006. The decrease
is attributable to maturities and scheduled cash flows.
Goodwill was $25.6 million at September 30, 2006 and March 31, 2006. As of
September 30, 2006, there have been no events or changes in circumstances that
would indicate a potential impairment.
Core deposit intangible decreased $96,000 to $799,000 at September 30, 2006
from $895,000 at March 31, 2006 due to amortization.
Bank owned life insurance increased to $13.4 million at September 30, 2006,
from $13.7 million at March 31, 2006, reflecting an increase in the cash
surrender value of the policies.
Deposits totaled $640.4 million at September 30, 2006, compared to $607.0
million at March 31, 2006. As market interest rates have increased, the
balances in the interest checking accounts and money market deposit accounts
have increased. At September 30, 2006 the balance of interest checking
accounts had increased $24.2 million to $153.6 million from $129.4 million at
March 31, 2006. Money market deposit accounts totaled $145.6 million at
September 30, 2006 compared to $137.4 million at March 31, 2006. Certificates
of deposit balance at September 30, 2006 and March 31, 2006 were $206.4
million and $207.1 million, respectively.
FHLB advances totaled $90.0 million at September 30, 2006 and $46.1 million at
March 31, 2006. This $43.9 million increase along with our deposit growth was
used to fund the increases in our loan portfolio and cash accounts.
Shareholders' Equity and Capital Resources
Shareholders' equity increased $4.1 million to $95.8 million at September 30,
2006 from $91.7 million at March 31, 2006. The increase in equity of $5.6
million from earnings for the six months was partially offset by cash
dividends declared to shareholders of $2.2 million. Exercise of stock
options, earned ESOP shares and the net of tax effect of SFAS No. 115
adjustment to securities comprised the remaining $700,000 increase.
The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision ("OTS"). 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 is subject as of September 30, 2006.
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.
19
The Bank's actual and required minimum capital amounts and ratios are
presented in the following table (dollars in thousands):
Categorized
as "Well
Capitalized"
For Under Prompt
Capital Corrective
Adequacy Action
Actual Purposes Provision
-----------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
September 30, 2006
Total Capital:
(To Risk-Weighted Assets) $79,975 10.76% $59,483 8.0% $74,354 10.0%
Tier I Capital:
(To Risk-Weighted Assets) 71,951 9.68 29,741 4.0 44,612 6.0
Tier I Capital:
(To Adjusted Tangible
Assets) 71,951 8.85 24,383 3.0 40,639 5.0
Tangible Capital:
(To Tangible Assets) 71,951 8.85 12,192 1.5 N/A N/A
Categorized
as "Well
Capitalized"
For Under Prompt
Capital Corrective
Adequacy Action
Actual Purposes Provision
-----------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
March 31, 2006
Total Capital:
(To Risk-Weighted Assets) $78,469 11.48% $54,688 8.0% $68,361 10.0%
Tier I Capital:
(To Risk-Weighted Assets) 71,248 10.42 27,344 4.0 41,016 6.0
Tier I Capital:
(To Adjusted Tangible
Assets) 71,248 9.70 22,038 3.0 36,730 5.0
Tangible Capital:
(To Tangible Assets) 71,248 9.70 11,019 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 September 30, 2006 (in thousands):
Equity $ 98,573
Net unrealized securities loss 170
Goodwill and other intangibles (26,755)
Servicing asset (37)
--------
Tangible capital 71,951
General valuation allowance 8,024
--------
Total capital $ 79,975
========
Liquidity
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans, proceeds from 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.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations ,deposit
withdrawals and continuing operations, satisfy other financial commitments and
take advantage of investment opportunities. The Bank generally maintains
sufficient cash and short-term investments to meet short-term liquidity needs.
At September 30, 2006, cash totaled $43.5 million, or 5.1%, of total assets.
The Bank has a line of credit with the FHLB of Seattle in the amount of 30% of
total assets to the extent the Bank provides qualifying collateral and holds
sufficient FHLB stock. At September 30, 2006, the Bank had $90.0 million in
outstanding advances from the FHLB of Seattle under an
20
available credit facility of $237.9 million, limited to available collateral.
The Bank also had a $10.0 million line of credit available from Pacific Coast
Bankers Bank and a $5.0 million borrowing capability at the Federal Reserve
discount window at September 30, 2006. The Bank had no borrowings outstanding
under either of these credit arrangements at September 30, 2006.
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
securities. 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 enters into certain
contractual obligations and other commitments. Obligations generally relate
to funding of operations through deposits and borrowings as well as leases for
premises. Commitments generally relate to 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 not subject to cancellation.
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 the Company 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 16 of the Notes to Consolidated
Financial Statements contained herein.
Asset Quality
The allowance for loan losses was $8.3 million at September 30, 2006 and $7.2
million at March 31, 2006. Management believes the allowance for loan losses
at September 30, 2006 is adequate to cover probable credit losses existing in
the loan portfolio at that date. 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. While management believes the estimates and
assumptions used in its determination of the adequacy of the allowance are
reasonable, no assurances, however, can be given that such estimates and
assumptions will not be proven incorrect in the future, or that the actual
amount of future provisions will not exceed the amount of past provisions or
that any increased provisions that may be required will not adversely impact
our financial condition and results of operations. In addition, the
determination of the amount of the Bank's allowance for loan losses is subject
to review by bank regulators, as part of the routine examination process,
which may result in the establishment of additional reserves based upon their
judgment of information available to them at the time of their examination.
Non-performing assets were $1.7 million, or 0.20% of total assets at September
30, 2006, compared with $415,000 or 0.05% of total assets at March 31, 2006.
The $1.7 million balance of nonaccrual loans is composed of one commercial
loan and two commercial real estate loans. The following table sets forth
information regarding the Company's non-performing assets.
21
September 30, 2006 March 31, 2006
------------------ --------------
(Dollars in thousands)
Loans accounted for on a nonaccrual
basis:
Commercial real estate $1,659 $415
Commercial 45 -
Consumer - -
------ ----
Total 1,704 415
------ ----
Accruing loans which are contractually
past due 90 days or more - -
------ ----
Total of nonaccrual and
90 days past due loans 1,704 415
------ ----
Real estate owned (net) - -
------ ----
Total non-performing assets $1,704 $415
====== ====
Total loans delinquent 90 days
or more to net loans 0.24% 0.07%
Total loans delinquent 90 days or
more to total assets 0.20% 0.05%
Total non-performing assets to total assets 0.20% 0.05%
As of September 30, 2006 and March 31, 2006, other loans of concern totaled
$4.2 million and $3.7 million, respectively. Other loans of concern consist
of loans with respect to which known information concerning possible credit
problems with the borrowers or the cash flows of the collateral securing the
respective loans has caused management to be concerned about the ability of
the borrowers to comply with present loan repayment terms, which may result in
the future inclusion of such loans in the nonaccrual category.
Comparison of Operating Results for the Three Months Ended September 30, 2006
and 2005
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
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 September 30, 2006 was $9.1
million, representing a $1.0 million, or 12.8% increase, from $8.1 million
during the same prior year period. This improvement reflected a 11.8% increase
in the average balance of interest earning assets as a result of increased
loan originations primarily in commercial loans, partially offset by a 13.4%
increase in the average balance of interest-bearing liabilities to $610.4
million for the three months ended September 30, 2006 from $538.5 million for
the comparable period in 2005 primarily as a result of the increase in FHLB
borrowings and to a lesser extent, deposit growth. Average interest-earning
assets to average interest-bearing liabilities totaled 119.63% for the
three-month period ended September 30, 2006 compared to 121.34% in the same
prior year period. The net interest margin for the quarter ended September
30, 2006 was 4.97% compared to 4.93% at September 30, 2005, respectively. The
Bank's sizeable adjustable rate loan portfolio and emphasis on consumer,
commercial loans and construction loans with relatively short-terms to
maturity has contributed to minimizing the negative impact of the currently
slightly inverted yield curve.
Interest Income. Interest income increased $3.7 million, or 31.5%, to $15.3
million for the three months ended September 30, 2006 compared to $11.6
million, for the three months ended September 30, 2005. The yield on
interest-
22
earning assets was 8.32% for the three months ended September 30, 2006
compared to 7.08% for the same three months ended September 30, 2005. The
Federal Reserve Board has increased federal funds interest rates eight times,
resulting in improved yields on both loans and investments upon repricing to
the higher current interest rates.
The Bank did not receive a dividend on FHLB of Seattle stock during the
quarters ended September 30, 2006 and September 30, 2005. The FHLB of Seattle
has been operating under a regulatory directive since May 2005 and has
announced that all future dividends will be suspended until its financial
position and performance improve.
Interest Expense. Interest expense increased $2.7 million to $6.2 million for
the three months ended September 30, 2006, or 74.4% compared to $3.5 million
for the three months ended September 30, 2005. Average interest-bearing
liabilities increased $72.0 million to $610.5 million for the three months
ended September 30, 2006 compared to $538.5 million for the same prior year
period. The significant increase in interest expense primarily resulted from
the higher rates of interest paid on deposits and FHLB borrowings attributable
to Federal Reserve Board short-term interest rate increases during the last
year. The weighted average interest rate on total deposits increased to 3.76%
for the three months ended September 30, 2006 from 2.46% for the same period
in the prior year. The weighted average cost of FHLB borrowings, junior
subordinated debenture and capital lease obligations increased to 5.46% for
the three months ended September 30, 2006 from 4.16% for same period in the
prior year.
23
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.
Three Months Ended September 30,
---------------------------------------------------
2006 2005
------------------------ ------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------ ------- --------- ------
(Dollars in thousands)
Interest-earning assets:
Real estate loans $583,779 $12,709 8.64% $479,397 $ 9,294 7.69%
Non-real estate loans 99,599 2,125 8.46 100,700 1,716 6.76
-------- ------- ------ -------- ------- ------
Total net loans (1) 683,378 14,834 8.61 580,097 11,010 7.53
Mortgage-backed
securities (2) 9,352 109 4.62 12,668 138 4.32
Investment
securities (2)(3) 23,009 284 4.90 24,250 260 4.25
Daily interest-bearing
assets 7,002 92 5.21 29,034 248 3.39
Other earning assets (4) 7,567 4 0.21 7,350 - -
-------- ------- ------ -------- ------- ------
Total interest-earning
assets 730,308 15,323 8.32 653,399 11,656 7.08
Non-interest-earning
assets:
Office properties and
equipment, net 19,486 10,029
Other non-interest-
earning assets 61,498 62,076
-------- --------
Total assets $811,292 $725,504
======== ========
Interest-bearing
liabilities:
Regular savings
accounts $ 34,242 47 0.55 $ 38,507 53 0.55
Interest checking
accounts 148,320 1,221 3.27 131,771 505 1.52
Money market deposit
accounts 141,966 1,524 4.26 125,407 824 2.61
Certificates of deposit 193,854 2,116 4.33 196,782 1,677 3.38
-------- ------- ------ -------- ------- ------
Total deposits 518,382 4,908 3.76 492,467 3,059 2.46
Other interest-bearing
liabilities 92,065 1,267 5.46 46,003 482 4.16
-------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities 610,447 6,175 4.01 538,470 3,541 2.61
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits 96,736 88,650
Other liabilities 7,548 8,926
-------- --------
Total liabilities 714,731 636,046
Shareholders' equity 96,561 89,458
-------- --------
Total liabilities and
shareholders' equity $811,292 $725,504
======== ========
Net interest income $ 9,148 $ 8,115
======= =======
Interest rate spread 4.31% 4.47%
====== ======
Net interest margin 4.97% 4.93%
====== ======
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 119.63% 121.34%
====== ======
Tax equivalent
adjustment (3) $ 21 $ 22
======= =======
(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 changes in fair value that are
reflected as a component of shareholders' equity.
(3) Tax-equivalent adjustment relates to non-taxable investment interest
income. Interest and rates are presented on a fully taxable equivalent
basis under a tax rate of 34%.
(4) The FHLB of Seattle has been operating under a regulatory directive since
May 2005 and has announced that all future dividends will be suspended
until its financial position and performance improves.
24
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company for the quarter ended September 30, 2006
compared to the quarter ended September 30, 2005. 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 September 30,
2006 vs. 2005
--------------------------------
Increase (Decrease)
Due to Total
-------------------- Increase
Volume Rate (Decrease)
---------- ------- ----------
(In thousands)
Interest Income:
Real estate loans $2,181 $1,234 $3,415
Non-real estate loans (19) 428 409
Mortgage-backed securities (38) 9 (29)
Investment securities (1) (14) 38 24
Daily interest-bearing (247) 91 (156)
Other earning assets - 4 4
------ ------ ------
Total interest income 1,863 1,804 3,667
------ ------ ------
Interest Expense:
Regular savings accounts (6) - (6)
Interest checking accounts 70 646 716
Money market deposit accounts 121 579 700
Certificates of deposit (25) 464 439
Other interest-bearing liabilities 598 187 785
------ ------ ------
Total interest expense 758 1,876 2,634
------ ------ ------
Net interest income (1) $1,105 $ (72) $1,033
====== ====== ======
(1) Net interest income as reported $9,127
Taxable equivalent effect 21
Net interest income on a ------
fully tax equivalent basis $9,148
======
Provision for Loan Losses. The provision for loan losses for the three months
ended September 30, 2006 was $600,000, compared to $450,000 for the same
period in the prior year. Net recoveries for the current period were $37,000,
compared to net charge-offs of $224,000 for the same period last year. The
ratio of allowance for credit losses and unfunded loan commitments to total
net loans was 1.24% at September 30, 2006, compared to 1.22% at September 30,
2005. Annualized net recoveries to average net loans for the three-month
period ended September 30, 2006 was 0.02% compared to annualized net
charge-offs of 0.15% for the same period in the prior year. During the
quarter ended September 30, 2006, management evaluated known and inherent
risks in the loan portfolio and based on the analysis and changes were made in
the estimation, assumptions and allocation of the allowance for loan losses to
reflect the changing housing market. The estimated loan loss rate was
increased by 0.125% to 1.125% for speculative construction loans [for
properties not under contract], land and lots for development loans and raw
land loans to cover the probable losses inherent in the loan portfolio.
Management considered the allowance for loan losses at September 30, 2006 to
be adequate to cover probable losses inherent in the loan portfolio based on
the assessment of various factors affecting the loan portfolio as described
above under "Asset Quality".
Non-Interest Income. Non-interest income decreased $200,000 to $2.3 million
for the quarter ended September 30, 2006 compared to $2.5 million for the
quarter ended September 30, 2005. Increases in asset management fees, loan
servicing income, gains on sale of loans held for sale and bank owned life
insurance partially offset the lower fees and service charges and gains on
sale of credit card portfolio. The decrease of $149,000 in fees and service
charges reflects the sale during the second quarter of fiscal year 2006 of the
credit card portfolio acquired from APB and reduced mortgage broker fee
income. During the first quarter of fiscal year 2007, the Bank sold another
credit card portfolio with a balance of approximately $475,000 for a gain of
$66,000. These sales from our credit card portfolio contributed to the decline
in credit card fees during the current quarter of approximately $95,000 when
compared to the same period in the prior year. Asset management fees from
fiduciary services increased by $113,000 to $455,000 for the quarter ended
September 30, 2006, compared to $342,000 for the quarter ended September 30,
2005. RAM Corp. had $276.3 million in total assets under management at
September 30, 2006, compared to $212.3 million at September 30, 2005.
25
In the current quarter, gains on the sale of loans increased $34,000 to
$111,000 as mortgage refinance activity increased our ability to originate
loans for sale compared to $77,000 for the quarter ended September 30, 2005.
Non-Interest Expense. Non-interest expense remained relatively unchanged at
$6.3 million unchanged for both three-month periods ended September 30, 2006
and 2005. The principal component of the Company's non-interest expense is
salaries and employee benefits. For the three months ended September 30,
2006, salaries and employee benefits, which include mortgage broker commission
compensation, was $3.5 million, compared to $3.4 million for the three months
ended September 30, 2005.
Occupancy and depreciation expense totaled $1.1 million for the three months
ended September 30, 2006, compared to $883,000 for the three months ended
September 30, 2005. The increase in occupancy and depreciation expense
reflects the opening in Clark county of the Tech Center branch in the fourth
quarter last year and expenses related to the Riverview Service Center, the
Bank's operations center, which opened in the third quarter of fiscal year
2006.
Data processing expense decreased by $151,000 to $222,000 for the three months
ended September 30, 2006 compared to the $373,000 for the three months ended
September 30, 2005. The $151,000 decrease reflects savings from the April
2006 change in service bureaus that perform the Bank's core computer system
processing.
The amortization expense of core deposit intangible ("CDI") was $46,000 for
the three months ended September 30, 2006 compared to $55,000 for the prior
year period. The acquisition of APB and its $79.8 million in deposits created
a $526,000 CDI, representing the excess of cost over fair market value of
acquired deposits. The acquisition of Today's Bank in July 2003 created CDI of
$820,000. CDI is amortized over a ten-year life using an accelerated
amortization method.
Professional fees totaled $198,000 for the three months ended September 30,
2006; a $190,000 decrease compared to the $388,000 total for the three months
ended September 30, 2005. Professional fees were higher for the second
quarter of the prior year due to costs related to the implementation of the
Sarbanes-Oxley regulations.
Other non-interest expense decreased $15,000 for the three months ended
September 30, 2006 to $536,000, compared to $551,000 for the three months
ended September 30, 2005.
Provision for Income Taxes. Provision for income taxes was $1.6 million for
the three months ended September 30, 2006, compared to $1.3 million for the
three months ended September 30, 2005. The effective tax rate for three months
ended September 30, 2006 was 34.6% compared to 33.7% for the three months
ended September 30, 2005. The effective tax rate increased from the prior
year's quarter primarily as a result of phase in to higher statutory tax rate
of 35% due to higher income [is this phase in due to higher income?] and state
income taxes related to Oregon operations. The Bank has three branches in
Oregon as a result of acquiring APB. The Company's overall effective tax rate
at September 30, 2006 takes into account the estimated Oregon apportionment
factors for property, payroll and sales.
Comparison of Operating Results for the Six Months Ended September 30, 2006
and 2005
Financial Highlights. Net income for the six months ended September 30, 2006
was $5.6 million, or $0.50 per basic share ($0.49 per diluted share), compared
to net income of $4.4 million, or $0.39 per basic share ($0.39 per diluted
share) for the six months ended September 30, 2005. The Company's improved
operating results reflect growth in average interest earning-assets and
interest-bearing liabilities, combined with a $133,000 gain on the sale of
credit card portfolios.
The annualized return on average assets was 1.41% for the six months ended
September 30, 2006, compared to 1.25% for the six months ended September 30,
2005. For the same periods, the annualized return on average common equity
was 11.70% compared to 10.19%. The Company's efficiency ratio (non-interest
expense divided by net interest income plus non-interest income was 57.84% for
the six months ended September 30, 2006 as compared to 62.21% compared to the
same period in the prior year.
Net Interest Income. Net interest income for the six months ended September
30, 2006 was $18.1 million, representing a $3.1 million, or a 19.4% increase,
compared to $15.2 million for the same prior year period. This improvement
reflected a 12.7% increase in the average balance of interest-earning assets
(primarily increases in the average balance of commercial loans, partially
offset by a decrease in the average balance of residential mortgage loans, and
mortgage-backed securities, investment securities and daily interest earning
accounts) to $711.4 million. The increase in interest-earning assets was
offset by a 13.5% increase in average balance of interest-bearing liabilities
(an increase in all deposit categories except savings accounts) to $592.7
million. The ratio of average interest-earning assets to average
interest-bearing liabilities decreased slightly to 120.03% in the six-month
period ended September 30, 2006 from 120.91% in the same prior year
26
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 $29.5 million and $21.9 million, for
the six months ended September 30, 2006 and 2005, respectively. The increased
interest income of $7.6 million reflects the 12.7% increase in the average
balance of interest earning assets for the current six month period compared
to the same period in the prior year, which was attributable to increased loan
originations. The yield on interest-earning assets was 8.28% for the six
months ended September 30, 2006 compared to 6.92% for the six months ended
September 30, 2005. The increased yield in all loan categories reflects the
increase in the prime rate and other indices used to originate and reprice our
loans as a result of the Federal Reserve Board increasing short-term interest
rates during this period.
Interest Expense. Interest expense was $11.4 million for the six months ended
September 30, 2006 an increase of 70.4% from $6.7 million for the same period
in the prior year. Average interest-bearing liabilities increased $70.5
million to $592.7 million for the six months ended September 30, 2006 from
$522.1 million for the same prior year period. The change in interest expense
reflects the higher market rates of interest paid on deposits and FHLB
borrowings and the increased balance of interest-bearing liabilities when
comparing average balances at September 30, 2006 and September 30, 2005. The
weighted average interest rate on total deposits increased to 3.58% for the
six months ended September 30, 2006 from 2.34% for the same period in the
prior year. The weighted average interest rate of FHLB borrowings, junior
subordinated debenture and capital lease obligations increased to 5.32% for
the six months ended September 30, 2006 from 4.41% for same period in the
prior year.
27
Six Months Ended September 30,
---------------------------------------------------
2006 2005
------------------------ ------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------ ------- --------- ------
(Dollars in thousands)
Interest-earning assets:
Mortgage loans $568,206 $24,505 8.60% $457,198 $17,303 7.55%
Non-mortgage loans 97,023 4,098 8.42 99,490 3,304 6.62
-------- ------- ------ -------- ------- ------
Total net loans (1) 665,229 28,603 8.58 556,688 20,607 7.38
Mortgage-backed
securities(2) 9,640 223 4.61 13,146 283 4.29
Investment
securities(2)(3) 23,413 569 4.85 24,068 550 4.56
Daily interest-bearing
assets 5,523 141 5.09 30,200 475 3.14
Other earning assets (4) 7,567 7 0.18 7,205 - -
-------- ------- ------ -------- ------- ------
Total interest-earning
assets 711,372 29,543 8.28 631,307 21,915 6.92
Non-interest-earning
assets:
Office properties and
equipment, net 19,328 9,364
Other non-interest-
earning assets 61,777 58,309
-------- --------
Total assets $792,477 $698,980
======== ========
Interest-bearing
liabilities:
Regular savings
accounts $ 35,283 97 0.55% $ 38,112 105 0.55%
Interest checking
accounts 137,809 2,105 3.05 128,090 907 1.41
Money market deposit
accounts 137,948 2,781 4.02 113,339 1,371 2.41
Certificates of deposit 198,041 4,147 4.18 191,076 3,147 3.28
-------- ------- ------ -------- ------- ------
Total deposits 509,081 9,130 3.58 470,617 5,530 2.34
Other interest-bearing
liabilities 83,598 2,230 5.32 51,497 1,138 4.41
-------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities 592,679 11,360 3.82 522,114 6,668 2.55
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits 95,602 83,149
Other liabilities 8,701 7,904
-------- --------
Total liabilities 696,982 613,167
Shareholders' equity 95,495 85,813
-------- --------
Total liabilities
and shareholders'
equity $792,477 $698,980
======== ========
Net interest income $18,183 $15,247
======= =======
Interest rate spread 4.46% 4.37%
====== ======
Net interest margin 5.10% 4.82%
====== ======
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 120.03% 120.91%
====== ======
Tax Equivalent Adjustment (3) $ 43 $ 54
======= =======
(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) Tax-equivalent adjustment relates to non-taxable investment interest
income. Interest and rates are presented on a fully taxable-equivalent
basis under a tax rate of 34%.
(4) The FHLB of Seattle has been operating under a regulatory directive since
May 2005 and has announced that all future dividends will be suspended
until its financial position and performance improves.
28
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company for the six months ended September 30, 2006
compared to the six months ended September 30, 2005. 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
-------------------------------
Six Months Ended September 30,
-------------------------------
2006 vs. 2005
-------------------------------
Increase(Decrease)
Due to Total
----------------- Increase
Volume Rate (Decrease)
-------- ------ --------
(In thousands)
Interest Income:
Mortgage loans $4,579 $2,623 $7,202
Non-mortgage loans (84) 878 794
Mortgage-backed securities (80) 20 (60)
Investment securities (1) (15) 34 19
Daily interest-bearing (525) 191 (334)
Other earning assets - 7 7
------ ------ ------
Total interest income 3,875 3,753 7,628
------ ------ ------
Interest Expense:
Regular savings accounts (8) - (8)
Interest checking accounts 74 1,124 1,198
Money market deposit accounts 346 1,064 1,410
Certificates of deposit 118 882 1,000
Other interest-bearing liabilities 820 272 1,092
------ ------ ------
Total interest expense 1,350 3,342 4,692
------ ------ ------
Net interest income (1) $2,525 $ 411 $2,936
====== ====== ======
(1) Net interest income as reported $18,140
Taxable equivalent effect 43
Net interest income on a -------
fully tax equivalent basis $18,183
=======
Provision for Loan Losses. The provision for loan losses for the six months
ended September 30, 2006 was $950,000, compared to $900,000 for the same
period in the prior year. Net recoveries for the six months ended September
30, 2006 were $92,000, compared to $431,000 net charge offs for the same
period of last year. The ratio of allowance for loan losses to total net loans
increased to 1.18% from 1.15% at September 30, 2005. Annualized net recoveries
to average net loans for the six-month period ended September 30, 2006 was
0.03% compared to annualized net charge-offs of 0.15% for the same period in
the prior year. During the six months ended September 30, 2006, management
evaluated known and inherent risks in the loan portfolio and changes were made
in the estimation, assumptions and allocation of the allowance for loan losses
to reflect the changing housing market. The estimated loan loss rate was
increased by 0.125% to 1.125% for land and lots for development, speculative
construction loans (for properties not under contract) and raw land loans.
Management considered the allowance for loan losses at September 30, 2006 to
be adequate to cover probable losses inherent in the loan portfolio based on
the assessment of various factors affecting the loan portfolio as described
above under "Asset Quality".
Non-Interest Income. Non-interest income decreased $263,000 or 5.6%, to $4.4
million for the six months ended September 30, 2006 from $4.7 million for the
six months ended September 30, 2005. The decrease reflected the impact of
reduced credit card due to the sale of credit card portfolios as discussed
above and the decrease in mortgage broker fees. For the six months ended
September 30, 2006 credit card fees included in fees and service charges
decreased by $234,000 compared to the same period in the prior year.
Loan servicing income for the six months ended September 30, 2006 includes a
$13,000 write-up to the market value of mortgage servicing rights as compared
to an $11,000 write-up in market value of mortgage servicing rights for the
same prior year period. For the same six-month periods in 2006 and 2005,
loan-servicing income also included amortization of mortgage servicing rights
of $97,000 and $132,000, respectively.
Asset management services income was $891,000 for the six months ended
September 30, 2006, compared to $706,000 for the six months ended September
30, 2005. RAMCorp. had $276.3 million in total assets under management at
September 30, 2006, compared to $212.3 million at September 30, 2005.
29
Non-Interest Expense. Non-interest expense increased $685,000, or 5.5%, to
$13.0 million for the six month period ended September 30, 2006, compared to
$12.4 million for the six months ended September 30, 2005.
The principal component of the Company's non-interest expense is salaries and
employee benefits. For the six months ended September 30, 2006, salaries and
employee benefits, which include mortgage broker commission compensation, was
$7.4 million, an increase of 7.7% from $6.8 million for the six months ended
September 30, 2005. Full-time equivalent employees increased to 256 at
September 30, 2006 from 237 at September 30, 2005, which is principally
attributable to the increase in branch and loan support staff. The addition of
the Riverview Service Center, the Bank's operations center and Tech Center
branch contributed to increases in occupancy, depreciation, data processing,
telecommunication and other expense.
The amortization of CDI was $96,000 for the six months ended September 30,
2006 compared to $104,000 for the same period in the prior year. Data
processing expense totaled $557,000 for the six months ended September 30,
2006, a $181,000 decrease from the same period in prior year reflecting the
savings from the April 2006 conversion to a new service bureau performing the
Bank's core computer processing.
Provision for Federal Income Taxes. Provision for federal income taxes was
$3.0 million for the six months ended September 30, 2006, compared to $2.2
million for the six months ended September 30, 2005 as a result of higher
income before taxes. The effective tax rate for the six months ended September
30, 2006 was 34.5% compared to 33.6% for the six months ended September 30,
2005. The Company's overall effective tax rate at September 30, 2006 takes
into account Oregon apportionment factors for property, payroll and sales.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's 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. The Asset Liability Committee reviews, among other items, economic
conditions, the interest rate outlook, the demand for loans, the availability
of deposits and borrowings, and the Company's 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, the Asset Liability Committee formulates a
strategy that is intended to implement the objectives contained in its
business plan without exceeding limits set forth in the Company's interest
rate risk policy for losses in net interest income and net portfolio value.
There has not been any material change in the market risk disclosures
contained in the 2006 Form 10-K.
Item 4. Controls and Procedures
An evaluation of the Company's disclosure controls and procedures (as defined
in Rule 13(a) - 15(e) of the Securities Exchange Act of 1934) was carried out
as of September 30, 2006 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. As of April 22, 2006, the Company transitioned its
financial core processing systems to new platforms. Implementation of the new
systems necessarily involved changes to our procedures for control over
financial reporting. The new systems were subjected to extensive testing prior
to and after April 22, 2006. We have not experienced any significant
difficulties to date in connection with the implementation or operation of the
new system. We have not fully tested application controls covering this new
system, but we plan to do so during the current year in connection with
management's assessment of internal controls over financial reporting. The
Company's Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures were 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.
In the quarter ended September 30, 2006, except as referenced above, the
Company did not make any changes in its internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect these controls. The Company intends to continually review and evaluate
the design and effectiveness of its disclosure controls and procedures and to
improve its controls and procedures over time and to correct any deficiencies
that it may discover in the future. The
30
goal is to ensure that senior management has timely access to all material
financial and non-financial information concerning the Company's business.
While the Company believes the present design of its disclosure controls and
procedures is effective to achieve its goal, future events affecting its
business may cause the Company to modify its disclosure controls and
procedures. The Company does not expect that its disclosure controls and
procedures and internal control over financial reporting will prevent all
error and fraud. A control procedure, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control procedure are met. Because of the inherent
limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
in controls or procedures can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any control procedure is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls become inadequate because of
changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control procedure, misstatements due to error or fraud may
occur and not be detected.
31
(b) 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, on the Company's financial position, results of
operations, or liquidity.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously
disclosed in the 2006 Form 10-K.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
----------------------------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits
--------
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (1)
4 Form of Certificate of Common Stock of the Registrant (1)
10.1 Employment Agreement with Patrick Sheaffer (2)
10.2 Employment Agreement with Ronald A. Wysaske (2)
10.3 Severance Agreement with Karen Nelson (2)
10.4 Severance Agreement with John A. Karas (3)
10.5 Employee Severance Compensation Plan (2)
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)
10.11 Form of Incentive Stock Option Award Pursuant to 2003
Stock Option Plan (7)
10.12 Form of Non-qualified Stock Option Award Pursuant to 2003
Stock Option Plan (7)
11 Statement recomputation of per share earnings (See Note 5
of Notes to Consolidated Financial Statements contained
herein.)
31.1 Certifications of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
31.2 Certifications of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
32 Certifications of 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.
32
(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 as an exhibit to the Registrant's Registration Statement on Form
S-8 (Registration No. 333-66049), and incorporated herein by reference.
(6) Filed as Exhibit 99 to the Registration Statement on form S-8
(Registration No. 333-109894), and incorporated herein by reference.
(7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2005, 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: November 6, 2006 Date: November 6, 2006
34
EXHIBIT INDEX
31.1 Certifications of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
31.2 Certifications of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
32 Certifications of the Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act
35
Exhibit 31.1
------------
Section 302 Certification
I, Patrick Sheaffer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2006 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 13(a)- 15(e) and 15(d)- 15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13(a)- 15(f) and
15(d)- 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) 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
(d) 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 weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial 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: November 6, 2006 /S/ Patrick Sheaffer
----------------------------------
Patrick Sheaffer
Chairman and Chief Executive Officer
36
Exhibit 31.2
------------
Section 302 Certification
I, Ron Dobyns, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2006 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 13(a)- 15(e) and 15(d)- 15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13(a)- 15(f) and
15(d)- 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) 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
(d) 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 weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial 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: November 6, 2006 /S/ Ron Dobyns
-------------------------
Ron Dobyns
Chief Financial Officer
37
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 hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2006 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, Riverview Bancorp, Inc.'s financial condition and
results of operations as of the dates and for the periods presented
in the financial statements included in such report.
/S/ Patrick Sheaffer /S/ Ron Dobyns
-------------------------- --------------------------
Patrick Sheaffer Ron Dobyns
Chief Executive Officer Chief Financial Officer
Dated: November 6, 2006 Dated: November 6, 2006
38