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 December 31, 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---4,474,683 shares as of January 31, 2002.
Form 10-Q RIVERVIEW BANCORP, INC. AND SUBSIDIARY INDEX Part I. Financial Information Page --------------------- ---- Item 1: Financial Statements (Unaudited) Consolidated Balance Sheets as of December 31, 2001 and March 31, 2001 1 Consolidated Statements of Income: Three and Nine Months Ended December 31, 2001 and 2000 2 Consolidated Statements of Shareholders' Equity for the Year Ended March 31, 2001 and the Nine Months Ended December 31, 2001 3 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2001 and 2000 4 Notes to Consolidated Financial Statements 5-12 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 12-22 Item 3: Quantitative and Qualitative Disclosures About Market Risk 22 Part II. Other Information 23 SIGNATURES 24
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Balance Sheets DECEMBER 31, 2001 and MARCH 31, 2001 DECEMBER 31, MARCH 31, (In thousands, except share data)(Unaudited) 2001 2001 - ------------------------------------------------------------------------------ ASSETS Cash (including interest-earning accounts of $9,828 and $26,460) $ 21,951 $ 38,935 Loans held for sale 2,346 569 Investment securities held to maturity, at amortized cost (fair value of $849 and $867) 839 861 Investment securities available for sale, at fair value (amortized cost of $18,926 and $26,060) 18,653 25,561 Mortgage-backed securities held to maturity, at amortized cost (fair value of $4,925 and $6,486) 4,831 6,405 Mortgage-backed securities available for sale, at fair value (amortized cost of $47,997 and $43,224) 48,530 43,139 Loans receivable (net of allowance for loan losses of $2,223 and $1,916) 277,524 296,292 Real estate owned 1,607 473 Prepaid expenses and other assets 950 1,002 Accrued interest receivable 1,765 2,394 Federal Home Loan Bank stock, at cost 5,240 4,432 Premises and equipment, net 10,576 10,055 Deferred income taxes, net 438 856 Core deposit intangible, net 777 1,022 --------- --------- TOTAL ASSETS $ 396,027 $ 431,996 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposit accounts $ 263,947 $ 295,523 Accrued expenses and other liabilities 3,783 4,034 Advance payments by borrowers for taxes and insurance 87 218 Federal Home Loan Bank advances 74,500 79,500 --------- --------- Total liabilities 342,317 379,275 COMMITMENTS AND CONTINGENCIES (NOTE 14) SHAREHOLDERS' EQUITY: Serial preferred stock, $.01 par value; 250,000 shares authorized, issued and outstanding, none - - Common stock, $.01 par value; 50,000,000 shares authorized, December 31, 2001 -- 4,763,793 issued, 4,487,183 outstanding; March 31, 2001 -- 4,981,421 issued, 4,655,040 outstanding 48 50 Additional paid-in capital 36,219 38,687 Retained earnings 19,646 17,349 Unearned shares issued to employee stock ownership trust (2,062) (2,217) Unearned shares held by the management recognition and development plan (312) (762) Accumulated other comprehensive income (loss) 171 (386) --------- --------- Total shareholders' equity 53,710 52,721 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 396,027 $ 431,996 ========= ========= See notes to consolidated financial statements. 1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Income Three Months Ended Nine Months Ended (In thousands, except December 31, December 31, share data)(Unaudited) 2001 2000 2001 2000 - ------------------------------------------------------------------------------ INTEREST INCOME: Interest and fees on loans receivable $ 6,019 $ 6,763 $ 19,118 $ 19,393 Interest on investment securities 42 207 296 622 Interest on mortgage-backed securities 719 756 2,142 2,336 Other interest and dividends 466 260 1,643 603 ------- ------- ------- ------- Total interest income 7,246 7,986 23,199 22,954 ------- ------- ------- ------- INTEREST EXPENSE: Interest on deposits 1,857 2,964 7,281 8,072 Interest on borrowings 1,389 1,253 4,465 3,670 ------- ------- ------- ------- Total interest expense 3,246 4,217 11,746 11,742 ------- ------- ------- ------- Net interest income 4,000 3,769 11,453 11,212 Less provision for loan losses 210 140 720 734 ------- ------- ------- ------- Net interest income after provision for loan losses 3,790 3,629 10,733 10,478 ------- ------- ------- ------- NON-INTEREST INCOME: Fees and service charges 1,005 669 2,759 1,911 Asset management services 176 133 564 373 Gain on sale of loans held for sale 396 41 777 60 Gain on sale of securities - - 863 - Gain on sale of other real estate owned 14 20 32 31 Gain on sale of land and fixed assets - - 4 309 Loan servicing income 28 27 40 91 Other 18 15 51 56 ------- ------- ------- ------- Total non-interest income 1,637 905 5,090 2,831 ------- ------- ------- ------- NON-INTEREST EXPENSE: Salaries and employee benefits 1,981 1,729 5,722 5,033 Occupancy and depreciation 539 540 1,612 1,375 Data processing 176 241 571 667 Amortization of core deposit intangible 82 82 245 245 Marketing expense 101 115 464 510 FDIC insurance premium 13 12 39 35 State and local taxes 103 82 305 232 Telecommunications 65 65 181 185 Professional fees 81 73 244 166 Other 328 292 956 832 ------- ------- ------- ------- Total non-interest expense 3,469 3,231 10,339 9,280 ------- ------- ------- ------- INCOME BEFORE FEDERAL INCOME TAXES 1,958 1,303 5,484 4,029 PROVISION FOR FEDERAL INCOME TAXES 599 400 1,672 1,269 ------- ------- ------- ------- NET INCOME $ 1,359 $ 903 $ 3,812 $ 2,760 ======= ======= ======= ======= Earnings per common share: Basic $ 0.30 $ 0.20 $ 0.83 $ 0.61 Diluted 0.30 0.19 0.82 0.60 Weighted average number of shares outstanding: Basic 4,523,853 4,600,472 4,604,082 4,561,780 Diluted 4,560,202 4,657,870 4,636,349 4,628,820 See notes to consolidated financial statements. 2
<TABLE> RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED MARCH 31, 2001 AND THE NINE MONTHS ENDED DECEMBER 31, 2001 (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, 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 - - - (1,515) - - - (1,515) Exercise of stock options 5,072 - 43 - - - - 43 Stock repurchased and retired (222,700) (2) (2,550) - - - - (2,552) Earned ESOP shares 24,633 - 49 - 155 - - 204 Earned MRDP shares 25,138 - - - - 440 - 440 Shares forfeited and reawarded - - (10) - - 10 - - --------- ---- -------- -------- --------- -------- ------- -------- 4,487,183 48 36,219 16,330 (2,062) (312) (386) 49,341 Comprehensive income: Net income - - - 3,812 - - - 3,812 Other comprehensive income: Unrealized holding gain on securities of $1,127 (net of $580 tax effect) less reclas- sification adjustment of net gains included in net income of $ 570 (net of $293 tax effect). - - - - - - 557 557 -------- Total comprehensive income - - - - - - - 4,369 --------- ---- -------- -------- --------- -------- ------- -------- Balance, December 31, 2001 4,487,183 $ 48 $ 36,219 $ 19,646 $ (2,062) $ (312) $ 171 $ 53,710 ========= ==== ======== ======== ========= ======== ======= ======== </TABLE> 3
See notes to consolidated financial statements. RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, (In thousands) (Unaudited) 2001 2000 - ------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,812 $ 2,760 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,225 1,068 Provision for losses on loans 720 734 Disposition of allowance for loan losses (29) - Provision (credit) for deferred income taxes 131 (216) Noncash expense related to ESOP benefit 204 156 Noncash expense related to MRDP benefit 440 306 Increase (decrease) in deferred loan origination fees, net of amortization (35) 71 Federal Home Loan Bank stock dividend (265) (193) Net gain on sale of real estate owned, mortgage- backed and investment securities and premises and equipment (1,631) (301) Changes in assets and liabilities: Increase in loans held for sale (1,777) (310) Decrease in prepaid expenses and other assets 1,229 33 Decrease (Increase) in accrued interest receivable 576 (571) (Decrease) Increase in accrued expenses and other liabilities (204) 462 --------- --------- Net cash provided by operating activities 4,396 3,999 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan originations (194,775) (119,411) Principal repayments on loans 146,825 76,432 Loans sold 24,641 5,485 Purchase of equity securities - (5,000) Purchase of mortgage-backed securities available for sale (4,967) - Proceeds from call or maturity of investment securities available for sale 2,500 - Proceeds from sale of mortgage-backed securities available for sale 25,944 - Principal repayments on mortgage-backed securities held to maturity 1,574 1,718 Principal repayments on mortgage-backed securities available for sale 14,255 4,911 Principal repayments on investment securities available for sale 4,641 - Principal repayments on investment securities held to maturity 22 21 Purchase of premises, equipment and other (1,651) (2,404) Purchase of Federal Home Loan Bank stock (543) (1,095) Proceeds from sale of real estate 885 1,392 --------- --------- Net cash provided by (used) in investing activities 19,351 (37,951) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposit accounts (31,576) 37,550 Dividends paid (1,515) (1,390) Repurchase of common stock (2,552) - Proceeds from Federal Home Loan Bank advances 20,000 154,686 Repayment of Federal Home Loan Bank advances (25,000) (145,736) Net decrease in advance payments by borrowers (131) (54) Proceeds from exercise of stock options 43 107 --------- --------- Net cash (used) provided by financing activities (40,731) 45,163 --------- --------- NET (DECREASE) INCREASE IN CASH (16,984) 11,211 CASH, BEGINNING OF PERIOD 38,935 15,786 --------- --------- CASH, END OF PERIOD $ 21,951 $ 26,997 ========= ========= SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $ 12,057 $ 14,473 Income taxes 1,525 1,722 NONCASH INVESTING AND FINANCING ACTIVITIES: Mortgage loans securitized and classified as mortgage-backed securities available for sale $ 40,347 $ - Transfer of loans to real estate owned 2,219 1,660 Dividends declared and accrued in other liabilities 497 467 Fair value adjustment to securities available for sale 844 1,607 Income tax effect related to fair value adjustment (287) (546) 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 and nine months ended December 31, 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. All 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 and nine months ended December 31, 2001, the Company's total comprehensive income was $1.1 million and $4.4 million, respectively, compared to $1.9 million and $3.8 million for the three and nine months ended December 31, 2000, respectively. Total comprehensive income for the three and nine months ended December 31, 2001 is comprised of net income of $1.4 million and $3.8 million and other comprehensive (loss)income of ($258,000) and $557,000, net of tax effect, respectively. Other comprehensive income for the three months and nine months ended December 31, 2001, consists of unrealized securities (losses) gains of ($258,000) and $1.1 million, net of tax effect, less gains on securities available for sale included in non-interest income of none and $570,000, net of tax effect, respectively. Total comprehensive income for the three and nine months ended December 31, 2000 is comprised of net income of $903,000 and $2.8 million and other comprehensive income of $953,000 and $1.1 million, net of tax effect, respectively. Other comprehensive income for the three months and nine months ended December 31, 2000, consists of unrealized securities gains of $953,000 and $1.1 million, net of tax effect, respectively. 5
(4) Earnings Per Share ------------------ Basic Earnings per Share ("EPS") is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company's common stock during the period. Common stock equivalents arise from assumed conversion of outstanding stock options and 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 December 31, --------------------- 2001 2000 ---- ---- Basic EPS computation: Numerator-Net Income $ 1,359,000 $ 903,000 Denominator-Weighted average common shares outstanding 4,523,853 4,600,472 Basic EPS $ 0.30 $ 0.20 ============ =========== Diluted EPS computation: Numerator-Net Income $ 1,359,000 $ 903,000 Denominator-Weighted average common shares outstanding 4,523,853 4,600,472 Effect of dilutive stock options 36,349 57,398 ------------ ----------- Weighted average common shares and common stock equivalents 4,560,202 4,657,870 Diluted EPS $ 0.30 $ 0.19 ============ =========== Nine Months Ended December 31, --------------------- 2001 2000 ---- ---- Basic EPS computation: Numerator-Net Income $ 3,812,000 $ 2,760,000 Denominator-Weighted average common shares outstanding 4,604,082 4,561,780 Basic EPS $ 0.83 $ 0.61 ============ =========== Diluted EPS computation: Numerator-Net Income $ 3,812,000 $ 2,760,000 Denominator-Weighted average common shares outstanding 4,604,082 4,561,780 Effect of dilutive stock options 32,267 67,040 ------------ ----------- Weighted average common shares and common stock equivalents 4,636,349 4,628,820 Diluted EPS $ 0.82 $ 0.60 ============ =========== 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 December 31, 2001 Cost Gains Losses Value --------- ---------- ---------- --------- Municipal securities $ 839 $ 10 $ - $ 849 ======= ======= ====== ======= March 31, 2001 Municipal securities $ 861 $ 6 $ - $ 867 ======= ======= ====== ======= The contractual maturities of investment securities held to maturity are as follows (in thousands): Amortized Estimated December 31, 2001 Cost Fair Value --------- ---------- Due after ten years $ 839 $ 849 ========= ========== There were no sales of investment securities classified as held to maturity during the periods ended December 31, 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 December 31, 2001 Cost Gains Losses Value --------- ---------- ---------- --------- Equity securities $ 16,356 8 (294) 16,070 School district bonds 2,570 19 (6) 2,583 --------- ------- ------- -------- $ 18,926 $ 27 $ (300) $ 18,653 ========= ======= ======= ======== 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 December 31, 2001 Cost Fair Value --------- ---------- Due after one year through five years $ 340 $ 346 Due after five years through ten years 1,613 1,626 Due after ten years 16,973 16,681 --------- ---------- $ 18,926 $ 18,653 ========= ========== 7
(6) Mortgage-backed Securities -------------------------- Mortgage-backed securities held to maturity consisted of the following (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 2001 Cost Gains Losses Value --------- ---------- ---------- --------- REMICs $ 1,804 $ 12 $ - $ 1,816 FHLMC mortgage-backed securities 1,122 19 - 1,141 FNMA mortgage-backed securities 1,905 63 - 1,968 --------- ------- ------ -------- $ 4,831 $ 94 $ - $ 4,925 ========= ======= ====== ======== 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 $3.1 million and $3.9 million and a fair value of $3.1 million and $3.9 million at December 31, 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 Loan 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 December 31, 2001 Cost Fair Value --------- ---------- Due in one year or less $ 1 $ 1 Due after one year through five years 1,800 1,844 Due after five years through ten years 2 2 Due after ten years 3,028 3,078 ------- -------- $ 4,831 $ 4,925 ======= ======== There were no sales of mortgage-backed securities held to maturity during the periods ended December 31, 2001 and 2000. Mortgage-backed securities available for sale consisted of the following (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 2001 Cost Gains Losses Value --------- ---------- ---------- --------- REMICs $ 34,177 $ 141 $ (169) $ 34,149 FHLMC mortgage-backed securities 12,723 533 - 13,256 FNMA mortgage-backed securities 1,097 28 - 1,125 --------- -------- -------- --------- $ 47,997 $ 702 $ (169) $ 48,530 ========= ======== ======== ========= 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 December 31, 2001 Cost Fair Value --------- ---------- Due after one year through five years $ 6,454 $ 6,695 Due after five years through ten years 8,698 9,042 Due after ten years 32,845 32,793 --------- ---------- $ 47,997 $ 48,530 ========= ========== 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 $11.8 million and $16.2 million and a fair value of $11.8 million and $16.0 million at December 31, 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 $4.8 million and $5.1 million at December 31, 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): December 31, March 31, 2001 2001 ------------ ---------- Residential: One- to- four family $ 79,695 $ 116,583 Multi-family 10,051 11,073 Construction: One- to- four family 60,963 60,041 Multi-family 4,000 4,514 Commercial real estate 8,066 6,806 Commercial 23,409 23,099 Consumer: Secured 20,897 23,148 Unsecured 2,263 1,872 Land 24,450 24,230 Commercial real estate 73,666 56,540 ----------- ---------- 307,460 327,906 Less: Undisbursed portion of loans 24,819 26,223 Deferred loan fees 2,894 3,475 Allowance for loan losses 2,223 1,916 ----------- --------- Loans receivable, net $ 277,524 $ 296,292 =========== ========= (8) Allowance for Loan Losses ------------------------- A reconciliation of the allowances for loan losses is as follows (in thousands): Nine Months Ended Year Ended December 31, 2001 March 31, 2001 ----------------- -------------- Beginning balance $ 1,916 $ 1,362 Provision for losses 720 949 Charge-offs (340) (413) Recoveries 8 18 Dispositions (81) - ------------ ---------- Ending balance $ 2,223 $ 1,916 ============ ========== At December 31, 2001 and March 31, 2001, the Company's recorded investment in loans for which an impairment has been recognized under the guidance of Statement of Financial Accounting Standards ("SFAS") No. 114 and SFAS No. 118 was $1.3 million and $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 $937,000 and $836,000 during the nine months ended December 31, 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 9
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. (10) Mortgage Loan Securitization ---------------------------- During the second quarter ended September 30, 2001, the Company sold $40.3 million in seasoned fixed rate single family residential mortgage loans to FHLMC. The mortgages were aggregated into 15 pools and securitized with the resulting mortgage-backed securities ("MBS") being retained by the Company and classified as available for sale. Securitization of the loans provided more liquid instruments that could be sold when the market conditions are considered favorable. Sale of the MBS will reduce the long-term fixed rate assets in the Company's portfolio, which will allow the Company to reduce its interest sensitivity in the future. Because the Company retained an interest in the loans by receiving the MBS, various items associated with the loans were combined with the principal balance of the loans to arrive at the Company's basis in the MBS. These items include deferred origination fees, mortgage servicing rights and allowance for loan losses. Deferred loan origination fees associated with the sold loans totaled $641,000. The fair value of mortgage servicing rights was determined using the Company's model, which incorporates the expected life of the loans, estimated cost to service the loans, servicing fees to be received and other factors. Mortgage servicing rights were valued at $255,000. The general valuation allowance associated with these loans was $81,000. The Company pays a guarantee fee to FHLMC as part of the securitization and servicing of the loans, thus transferring all credit risk to FHLMC. The final resulting basis in the MBS was $39.2 million. As of December 31, 2001, $25.1 million in MBS have been sold at gain of $863,000. (11) Borrowings ---------- Borrowings are summarized as follows (in thousands): December 31, March 31, 2001 2001 ------------ --------- Federal Home Loan Bank Advances $74,500 $79,500 ======= ======= Weighted average interest rate: 6.10% 6.62% ==== ==== Borrowings have the following maturities at December 31, 2001 (in thousands): Fiscal Year ----------- 2002 $ 39,500 2003 - 2004 - 2006 15,000 2007 20,000 -------- $ 74,500 ======== (12) Shareholders' Equity -------------------- Repurchase of Common stock In July 2001, the Company received regulatory approval to repurchase up to 10% or 465,504 shares of its outstanding shares at June 30, 2001. At December 31, 2001, 222,700 shares had been repurchased at an average cost of $11.46 per share. Since the State of Washington treats all treasury 10
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. (13) Recently Issued Accounting Pronouncements ----------------------------------------- Recently Issued Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued 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 the 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. The Company has not consummated any acquisitions since this statement has been issued. 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 issued first quarter financial statements as of July 1, 2001. Upon the adoption of the provisions of SFAS No. 142 for the year ending March 31, 2002 management believes there will be no impact on the financial statements of the Company. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. This statement supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board Opinion No.30 for the disposal of a segment of a business. The Company does not believe that the adoption of SFAS No. 144 on April 1, 2002, will have a material impact on the Company's consolidated financial statements. 11
(14) 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 December 31, 2001, the Company had commitments to originate fixed rate mortgages of $3.6 million at interest rates ranging from 5.375% to 8.5%. At December 31, 2001 adjustable rate mortgage loan commitments were $6.3 million at an average interest rate of 6.00%. Undisbursed balance of mortgage loans closed was $24.8 million at December 31, 2001. Consumer loan commitments totaled $1.0 million and unused lines of consumer credit totaled $14.8 million at December 31, 2001. Commercial loan commitments totaled $894,000 and unused lines of commercial credit totaled $22.3 million at December 31, 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 Community Bank is a progressive community-oriented, financial institution, which emphasizes local, personal service to residents of its primary market area. The Community Bank considers Clark, Cowlitz, Klickitat and Skamania counties of Washington as its primary market area. 12
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 continues to change the composition of its loan portfolio and the deposit base as part of its migration to commercial banking. The consolidation among financial institutions in the Community Bank's primary market area has created a significant gap in the ability of the consolidated financial institutions to serve customers. The Community Bank's strategic plan includes targeting this customer base, specifically small and medium size businesses, professionals and wealth building individuals. In pursuit of these goals, the Community Bank will emphasize controlled growth and the diversification of its loan portfolio to include a higher portion of commercial and commercial real estate loans. A related goal is to increase the proportion of personal and business checking account deposits used to fund these new loans. Significant portions of these new loan products carry adjustable rates, higher yields, or shorter terms and higher credit risk than the traditional fixed-rate mortgages. The strategic plan stresses increased emphasis on non-interest income, including increased fees for asset management and deposit service charges. The strategic plan is designed to enhance earnings, reduce interest rate risk, and provide a more complete range of financial services to customers and the local communities the Community Bank serves. The Community Bank is well positioned to attract new customers and to increase its market share given that the administrative headquarters and eight of its twelve branches are located in Clark County, the fastest growing county in the state of Washington according to the U.S Census Bureau. In order to support its strategy of growth, without compromising its local, personal service to its customers and a commitment to asset quality, the Community Bank has made significant investments in experienced branch, lending, asset management and support personnel and has incurred significant costs in facility expansion. The Company's efficiency ratios reflect this investment and will remain relatively high by industry standards for the foreseeable future due to the emphasis on growth and local, personal service. Control of non-interest expenses remains a high priority. The Community Bank continuously reviews new products and services to give its customers more financial options. With an emphasis on growth of non-interest income and control of non-interest expense, all new technology and services are reviewed for business development and cost saving purposes. The Community Bank continues to experience growth in the customer usage of the online banking services. Customers are able to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill-paying. This online service has also enhanced the delivery of cash management services to commercial customers. The internet banking branch web site is www.riverviewbank.com. 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 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/Vancouver metropolitan areas, as well as for the Community Bank. The Business and 13
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 asset management (trust and investment) services to its customers and is located in the Community Bank's Vancouver Main branch. Assets totaling approximately $108.0 million at December 31, 2001 were managed by RAMCORP. in fiduciary or agency capacity. Total managed assets of $108.0 million reflects the increase in market value experienced in the securities markets when compared to the total managed assets of $91.9 million at September 30, 2001. 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. 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. Financial Condition At December 31, 2001, the Company had total assets of $396.0 million compared with $432.0 million at March 31, 2001. The decrease in total assets reflects the conversion of $40.3 million of fixed interest rate residential family mortgages to MBS through securitization and sale of $25.1 million of MBS during the quarter ending September 30, 2001. Cash, including interest-earning accounts, totaled $22.0 million at December 31, 2001, compared to $38.9 million at March 31, 2001. The $1.8 million increase in loans held for sale to $2.3 million at December 31, 2001 compared to $569,000 at March 31, 2001, reflects the lower mortgage interest rate environment. As interest rates fall loan volume shifts to fixed rate production. Conversely, in a rising interest rate environment loan volume will shift to adjustable rate production. Selling our fixed interest rate mortgage loans allows us to reduce the interest rate risk associated with long term fixed interest rate products. It also frees up funds to make new loans and diversify our loan portfolio. We continue to service the loans we sell, maintaining the customer relationship and generating ongoing non-interest income. At December 31, 2001, the Company had $307.5 million in gross loans, a decrease of $20.4 million compared to $327.9 million at March 31, 2001. One- to- four family residential mortgage loans decreased $36.9 million reflecting the securitization of $40.3 one- to- four family residential mortgage loans through FHMLC. Commercial loans increased $310,000 to $23.4 million at December 31, 2001 from $23.1 million at March 31, 2001. Commercial real estate loans increased $17.2 million to $73.7 million at December 31, 2001 from $56.5 million at March 31, 2001. Loans receivable (Note 7) provides a detailed analysis of the $307.5 million gross loan portfolio at December 31, 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 residential mortgage loans. Deposits totaled $263.9 million at December 31, 2001 compared to $295.5 million at March 31, 2001. The deposit decrease is due to an outflow of governmental deposits as the Community Bank paid lower interest rates. Checking accounts and money market accounts ("transaction accounts") total average outstanding balance increased 28.3% to $123.8 million at December 31, 2001, compared to $96.6 million at March 31, 2001. Transaction accounts represented 46.1% and 34.2% of average total 14
outstanding balance of deposits at December 31, 2001 and March 31, 2001, respectively. FHLB advances totaled $74.5 million at December 31, 2001 and $79.5 million at March 31, 2001. During the third quarter of fiscal year 2002, an advance from FHLB Seattle for $25.0 million with a fixed interest rate of 6.58% was paid off. Capital Resources Total shareholders' equity increased $1.0 million to $53.7 million at December 31, 2001 compared to $52.7 million at March 31, 2001. The activity in shareholders' equity for the first nine months of fiscal year 2002 was $3.8 million in earnings, dividends of $1.5 million, exercise of stock options of $43,000, stock repurchased $2.6 million, earned ESOP shares $204,000, earned MRDP shares of $440,000 and $557,000 change in net unrealized gain on securities available for sale, net of tax benefit. 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 December 31, 2001, the Community Bank met all capital adequacy requirements to which it was subject. As of December 31, 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 December 31, 2001, the Community Bank's tangible, core and risk-based total capital ratios amounted to 12.06%, 12.06%, and 16.77%, 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): 15
Categorized as "Well Capitalized" Under For Capital Prompt Corrective Actual Adequacy Purpose Action Provision -------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 2001 Total Capital: (To Risk Weighted Assets) $49,422 16.77% $23,582 8.0% $29,477 10.0% Tier I Capital: (To Risk Weighted Assets) 47,385 16.08 N/A N/A 17,686 6.0 Core Capital: (To Total Assets) 47,385 12.06 11,786 3.0 19,643 5.0 Tangible Capital: (To Tangible Assets) 47,385 12.06 5,893 1.5 N/A N/A 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 accounting principles generally accepted in the United States of America, to regulatory tangible and risk-based capital at December 31, 2001 (in thousands): Equity $48,523 Net unrealized gain on securities available for sale (277) Core deposit intangible asset (777) Deferred tax and servicing asset (84) ------- Tangible capital 47,385 General valuation allowance 2,222 Other (185) ------- Total capital $49,422 ======= Bank Liquidity The Financial Regulatory Relief and Economic Efficiency Act of 2000 repealed the statutory liquidity requirement for savings associations, citing the requirement as unnecessary. In light of this action, the OTS repealed its liquidity regulations, with the following exceptions. Savings associations must continue to maintain sufficient liquidity to ensure safe and sound operation; the appropriate level of liquidity will vary depending on the activities in which the savings association engages. 16
The repeal of the OTS' liquidity regulations was effected as an interim rule with request for comments. The comment period expired May 14, 2001 and the OTS adopted the interim rule as a final rule on July 18, 2001. Management does not believe this rule change will have any adverse impact on the Bank's operations. Sources of capital and liquidity for the Company on a stand alone basis include distributions from the Bank. Dividends and other capital distributions from the Bank are subject to regulatory restrictions. Cash, including interest-earning overnight investments, was $22.0 million at December 31, 2001 compared to $38.9 million at March 31, 2001. Investment securities and mortgage-backed securities available for sale at December 31, 2001 were $18.7 million and $48.5 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 $2.2 million at December 31, 2001, compared to $1.9 million at March 31, 2001. Management believes the allowance for loan losses at December 31, 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. Commercial loans are considered to involve a higher degree of credit risk than one- to-four family residential loans, and to be more vulnerable to adverse conditions in the real estate market and deteriorating economic conditions. Non-performing assets were $2.9 million, or 0.73% of total assets at December 31, 2001 compared with $1.0 million, or 0.24% of total assets at March 31, 2001. The $1.3 million balance of non-accrual loans is made up of five residential properties totaling $883,000, one land loan totaling $66,000, three commercial real estate loan totaling $299,000 and four consumer loans totaling $10,000. The $1.6 million balance of real estate owned consists of five residential properties of which three are to the same borrower and four land and lot loans. The following table sets forth information with respect to the Company's non-performing assets at the dates indicated: 17
December 31, 2001 March 31, 2001 ------------------------------------- (Dollars in thousands) Loans accounted for on a non-accrual basis: Real Estate Residential $ 883 $ 153 Commercial 299 - Land 66 - Commercial - 50 Consumer 10 116 ------- ------- Total 1,258 319 ------- ------- Accruing loans which are contractually past due 90 days or more 10 226 ------- ------- Total of non-accrual and 90 days past due loans 1,268 545 ------- ------- Real estate owned (net) 1,607 473 ------- ------- Total non-performing assets $ 2,875 $ 1,018 ======= ======= Total loans delinquent 90 days or more to net loans 0.45% 0.18% Total loans delinquent 90 days or more to total assets 0.32 0.13 Total non-performing assets to total assets 0.73 0.24 Comparison of Operating Results for the Three Months Ended December 31, 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 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, asset management fees, loan servicing income, gains and losses on sales of securities, gains and losses 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 December 31, 2001 was $1.4 million, or $0.30 per basic share ($0.30 per diluted share). This compares to net income of $903,000, or $0.20 per basic share ($0.19 per diluted share) for the same period in fiscal 2001. Net interest income increased $231,000 to $4.0 million for the three months ended December 31, 2001 compared to the same period in the prior 18
year. The increase in net interest income was due to the 8.7% increase in average interest-earning assets during the third quarter of fiscal year 2002 compared to net interest income of $3.8 million for the same period in the prior year. This increase in average interest-earning assets and the impact of the decrease in interest rates was partially offset by the combination of the increase in the average interest-earning liabilities and the decrease in the combined rate volume variance. Interest income for the three months ended December 31, 2001 was $7.2 million, a decrease of $740,000, or 10.0% compared to the $8.0 million interest income for the same period in fiscal year 2001. Yield on interest-earning assets for the third quarter of fiscal year 2002 was 7.49% compared to 8.90% for the same three month period in fiscal year 2001. The lower third quarter fiscal 2002 yield and interest income reflects the lower interest rate environment as compared to the same period for the prior year. Average interest-earning assets increased to $388.9 million for the three months ended December 31, 2001 from $357.8 million for the three months ended December 31, 2000. The average interest-earning assets increase was made up of increases in non-mortgage loans, mortgage-backed securities and daily interest bearing investments partially offset by a decrease in mortgage loans. The change in the mix of average interest-earning assets reflects the securitization of $40.3 million of fixed rate mortgage loans in the quarter ended September 30, 2001. Net interest income increased $274,000 due to the increase in volume of average interest-earning assets as compared to the increase in average volume interest-earning liabilities for the three months in fiscal 2002 compared to the same fiscal 2001 period. Interest expense was $3.2 million for the quarter ended December 31, 2001, a decrease of $1.0 million, or 23.8% compared to the $4.2 million interest expense for the same period in fiscal year 2001. The cost of average interest-bearing liabilities for the third quarter of year 2002 was 4.00% compared to 5.60% for the same three-month period in fiscal year 2001. The lower interest expense for the three-month period ended December 31, 2001 is the result of the lower interest rates in the third quarter of fiscal year 2002 compared to the same period in the prior year. Average interest-bearing liabilities increased to $322.3 million during the quarter ended December 31, 2001 from $298.6 million for the quarter ended December 31, 2000. The $31.1 million increase in average interest-earning assets was partially offset by the $23.7 million increase in average interest-bearing liabilities. The liability increase was primarily the result of growth in transaction accounts partially offset by a decrease in certificates of deposit. The proceeds from the September 30, 2001 sale of $25.1 million of available for sale mortgage- backed securities was used to pay down borrowings from FHLB Seattle in the third quarter of fiscal year 2002. The change in interest rates for this same period of comparison increased net interest income $194,000. This quarterly comparison of the impact of the changes in interest rates illustrates the liability sensitivity of the balance sheet. The decrease in interest rates benefited net interest income due to the fact that repricing opportunities in the liabilities, especially in money market accounts and certificates of deposit outpaced the repricing that was experienced in loans and securities. Floors and fixed rates in the loans and securities enhanced the benefits that resulted from the repricing of liabilities. The change in the interest rate average volume mix of assets and liabilities for the same three month periods reduced net interest income $237,000. The interest rate spread increased from 3.30% for the three month 2001 period to 3.49% for the three month 2002 period. Net interest income as a percentage of average earning assets (net interest margin), decreased to 4.17% during the third quarter ended December 31, 2001 from 4.23% for 19
the third quarter ended December 31, 2000. The decreased fiscal year 2002 net interest margin reflects the decrease in the interest rates and the change in the composition of the balance sheet. The provision for loan losses for the three month period ended December 31, 2001 was $210,000 compared to $140,000 for the same period in the prior year. There was $221,000 in net charge-offs during the three months ended December 31, 2001, and $80,000 in net charge-offs for the three months ended December 31, 2000. Loans receivable (Note 7) provides a detailed analysis of the $20.4 million decrease in gross loans as compared to the March 31, 2001 gross loan balance of $327.9 million. Based upon management's analysis of historical and anticipated loss rates, current loan growth, and other factors, management believes the allowance for loan losses at December 31, 2001 is adequate for the losses inherent in the loan portfolio. Non-interest income increased $732,000 to $1.6 million, or 80.9% as compared to the $905,000 non-interest income for the three months ended December 31, 2000. The 80.9% increase in non-interest income 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 $238,000, to $3.5 million or 7.4% as compared to $ 3.2 million for the same period for the prior year. Salaries and employee benefits increased $252,000 to $2.0 million for the quarter ended December 31, 2001 as compared to $1.7 million for the same quarter in the prior year. The fiscal year 2002, third quarter's salaries and employee benefits reflect the growth in mortgage broker commissions when compared to the same period in the prior year. There were three additional full-time equivalent employees during the fiscal year 2002 quarter than during the comparable fiscal year 2001 quarter. Provision for federal income taxes for the third quarter of fiscal year 2002 was $599,000, resulting in an effective tax rate of 30.6%, compared to $400,000 and 30.7% for the same quarter of fiscal year 2001. Comparison of Operating Results for the Nine Months Ended December 31, 2001 and 2000 Net income for the nine months ended December 31, 2001 was $3.8 million, $0.83 per basic share ($0.82 per diluted share) compared to net income of $2.8 million, $0.61 per basic share ($0.60 per diluted share) for the same period in fiscal year 2001. Non-interest income for the second quarter of fiscal year 2002 includes $863,000 pretax gain on sale of MBS. Net interest income increased $241,000 to $11.5 million for the nine months ended December 31, 2001, compared to $11.2 million for the nine months ended December 31, 2000. The increase in net interest income was due to the 16.8% increase in average interest-earning assets during the nine months ended December 31, 2001 compared to the same period in the prior year. This increase in average interest-earning assets was partially offset by the combination of the increase in interest-bearing liabilities, the decrease in interest rates and the change in the rate volume mix variance. Interest income for the nine months ended December 31, 2001 was $23.2 million, an increase of $245,000 or 1.1% over $23.0 million for the same period in year 2001. Yield on interest-earning assets for the first nine months of the fiscal year 2002 was 7.73% compared to 8.87% for the first nine months of fiscal year 2001. The lower fiscal year 2002 yield on interest-earning assets reflects the lower interest yield on the majority of the interest-earning assets as compared to the same period in the prior year. The higher interest income for the nine month period ended 20
December 31, 2001 as compared to the same period in the prior year resulted from growth in interest-earning assets. Average interest-earning assets increased to $402.8 million for the nine months ending December 31, 2001 from $344.9 million for the nine months ending December 31, 2000. The average interest-earning assets increase was made up of increases in non-mortgage loans, mortgage-backed securities, investment securities, and daily interest bearing investments partially offset by a decrease in mortgage loans. The change in the mix of interest-earning assets reflects the September 30, 2001, securitization of $40.1 million of fixed rate mortgage loans. Net interest income increased $1.3 million as a result of the change in volume of year to date average interest-earning assets and liabilities as compared at December 31, 2001 and 2000, respectively. Interest expense was stable at $11.7 million for the nine month periods ended December 31, 2001 and 2000, respectively. The impact of the decrease in interest rates on interest-bearing liabilities kept pace with the impact of the increase in volume of the average interest-bearing liabilities for the nine month periods ended December 31, 2001 and 2000, respectively. The cost of interest-bearing liabilities for the fiscal year 2002 first nine months was 4.64% compared to 5.44% for the fiscal year 2001 first nine months. The stable interest expense is due to a 17.09% growth in average interest-bearing liabilities from $286.7 million at December 31, 2000 to $335.7 million at December 31, 2001 that was offset by the lower interest rates paid on the interest-bearing liabilities. Growth in the average balance of lower interest cost money market accounts and non-interest bearing deposits from $44.8 million and $26.1 million to $53.3 million and $32.4 million, for the nine month periods ended December 31, 2000 and 2001, respectively, contributed to reducing the cost of interest-bearing liabilities for the 2002 fiscal period. The change in interest rates decreased net interest income $481,000 and the rate volume mix decreased net interest income $563,000 for the nine month period ended December 31, 2001 compared to the nine month period ended December 31, 2000. The interest rate spread decreased from 3.43% for the nine month period in fiscal year 2001 compared to 3.09% for the nine month period in fiscal year 2002. The net interest margin decreased to 3.86% during the nine month period ended December 31, 2001 from 4.35% for the nine month period ended December 31, 2000. The decreased margin reflects the lagging of deposit repricing relative to the more rapid repricing in total interest earning assets and the change in the mix of the balance sheet. The provision for loan losses was $720,000 and net charge-offs was $332,000 during the nine months ended December 31, 2001 compared to a $734,000 provision and $150,000 in net charge-offs during the nine months ended December 31, 2000. Loans receivable (Note 7) provides a detailed analysis of the $20.4 million decrease in gross loans. The ratio of total non-performing assets to total assets has increased from 0.24% at March 31, 2001 to 0.73% at December 31, 2001. Non-accrual loans have increased from $319,000 at March 31, 2001 to $1.3 million at December 31, 2001. Real estate owned has increased from $473,000 at March 31, 2001 to $1.6 million at December 31, 2001. The loan loss provision was deemed necessary based upon management's analysis of historical and anticipated loss rates, current loan growth, and other factors considered. Non-interest income increased $2.3 million or 82.1% to $5.1 million for the nine months ended December 31, 2001, compared to $2.8 million for the same period in the prior year. Non-interest income increased $1.7 million or 67.6% for the nine months ended December 31, 2001 compared to the same period in the prior year, excluding the $863,000 pretax gain on sale of securities in the current year and the prior year $309,000 gain on sale of fixed assets due to the sale of a branch site and land held for investment. The $1.7 million increase in non-interest income resulted 21
from the increase in fees received from ATMs, service charges on deposit accounts, asset management fees, brokered loan fees and gains on loans held for sale. Non-interest expense increased $1.0 million, or 10.8%, to $10.3 for the nine months ended December 31, 2001 from $9.3 million for the nine months ended December 31, 2000. The $1.0 million increase reflects the addition of three full-time equivalent employees, increased mortgage broker commissions, and increased occupancy expenses. Full time equivalent employees increased to 147 at December 31, 2001 compared to 144 at December 31, 2000. Salaries and employee benefits, which includes mortgage broker commissions, increased $689,000 to $5.7 million for the nine months ended December 31, 2001 as compared to $5.0 million for the same period in fiscal year 2001. Provision for federal income taxes for the nine months ended December 31, 2001 was $1.7 million resulting in an effective tax rate of 30.5%, compared to $1.3 million and 31.5% for the same period a year ago. The decrease in the effective tax rate for the nine months ended December 31, 2001 is primarily attributable to the impact of the dividend received deduction. 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. 22
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** 9.4 Employment Agreement with Karen Nelson** 9.5 Severance Compensation Agreement** 9.6 Employee Stock Ownership Plan*** 9.7 1998 Stock Option Plan**** 9.8 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 December 31, 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. 23
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: February 6, 2002 BY: /S/ Patrick Sheaffer ---------------------------------- Patrick Sheaffer President DATE: February 6, 2002 BY: /S/ Ron Wysaske ---------------------------------- Ron Wysaske Executive Vice President/Treasurer 24