UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- ------
Commission File Number: 0-22957
RIVERVIEW BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1838969
--------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
900 Washington St., Ste. 900,Vancouver, Washington 98660
-------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 693-6650
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is 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, 11,612,219 shares outstanding as of February 1, 2007.
Form 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
--------------------- ----
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of December 31, 2006 and March 31, 2006 1
Consolidated Statements of Income
Three Months and Nine Months Ended December 31, 2006 and 2005 2
Consolidated Statements of Shareholders' Equity
Nine Months Ended December 31, 2006 and Year Ended
March 31, 2006 3
Consolidated Statements of Comprehensive Income
Three Months and Nine Months Ended December 31,
2006 and 2005 4
Consolidated Statements of Cash Flows
Nine Months Ended December 31, 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
------------
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
DECEMBER 31, 2006 and march 31, 2006
(In thousands, except share and DECEMBER 31, MARCH 31,
per share data) (Unaudited) 2006 2006
------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts
of $6,197 and $7,786) $ 30,396 $ 31,346
Loans held for sale - 65
Investment securities available for sale, at
fair value (amortized cost of $20,650 and
$24,139) 20,648 24,022
Mortgage-backed securities held to maturity,
at amortized cost (fair value of $1,356
and $1,830) 1,347 1,805
Mortgage-backed securities available for sale,
at fair value (amortized cost of $7,141 and
$8,436) 6,977 8,134
Loans receivable (net of allowance for loan
losses of $8,628 and $7,221) 697,271 623,016
Prepaid expenses and other assets 2,105 2,210
Accrued interest receivable 4,131 3,058
Federal Home Loan Bank stock, at cost 7,350 7,350
Premises and equipment, net 21,547 19,127
Deferred income taxes, net 3,685 3,771
Mortgage servicing intangible, net 374 384
Goodwill 25,572 25,572
Core deposit intangible, net 755 895
Bank owned life insurance 13,482 13,092
--------- ---------
TOTAL ASSETS $ 835,640 $ 763,847
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposit accounts $ 651,197 $ 606,964
Accrued expenses and other liabilities 9,781 8,768
Advanced payments by borrowers for taxes
and insurance 123 358
Federal Home Loan Bank advances 66,600 46,100
Junior subordinated debenture 7,217 7,217
Capital lease obligations 2,729 2,753
--------- ---------
Total liabilities 737,647 672,160
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:
December 31, 2006 - 11,612,219 issued, 11,612,219
outstanding 116 57
March 31, 2006 - 11,545,380 issued, 11,545,372
outstanding
Additional paid-in capital 57,888 57,316
Retained earnings 41,232 35,776
Unearned shares issued to employee stock
ownership trust (1,134) (1,186)
Accumulated other comprehensive loss (109) (276)
--------- ---------
Total shareholders' equity 97,993 91,687
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 835,640 $ 763,847
========= =========
See notes to consolidated financial statements.
1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Three Months Nine Months
Ended Ended
(In thousands, except share December 31, December 31,
and per share data) (Unaudited) 2006 2005 2006 2005
------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans
receivable $ 15,617 $ 11,783 $ 44,220 $ 32,390
Interest on investment
securities - taxable 217 211 659 592
Interest on investment
securities - non-taxable 41 42 125 128
Interest on mortgage-backed
securities 102 128 325 411
Other interest and dividends 101 126 249 630
-------- -------- -------- --------
Total interest income 16,078 12,290 45,578 34,151
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits 5,548 3,290 14,678 8,820
Interest on borrowings 1,212 457 3,442 1,595
-------- -------- -------- --------
Total interest expense 6,760 3,747 18,120 10,415
-------- -------- -------- --------
Net interest income 9,318 8,543 27,458 23,736
Less provision for loan losses 375 400 1,325 1,300
-------- -------- -------- --------
Net interest income after
provision for loan losses 8,943 8,143 26,133 22,436
-------- -------- -------- --------
NON-INTEREST INCOME:
Fees and service charges 1,535 1,460 4,315 4,544
Asset management fees 504 378 1,395 1,084
Gain on sale of loans held for sale 150 81 333 284
Gain on sale of real estate owned - - - 21
Loan servicing income 44 49 125 68
Gain on sale of land and fixed assets - 2 - 2
Gain on sale of credit card portfolio - 7 133 311
Bank owned life insurance 133 119 390 361
Other 44 47 125 137
-------- -------- -------- --------
Total non-interest income 2,410 2,143 6,816 6,812
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,688 3,681 11,055 10,521
Occupancy and depreciation 1,185 954 3,394 2,640
Data processing 220 335 777 1,073
Amortization of core deposit
intangible 44 53 140 157
Advertising and marketing expense 269 160 927 697
Federal Deposit Insurance
Corporation insurance premium 18 19 55 51
State and local taxes 166 136 454 419
Telecommunications 115 117 328 279
Professional fees 199 248 575 1,000
Other 557 445 1,797 1,668
-------- -------- -------- --------
Total non-interest expense 6,461 6,148 19,502 18,505
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,892 4,138 13,447 10,743
PROVISION FOR INCOME TAXES 1,654 1,390 4,605 3,612
-------- -------- -------- --------
NET INCOME $ 3,238 $ 2,748 $ 8,842 $ 7,131
======== ======== ======== ========
Earnings per common share:
Basic $ 0.29 $ 0.24 $ 0.78 $ 0.64
Diluted 0.28 0.24 0.77 0.63
Weighted average number of
shares outstanding:
Basic 11,313,623 11,322,648 11,291,175 11,179,640
Diluted 11,522,519 11,462,945 11,478,306 11,314,024
Cash Dividends Per Share $ 0.10 $ 0.085 $ 0.295 $ 0.255
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 NINE MONTHS ENDED December 31, 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 ($0.34
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 connec-
tion with acquisition 1,576,730 7 16,706 - - - 16,713
Earned Employee Stock
Ownership Plan ("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 ($0.295
per share) - - - (3,328) - - (3,328)
Exercise of stock options 82,600 1 450 - - - 451
Stock repurchased
and retired (15,753) - - - - - -
Earned ESOP shares - - 122 - 52 - 174
---------- ------- --------- --------- --------- --------- ---------
11,612,219 116 57,888 32,390 (1,134) (276) 88,984
Comprehensive income:
Net income - - - 8,842 - - 8,842
Other comprehensive income:
Unrealized holding gain on
securities of $167
(net of $86 tax effect) - - - - - 167 167
---------
Total comprehensive income - - - - - - 9,009
---------- ------- --------- --------- --------- --------- ---------
Balance December 31, 2006 11,612,219 $ 116 $ 57,888 $ 41,232 $ (1,134) $ (109) $ 97,993
========== ======= ========= ========= ========= ========= =========
See notes to consolidated financial statements.
3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Nine Months
Ended Ended
(In thousands) (Unaudited) December 31, December 31,
------------------------------------------------------------------------------
2006 2005 2006 2005
---- ---- ---- ----
Net income $ 3,238 $ 2,748 $ 8,842 $ 7,131
Other comprehensive income:
Change in fair value of
securities available for sale,
net of tax 61 (141) 167 (120)
------- ------- ------- -------
Total comprehensive income $ 3,299 $ 2,607 $ 9,009 $ 7,011
======= ======= ======= =======
See notes to consolidated financial statements.
4
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS Ended DECEMBER 31, 2006 and 2005
(In thousands) (Unaudited) 2006 2005
------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,842 $ 7,131
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,676 1,341
Mortgage servicing rights valuation adjustment (25) (26)
Provision for loan losses 1,325 1,300
Provision for deferred income taxes - 142
Noncash expense related to ESOP 173 400
(Decrease) increase in deferred loan origination
fees, net of amortization (177) 722
Origination of loans held for sale (13,168) (13,563)
Proceeds from sales of loans held for sale 13,292 14,112
Net gain on loans held for sale, sale of real
estate owned, mortgage-backed securities,
investment securities and premises and equipment (325) (286)
Income from bank owned life insurance (390) (361)
Changes in assets and liabilities:
Prepaid expenses and other assets (126) (498)
Accrued interest receivable (1,074) (638)
Accrued expenses and other liabilities 918 2,178
--------- ---------
Net cash provided by operating activities 10,941 11,954
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (434,174) (489,920)
Principal repayments/refinance on loans 358,966 437,436
Proceeds from call, maturity, or sale of
investment securities available for sale 3,450 5,250
Principal repayments on investment securities
available for sale 75 37
Purchase of investment securities available for sale - (4,996)
Principal repayments on mortgage-backed securities
available for sale 1,295 2,712
Principal repayments on mortgage-backed securities
held to maturity 457 351
Purchase of premises and equipment (3,734) (5,870)
Acquisition, net of cash received - (14,663)
Proceeds from sale of real estate owned and
premises and equipment 2 275
--------- ---------
Net cash used in investing activities (73,663) (69,388)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 44,233 55,576
Dividends paid (3,154) (2,667)
Proceeds from borrowings 386,500 32,100
Repayment of borrowings (366,000) (62,000)
Proceeds from subordinate debenture - 7,217
Principal payments under capital lease obligation (24) -
Net increase in advance payments by borrowers (234) (167)
Proceeds from exercise of stock options 451 107
--------- ---------
Net cash provided by financing activities 61,772 30,166
--------- ---------
NET DECREASE IN CASH (950) (27,268)
CASH, BEGINNING OF PERIOD 31,346 61,719
--------- ---------
CASH, END OF PERIOD $ 30,396 $ 34,451
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 17,573 $ 10,031
Income taxes 5,061 3,369
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared and accrued in other
liabilities $ 1,129 $ 962
Fair value adjustment to securities available
for sale 253 (181)
Increased construction in process in accounts
payable - 66
Income tax effect related to fair value adjustment 86 61
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 nine months ended December 31, 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. ("Bancorp")
and Riverview Community Bank ("Bank"), its wholly-owned subsidiary (together,
the "Company"), include all the accounts of Bancorp and the consolidated
accounts of 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 December 31, 2006, there
were options for 36,962 shares available for the grant under the 1998 Plan and
all options previously granted under the 1998 Plan were fully vested.
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 with a
vesting period over zero to five years. At December 31, 2006, there were
options for 148,154 shares available for grant under the 2003 Plan.
On March 15, 2006, 314,000 stock options under 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, had maximum term of 10 years from
the date of grant and were fully vested on grant date.
6
The following table presents information on stock options outstanding for the
periods shown.
Nine Months Ended Year Ended
December 31, 2006 March 31, 2006
----------------------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ ----- ------ -----
Balance, beginning of period 755,846 $ 9.68 454,990 $ 7.18
Grants - - 354,000 12.70
Options Exercised (82,600) 7.92 (53,144) 8.48
Forfeited (17,600) 10.65 - -
------- -------
Balance, end of period 655,646 $ 9.87 755,846 $ 9.68
The following table presents information on stock options outstanding for the
periods shown, less estimated forfeitures.
Nine Months Ended Year Ended
December 31, 2006 March 31, 2006
----------------------------------------
Intrinsic value of options
exercised in the period $539,568 $159,070
Stock options fully vested and
expected to vest:
Number 651,806 748,166
Weighted average exercise price $9.88 $9.67
Aggregate intrinsic value $3,469,558 $2,774,511
Weighted average contractual
term of options 6.48 years 7.25 years
Stock options vested and currently
exercisable:
Number 619,446 690,886
Weighted average exercise price $9.87 $9.64
Aggregate intrinsic value $3,301,233 $2,584,305
Weighted average contractual
term of options 6.09 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
common stock. Expected dividends are based on dividend trends and the market
value of the Company's common 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 nine months ended December 31, 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 December 31, 2006, the Company recognized pre-tax
compensation expense related to stock options of approximately $9,000. For the
nine months ended December 31, 2006, the Company recognized pre-tax
compensation expense related to stock options of approximately $30,000. 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 (in
thousands, except per share amounts).
Three months ended Nine months ended
December 31, 2005 December 31, 2005
------------------ -----------------
Net Income:
As reported $ 2,748 $ 7,131
Deduct: Total stock based compensa-
tion expense determined under
fair value based method for all
options, net of related tax benefit (5) (111)
-------- --------
Pro forma $ 2,743 $ 7,020
======== ========
Earnings per common share - basic:
As reported $ 0.24 $ 0.64
Pro forma 0.24 0.63
Earnings per common share-fully diluted:
As reported $ 0.24 $ 0.63
Pro forma 0.24 0.62
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. ESOP shares are not considered outstanding for earnings per
share purposes until they are committed to be released.
Three months ended Nine months ended
December 31, December 31,
------------------------ ------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Basic EPS computation:
Numerator-net income $ 3,238,000 $ 2,748,000 $ 8,842,000 $ 7,131,000
Denominator-weighted
average common shares
outstanding 11,313,623 11,322,648 11,291,175 11,179,640
Basic EPS $ 0.29 $ 0.24 $ 0.78 $ 0.64
=========== =========== =========== ===========
Diluted EPS computation:
Numerator-net income $ 3,238,000 $ 2,748,000 $ 8,842,000 $ 7,131,000
Denominator-weighted
average common shares
outstanding 11,313,623 11,322,648 11,291,175 11,179,640
Effect of dilutive stock
options 208,896 140,297 187,131 134,384
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents 11,522,519 11,462,945 11,478,306 11,314,024
Diluted EPS $ 0.28 $ 0.24 $ 0.77 $ 0.63
=========== =========== =========== ===========
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
--------- ---------- --------- ---------
December 31, 2006
-----------------
Trust preferred $ 5,000 $ 38 $ - $ 5,038
Agency securities 12,175 - (81) 12,094
Municipal bonds 3,475 41 - 3,516
--------- ---------- -------- ---------
Total $ 20,650 $ 79 $ (81) $ 20,648
========= ========== ======== =========
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):
Estimated
Amortized Fair
December 31, 2006 Cost Value
----------------- --------- ---------
Due in one year or less $ 12,744 $ 12,666
Due after one year through five years 1,021 1,038
Due after five years through ten years 618 640
Due after ten years 6,267 6,304
--------- ---------
Total $ 20,650 $ 20,648
========= =========
Investment securities with an amortized cost of $7.2 million and $10.2 million
and a fair value of $7.1 million and $10.1 million at December 31, 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 December 31, 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 $491,000 and
$495,000 and a fair value of $497,000 and $504,000 at December 31, 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 December 31, 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 December
31, 2006 are as follows (in thousands):
Less than 12 months
12 months or longer Total
------------------------------------------------------
Description Unreal- Unreal- Unreal-
of Securities Fair ized Fair ized Fair ized
Value Losses Value Losses Value Losses
------ ------- -------- ------- -------- -------
Agency securities $ - $ - $ 12,094 $ (81) $ 12,094 $ (81)
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 Unreal- Unreal- Unreal-
of Securities Fair ized Fair ized Fair ized
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
nine-month periods ended December 31, 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
December 31, 2006 Cost Gains Losses Value
----------------- --------- ---------- --------- ---------
Real estate mortgage investment
conduits $ 1,033 $ 4 $ - $ 1,037
FHLMC mortgage-backed securities 120 1 - 121
FNMA mortgage-backed securities 194 4 - 198
--------- ---------- --------- ---------
Total $ 1,347 $ 9 $ - $ 1,356
========= ========== ========= =========
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):
Estimated
Amortized Fair
December 31, 2006 Cost Value
----------------- --------- ---------
Due in one year or less $ - $ -
Due after one year through five years - -
Due after five years through ten years 14 15
Due after ten years 1,333 1,341
--------- ---------
Total $ 1,347 $ 1,356
========= =========
Mortgage-backed securities held to maturity with an amortized cost of $1.0
million and $1.4 million and a fair value of $1.0 million and $1.4 million at
December 31, 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 $144,000 and $199,000 and a fair
value of $146,000 and $203,000 at December 31, 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
December 31, 2006 Cost Gains Losses Value
----------------- --------- ---------- --------- ---------
Real estate mortgage investment
conduits $ 1,121 $ 16 $ (4) $ 1,133
FHLMC mortgage-backed securities 5,897 - (178) 5,719
FNMA mortgage-backed securities 123 2 - 125
--------- ---------- --------- ---------
Total $ 7,141 $ 18 $ (182) $ 6,977
========= ========== ========= =========
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):
December 31, 2006 Estimated
----------------- Amortized Fair
Cost Value
--------- ---------
Due in one year or less $ 2 $ 2
Due after one year through five years 74 74
Due after five years through ten years 6,420 6,239
Due after ten years 645 662
--------- ---------
Total $ 7,141 $ 6,977
========= =========
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 $7.0
million and $8.3 million and a fair value of $6.9 million and $8.0 million at
December 31, 2006 and March 31, 2006, respectively, were pledged as collateral
for FHLB advances. Mortgage-backed securities available for sale with an
amortized cost of $2,000 and $17,000 and a fair value of $2,000 and $18,000 at
December 31, 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 mortgage-backed securities, the amount
of unrealized losses and the length of time these unrealized losses existed as
of December 31, 2006 are as follows (in thousands):
Less than 12 months
12 months or longer Total
------------------------------------------------------
Description Unreal- Unreal- Unreal-
of Securities Fair ized Fair ized Fair ized
Value Losses Value Losses Value Losses
------ ------- -------- ------- -------- -------
Real estate mortgage
investment conduits $ - $ - $ 429 $ (4) $ 429 $ (4)
FHLMC mortgage-backed
securities - - 5,720 (178) 5,720 (178)
FNMA mortgage-backed
securities 2 - - - 2 -
------ ------- -------- ------- -------- -------
Total temporarily
impaired securities $ 2 $ - $ 6,149 $ (182) $ 6,151 $ (182)
====== ======= ======== ======= ======== =======
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 Unreal- Unreal- Unreal-
of Securities Fair ized Fair ized Fair ized
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
nine months ended December 31, 2006 and 2005.
7. LOANS RECEIVABLE
Loans receivable excluding loans held for sale consisted of the following (in
thousands):
December 31, March 31,
2006 2006
------------ ---------
Residential:
One-to-four family $ 33,416 $ 32,488
Multi-family 3,147 2,157
Construction:
One-to-four family 91,245 81,572
Commercial real estate 49,750 47,079
Commercial 72,220 59,834
Consumer:
Secured 32,153 29,781
Unsecured 1,118 1,415
Land 62,207 49,558
Commercial real estate 364,623 330,705
--------- ---------
709,879 634,589
Less:
Deferred loan fees, net 3,980 4,352
Allowance for loan losses 8,628 7,221
--------- ---------
Loans receivable, net $ 697,271 $ 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 December 31, 2006 and March 31, 2006, the Bank had no loans to
any 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 Nine Months Ended
December 31, December 31,
-------------------------------------
2006 2005 2006 2005
Beginning balance ------ ------ ------ ------
$ 8,263 $ 6,752 $ 7,221 $ 4,395
Provision for losses 375 400 1,325 1,300
Charge-offs (46) (116) (49) (627)
Recoveries 36 14 131 94
Allowance transferred from American
Pacific Bank ("APB") acquisition - - - 1,888
------ ------ ------ ------
Total allowance for loan losses 8,628 7,050 8,628 7,050
Allowance for unfunded commitments 355 352 355 352
------ ------ ------ ------
Allowance for credit losses $ 8,983 $ 7,402 $ 8,983 $ 7,402
====== ====== ====== ======
Changes in the allowance for unfunded loan commitments and lines of credit
were as follows (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Beginning balance $ 385 $ 408 $ 362 $ 253
Net change in allowance for unfunded
loan commitments and lines of credit (30) (56) (7) 99
------ ------ ------ ------
Ending balance $ 355 $ 352 $ 355 $ 352
====== ====== ====== ======
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 December 31, 2006 and March 31, 2006, the Company's recorded investment in
impaired loans was $1.3 million and $415,000 respectively. At December 31,
2006, an allowance for credit losses related to these loans of $110,000 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, $1.0 million and $889,000 during the nine months ended December 31,
2006, December 31, 2005 and the year ended March 31, 2006, respectively.
Interest income recognized on impaired loans was $85,000, $73,000 and $100,000
for the nine months ended December 31, 2006, December 31, 2005, and the year
ended March 31, 2006, respectively. The gross amount of interest income on
nonaccrual loans that would have been recorded during the nine months ended
December 31, 2006 and December 31, 2005 if the nonaccrual loans had been
current in accordance with their original terms was $53,000 and $74,000,
respectively. There were no loans past due 90 days or more and still accruing
interest at December 31, 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 Nine Months Ended
December 31, December 31,
-------------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Balance at beginning of period, net $ 368 $ 414 $ 384 $ 470
Additions 47 29 115 94
Amortization (53) (54) (150) (186)
Change in valuation allowance 12 14 25 25
------ ------ ------ ------
Balance at end of period, net $ 374 $ 403 $ 374 $ 403
====== ====== ====== ======
Valuation allowance at beginning of
period $ 47 $ 73 $ 60 $ 84
Change in valuation allowance (12) (14) (25) (25)
------ ------ ------ ------
Valuation allowance at end of period $ 35 $ 59 $ 35 $ 59
====== ====== ====== ======
The Company evaluates MSRs for impairment by stratifying MSRs based on the
predominant risk characteristics of the underlying financial assets. At
December 31, 2006 and March 31, 2006, the fair value of MSRs totaled $1.1
million, respectively. The December 31, 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 100 to 1192.
Remaining amortization expense for the net carrying amount of MSRs at December
31, 2006 is estimated as follows (in thousands):
Year Ending
March 31,
----------------
2007 $ 43
2008 125
2009 90
2010 50
2011 32
After 2011 34
-----
Total $ 374
=====
11. CORE DEPOSIT INTANGIBLE
Net unamortized core deposit intangible totaled $755,000 at December 31, 2006
and $895,000 at March 31, 2006. Amortization expense related to the core
deposit intangible during the nine months ended December 31, 2006 and 2005
totaled $140,000 and $157,000, respectively.
Remaining amortization expense for the net core deposit intangible at December
31, 2006 is estimated to be as follows (in thousands):
Year Ending
March 31,
----------------
2007 $ 44
2008 155
2009 131
2010 111
2011 95
After 2011 219
-----
Total $ 755
=====
12. BORROWINGS
Borrowings are summarized as follows (in thousands):
At December 31, 2006 At March 31, 2006
-------------------- -----------------
Federal Home Loan Bank advances $66,600 $46,100
Weighted average interest rate: 5.35% 4.65%
13
Borrowings have the following maturities at December 31, 2006 (in thousands):
2007 $61,600
2008 5,000
------
Total $66,600
======
13. JUNIOR SUBORDINATED DEBENTURE
Riverview Bancorp Statutory Trust I (the "Trust"), a wholly-owned subsidiary
trust established by Bancorp, 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. 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 Bancorp to purchase $7.2 million of Floating Rate Junior Subordinated
Debentures ("Debentures") of Bancorp. Bancorp's obligations under the
Debentures and related documents, taken together, constitute a full and
unconditional guarantee by Bancorp 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 Debentures. Bancorp
has the right to redeem the Debentures in whole or in part after year five 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 Bancorp to the Trust totaling $7.0 million, are
reflected in the Bancorp's Consolidated Balance Sheets in the liabilities
section at December 31, 2006, under the caption "Junior subordinated
debenture." Interest expense on the Debentures is recorded in interest expense
on borrowings in the Consolidated Statements of Income. Bancorp has included
$217,000 in other assets in the Consolidated Balance Sheets at December 31,
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 Bancorp 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 December 31, 2006:
Issuance Amount Rate Initial Rate at Maturing
Issuance Trust Date Outstanding Type(1) Rate 12/31/06 Date
-------------- -------- ----------- ------- ------- -------- --------
(Dollars in thousands)
Riverview Bancorp,
Inc. Statutory
Trust 1 12/2005 $ 7,000 Variable 5.88% 6.72% 12/2035
(1) The Trust Preferred Securities reprice quarterly.
The Trust Preferred Securities qualify as Tier 1 capital of 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 ("SEC") issued Staff
Accounting Bulletin 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 March 31, 2007 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" or the "Interpretation"). 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 $355,000 at December 31, 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 December 31, 2006 (in thousands):
Contract or
Notional
Amount
-----------
Commitments to originate loans:
Adjustable-rate $ 22,181
Fixed-rate 2,631
Standby letters of credit 1,957
Undisbursed loan funds, and unused
lines of credit 176,698
--------
Total $ 203,467
========
At December 31, 2006, the Company had no firm commitments to sell residential
loans to the FHLMC. Typically, 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 December 31, 2006,
loans under warranty totaled $111.9 million, which substantially represents
the unpaid principal balance of the Company's loans serviced for others
portfolio. The Bank believes that the potential for loss under these
arrangements is remote. Accordingly, no contingent liability is recorded in
the financial statements.
At December 31, 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 $151,607 $48,421 $ 5,994 $ 3,083 $209,105
FHLB advances 66,600 - - - 66,600
Operating leases 1,636 3,123 1,742 4,527 11,028
Total other contractual ------- ------ ------ ------ -------
obligations $219,843 $51,544 $ 7,736 $ 7,610 $286,733
======= ====== ===== ===== =======
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 provisions 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 2007 and
beyond to differ materially from those expressed in any forward-looking
statements by, or on behalf of, the Company.
Critical Accounting Policies
Critical accounting policies and estimates are discussed in our 2006 Form 10-K
under the Item 7 "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 the
Company's critical accounting policies and estimates as compared to the
disclosure contained 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. Management uses these non-GAAP measures in its analysis of the
Company's 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 on a fully tax equivalent basis to net interest margin are
contained in the tables under "Net Interest Income."
Executive Overview
Financial Highlights. Net income for the three months ended December 31, 2006
was $3.2 million, or $0.29 per basic share ($0.28 per diluted share), compared
to net income of $2.7 million, or $0.24 per basic share ($0.24 per diluted
share) for the three months ended December 31, 2005. Net interest income
after provision for loan losses increased $800,000 for the three months ended
December 31, 2006 compared to the same quarter last year. Non-interest income
increased in the categories of fees and service charges, asset management
fees, gain on sale of loans held for sale and bank-owned life insurance.
These increases were partially offset by decreases in loan servicing income,
gain on sale of land and fixed assets and a gain on sale of credit card
portfolio. The Company's operating results reflect a $313,000 increase in
non-interest expense to $6.5 million for the three months ended December 31,
2006 compared to $6.1 million for the comparable period in the prior year. The
$313,000 increase reflects primarily the increases in occupancy, depreciation,
advertising, marketing, state and local taxes for the three months ended
December 31, 2006 compared to the three months ended December 31, 2005.
The annualized return on average assets was 1.53% for the three months ended
December 31, 2006, compared to 1.50% for the three months ended December 31,
2005. For the same periods, the annualized return on average common equity was
13.0% compared to 11.90%, respectively. The efficiency ratio, which is
defined as the percentage of non-interest expenses to total revenue excluding
intangible asset amortization, was 54.52% for the third quarter of fiscal 2007
compared to 56.82% 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 permanent and construction mortgage loans secured by
commercial real estate, one- to four- family residential real estate,
multi-family properties. The Company also originates 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 increased from 30.0% and 8.0% of the loan
portfolio, respectively, at March 31, 2002 to 58.4% and 10.2% of the loan
portfolio, respectively, at December 31, 2006. A significant increase in
loans came from the April
17
2005 acquisition of 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 the Company's
commercial and commercial real estate loans carry adjustable rates, higher
yields or shorter terms and higher credit risk than traditional fixed-rate
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 18 branches
are located in Clark County, the second fastest growing county in the State of
Washington according to the U.S. Census Bureau projected census estimates as
of July 1, 2005. Furthermore, the Company's acquisition of APB positioned it
for growth in the vibrant Portland, Oregon market. The Company has four
branches in the Oregon market with three located in the Portland area.
In order to support the Company's 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 reflects this investment and will remain relatively high as a
percentage of its average assets for the foreseeable future as a result of 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 the Company's 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 its
online banking services, which allows customers to conduct a full range of
services on a real-time basis, including balance inquiries, transfers and
electronic bill paying. The Company's online service has also enhanced the
delivery of cash management services to commercial customers.
With the Company's home office and seven 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 Portland metropolitan area and one in Aumsville, Oregon. In
November 2006, the Company opened a new full service branch and commercial
lending center located at NE 104th Avenue and Halsey (Gateway branch) in the
Portland, 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, RAM Corp.,
located in downtown Vancouver. Riverview Mortgage, a mortgage broker division
of the Company, originates mortgage (including construction) loans for various
mortgage companies in the Portland metropolitan area, as well as for the 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 the downtown Vancouver branch and
Portland Halsey branch.
Vancouver, located in Clark County, is north of Portland, Oregon. Several
large employers including Sharp Microelectronics, Hewlett Packard, Georgia
Pacific, Underwriters Laboratory and Wafer Tech are located in 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 December 31, 2006 and March 31, 2006
At December 31, 2006, the Company had total assets of $835.6 million, compared
with $763.8 million at March 31, 2006. The $71.8 million increase in total
assets was primarily attributable to the organic growth in the loan portfolio.
Cash, including interest-earning accounts, totaled $30.4 million at December
31, 2006, compared to $31.3 million at March 31, 2006.
At December 31, 2006 there were no loans held for sale, 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.
18
The Company originates fixed-rate residential loans for sale in the secondary
market and retains the related loan servicing rights. Selling fixed interest
rate mortgage loans allows the Company to reduce the interest rate risk
associated with long term, fixed interest rate products. 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 $697.3 million at December 31, 2006, compared
to $623.0 million at March 31, 2006, an increase of $74.3 million. Increases
were experienced in residential loans of $1.9 million, one-to-four family
construction loans of $9.7 million, commercial real estate construction loans
of $2.7 million, commercial loans of $12.4 million, land of $12.6 million and
commercial real estate of $33.9 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 $20.6 million at December 31,
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 $7.0 million at December
31, 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 December 31, 2006 and March 31, 2006. As of
December 31, 2006, there have been no events or changes in circumstances that
would indicate a potential impairment.
Core deposit intangible decreased $140,000 to $755,000 at December 31, 2006
from $895,000 at March 31, 2006 due to amortization.
Bank owned life insurance increased to $13.5 million at December 31, 2006,
from $13.1 million at March 31, 2006, reflecting an increase in the cash
surrender value of the policies.
Deposits totaled $651.2 million at December 31, 2006, compared to $607.0
million at March 31, 2006. As market interest rates have increased customers
have moved funds to higher interest accounts and the balances in the interest
checking accounts and money market deposit accounts have increased. At
December 31, 2006, the balance of interest checking accounts had increased
$15.9 million to $145.3 million from $129.5 million at March 31, 2006. Money
market deposit accounts totaled $179.0 million at December 31, 2006 compared
to $137.5 million at March 31, 2006. Certificates of deposit balances at
December 31, 2006 and March 31, 2006 were $209.1 million and $207.1 million,
respectively.
FHLB advances totaled $66.6 million at December 31, 2006 and $46.1 million at
March 31, 2006. This $20.5 million increase along with our deposit growth was
used to fund the increases in the Company's loan portfolio.
Shareholders' Equity and Capital Resources
Shareholders' equity increased $6.3 million to $98.0 million at December 31,
2006 from $91.7 million at March 31, 2006. The increase in equity of $8.8
million from earnings for the nine months was partially offset by cash
dividends declared to shareholders of $3.3 million. Exercise of stock
options, earned ESOP shares and the net tax effect of SFAS No. 115 adjustment
to securities comprised the remaining $800,000 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, Tier I capital
to tangible 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 December 31, 2006.
To be categorized as "well capitalized," the Bank must maintain minimum total
capital and Tier I capital to risk-weighted assets, Tier I capital to tangible
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 Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provision
------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2006
Total Capital:
(To Risk-Weighted Assets) $83,794 11.22% $59,725 8.0% $74,657 10.0%
Tier I Capital:
(To Risk-Weighted Assets) 75,276 10.08 29,863 4.0 44,794 6.0
Tier I Capital:
(To Tangible Assets) 75,276 9.33 24,194 3.0 40,324 5.0
Tangible Capital:
(To Tangible Assets) 75,276 9.33 12,097 1.5 N/A N/A
Categorized as
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action 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 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 total capital at December 31, 2006 (in thousands):
Riverview Community Bank Equity $101,896
Net unrealized securities loss 109
Goodwill and other intangibles (26,692)
Servicing asset (37)
-------
Tangible capital 75,276
General valuation allowance 8,518
-------
Total capital $ 83,794
=======
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 December 31, 2006, cash totaled $30.4 million, or 3.6% 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 December 31, 2006, the Bank had $66.6 million in
outstanding advances from the FHLB of Seattle under an available credit
facility of $251.8 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
20
Reserve discount window at December 31, 2006. The Bank had no borrowings
outstanding under either of these credit arrangements at December 31, 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 15 of the Notes to Consolidated
Financial Statements contained herein.
Asset Quality
The allowance for loan losses was $8.6 million at December 31, 2006 and $7.2
million at March 31, 2006. Management believes the allowance for loan losses
at December 31, 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 $1.3 million, or 0.15% of total assets at December
31, 2006, compared with $415,000 or 0.05% of total assets at March 31, 2006.
The $1.3 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
December 31, March 31,
2006 2006
------------ ---------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Commercial real estate $1,246 $ 415
Commercial 30 -
----- -----
Total 1,276 415
----- -----
Accruing loans which are contractually
past due 90 days or more - -
----- -----
Total of nonaccrual and 90 days past due loans 1,276 415
----- -----
Real estate owned (net) - -
----- -----
Total non-performing assets $1,276 $ 415
===== =====
Total loans delinquent 90 days or more to
net loans 0.18% 0.07%
Total loans delinquent 90 days or more to
total assets 0.15% 0.05%
Total non-performing assets to total assets 0.15% 0.05%
As of December 31, 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 these isolated
instances of 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 December 31, 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 December 31, 2006 was $9.3
million, representing a $775,000, or 9.1% increase, from $8.5 million during
the same prior year period. This improvement reflects a 16.5% increase in the
average balance of interest earning assets as a result of increased loan
originations primarily in commercial real estate loans, partially offset by a
20.8% increase in the average balance of interest-bearing liabilities to
$641.6 million for the three months ended December 31, 2006 from $531.2
million for the comparable period in 2005 as a result of the increase in FHLB
borrowings and deposit growth. Average interest-earning assets to average
interest-bearing liabilities totaled 118.04% for the three-month period ended
December 31, 2006 compared to 122.39% in the same prior year period. The net
interest margin for the quarter ended December 31, 2006 was 4.89% compared to
5.23% for the quarter December 31, 2005. The growth in the higher yielding
money market deposit accounts reflects the impact that the inverted/flat yield
curve has had on the customers' choice of deposit accounts. The Bank's
sizeable adjustable rate loan portfolio and emphasis on consumer, commercial
and construction loans with relatively short-terms to maturity has contributed
to minimizing the negative impact of the currently inverted/flat yield curve.
Interest Income. Interest income increased $3.8 million, or 30.8%, to $16.1
million for the three months ended December 31, 2006 compared to $12.3 million
for the three months ended December 31, 2005. The yield on interest-earning
assets was 8.43% for the three months ended December 31, 2006 compared to
7.51% for the same three months
22
ended December 31, 2005. The Federal Reserve Board increased federal funds
interest rates four times during the calendar year 2006, resulting in improved
yields on both loans and investments upon repricing to the higher current
interest rates.
The Bank received a $7,350 dividend on the FHLB of Seattle stock during the
quarter ended December 31, 2006 and no dividend for the quarter ended December
31, 2005. The FHLB of Seattle has been operating under a regulatory directive
since May 2005. In December 2006, FHLB of Seattle announced that quarterly
cash dividends would resume with payment of a cash dividend in December 2006.
Interest Expense. Interest expense increased $3.0 million to $6.8 million for
the three months ended December 31, 2006, or 80.4% compared to $3.7 million
for the three months ended December 31, 2005. Average interest-bearing
liabilities increased $110.4 million to $641.6 million for the three months
ended December 31, 2006 compared to $531.2 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 year
ended December 31, 2006. The weighted average interest rate on total deposits
increased to 3.97% for the three months ended December 31, 2006 from 2.67% for
the same period in the prior year. The weighted average cost of FHLB
borrowings, junior subordinated debenture and capital lease obligations
increased to 5.51% for the three months ended December 31, 2006 from 4.22% for
the 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 December 31,
--------------------------------------------------
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 $609,503 $ 13,427 8.74% $498,510 $ 9,956 7.92%
Non-real estate loans 102,120 2,190 8.51 95,418 1,827 7.60
------- ------- ------- -------
Total net loans (1) 711,623 15,617 8.71 593,928 11,783 7.87
Mortgage-backed
securities (2) 8,761 102 4.62 11,675 128 4.35
Investment
securities (2)(3) 22,524 280 4.93 24,141 276 4.54
Daily interest-bearing
assets 6,829 89 5.17 13,023 126 3.84
Other earning assets(4) 7,567 12 0.63 7,350 - -
Total interest-earning ------- ------- ------- -------
assets 757,304 16,100 8.43 650,117 12,313 7.51
Non-interest-earning assets:
Office properties and
equipment, net 21,452 12,945
Other non-interest-earning
assets 61,634 63,931
------- -------
Total assets $840,390 $726,993
======= =======
Interest-bearing
liabilities:
Regular savings accounts $ 30,615 42 0.54 $ 40,067 56 0.55
Interest checking accounts 144,190 1,180 3.25 123,573 545 1.75
Money market deposit
accounts 172,492 1,937 4.46 125,943 908 2.86
Certificates of deposit 207,028 2,389 4.58 198,677 1,781 3.56
------- ------- ------- -------
Total deposits 554,325 5,548 3.97 488,260 3,290 2.67
Other interest-bearing
liabilities 87,249 1,212 5.51 42,945 457 4.22
Total interest-bearing ------- ------- ------- -------
liabilities 641,574 6,760 4.18 531,205 3,747 2.80
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits 91,140 94,680
Other liabilities 8,848 9,479
------- -------
Total liabilities 741,562 635,364
Shareholders' equity 98,828 91,629
Total liabilities and ------- -------
shareholders' equity $840,390 $726,993
======= =======
Net interest income (5) $ 9,340 $ 8,566
======== =========
Interest rate spread 4.25% 4.71%
====== ======
Net interest margin 4.89% 5.23%
====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 118.04% 122.39%
====== ======
Tax equivalent adjustment (3) $ 22 $ 23
======== ========
(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. In December 2006, FHLB of Seattle announced that quarterly
cash dividends would resume with payment in December 2006.
(5) Three Months Ended
December 31,
2006 2005
------ ------
Net interest income as reported $9,318 $8,543
Tax equivalent effect 22 23
Net interest income on a fully ----- -----
Tax equivalent basis $9,340 $8,566
===== =====
24
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company for the quarter ended December 31, 2006
compared to the quarter ended December 31, 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 December 31,
2006 vs. 2005
------------------------------
Increase (Decrease)
Due to Total
------------------ Increase
Volume Rate (Decrease)
------ ------ --------
(In thousands)
Interest Income:
Real estate loans $ 2,369 $ 1,102 $ 3,471
Non-real estate loans 134 229 363
Mortgage-backed securities (34) 8 (26)
Investment securities (19) 23 4
Daily interest-bearing (72) 34 (38)
Other earning assets - 14 14
------ ------ ------
Total interest income 2,378 1,410 3,788
------ ------ ------
Interest Expense:
Regular savings accounts (13) (1) (14)
Interest checking accounts 104 531 635
Money market deposit accounts 410 619 1,029
Certificates of deposit 78 529 607
Other interest-bearing liabilities 582 174 756
------ ------ ------
Total interest expense 1,161 1,852 3,013
------ ------ ------
Net interest income $ 1,217 $ (442) $ 775
====== ====== ======
Provision for Loan Losses. The provision for loan losses for the three months
ended December 31, 2006 was $375,000, compared to $400,000 for the same period
in the prior year. Net charge-offs for the current period were $10,000,
compared to net charge-offs of $102,000 for the same period last year. The
ratio of allowance for loan losses and unfunded loan commitments to total net
loans was 1.27% at December 31, 2006, compared to 1.22% at December 31, 2005.
Annualized net charge-offs to average net loans for the three-month period
ended December 31, 2006 was 0.01% compared to annualized net charge-offs of
0.07% for the same period in the prior year. During the quarter ended
December 31, 2006, management evaluated known and inherent risks in the loan
portfolio and based on the analysis no changes were made in the estimation,
assumptions and allocation of the allowance for loan losses. Management
considered the allowance for loan losses at December 31, 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 increased $267,000 to $2.4 million
for the quarter ended December 31, 2006 compared to $2.1 million for the
quarter ended December 31, 2005. Increases in fees and service charges, asset
management fees, gains on sale of loans held for sale and bank owned life
insurance offset the lower loan servicing income, gain on sale of land and
fixed assets and gain on sale of credit card portfolio. The increase of
$75,000 in fees and service charges reflects the increase in fees and service
charges on deposit accounts and increased broker loan fees. Asset management
fees from fiduciary services increased by $126,000 to $504,000 for the quarter
ended December 31, 2006, compared to $378,000 for the quarter ended December
31, 2005. RAM Corp. had $288.2 million in total assets under management at
December 31, 2006, compared to $219.2 million at December 31, 2005.
In the current quarter, gains on the sale of loans increased $69,000 to
$150,000, compared to $81,000 for the quarter ended December 31, 2005 as
mortgage refinance activity increased the Company's ability to originate loans
for sale.
Non-Interest Expense. Non-interest expense increased $313,000 to $6.5 million
for the quarter ended December 31, 2006 compared to $6.1 million for the
quarter ended December 31, 2005. The principal component of the Company's
non-interest expense is salaries and employee benefits. Salaries and employee
benefits were stable at $3.7 million for the three months ended December 31,
2006 and December 31, 2005, respectively. During the current quarter ended
December 31, 2006 the accrual for the ESOP expense at September 30, 2006 was
reduced by $240,000. The adjustment reflects the extension of the current ESOP
expiration date of December 31, 2011 to December 31, 2017. ESOP expense
represents the cost of the annual allocation of ESOP shares released to the
participants. The $240,000 reduction in ESOP expense reflects the release of
24,633 ESOP shares to the ESOP participants at December 31, 2006 as compared
to the original ESOP expense accrual for the release of 49,266 ESOP shares to
ESOP participants. The reduced ESOP expense was offset by
25
increased salary and benefit expense reflecting the increased number of
employees. Full-time equivalent employees increased to 254 at December 31,
2006 from 236 at December 31, 2005.
Occupancy and depreciation expense totaled $1.2 million for the three months
ended December 31, 2006, compared to $954,000 for the three months ended
December 31, 2005. The increase in occupancy and depreciation expense
reflects the opening in Clark County of the Tech Center branch in the fourth
quarter fiscal 2006, the Riverview Service Center which opened in the third
quarter of fiscal year 2006 and the Riverview Gateway branch in Portland,
Oregon, which opened in the current quarter. Data processing expense decreased
by $115,000 to $220,000 for the three months ended December 31, 2006 compared
to the $335,000 for the three months ended December 31, 2005. The $115,000
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 $44,000 for
the three months ended December 31, 2006 compared to $53,000 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 decreased $49,000 to $199,000 for the three months ended
December 31, 2006, compared to $248,000 for the three months ended December
31, 2005. Professional fees were higher for the third quarter of the prior
year as a result of costs related to the implementation of the Sarbanes-Oxley
regulations.
Other non-interest expense increased $112,000 for the three months ended
December 31, 2006 to $557,000, compared to $445,000 for the three months ended
December 31, 2005.
Provision for Income Taxes. Provision for income taxes was $1.7 million for
the three months ended December 31, 2006, compared to $1.4 million for the
three months ended December 31, 2005. The effective tax rate for three months
ended December 31, 2006 was 33.8% compared to 33.6% for the three months ended
December 31, 2005. The Company's overall effective tax rate at December 31,
2006 takes into account the estimated Oregon apportionment factors for
property, payroll and sales.
Comparison of Operating Results for the Nine Months Ended December 31, 2006
and 2005
Financial Highlights. Net income for the nine months ended December 31, 2006
was $8.8 million, or $0.78 per basic share ($0.77 per diluted share), compared
to net income of $7.1 million, or $0.64 per basic share ($0.63 per diluted
share) for the nine months ended December 31, 2005. The Company's improved
operating results reflect growth in average interest earning-assets and
interest-bearing liabilities.
The annualized return on average assets was 1.45% for the nine months ended
December 31, 2006, compared to 1.34% for the nine months ended December 31,
2005. For the same periods, the annualized return on average common equity
was 12.15% compared to 10.78%. The Company's efficiency ratio (non-interest
expense divided by net interest income plus non-interest income) was 56.90%
for the nine months ended December 31, 2006 as compared to 60.58% for the same
period in the prior year.
Net Interest Income. Net interest income for the nine months ended December
31, 2006 was $27.5 million, representing a $3.7 million, or a 15.7% increase,
compared to $23.7 million for the same prior year period. This improvement
reflected a 14.0% increase in the average balance of interest-earning assets
(primarily increases in the average balance of commercial real estate 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 $726.9 million. The increase in
interest-earning assets was offset by a 16.0% increase in average balance of
interest-bearing liabilities (an increase in all deposit categories except
savings accounts) to $609.0 million. The ratio of average interest-earning
assets to average interest-bearing liabilities decreased to 119.35% in the
nine-month period ended December 31, 2006 from 121.41% in the same prior year
period. The ratio indicates that the interest-earning asset growth is being
funded more by interest-bearing liabilities as compared to capital and
non-interest-bearing demand deposits.
Interest Income. Interest income totaled $45.6 million and $34.2 million, for
the nine months ended December 31, 2006 and 2005, respectively. The increased
interest income of $11.4 million reflects the 14.0% increase in the average
balance of interest earning assets for the current nine 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 8.33% for the nine
months ended December 31, 2006 compared to 7.13% for the nine months ended
December 31, 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.
26
Interest Expense. Interest expense was $18.1 million for the nine months
ended December 31, 2006 an increase of 74.0% from $10.4 million for the same
period in the prior year. Average interest-bearing liabilities increased
$83.9 million to $609.0 million for the nine months ended December 31, 2006
from $525.2 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 December 31, 2006 and December 31, 2005. The
weighted average interest rate on total deposits increased to 3.72% for the
nine months ended December 31, 2006 from 2.46% 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 5.39% for
the nine months ended December 31, 2006 from 4.35% for same period in the
prior year.
27
Nine Months Ended December 31,
--------------------------------------------------
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 $582,192 $ 37,931 8.65% $471,019 $ 27,259 7.68%
Non-real estate loans 98,728 6,289 8.45 98,127 5,131 6.94
------- ------- ------- -------
Total net loans (1) 680,920 44,220 8.62 569,146 32,390 7.55
Mortgage-backed
securities(2) 9,346 325 4.62 12,654 411 4.31
Investment securities(2)(3) 23,116 848 4.87 24,092 797 4.39
Daily interest-bearing
assets 5,960 229 5.10 24,454 630 3.42
Other earning assets (4) 7,567 20 0.35 7,253 - -
Total interest-earning ------- ------- ------- -------
assets 726,909 45,642 8.33 637,599 34,228 7.13
Non-interest-earning assets:
Office properties and
equipment, net 20,039 10,562
Other non-interest-earning
assets 61,728 60,190
------- -------
Total assets $808,676 $708,351
======= =======
Interest-bearing liabilities:
Regular savings accounts $ 33,721 139 0.55 $ 38,766 160 0.55
Interest checking accounts 139,944 3,285 3.12 126,579 1,452 1.52
Money market deposit
accounts 149,505 4,719 4.19 117,556 2,279 2.57
Certificates of deposit 201,048 6,535 4.31 193,619 4,929 3.38
------- ------- ------- -------
Total deposits 524,218 14,678 3.72 476,520 8,820 2.46
Other interest-bearing
liabilities 84,819 3,442 5.39 48,636 1,595 4.35
Total interest-bearing ------- ------- ------- -------
liabilities 609,037 18,120 3.95 525,156 10,415 2.63
Non-interest-bearing liabilities:
Non-interest-bearing
deposits 94,082 87,007
Other liabilities 8,947 8,429
------- -------
Total liabilities 712,066 620,592
Shareholders' equity 96,610 87,759
Total liabilities and ------- -------
shareholders' equity $808,676 $708,351
======= =======
Net interest income (5) $27,522 $23,813
====== ======
Interest rate spread 4.38% 4.50%
====== ======
Net interest margin 5.03% 4.96%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.35% 121.41%
====== ======
Tax equivalent adjustment (3) $ 64 $ 77
====== ======
(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. In December 2006, FHLB of Seattle announced that quarterly
cash dividends would resume with payment in December 2006.
(5) Nine Months Ended
December 31,
2006 2005
------ ------
Net interest income as reported $27,458 $23,736
Tax equivalent effect 64 77
Net interest income on a fully ------ ------
Tax equivalent basis $27,522 $23,813
====== ======
28
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company for the nine months ended December 31, 2006
compared to the nine months ended December 31, 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.
Nine Months Ended December 31,
2006 vs. 2005
------------------------------
Increase (Decrease)
Due to Total
------------------ Increase
Volume Rate (Decrease)
------ ------ --------
(In thousands)
Interest Income:
Real estate loans $ 6,952 $ 3,720 $10,672
Non-real estate loans 31 1,127 1,158
Mortgage-backed securities (113) 27 (86)
Investment securities (34) 57 23
Daily interest-bearing (602) 229 (373)
Other earning assets - 20 20
------ ------ ------
Total interest income 6,234 5,180 11,414
------ ------ ------
Interest Expense:
Regular savings accounts (21) - (21)
Interest checking accounts 167 1,666 1,833
Money market deposit accounts 735 1,705 2,440
Certificates of deposit 196 1,410 1,606
Other interest-bearing liabilities 1,398 449 1,847
------ ------ ------
Total interest expense 2,475 5,230 7,705
------ ------ ------
Net interest income $ 3,759 $ (50) $ 3,709
====== ====== ======
Provision for Loan Losses. The provision for loan losses was $1.3 million for
the nine months ended December 31, 2006, unchanged from the same period in the
prior year. Net recoveries for the nine months ended December 31, 2006 were
$82,000, compared to $533,000 net charge-offs for the same period of last
year. The ratio of allowance for loan losses to total net loans increased to
1.22% from 1.16% at December 31, 2005. Annualized net recoveries to average
net loans for the nine-month period ended December 31, 2006 was 0.02% compared
to annualized net charge-offs of 0.12% for the same period in the prior year.
During the nine months ended December 31, 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 December 31, 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 was stable at $6.8 million for the
nine-month periods ended December 31, 2006 and December 31, 2005,
respectively. For the nine months ended December 31, 2006, the fees and
service charges decreased $229,000 to $4.3 million as compared to $4.5 million
for the same period in the prior year. The $229,000 decrease in fees and
service charges reflects the $238,000 decrease in credit card fees resulting
from the sales of the credit card portfolio. The decrease in credit card fees
was partially offset by increases in fees earned on deposit accounts and
broker loan fees.
Loan servicing income for the nine months ended December 31, 2006 and December
31, 2005, respectively, includes a $25,000 write-up to the market value of
MSR. For the same nine-month periods in 2006 and 2005, loan-servicing income
also included amortization of MSR of $150,000 and $186,000, respectively.
Asset management services income was $1.4 million for the nine months ended
December 31, 2006, compared to $1.1 million for the nine months ended December
31, 2005. RAM Corp. had $288.2 million in total assets under management at
December 31, 2006, compared to $219.2 million at December 31, 2005.
Non-Interest Expense. Non-interest expense increased $1.0 million, or 5.4%,
to $19.5 million for the nine-month period ended December 31, 2006, compared
to $18.5 million for the nine months ended December 31, 2005.
29
The principal component of the Company's non-interest expense is salaries and
employee benefits. For the nine months ended December 31, 2006, salaries and
employee benefits, which include mortgage broker commission compensation, was
$11.1 million, an increase of 5.1% from $10.5 million for the nine months
ended December 31, 2005. As previously discussed during third quarter of
fiscal year 2007, the accrual for ESOP expense at September 30, 2006, which is
included in salary and employee benefits, was reduced by $240,000. Full-time
equivalent employees increased to 254 at December 31, 2006 from 236 at
December 31, 2005, which is principally attributable to the increase in branch
and support staff. The addition of the Riverview Service Center, the Tech
Center branch and Gateway branch contributed to increases in occupancy,
depreciation, telecommunication and other expense. Data processing expense
totaled $777,000 for the nine months ended December 31, 2006, a $296,000
decrease from $1.1 million for the same period in prior year. The decrease in
data processing expense reflects the savings from the April 2006 change in
service bureaus that perform the Bank's core computer processing and the
reduction of expense as a result of the sale of the credit card portfolio
during second quarter of fiscal year 2006.
The amortization of CDI was $140,000 for the nine months ended December 31,
2006 compared to $157,000 for the same period in the prior year.
Provision for Income Taxes. Provision for federal income taxes was $4.6
million for the nine months ended December 31, 2006, compared to $3.6 million
for the nine months ended December 31, 2005 as a result of higher income
before taxes. The effective tax rate for the nine months ended December 31,
2006 was 34.2% compared to 33.6% for the nine months ended December 31, 2005.
The Company's overall effective tax rate 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 December 31, 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 December 31, 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 goal is to ensure that senior
management has timely access to all material financial and non-financial
information concerning the Company's business.
30
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
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
----------------------------------------------------------
There were no stock repurchases during the quarter ended December 31,
2006.
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 4
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 December 31, 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: February 5, 2007 Date: February 5, 2007
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 December 31, 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: February 5, 2007 /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 December 31, 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: February 5, 2007 /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 December 31, 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: February 5, 2007 Dated: February 5, 2007
38