SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of - ----- THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ 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 (I.R.S. Employer incorporation or organization) Identification No.) 700 N.E. Fourth Ave. Camas, WA 98607 (Address of principal executive office) Registrant's telephone number, including area code: (360)834-2231 Check whether the registrant: (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for 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 . --- -- APPLICABLE ONLY TO CORPORATE ISSUERS: 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---5,089,973 shares as of September 30, 1999.
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, 1999 and March 31, 1999 1 Consolidated Statements of Income: Six and Three Months Ended September 30, 1999 and 1998 2 Consolidated Statements of Shareholders' Equity for the Year Ended March 31, 1999 and for the Six Months Ended September 30, 1999 3 Consolidated Statements of Cash Flows for the Six Months Ended September 30, 1999 and 1998 4 Notes to Consolidated Financial Statements 5-12 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 13-28 Item 3: Quantitative and Qualitative Disclosures About Market Risk 28 Part II. Other Information 29-30 SIGNATURES 31 EXHIBITS 32-33
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1999 AND MARCH 31, 1999 SEPTEMBER 30, MARCH 31, (in thousands, except share data) (Unaudited) 1999 1999 - ----------------------------------------------------------------------------- ASSETS Cash (including interest-earning accounts of $1,921 and $11,612) $ 10,802 $ 17,207 Loans held for sale - 341 Investment securities held to maturity, at amortized cost (fair value of $916 and $4,980) 923 4,943 Investment securities available for sale, at fair value (amortized cost of $14,423 and $13,751) 13,108 13,280 Mortgage-backed securities held to maturity, at amortized cost (fair value of $10,161 and $12,939) 10,116 12,715 Mortgage-backed securities available for sale, at fair value (amortized cost of $45,920 and $53,808) 44,703 53,372 Loans receivable (net of allowance for loan losses of $1,162 and $1,146) 221,375 186,836 Real estate owned 418 30 Prepaid expenses and other assets 832 895 Accrued interest receivable 1,662 1,543 Federal Home Loan Bank stock 2,710 2,614 Premises and equipment 6,906 6,185 Land held for development 471 471 Deferred income taxes, net 993 493 Core deposit intangible, net 1,512 1,676 ---------- ---------- TOTAL ASSETS $ 316,531 $ 302,601 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposit accounts $ 215,213 $ 200,311 Accrued expenses, minority interest and other liabilities 3,237 2,834 Advance payments by borrowers for taxes and insurance 101 39 Federal Home Loan Bank advances 44,550 42,550 ---------- ---------- Total liabilities 263,101 245,734 ---------- ---------- COMMITMENT AND CONTINGENCIES (NOTE 12) SHAREHOLDERS' EQUITY Serial preferred stock, $.01 par value; 250,000 authorized, issued and outstanding, none - - Common stock, $.01 par value; 50,000,000 authorized, September 30 ,1999 - 6,228,199 issued, 5,089,973 outstanding; March 31, 1999 - 6,194,103 issued, 5,346,322 outstanding 62 62 Additional paid-in capital 53,652 53,577 Retained earnings 14,649 13,602 Treasury shares at cost - 703,724 shares and 413,279 shares at September 30, 1999 and March 31, 1999, respectively (9,010) (5,461) Unearned shares issued to employee stock ownership trust (2,681) (2,743) Unearned shares held by the management recognition and development plan (1,571) (1,571) Accumulated other comprehensive loss (1,671) (599) ---------- ---------- Total shareholders' equity 53,430 56,867 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 316,531 $ 302,601 ========== ========== See notes to consolidated financial statements. 1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended (in thousands, Septermber30, September 30, except share data) (Unaudited) 1999 1998 1999 1998 - ------------------------------------------------------ ----------------- INTEREST INCOME: Interest and fees on loans receivable $ 4,890 $ 4,205 $ 9,503 $ 8,403 Interest on investment securities 224 331 478 656 Interest on mortgage-backed securities 878 739 1,821 1,575 Other interest and dividends 161 321 323 584 --------- --------- --------- --------- Total interest income 6,153 5,596 12,125 11,218 --------- --------- --------- --------- INTEREST EXPENSE: Interest on deposits 2,087 2,027 4,111 3,988 Interest on borrowings 538 321 1,059 692 --------- --------- --------- --------- Total interest expense 2,625 2,348 5,170 4,680 --------- --------- --------- --------- Net interest income 3,528 3,248 6,955 6,538 Less provision for loan losses 90 60 180 120 --------- --------- --------- --------- Net interest income after provision for loan losses 3,438 3,188 6,775 6,418 --------- --------- --------- --------- NON-INTEREST INCOME: Fees and service charges 620 581 1,296 1,118 Gain on sale of loans held for sale 9 48 14 109 Gain on sale of securities - 10 - 37 Loan servicing income 39 29 72 67 Other 60 31 109 50 --------- --------- --------- --------- Total non-interest income 728 699 1,491 1,381 --------- --------- --------- --------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,334 1,076 2,731 2,114 Occupancy and depreciation 520 416 1,036 776 Amortization of core deposit intangible 81 81 163 163 Marketing expense 195 84 338 154 FDIC insurance premium 29 27 58 53 Other 453 382 914 723 --------- --------- --------- --------- Total non-interest expense 2,612 2,066 5,240 3,983 --------- --------- --------- --------- INCOME BEFORE FEDERAL INCOME TAXES 1,554 1,821 3,026 3,816 PROVISION FOR FEDERAL INCOME TAXES 523 655 1,032 1,393 --------- --------- --------- --------- NET INCOME $ 1,031 $ 1,166 $ 1,994 $ 2,423 ========= ========= ========= ========= Earnings per common share: Basic $ 0.20 $ 0.20 $ 0.38 $ 0.41 Diluted 0.19 0.19 0.37 0.41 Weighted average number of shares outstanding: Basic 5,207,396 5,855,028 5,264,843 5,839,316 Diluted 5,319,721 5,979,772 5,377,577 5,966,672 See notes to consolidated financial statements. 2
<TABLE> RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEAR ENDED MARCH 31, 1999 AND THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited) Unearned Accumu- Shares lated Issued to Other Addi- Employee Unearned Compre- Common Stock tional Stock Shares hensive (In thousands, ------------------ Paid-in Retained Treasury Ownership Issued Income/ except share data) Shares Amount Capital Earnings Stock Trust to MRDP (Loss) Total - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance April 1, 1998 5,809,456 $62 $53,399 $10,495 $ - $(2,993) $ - $ 119 $61,082 Cash dividends - - - (1,356) - - - - (1,356) Exercise of stock options 39,777 - 141 - - - - - 141 Earned ESOP shares 24,632 - 52 - - 250 - - 302 Treasury shares acquired (413,279) - - - (5,461) - - - (5,461) Shares acquired by MRDP (142,830) - (15) - - - (1,964) - (1,979) Earned MRDP shares 28,566 - - - - - 393 - 393 --------- --- ------- ------- ------- ------- ------- ------- ------- 5,346,322 62 53,577 9,139 (5,461) (2,743) (1,571) 119 53,122 Comprehensive income: Net income - - - 4,463 - - - - 4,463 Other comprehensive income: Unrealized holding loss on securities of $694 (net of $357 tax benefit) less reclassifica- tion adjustment for gains included in net income of $24 (net of $13 tax expense) - - - - - - - (718) (718) ------- Total comprehensive income - - - - - - - - 3,745 --------- --- ------- ------- ------- ------- ------- ------- ------- Balance March 31, 1999 5,346,322 62 53,577 13,602 (5,461) (2,743) (1,571) (599) 56,867 Cash dividends - - - (947) - - - - (947) Earned ESOP shares - - (62) - - 62 - - - Exercise of stock options 34,096 137 137 Treasury shares acquired (290,445) - - - (3,549) - - - (3,549) --------- --- ------- ------- ------- ------- ------- ------- ------- 5,089,973 62 53,652 12,655 (9,010) (2,681) (1,571) (599) 52,508 Comprehensive income: Net income - - - 1,994 - - - - 1,994 Other comprehensive income: Unrealized holding loss on securities of $1,624 (net of $552 tax benefit) - - - - - - - (1,072) (1,072) ------- Total comprehensive income - - - - - - - - 922 --------- --- ------- ------- ------- ------- ------- ------- ------- Balance September 30, 1999 5,089,973 $62 $53,652 $14,649 $(9,010) $(2,681) $(1,571) $(1,671) $53,430 ========= === ======= ======= ======= ======= ======= ======= ======= See notes to consolidated financial statements. 3 </TABLE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASHFLOWS FOR SIX MONTHS ENDED SEPTEMBER 30, (in thousands) (Unaudited) 1999 1998 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,994 $ 2,423 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization 668 576 Provision for losses on loans 180 120 Provision for deferred income taxes, net (107) - Noncash expense related to ESOP benefit 146 208 Noncash expense related to MRDP benefit 196 - Increase in deferred loan origination fees, net of amortization 384 226 Federal Home Loan Bank stock dividend (96) (75) Net gain on sale of real estate owned, mortgage-backed and investment securities and premises and equipment 6 (31) Changes in assets and liabilities: Decrease (increase) in loans held for sale 341 (15) Decrease in prepaid expenses and other assets 63 14 Increase in accrued interest receivable (119) (289) Increase (decrease) in accrued expenses, minority interest and other liabilities 220 (55) --------- --------- Net cash provided by operating activities 3,876 3,102 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan originations (90,784) (77,728) Principal repayments on loans 52,086 52,320 Loans sold 2,754 12,210 Proceeds from call, maturity, or sale of investment securities available for sale 1,000 10,949 Purchase of investment securities available for sale (1,673) (16,919) Purchase of mortgage-backed securities available for sale - (33,377) Principal repayments on mortgage-backed securities held to maturity 2,653 4,328 Principal repayments on mortgage-backed securities available for sale 7,724 4,547 Principal repayments on investment securities held to maturity 20 - Purchase of investment securities held to maturity - (982) Proceeds from call or maturity of investment securities held to maturity 4,000 4,096 Purchase of premises and equipment (1,114) (836) Purchase of Federal Home Loan Bank stock - (475) Proceeds from sale of real estate 448 77 --------- --------- Net cash used in investing activities (22,886) (41,790) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposit accounts 14,902 10,822 Dividends paid (947) (588) Treasury stock purchased (3,549) (540) Proceeds from Federal Home Loan Bank advances 32,000 30,000 Repayment of Federal Home Loan Bank advances (30,000) (10,000) Net increase (decrease) in advance payments by borrowers 62 (55) Proceeds from exercise of stock options 137 107 --------- --------- Net cash provided by financing activities 12,605 29,746 --------- --------- NET DECREASE IN CASH (6,405) (8,942) CASH, BEGINNING OF PERIOD 17,207 27,482 --------- --------- CASH, END OF PERIOD $ 10,802 $ 18,540 ========= ========= SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $ 5,246 $ 4,801 Income taxes 960 1,560 NONCASH INVESTING ACTIVITIES: Transfer of loans to real estate owned 841 275 Dividends declared and accrued in other liabilities 468 371 Fair value adjustment to securities available for sale (1,624) 416 Income tax effect related to fair value adjustment 552 (149) See notes to consolidated financial statements. 4
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) (1) Organization and Basis of Presentation -------------------------------------- The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for 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 generally accepted accounting principles. However, all adjustments which 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. 1999 Annual Report on Form 10-K. The results of operations for the three months and six months ended September 30, 1999 are not necessarily indicative of the results which may be expected for the entire fiscal year. (2) Principles of Consolidation --------------------------- The accompanying unaudited consolidated financial statements of Riverview Bancorp, Inc. and Subsidiary (the "Company") include all the accounts of Riverview Bancorp, Inc. and the consolidated accounts of its wholly-owned subsidiary, Riverview Community Bank (the "Community Bank"), and the Community Bank's majority-owned subsidiary, Riverview Asset Management, Corp. and wholly-owned subsidiary, Riverview Services, Inc. Significant inter-company balances and transactions have been eliminated in the consolidation. (3) Comprehensive Income -------------------- Comprehensive income is defined as the change in equity during a period from transactions and other events from nonowner sources. Comprehensive income is the total of net income and other comprehensive income, which for the Company is comprised entirely of unrealized gains and losses on securities available for sale and sales and losses on sale of securities available for sale. 5
For the three months and six months ended September 30, 1999, the Company's total comprehensive income was $1.1 million and $922,000, respectively, compared to $989,000 and $2.1 million for the three and six months ended September 30, 1998, respectively. Total comprehensive income for the three and six months ended September 30, 1999 is comprised of net income of $1.0 million and $2.0 million and other comprehensive income (loss) of $96,000 and $(1.1) million, net of tax, respectively. Other comprehensive income for the three and six months ended September 30, 1999, consists of unrealized securities gains (losses) of $96,000 and $(1.1) million, net of tax. Total comprehensive income for the three and six months ended September 30, 1998 is comprised of net income of $1.2 million and $2.4 million and other comprehensive loss of $177,000 and $274,000 net of taxes, respectively. Other comprehensive income for the three and six months ended September 30, 1998, consisted of unrealized securities losses of $171,000 and $250,000 net of tax benefits less gains on securities available for sale included in non-interest income of $6,000 and $24,000 net of tax, respectively. (4) Earnings Per Share ------------------ Basic Earnings per Share ("EPS") is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company's common stock during the period. Common stock equivalents arise from assumed conversion of outstanding stock options and unassigned Management Recognition and Development Plan("MRDP") shares. Employee Stock Ownership Plan shares are not considered outstanding for earnings per share purposes until they are committed to be released. 6
Three Months Ended September 30, ---------------------------- 1999 1998 ---- ---- Basic EPS computation: Numerator-Net Income $1,031,000 $1,166,000 Denominator-Weighted average common shares outstanding 5,207,396 5,855,028 Basic EPS $ 0.20 $ 0.20 ========== ========== Diluted EPS computation: Numerator-Net Income $1,031,000 $1,166,000 Denominator-Weighted average common shares outstanding 5,207,396 5,855,028 Effect of dilutive stock options 106,071 124,744 Effect of dilutive MRDP 6,254 - ---------- ----------- Weighted average common shares and common stock equivalents 5,319,721 5,979,772 Diluted EPS $ 0.19 $ 0.19 ========== ========== Six Months Ended September 30, ---------------------------- 1999 1998 ---- ---- Basic EPS computation: Numerator-Net Income $1,994,000 $ 2,423,000 Denominator-Weighted average common shares outstanding 5,264,843 5,839,316 Basic EPS $ 0.38 $ 0.41 ========== ========== Diluted EPS computation: Numerator-Net Income $1,994,000 $ 2,423,000 Denominator-Weighted average common shares outstanding 5,264,843 5,839,316 Effect of dilutive stock options 108,993 127,356 Effect of dilutive MRDP 3,741 - ---------- ----------- Weighted average common shares and common stock equivalents 5,377,577 5,966,672 Diluted EPS $ 0.37 $ 0.41 ========== ========== 7
(5) Investment Securities - -------------------------- The amortized cost and approximate fair value of investment securities held to maturity consisted of the following (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- September 30, 1999 - ------------------ Municipal lease $ 923 $ - $ (7) $ 916 --------- ---------- ---------- ---------- Total $ 923 $ - $ (7) $ 916 ========= ========== ========== ========== March 31, 1999 - -------------- Agency securities $ 4,000 $ 13 $ - $ 4,013 Municipal lease 943 24 - 967 --------- ---------- ---------- ---------- Total $ 4,943 $ 37 $ - $ 4,980 ========= ========== ========== ========== The contractual maturities of investment securities held to maturity were as follows (in thousands): Estimated Amortized Fair September 30, 1999 Cost Value - ------------------ ---------- ---------- Due after ten years $ 923 $ 916 ---------- ---------- Total $ 923 $ 916 ========== ========== There were no sales of investment securities held to maturity during the period ended September 30, 1999 and 1998. 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, 1999 - ------------------ Agency securities $ 10,489 $ - $ (713) $ 9,776 Equity securities 1,356 - (483) 873 School district bonds 2,578 - (119) 2,459 --------- ---------- --------- ---------- Total $ 14,423 $ - $ (1,315) $ 13,108 ========= ========== ========= ========== March 31, 1999 - -------------- Agency securities $ 11,489 $ 13 $ (62) $ 11,440 Equity securities 1,356 - (422) 934 School district bonds 906 - (0) 906 --------- ---------- --------- ---------- Total $ 13,751 $ 13 $ (484) $ 13,280 ========= ========== ========= ========== The contractual maturities of investment securities available for sale are as follows (in thousands): Estimated Amortized Fair September 30, 1999 Cost Value - ------------------ ----------- ------------ Due after one year through five years $ 3,000 $ 2,979 Due after five years through ten years 3,931 3,777 Due after ten years 7,492 6,352 ----------- ------------ Total $ 14,423 $ 13,108 =========== ============ Investment securities with an amortized cost of $5.1 million and $4.0 million and a fair value of $5.0 million and $4.0 million at September 30, 1999 and March 31, 1999, respectively, were pledged as collateral for treasury tax and loan funds held by the Community Bank. 8
(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, 1999 - ------------------ Real estate mortgage investment conduits $ 2,238 $ 47 $ 0 $ 2,285 FHLMC mortgage-backed securities 2,888 15 (41) 2,862 FNMA mortgage-backed securities 4,990 39 (15) 5,014 --------- ---------- --------- ---------- Total $ 10,116 $ 101 $ (56) $ 10,161 ========= ========== ========= ========== March 31, 1999 - -------------- Real estate mortgage investment conduits $ 3,162 $ 100 $ - $ 3,262 FHLMC mortgage-backed securities 3,370 33 (5) 3,398 FNMA mortgage-backed securities 6,183 97 (1) 6,279 --------- ---------- --------- ---------- Total $ 12,715 $ 230 $ (6) $ 12,939 ========= ========== ========= ========== The real estate mortgage investment conduits consist of Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA) securities. The contractual maturities of mortgage-backed securities held to maturity were as follows (in thousands): Estimated Amortized Fair September 30, 1999 Cost Value - ------------------ ---------- ---------- Due in one year or less $ 75 $ 75 Due after one year through five years 4,588 4,557 Due after five years through ten years 523 522 Due after ten years 4,930 5,007 ---------- ---------- $ 10,116 $ 10,161 ========== ========== 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, 1999 - ------------------ Real estate mortgage investment conduits $ 42,763 $ 35 $ (1,260) $ 41,538 FHLMC mortgage-backed securities 653 3 - 656 FNMA mortgage-backed securities 2,504 8 (3) 2,509 --------- ---------- --------- ---------- Total $ 45,920 $ 46 $ (1,263) 44,703 ========= ========== ========= ========== March 31, 1999 - -------------- Real estate mortgage investment conduits $ 50,002 $ 34 $ (534) $ 49,502 FHLMC mortgage-backed securities 686 15 - 701 FNMA mortgage-backed securities 3,120 49 - 3,169 --------- ---------- --------- ---------- Total $ 53,808 $ 98 $ (534) $ 53,372 ========= ========== ========= ========== The contractual maturities of mortgage-backed securities available for sale were as follows (in thousands): Estimated Amortized Fair September 30, 1999 Cost Value - ------------------ ---------- ---------- Due after one year through five years $ 2,108 $ 2,104 Due after five years through ten years 2,368 2,398 Due after ten years 41,444 40,201 ---------- ---------- $ 45,920 $ 44,703 ========== ========== Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Mortgage-backed securities held to maturity with an amortized cost of $355,000 and $386,000 and a fair value of $350,000 and $388,000 at September 30, 1999 and March 31, 1999, respectively, were pledged as collateral for public fund held by the Community Bank. 9
(7) Loans Receivable ---------------- Loans receivable consisted of the following (in thousands): September 30, March 31, 1999 1999 ------------- ----------- Residential: One to four family $ 90,266 $ 82,934 Multi-family 9,989 7,558 Construction: One to four family 53,045 45,524 Multi-family 4,724 4,209 Commercial real estate 6,621 6,184 Commercial 19,594 8,676 Consumer: Secured 13,658 12,691 Unsecured 3,008 2,769 Land 28,768 24,932 Non-residential 18,736 17,554 ----------- ----------- 248,409 213,031 Less: Undisbursed portion of loans 22,717 22,278 Deferred loan fees, net 3,154 2,770 Allowance for possible loan losses 1,162 1,146 Unearned discounts 1 1 ----------- ----------- Loans receivable, net $ 221,375 $ 186,836 =========== =========== (8) Loans Held for Sale ------------------- The Community Bank sells substantially all long-term fixed rate mortgage loans in the secondary market. All such loans held for sale are identified as held for sale at the time of origination and are carried at the lower of cost or estimated market value on an aggregate portfolio basis. Market values are derived from available market quotations for comparable pools of mortgage loans. Adjustments for unrealized losses, if any, are charged to income. (9) Borrowings ---------- Borrowings are summarized as follows (in thousands): September 30, March 31, 1999 1999 ------------- ----------- Federal Home Loan Bank Advances $ 44,550 $ 42,550 ============= =========== Weighted average interest rate: 5.86% 4.87% ============= =========== Borrowings have the following maturities at September 30, 1999 (in thousands): 1999 $ 29,000 2000 15,550 ------------- $ 44,550 ============= 10
(10) Stockholders' Equity -------------------- Repurchase of Common Stock On February 9, 1999, the Company received regulatory approval to repurchase up to 10% or 601,324 shares of its outstanding common stock at December 31, 1998. The shares repurchased will be held in the Company's treasury. At September 30, 1999, 525,186 common stock shares had been repurchased at an average cost of $12.59 per share. On September 15, 1998, the Company received regulatory approval to repurchase up to 9% or 321,368 shares of the 3,570,570 shares issued during Conversion and Reorganization (as hereinafter defined). Prior to December 31, 1998, 321,368 common stock shares had been repurchased at an average cost of $13.62 per share. The shares repurchased will be held in the Company's treasury with 142,830 shares to be used by the management recognition and development plan. (11) Recently Issued Accounting Pronouncements ----------------------------------------- In June 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standards ("SFAS") SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters beginning with the fiscal year 2001 and need not be applied retroactively to financial statements of prior periods. The Company does not anticipate that the adoption of SFAS No. 133 would have a material effect on its financial position or results of operations. 11
(12) Commitments and Contingencies ----------------------------- The Community Bank 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 and consumer loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Community Bank's maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Community Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to extend credit are conditional 14-day agreements to lend to a customer subject to the Community Bank's usual terms and conditions. At September 30, 1999, the Community Bank had commitments to originate fixed rate mortgage loans of $3.1 million at interest rates ranging from 7.38% to 10.50%. At September 30, 1999, adjustable rate mortgage loan commitments were $5.1 million at interest rates ranging from 6.75% to 10.25%. Collateral is not required to support commitments. Consumer loan commitments totaled $6.2 million and commercial loan commitments totaled $8.8 million at September 30, 1999. The Company is a party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect, if any, on the Company's financial position, results of operation, or liquidity. 12
Item 2. RIVERVIEW BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Clause. This report contains certain "forward-looking statements." The Company 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 itself of the protection of such safe harbor with forward-looking statements. These forward-looking statements, which are included in Management's Discussion and Analysis, describe future plans or strategies and include the Company's expectations of future financial results. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward- looking statements. The Company's 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 economic climate in the Company's market area and the country as a whole, 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. General The Company, a Washington corporation, was organized on June 23, 1997 for the purpose of becoming the holding company for Riverview Community Bank (formerly Riverview Savings Bank, FSB) upon Riverview Savings Bank's reorganization as a wholly owned subsidiary of the Company resulting from the conversion of Riverview, M.H.C. from a federal mutual holding company to a stock holding company ("Conversion and Reorganization"). The Conversion and Reorganization was completed on September 30, 1997. Riverview Savings Bank, FSB changed its name to Riverview Community Bank effective June 29, 1998. The Community Bank is regulated by the Office of Thrift Supervision ("OTS"), its primary regulator, and by the Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The Community Bank's deposits are insured 13
by the FDIC up to applicable legal limits under the Savings Association Insurance Fund ("SAIF"). The Community Bank has been a member of the Federal Home Loan Bank ("FHLB") System since 1937. As a traditional, community-oriented, financial institution, the Community Bank focuses on traditional financial services to residents of its primary market area. The Community Bank considers Clark, Cowlitz, Klickitat and Skamania counties of Washington as its primary market area. The primary business of the Community Bank is attracting deposits from the general public and using such funds to originate fixed-rate mortgage loans and adjustable rate mortgage loans secured by one to four family residential real estate located in its primary market area. The Community Bank is also an active originator of one to four family and multi-family construction loans to both builders and homeowners. The Community Bank has also increased the portfolio of loans for land development and small business financing and consumer loans. The Community Bank operates ten branches in southwest Washington, including six branches in Clark County, with two new Vancouver branches planned for 1999. Riverview Mortgage, a mortgage broker division of the Community Bank, originates mortgage loans (including construction loans) for various mortgage companies predominantly in the Portland and Seattle metropolitan areas, as well as for the Community Bank. On November 25, 1998 the Community Bank received regulatory approval to offer trust and investment services to its customers. Riverview Asset Management Corporation, a subsidiary of the Community Bank, was established to operate the trust and investment activities. The headquarters of the trust department are in the Community Bank's newest branch, the Vancouver Main branch, which officially opened in October 1998. Assets totaling approximately $40.0 million at September 30, 1999 were managed by the Riverview Asset Management Corporation in fiduciary or agency capacity. Year 2000 The "Year 2000 problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19". Systems that calculate, compare or sort using the incorrect date may cause erroneous results, ranging from system malfunctions to incorrect or incomplete processing. If not remedied, potential risks include business disruption or 14
temporary shutdown and financial loss. The Company principally utilizes third-party computer service providers and third-party software for its information technology needs. As a result, the Year 2000 compliance of the Company's information technology assets, such as computer hardware, software and systems, is primarily dependent upon the Year 2000 compliance efforts and results of its third-party vendors. The Year 2000 compliance of the Company's non-information technology assets, which include automated teller machines (ATMS), copiers, fax machines, elevators, microfilmers, and HVAC systems, is also primarily dependent upon Year 2000 compliance efforts and results of third-parties. State of Readiness - ------------------ The Company began developing a plan to address the Year 2000 issues in 1997, and in 1998 appointed a Year 2000 Committee comprised of representatives from all key areas of the Company, including Senior Management. The Year 2000 Committee has developed and has implemented a comprehensive project to make all information technology assets and all non-information technology assets Year 2000 compliant. Testing of hardware has been completed and non-compliant information technology hardware has been replaced. The committee provides periodic reports to the Company's Board of Directors in order to assist them in their Year 2000 readiness oversight role. The Company's non-information technology assets have also been assessed for Year 2000 compliance. Manufacturers, installers, and/or servicers of each have been contacted for certification of Year 2000 readiness. Of the Company's non- information technology assets, only ATM operating systems were determined to be in need of replacement for six ATMs, and these ATM operating systems have been replaced. The Year 2000 Committee's plan to make all Company assets Year 2000 compliant is comprised of the following phases: 1. Awareness - Educational initiatives on Year 2000 issues and concerns. This phase is ongoing, especially as it relates to customers. 2. Assessment - Inventory of all technology assets and identification of third-party vendors and service providers. This phase has been completed. 15
3. Renovation - Review of vendor and service providers responses to the Company's Year 2000 inquiries and development of a follow-up plan and timeline. This phase has been completed. 4. Validation - The Year 2000 Committee's readiness initiative is currently in this phase. This phase consists of testing all systems as well as testing of third-party vendors and service providers for year 2000 issues. Testing of mission-critical automated systems was during the quarter ended March 31, 1999. Testing of renovations and new systems will continue throughout 1999. 5. Implementation - This phase has been substantially completed with the replacement of all micro-computer hardware which was determined not to be Year 2000 compliant. As previously mentioned, six ATM operating systems have been replaced in connection with this phase. As required by the Company's Year 2000 plan, the Year 2000 readiness program was substantially completed by June 30, 1999, consistent with the OTS guidelines. The Company will continue to monitor its vendors and internal processes for Year 2000 readiness throughout 1999. Costs to Address the Year 2000 Issue - ------------------------------------ The total cost of carrying out the Company's plan to address the Year 2000 issue is currently estimated to be approximately $200,000, including estimates of personnel costs, and is comprised primarily of costs for equipment and software that will be acquired and depreciated over its useful life in accordance with Company policy. Any personnel and consulting costs have been and will continue to be expensed as incurred. These currently contemplated Year 2000 compliance costs are expected to be funded primarily through operating cash flows and are not expected to have a material adverse effect on the Company's business, financial condition or results of operations. As of September 30, 1999, the costs incurred related to Year 2000, excluding estimates of personnel costs, are approximately $108,000 which is within original projections. 16
Risks Presented by the Year 2000 Issue - -------------------------------------- Because the Company is substantially dependent upon the proper functioning of its computer systems and the computer systems and services of third parties, a failure of those computer systems and services to be Year 2000 compliant could have a material adverse effect on the Company's business, financial condition or results of operations. The Company relies heavily on third-party vendors and service providers for its information technology needs. The Company's primary third-party computer service provider is a computer service bureau that provides data processing for virtually all of the Company's savings and checking accounts, lending and loan servicing, general ledger, fixed assets and accounts payable. Some of these functions operate in-house on network micro-computers, but they are all integrated and interfaced with the third- party service bureau system. The third-party's data processing services are mission-critical services for the Company and a failure of this provider's services to be Year 2000 compliant could cause substantial disruption of the Company's business and could have a material adverse financial impact on the Company. Testing of this third-party data processing service bureau started during the fourth quarter of the calendar year 1998 and was successfully completed during the quarter ended June 30, 1999. If this third-party service provider or other third-party providers with which the Company has material relationships are not Year 2000 compliant, the following problems could result: (i) in the case of vendors, important services upon which the Company depends, such as telecommunications and electrical power, could be interrupted, (ii) in the case of third-party service providers, the Company could receive inaccurate or outdated information, which could impair the Company's ability to perform critical data functions, such as the processing of deposit accounts, loan servicing and internal accounting, and (iii) in the case of governmental agencies, such as the FHLB, and correspondent banks, such agencies and financial institutions could fail to provide funds to the Company, which could materially impair the Company's liquidity and affect the Company's ability to fund loans and deposit withdrawals. In addition, whether or not the Company is Year 2000 compliant, the Company may experience an outflow of deposits if customers are concerned about the integrity of financial institutions' records regarding customer accounts. 17
Contingency Plans - ----------------- Where it is possible to do so, the Company has scheduled testing with third- party vendors and service providers. Where it is not possible, the Company will rely upon certifications of Year 2000 compliance from third-party vendors and service providers. Certifications of Year 2000 compliance have been received from the Company's third-party vendors and service providers. Testing with selected mission critical providers was completed during the quarter ended March 31, 1999. The Company will supplement its existing business continuity plans to deal with the special circumstances of Year 2000 problems. These contingency plans provide timetables to pursue various alternatives based upon the failure of a system to be adequately modified or sufficiently tested and validated to ensure Year 2000 compliance. There can be no assurance that the Company's Year 2000 plans will effectively address the Year 2000 issue, that the Company's estimates of the timing and costs of completing the plan will ultimately be accurate or that the impact of any failure of the Company or its third-party vendors and service providers to be Year 2000 compliant will not have a material adverse effect on the Company's business, financial condition or results of operations. FINANCIAL CONDITION At September 30, 1999, the Company had total assets of $316.5 million compared with $302.6 million at March 31, 1999. The $13.9 million, or 4.6% increase in assets reflects the growth in loans. Cash, including interest-earning accounts, totaled $10.8 million at September 30, 1999 compared to $17.2 million at March 31, 1999. At September 30, 1999, the Company had $248.4 million in gross loans, an increase of $35.4 million compared to $213.0 million at March 31, 1999. Commercial loans increased $10.9 million to $19.6 million at September 30, 1999 from $8.7 million at March 31, 1999. The $10.9 million increase was made up of several loans and occurred in commercial loans secured by real estate, commercial loans secured by equipment, commercial loans secured by other collateral and unsecured commercial loans. Loans receivable (Note 7), provides a detailed analysis of the $35.4 million increase in gross loans. Consumer, commercial, and land loans 18
carry higher interest rates and a higher degree of credit risk compared to one-to-four family mortgage loans. Deposits totaled $215.2 million at September 30, 1999 compared to $200.3 million at March 31, 1999. FHLB advances totaled $44.6 million at September 30, 1999 and $42.6 million at March 31, 1999. During the quarter ended September 30, 1999, the Community Bank replaced the called $30.0 million, five year term, 4.49% rate putable advance with short term fixed rate advances of $22.0 million, 5.38% rate and $10.0 million, 5.74% rate. Capital Resources Total shareholders' equity decreased $3.5 million, or 6.5%, from $56.9 million at March 31, 1999 to $53.4 million at September 30, 1999. The $3.5 million decrease in shareholders' equity was the net result of $2.0 million in earnings for the year to date, dividends of $947,000, purchase of 290,445 treasury shares for $3.5 million and $1.1 million change in net unrealized loss on securities available for sale, net of tax. The Community Bank is subject to various regulatory capital requirements administered by the federal banking agencies. 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 Community Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Community Bank must meet specific capital guidelines that involve quantitative measures of the Community Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Community 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 Community Bank to maintain amounts and ratios of tangible and core capital to adjusted total assets and of total risk-based capital to risk-weighted assets of 1.5%, 3.0%, and 8.0%, respectively. As of September 30, 1999, the Community Bank meets all capital adequacy requirements to which it is subject. 19
As of September 30, 1999, the most recent notification from the OTS categorized the Community Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Community Bank must maintain minimum core and total risk-based capital ratios of 5.0% and 10.0%, respectively. At September 30, 1999, the Community Bank's tangible, core and risk-based total capital ratios amounted to 15.4%, 15.4%, and 25.2%, respectively. There are no conditions or events since that notification that management believes have changed the Community Bank's category. The Community Bank's actual and required minimum capital amounts and ratios are presented in the following table (dollars in thousands): Categorized as "Well Capitalized" Under Prompt For Capital Corrective Actual Adequacy Purpose Action Provision ----------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio As of September 30, 1999 ------ ----- ------ ----- ------ ----- Total Capital: (To Risk Weighted Assets) $48,392 25.6% $15,142 8.0% $18,927 10.0% Tier I Capital: (To Risk Weighted Assets) 47,701 25.2 N/A N/A 11,356 6.0 Core Capital: (To Total Assets) 47,701 15.4 9,325 3.0 15,542 5.0 Tangible Capital: (To Tangible Assets) 47,701 15.4 4,663 1.5 N/A N/A As of March 31, 1999 Total Capital: (To Risk Weighted Assets) $47,145 28.6% $13,213 8.0% $16,516 10.0% Tier I Capital: (To Risk Weighted Assets) 46,470 28.1 N/A N/A 9,909 6.0 Core Capital: (To Total Assets) 46,470 15.7 8,861 3.0 14,768 5.0 Tangible Capital: (To Tangible Assets) 46,470 15.7 4,430 1.5 N/A N/A The following table is a reconciliation of the Community Bank's capital, calculated according to generally accepted accounting principles (GAAP), to regulatory tangible and risk-based capital at September 30, 1999 (in thousands): 20
Equity $48,754 Net unrealized loss on securities available for sale 1,340 Core deposit intangible asset (1,512) Deferred tax and servicing asset (881) ------- Tangible capital 47,701 Land held for development (471) General valuation allowance 1,162 ------- Total capital $48,392 ======= Bank Liquidity OTS regulations require the Community Bank to maintain an average daily balance of liquid assets as a percentage of average daily net withdrawable deposit accounts plus short-term borrowings of at least 4%. The Community Bank's regulatory liquidity ratio was 35.3% at September 30, 1999 compared to 52.9% at March 31, 1999. The Community Bank anticipates that it will have sufficient funds available to meet current loan commitments and other cash needs. At September 30, 1999, the Community Bank had outstanding commitments to originate $8.3 million of mortgage loans, none of which were committed to be sold in the secondary market. Cash, including interest-earning overnight investments, was $10.8 million at September 30, 1999 compared to $17.2 million at March 31, 1999. Investment securities and mortgage-backed securities available for sale at September 30, 1999 were $13.1 million and $44.7 million, respectively, compared to $13.3 million and $53.4 million, respectively, at March 31, 1999. See "Financial Condition". Asset Quality Allowance for loan losses was $1.2 million at September 30, 1999, compared to $1.1 million at March 31, 1999. Management deemed the allowance for loan losses at September 30, 1999 to be adequate 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, industry data, current and anticipated economic conditions, and detailed analysis of individual loans. The appropriate allowance level is 21
estimated based upon factors and trends identified by management at the time the consolidated financial statements are prepared. Nonperforming assets were $1.0 million, or 0.31% of total assets at September 30, 1999 compared with $1.3 million, or 0.44% of total assets at March 31, 1999. The following table sets forth information with respect to the Community Bank's nonperforming assets at the dates indicated: September 30, 1999 March 31, 1999 ------------------ -------------- (Dollars in thousands) Loans accounted for on a nonaccrual basis: Real Estate Residential $ 92 $1,052 Commercial 192 208 Consumer 29 33 ------ ------ Total 313 1,293 ------ ------ Accruing loans which are contractually past due 90 days or more 240 5 ------ ------ Total of nonaccrual and 90 days past due loans 553 1,298 ------ ------ Real estate owned 338 30 Other personal property owned 80 - ------ ------ Total nonperforming assets $ 971 $1,328 ====== ====== Total loans delinquent 90 days or more to net loans 0.25% 0.69% Total loans delinquent 90 days or more to total assets 0.17 0.43 Total nonperforming assets to total assets 0.31 0.44 Comparison of Operating Results for the Three Months Ended September 30, 1999 and 1998 The Company's net income depends primarily on its net interest income, which s the difference between interest earned on its loans and investments and the interest paid on interest-bearing liabilities. Net interest income is 22
determined by (a) the difference between the yield earned on interest-earning assets and rates paid on interest-bearing liabilities (interest rate spread) and (b) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest rate spread is affected by regulatory, economic and competitive factors that influence rates, loan demand and deposit flows. Net interest margin is calculated by dividing net interest income by the average interest-earning assets. Net interest income and net interest margin are affected by changes in interest rates, volume and the mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. The Company's net income is also affected by the generation of non-interest income, which primarily consists of fees and service charges, loan servicing income, gains on sale of securities, gains from sale of loans and other income. In addition, net income is affected by the level of operating expenses and establishment of a provision for loan losses. Net income for the three months ended September 30, 1999 was $1.0 million, $0.20 per basic share ($0.19 per diluted share). This compares to net income of $1.2 million, $0.20 per basic share ($0.19 per diluted share) for the same period in fiscal 1999. Net interest income increased $280,000, or 9% for the three months ended September 30, 1999 from $3.2 million for the three months ended September 30, 1998 due primarily to a 14% increase in average interest-earning assets. Non-interest income increased $29,000, or 4% for the three months ended September 30, 1999 from $699,000 for the three months ended September 30, 1998, reflecting increases in fees and service charges and decreases in fees from brokered loans. Non-interest expense increased $546,000, or 26% as compared to the same period for the prior year. The increase in non-interest expense is due primarily to increased salaries and employee benefits, marketing and occupancy expense. Average interest-earning assets increased to $298.6 million for the three months ending September 30, 1999 from $261.0 million for the three months ending September 30, 1998. The $37.6 million increase is due primarily to growth in the loan portfolio. Interest income for the three months ended September 30, 1999 was $6.2 million, an increase of $600,000, or 11% over the $5.6 million interest income for the same period in 1998. Yield on interest-earning assets for the three month 1999 period was 8.21% compared to 8.51% for the same three month 23
period in 1998. The lower second quarter 1999 yield on interest-earning assets reflects the decrease in loan fees amortized into income resulting from the reduction in real estate mortgage loan refinance activity in the 1999 quarter compared to the 1998 quarter. The 1999 second quarter mix of assets was effected by the September 29, 1998 purchase of $30.0 million in mortgage- backed securities. Mortgage-backed securities have a lower interest yield than loans and contributed to the lower yield in the 1999 second quarter interest-earning assets as compared to the second quarter 1998. The higher interest income in the 1999 second quarter as compared to the 1998 second quarter resulted from growth in the loan portfolio and the increase in the average balance of mortgage-backed securities. Interest expense was $2.6 million and $2.3 million for the quarters ended September 30, 1999 and 1998, respectively. The cost of interest-bearing liabilities for the three month 1999 period was 4.38% compared to 4.70% for the three month 1998 period. The mix of interest-bearing liabilities changed due to a $30.0 million FHLB borrowing that was used to purchase $30.0 million of mortgage-backed securities. The $30.0 million FHLB borrowing at 4.49% contributed to the lower 1999 cost of interest-bearing liabilities. Growth in the second quarter average balance of money market accounts from $20.9 million at September 30, 1998 to $36.4 million at September 30, 1999 also lowered the 1999 cost of interest-bearing liabilities. Net interest income increased $300,000, or 9%, to $3.5 million for the three months ended September 30, 1999, compared to $3.2 million for the three months ended September 30, 1998. The change in volume of average interest-earning assets and liabilities when the second quarter averages are compared for quarter ending September 30, 1998 and September 30, 1999 increased net interest income $500,000. The change in interest rates for the same period reduced net interest income $200,000. The interest rate spread increased from 3.80% for the three month 1998 period to 3.83% for the three month 1999 period. The net interest margin decreased to 4.71% during the second quarter ended September 30, 1999 from 4.94% for the second quarter ended September 30, 1998. The decreased 1999 net interest margin reflects the change in the mix of interest-earning assets caused by the September 29, 1998 $30.0 million purchase of mortgage-backed securities. The reduced amount of loan fees amortized to income in the second quarter of 1999 compared to the same period for the 24
prior year is also reflected in the reduced 1999 net interest margin when compared to the same period a year earlier. Average interest-earning assets increased by $37.6 million to $298.6 million during the second quarter ended September 30, 1999 from $261.0 million for the second quarter ended September 30, 1998. The $37.6 million increase in average interest-earning assets was offset by the $40.6 million increase in average interest-bearing liabilities. Interest-bearing liabilities increased to $238.6 million during the quarter ended September 30, 1999 from $198.0 million for the quarter ended September 30, 1998. The provision for loan losses was $90,000 and there were $120,000 in net charge-offs during the three months ended September 30, 1999 compared to a $60,000 provision and $28,000 in net charge-offs during the three months ended September 30, 1998. The loan loss provision was deemed necessary based upon management's analysis of historical and anticipated loss rates, current loan growth, and other factors considered. Non-interest income increased $29,000, or 4%, to $728,000 for the three months ended September 30, 1999 from $699,000 for the three months ended September 30, 1998. The $29,000 increase for the current quarter is primarily due to a $39,000 increase in deposit service charges resulting from an increased number of deposit accounts and the result of a new fee schedule. Non-interest expense increased $546,000, or 26%, from $2.1 million for the quarter ended September 30, 1998 to $2.6 million for the quarter ended September 30, 1999. Salaries and employee benefits increased $258,000 to $1.3 million for the quarter ended September 30, 1999 as compared to the 1998 quarter. There were 22 more full-time equivalent employees during the 1999 quarter over the 1998 quarter. This resulted from expansion of services offered by adding the new branch, the new trust corporation, Riverview Asset Management Corporation, and the new commercial lending department in the Vancouver Financial Center. Expansion also occurred in the mortgage broker division and support functions. Provision for federal income taxes for the second quarter of fiscal 1999 was $523,000, resulting in an effective tax rate of 34%, compared to $655,000 and 36% for the like quarter of a year ago. The 2% decrease in the effective tax rate for three months ended September 30, 1999 is primarily 25
attributable to the impact of the ESOP market value adjustment. Comparison of Operating Results for the Six Months Ended September 30, 1999 and 1998 Net income for the six months ended September 30, 1999 was $2.0 million, $0.38 per basic share ($0.37 per diluted share). This compares to net income of $2.4 million, $0.41 per basic share ($0.41 per diluted share) for the same period in fiscal 1998. The earnings per basic share decrease of 7% to $0.38 for the six months ended September 30, 1999 from $0.41 for the six months ended September 30, 1998 reflected several factors. Net interest income increased $417,000, or 6% for the six months ended September 30, 1999 compared to the same period in fiscal 1999 due to a 14% increase in interest-earning assets. Non-interest income increased $110,000, or 8% reflecting increases in fees and service charges in fiscal 2000 as compared to fiscal 1999. Average interest-earning assets increased to $294.1 million for the six months ending September 30, 1999 from $258.8 million for the six months ending September 30, 1998. Interest income for the six months ended September 30, 1999 was $12.1 million, an increase of $907,000, or 8% over $11.2 million for the same period in 1998. Yield on interest-earning assets for the six month 1999 period was 8.26% compared to 8.64% for the six month 1998 period. The lower 1999 yield on interest-earning assets reflects the decrease in loan fees amortized into income resulting from the reduction in residential real estate loan refinance activity for the six months ended September 30, 1999 compared to the same period in 1998. The mix of assets for the six months ended September 30, 1999 was effected by the September 29, 1998 purchase of $30.0 million in mortgage-backed securities. Mortgage-backed securities have a lower interest yield than loans and contributed to the lower yield on the interest-earning assets at September 30, 1999 as compared to yield on interest-earning assets at September 30, 1998. The higher interest income for the six month period ended September 30, 1999 as compared to the same period in 1998 resulted from growth in the loan portfolio and the increase in the average balance of mortgage-backed securities. Interest expense for the six months ended September 30, 1999 was $5.2 million, an increase of $490,000, or 10% over $4.7 million for the same period in 1998. The cost of interest- 26
bearing liabilities for the six month 1999 period was 4.40% compared to 4.71% for the six month 1998 period. The mix of interest- bearing liabilities changed due to the September 29, 1998 $30.0 million FHLB borrowing. The $30.0 million FHLB borrowing at 4.49% contributed to the lower 1999 cost of interest-bearing liabilities. Growth in the six month average balance of money market accounts from $20.1 million for the quarter ended September 30, 1998 to $31.8 million for the quarter ended September 30, 1999 also lowered the 1999 cost of interest-bearing liabilities. Net interest income increased $417,000, or 6%, to $7.0 million for the six months ended September 30, 1999, compared to $6.5 million for the six months ended September 30, 1998. The change in volume of average interest-earning assets and liabilities when the year to date averages are compared at September 30, 1998 and September 30, 1999 increased net interest income $900,000. The change in interest rates for the same period reduced net interest income $460,000 million. The $417,000 increase in net interest income for the six months ended September 30, 1999 was due primarily to the 14% increase in average interest-earning assets to $294.1 million at September 30, 1999 from $258.8 million at September 30, 1998. The interest rate spread decreased from 3.93% for the six month 1998 period to 3.86% for the six month 1999 period. The net interest margin decreased to 4.75% during the six month period ended September 30, 1999 from 5.04% for the six month period ended September 30, 1998. The decreased margin reflects the change in the mix of assets for the six months ended September 30, 1999 caused by the September 29, 1998 $30.0 million purchase of mortgage-backed securities. The decreased margin also reflects the decrease in loan fees due to the decline in residential real estate loan refinance activity for the six month period ended September 30, 1999 when compared to the same period for the prior year. The $35.3 million increase in average interest-earning assets was offset by the $37.1 million increase in average interest-bearing liabilities. Interest- bearing liabilities increased to $235.1 million during the six months ended September 30, 1999 from $198.0 million for the six months ended September 30, 1998. The provision for loan losses was $180,000 and there were $164,000 in net charge-offs during the six months ended September 30, 1999 compared to a $120,000 provision and $30,000 in net charge-offs during the six months ended September 30, 1998. The balance of nonperforming assets has decreased from year end March 31, 1999. The loan loss 27
provision was deemed necessary based upon management's analysis of historical and anticipated loss rates, current loan growth, and other factors considered. Non-interest income increased $110,000, or 8%, to $1.5 million for the six months ended September 30, 1999 from $1.4 million for the six months ended September 30, 1998. The $110,000 increase for the current six months is primarily due to a $145,000 increase in deposit service charges resulting from an increased number of deposit accounts and the result of a new fee schedule. Non-interest expense increased $1.2 million, or 30%, from $4.0 million for the six months ended September 30, 1998 to $5.2 for the six months ended September 30, 1999. The $1.2 million increase for the six months ended September 30, 1999 reflects the addition of 22 full-time equivalent employees over the six months ended September 30, 1998. This resulted from expansion of services offered by adding the new branch, the new trust corporation, Riverview Asset Management Corporation, and the new commercial lending department in the Vancouver Financial Center. Expansion also occurred in the mortgage broker division and support functions. Salaries and employee benefits increased $617,000 to $2.7 million for the six months ended September 30, 1999 as compared to the same period in fiscal 1998. Provision for federal income taxes for the six months ended September 30, 1999 was $1.0 million resulting in an effective tax rate of 34%, compared to $1.4 million and 37% for the like period a year ago. The 3.0% decrease in the effective tax rate for six months ended September 30, 1999 is attributable to the impact of the ESOP market value adjustment. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 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 fiscal year ended March 31, 1999. 28
RIVERVIEW BANCORP, INC. AND SUBSIDIARY PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- Not applicable Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable Item 5. Other Information ----------------- Not applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 3.1 Articles of Incorporation of the Registrant* 3.2 Bylaws of Registrant* 10.1 Employment Agreement with Patrick Schaeffer** 10.2 Employment Agreement with Ron Wysaske** 10.3 Employment Agreement with Michael C. Yount** 10.4 Employment Agreement with Karen Nelson** 10.5 Riverview Savings Bank, FBS Severance Compensation Agreement** 10.6 Riverview Savings Bank, FSB Employee Stock Ownership Plan*** 10.7 The Riverview Bancorp, Inc. 1998 Stock Option Plan**** 10.8 The Riverview Bancorp, Inc. Management Recognition and Development Plan**** 21 Subsidiaries of Registrant*** 27 Financial Data Schedule (b) Reports on Form 8-K: No Forms 8-K were filed during the quarter ended December 31, 1998. 29
- -------------- * Filed as an exhibit to the registrant's Registration Statement on Form S-1, as amended (333-30203), and incorporated herein by reference. ** Filed as an exhibit to the Registrant's Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference. *** Filed as an exhibit to the Registrant's Form 10-K for the year ended March 31, 1998, and incorporated herein by reference. **** Filed as an exhibit to the Registrant's definitive proxy statement dated June 5, 1998, and incorporated herein by reference. 30
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIVERVIEW BANCORP, INC. DATE:November 5, 1999 BY:/S/ Patrick Sheaffer Patrick Schaeffer President DATE:November 5, 1999 BY:/S/ Ron Wysaske Ron Wysaske Executive Vice President/Treasurer 31