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, 2001 -------------- 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.) 900 WASHINGTON, SUITE 900 VANCOUVER, WA 98660 (Address of principal executive office) Registrant's telephone number, including area code: (360)693-6650 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---4,655,040 shares as of July 26, 2001.
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, 2001 and March 31, 2001 1 Consolidated Statements of Income: Three Months Ended June 30, 2001 and 2000 2 Consolidated Statements of Shareholders' Equity for the Year Ended March 31, 2001 and for the Three Months Ended June 30, 2001 3 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2001 and 2000 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
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND MARCH 31, 2001 JUNE 30, MARCH 31, (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 2001 2001 - ------------------------------------------------------------------------------- ASSETS Cash (including interest-earning accounts of $25,370 and $26,460) $ 39,505 $ 38,935 Loans held for sale 413 569 Investment securities held to maturity, at amortized cost (fair value of $847 and $867) 861 861 Investment securities available for sale, at fair value (amortized cost of $25,638 and $26,060) 25,216 25,561 Mortgage-backed securities held to maturity, at amortized cost (fair value of $6,003 and $6,486) 5,871 6,405 Mortgage-backed securities available for sale, at fair value (amortized cost of $38,583 and $43,224) 38,382 43,139 Loans receivable (net of allowance for loan losses of $2,364 and $1,916) 304,986 296,292 Real estate owned 858 473 Prepaid expenses and other assets 736 1,002 Accrued interest receivable 2,348 2,394 Federal Home Loan Bank stock, at cost 5,060 4,432 Premises and equipment, net 10,045 10,055 Deferred income taxes, net 869 856 Core deposit intangible, net 941 1,022 --------- --------- TOTAL ASSETS $ 436,091 $ 431,996 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposit accounts $ 279,141 $ 295,523 Accrued expenses and other liabilities 4,139 4,034 Advance payments by borrowers for taxes and insurance 54 218 Federal Home Loan Bank advances 99,500 79,500 --------- --------- Total liabilities 382,834 379,275 COMMITMENTS AND CONTINGENCIES (NOTE 11) 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, 2001-4,981,421 issued, 4,655,040 outstanding; March 31, 2001-4,981,421 issued, 4,655,040 outstanding 50 50 Additional paid-in capital 38,697 38,687 Retained earnings 17,589 17,349 Unearned shares issued to employee stock ownership trust (2,165) (2,217) Unearned shares held by the management recognition and development plan (503) (762) Accumulated other comprehensive loss (411) (386) --------- --------- Total shareholders' equity 53,257 52,721 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 436,091 $ 431,996 ========= ========= 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) 2001 2000 - ------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans receivable $ 6,862 $ 6,133 Interest on investment securities 151 208 Interest on mortgage-backed securities 684 806 Other interest and dividends 633 98 --------- --------- Total interest income 8,330 7,245 --------- --------- INTEREST EXPENSE: Interest on deposits 3,046 2,428 Interest on borrowings 1,504 1,075 ---------- --------- Total interest expense 4,550 3,503 ---------- --------- Net interest income 3,780 3,742 Less provision for loan losses 510 594 ---------- --------- Net interest income after provision for loan losses 3,270 3,148 ---------- --------- NON-INTEREST INCOME: Fees and service charges 907 600 Asset management fees 231 108 Gain on sale of loans held for sale 129 5 Loan servicing income 21 32 Other 15 21 ---------- --------- Total non-interest income 1,303 766 ---------- --------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,892 1,630 Occupancy and depreciation 535 383 Data processing 258 208 Amortization of core deposit intangible 82 82 Marketing expense 176 168 FDIC insurance premium 13 11 State and local taxes 100 68 Telecommunications 57 63 Professional fees 88 72 Other 319 238 ---------- --------- Total non-interest expense 3,520 2,923 ---------- --------- INCOME BEFORE FEDERAL INCOME TAXES 1,053 991 PROVISION FOR FEDERAL INCOME TAXES 296 313 ---------- --------- NET INCOME $ 757 $ 678 ========== ========= Earnings per common share: Basic $0.16 $0.15 Diluted 0.16 0.15 Weighted average number of shares outstanding: Basic 4,664,277 4,533,026 Diluted 4,697,741 4,607,378 See notes to consolidated financial statements. 2
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED MARCH 31, 2001 AND THE THREE MONTHS ENDED JUNE 30, 2001 (UNAUDITED) <TABLE> UNEARNED SHARES ISSUED TO EMPLOYEE UNEARNED ACCUMULATED COMMON STOCK ADDITIONAL STOCK SHARES OTHER (IN THOUSANDS, PAID-IN RETAINED OWNERSHIP ISSUED TO COMPREHENSIVE EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL EARNINGS TRUST MRDP (LOSS) TOTAL - ----------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> <c> <c> <c> <c> Balance April 1, 2000 4,521,209 $49 $38,457 $15,652 $(2,422) $(1,178) $(2,069) $48,489 Cash Dividends - - - (1,860) - - - (1,860) Exercise of stock options 78,918 1 221 - - - - 222 Earned ESOP shares 24,633 - 9 - 205 - - 214 Earned MRDP shares 30,280 - - - - 416 - 416 --------- ---- ------- ------- ------- ------- ------- ------- 4,655,040 50 38,687 13,792 (2,217) (762) (2,069) 47,481 Comprehensive income: Net income - - - 3,557 - - - 3,557 Other comprehensive income: Unrealized holding gain on securities of $1,683 (net of $867 tax effect) - - - - - - 1,683 1,683 ----- Total comprehensive income - - - - - - - 5,240 --------- ---- ------- ------- ----- ------ --------- ------- Balance, March 31, 2001 4,655,040 50 38,687 17,349 (2,217) (762) (386) 52,721 Cash dividends - - - (517) - - (517) Earned ESOP shares - - 10 - 52 - - 62 Earned MRDP shares - - - - - 259 - 259 --------- ---- ------- ------ ----- ----- ---- ------- 4,655,040 50 38,697 16,832 (2,165) (503) (386) 52,525 Comprehensive income: Net income - - - 757 - - - 757 Other comprehensive loss: Unrealized holding loss on securities of $25 (net of $13 tax effect). - - - - - - (25) (25) ----- Total comprehensive income - - - - - - - 732 --- --------- ---- -------- -------- -------- ------ ------ ------- Balance, June 30, 2001 4,655,040 $ 50 $ 38,697 $ 17,589 $ (2,165) $ (503) $ (411) $53,257 ========= ==== ======== ======== ======== ====== ====== ======= </TABLE> See notes to consolidated financial statements. 3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) (UNAUDITED) 2001 2000 - ------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 757 $ 678 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 418 330 Provision for losses on loans 510 594 Noncash expense related to ESOP benefit 61 51 Noncash expense related to MRDP benefit 86 98 Increase in deferred loan origination fees, net of amortization 170 29 Federal Home Loan Bank stock dividend (85) (56) Net gain on sale of real estate owned, mortgage-backed and investment securities and premises and equipment (4) - Changes in assets and liabilities: (Increase) Decrease in loans held for sale 157 (300) Decrease in prepaid expenses and other assets 120 129 (Decrease) Increase in accrued interest receivable 46 (257) Increase in accrued expenses and other liabilities 277 338 -------- -------- Net cash provided by operating activities 2,513 1,634 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan originations (65,930) (43,980) Principal repayments on loans 48,956 25,690 Loans sold 7,214 624 Principal repayments on mortgage-backed securities held to maturity 534 682 Principal repayments on mortgage-backed securities available for sale 4,589 2,320 Principal repayments on investment securities AFS 423 - Purchase of premises and equipment (132) (1,218) Purchase of Federal Home Loan Bank stock (543) (653) Proceeds from sale of real estate 8 - -------- -------- Net cash used in investing activities (4,881) (16,535) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposit accounts (16,381) 1,377 Dividends paid (517) (461) Proceeds from Federal Home Loan Bank advances 20,000 108,416 Repayment of Federal Home Loan Bank advances (98,041) Net decrease in advance payments by borrowers (164) (111) Proceeds from exercise of stock options - 28 -------- ------- Net cash provided by financing activities 2,938 11,208 -------- ------- NET INCREASE (DECREASE) IN CASH 570 (3,693) CASH, BEGINNING OF PERIOD 38,935 15,786 -------- ------- CASH, END OF PERIOD $39,505 $12,093 ======== ======= SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $4,655 $3,456 Income taxes - 160 NONCASH INVESTING AND FINANCING ACTIVITIES: Transfer of loans to real estate owned $ 385 $ 557 Dividends declared and accrued in other liabilities 518 462 Fair value adjustment to securities available for sale (38) (230) Income tax effect related to fair value adjustment 13 79 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 accounting principles generally accepted in the United States of America. 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. 2001 Annual Report on Form 10-K. The results of operations for the three months ended June 30, 2001 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 upon 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. For the three months ended June 30, 2001, the Company's total comprehensive income was $732,000, compared to $526,000 for the three months ended June 30, 2000, respectively. Total comprehensive income for the three months ended June 30, 2001 is comprised of net income of $757,000 and other comprehensive loss of $25,000, net of tax. Other comprehensive loss for the three months ended June 30, 2001, consists of unrealized securities losses of $25,000 net of tax benefit. Total comprehensive income for the three months ended June 30, 2000 is $526,000 comprised of net income of $678,000 and other comprehensive loss of $152,000 net of tax. Other comprehensive loss for the three months ended June 30, 2000, consists of unrealized securities losses of $152,000, net of tax benefit. (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 5
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, ------------------ 2001 2000 ---- ---- Basic EPS computation: Numerator-Net Income $ 757,000 $ 678,000 Denominator-Weighted average common shares outstanding 4,664,277 4,533,026 Basic EPS $ 0.16 $ 0.15 ========== ========== Diluted EPS computation: Numerator-Net Income $ 757,000 $ 678,000 Denominator-Weighted average common shares outstanding 4,664,277 4,533,026 Effect of dilutive stock options 27,600 74,352 Effect of dilutive MRDP 5,864 - --------- --------- Weighted average common shares and common stock equivalents 4,697,741 4,607,378 Diluted EPS $ 0.16 $ 0.15 ========= ========= 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, 2001 COST GAINS LOSSES VALUE --------- -------- ---------- ------- Municipal securities $ 861 $ - $ (14) $ 847 ========= ======== ========== ======= MARCH 31, 2001 Municipal securities $ 861 $ 6 $ - $ 867 ========= ======== ========== ======= The contractual maturities of securities held to maturity are as follows (in thousands): AMORTIZED ESTIMATED JUNE 30, 2001 COST FAIR VALUE -------------- ------------ Due after ten years $ 861 $ 847 ============== ============ There were no sales of investment securities classified as held to maturity during the period ended June 30, 2001 and 2000. 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, 2001 COST GAINS LOSSES VALUE --------- ---------- ---------- ---------- Agency securities $ 6,710 $ 9 $ (139) $ 6,580 Equity securities 16,356 5 (330) 16,031 School district bonds 2,572 33 - 2,605 --------- ---------- ---------- ---------- $ 25,638 $ 47 $ (469) $ 25,216 ========= ========== ========== ========== MARCH 31, 2001 Agency securities $ 7,132 $ 4 $ (199) $ 6,937 Equity securities 16,356 21 (378) 15,999 School district bonds 2,572 53 - 2,625 --------- ---------- --------- --------- $ 26,060 $ 78 $ (577) $ 25,561 ========= ========== ========= ========= The contractual maturities of securities available for sale are as follows (in thousands): AMORTIZED ESTIMATED JUNE 30, 2001 COST FAIR VALUE --------- ---------- Due after five years through ten years $ 4,455 $ 4,496 Due after ten years 21,183 20,720 --------- ---------- $ 25,638 $ 25,216 ========= ========== 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, 2001 COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- REMICs $ 1,805 $ 56 $ - $ 1,861 FHLMC mortgage-backed securities 1,534 14 - 1,548 FNMA mortgage-backed securities 2,532 62 - 2,594 ---------- ---------- ---------- ---------- $ 5,871 $ 132 $ - $ 6,003 ========== ========== ========== ========== MARCH 31, 2001 REMICs $ 1,805 $ 15 $ - $ 1,820 FHLMC mortgage-backed securities 1,680 13 (1) 1,692 FNMA mortgage-backed securities 2,920 54 - 2,974 ---------- ---------- ------- --------- $ 6,405 $ 82 $ (1) $ 6,486 ========== ========== ======= ========= Mortgage-backed securities held to maturity with an amortized cost of $3.5 million and $3.7 million and a fair value of $3.5 million and $3.9 million at June 30, 2001 and March 31, 2001, respectively, were pledged as collateral for governmental public funds held by the Company. The real estate mortgage investment conduits ("REMICs") consist of Federal Home Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA") and privately issued securities. The contractual maturities of mortgage-backed securities classified as held to maturity are as follows (in thousands): AMORTIZED ESTIMATED JUNE 30, 2001 COST FAIR VALUE ---------- ---------- Due in one year or less $ 3 $ 3 Due after one year through five years 2,173 2,204 Due after five years through ten years 277 283 Due after ten years 3,418 3,513 ---------- ---------- $ 5,871 $ 6,003 ========== ========= There were no sales of mortgage-backed securities held to maturity during the period ended June 30, 2001 and 2000. Mortgage-backed securities available for sale consisted of the following (in thousands): GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR JUNE 30, 2001 COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- REMICs $ 36,634 $ 134 $ (378) $ 36,390 FHLMC mortgage-backed securities 425 12 - 437 FNMA mortgage-backed securities 1,524 31 - 1,555 ---------- ---------- --------- ---------- $ 38,583 $ 177 $ (378) $ 38,382 ========== ========== ========= ========== MARCH 31, 2001 REMICs $ 41,067 $ 144 $ (268) $ 40,943 FHLMC mortgage-backed securities 441 10 - 451 FNMA mortgage-backed securities 1,716 29 - 1,745 ---------- ---------- --------- ---------- $ 43,224 $ 183 $ (268) $ 43,139 ========== ========== ========= ========== The contractual maturities of mortgage-backed securities available for sale are as follows (in thousands): AMORTIZED ESTIMATED JUNE 30, 2001 COST FAIR VALUE --------- ---------- Due after one year through five years $ 1,911 $ 1,945 Due after five years through ten years 1,428 1,447 Due after ten years 35,244 34,990 ----------- ---------- $ 38,583 $ 38,382 =========== ========== 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 $13.5 million and $16.2 million and a fair value of $13.2 million and $16.0 million at June 30, 2001 and March 31, 2001, respectively, were pledged as collateral for the discount window at the Federal Reserve Bank. Mortgage-backed securities with an amortized cost of $4.9 million and $5.1 million and a fair value of $4.9 million and $5.0 million at June 30, 2001 and March 31, 2001, 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, 2001 2001 -------- -------- Residential: One- to- four family $ 117,809 $ 116,583 Multi-family 11,012 11,073 Construction: One- to- four family 57,141 60,041 Multi-family 4,168 4,514 Commercial real estate 7,606 6,806 Commercial 24,349 23,099 Consumer: Secured 25,838 23,148 Unsecured 2,151 1,872 Land 23,716 24,230 Commercial real estate 62,975 56,540 --------- ---------- 336,765 327,906 Less: Undisbursed portion of loans 25,889 26,223 Deferred loan fees 3,526 3,475 Allowance for loan losses 2,364 1,916 ----------- ----------- Loans receivable, net $ 304,986 $ 296,292 =========== =========== (8) ALLOWANCE FOR LOAN LOSSES ------------------------- A reconciliation of the allowances for loan losses is as follows (in thousands): THREE MONTHS ENDED YEAR ENDED JUNE 30, 2001 MARCH 31, 2001 ------------------ -------------- Beginning balance $ 1,916 $ 1,362 Provision for losses 510 949 Charge-offs (63) (413) Recoveries 1 18 ------- --------- Ending balance $ 2,364 $ 1,916 ======= ======== At June 30, 2001 and March 31, 2001, the Company's recorded investment in loans for which an impairment has been recognized under the guidance of SFAS No. 114 and SFAS No. 118 was $1.1 million, $319,000, respectively. The allowance for loan losses in excess of specific reserves is available to absorb losses from all loans, although allocations have been made for certain loans and loan categories as part of management's analysis of the allowance. The average investment in impaired loans was approximately $704,000 and $836,000 during the three months ended June 30, 2001 and the year ended March 31, 2001, respectively. (9) LOANS HELD FOR SALE ------------------- The Company identifies loans held for sale at the time of origination and they 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
(10) BORROWINGS ---------- Borrowings are summarized as follows (in thousands): JUNE 30, MARCH 31, 2001 2001 ------- -------- Federal Home Loan Bank Advances $99,500 $79,500 ======= ======= Weighted average interest rate: 6.22% 6.62% ===== ===== Borrowings have the following maturities at June 30, 2001 (in thousands): Fiscal Year ----------- 2002 $ 25,000 2003 39,500 2004 - 2005 - 2006 15,000 2007 20,000 ------ $ 99,500 ====== (11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS ----------------------------------------- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards Board ("FASB") issued 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 and for hedging activities. 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 Statement No. 133. SFAS No.133 was amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. This Statement became effective for fiscal year ending March 31, 2002, and will not be applied retroactively to financial statements of prior periods. Upon adoption of provisions of SFAS No. 133 at April 1, 2001, the Company did not have derivative instruments and there was no impact on the financial statements of the Company. In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and replaced SFAS No. 125 of the same title. This Statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of SFAS No. 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Upon adoption of provisions of SFAS No. 140 at April 1, 2001, there was no material impact on the financial statements of the Company. In July 2001, the FASB issued SFAS No. 141, "Business Combinations". The Statement discontinues the use of the pooling of interest method of accounting for business combinations. The Statement is effective for all business combinations initiated after June 30, 2001. Management has completed an evaluation of the effects of this Statement and does not believe that it will have an effect on the Company's consolidated financial statements. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". The Statement will require discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their fair market value as necessary. This Statement is effective for fiscal years beginning after December 15, 2001, however, early adoption is allowed for companies that have not 10
issued first quarter financial statements as of July 1, 2001. The Company plans to adopt the provisions of this Statement April 1, 2002, and is currently evaluating the effect on the Company's consolidated financial statements. (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, consumer and commercial 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, 2001, the Company had commitments to originate fixed rate mortgages of $4.7 million at interest rates ranging from 6.13% to 8.5%. At June 30, 2001 adjustable rate mortgage loan commitments were $2.1 million at an average interest rate of 8.36%. Undisbursed balance of mortgage loans closed was $25.9 million at June 30, 2001. Consumer loan commitments totaled $791,000 and unused lines of consumer credit totaled $13.3 million at June 30, 2001. Commercial and commercial real estate loan commitments totaled $1.7 million and unused lines of commercial and commercial real estate credit totaled $16.8 million at June 30, 2001. 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. 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 11
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 Company conducts operations from its home office in Vancouver and twelve branch offices in Camas, Washoughal, Stevenson, White Salmon, Battle Ground, Goldendale, Vancouver (five branch offices) and Longview, Washington. 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. RAMCORP., a subsidiary of the Community Bank, offers trust and investment services to its customers and is located in the Community Bank's Vancouver Main branch. Assets totaling approximately $102.4 million at June 30, 2001 were managed by RAMCORP. in fiduciary or agency capacity. The Company's main office for administration was relocated from Camas to the Vancouver address of 900 Washington, a 16,000 square foot leased facility, in the second quarter of fiscal year 2001. FINANCIAL CONDITION At June 30, 2001, the Company had total assets of $436.1 million compared with $432.0 million at March 31, 2001. The $4.1 million increase in assets reflects the growth in loans. Cash, including interest-earning accounts, totaled $39.5 million at June 30, 2001, compared to $38.9 million at March 31, 2001. At June 30, 2001, the Company had $336.8 million in gross loans, an increase of $8.9 million compared to $327.9 million at March 31, 2001. Commercial loans increased $1.2 million to $24.3 million at June 30, 2001 from $23.1 million at March 31, 2001. Commercial real estate loans increased $6.4 million to $63.0 million at June 30, 2001 from $56.5 million at March 31, 2001. Loans receivable (Note 7) provides a detailed analysis of the $336.8 million gross loan portfolio at June 30, 2001 as compared to the $327.9 million gross loan portfolio at March 31, 2001. 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 $279.1 million at June 30, 2001 compared to $295.5 million at March 31, 2001. FHLB advances totaled $99.5 million at June 30, 2001 and $79.5 million at March 31, 2001. During the quarter ended June 30, 2001, the Company borrowed $20.0 million long term from the Federal Home Loan Bank of Seattle. 12
CAPITAL RESOURCES Total shareholders' equity was stable at $53.3 million at June 30, 2001 compared to $52.7 million at March 31, 2001. The activity in shareholders' equity for the first quarter of fiscal 2002 was $757,000 in earnings, dividends of $517,000, earned ESOP shares $62,000, earned MRDP shares of $259,000 and $25,000 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 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, 2001, the Community Bank met all capital adequacy requirements to which it was subject. As of June 30, 2001, 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, 2001, the Community Bank's tangible, core and risk-based total capital ratios amounted to 10.21%, 10.21%, and 15.29%, 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, 2001 Total Capital: (To Risk Weighted Assets) $46,503 15.29% $23,339 8.0% $30,423 10.0% Tier I Capital: (To Risk Weighted Assets) 44,139 14.51 N/A N/A 18,254 6.0 Core Capital: (To Total Assets) 44,139 10.21 12,964 3.0 21,607 5.0 Tangible Capital: (To Tangible Assets) 44,139 10.21 6,482 1.5 N/A N/A 13
AS OF MARCH 31, 2001 Total Capital: (To Risk Weighted Assets) $48,407 17.13% $22,613 8.0% $28,266 10.0% Tier I Capital: (To Risk Weighted Assets) 46,491 16.45 N/A N/A 16,960 6.0 Core Capital: (To Total Assets) 46,491 10.88 12,820 3.0 21,366 5.0 Tangible Capital: (To Tangible Assets) 46,491 10.88 6,410 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, 2001 (in thousands): Equity $44,906 Net unrealized loss on securities available for sale 223 Core deposit intangible asset (941) Deferred tax and servicing asset (49) ------- Tangible capital 44,139 General valuation allowance 2,364 ------- Total capital $46,503 ======= 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 31.96% at June 30, 2001 compared to 28.22% at March 31, 2001. 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 $39.5 million at June 30, 2001 compared to $38.9 million at March 31, 2001. Investment securities and mortgage-backed securities available for sale at June 30, 2001 were $25.2 million and $38.4 million, respectively, compared to $25.6 million and $43.1 million, respectively, at March 31, 2001. See "Financial Condition." ASSET QUALITY Allowance for loan losses was $2.4 million at June 30, 2001, compared to $1.9 million at March 31, 2001. Management believes the allowance for loan losses at June 30, 2001 is adequate to cover potential credit losses 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 2001 the provision for loan losses increased to $510,000. The provision for loan losses was $215,000 for the fourth quarter of fiscal year 2001 and $594,000 for the quarter ended June 30, 2000. 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. Commercial loans are considered to involve a higher 14
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 $1.9 million, or 0.45% of total assets at June 30, 2001 compared with $1.0 million, or 0.24% of total assets at March 31, 2001. The $1.1 million balance of non-accrual loans is made up of six residential properties totaling $894,000, two commercial loans totaling $132,000 and five consumer loans totaling $61,000. The $858,000 balance of other real estate owned consists of three residential properties and three land loans. The following table sets forth information with respect to the Company's non-performing assets at the dates indicated: June 30, 2001 March 31, 2001 ------------- -------------- (Dollars in thousands) Loans accounted for on a non-accrual basis: Real Estate Residential $ 894 $ 153 Commercial 132 50 Consumer 61 116 ------ ------ Total 1,087 319 ------ ------ Accruing loans which are contractually past due 90 days or more 2 226 ------ ------ Total of non-accrual and 90 days past due loans 1,090 545 ------ ------ Real estate owned (net) 858 473 ------ ------ Total non-performing assets $1,947 $1,018 ====== ====== Total loans delinquent 90 days or more to net loans 0.36% 0.18% Total loans delinquent 90 days or more to total assets 0.25 0.13 Total non-performing assets to total assets 0.45 0.24 COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 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 15
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 June 30, 2001 was $757,000, or $0.16 per basic share ($0.16 per diluted share). This compares to net income of $678,000, or $0.15 per basic share ($0.15 per diluted share) for the same period in fiscal 2001. Net interest income increased $38,000, or 1.0% to $3.8 million for the three months ended June 30, 2001 from $3.7 million for the three months ended June 30, 2000. The contribution to net interest income due to the 25.7% increase in average interest earning assets during the first quarter of fiscal year 2002 was almost completely offset by the combination of the increase in average interest earning liabilities, the impact of the decrease in interest rates and the decrease in the mixed variance. Non-interest income increased $537,000, or 70.1% as compared to the $766,000 non-interest income for the three months ended June 30, 2000. Non-interest expense increased $597,000, or 20.4% 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 and occupancy expense. Average interest-earning assets increased to $414.8 million for the three months ended June 30, 2001 from $330.1 million for the three months ended June 30, 2000. The $84.7 million increase is due primarily to growth in the loan portfolio, interest bearing deposits, and investment securities, 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, 2001 was $8.3 million, an increase of $1.1 million, or 15.3% over the $7.2 million interest income for the same period in fiscal 2001. Yield on interest-earning assets for the first quarter of fiscal year 2002 was 8.14% compared to 8.83% for the same three month period in fiscal year 2001. The lower first quarter fiscal 2002 yield reflects the lower interest rate environment as compared to the same period for the prior year. The higher interest income in the first quarter of fiscal year 2002 as compared to the fiscal year 2001 first quarter resulted from growth in the loan portfolio, interest-earning deposits, and investment securities. Interest expense was $4.6 million and $3.5 million for the quarters ended June 30, 2001 and 2000, respectively. The cost of average interest-bearing liabilities for the first quarter of year 2002 was 5.20% compared to 5.17% for the same three month fiscal year 2001. The increased cost of interest-bearing liabilities reflects the increase in volumes of NOW accounts, money market accounts, certificates of deposits and FHLB advances and the higher interest rates paid on certificates of deposit. Money market accounts continued to have growth reaching $48.5 million in average balance at June 30, 2001 compared to an average balance of $44.2 million at June 30, 2000. Net interest income increased $38,000, or 1.0%, to $3.8 million for the three months ended June 30, 2001, compared to $3.7 million for the three months ended June 30, 2000. Net interest income increased $575,000 due to the change in volume of average interest-earning assets and liabilities for the three months in fiscal 2002 compared to the same fiscal 2001 period. The change in interest rates for these three month periods reduced net interest income $318,000. The change in rate volume mix for the same three month periods reduced net interest income $219,000. The interest rate spread decreased from 3.66% for the three month 2000 period to 2.94% for the three month 2001 period. The net 16
interest margin decreased to 3.75% during the first quarter ended June 30, 2001 from 4.57% for the first quarter ended June 30, 2000. The decreased fiscal year 2002 net interest margin reflects the fact that decreases in the interest rates on interest-earning assets have out paced decreases in the interest rates of interest-bearing liabilities. This decrease in margin has been tempered some by the increased loan fee income in fiscal year 2002 compared to fiscal year 2001. The $84.7 million increase in average interest-earning assets was partially offset by the $78.6 million increase in average interest-bearing liabilities. Average interest-bearing liabilities increased to $350.6 million during the quarter ended June 30, 2001 from $272.0 million for the quarter ended June 30, 2000. The provision for loan losses was $510,000 and there were $62,000 in net charge-offs during the three months ended June 30, 2001 compared to a $215,000 provision for loan losses and $245,000 in net charge-offs for the three months ended March 31, 2001. 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 $8.9 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. The 70.1% increase in non-interest income to $1.3 million for the quarter ended June 30, 2001 compared to $766,000 for the quarter ended June 30, 2000 reflects increased fee income from deposit service charges, mortgage broker fees, asset management fees, and gains on sale of loans held for sale. Non-interest expense increased $597,000, or 20.4%, from $2.9 million for the quarter ended June 30, 2000 to $3.5 million for the quarter ended June 30, 2001. Salaries and employee benefits increased $262,000 to $1.9 million for the quarter ended June 30, 2001 as compared to the same quarter in 2000. There were 7 more full-time equivalent employees during the fiscal year 2002 quarter over the fiscal year 2001 quarter and the fiscal year 2002 quarter reflects the increased mortgage broker commissions when compared to the same period in prior year. The increase in full-time equivalent employees was due to the expansion occurring in branches, commercial lending, trust company and support functions. Provision for federal income taxes for the first quarter of fiscal year 2002 was $296,000, resulting in an effective tax rate of 28.1%, compared to $313,000 and 31.6% for the same quarter of fiscal 2001. The decrease in the effective tax rate for the three months ended June 30, 2001 is primarily attributable to the impact of the dividend received deduction in fiscal year 2002 as compared to fiscal year 2001. 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, 2001. 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*** (b) Reports on Form 8-K: No Forms 8-K were filed during the quarter ended June 30, 2001. - ------------- * 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 Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIVERVIEW BANCORP, INC. DATE: July 27, 2001 BY:/S/ Patrick Sheaffer -------------------- Patrick Sheaffer President DATE: July 27, 2001 BY:/S/ Ron Wysaske --------------- Ron Wysaske Executive Vice President/Treasurer 19