Riverview Bancorp Inc (RVSB) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Riverview Bancorp second-quarter 2009 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference call is being recorded today, Tuesday, October 21 of 2008. I would now like to turn the conference over to Pat Sheaffer, Chief Executive Officer. Please go ahead, sir.

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, in the last few calls that we have done, we will 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 and Chief Credit Officer of Riverview Community Bank; Jim Baldovin, Executive Vice President of 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 will 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?

Okay. Thank you, Pat, and 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 will 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 million and $7.3 million pretax. 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 pretax 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 have 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 provision 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, RAMCorp's, 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 moderated. Our loan-loss allowance is now at 208 basis points of loans and commitments and we believe that we are adequately reserved.

Here are 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 15 over the September 30 quarter-end.

We continue to growth 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 are not just surviving the challenges of the current economic environment. We are growing and we are strong enough to weather this storm and emerge even stronger.

Repeating, we believe in diversification to help manage risk and we are constantly searching for new opportunities. Thanks, again, for your interest in Riverview and now management welcomes your questions and comments. So back to Pat Sheaffer.

Thanks, Ron. Good report. Mary, could you open the lines so that anybody would like to ask us any questions?

(Operator Instructions) Kristin Hotti, Howe Barnes Hoefer & Arnett.

Yes, good morning. I was wondering if you could give us some indication of -- with respect to the timing of reappraisals of the loan portfolios, in particular, obviously, the land acquisition and development. Also what kinds of declines in valuations you might be seeing recently, both in your market and then with respect to -- I think it is a $3.4 million loan in Palm Springs -- what you are seeing in terms of valuation declines in terms of both properties. And also how much of the charge-offs were related to that larger loan.

We've got Dave here purposely to answer your questions, Kristin.

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 is dependent on the area in which it's in, the type of projects, whether they are large loss, medium-sized loss, maybe townhouse-type loss. Those ranges are probably anywhere if -- we look at bulk 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 anything like 30 or 40 or 60 or 70 lots in any one time. So bulk values are probably down anywhere from 25% to 40%, retail values 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%. The bulk value is 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. Does that answer the question?

Yes, thank you.

You also -- did you ask the question about the security?

No, she asked about Palm Springs.

(Operator Instructions) Luke Kautzer, D.A. Davidson & Co.

Good morning, guys. I'm just filling in for Jeff. We wanted to get your thoughts and feelings on the government TARP program. We are assuming you guys are eligible. Just wanted to see what your interest is.

This is Pat. We are following it closely. There's so much information, 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 is a moving target for us. There is 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? And that doesn't include another $8 million at the holding company that we could push down. But there is some opportunities of having that extra capital. So a long way around of saying we're recently looking at it. Ron, do you want to add anything to that?

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 that are attached aren't too onerous.

Great. All right. Then as far as some of the credit issues, you guys mentioned the majority were in obviously Oregon and Washington. I was wondering if you could give any further color kind of in what areas of Oregon and Washington.

For the most part, Luke -- this is Dave Dahlstrom -- they are right here within Clark County. We do have one problem property that is in the north of Seattle area, but other than that, they're basically within this market area.

Great.

They are actually -- the loans that we have identified, we just continue to add to the reserves on that. These are the loans that we identified in our June quarter.

Okay, great. Then just to briefly brush on -- excluding the OTTI charge, we noticed that non-interest income was down sequentially just a bit. 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.

That would be 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. I think deposit service charges and the like were also probably about the same. So the primary culprit is the mortgage broker fee thing.

Okay, then just one last question. I don't know if you guys -- I'm sure you guys keep track, but if you could give kind of an indication of where net interest margin was the past three months kind of trending?

Kevin or Ron?

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 -- from the prior March 31 or was it prior September? So it has definitely compressed. We -- as I said, we have offset some of that I think with the growth in the loan portfolio. Net interest income number is very much flat compared to last year's same quarter, I think. But definitely some compression.

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 has been flat on a linked-quarter basis. So our margin is 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 a 325 basis points cut in the Federal reserve rate. 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.

We are pretty happy with that aspect, that the margin has been as solid as it's -- remained as solid as it has been.

Great, guys. That's all I have.

Management, there are no further questions. It will turn it back to you for closing comments.

Thanks, Mary. Riverview's position going forward is to focus on our business, our customers and our employees. As long as we focus on these, these areas, we can be successful during this economic slowdown. So we encourage all of you to join us here at Riverview and focusing on issues we can control and that are important to our banking business.

I would like to also thank you for listening to us. If you have any calls -- any other questions, please don't hesitate to call us. Thank you again.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial in to 303-590-3000 and enter the access code of 11119632#. Thank you again for your participation and at this time, you may disconnect. Have a nice day.