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 June 30, 2000 --------------- 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---4,530,991 shares as of July 31, 2000.
Form 10-Q RIVERVIEW BANCORP, INC. AND SUBSIDIARY INDEX Part I. Financial Information Page --------------------- ---- Item 1: Financial Statements (Unaudited) Consolidated Balance Sheets as of June 30, 2000 and March 31, 2000 1 Consolidated Statements of Income: Three Months Ended June 30, 2000 and 1999 2 Consolidated Statements of Shareholders' Equity for the Year Ended March 31, 2000 and for the Three Months Ended June 30, 2000 3 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2000 and 1999 4 Notes to Consolidated Financial Statements 5-11 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11-17 Item 3: Quantitative and Qualitative Disclosures About Market Risk 17 Part II. Other Information 18 SIGNATURES 19 EXHIBITS 20-21
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Balance Sheets JUNE 30, 2000 and MARCH 31, 2000 JUNE 30, MARCH 31, (In thousands, except share data) (Unaudited) 2000 2000 - ------------------------------------------------------------------------------ ASSETS Cash (including interest-earning accounts of $1,175 and $5,378) $ 12,093 $ 15,786 Loans held for sale 300 - Investment securities held to maturity, at amortized cost (fair value of $861 and $854) 903 903 Investment securities available for sale, at fair value (amortized cost of $14,421 and $14,421) 12,881 12,883 Mortgage-backed securities held to maturity, at amortized cost (fair value of $7,975 and $8,595) 7,979 8,657 Mortgage-backed securities available for sale, at fair value (amortized cost of $38,634 and $40,974) 36,809 39,378 Loans receivable (net of allowance for loan losses of $1,932 and $1,362) 265,521 249,034 Real estate owned 622 65 Prepaid expenses and other assets 722 875 Accrued interest receivable 2,138 1,881 Federal Home Loan Bank stock, at cost 3,783 3,074 Premises and equipment, net 10,097 9,088 Land held for development 471 471 Deferred income taxes, net 1,315 1,236 Core deposit intangible, net 1,267 1,349 --------- --------- TOTAL ASSETS $ 356,901 $ 344,680 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposit accounts $ 233,731 $ 232,355 Accrued expenses and other liabilities 3,584 3,147 Advance payments by borrowers for taxes and insurance 28 139 Federal Home Loan Bank advances 70,925 60,550 --------- --------- Total liabilities 308,268 296,191 COMMITMENTS 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, June 30, 2000 - 4,912,285 issued, 4,530,991 outstanding; March 31, 2000 - 4,902,503 issued, 4,521,209 outstanding 49 49 Additional paid-in capital 38,485 38,457 Retained earnings 15,869 15,652 Unearned shares issued to employee stock ownership trust (2,371) (2,422) Unearned shares held by the management recognition and development plan (1,178) (1,178) Accumulated other comprehensive loss (2,221) (2,069) --------- --------- Total shareholders' equity 48,633 48,489 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 356,901 $ 344,680 ========= ========= See notes to consolidated financial statements. 1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Income Three Months Ended June 30, (In thousands, except share data) (Unaudited) 2000 1999 - ------------------------------------------------------------------------------ INTEREST INCOME: Interest and fees on loans receivable $ 6,133 $ 4,613 Interest on investment securities 208 254 Interest on mortgage-backed securities 806 943 Other interest and dividends 98 162 --------- --------- Total interest income 7,245 5,972 --------- --------- INTEREST EXPENSE: Interest on deposits 2,428 2,024 Interest on borrowings 1,075 521 --------- --------- Total interest expense 3,503 2,545 --------- --------- Net interest income 3,742 3,427 Less provision for loan losses 594 90 --------- --------- Net interest income after provision for loan losses 3,148 3,337 --------- --------- NON-INTEREST INCOME: Fees and service charges 708 676 Gain on sale of loans held for sale 5 5 Gain on sale of other real estate owned - 26 Loan servicing income 32 33 Other 21 23 --------- --------- Total non-interest income 766 763 --------- --------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,630 1,397 Occupancy and depreciation 383 330 Data Processing 208 186 Amortization of core deposit intangible 82 82 Marketing expense 168 143 FDIC insurance premium 11 29 Other 441 461 --------- --------- Total non-interest expense 2,923 2,628 --------- --------- INCOME BEFORE FEDERAL INCOME TAXES 991 1,472 PROVISION FOR FEDERAL INCOME TAXES 313 509 --------- --------- NET INCOME $ 678 $ 963 ========= ========= Earnings per common share: Basic $0.15 $0.18 Diluted 0.15 0.18 Weighted average number of shares outstanding: Basic 4,533,026 5,322,922 Diluted 4,607,378 5,436,157 See notes to consolidated financial statements. 2
<TABLE> RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED MARCH 31, 2000 AND THE NINE MONTHS ENDED JUNE 30, 2000 (Unaudited) Unearned Shares Issued to Accum- Employee ulated Common Addi- Stock Unearned Other Stock tional Owner- Shares Compre- (In thousands, except ---------------- Paid-in Retained ship Issued to hensive per share data) Shares Amount Capital Earnings Trust MRDP Income Total - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Balance April 1, 1999 5,346,322 $ 58 $ 48,120 $ 13,602 $ (2,743) $ (1,571) $ (599) $ 56,867 Cash Dividends - - - (1,827) - - - (1,827) Exercise of stock options 34,096 - 137 - - - - 137 Stock repurchased and retired (912,404) (9) (9,825) - - - - (9,834) Earned ESOP shares 24,629 - 25 - 321 - - 346 Earned MRDP shares 28,566 - - - - 393 - 393 --------- ---- -------- -------- -------- -------- ------- -------- 4,521,209 49 38,457 11,775 (2,422) (1,178) (599) 46,082 Comprehensive income: Net income - - - 3,877 - - - 3,877 Other comprehensive income: Unrealized holding loss on securities of $1,454 (net of $749 tax benefit) less reclassification adjustment for gains included in net income of $16 (net of $8 tax expense) - - - - - - (1,470) (1,470) -------- Total comprehensive income - - - - - - - 2,407 --------- ---- -------- -------- -------- -------- ------- -------- Balance, March 31, 2000 4,521,209 49 38,457 15,652 (2,422) (1,178) (2,069) 48,489 Cash dividends - - - (461) - - (461) Exercise of stock options 9,782 - 28 - - - - 28 Stock repurchased and retired - - - - - - - - Earned ESOP shares - - - - 51 - - 51 Earned MRDP shares - - - - - - - - --------- ---- -------- -------- -------- -------- ------- -------- 4,530,991 49 38,485 15,191 (2,371) (1,178) (2,069) 48,107 Comprehensive income: Net income - - - 678 - - - 678 Other comprehensive loss: Unrealized holding loss on securities of $152 (net of $78 tax benefit) - - - - - - (152) (152) -------- Total comprehensive income 526 --------- ---- -------- -------- -------- -------- ------- -------- Balance, June 30, 2000 4,530,991 $ 49 $ 38,485 $ 15,869 $ (2,371) $ (1,178) $(2,221) $ 48,633 ========= ==== ======== ======== ======== ======== ======= ======== See notes to consolidated financial statements. 3 </TABLE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, (In thousands) 2000 1999 - ------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 678 $ 963 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 330 332 Provision for losses on loans 594 90 Noncash expense related to ESOP benefit 51 71 Noncash expense related to MRDP benefit 98 98 Increase in deferred loan origination fees, net of amortization 29 209 Federal Home Loan Bank stock dividend (56) (47) Net gain on sale of real estate owned, mortgage-backed and investment securities and premises and equipment - (26) Changes in assets and liabilities: (Increase) Decrease in loans held for sale (300) 291 Decrease in prepaid expenses and other assets 129 82 Increase in accrued interest receivable (257) (130) Increase in accrued expenses and other liabilities 338 883 --------- --------- Net cash provided by operating activities 1,634 2,816 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan originations (43,980) (46,381) Principal repayments on loans 25,690 28,725 Loans sold 624 1,701 Purchase of investment securities available for sale - (1,673) Principal repayments on mortgage-backed securities held to maturity 682 1,437 Principal repayments on mortgage-backed securities available for sale 2,320 4,162 Proceeds from call or maturity of investment securities held to maturity - 4,000 Purchase of premises and equipment (1,218) (708) Purchase of Federal Home Loan Bank stock (653) - Proceeds from sale of real estate - 363 --------- --------- Net cash used in investing activities (16,535) (8,374) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposit accounts 1,377 6,088 Dividends paid (461) (347) Repurchase of common stock - (1,593) Proceeds from Federal Home Loan Bank advances 108,416 - Repayment of Federal Home Loan Bank advances (98,041) - Net decrease in advance payments by borrowers (111) (57) Proceeds from exercise of stock options 28 - --------- --------- Net cash provided by financing activities 11,208 4,091 --------- --------- NET DECREASE IN CASH (3,693) (1,467) CASH, BEGINNING OF PERIOD 15,786 17,207 --------- --------- CASH, END OF PERIOD $ 12,093 $ 15,740 ========= ========= SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $ 3,456 $ 2,543 Income taxes 160 - NONCASH INVESTING AND FINANCING ACTIVITIES: Transfer of loans to real estate owned $ 557 $ 480 Dividends declared and accrued in other liabilities 462 480 Fair value adjustment to securities available for sale (230) (1,770) Income tax effect related to fair value adjustment 79 602 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. 2000 Annual Report on Form 10-K. The results of operations for the three months ended June 30, 2000 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 Corporation ("RAMCORP.") and wholly-owned subsidiary, Riverview Services, Inc. All references to the Company herein include the Community Bank where applicable. 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 gains and losses on sale of securities available for sale. For the three months ended June 30, 2000, the Company's total comprehensive income was $526,000, compared to $205,000 comprehensive loss for the three months ended June 30, 1999, respectively. Total comprehensive income for the three months ended June 30, 2000 is comprised of net income of $678,000 and other comprehensive loss of $152,000, net of tax. Other comprehensive income for the three months ended June 30, 2000, consists of unrealized securities losses of $152,000 net of tax benefit. Total comprehensive loss for the three months ended June 30, 1999 is $205,000 comprised of net income of $1.0 million and other comprehensive loss of $1.2 million net of tax. Other comprehensive income for the three months ended June 30, 1999, consists of unrealized securities losses of $1.2 million, net of tax benefits. (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 5
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 awarded but not released Management Recognition and Development Plan ("MRDP") shares. Employee Stock Ownership Plan ("ESOP") shares are not considered outstanding for EPS purposes until they are committed to be released. Three Months Ended June 30, ------------------------------ 2000 1999 ---- ---- Basic EPS computation: Numerator-Net Income $ 678,000 $ 963,000 Denominator-Weighted average common shares outstanding 4,533,026 5,322,922 Basic EPS $ 0.15 $ 0.18 ========== ========== Diluted EPS computation: Numerator-Net Income $ 678,000 $ 963,000 Denominator-Weighted average common shares outstanding 4,533,026 5,322,922 Effect of dilutive stock options 74,352 111,986 Effect of dilutive MRDP - 1,249 ---------- ---------- Weighted average common shares and common stock equivalents 4,607,378 5,436,157 Diluted EPS $ 0.15 $ 0.18 ========== ========== 6
(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 June 30, 2000 Cost Gains Losses Value --------- ---------- ---------- -------- Municipal securities $ 903 $ - $ (42) $ 861 ======== ========== ========== ======== March 31, 2000 Municipal securities $ 903 $ - $ (49) $ 854 ======== ========== ========== ======== The contractual maturities of securities held to maturity are as follows (in thousands): Amortized Estimated June 30, 2000 Cost Fair Value ---------- ----------- Due after ten years $ 903 $ 861 ---------- ----------- $ 903 $ 861 ========== =========== There were no sales of investment securities classified as held to maturity during the period ended June 30, 2000 and 1999. 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 June 30, 2000 Cost Gains Losses Value --------- ---------- ---------- -------- Agency securities $ 10,489 $ - $ (879) $ 9,610 Equity securities 1,356 - (548) 808 School district bonds 2,576 - (113) 2,463 --------- ---------- ---------- -------- $ 14,421 $ - $ (1,540) $ 12,881 ========= ========== ========== ======== March 31, 2000 Agency securities $ 10,489 $ - $ (780) $ 9,709 Equity securities 1,356 - (617) 739 School district bonds 2,576 - (141) 2,435 --------- ---------- ---------- -------- $ 14,421 $ - $ (1,538) $ 12,883 ========= ========== ========== ======== The contractual maturities of securities available for sale are as follows (in thousands): Amortized Estimated March 31, 2000 Cost Fair Value ---------- ----------- Due after one year through five years $ 3,000 $ 2,947 Due after five years through ten years 4,459 4,219 Due after ten years 6,962 5,712 ---------- ----------- $ 14,421 $ 12,881 ========== =========== 7
(6) Mortgage-backed Securities -------------------------- Mortgage-backed securities held to maturity consisted of the following (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair June 30, 2000 Cost Gains Losses Value --------- ---------- ---------- -------- REMICs $ 1,888 $ 34 $ - $ 1,922 FHLMC mortgage-backed securities 2,202 15 (43) 2,174 FNMA mortgage-backed securities 3,889 33 (43) 3,879 --------- ---------- ---------- -------- $ 7,979 $ 82 $ (86) $ 7,975 ========= ========== ========== ======== March 31, 2000 REMICs $ 1,985 $ 2 $ (14) $ 1,973 FHLMC mortgage-backed securities 2,377 20 (46) 2,351 FNMA mortgage-backed securities 4,295 28 (52) 4,271 --------- ---------- ---------- -------- $ 8,657 $ 50 $ (112) $ 8,595 ========= ========== ========== ======== Mortgage-backed securities held to maturity with an amortized cost of $306,000 and $322,000 and a fair value of $299,000 and $314,000 at June 30, 2000 and March 31, 2000, respectively, were pledged as collateral for public funds held by the Company. The real estate mortgage investment conduits ("REMICs") consist of Federal Home Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") securities. The contractual maturities of mortgage-backed securities classified as held to maturity are as follows (in thousands): Amortized Estimated June 30, 2000 Cost Fair Value ---------- ----------- Due after one year through five years $ 3,495 $ 3,429 Due after five years through ten years 372 365 Due after ten years 4,112 4,181 ---------- ----------- $ 7,979 $ 7,975 ========== =========== There were no sales of mortgage-backed securities held to maturity during the period ended June 30, 2000 and 1999. Mortgage-backed securities available for sale consisted of the following (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair June 30, 2000 Cost Gains Losses Value --------- ---------- ---------- -------- REMICs $ 35,959 $ - $ (1,808) $ 34,151 FHLMC mortgage-backed securities 593 - (6) 587 FNMA mortgage-backed securities 2,082 9 (20) 2,071 --------- ---------- ---------- -------- $ 38,634 $ 9 $ (1,834) $ 36,809 ========= ========== ========== ======== March 31, 2000 REMICs $ 38,137 $ - $ (1,576) $ 36,561 FHLMC mortgage-backed securities 619 - (7) 612 FNMA mortgage-backed securities 2,218 9 (22) 2,205 --------- ---------- ---------- -------- $ 40,974 $ 9 $ (1,605) $ 39,378 ========= ========== ========== ======== The contractual maturities of mortgage-backed securities available for sale are as follows (in thousands): Amortized Estimated June 30, 2000 Cost Fair Value ---------- ----------- Due after one year through five years $ 1,806 $ 1,786 Due after five years through ten years 2,239 2,215 Due after ten years 34,589 32,808 ---------- ----------- $ 38,634 $ 36,809 ========== =========== 8
Expected maturities of mortgage-backed securities held to maturity will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Mortgage-backed securities available for sale with an amortized cost of $18.7 million and $20.9 million and a fair value of $17.3 million and $19.6 million at June 30, 2000 and March 31, 2000, respectively, were pledged as collateral for the discount window at the Federal Reserve Bank. Mortgage-backed securities with an amortized cost of $5.1 million and $5.1 million and a fair value of $5.0 million and $5.0 million at June 30, 2000 and March 31, 2000, respectively, were pledged as collateral for treasury tax and loan funds held by the Company. (7) Loans Receivable ---------------- Loans receivable consisted of the following (in thousands): June 30, March 31, 2000 2000 -------- --------- Residential: One- to- four family $ 106,557 $ 102,542 Multi-family 11,238 10,921 Construction: One- to- four family 48,246 49,338 Multi-family 3,176 4,669 Commercial real estate 5,503 3,597 Commercial 21,018 15,976 Consumer: Secured 19,338 14,488 Unsecured 2,619 2,755 Land 26,638 25,475 Commercial real estate 47,275 42,871 ---------- ---------- 291,608 272,632 Less: Undisbursed portion of loans 20,771 18,880 Deferred loan fees 3,383 3,355 Allowance for loan losses 1,932 1,362 Unearned discounts 1 1 ---------- ---------- Loans receivable, net $ 265,521 $ 249,034 ========== ========== (8) Loans held for Sale ------------------- The Company identifies loans 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): June 30, March 31, 2000 2000 ------- ------- Federal Home Loan Bank Advances $70,925 $60,550 ======= ======= Weighted average interest rate: 6.51% 5.47% ==== ==== Borrowings have the following maturities at June 30, 2000 (in thousands): 2000 $45,925 2002 25,000 ------- $70,925 ======= 9
(10) Shareholders' Equity -------------------- Repurchase of Common Stock On January 20, 2000, the Company received regulatory approval to repurchase up to 10% or 545,834 shares of its outstanding common stock at December 31, 1999. At March 31, 2000, 555,834 common stock shares had been repurchased at an average cost of $9.96 per share. Since the State of Washington treats all treasury stock as retired upon purchase, all purchases of treasury stock reduce stock issued and the cost of treasury stock acquired is charged to par value and paid-in capital. 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. At December 31, 1999, 591,324 common stock shares had been repurchased at an average cost of $12.46 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 MRDP used 142,830 shares of the common stock repurchased. (11) Recently Issued Accounting Pronouncements ----------------------------------------- In June 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standards ("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. The effective date of this statement was deferred by the issuance of SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB No. 133. This statement is now effective for fiscal years beginning after June 15, 2000. The Company does not anticipate that the adoption of SFAS No. 133 will have a material effect on its financial position or results of operations. (12) Commitments and Contingencies ----------------------------- The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage 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 Company's maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company 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 Company's usual terms and conditions. Collateral is not required to support commitments. At June 30, 2000, the Company had commitments to originate fixed rate mortgages of $5.3 million at interest rates ranging from 7.875% to 9.5%. At June 30, 2000 adjustable rate mortgage loan commitments were $3.1 million at an average interest rate of 10.83%. Undisbursed balance of mortgage loans closed was $20.8 million at June 30, 2000. Consumer loan commitments totaled $568,000 and unused lines of consumer credit totaled $10.3 million at June 30, 2000. Commercial and commercial real estate loan commitments totaled $2.2 million and unused lines of commercial and commercial real estate credit totaled $11.8 million at June 30, 2000. 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. 10
(13) Subsequent Event ---------------- During the second quarter of fiscal year 2001, the Company sold a branch site that had been replaced by a new facility and land that had been held for future development. The total sales price was $834,000, resulting in a $290,700 pretax gain. 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 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. The Community Bank is a community-oriented, financial institution, offering 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 construction loans, commercial loans, commercial real estate loans and consumer loans. The Community Bank operates twelve branches in southwest Washington, including eight branches in Clark County. The new Washougal branch opened the first 11
quarter of fiscal year 2001 and replaced the existing Washougal branch. 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. The Business and Professional Banking Division located at the downtown Vancouver Main branch offers commercial lending and business banking services. On November 25, 1998 the Community Bank received regulatory approval to offer trust and investment services to its customers. RAMCORP., a subsidiary of the Community Bank, was established to operate the trust and investment activities. The headquarters of RAMCORP. are in the Community Bank's Vancouver Main branch, which officially opened in October 1998. Assets totaling approximately $69.4 million at June 30, 2000 were managed by the RAMCORP. in fiduciary or agency capacity. The Company's main office for administration will be relocated from Camas to the Vancouver address of 900 Washington, a 16,000 square foot leased facility, in the third quarter of fiscal year 2001. Financial Condition At June 30, 2000, the Company had total assets of $356.9 million compared with $344.7 million at March 31, 2000. The $12.2 million, or 3.5% increase in assets reflects the growth in loans. Cash, including interest-earning accounts, totaled $12.1 million at June 30, 2000, compared to $15.8 million at March 31, 2000. At June 30, 2000, the Company had $291.6 million in gross loans, an increase of $19.0 million compared to $272.6 million at March 31, 2000. Commercial loans increased $5.0 million to $21.0 million at June 30, 2000 from $16.0 million at March 31, 2000. The $5.0 million increase was comprised of several loans and occurred in commercial loans secured by equipment, commercial loans secured by other collateral and unsecured commercial loans. Commercial real estate loans increased $4.4 million to $47.3 million at June 30, 2000 from $42.9 million at March 31, 2000. Loans receivable (Note 7) provides a detailed analysis of the $291.6 million gross loan portfolio at June 30, 2000 as compared to the $272.6 million gross loan portfolio at March 31, 2000. Consumer, commercial, and land loans carry higher interest rates and generally a higher degree of credit risk compared to one- to- four family mortgage loans. Deposits totaled $233.7 million at June 30, 2000 compared to $232.4 million at March 31, 2000. FHLB advances totaled $70.9 million at June 30, 2000 and $60.6 million at March 31, 2000. During the quarter ended June 30, 2000, the Company replaced $45.0 million of matured FHLB short-term fixed rate and $550,000 of FHLB long term fixed rate borrowings with $50.0 million of FHLB short-term fixed rate borrowings. Capital Resources Total shareholders' equity was stable at $48.6 million at June 30, 2000 compared to $48.4 million at 31, 2000. The activity in shareholders' equity for the first quarter of fiscal 2001 was $678,000 in earnings for the year to date, dividends of $461,000, exercise of stock options of $28,000, earned ESOP shares $51,000 and $152,000 change in net unrealized loss on securities available for sale, net of tax benefit. The Company is not subject to any regulatory capital requirement. 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 Company and the Community Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Community Bank 12
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 required 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 June 30, 2000, the Community Bank met all capital adequacy requirements to which it was subject. As of June 30, 2000, 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 June 30, 2000, the Community Bank's tangible, core and risk-based total capital ratios amounted to 12.0%, 12.0%, and 17.5%, 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 For Capital Prompt Corrective Actual Adequacy Purpose Action Provision -------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 2000 Total Capital: (To Risk Weighted Assets) $43,754 18.06% $19,384 8.0% $24,230 10.0% Tier I Capital: (To Risk Weighted Assets) 42,293 17.46 N/A N/A 14,538 6.0 Core Capital: (To Total Assets) 42,293 12.01 10,566 3.0 17,609 5.0 Tangible Capital: (To Tangible Assets) 42,293 12.01 5,283 1.5 N/A N/A As of March 31, 2000 Total Capital: (To Risk Weighted Assets) $42,543 19.93% $17,079 8.0% $21,349 10.0% Tier I Capital: (To Risk Weighted Assets) 41,652 19.51 N/A N/A 12,809 6.0 Core Capital: (To Total Assets) 41,652 12.27 10,185 3.0 16,976 5.0 Tangible Capital: (To Tangible Assets) 41,652 12.27 5,093 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, to regulatory tangible and risk-based capital at June 30, 2000 (in thousands): 13
Equity $42,898 Net unrealized loss on securities available for sale 1,832 Core deposit intangible asset (1,267) Deferred tax and servicing asset (1,170) ------- Tangible capital 42,293 Land held for development (471) General valuation allowance 1,932 ------- Total capital $43,754 ======= 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 21.2% at June 30, 2000 compared to 27.1% at March 31, 2000. The Community Bank anticipates that it will have sufficient funds available to meet current loan commitments and other cash needs. Cash, including interest-earning overnight investments, was $12.1 million at June 30, 2000 compared to $15.8 million at March 31, 2000. Investment securities and mortgage-backed securities available for sale at June 30, 2000 were $12.9 million and $36.8 million, respectively, compared to $12.9 million and $39.4 million, respectively, at March 31, 2000. See "Financial Condition." Asset Quality Allowance for loan losses was $1.9 million at June 30, 2000, compared to $1.4 million at March 31, 2000. Management deemed the allowance for loan losses at June 30, 2000 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 estimated based upon factors and trends identified by management at the time the consolidated financial statements are prepared. During the first quarter of 2000 the provision for loan losses increased to $594,000. The provision for loan losses was $253,000 for the fourth quarter of fiscal year 2000 and $90,000 for the quarter ended June 30, 1999. The increase in the provision for loan losses reflects the growth in the loan portfolio as compared to the prior year end and the change in mix and risks of the loan portfolio. The Company's past loss experience with respect to its commercial loan portfolio may not be representative of the risk of loss in such portfolios in the future. The two major reasons for this fact is because the size of the commercial loan portfolio has increased significantly and most of the loans comprising the portfolio are unseasoned, having been originated within the last two years. Commercial loans are considered to involve a higher degree of credit risk than one- to- four residential loans, and to be more vulnerable to adverse conditions in the real estate market and deteriorating economic conditions. Non-performing assets were $1.6 million, or 0.44% of total assets at June 30, 2000 compared with $1.3 million, or 0.39% of total assets at March 14
31, 2000. The following table sets forth information with respect to the Company's non-performing assets at the dates indicated: June 30, 2000 March 31, 2000 ------------- -------------- (Dollars in thousands) Loans accounted for on a non-accrual basis: Real Estate Residential $ 650 $ 1,153 Commercial 98 99 Consumer 200 26 ------ ------- Total 948 1,278 ------ ------- Accruing loans which are contractually past due 90 days or more - - ------ ------- Total of non-accrual and 90 days past due loans 948 1,278 ------ ------- Real estate owned 587 30 Other personal property owned 35 35 ------ ------- Total non-performing assets $1,570 $ 1,343 ====== ======= Total loans delinquent 90 days or more to net loans 0.36% 0.51% Total loans delinquent 90 days or more to total assets 0.27 0.37 Total non-performing assets to total assets 0.44 0.39 Comparison of Operating Results for the Three Months Ended June 30, 2000 and 1999 The Company's net income depends primarily on its net interest income, which is the difference between interest earned on its loans and investments and the interest paid on interest-bearing liabilities. Net interest income is 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. 15
Net income for the three months ended June 30, 2000 was $678,000, $0.15 per basic share ($0.15 per diluted share). This compares to net income of $963,000, $0.18 per basic share ($0.18 per diluted share) for the same period in fiscal 2000. Net interest income increased $315,000, or 9.2% for the three months ended June 30, 2000 from $3.4 million for the three months ended June 30, 1999 due primarily to a 16.1% increase in average interest-earning assets. Non-interest income was stable at $766,000 and $763,000 for the three months ended June 30, 2000 and 1999, respectively. Non-interest expense increased $295,000, or 11.23% as compared to the same period for the prior year. The increase in non-interest expense is due primarily to increased salaries and employee benefit expense, occupancy and marketing expense. Average interest-earning assets increased to $335.8 million for the three months ending June 30, 2000 from $289.5 million for the three months ending June 30, 1999. The $46.3 million increase is due primarily to growth in the loan portfolio, which was partially offset by principal pay downs in the mortgage-backed and investment securities portfolio. Interest income for the three months ended June 30, 2000 was $7.2 million, an increase of $1.2 million, or 21.32% over the $6.0 million interest income for the same period in fiscal 2000. Yield on interest-earning assets for the first quarter of fiscal year 2001 was 8.68% compared to 8.32% for the same three month period in fiscal year 2000. The higher first quarter fiscal 2001 yield reflects the higher yield on mortgage-backed securities as compared to the first quarter in fiscal 2000. The higher interest income in the first quarter of fiscal year 2001 as compared to the fiscal year 2000 first quarter resulted from growth in the loan portfolio. Interest expense was $3.5 million and $2.5 million for the quarters ended June 30, 2000 and 1999, respectively. The cost of interest-bearing liabilities for the first quarter of year 2000 was 5.17% compared to 4.42% for the same three month period in 1999. The increased cost of interest-bearing liabilities reflects the increase in interest rates and volumes of NOW accounts, money market accounts, certificates of deposits and FHLB advances. Money market accounts continued to have strong growth reaching $44.2 million in average balance at June 30, 2000 compared to an average balance of $27.2 million at June 30, 1999. Net interest income increased $315,000, or 9.1%, to $3.7 million for the three months ended June 30, 2000, compared to $3.4 million for the three months ended June 30, 1999. Net interest income was increased $864,000 due to the change in volume of average interest-earning assets and liabilities for the three months in fiscal 2001 compared to the same fiscal 2000 period. The change in interest rates for these three month periods reduced net interest income $329,000. The change in rate volume mix for the same three month periods reduced net interest income $220,000. The interest rate spread decreased from 3.90% for the three month 1999 period to 3.51% for the three month 2000 period. The net interest margin decreased to 4.49% during the first quarter ended June 30, 2000 from 4.78% for the third quarter ended June 30, 1999. The decreased fiscal year 2001 net interest margin reflects the reduced amount of loan fees amortized to income in the first quarter of fiscal 2001 compared to the same period for the prior year and the fact that increases in the cost of interest-bearing liabilities have been larger than increases in earnings on interest-earning assets. Average interest-earning assets increased by $46.3 million to $335.8 million during the first quarter ended June 30, 2000 from $289.5 million for the first quarter ended June 30, 1999. The $46.3 million increase in average interest-earning assets was offset by the $40.4 million increase in average interest-bearing liabilities. Average interest-bearing 16
liabilities increased to $272.0 million during the quarter ended June 30, 2000 from $231.6 million for the quarter ended June 30, 1999. The provision for loan losses was $594,000 and there were $24,529 in net charge-offs during the three months ended June 30, 2000 compared to a $253,000 provision for loan losses and $121,986 in net charge-offs for the three months ended March 31, 2000. The increase in the provision for loan losses is the result of growth in the loan portfolio and the change in mix and risks. Loan receivable (Note 7) provides a detailed analysis of the $19.0 million increase in gross loans. 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 was stable at $766,000 for the first quarter of fiscal year 2001 as compared to $763,000 for the same period in 2000. Non-interest expense increased $295,000, or 11.23%, from $2.6 million for the quarter ended June 30, 1999 to $2.9 million for the quarter ended June 30, 2000. Salaries and employee benefits increased $233,000 to $1.6 million for the quarter ended June 30, 2000 as compared to the same quarter in 1999. There were 21 more full-time equivalent employees during the 2000 quarter over the 1999 quarter. The increase in full-time equivalent employees was due to the expansion occurring in branches, commercial lending, trust company and support functions. In November 1999 and March 2000 new branches were opened in Clark County which brings the total number of branches to twelve. Provision for federal income taxes for the first quarter of fiscal year 2001 was $313,000, resulting in an effective tax rate of 32%, compared to $509,000 and 35% for the same quarter of fiscal 1999. The decrease in the effective tax rate for three months ended June 30, 2000 is primarily attributable to the impact of tax exempt interest, ESOP dividends and 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, 2000. 17
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 Sheaffer** 10.2 Employment Agreement with Ron Wysaske** 10.3 Employment Agreement with Michael C. Yount** 10.4 Employment Agreement with Karen Nelson** 10.5 Severance Compensation Agreement** 10.6 Employee Stock Ownership Plan*** 10.7 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 June 30, 2000. - ------------- * 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. 18
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: August 9, 2000 BY: /S/ Patrick Sheaffer Patrick Sheaffer President DATE: August 9, 2000 BY: /S/ Ron Wysaske Ron Wysaske Executive Vice President/Treasurer 19