Riverview Bancorp, Inc.RVSBNASDAQ
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Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Riverview Bancorp second quarter 2009 conference call. (Operator Instructions). I would now like to turn the conference over to Pat Sheaffer, Chief Executive Officer. Please go ahead, sir.
Patrick Sheaffer: Hey, thanks Mary. Good morning, everybody. I’d like to welcome you to Riverview Bancorp’s mid-fiscal year conference call. As always, I must call your attention to page three of our just-released earnings report, concerning forward-looking statements. As in the past, on the last few calls that we’ve done, we’ll have Ron Wysaske, our President and COO give a few prepared remarks and we’ll get right into the questions. With me here today, Ron Wysaske, President and COO of Riverview Community Bank, Dave Dahlstrom, Executive Vice President, Chief Credit Officer of Riverview Community Bank, Jim Baldovin, Executive Vice President, Retail Banking of Riverview Community Bank, Kevin Lycklama, Senior Vice President, Chief Financial Officer of Riverview Community Bank and John Karas, Chairman and CEO of Riverview Asset Management and Trust. As I said, to speed things along, we’ll have a few remarks by Ron Wysaske, commenting on our operating highlights for this just-completed second quarter. After Ron’s remarks, our management team will be willing and available to answer any questions you might have. With that, Ron?
Ron Wysaske: Okay. Thank you, Pat. Good morning, everyone. We would like to discuss our second fiscal quarter results with you and by now, you know that yesterday we reported the results of the September quarter. We’ll then discuss some highlights and issues and we look forward to your questions at the end. Well, there’s no sugar-coating it. These are tough economic times for everyone and especially banks. We reported a $0.39 loss for the quarter and a $0.32 loss for the six months year-to-date. The quarterly loss was driven by elevated loan-loss provisioning and that coupled with an impairment loss on a security. Earlier we had announced the expectation of a second quarter loan-loss provision somewhere between 6.8 and 7.3 million pre-tax. The actual number turned out to be 7.2 million for the quarter and 9.95 million total for the six months ended. Additionally, the bank took an impairment charge of 3.4 million pre-tax against a $5 million par value security. That security was backed or is backed by trust-preferred debt of 20 other banks throughout the country. Asset quality has historically been a major strength for Riverview and it’s still our focus. We believe that we’ve identified the problems in the loan portfolio as well as our investment portfolio. We feel like we have several sources of strength at Riverview. Probably most important is the fact that the bank is classified as well-capitalized per federal regulations. The core profitability of the bank is strong, notwithstanding the loan-loss provisions and the security impairment. The bank has adequate liquidity to fund new loans, deposit needs of customers and other growth prospects. Core customer deposit growth has been strong and customer confidence is high. Revenue growth has also been good along with loan growth. Our trust company, Ramcorps, fee income continues to be an important source of revenue growth for the bank. Meanwhile, operating expenses have moderated over the past year, even with some expansion of banking capacity. Loan growth has been good and that growth has been in the right segments, which includes commercial and industrial loans and commercial real estate. All the while, land and construction loans have shrunk. While the economy itself may be at risk in the coming months, we believe the risk profile of our loan types has moderate. Our loan-loss allowance is now at 208 basis points of loans and commitments and we believe that we’re adequately reserved. Here’s some thoughts regarding our financial release and the economic environment as we move forward. Despite a loan-loss provision of 9.95 million and a securities impairment of 3.4 million, our net loss was only 3.4 million. Without the loss provision and write-down, core revenue and earnings of the company are on pace with last year. Our net interest margin of 418 basis points for the quarter is 54 basis points lower than the previous year. While the prime rate was lowered 325 basis points during that year, indicating our slight asset sensitivity to interest rate changes. The loan portfolio increase has helped shore up net interest income. Our loan mix is improving and the loan portfolio is growing with good diversification. Deposit growth, as always, is a priority and is up $8 million for the quarter. Customer confidence, our branch network and the CDARS program are all helping. Deposit totals are also up another $14 million at October 15th over the September 30th quarter end. We continue to grow fee income from our trust and asset management business and that helps to diversify our sources of revenue. We continue to expand business cash management products and services, such as remote deposit to enhance deposit generation capabilities. In summary, our bank has fundamental strength. We have the capital. We have the liquidity. We have the core profitability. We also have the core customer franchise anchored by 18 branch offices and 85 years of institutional history with this particular market. We’re not just surviving the challenges of the current economic environment. We’re growing and we’re strong enough to weather this storm and emerge even stronger. Repeating, we believe in diversification to help manage risk and we’re constantly searching for new opportunities. Thanks again for your interest in Riverview. Now, management welcomes your questions and comments, so back to Pat Sheaffer.
Patrick Sheaffer: Hey, thanks Ron, good report. Mary, could you open the lines so that anybody would like to ask us any questions?
Operator: Thank you, sir and ladies and gentlemen at this time we will begin the question and answer session. (Operator Instructions). And our first question comes from the line of Kristen Hotti with Howe Barnes Hoefer & Arnett, please go ahead.
Kristen Hotti - Howe, Barnes, Hoefer & Arnett: Yes, good morning.
Patrick Scheaffer: Good morning.
Kristen Hotti - Howe, Barnes, Hoefer & Arnett: I was wondering if you could give us some indication with respect to the timing of re-appraisals of the loan portfolios in particular, obviously the land acquisition and development. Also, what kinds of declines valuations you might be seeing recently, both in your market and then with respect to — I think it’s a $3.4 million loan in Palm Springs — what you’re seeing in terms of valuation decline in terms of both properties? And also, how much of the charge-offs are related to that larger loan?
Patrick Sheaffer: We got Dave here purposely to answer your questions, Kristen today.
Kristen Hotti - Howe, Barnes, Hoefer & Arnett: Great.
David A. Dahlstrom: I think to answer your first question in terms of appraisals. It depends on the situation, obviously and how we prioritize when we get those updated appraisals. On any of our problem credits of any size, we have updated appraisals and I would say most of those would be within the last four months. In terms of decreases in values, obviously, that’s dependent on the area in which it’s in, the type of project, whether they’re large lots, medium-size lots, maybe townhouse-type lots. Those ranges are probably anywhere, if -- we look at both value obviously but we also look at retail value. The bulk values obviously have decreased much higher than retail values because of the fact that you don’t have very many buyers coming in to buy, you know anything like 30 or 40 or 60 or 70 lots at any one time. So those bulk values are probably down anywhere from 25 to 40%. Retail value’s down 20 to 30%. The losses that we have taken in the quarter were all land related. You asked about one particular one down south. We do have an updated appraisal on that, that’s about three months old. That retail value on that dropped probably 35% and the bulk value’s about 45, almost 50%. That project is at the point of probably finalizing sometime in the next two or three weeks as to the remainder of that substantial charge-off that we took on that balance that was there.
Kristin Hotti - Howe Barnes Hoefer & Arnett Inc.: That answered the question.
Operator: Yes, thank you.
Patrick Schaeffer: You also -- did you ask a question about the security?
Kristin Hotti - Howe Barnes Hoefer & Arnett Inc.: No.
Dave Dahlstrom: Okay, she asked about Palm Springs, okay.
Operator: Thank you. (Operator instructions) And our next question comes from the line of Lou Cosser (ph) with D.A. Davidson & Company. Please go ahead.
Lou Cosser - D.A. Davidson & Company: Morning guys.
Patrick Schaeffer: Good morning.
Lou Cosser - D.A. Davidson & Company: Just filling in for Jeff. We wanted to get your, kind of your thoughts and feelings on the government tarp program. I mean we’re assuming you guys are eligible. Just wanted to see what your interest is.
Patrick Schaeffer: This is Pat. We’re following it closely. You know there’s so much information, you know kind of everyday stuff coming out. We certainly got to look at it. Yes, we would definitely be eligible if we wanted to participate. To say yes right now would be premature but we certainly are watching it and it’s a moving target for us. There’s some possibilities there capital is king and it would be a good chance to pick up additional capital even though we are what 1070 something but that -- and that doesn’t include another $8 million up as a holding company that we could push down. There’s some opportunities of having any extra capital, so long way around of saying we’re certainly looking at. Ron, do you want to add anything to that?
Ron Wysaske: Well, I guess the only thing I would add would be maybe the flip side of that which is beware of strangers bearing gifts and making sure that the strings are attached aren’t too onerous.
Lou Cosser - D.A. Davidson & Company: Great. Alright and then as far as some of the credit issues you guys mentioned majority were in obviously Oregon or Washington. I was wondering if you could give any further color kind of in what areas of Oregon and Washington?
Dave Dahlstrom: For the most part, Lou this is Dave Dahlstrom, they are right here within Clark County. We do have one problem property that it is in the north of Seattle area but other than that, they’re basically within this market area.
Lou Cosser - D.A. Davidson & Company: Great.
Patrick Schaeffer: But they’re -- actually the loans that we have identified, we just continue to add to the reserves and these are the loans that we identified in our June quarter.
Lou Cosser - D.A. Davidson & Company: Okay great. And then just to briefly brush on the kind of excluding the OTTI charge. You know we noticed that non-interest income was down sequential just a bit and you guys mentioned in the release the lower mortgage broker fees, we were just kind of wondering if there’s anything else here to be looking at.
Ron Wysaske: That would primarily the culprit, lower mortgage broker fees. I think that actually our fee income from our trust business was actually up slightly from prior periods and then I think deposit service charges and the like were also probably about the same. So, the primary culprit is the mortgage broker fee thing.
Lou Cosser - D.A. Davidson & Company: Okay. Okay and then just one last question. I don’t know if you guys -- well I’m sure you guys could track but if you could give kind of an indication of where net interest margin was the past three months and kind of trending.
Patrick Schaeffer: Want that Kevin or Ron?
Ron Wysaske: Well, it was trending a little bit down as I said I think we ended it at 418 which was down about 50 basis points from the end of the --
Kevin Lycklama: March prior.
Ron Wysaske : From the prior March 31 or was it prior September.
Patrick Schaeffer: Yes, so it has definitely compressed. As I said we’ve offset some of that I think with growth in the loan portfolio. So net interest income number is very much flat compared to last year same quarter I think but definitely some compression.
Kevin Lycklama: Lou, this is Kevin. On a quarter to quarter basis our net interest margin I think as of June was about 420 and this quarter was like 418. So it’s been flat on a linked quarter basis. So our margin’s holding steady as Ron mentioned. It did come down 50 basis points or so since last September, but obviously as you know since last September there’s been 325 basis points cut in the federal reserve rate so but in this we’ve been able to restabilize that net interest margin, so as of the last six months or so it's been holding pretty steady.
Patrick Schaeffer : We're pretty happy with that aspect that the margin has remained as solid as it’s been.
Lou Cosser - D.A. Davidson & Company: Alright. Great, guys. That’s all I have.
Patrick Schaeffer : Thank you, Luke.
Operator: Thank you. The management, there are no further questions. We’ll turn it back to you for closing comment.
Patrick Sheaffer: Thanks Mary. Riverview, the vision going forward is to focus on our business, our customers, and our employees. As long as we focus on these areas, we can be successful during this economic slowdown so we encourage all of you to join us here at Riverview in focusing on issues that we can control and that are important to our banking business. I’d like to also thank you for listening to us. If you have any other questions, please don't hesitate to call us. Thank you again.