UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File Number: 0-22957
RIVERVIEW BANCORP, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1838969
- --------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
900 Washington St., Ste. 900,Vancouver, Washington 98660
- -------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 693-6650
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, $.01 par
value per share, 4,800,232 shares outstanding as of October 26, 2004.
Form 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
---------------------
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 2004 and March 31, 2004 1
Consolidated Statements of Income
Three and Six Months Ended September 30, 2004 and 2003 2
Consolidated Statements of Shareholders' Equity
for the Year Ended March 31, 2004 and the
Six Months Ended September 30, 2004 3
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2004 and 2003 4
Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended September 30, 2004
and 2003 5
Notes to Consolidated Financial Statements 6-14
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-29
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 29-30
Item 4: Controls and Procedures 30
Part II. Other Information 31-32
-----------------
SIGNATURES 33
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND MARCH 31, 2004
SEPTEMBER 30, MARCH 31,
(In thousands, except share data) (Unaudited) 2004 2004
- ------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$35,404 and $32,334) $ 49,644 $ 47,907
Loans held for sale 444 407
Investment securities available for sale, at fair
value (amortized cost of $30,712 and $32,751) 29,813 32,883
Mortgage-backed securities held to maturity, at
amortized cost (fair value of $2,487 and $2,591) 2,428 2,517
Mortgage-backed securities available for sale, at
fair value (amortized cost of $13,445 and $10,417) 13,579 10,607
Loans receivable (net of allowance for loan losses
of $4,424 and $4,481) 386,063 381,127
Real estate owned - 742
Prepaid expenses and other assets 1,234 1,289
Accrued interest receivable 1,803 1,786
Federal Home Loan Bank stock, at cost 6,119 6,034
Premises and equipment, net 8,401 9,735
Deferred income taxes, net 3,111 2,736
Mortgage servicing rights, net 564 624
Goodwill 9,214 9,214
Core deposit intangible, net 643 758
Bank owned life insurance 12,397 12,121
-------- --------
TOTAL ASSETS $525,457 $520,487
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing deposits $ 64,598 $ 61,902
Interest-bearing deposits 347,104 347,113
-------- --------
Total Deposits 411,702 409,015
Accrued expenses and other liabilities 5,776 5,862
Advance payments by borrowers for taxes and
insurance 286 328
Federal Home Loan Bank advances 40,000 40,000
-------- --------
Total liabilities 457,764 455,305
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Serial preferred stock, $.01 par value; 250,000
authorized, issued and outstanding, none - -
Common stock, $.01 par value; 50,000,000 authorized,
issued and outstanding:
September 30, 2004 - 4,997,300 issued, 4,800,232
outstanding 50 50
March 31, 2004 - 4,974,979 issued, 4,777,911
outstanding
Additional paid-in capital 40,698 40,187
Retained earnings 28,945 26,330
Unearned shares issued to employee stock
ownership trust (1,495) (1,598)
Accumulated other comprehensive (loss) income (505) 213
-------- --------
Total shareholders' equity 67,693 65,182
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $525,457 $520,487
======== ========
See notes to consolidated financial statements.
1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
(In thousands, except share data) September 30, September 30,
(Unaudited) 2004 2003 2004 2003
- ------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans
receivable $ 6,997 $ 6,727 $ 13,623 $ 12,396
Interest on investment securities 168 88 336 155
Interest on mortgage-backed
securities 164 154 324 335
Other interest and dividends 201 258 340 472
------- ------- -------- --------
Total interest income 7,530 7,227 14,623 13,358
------- ------- -------- --------
INTEREST EXPENSE:
Interest on deposits 1,260 1,325 2,303 2,334
Interest on borrowings 504 497 1,000 992
------- ------- -------- --------
Total interest expense 1,764 1,822 3,303 3,326
------- ------- -------- --------
Net interest income 5,766 5,405 11,320 10,032
Less provision for loan losses 50 - 190 70
------- ------- -------- --------
Net interest income after provision
for loan losses 5,716 5,405 11,130 9,962
------- ------- -------- --------
NON-INTEREST INCOME:
Fees and service charges 1,142 1,245 2,312 2,418
Asset management fees 257 214 529 437
Gain on sale of loans held for sale 137 287 312 591
Gain on sale of other real estate
owned - 45 - 48
Loan servicing income 15 259 34 151
Gain on sale of premises and equipment 1 - 829 2
Bank owned life insurance 122 - 276 -
Other 24 (1) 46 18
------- ------- -------- --------
Total non-interest income 1,698 2,049 4,338 3,665
------- ------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,587 2,500 5,233 4,749
Occupancy and depreciation 739 769 1,512 1,355
Data processing 237 238 486 442
Amortization of core deposit
intangible 34 107 115 189
Advertising and marketing 222 244 473 513
FDIC insurance premium 15 13 30 25
State and local taxes 122 113 275 207
Telecommunications 70 73 134 121
Professional fees 129 105 252 194
Other 459 416 936 718
------- ------- -------- --------
Total non-interest expense 4,614 4,578 9,446 8,513
------- ------- -------- --------
INCOME BEFORE FEDERAL INCOME TAXES 2,800 2,876 6,022 5,114
PROVISION FOR FEDERAL INCOME TAXES 898 958 1,921 1,696
------- ------- -------- --------
NET INCOME $ 1,902 $ 1,918 $ 4,101 $ 3,418
======= ======= ======== ========
Earnings per common share:
Basic $ 0.40 $ 0.41 $ 0.85 $ 0.76
Diluted 0.39 0.41 0.84 0.75
Weighted average number of shares
outstanding:
Basic 4,812,154 4,653,314 4,801,528 4,513,117
Diluted 4,885,447 4,728,250 4,875,146 4,585,921
Cash Dividends Per Share $ 0.155 $ 0.14 $ 0.31 $ 0.28
See notes to consolidated financial statements.
2
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2004
AND THE SIX MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
Unearned
Shares Accum-
Issued to ulated
Employee Other
Common Addi- Stock Unearned Compre-
Stock tional Owner- Shares hensive
(In thousands, except ---------------- Paid-in Retained ship Issued to Income
per share data) Shares Amount Capital Earnings Trust MRDP (Loss) Total
- ---------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance March 31, 2003 4,358,704 $46 $33,525 $22,389 $(1,804) $(15) $ 370 $54,511
Cash dividends ($0.56 per
share) - - - (2,613) - - - (2,613)
Exercise of stock options 40,281 1 484 - - - - 485
Stock repurchased and
retired (81,500) (1) (1,509) - - - - (1,510)
Stock issued in connection
with acquisition (Note 16) 430,655 4 7,343 7,347
Earned ESOP shares 24,633 - 271 - 206 - - 477
Tax benefit, stock option
and MDRP - - 73 - - - - 73
Earned MRDP shares 5,138 - - - - 15 - 15
--------- --- ------- ------- ------- ---- ----- -------
4,777,911 50 40,187 19,776 (1,598) - 370 58,785
Comprehensive income:
Net income - - - 6,554 - - - 6,554
Other comprehensive income:
Unrealized holding loss on
securities of $157 (net of
$81 tax effect) - - - - - - (157) (157)
-------
Total comprehensive income - - - - - - - 6,397
--------- --- ------- ------- ------- ---- ----- -------
Balance March 31, 2004 4,777,911 50 40,187 26,330 (1,598) - 213 65,182
Cash dividends ($0.31 per
share) - - - (1,486) - - - (1,486)
Exercise of stock options 22,321 - 296 - - - - 296
Earned ESOP shares - - 151 - 103 - - 254
Tax benefit, stock option - - 64 - - - - 64
--------- --- ------- ------- ------- ---- ----- -------
4,800,232 50 40,698 24,844 (1,495) - 213 64,310
Comprehensive income:
Net income - - - 4,101 - - - 4,101
Other comprehensive income:
Unrealized holding loss
on securities of $718
(net of $370 tax effect) - - - - - - (718) (718)
-------
Total comprehensive income - - - - - - - 3,383
--------- --- ------- ------- ------- ---- ----- -------
Balance September 30, 2004 4,800,232 $50 $40,698 $28,945 $(1,495) $ - $(505) $67,693
========= === ======= ======= ======= ==== ===== =======
See notes to consolidated financial statements.
3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
(In thousands) (Unaudited) 2004 2003
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,101 $ 3,418
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 834 1,091
Mortgage servicing rights valuation adjustment (18) (303)
Provision for loan losses 190 70
(Benefit) provision for deferred income taxes (5) 35
Noncash expense related to ESOP 254 224
Noncash expense related to MRDP - 16
Increase in deferred loan origination fees, net
of amortization 27 460
Federal Home Loan Bank stock dividend (85) (123)
Origination of loans held for sale (14,445) (34,511)
Proceeds from sales of loans held for sale 14,449 34,485
Net gain on loans held for sale, sale of real
estate owned, and premises and equipment (943) (503)
Changes in assets and liabilities:
Decrease in prepaid expenses and other assets 2,038 141
(Decrease) increase in accrued interest receivable (17) 213
Decrease in accrued expenses and other liabilities (818) (1,313)
--------- ---------
Net cash provided by operating activities 5,562 3,400
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (196,327) (139,348)
Principal repayments/refinance on loans 191,987 155,070
Purchase of investment securities available
for sale - (5,000)
Purchase of mortgage-backed securities available
for sale (5,000) -
Principal repayments on mortgage-backed securities
available for sale 1,969 4,778
Principal repayments on investment securities
available for sale 37 -
Proceeds from call or maturity of investment
securities available for sale 2,000 250
Principal repayments on mortgage-backed securities
held to maturity 89 501
Purchase of premises and equipment (86) (250)
Acquisition, net of cash received - 7,206
Purchase of first mortgage or improvement of REO (47) (113)
Proceeds from sale of real estate owned and premises
and equipment 122 43
--------- ---------
Net cash (used in) provided by investing
activities (5,256) 23,137
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 2,588 (357)
Dividends paid (1,411) (1,159)
Repurchase of common stock - (1,510)
Proceeds from Federal Home Loan Bank advances 15,100 -
Repayment of Federal Home Loan Bank advances (15,100) -
Net (decrease) increase in advance payments by
borrowers (42) 8
Proceeds from exercise of stock options 296 220
--------- ---------
Net cash (used in) provided by financing
activities 1,431 (2,798)
--------- ---------
NET INCREASE IN CASH 1,737 23,739
CASH, BEGINNING OF PERIOD 47,907 60,858
--------- ---------
CASH, END OF PERIOD $ 49,644 $ 84,597
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ 3,352 $ 3,392
Income taxes 1,500 1,500
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned $ - $ 308
Dividends declared and accrued in other
liabilities 744 663
Financed sale of real estate owned 578 -
Fair value adjustment to securities available
for sale (1,087) 391
Income tax effect related to fair value adjustment 370 (133)
Common stock issued upon business combination - 7,348
See notes to consolidated financial statements.
4
Riverview Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Six Months
Ended September 30, Ended September 30,
------------------------------------------
2004 2003 2004 2003
------- ------ ------ ------
(In thousands)
Net Income $ 1,902 $ 1,918 $ 4,101 $ 3,418
Change in fair value of
securities available for sale,
net of tax (32) 802 (718) 258
------------------------------------------
Total Comprehensive Income $ 1,870 $ 2,720 $ 3,383 $ 3,676
==========================================
See notes to condensed 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, 2004. The results of
operations for the three and six months ended September 30, 2004 are not
necessarily indicative of the results which may be expected for the fiscal
year ending March 31, 2005. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Riverview Bancorp, Inc. and
Subsidiary include all the accounts of Riverview Bancorp, Inc. (the "Company")
and the consolidated accounts of its wholly-owned subsidiary, Riverview
Community Bank (the "Bank"), the Bank's wholly-owned subsidiary, Riverview
Services, Inc., and the Bank's majority-owned subsidiary, Riverview Asset
Management Corp. ("RAM Corp."). All inter-company transactions and balances
have been eliminated in consolidation.
3. STOCK-BASED COMPENSATION
At September 30, 2004, the Bank had two stock-based employee compensation
plans. The Bank accounts for those plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no stock-based compensation cost is reflected in net income as
all options granted under the Bank's plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. The
following illustrates the effect on net income and earnings per share if the
Bank had applied the fair value recognition provision of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" to stock-based compensation awards:
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Net income (in thousands):
As reported $1,902 $1,918 $4,101 $3,418
Deduct: Total stock based
compensation expense determined
under fair value based method
for all options, net of related
tax benefit (23) (54) (47) (103)
------ ------ ------ ------
Pro forma 1,879 1,864 4,054 3,315
Earnings per common share - basic:
As reported $ 0.40 $ 0.41 $ 0.85 $ 0.76
Pro forma 0.39 0.40 0.84 0.72
Earnings per common share -
fully diluted:
As reported $ 0.39 $ 0.41 $ 0.84 $ 0.75
Pro forma 0.39 0.39 0.83 0.73
6
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income applicable
to common stock by the weighted average number of common shares outstanding
during the period, without considering the impact of any dilutive items.
Diluted EPS is computed by dividing net income applicable to common stock by
the weighted average number of common shares and common stock equivalents for
items that are dilutive, net of shares assumed to be repurchased using the
treasury stock method at the average share price for the Company's common
stock during the period. Common stock equivalents arise from assumed
conversion of outstanding stock options and from assumed vesting of shares
awarded but not released under the Company's Management Recognition
Development Plan ("MRDP") plan. Employee Stock Ownership Plan ("ESOP") shares
are not considered outstanding for earnings per share purposes until they are
committed to be released.
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------------------
2004 2003 2004 2003
------- ------- ------- -------
Basic EPS computation:
Numerator-Net income $1,902,000 $1,918,000 $4,101,000 $3,418,000
Denominator-Weighted average
common shares outstanding 4,812,154 4,653,314 4,801,528 4,513,117
Basic EPS $ 0 .40 $ 0.41 $ 0 .85 $ 0.76
========== ========== ========== ==========
Diluted EPS computation:
Numerator-Net Income $1,902,000 $1,918,000 $4,101,000 $3,418,000
Denominator-Weighted average
common shares outstanding 4,812,154 4,653,314 4,801,528 4,513,117
Effect of dilutive stock
options 73,293 71,671 73,618 69,675
Effect of dilutive MRDP
shares - 3,265 - 3,129
---------- ---------- ---------- ----------
Weighted average common
shares and common stock
equivalents 4,885,447 4,728,250 4,875,146 4,585,921
Diluted EPS $ 0.39 $ 0.41 $ 0.84 $ 0.75
========== ========== ========== ==========
5. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities
available for sale consisted of the following (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2004
- ------------------
Trust Preferred $ 5,000 $ 19 $ - $ 5,019
U.S. Agency securities 9,000 26 (2) 9,024
U.S. Government Equity
securities 12,700 - (1,100) 11,600
Municipal bonds 4,012 158 - 4,170
------- ---- ------- -------
Total $30,712 $203 $(1,102) $29,813
======= ==== ======= =======
March 31, 2004
- --------------
Trust Preferred $ 5,000 $ 19 $ - $ 5,019
U.S Agency securities 11,000 194 - 11,194
U.S. Government Equity
securities 12,700 - (300) 12,400
Municipal bonds 4,051 219 - 4,270
------- ---- ------- -------
Total $32,751 $432 $ (300) $32,883
======= ==== ======= =======
7
The contractual maturities of investment securities available for sale are as
follows (in thousands):
Amortized Estimated
September 30, 2004 Cost Fair Value
- ------------------ --------- ----------
Due after one year through five years $ 10,412 $ 10,521
Due after five years through ten years 530 571
Due after ten years (1) 19,770 18,721
-------- --------
Total $ 30,712 $ 29,813
======== ========
(1) Includes U.S. Government equity securities with an amortized cost of
$12,700 and estimated fair value of $11,600 that are redeemable by the
agencies every two years on the respective dividend reset dates.
Investment securities with an amortized cost of $15.0 million and $16.5
million and a fair value of $14.1 million and $16.3 million at September 30,
2004 and March 31, 2004, respectively, were pledged as collateral for advances
at the Federal Home Loan Bank ("FHLB") of Seattle. The Bank pledged
investment securities with an amortized cost of $344,000 and $500,000 and a
fair value of $361,000 and $504,000 at September 30, 2004 and March 31, 2004,
respectively, as collateral for treasury tax and loan funds.
The fair value of temporarily impaired securities, the amount of unrealized
losses and the length of time these unrealized losses existed as of September
30, 2004 are as follows (in thousands):
Less than 12 months 12 months or longer Total
-----------------------------------------------------------
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
----- ---------- ----- ---------- ----- ----------
U.S. Agency
securities $1,998 $ (3) $ - $ - $ 1,998 $ (3)
U.S. Government
Equity
securities - - 11,600 (1,100) 11,600 (1,100)
------ ----- ------- ------- ------- -------
Total temporarily
impaired
securities $1,998 $ (3) $11,600 $(1,100) $13,598 $(1,103)
====== ===== ======= ======= ======= =======
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. Despite the unrealized loss position of these
securities, we have concluded, as of September 30, 2004, that these
investments are not other-than-temporarily impaired. This assessment was based
on the following factors: i) the length of time and the extent to which the
market value has been less than cost; ii) the financial condition and
near-term prospects of the issuer; iii) the intent and ability of the Company
to retain its investment in a security for a period of time sufficient to
allow for any anticipated recovery in market value; and iv) general market
conditions which reflect prospects for the economy as a whole, including
interest rates and sector credit spreads.
The Company realized no gains or losses on sales of investment securities
available for sale for the six-month periods ended September 30, 2004 and
2003.
6. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2004
- ------------------
Real estate mortgage
investment conduits $ 1,802 $ 39 $ - $ 1,841
FHLMC mortgage-backed
securities 281 7 - 288
FNMA mortgage-backed
securities 345 13 - 358
------- ----- ----- -------
Total $ 2,428 $ 59 $ - $ 2,487
======= ===== ===== =======
March 31, 2004
- --------------
Real estate mortgage
investment conduits $ 1,802 $ 55 $ - $ 1,857
FHLMC mortgage-backed
securities 332 8 - 340
FNMA mortgage-backed
securities 383 11 - 394
------- ----- ----- -------
Total $ 2,517 $ 74 $ - $ 2,591
======= ===== ===== =======
The contractual maturities of mortgage-backed securities classified as held to
maturity are as follows (in thousands):
8
Amortized Estimated
September 30, 2004 Cost Fair Value
- ------------------ --------- ----------
Due after one year through five years $ 28 $ 28
Due after five years through ten years 26 28
Due after ten years 2,374 2,431
------ ------
Total $2,428 $2,487
====== ======
Mortgage-backed securities held to maturity with an amortized cost of $1.8
million and $1.8 million and a fair value of $1.9 million and $1.9 million at
September 30, 2004 and March 31, 2004, respectively, were pledged as
collateral for governmental public funds held by the Bank. Mortgage-backed
securities held to maturity with an amortized cost of $289,000 and $332,000
and a fair value of $300,000 and $341,000 at September 30, 2004 and March 31,
2004, respectively, were pledged as collateral for treasury tax and loan funds
held by the Bank. The real estate mortgage investment conduits consist of
Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage
Association ("FNMA") securities.
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 2004
- ------------------
Real estate mortgage
investment conduits $ 2,244 $ 51 $ - $ 2,295
FHLMC mortgage-backed
securities 10,917 80 (8) 10,989
FNMA mortgage-backed
securities 284 11 - 295
------- ----- ----- -------
Total $13,445 $ 142 $ (8) $13,579
======= ===== ===== =======
March 31, 2004
- --------------
Real estate mortgage
investment conduits $ 2,943 $ 72 $ - $ 3,015
FHLMC mortgage-backed
securities 7,086 104 - 7,190
FNMA mortgage-backed
securities 388 14 - 402
------- ----- ----- -------
Total $10,417 $ 190 $ - $10,607
======= ===== ===== =======
The contractual maturities of mortgage-backed securities available for sale
are as follows (in thousands):
Amortized Estimated
September 30, 2004 Cost Fair Value
- ------------------ --------- ----------
Due after one year through five years $ 2,033 $ 2,079
Due after five years through ten years 9,287 9,325
Due after ten years 2,125 2,175
------- -------
Total $13,445 $13,579
======= =======
Expected maturities of mortgage-backed securities held to maturity and
available for sale will differ from contractual maturities because borrowers
may have the right to prepay obligations with or without prepayment penalties.
Mortgage-backed securities available for sale with an amortized cost of $13.2
million and $9.9 million and a fair value of $13.3 million and $10.1 million
at September 30, 2004 and March 31, 2004, respectively, were pledged as
collateral for advances at the FHLB. Mortgage-backed securities available for
sale with an amortized cost of $74,000 and $105,000 and a fair value of
$77,000 and $111,000 at September 30, 2004 and March 31, 2004, respectively,
were pledged as collateral for treasury tax and loan funds held by the Bank.
The fair value of temporarily impaired securities, the amount of unrealized
losses and the length of time these unrealized losses existed as of September
30, 2004 are as follows (in thousands):
Less than 12 months 12 months or longer Total
-----------------------------------------------------------
Description of Fair Unrealized Fair Unrealized Fair Unrealized
Securities Value Losses Value Losses Value Losses
----- ---------- ----- ---------- ----- ----------
Mortgage-backed
securities $4,754 $ (8) $ - $ - $4,754 $ (8)
------ ----- ----- ------ ------ -----
Total
temporarily
impaired
securities $4,754 $ (8) $ - $ - $4,754 $ (8)
====== ===== ===== ====== ====== =====
9
The Company has evaluated these securities and has determined that the decline
in the value is temporary and not related to any company or industry specific
event. The Company has the ability and intent to hold the securities for a
reasonable period of time for a forecasted recovery of the amortized cost in
the event of a more favorable market interest rate environment.
The Company realized no gains or losses on sales of mortgage-backed securities
available for sale for the six months ended September 30, 2004 and 2003.
7. LOANS RECEIVABLE
Loans receivable excluding loans held for sale consisted of the following (in
thousands):
September 30, March 31,
2004 2004
------------- ---------
Residential:
One-to-four-family $ 40,841 $ 44,194
Multi-family 4,060 5,074
Construction:
One-to-four-family 63,317 78,094
Commercial real estate 1,453 1,453
Commercial 58,965 57,702
Consumer:
Secured 29,896 26,908
Unsecured 1,897 1,689
Land 28,790 27,020
Commercial real estate 193,497 177,785
-------- --------
422,716 419,919
Less:
Undisbursed portion of loans 29,330 31,204
Deferred loan fees 2,899 3,107
Allowance for loan losses 4,424 4,481
-------- --------
Loans receivable, net $386,063 $381,127
======== ========
Most of the Bank's business activity is with customers located in the states
of Washington and Oregon. Loans and extensions of credit outstanding at one
time to one borrower are generally limited by federal regulation to 15% of the
Bank's shareholders' equity, excluding accumulated other comprehensive income.
As of September 30, 2004 and March 31, 2004, the Bank had no loans to one
borrower in excess of the regulatory limit and also had no individual industry
concentrations of credit.
8. ALLOWANCE FOR LOAN LOSSES
A reconciliation of the allowance for loan losses is as follows (in
thousands):
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------------------
2004 2003 2004 2003
------ ------ ------ -------
Beginning balance $ 4,489 $ 2,793 $ 4,481 $ 2,739
Provision for losses 50 - 190 70
Charge-offs (263) (227) (396) (242)
Recoveries 148 38 149 38
Acquisition - 2,639 - 2,639
Net change in allowance for
unfunded loan commitments and
lines of credit - (38) - (39)
------- ------- ------- -------
Ending balance $ 4,424 $ 5,205 $ 4,424 $ 5,205
======= ======= ======= =======
10
Changes in the allowance for unfunded loan commitments and lines of credit
were as follows (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------
2004 2003 2004 2003
------ ------ ------ ------
Beginning balance $ 179 $ 176 $ 191 $ 175
Net change in allowance for
unfunded loan commitments and
lines of credit 28 38 16 39
----- ----- ----- -----
Ending balance $ 207 $ 214 $ 207 $ 214
===== ===== ===== =====
The allowance for unfunded loan commitments is included in other liabilities
on the consolidated balance sheets. Beginning the quarter ending June 30,
2004, the provision for unfunded commitments was charged to non-interest
expense and prior to this it was charged to the allowance for loan losses.
The change was made to conform the accounting to both GAAP and regulatory
accounting.
At September 30, 2004 and March 31, 2004, the Company's recorded investment in
impaired loans was $1.3 million and $1.3 million respectively. As of September
30, 2004 there were no loans classified as impaired requiring an allowance for
loan losses in accordance with SFAS 114 (as amended by SFAS 118). A loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts (principal and interest) due according to the contractual
terms of the loan agreement. When a loan has been identified as being
impaired, the amount of the impairment is measured by using discounted cash
flows, except, when, as a practical expedient, the current fair value of the
collateral, reduced by costs to sell is used. The average investment in
impaired loans was approximately $1.3 million, $716,000 and $1.2 million
during the six months ended September 30, 2004, September 30, 2003 and the
year ended March 31, 2004, respectively. Interest income recognized on
impaired loans was $5,000, $4,000 and $44,000 for the six months ended
September 30, 2004, September 30, 2003 and the year ended March 31, 2004,
respectively. There were $163,000 loans past due 90 days or more and still
accruing interest at September 30, 2004 and none at March 31, 2004.
9. LOANS HELD FOR SALE
The Company identifies loans held for sale at the time of origination, which
are carried at the lower of aggregate cost or net realizable value. Market
values are derived from available market quotations for comparable pools of
mortgage loans. Adjustments for unrealized losses, if any, are charged to
income.
10. MORTGAGE SERVICING RIGHTS
The following table is a summary of the activity in mortgage servicing rights
("MSRs") and the related allowance for the periods indicated and other related
financial data (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------------------
2004 2003 2004 2003
------- ------- ------ ------
Balance at beginning of period, net $ 601 $ 481 $ 624 $ 629
Additions 31 60 71 131
Amortization (70) (165) (149) (345)
Change in valuation allowance 2 342 18 303
----- ----- ----- -----
Balance at end of period, net $ 564 $ 718 $ 564 $ 718
===== ===== ===== =====
Valuation allowance at beginning
of period $ 90 $ 452 $ 106 $ 413
Change in valuation allowance (2) (342) (18) (303)
----- ----- ----- -----
Valuation allowance balance at end
of period $ 88 $ 110 $ 88 $ 110
===== ===== ===== =====
The Company evaluates MSRs for impairment by stratifying MSRs based on the
predominant risk characteristics of the underlying financial assets. At
September 30, 2004 and March 31, 2004, the fair value of MSRs totaled $1.1
million and $669,000, respectively. The September 30, 2004 fair value was
estimated using a discount rate of 9.04% and a range of PSA values (the Bond
Market Association's standard prepayment values) that ranged from 140 to 920.
11
Amortization expense for the net carrying amount of MSRs at September 30, 2004
is estimated as follows (in thousands):
Year Ending
March 31,
-------------------
2005 $108
2006 159
2007 100
2008 92
2009 73
After 2009 32
----
Total $564
====
11. CORE DEPOSIT INTANGIBLE
Net unamortized core deposit intangible totaled $643,000 at September 30, 2004
and $999,000 at September 30, 2003. Amortization expense related to the core
deposit intangible during the three months ended September 30, 2004 and 2003
totaled $34,000 and $107,000, respectively. During the three months ended
September 30, 2003, the Company had additions to core deposit intangibles
totaling $820,000 in connection with the acquisition of Today's Bancorp, Inc.
("Today's Bancorp").
Remaining amortization expense for the net core deposit intangible at
September 30, 2004 is estimated to be as follows (in thousands):
Year Ending
March 31,
---------------
2005 $ 65
2006 116
2007 98
2008 83
2009 71
After 2009 210
----
Total $643
====
12. BORROWINGS
Borrowings are summarized as follows (in thousands):
At September 30, 2004 At March 31, 2004
--------------------- -----------------
Federal Home Loan Bank advances $40,000 $40,000
Weighted average interest rate: 4.93% 4.88%
Borrowings have the following maturities at September 30, 2004 (in thousands):
Year Ending
March 31,
-----------------
2006 $ 15,000
2007 20,000
2008 5,000
-------
Total $40,000
=======
13. NEW ACCOUNTING PRONOUNCEMENTS
For the quarter ended September 30, 2004, there were no new accounting
pronouncements that will have a significant impact on the Company's financial
statements.
12
14. COMMITMENTS AND CONTINGENCIES
Off-balance Sheet Arrangements. The Company is a party to financial
instruments with off-balance sheet risk in the normal course of business to
meet the financing needs of its customers. These financial instruments
generally include commitments to originate mortgage, commercial and consumer
loans, and involve to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The Company's
maximum exposure to credit loss in the event of nonperformance by the borrower
is represented by the contractual amount of those instruments. Because some
commitments may expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company uses the
same credit policies in making commitments as it does for on-balance sheet
instruments. Commitments to extend credit are conditional and are honored for
up to 45 days subject to the Company's usual terms and conditions. Collateral
is not required to support commitments. The allowance for unfunded loan
commitments was $207,000 at September 30, 2004.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily used to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held varies and is
required in instances where the Bank deems necessary.
The following is a summary of commitments and contingent liabilities with
off-balance sheet risk as of September 30, 2004:
Contract or
Notional
(In Thousands) Amount
- -------------- -----------
Commitments to originate loans
Adjustable $ 7,665
Fixed 3,142
Standby letters of credit 146
Undisbursed portion of loan funds 29,330
Unused lines of credit 68,754
--------
Total $109,037
========
At September 30, 2004, the Company had firm commitments to sell $444,000 of
residential loans to FHLMC. These agreements are short-term, fixed-rate
commitments and no material gain or loss is likely.
Other Contractual Obligations. In connection with certain asset sales, the
Bank typically makes representations and warranties about the underlying
assets conforming to specified guidelines. If the underlying assets do not
conform to the specifications, the Bank may have an obligation to repurchase
the assets or indemnify the purchaser against loss. As of September 30, 2004,
loans under warranty totaled $126.3 million, which substantially represents
the unpaid principal balance of the Company's loans serviced for others
portfolio. The Bank believes that the potential for loss under these
arrangements is remote. Accordingly, no contingent liability is recorded in
the financial statements.
At September 30, 2004, scheduled maturities of certificates of deposit, FHLB
advances and future minimum operating lease commitments were as follows (in
thousands):
Within 1-3 4-5 Over Total
1 year Years Years 5 Years Balance
------- ------- ------- ------- --------
Certificates of deposit $77,543 $30,081 $28,203 $ 4,108 $139,935
FHLB advances 15,000 20,000 5,000 - 40,000
Operating leases 1,103 1,785 1,692 2,146 6,726
------- ------- ------- ------- --------
Total other contractual
obligations $93,646 $51,866 $34,895 $ 6,254 $186,661
======= ======= ======= ======= ========
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.
13
15. ACQUISITION
On July 18, 2003, the Company completed the acquisition of Today's Bancorp.
Each share of Today's Bancorp was exchanged for 0.826 shares of the Company's
common stock, or $13.64 in cash, or a combination thereof, resulting in the
issuance of 430,655 new shares. Total stock and cash consideration for Today's
Bancorp's was $17.2 million. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the assets and liabilities of
Today's Bancorp were recorded at their respective fair values. Core deposit
intangible is being amortized using an accelerated method over ten years.
Goodwill, the excess of the purchase price over net fair value of the assets
and liabilities acquired was recorded at $9.2 million. The goodwill is not
tax deductible because this was a nontaxable transaction. The purchased assets
and assumed liabilities were recorded as follows (in thousands):
Assets
- ------
Cash $ 17,054
Investments 6,895
Building and equipment 1,130
Loans 85,427
Core deposit intangible 820
Goodwill 9,214
Other, net 1,768
---------
Total Assets 122,308
Liabilities
- -----------
Deposits $(105,113)
---------
Net Acquisition costs $ 17,195
Less:
Stock issued in acquisition (7,347)
Cash Acquired (17,054)
---------
Cash used in acquisition, net
of cash acquired $ 7,206
=========
The following unaudited pro forma financials for the three and six months
ended September 30, 2004 and 2003 assume that the Today's Bancorp acquisition
occurred as of April 1, 2003, after giving effect to certain adjustments. The
pro forma results have been prepared for comparative purposes only and are not
necessarily indicative of the results of operations which may occur in the
future or that would have occurred had the Today's Bancorp acquisition been
consummated on the date indicated.
Pro Forma Financial Pro Forma Financial
Information for Information for
the Three Months Ended the Six Months Ended
September 30, September 30,
2004 2003 2004 2003
----------------------- ---------------------
(in thousands, except (in thousands except
per share data) per share data)
Net Interest Income $ 5,766 $ 5,594 $11,320 $11,157
Non-interest Income 1,698 2,055 4,338 3,763
Non-interest Expense 4,614 4,888 9,446 9,822
Net Income $ 1,902 $ 2,148 $ 4,101 $ 3,636
Earnings per common share:
Basic $ 0.40 $ 0.41 $ 0.85 $ 0.76
Diluted 0.39 0.41 0.84 0.75
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 such safe harbor with respect to all "forward-looking statements" contained
in our Quarterly Report. The Company has used "forward-looking statements" to
describe future plans and strategies, including its expectations of the
Company's future financial results. Management's
14
ability to predict results or the effect of future plans or strategies is
inherently uncertain. Factors which could affect actual results include
interest rate trends, the general economic climate in the Company's market
area and the country as a whole, the ability of the Company to control costs
and expenses, deposit flows, demand for mortgages and other loans, real estate
values and vacancy rates, the ability of the Company to efficiently
incorporate acquisitions into its operations, competition, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the "forward-looking statements," and undue reliance
should not be placed on such statements. The Company undertakes no obligation
to publish revised forward-looking statements to reflect the occurrence of
unanticipated events or circumstances after the date hereof.
Critical Accounting Policies
The Company has established various accounting policies that govern the
application of accounting principles generally accepted in the United States
of America ("GAAP") in the preparation of the Company's Consolidated Financial
Statements. The Company has identified four policies, that as a result of
judgments, estimates and assumptions inherent in those policies are critical
to an understanding of the Company's Consolidated Financial Statements. These
policies relate to the methodology for the determination of the allowance for
loan losses, the impairment of goodwill, the valuation of the mortgage
servicing rights and the impairment of investments. These policies and the
judgments, estimates and assumptions are described in greater detail in
subsequent sections of Management's Discussions and Analysis and in the notes
to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended March 31, 2004. Management believes
that the judgments, estimates and assumptions used in the preparation of the
Company's Consolidated Financial Statements are appropriate given the factual
circumstances at the time. However, given the sensitivity of the Company's
Consolidated Financial Statements to these critical accounting policies, the
use of other judgments, estimates and assumptions could result in material
differences in the Company's results of operations or financial condition.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is maintained at a level sufficient to provide
for probable loan losses based on evaluating known and inherent risks in the
loan portfolio. The allowance is provided based upon management's continuing
analysis of the pertinent factors underlying the quality of the loan
portfolio. These factors include changes in the size and composition of the
loan portfolio, actual loan loss experience, current economic conditions, and
detailed analysis of individual loans for which full collectibility may not be
assured. The detailed analysis includes techniques to estimate the fair value
of loan collateral and the existence of potential alternative sources of
repayment. The appropriate allowance level is estimated based upon factors and
trends identified by management at the time the consolidated financial
statements are prepared.
Goodwill
- --------
Goodwill is initially recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired. Goodwill is presumed to have an indefinite useful life and
is tested, at least annually, for impairment at the reporting unit level. We
perform an annual review in the fourth quarter of each year, or more
frequently if indicators of potential impairment exist, to determine if the
recorded goodwill is impaired. Our impairment review process compares the
fair value of the Bank to its carrying value, including the goodwill related
to the Bank. If the fair value exceeds the carrying value, goodwill of the
Bank unit is not considered impaired and no additional analysis is necessary.
As of September 30, 2004, there have been no events or changes in
circumstances that would indicate a potential impairment.
Mortgage Servicing Rights
- -------------------------
The Company stratifies its MSRs based on the predominant characteristics of
the underlying financial assets, including coupon interest rate and
contractual maturity of the mortgage. An estimated fair value of MSRs is
determined quarterly using a discounted cash flow model. The model estimates
the present value of the future net cash flows of the servicing portfolio
based on various factors, such as servicing costs, servicing income, expected
prepayments speeds, discount rate, loan maturity and interest rate. The effect
of changes in market interest rates on estimated rates of loan prepayments
represents the predominant risk characteristic underlying the MSRs portfolio.
The Company's methodology for estimating the fair value of MSRs is highly
sensitive to changes in assumptions. For example, the determination of fair
value uses anticipated prepayment speeds. Actual prepayment experience may
differ and any difference may have a material effect on the fair value. Thus,
any measurement of fair value of MSRs is limited by the existing conditions
and assumptions made as of the date of analysis. Those assumptions may not be
appropriate if they are applied to a different time.
15
Future expected net cash flows from servicing a loan in the servicing
portfolio would not be realized if the loan is paid off earlier than
anticipated. Moreover, because most loans within the servicing portfolio do
not contain penalty provisions for early payoff, the Company will not receive
a corresponding economic benefit if the loan pays off earlier than expected.
MSRs are the discounted present value of the future net cash flows projected
from the servicing portfolio. Accordingly, prepayment risk subjects the
Company's MSRs to impairment. MSR impairment is recorded in the amount that
the estimated fair value is less than the MSRs' carrying value on a strata by
strata basis.
Investment Valuation
- --------------------
The Company's determination of impairment for various types of investments
accounted for in accordance with SFAS No. 115 is predicated on the notion of
other-than-temporary. The key indicator that an investment may be impaired is
that the fair value of the investment is less than its carrying value. Each
reporting period, the Company reviews those investments for which the fair
value is less than the carrying value. The review includes determining
whether certain indicators demonstrate the fair value of the investment has
been negatively impacted. These indicators include deteriorating financial
condition, regulatory, economic or technological changes, downgrade by a
rating agency and length of time the fair value has been less than carrying
value. If the fair value of the investment is less than the carrying value of
the investment, the investment is considered impaired and a determination must
be made as to whether the impairment is other-than-temporary.
Securities held to maturity are carried at cost, adjusted for amortization of
premiums and accretion of discounts which are recognized in interest income
using the interest method. If the cost basis of these securities is
determined to be other-than-temporary impaired, the amount of the impairment
is charged to operations.
Securities available for sale are carried at fair value. Premiums and
discounts are amortized using the interest method over the remaining period to
contractual maturity. Unrealized holding gains and losses, or valuation
allowances established for net unrealized losses, are excluded from earnings
and reported as a separate component of shareholders' equity as accumulated
other comprehensive income (loss), net of income taxes, unless the security is
deemed other-than-temporary impaired. If the security is determined to be
other-than-temporary impaired, the amount of the impairment is charged to
operations.
An impairment shall be deemed other-than-temporary unless positive evidence
indicating that the investment's carrying value is recoverable within a
reasonable period of time outweighs negative evidence to the contrary.
Evidence that is objectively determinable and verifiable is given greater
weight than evidence that is subjective and or not verifiable. Evidence based
on future events will generally be less objective as it is based on future
expectations and therefore is generally less verifiable or not verifiable at
all. Factors considered in evaluating whether a decline in value is
other-than-temporary include, (a) the length of time and the extent to which
the fair value has been less than amortized cost, (b) the financial condition
and near-term prospects of the issuer and (c) our intent and ability to retain
the investment for a period of time. In situations in which the security's
fair value is below amortized cost but it continues to be probable that all
contractual terms of the security will be satisfied, and that the decline is
due solely to changes in interest rates (not because of increased credit
risk), and the Company asserts that it has positive intent and ability to hold
that security to maturity, no other-than-temporary impairment is recognized.
General
A progressive, community-oriented financial institution, the Company
emphasizes local, personal service to residents of its primary market area,
which encompasses Clark, Cowlitz, Klickitat and Skamania Counties in
Washington State. The Company is engaged primarily in the business of
attracting deposits from the general public and using these funds to originate
loans for commercial and consumer purposes in its primary market area.
The Company continues to change the composition of its loan portfolio and
deposit base as part of the transition to commercial banking. Commercial real
estate loans and commercial loans have grown from 15.72% and 5.87% of the loan
portfolio at March 31, 2000, to 46.1% and 14.0% at September 30, 2004.
The Company's strategic plan includes the diversification of its loan
portfolio to include a larger portion of commercial and commercial real estate
loans. Targeting the commercial banking customer base, specifically small-
and medium-sized businesses, professionals and wealth building individuals
within the Company's primary market area, is an objective of the Company.
Significant portions of the growing commercial loan portfolio carry adjustable
16
rates, higher yields or shorter terms, and higher credit risk than traditional
fixed-rate mortgages. The strategic plan stresses increased emphasis on
non-interest income, including increased fees for asset management and deposit
service charges. This focus is designed to enhance earnings and reduce
interest rate risk.
A related goal is to increase the proportion of personal and business checking
account deposits and provide a more complete range of financial services to
customers in the local communities. Whether increasing loan portfolio size or
deposit base, the Company will continue to emphasize controlled growth. The
Company is well positioned to attract new customers and to increase its market
share given that the administrative headquarters and nine of its thirteen
branches are located in Clark County, which is one of the fastest growing
counties in the state, according to the U.S. Census Bureau 2000 census.
In order to support its strategy of growth without compromising its local,
personal service to its customers and a commitment to asset quality, the
Company has made significant investments in experienced branch, lending, asset
management and support personnel and has incurred significant costs in
facility expansion. The Company's efficiency ratios reflect this investment
and will remain relatively high by industry standards for the foreseeable
future due to the emphasis on growth and local, personal service. Control of
non-interest expenses remains a high priority for the Company's management.
The Company continuously reviews new products and services to give its
customers more financial options. With an emphasis on growth of non-interest
income and control of non-interest expense, all new technology and services
are reviewed for business development and cost saving purposes. The in house
processing of checks and production of images has supported the Bank's
increased service to customers and at the same time has increased efficiency.
The Company continues to experience growth in customer use of the online
banking services. Customers are able to conduct a full range of services on a
real-time basis, including balance inquiries, transfers and electronic bill
paying. This online service has also enhanced the delivery of cash management
services to commercial customers. The internet banking web site is
www.riverviewbank.com.
Market Area
With its home office and six branches in Vancouver, Washington and branch
offices in Camas, Washougal, Stevenson, White Salmon, Battle Ground,
Goldendale and Longview, the Company continues to provide local, personal
service to its customers. The market area for lending and deposit taking
activities encompasses Clark, Cowlitz, Skamania and Klickitat Counties,
throughout the Columbia River Gorge area.
The Company operates a trust and financial services company, RAM Corp.,
located in downtown Vancouver. Riverview Mortgage, a mortgage broker division
of the Company, originates mortgage (including construction) loans for various
mortgage companies in the Portland metropolitan area, as well as for the
Company. Commercial and business banking services are offered by the Business
and Professional Banking Division located at the downtown Vancouver branch.
Vancouver, located in Clark County, is north of Portland, Oregon. Several
large employers including Sharp Microelectronics, Hewlett Packard, Georgia
Pacific, Underwriters Laboratory and Wafer Tech are located in Clark County.
In addition to the expanding industry base, the Columbia River Gorge is a
popular tourist destination, generating revenue for all the communities with
the area. As a result, Southwest Washington's economy has become less
dependent on the timber industry.
Comparison of Financial Condition at September 30, 2004 and March 31, 2004
At September 30, 2004, the Company had total assets of $525.5 million,
compared with $520.5 million at March 31, 2004. The increase in total assets
was primarily due to an increase in net loans receivable.
Cash, including interest-earning accounts, totaled $49.6 million at September
30, 2004, compared to $47.9 million at March 31, 2004. The increase is
reflected in the increase in deposit accounts.
Loans held for sale increased $37,000 to $444,000 at September 30, 2004,
compared to $407,000 at March 31, 2004. The increase reflects the variable
demand for residential loan financing. As interest rates fall, loan volume
shifts to
17
fixed rate production. Conversely, in a rising interest rate environment, loan
volume will shift to adjustable rate production. The Company originates
fixed-rate residential loans for sale in the secondary market and retains the
related loan servicing rights. Selling fixed interest rate mortgage loans
allows the Company to reduce the interest rate risk associated with long term,
fixed interest rate products. It also frees up funds to make new loans and
diversify the loan portfolio. We continue to service the loans we sell,
maintaining the customer relationship and generating ongoing non-interest
income.
Loans receivable, net, were $386.1 million at September 30, 2004, compared to
$381.1 million at March 31, 2004. Commercial real estate loans increased $15.7
million, consumer loans increased $3.2 million and land loans increased $1.8
million, which offset decreases of $14.8 million in net residential
construction loans and $4.4 million in residential loans. A substantial
portion of the Company's loan portfolio is secured by real estate, either as
primary or secondary collateral, located in its primary market areas.
Investment securities available-for-sale totaled $29.8 million at September
30, 2004, compared to $32.9 million at March 31, 2004. The decrease of $3.1
million was primarily due to pay downs.
Mortgage-backed securities held-to-maturity totaled $2.4 million at September
30, 2004, relatively unchanged from March 31, 2004.
Mortgage-backed securities available-for-sale were $13.6 million at September
30, 2004, compared to $10.6 million at March 31, 2004. The $3.0 million net
increase reflects a $5.0 million in purchases and $2.0 million in pay downs
and unrealized market gains and losses.
Bank-owned life insurance increased to $12.4 million at September 30, 2004,
from $12.1 million at March 31, 2004. The $300,000 increase reflects an
increase in cash surrender value of the policies.
Prepaid expenses and other assets were $1.2 million at September 30, 2004,
compared to $1.3 million at March 31, 2004.
Deposit accounts totaled $411.7 million at September 30, 2004, compared to
$409.1 million at March 31, 2004. The total average outstanding balance of
checking accounts and money market accounts ("transaction accounts") increased
3.8% to $267.4 million for the quarter ended September 30, 2004, compared to
$257.6 million for the quarter ended March 31, 2004. Transaction accounts
represented 65.9% and 65.3% of average total outstanding balance of deposits
for the quarters ended September 30, 2004 and March 31, 2004, respectively.
The quarterly average outstanding balance of certificates of deposit increased
$1.6 million to $138.3 million, compared to $136.7 million for the quarter
ended March 31, 2004.
FHLB advances were $40.0 million at both September 30, 2004 and March 31,
2004.
Shareholders' Equity and Capital Resources
Shareholders' equity increased $2.5 million to $67.7 million at September 30,
2004 from $65.2 million at March 31, 2004. The increase was primarily as a
result of the $3.4 million total comprehensive income, $215,000 exercise of
stock options and $399,000 earned ESOP shares, partially offset by $1.5
million in cash dividends paid to shareholders.
The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision ("OTS"), its primary federal regulator.
Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items as calculated in accordance with regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk, weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total capital to
risk-weighted assets, Tier I capital to risk-weighted assets, core capital to
total
18
assets and tangible capital to tangible assets (set forth in the table below).
Management believes the Bank meets all capital adequacy requirements to which
it was subject at September 30, 2004.
As of September 30, 2004, the most recent notification from the OTS
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized," the Bank
must maintain minimum total capital and Tier I capital to risk weighted
assets, core capital to total assets and tangible capital to tangible assets
(set forth in the table below). There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual and required minimum capital amounts and ratios are
presented in the following table (dollars in thousands):
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provision
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
September 30, 2004
Total Capital:
(To Risk Weighted
Assets) $ 54,603 12.71% $ 34,370 8.0% $ 42,963 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 50,179 11.68 17,185 4.0 25,778 6.0
Tier I Capital:
(To Adjusted
Tangible Assets) 50,179 9.89 15,226 3.0 25,377 5.0
Tangible Capital:
(To Tangible
Assets) 50,179 9.89 7,613 1.5 N/A N/A
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provision
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
March 31, 2004
Total Capital:
(To Risk Weighted
Assets) $ 53,952 12.78% $ 33,760 8.0% $ 42,200 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 49,471 11.72 16,880 4.0 25,320 6.0
Tier I Capital:
(To Adjusted
Tangible Assets) 49,471 9.81 15,125 3.0 25,209 5.0
Tangible Capital:
(To Tangible
Assets) 49,471 9.81 7,563 1.5 N/A N/A
The following table is a reconciliation of the Bank's capital, calculated
according to generally accepted accounting principles to regulatory tangible
and risk-based capital at September 30, 2004 (in thousands):
Equity $59,762
Net unrealized securities loss 505
Goodwill and other intangibles (10,032)
Servicing asset (56)
-------
Tangible capital 50,179
Allowance for loan losses 4,424
-------
Total capital $54,603
=======
19
Liquidity
The Bank's primary source of funds are customer deposits, proceeds from
principal and interest payments on loans, the sale of loans, maturing
securities and FHLB advances. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At September 30,
2004, cash totaled $49.6 million, or 9.4% of total assets. The Bank has a
line of credit with the FHLB of Seattle. The line of credit is 30% of total
assets to the extent the Bank provides qualifying collateral and holds
sufficient FHLB stock. At September 30, 2004, the Bank had $40.0 million of
outstanding advances from the FHLB of Seattle under an available credit
facility of $154.4 million, limited to available collateral.
Sources of capital and liquidity for the Company on a stand-alone basis
include distributions from the Bank and the issuance of debt or equity.
Dividends and other capital distributions from the Bank are subject to
regulatory restrictions.
Off-Balance Sheet Arrangements and Other Contractual Obligations
Through the normal course of operations, the Company has entered into certain
contractual obligations and other commitments. Our obligations generally
relate to funding of operations through deposits and borrowings as well as
leases for premises. Our commitments generally relate to our lending
operations.
The Company has obligations under long-term operating leases, principally for
building space and land. Lease terms generally cover a five year period, with
options to extend, and are non-cancelable.
The Company has commitments to originate fixed and variable rate mortgage
loans to customers. Because some commitments expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Undisbursed loan funds and unused lines of credit include funds
not disbursed, but committed to construction projects and home equity and
commercial lines of credit. Standby letters of credit are conditional
commitments issued by us to guarantee the performance of a customer to a third
party.
For further information regarding the company's off-balance sheet arrangements
and other contractual obligations, see Note 14 of the Notes to the
Consolidated Financial Statements.
Asset Quality
The allowance for loan losses was $4.4 million at September 30, 2004 and $4.5
million at March 31, 2004. Management believes the allowance for loan losses
at September 30, 2004 is adequate to cover probable credit losses existing in
the loan portfolio at that date. No assurances, however, can be given that
future additions to the allowance for loan losses will not be necessary. The
allowance for loan losses is maintained at a level sufficient to provide for
estimated loan losses based on evaluating known and inherent risks in the loan
portfolio. Pertinent factors considered include size and composition of the
portfolio, actual loss experience, industry trends and data, current economic
conditions, and detailed analysis of individual loans. The appropriate
allowance level is estimated based upon factors and trends identified by
management at the time the consolidated financial statements are prepared.
Commercial loans are considered to involve a higher degree of credit risk than
one-to-four-family residential loans, and tend to be more vulnerable to
adverse conditions in the real estate market and deteriorating economic
conditions.
20
Non-performing assets were $1.5 million, or 0.28% of total assets at September
30, 2004, compared with $2.0 million, or 0.39% of total assets at March 31,
2004. The $1.3 million balance of non-accrual loans is composed of two
residential real estate loans, two commercial real estate loans, one land loan
and eight commercial loans. The following table sets forth information
regarding the Company's non-performing assets.
September 30, 2004 March 31, 2004
------------------ --------------
(dollars in thousands)
Loans accounted for on a
nonaccrual basis:
Residential real estate $ 236 $ 24
Commercial real estate 309 309
Land 475 31
Commercial 295 872
Consumer - 65
------ ------
Total 1,315 1,301
------ ------
Accruing loans which are contractually
past due 90 days or more 163 -
------ ------
Total of nonaccrual and 90 days past
due loans 1,478 1,301
------ ------
Real estate owned (net) - 742
------ ------
Total nonperforming assets $1,478 $2,043
====== ======
Total loans delinquent 90 days
or more to net loans 0.38% 0.34%
Total loans delinquent 90 days or
more to total assets 0.28% 0.25%
Total nonperforming assets to
total assets 0.28% 0.39%
Comparison of Operating Results for the Three Months Ended September 30, 2004
and 2003
Financial Highlights. Net income for the three months ended September 30,
2004 was $1.9 million, or $0.40 per basic share ($0.39 per diluted share),
compared to net income of $1.9 million, or $0.41 per basic share ($0.41 per
diluted share) for the three months ended September 30, 2003. The Company's
improved operating results reflect significant growth of average
interest-earning assets and a small decrease in interest-bearing liabilities.
The prior year's second fiscal quarter non-interest income included a $342,000
increase in the fair market value of mortgage servicing rights as compared to
the current quarter's $2,000 increase in fair value of mortgage servicing
rights.
The annualized return on average assets was 1.45% for the three months ended
September 30, 2004, compared to 1.48% for the three months ended September 30,
2003. For the same periods, the annualized return on average common equity
was 11.14% compared to 12.27%. In addition, the efficiency ratio (excluding
intangible asset amortization), which is defined as the percentage of
non-interest expenses to total revenue, was 60.81% compared to 61.44% for the
three months ended September 30, 2003.
Net Interest Income. The Company's profitability depends primarily on its net
interest income, which is the difference between the income it receives on
interest-earning assets and its cost of funds, which consists of interest paid
on deposits and borrowings. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The level of
non-interest income and expenses also affects the Company's profitability.
Non-interest income includes deposit service fees, income associated with the
origination and sale of mortgage loans, brokering loans, loan servicing fees,
income from real estate owned, net gains on sales of assets, bank-owned life
insurance income and asset management fee income. Non-interest expenses
include compensation and benefits, occupancy and equipment expenses, deposit
insurance premiums, data servicing
21
expenses and other operating costs. The Company's results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
regulation, and monetary and fiscal policies.
Net interest income for the three months ended September 30, 2004 was $5.8
million, representing a $361,000, or a 6.7% increase, compared to the same
prior year period. This improvement reflected a 0.5% increase in the average
balance of interest-earning assets (primarily increases in the average balance
of commercial loans, commercial real estate loans, mortgage backed securities
and investment securities, partially offset by a decrease in the average
balance of residential mortgage loans and daily interest-bearing assets) to
$471.3 million. The average balance of interest-bearing liabilities decreased
by 3.3% or $12.9 million to $380.5 million. The increase in savings and money
market accounts was off-set by the decreases in NOW accounts and certificates
of deposit accounts. The ratio of average interest-earning assets to average
interest-bearing liabilities increased to 123.8% in the three month period
ended September 30, 2004 from 119.2% in the same prior year period. The ratio
indicates that the interest-earning asset growth is being funded less by
interest-bearing liabilities as compared to capital and non-interest-bearing
demand deposits.
Interest Income. Interest income totaled $7.5 million and $7.2 million, for
the three months ended September 30, 2004 and 2003, respectively. Average
interest-earning assets increased $2.2 million to $471.3 million for the three
months ended September 30, 2004 from $469.1 million for the same period in
2003. The yield on interest-earning assets was 6.38% for the three months
ended September 30, 2004 compared to 6.14% for the three months ended
September 30, 2003. The increased yield is primarily the result of a smaller
average balance of low interest earning daily interest-bearing assets at
September 30, 2004 as compared to September 30, 2003.
Interest Expense. Interest expense was $1.8 million for both the three months
ended September 30, 2004 and 2003. Average interest-bearing liabilities
decreased $12.9 million to $380.5 million for the three months ended September
30, 2004 from $393.5 million for the same prior year period. The weighted
average interest rate on total deposits was 1.47% and 1.48% for the three
months ended September 30, 2004 and 2003, respectively. The weighted average
interest rate of FHLB borrowings was 5.0% for the three months ended September
30, 2004 from 4.94% for same period in the prior year. The level of liquidity
in the second quarter of fiscal year 2005 allowed the runoff of high interest
rate deposits acquired in the acquisition of Today's Bancorp and held the FHLB
borrowings stable at $40.0 million.
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities, resultant yields,
interest rate spread, ratio of interest-earning assets to interest-bearing
liabilities and net interest margin.
22
Three Months Ended September 30,
----------------------------------------------------------------
2004 2003
---------------------------- ------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------ ------- --------- ------
(Dollars in thousands)
<s> <c> <c> <c> <c> <c> <c>
Interest-earning assets:
Residential mortgage loans $123,919 $ 2,406 7.70% $148,660 $ 2,921 7.80%
Commercial and consumer loans 265,075 4,591 6.87 219,838 3,806 6.87
-------- ------- ------ -------- ------- ------
Total net loans (1) 388,994 6,997 7.14 368,498 6,727 7.24
Mortgage-backed securities(2) 16,347 164 3.98 12,294 154 4.97
Investment securities(2), (3) 32,060 279 3.45 25,772 190 2.92
Daily interest-bearing assets 27,795 95 1.36 56,676 130 0.91
Other earning assets 6,078 41 2.68 5,835 63 4.28
-------- ------- ------ -------- ------- ------
Total interest-earning assets 471,274 7,576 6.38 469,075 7,264 6.14
Non-interest-earning assets:
Office properties and equipment,
net 8,541 10,348
Other non-interest-earning assets 40,079 33,199
-------- --------
Total assets $519,894 $512,622
======== ========
Interest-bearing liabilities:
Regular savings accounts $ 31,665 44 0.55 $ 27,616 39 0.56
NOW accounts 97,043 189 0.77 111,191 229 0.82
Money market accounts 73,550 189 1.02 68,380 158 0.92
Certificates of deposit 138,281 838 2.40 146,284 899 2.43
-------- ------- ------ -------- ------- ------
Total deposits 340,539 1,260 1.47 353,471 1,325 1.48
Other interest-bearing
liabilities 40,000 504 5.00 40,000 497 4.94
-------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities 380,539 1,764 1.84 393,471 1,822 1.84
Non-interest-bearing liabilities:
Non-interest-bearing deposits 65,166 54,268
Other liabilities 6,428 2,852
-------- --------
Total liabilities 452,133 450,591
Shareholders' equity 67,761 62,031
-------- --------
Total liabilities and
shareholders' equity $519,894 $512,622
======== ========
Net interest income $ 5,812 $ 5,442
======= =======
Interest rate spread 4.54% 4.30%
====== ======
Net interest margin 4.89% 4.60%
====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 123.84% 119.21%
====== ======
Tax Equivalent Adjustment $ 46 $ 37
======= =======
(1) Includes non-accrual loans.
(2) For purposes of the computation of average yield on investments available for sale, historical cost
balances were utilized, therefore, the yield information does not give effect to change in fair value
that are reflected as a component of shareholders' equity.
(3) Includes tax equivalent adjustment in interest income.
23
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company for the quarter ended September 30, 2004.
Variances that were immaterial have been allocated based upon the percentage
relationship of changes in volume and changes in rate to the total net change.
Three Months Ended September 30,
--------------------------------
2004 vs 2003
---------------------------------
Increase (Decrease)
Due to
-------------------- Total
Increase
Volume Rate (Decrease)
------- ------ ----------
(In thousands)
Interest Income:
Residential mortgage loans $ (480) $ (36) $ (516)
Commercial and consumer loans 783 2 785
Mortgage-backed securities 45 (35) 10
Investment securities (1) 51 38 89
Daily interest-bearing (83) 48 (35)
Other earning assets 3 (25) (22)
------ ----- ------
Total interest income 319 (8) 311
------ ----- ------
Interest Expense:
Regular savings accounts 6 (1) 5
NOW accounts (28) (12) (40)
Money market accounts 12 19 31
Certificates of deposit (51) (10) (61)
Other interest-bearing liabilities - 6 6
------ ----- ------
Total interest expense (61) 2 (59)
------ ----- ------
Net interest income (1) $ 380 $ (10) $ 370
====== ===== ======
(1) Taxable equivalent
Provision for Loan Losses. The provision for loan losses for the three-month
period ended September 30, 2004 was $50,000, compared to zero for the same
period in the prior year. Net charge-offs for the current period were
$115,000, compared to $189,000 for the same period of the prior year. The
ratio of allowance for loan losses to total net loans was 1.13% compared to
1.38% at September 30, 2003. Net charge-offs to average net loans for the
three-month period ended September 30, 2004 decreased to 0.12% from 0.20% for
the same period in the prior year. Significant improvement has been made both
in the dollar amount of loans classified and the mix of classified loans at
September 30, 2004 as compared to September 30, 2003. Loans classified as
substandard and doubtful have decreased $3.7 million from September 30, 2003
to September 30, 2004 Management considered the allowance for loan losses at
September 30, 2004 to be adequate to cover probable losses inherent in the
loan portfolio based on the assessment of various factors affecting the loan
portfolio.
Non-Interest Income. Non-interest income was $1.7 million for the quarter
ended September 30, 2004 compared to $2.0 million for the quarter ended
September 30, 2003. The prior year's second fiscal quarter included a
$342,000 increase in fair market value of mortgage servicing rights compared
to a $2,000 increase in the current quarter.
Reduced mortgage refinance activity resulted in gains on the sale of loans
decreasing $150,000 for the quarter ended September 30, 2004 to $137,000 from
$287,000 for the quarter ended September 30, 2003. For the same periods, loan
servicing income also included amortization of mortgage servicing rights of
$70,000 and $165,000, respectively. The decrease in amortization is due to
the reduction of early payoffs of loans sold with servicing retained. Asset
management services income was $257,000 for the quarter ended September 30,
2004, compared to $214,000 for the quarter ended September 30, 2003. RAMCorp.
had $155.6 million in total assets under management at September 30, 2004,
compared to $123.0 million at September 30, 2003.
Non-Interest Expense. Non-interest expense increased $36,000, or 0.8%, to $4.6
million for the three month period ended September 30, 2004, compared to $4.6
million for the three months ended September 30, 2003. One measure
24
of a bank's ability to contain non-interest expense is the efficiency ratio.
It is calculated by dividing total non-interest expense (less intangible asset
amortization) by the sum of net interest income plus non-interest income (less
intangible asset amortization and lower of cost or market adjustments). The
Company's efficiency ratio excluding intangible asset amortization and lower
cost or market adjustments was 60.81% for the three months ended September 30,
2004, compared to 61.44% for the same period in the prior year.
The principal component of the Company's non-interest expense is salaries and
employee benefits. For the three months ended September 30, 2004, salaries
and employee benefits, which include mortgage broker commission compensation,
was $2.6 million, a 3.4% increase over the three months ended September 30,
2003 total of $2.5 million. Full-time equivalent employees increased to 186 at
September 30, 2004 from 178 at September 30, 2003. The majority of the
increase in full-time equivalent employees is due to increased staffing at
retail branches.
The July 2003 acquisition of Today's Bancorp and the related acquisition of
$105.1 million in deposits accounts created an $820,000 core deposit
intangible ("CDI"), representing the excess of cost over fair market of
acquired deposits. The CDI is being amortized over a ten-year life using an
accelerated amortization method. The amortization expense was $34,000 for the
three months ended September 30, 2004.
The acquisition of the Hazel Dell and Longview branches from the Resolution
Trust Corporation in fiscal 1995 and the related acquisition of $42.0 million
in customer deposits created a $3.2 million CDI. The amortization expense was
none for the three months ended September 30, 2004 compared to $82,000 for the
prior year period. As of June 30, 2004, this CDI is fully amortized.
Provision for Federal Income Taxes. Provision for federal income taxes was
$898,000 for the three months ended September 30, 2004, compared to $958,000
for the three months ended September 30, 2003 as a result of lower income
before taxes. The effective tax rate for three months ended September 30, 2004
was 32.1% compared to 33.3% for the three months ended September 30, 2003.
The effective tax rate declined from the prior quarter, reflecting the impact
of the purchase of bank-owned life insurance.
Comparison of Operating Results for the Six Months Ended September 30, 2004
and 2003
Financial Highlights. Net income for the six months ended September 30, 2004
was $4.1 million, or $0.85 per basic share ($0.84 per diluted share), compared
to net income of $3.4 million, or $0.76 per basic share ($0.75 per diluted
share) for the six months ended September 30, 2003. The Company's improved
operating results reflect growth in average interest earning-assets and
interest-bearing liabilities, combined with an $828,000 gain on the sale and
leaseback of the Company's Camas branch and operations center.
The annualized return on average assets was 1.59% for the six months ended
September 30, 2004, compared to 1.48% for the six months ended September 30,
2003. For the same periods, the annualized return on average common equity
was 12.21% compared to 11.58%. In addition, the efficiency ratio (excluding
intangible asset amortization), which is defined as the percentage of
noninterest expenses to total revenue, improved slightly to 59.10% compared to
60.59% for the six months ended September 30, 2003.
Net Interest Income. Net interest income for the six months ended September
30, 2004 was $11.3 million, representing a $1.3 million, or a 12.8% increase,
compared to the same prior year period. This improvement reflected a 9.7%
increase in the average balance of interest-earning assets (primarily
increases in the average balance of commercial loans and investment
securities, partially offset by a decrease in the average balance of
residential mortgage loans and daily interest-earning assets) to $464.9
million. The increase in interest-earning assets was offset by a 11.06%
increase in average balance of interest-bearing liabilities (an increase in
all deposit categories) to $378.1 million. The ratio of average
interest-earning assets to average interest-bearing liabilities decreased to
123.0% in the six-month period ended September 30, 2004 from 124.5% 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 $14.6 million and $13.4 million, for
the six months ended September 30, 2004 and 2003, respectively. Average
interest-earning assets increased $40.9 million to $464.9 million for the six
months ended September 30, 2004 from $423.9 million for the same period in
2003. The yield on interest-earning
25
assets was 6.31% for the six months ended September 30, 2004 compared to 6.32%
for the six months ended September 30, 2003. The slightly decreased yield
reflects the mixture of interest rate changes experienced during this period
in the prime rate and other indexes used to price existing variable rate loans
and new fixed and adjustable loan originations.
Interest Expense. Interest expense was $3.3 million for both the six months
ended September 30, 2004 and 2003. Average interest-bearing liabilities
increased $37.6 million to $378.1 million for the six months ended September
30, 2004 from $340.4 million for the same prior year period. The lack of
change in interest expense reflects the fact that lower rates of interest paid
on deposits and FHLB borrowings were offset by the increased balance of
deposits when comparing average balances at September 30, 2004 and September
30, 2003. The weighted average interest rate on total deposits decreased to
1.36% for the six months ended September 30, 2004 from 1.55% for the same
period in the prior year. The weighted average interest rate of FHLB
borrowings decreased to 4.92% for the six months September 30, 2004 from 4.95%
for same period in the prior year. The level of liquidity in the first six
months of fiscal year 2005 allowed the runoff of high interest rate deposits
acquired in the acquisition of Today's Bancorp and held the FHLB borrowings
stable at $40.0 million.
26
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.
Six Months Ended September 30,
----------------------------------------------------------------
2004 2003
---------------------------- ------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ------ ------- --------- ------
(Dollars in thousands)
<s> <c> <c> <c> <c> <c> <c>
Interest-earning assets:
Residential mortgage
loans $129,379 $ 4,936 7.61% $152,998 $ 5,958 7.77%
Commercial and consumer loans 259,979 8,687 6.66 184,232 6,438 6.97
-------- ------- ------ -------- ------- ------
Total net loans (1) 389,358 13,623 6.98 337,230 12,396 7.33
Mortgage-backed securities(2) 16,266 324 3.97 13,442 335 4.97
Investment securities(2)(3) 32,398 557 3.43 23,033 358 3.10
Daily interest-bearing assets 20,783 126 1.21 44,470 221 0.99
Other earning assets 6,056 85 2.80 5,741 123 4.27
-------- ------- ------ -------- ------- ------
Total interest-earning assets 464,861 14,715 6.31 423,916 13,433 6.32
Non-interest-earning assets:
Office properties and equipment,
net 9,093 9,955
Other non-interest-earning assets 39,933 27,375
-------- --------
Total assets $513,887 $461,246
======== ========
Interest-bearing liabilities:
Regular savings accounts $ 30,771 85 0.55 $ 26,396 84 0.63
NOW accounts 101,065 386 0.76 89,965 419 0.93
Money market accounts 71,294 353 0.99 61,361 293 0.95
Certificates of deposit 134,404 1,479 2.19 122,716 1,538 2.50
-------- ------- ------ -------- ------- ------
Total deposits 337,534 2,303 1.36 300,438 2,334 1.55
Other interest-bearing
liabilities 40,547 1,000 4.92 40,000 992 4.95
-------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities 378,081 3,303 1.74 340,438 3,326 1.95
Non-interest-bearing liabilities:
Non-interest-bearing deposits 62,924 58,667
Other liabilities 5,888 3,268
-------- --------
Total liabilities 446,893 402,373
Shareholders' equity 66,994 58,873
-------- --------
Total liabilities and
shareholders' equity $513,887 $461,246
======== ========
Net interest income $11,412 $10,107
======= =======
Interest rate spread 4.57% 4.37%
====== ======
Net interest margin 4.90% 4.76%
====== ======
Ratio of average interest-earning
assets to average interest-
bearing liabilities 122.95% 124.52%
====== ======
Tax Equivalent Adjustment $ 92 $ 75
======= =======
(1) Includes non-accrual loans.
(2) For purposes of the computation of average yield on investments available for sale, historical cost
balances were utilized, therefore, the yield information does not give effect to change in fair value
that are reflected as a component of shareholders' equity.
(3) Includes tax equivalent adjustment in interest income.
27
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company for the quarter ended September 30, 2004.
Variances that were immaterial have been allocated based upon the percentage
relationship of changes in volume and changes in rate to the total net change.
Six Months Ended September 30,
-------------------------------
2004 vs. 2003
-------------------------------
Increase (Decrease)
Due to
------------------
Total
Increase
Volume Rate (Decrease)
------ ------ ----------
(In thousands)
Interest Income:
Residential mortgage loans $ (903) $ (119) $(1,022)
Commercial and consumer loans 2,542 (293) 2,249
Mortgage-backed securities 63 (74) (11)
Investment securities (1) 158 41 199
Daily interest-bearing (136) 41 (95)
Other earning assets 7 (45) (38)
------ ------ -------
Total interest income 1,731 (449) 1,282
------ ------ -------
Interest Expense:
Regular savings accounts 13 (12) 1
NOW accounts 48 (81) (33)
Money market accounts 49 11 60
Certificates of deposit 139 (198) (59)
Other interest-bearing
liabilities 13 (5) 8
------ ------ -------
Total interest expense 262 (285) (23)
------ ------ -------
Net interest income (1) $1,469 $ (164) $ 1,305
====== ====== =======
(1) Taxable equivalent
Provision for Loan Losses. The provision for loan losses for the six-month
period ended September 30, 2004 was $190,000, compared to $70,000 for the same
period in the prior year. Net charge-offs for the current period were
$247,000, compared to $204,000 for the same period of last year. The ratio of
allowance for loan losses to total net loans increased to 1.13% from 1.38% at
September 30, 2003. The acquisition of Today's Bancorp in July 2003 added $2.6
million to the allowance for loan losses. Net charge-offs to average net
loans for the six-month period ended September 30, 2004 increased to 0.13%
from 0.12% for the same period in the prior year. During the six months ended
September 30, 2004, management evaluated known and inherent risks in the loan
portfolio. Management considered the allowance for loan losses at September
30, 2004 to be adequate to cover probable losses inherent in the loan
portfolio based on the assessment of various factors affecting the loan
portfolio.
Non-Interest Income. Non-interest income increased $673,000 or 18.36% for
the six months ended September 30, 2004 to $4.3 million from $3.7 million for
the six months ended September 30, 2003. The increase was due primarily to
the gain on the sale and leaseback of the Camas branch and operations center
of $828,000 during the first fiscal quarter of 2005 and the increase in the
cash surrender value of bank-owned life insurance of $276,000. The bank-owned
life insurance was purchased in December 2003. This increase was partially
offset by the reduction in residential loan refinance activity reflected in
reduced fees and service charges and gain on sale of loans held for sale.
Reduced mortgage refinance activity resulted in gains on the sale of loans
decreasing $279,000 for the six months ended September 30, 2004 to $312,000
from $591,000 for the same prior year period. The decrease in loan servicing
income of $117,000 for the same period also reflects the decrease in mortgage
refinancing activity. Loan servicing income for the six months ended
September 30, 2004 includes a $18,000 write-up to the market value of mortgage
servicing rights as compared to a $303,000 write-up in market value of
mortgage servicing rights for the same prior year period. For the same
periods, loan servicing income also included amortization of mortgage
servicing rights of $149,000 and $345,000, respectively. The decrease in
amortization is due to the reduction of early payoffs of loans
28
sold with servicing retained. Asset management services income was $529,000
for the six months ended September 30, 2004, compared to $437,000 for the six
months ended September 30, 2003. RAMCorp. had $155.6 million in total assets
under management at September 30, 2004, compared to $123.0 million at
September 30, 2003.
Non-Interest Expense. Non-interest expense increased $933,000, or 11.0%, to
$9.4 million for the six month period ended September 30, 2004, compared to
$8.5 million for the six months ended September 30, 2003. The Company's
efficiency ratio excluding intangible asset amortization and lower cost or
market adjustments was 59.10% for the six months ended September 30, 2004,
compared to 60.59% for the same period in the prior year.
The principal component of the Company's non-interest expense is salaries and
employee benefits. For the six months ended September 30, 2004, salaries and
employee benefits, which include mortgage broker commission compensation, was
$5.2 million, a 10.2% increase over the six months ended September 30, 2003
total of $4.7 million. Full-time equivalent employees increased to 186 at
September 30, 2004 from 178 at September 30, 2003. The majority of the
increase in full-time equivalent employees is due to additional branch
personnel. The July 2003, acquisition of Today's Bancorp contributed to
increases in occupancy, depreciation, data processing, telecommunication and
other expense.
The acquisition of Today's Bancorp and the related acquisition of $105.1
million in deposits accounts created an $820,000 core deposit intangible
("CDI"), representing the excess of cost over fair market of acquired
deposits. The CDI is being amortized over a ten-year life using an accelerated
amortization method. The amortization expense was $73,000 for the six months
ended September 30, 2004 and $26,000 for the like period a year ago.
The acquisition of the Hazel Dell and Longview branches from the Resolution
Trust Corporation in fiscal 1995 and the related acquisition of $42.0 million
in customer deposits created a $3.2 million CDI. The amortization expense was
$42,000 for the six months ended September 30, 2004 compared to $163,000 for
the prior year period. As of June 30, 2004, this CDI is fully amortized.
Other non-interest expense was $936,000, or a 23.3% increase over the six
months ended September 30, 2003 total of $718,000. The majority of the
increase over the prior period was due to the termination of a former Today's
Bancorp branch operating lease. A loss of $107,000 was incurred to write off
the remaining net book value of the leasehold improvements of the branch.
Provision for Federal Income Taxes. Provision for federal income taxes was
$1.9 million for the six months ended September 30, 2004, compared to $1.7
million for the six months ended September 30, 2003 as a result of higher
income before taxes. The effective tax rate for six months ended September 30,
2004 was 31.9% compared to 33.2% for the six months ended September 30, 2003.
The effective tax rate declined from the prior quarter, reflecting the impact
of the purchase of bank-owned life insurance and additional investments in
municipal securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our Asset Liability Committee is responsible for implementing the interest
rate risk policy, which sets forth limits established by the Board of
Directors of acceptable changes in net interest income, and the portfolio
value from specified changes in interest rates. The OTS defines net portfolio
value as the present value of expected cash flows from existing assets minus
the present value of expected cash flows from existing liabilities plus the
present value of expected cash flows from existing off-balance sheet
contracts. Our Asset Liability Committee reviews, among other items, economic
conditions, the interest rate outlook, the demand for loans, the availability
of deposits and borrowings, and our current operating results, liquidity,
capital and interest rate exposure. In addition, the Asset Liability
Committee monitors asset and liability characteristics on a regular basis and
performs analyses to determine the potential impact of various business
strategies in controlling interest rate risk and other potential impact of
these strategies upon future earnings under various interest rate scenarios.
Based on these reviews, our Asset Liability Committee formulates a strategy
that is intended to implement the objectives contained in our business plan
without exceeding losses in net interest income and net portfolio value limits
set forth in our interest rate risk policy.
There has not been any material change in the market risk disclosures
contained in the Company's Annual Report on Form 10-K for the year ended March
31, 2004.
29
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of
the Company's disclosure controls and procedures (as defined in Section 13(a)
5(e) and 15(d) 15(e) of the Securities Exchange Act of 1934) was carried out
under the supervision and with the participation of the Company's Chief
Executive Officer, Chief Financial Officer and several other members of the
Company's senior management as of the end of the period covered by this
report. The Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as currently
in effect are effective in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the
Securities and Exchange Act of 1934 is (i) accumulated and communicated to the
Company's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms.
(b) Changes in Internal Controls: There was no change in the Company's
internal control over financial reporting during the Company's most
recently completed fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal
control over financial reporting.
30
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have
a material adverse effect, if any, on the Company's financial
position, results of operations, or liquidity.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds
--------------------------------------------------------
The following table summarizes the Company's share repurchases for
the quarter ended September 30, 2004.
Total Number
of Shares
Purchased as Maximum Number of
Part of Shares that
Average Publicly May Yet Be
Total Number of Price Paid Announced Purchased Under the
Period Shares Purchased (1) per Share Program Program (2)
- -------- -------------------- ---------- ------------ -------------------
July - $ - - -
August - - - -
September - - - -
------ ------- ------ -------
Total - $ - - 133,204
====== ======= ====== =======
(1) Of these shares, no shares were purchased other than through a publicly
announced program.
(2) In September 2002, the Company announced a stock repurchase of up to 5%,
or 214,000 shares of its outstanding common stock. This program expires
when all shares under the plan have been repurchased.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual meeting of shareholders on July 21,
2004. A brief description of each matter voted on and the results
of the shareholder voting are set forth below.
1. The election of three directors to the Board of Directors:
For Against
--------- -----------
Paul L. Runyan 3,905,397 11,167
Ronald A. Wysaske 3,912,666 3,898
Michael D. Allen 3,912,074 4,490
Each of the following directors who were not up for re-election at
the annual meeting of shareholders will continue to serve as
directors: Patrick Sheaffer, Edward R. Geiger, Robert K. Leick and
Gary R. Douglass
Item 5. Other Information
-----------------
None.
31
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
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)
31.1 Certifications of the Chief Executive 0fficer 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.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended March 31, 2002, and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended March 31, 1998, and incorporated herein by reference.
(5) Filed on October 23, 1998, as an exhibit to the Registrant's Registration
Statement on Form S-8, and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Definitive Annual Meeting Proxy
Statement for the 2003 Annual Meeting of Shareholders, and incorporated
herein by reference.
32
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
(Principal Executive Officer) Accounting Officer)
Date: November 3, 2004 Date: November 3, 2004
33
Exhibit 31.1
- ------------
Section 302 Certification
I, Patrick Sheaffer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riverview Bancorp,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period
in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fiscal fourth quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial data information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting
Date: November 3, 2004
/S/ Patrick Sheaffer
-------------------------------------
Patrick Sheaffer
Chairman and Chief Executive Officer
34
Exhibit 31.2
- ------------
Section 302 Certification
I, Ron Dobyns, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riverview Bancorp,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period
in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fiscal fourth quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial data information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting
Date: November 3, 2004
/S/ Ron Dobyns
-------------------------
Ron Dobyns
Chief Financial Officer
35
Exhibit 32
----------
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF
RIVERVIEW BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned herby certify, pursuant to Section 906 of the Sarbanes-Oxley
act of 2002 and in connection with this Quarterly Report on Form 10-Q that:
1. the report fully complies with the requirements of sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all material
respects, the company's financial condition and results of operations.
/S/ Patrick Sheaffer /S/ Ron Dobyns
- ------------------------- -----------------------------
Patrick Sheaffer Ron Dobyns
Chief Executive Officer Chief Financial Officer
Dated: November 3, 2004
36