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, 1997 ----------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of - ----- THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----- ----- Commission File Number: 0-22957 RIVERVIEW BANCORP, INC. (Exact name of registrant as specified in its charter) Washington 91-1838969 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 N.E. Fourth Ave. Camas, WA 98607 (Address of principal executive office) Registrant's telephone number, including area code: (360)834-2231 Check whether the registrant: (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.01 par value---6,133,326 shares as of December 31, 1997.
Form 10-Q RIVERVIEW BANCORP, INC. AND SUBSIDIARY INDEX Page Part I. Financial Information ---- Item 1: Financial Statements (Unaudited) Consolidated Statements of Financial Condition as of December 31, 1997 and March 31, 1997 1 Consolidated Statements of Income: Nine Months and Three Months Ended December 31, 1997 and 1996 2 Consolidated Statements of Shareholders' Equity for the Year ended March 31, 1997 and for the Nine Months Ended December 31, 1997 3 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 1997 and 1996 4 Notes to Consolidated Financial Statements 5-10 (unaudited) Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11-18 Part II. Other Information 19-21 SIGNATURES 22 EXHIBITS 23-24
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition As of December 31, 1997 and March 31, 1997 (Unaudited) December 31, March 31, 1997 1997 ------------ ----------- ASSETS Cash (including interest-earning accounts of $5,843,000 and $1,450,000) $11,480,000 $6,951,000 Loans held for sale 709,000 80,000 Investment securities held to maturity at amortized cost, (fair value of $9,463,000 and $20,438,000) 9,395,000 20,456,000 Investment securities available for sale, at fair value (amortized cost of $10,997,000 and $3,993,000) 11,004,000 3,899,000 Mortgage-backed securities held to maturity, at amortized cost, (fair value of $22,624,000 and $26,488,000) 22,152,000 26,402,000 Mortgage-backed securities available for sale, at fair value (amortized cost of $33,868,000 and $3,022,000) 33,867,000 2,990,000 Loans receivable (net of allowance of $957,000 and $831,000 for loan losses) 162,792,000 151,694,000 Real Estate Owned 0 135,000 Prepaid expenses and other assets 889,000 1,141,000 Accrued interest receivable 1,555,000 1,449,000 Federal Home Loan Bank stock 1,929,000 1,756,000 Premises and equipment, net 4,718,000 4,632,000 Land held for development 471,000 471,000 Core deposit intangible, net 2,084,000 2,329,000 ------------ ------------ TOTAL ASSETS $263,045,000 $224,385,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposit accounts $171,379,000 $169,416,000 Accrued expenses and other liabilities 2,147,000 2,264,000 Advance payment by borrowers for taxes and insurance 53,000 123,000 Deferred income taxes, net 143,000 143,000 Other borrowed funds 0 237,000 Federal Home Loan Bank advances 29,550,000 27,180,000 ------------ ------------ Total Liabilities 203,272,000 199,363,000 SHAREHOLDERS' EQUITY Common stock, Dec. - $.01 par value; 50,000,000 authorized; 6,133,326 issued, 5,788,456 outstanding; March - $1.00 par value 4,000,000 authorized, 2,416,301, issued, 2,383,239 outstanding 61,000 2,416,000 Additional paid-in capital 53,341,000 16,043,000 Unearned shares issued to employee stock ownership trust (2,993,000) (386,000) Retained earnings 9,360,000 7,033,000 Net unrealized gain(loss) on securities available for sale 4,000 (84,000) ------------ ------------ Total shareholders' equity 59,773,000 25,022,000 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $263,045,000 $224,385,000 ============ ============ The accompanying notes are an integral part of these unaudited consolidated statements. 1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Income (Unaudited) Three Months Ended Nine Months Ended December 31, December 31, 1997 1996 1997 1996 ----------- ----------- ----------- ---------- INTEREST INCOME Interest on loans receivable $3,798,000 $3,323,000 $11,150,000 $9,763,000 Interest on investment securities 273,000 458,000 915,000 1,440,000 Interest on mortgage-backed securities 849,000 538,000 2,106,000 1,615,000 Other interest and dividends 368,000 42,000 609,000 134,000 ---------- ---------- ----------- ---------- Total interest income 5,288,000 4,361,000 14,780,000 12,952,000 ---------- ---------- ----------- ---------- INTEREST EXPENSE Interest on deposits 1,870,000 1,793,000 5,543,000 5,258,000 Interest on borrowings 514,000 497,000 1,514,000 1,424,000 ---------- ---------- ----------- ---------- Total interest expense 2,384,000 2,290,000 7,057,000 6,682,000 ---------- ---------- ----------- ---------- Net interest income 2,904,000 2,071,000 7,723,000 6,270,000 Less provision for loan losses 45,000 45,000 135,000 135,000 ---------- ---------- ----------- ---------- Net interest income after provision for loan losses 2,859,000 2,026,000 7,588,000 6,135,000 ---------- ---------- ----------- ---------- NON-INTEREST INCOME Fees and service charges 477,000 332,000 1,263,000 939,000 Gain on sale of loans held for sale 18,000 (32,000) 57,000 48,000 Gain on sale of securities 5,000 20,000 38,000 20,000 Loan servicing income 62,000 72,000 194,000 213,000 Other 17,000 27,000 87,000 122,000 ---------- ---------- ----------- ---------- Total non-interest income 579,000 419,000 1,639,000 1,342,000 ---------- ---------- ----------- ---------- NON-INTEREST EXPENSE Salaries and employee benefits 1,118,000 793,000 3,153,000 2,450,000 Occupancy 335,000 284,000 970,000 789,000 FDIC insurance premium 26,000 90,000 79,000 1,216,000 Amortization of excess of cost over fair value of deposits acquired 82,000 82,000 245,000 245,000 Marketing 43,000 54,000 212,000 206,000 Other 202,000 220,000 637,000 636,000 ---------- ---------- ----------- ---------- Total non-interest expense 1,806,000 1,523,000 5,296,000 5,542,000 ---------- ---------- ----------- ---------- INCOME BEFORE FEDERAL INCOME TAXES 1,632,000 922,000 3,931,000 1,935,000 FEDERAL INCOME TAX EXPENSE 559,000 312,000 1,357,000 666,000 ---------- ---------- ----------- ---------- NET INCOME $1,073,000 $ 610,000 $ 2,574,000 $1,269,000 ========== ========== =========== ========== Earnings per common share (1) $0.19 0.00 $0.45 0.00 Earnings per common share, assuming dilution (1) $0.18 0.00 $0.43 0.00 Weighted average number of shares outstanding (2) 0.00 Basic 5,764,092 0.00 5,763,914 0.00 Assuming dilution 5,934,348 0.00 5,934,170 0.00 (1) Per share information for the prior periods is not comparable as the Company did not complete its stock offering until September 30, 1997. See Note 3. (2) Shares outstanding for the quarter ending December 31, 1997 were used in the calculation of weighted average shares outs for the quarter and nine months ended December 31, 1997. The accompanying notes are an integral part of these unaudited consolidated statements. 2
<TABLE> RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity For the Year ended March 31, 1997 and for the Nine Months ended December 31, 1997 (Unaudited) UNREALIZED GAIN ON SECURITIES ADDITIONAL UNEARNED AVAILABLE COMMON STOCK PAID IN ESOP RETAINED FOR SALE SHARES AMOUNT CAPITAL SHARES EARNINGS NET OF TAX TOTAL <S> <C> <C> <C> <C> <C> <C> <C> Balance, March 31, 2,155,206 $2,195,000 $12,233,000 ($439,000) $9,137,000 ($40,000) $23,086,000 1996 Net Income - - - - 2,008,000 - 2,008,000 Cash dividends - - - - (212,000) - (212,000) Exercise of stock options 1,500 2,000 10,000 - - - 12,000 Earned ESOP shares 10,019 - 65,000 107,000 - - 172,000 10% Stock Dividend 216,514 219,000 3,735,000 (54,000) (3,900,000) - - Change in net unrealized loss on securities available for sale, net - - - - - (44,000) (44,000) ---------- ---------- ----------- ---------- ---------- -------- ----------- Balance, March 31, 1997 2,383,239 $2,416,000 $16,043,000 ($386,000) $7,033,000 ($84,000) $25,022,000 ---------- ---------- ----------- ---------- ---------- -------- ----------- Net Income - - - - 2,574,000 - 2,574,000 Cash dividends - - - - (247,000) - (247,000) Issuance and exchange of common stock as a result of conversion/ reorganization 3,660,666 (2,358,000) 37,080,000 - - - 34,722,000 Shares acquired for ESOP (285,660) - - (2,856,000) (2,856,000) Exercise of stock options 5,579 3,000 30,000 - - - 33,000 Earned ESOP shares 24,632 - 188,000 249,000 - - 437,000 Change in net unrealized gain on securities available for sale, net - - - - - 88,000 88,000 ---------- ---------- ----------- ---------- ---------- -------- ----------- Balance, December 31, 1997 5,788,456 $61,000 $53,341,000 ($2,993,000) $9,360,000 $4,000 $59,773,000 ========== ========== =========== ========== ========== ======== =========== The accompanying notes are an integral part of these unaudited consolidated statements. 3 </TABLE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows For the Nine Months ended December 31, 1997 and 1996 (Unaudited) Nine Months Ended December 31, 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $2,574,000 $1,269,000 Adjustments for noncash items: Depreciation and amortization 679,000 547,000 Provision for losses on loans and real estate owned 135,000 135,000 Noncash compensation expense related to ESOP benefit 437,000 172,000 Federal Home Loan Bank stock dividend (109,000) (99,000) Decrease (increase) in loans held for sale (629,000) 475,000 Decrease (increase) in accrued interest receivable (106,000) 6,000 (Decrease) increase in accrued expenses and other liabilities (117,000) 767,000 Decrease in other assets 252,000 486,000 Net (gain) on sale of real estate owned, mortgage- backed and investment securities, premises and equipment (95,000) 0.00 Accretion of discounts on investment securities, purchased loans and mortgage-backed securities (64,000) (63,000) Increase in deferred loan origination fees 331,000 252,000 Other, net 0 (206,000) ------------ ----------- Net cash provided by operating activities 3,288,000 3,741,000 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan originations (70,801,000) (64,247,000) Principal repayments on loans and participations purchase 59,072,000 43,713,000 Proceeds from call, maturity, or sale of investment securities available for sale 5,003,000 2,000,000 Principal repayments on mortgage-backed securities held to maturity 4,434,000 1,988,000 Principal repayments on mortgage-backed securities available for sale 498,000 0 Proceeds from mortgage-backed securities available for sale 2,280,000 1,868,000 Purchase of mortgage-backed securities available for sale (33,632,000) (1,807,000) Purchase of mortgage-backed securities held to maturity 0.00 (1,228,000) Purchase of investment securities available for sale (12,000,000) (1,518,000) Proceeds from call or maturity of investment securities 10,978,000 6,182,000 Purchase of Federal Home Loan Bank stock (64,000) 0 Purchase of premises and equipment (520,000) (593,000) Proceeds from sale of real estate 135,000 0.00 ------------ ----------- Net cash (used in) investing activities (34,617,000) (13,642,000) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposit accounts 1,963,000 9,574,000 Dividends paid (304,000) (154,000) Proceeds from issuance of common stock, net of related costs 34,755,000 4,000 Funding provided to ESOP for purchase of common stock (2,856,000) 0 Proceeds from FHLB advances 35,800,000 55,450,000 Repayment of FHLB advances (33,430,000) (52,050,000) Repayment of other borrowed funds 0 (79,000) Net (decrease) in advances from borrowers (70,000) (1,000) ------------ ----------- Net cash provided by financing activities 35,858,000 12,744,000 ------------ ----------- NET INCREASE (DECREASE) IN CASH 4,529,000 2,843,000 CASH, BEGINNING OF PERIOD 6,951,000 5,585,000 ------------ ----------- CASH, END OF PERIOD $ 11,480,000 $ 8,428,000 ============ =========== The accompanying notes are an integral part of these unaudited consolidated statements. Supplemental Disclosures Cash paid during the period for: Interest $7,129,000 $6,686,000 Income taxes $1,403,000 $675,000 Fair value adjustment to securities and mortgage-backed securities available for sale $133,000 $20,000 Income tax effect related to fair value adjustment $45,000 ($6,000) Non-cash Investing Activities Compensation expense recognized for shares released for allocation to participants of the ESOP $437,000 $172,000 4
RIVERVIEW BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) (1) Organization and Basis of Presentation -------------------------------------- The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim financial statements have been included. All such adjustments are of a normal recurring nature. Certain amounts for prior periods have been reclassified in the accompanying consolidated financial statements to conform with the December 31, 1997 presentation. The results of operations for the three and/or nine months ended December 31, 1997 are not necessarily indicative of the results which may be expected for the entire fiscal year. (2) Principles of Consolidation --------------------------- The accompanying consolidated financial statements include the accounts of Riverview Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Riverview Savings Bank, FSB (the "Bank") and the Bank's wholly-owned subsidiary, Riverview Services, Inc. Significant inter-company balances and transactions have been eliminated in the consolidation. (3) Conversion and Reorganization ----------------------------- The Company is a Washington corporation which is the holding company for the Bank. The Company was recently organized by the Bank for the purpose of acquiring all of the capital stock of the Bank in connection with the conversion of Riverview M.H.C. ("MHC"), the former parent mutual holding company of the Bank, to stock form, and the reorganization of the Bank as a wholly-owned subsidiary of the Company, which was completed on September 30, 1997 (the "Conversion and Reorganization"). In the offering, 3,570,750 shares of common stock were sold at a subscription price of $10.00 per share resulting in net proceeds of approximately $31.8 million after taking into consideration the $2.9 million for the establishment of an ESOP and the $1.1 million in expenses. In addition to the shares sold in the offering, 2,562,576 shares of the 5
Company's stock were issued in exchange for shares of the Bank's stock previously held by public shareholders at an exchange ratio of 2.5359 shares for each share of the Bank's common stock, resulting in 6,133,326 total shares of the Company's stock issued as of December 31, 1997. The Company accounts for the unallocated Employee Stock Ownership Plan (ESOP) shares in accordance with the American Institute of Certified Public Accountants Statement of Position 93-6, Employer's Accounting for Employee Stock Ownership Plan. Accordingly, ESOP shares are not considered outstanding for earnings per share purposes until they are allocated. Unallocated ESOP shares at December 31, 1997 were 344,870 shares. (4) Recently Issued Accounting Pronouncements ----------------------------------------- In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 requires all companies whose capital structures include convertible securities and options to make a dual presentation of basic and diluted earnings per share. The new standard was adopted effective for the Company with the quarter ended December 31, 1997. The impact of its adoption was to increase the weighted average number of shares outstanding by 170,256 for both the quarter and the nine months ended December 31, 1997. The 170,256 increase for both periods reflects increased shares outstanding resulting from exercise of stock options outstanding. The impact on earnings per share was a decrease of $.01 per share for the 1997 quarter and a $.02 decrease for the nine months ended December 31, 1997. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes requirements for disclosure of comprehensive income and becomes effective for the Company's fiscal year ending March 31, 1999. Reclassification of earlier financial statements for comparative purposes is required. The impact of its adoption is not expected to be material to the Company. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." The new standard becomes effective for the Company's fiscal year ending March 31, 6
1999, and requires that comparative information from earlier years be restated to conform to the requirements of this standard. The adoption of provisions of SFAS No. 131 is not expected to have a material impact on the Company. 7
(5) Investment Securities - --------------------------- The amortized cost and approximate fair value of investment securities held to maturity consisted of the following: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- ---------- December 31, 1997 - ----------------- Agency securities $8,395,000 $79,000 ($9,000) $8,465,000 U.S. Treasury securities 1,000,000 0 (2,000) 998,000 ---------- ------- -------- ---------- Total $9,395,000 $79,000 ($11,000) $9,463,000 ========== ======= ======== ========== March 31, 1997 - -------------- Agency securities $12,467,000 $60,000 ($79,000) $12,448,000 U.S. Treasury securities 7,989,000 12,000 (11,000) 7,990,000 ---------- ------- -------- ---------- Total $20,456,000 $72,000 ($90,000) $20,438,000 =========== ======= ======== =========== The contractual maturities of investment securities held to maturity at December 31, 1997 were as follows: Estimated Amortized Fair December 31, 1997 Cost Value - ----------------- ---------- --------- Due in one year or less $3,012,000 $3,023,000 Due after one year through five years 5,383,000 5,440,000 Due after five years through ten years 1,000,000 1,000,000 ---------- ---------- Total $9,395,000 $9,463,000 ========== ========== The amortized cost and approximate fair value of investment securities available for sale consisted of the following: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- ---------- December 31, 1997 - ----------------- Agency securities $10,000,000 $20,000 ($14,000) $10,006,000 U.S. Treasury securities 997,000 1,000 0.00 998,000 ----------- ------- -------- ----------- Total $10,997,000 $21,000 ($14,000) $11,004,000 =========== ======= ======== =========== March 31, 1997 - -------------- Agency securities $1,000,000 $0 ($25,000) $975,000 U.S. Treasury securities 2,993,000 0.00 (69,000) 2,924,000 ----------- ------- -------- ----------- Total $3,993,000 $0 ($94,000) $3,899,000 ========== ======= ======== ========== The contractual maturities of investment securities available for sale at December 31, 1997 were as follows: Estimated Amortized Fair December 31, 1997 Cost Value - ----------------- ---------- --------- Due in one year or less $997,000 $998,000 Due after one year through five years 10,000,000 10,006,000 ----------- ----------- Total $10,997,000 $11,004,000 =========== =========== 8
(6) Mortgage-Backed Securities -------------------------- Mortgage-backed securities held to maturity consisted of the following: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- ---------- December 31, 1997 - ----------------- REMIC $6,012,000 $208,000 $0 6,220,000 FHLMC mortgage-backed securities 5,552,000 113,000 (13,000) 5,652,000 FNMA mortgage-backed securities 10,588,000 179,000 (15,000) 10,752,000 ----------- -------- -------- ----------- Total $22,152,000 $500,000 ($28,000) $22,624,000 =========== ======== ======== =========== March 31, 1997 - -------------- REMIC $6,641,000 $139,000 ($4,000) 6,776,000 FHLMC mortgage-backed securities 6,800,000 89,000 (94,000) 6,795,000 FNMA mortgage-backed securities 12,961,000 125,000 (169,000) 12,917,000 ----------- -------- -------- ----------- Total $26,402,000 $353,000 ($267,000) $26,488,000 =========== ======== ======== =========== The contractual maturities of mortgage-backed securities held to maturity at December 31, 1997 were as follows: Estimated Amortized Fair December 31, 1997 Cost Value - ----------------- ---------- --------- Due in one year or less $0.00 $0.00 Due after one year through five years 468,000 468,000 Due after five years through ten years 8,925,000 9,006,000 Due after ten years 12,759,000 13,150,000 ----------- ----------- $22,152,000 $22,624,000 =========== =========== Mortgage-backed securities available for sale at December 31, 1997 and March 31, 1997 consisted of the following: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- ---------- December 31, 1997 - ----------------- REMIC $21,937,000 25,000 ($40,000) 21,922,000 FHLMC mortgage-backed securities 1,041,000 14,000 0 1,055,000 FNMA mortgage-backed securities 10,890,000 10,000 (10,000) 10,890,000 ----------- ------- -------- ----------- Total $33,868,000 $49,000 ($50,000) $33,867,000 =========== ======= ======== =========== March 31, 1997 - -------------- REMIC $1,922,000 0 ($19,000) 1,903,000 FHLMC mortgage-backed securities 1,100,000 0 (13,000) 1,087,000 ----------- ------- -------- ----------- Total $3,022,000 $0 ($32,000) $2,990,000 =========== ======= ======== =========== The contractual maturities of mortgage-backed securities available for sale at December 31, 1997 were as follows: Estimated Amortized Fair December 31, 1997 Cost Value - ----------------- ---------- --------- Due after five years through ten years $6,865,000 $6,887,000 Due after ten years $27,003,000 $26,980,000 ----------- ----------- $33,868,000 $33,867,000 =========== =========== Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. 9
(7) Loans Receivable - ---------------------- Loans receivable consisted of the following: December 31, March 31, 1997 1997 ------------ ---------- Residential: One to four family $91,992,000 $94,456,000 Multi-family 4,827,000 5,439,000 Construction: One to four family 43,246,000 32,529,000 Multi-family 0 547,000 Commercial real estate 0 634,000 Commercial 1,806,000 794,000 Consumer: Secured 13,795,000 12,797,000 Unsecured 2,202,000 1,496,000 Land 13,744,000 7,900,000 Non-residential 8,735,000 8,997,000 ------------ ------------ 180,347,000 165,589,000 Less: Undisbursed portion of loans 14,281,000 11,087,000 Deferred loan fees, net 2,307,000 1,967,000 Allowance for possible loan losses 957,000 831,000 Unearned discounts 10,000 10,000 ------------ ------------ Loans receivable, net $162,792,000 $151,694,000 ============ ============ (8) Loans Held for Sale - ------------------------- The Bank sells substantially all long-term fixed rate mortgage loans in the secondary market. All such loans held for sale are identified as held for sale at the time of origination and are carried at the lower of cost or estimated market value on an aggregate portfolio basis. Market values are derived from available market quotations for comparable pools of mortgage loans. Adjustments for unrealized losses, if any, are charged to income. (9) Borrowings - ---------------- Borrowings are summarized as follows: December 31, March 31, 1997 1997 -------------------------- (Unaudited) Other borrowed funds at Prime Rate $ - $ 237,000 =========== =========== Federal Home Loan Bank Advances $29,550,000 $27,180,000 =========== =========== Weighted average interest rate: 6.06% 6.49% =========== =========== Borrowings have the following maturities at December 31, 1997: 1998 $17,000,000 1999 7,000,000 2000 5,550,000 ----------- $29,550,000 =========== 10
RIVERVIEW BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General At December 31, 1997, the Company had total assets of $263.0 million compared with $224.4 million at March 31, 1997. The $38.6 million or 17.2% increase in assets was primarily a result of the September 1997 stock offering which resulted in $31.8 million of net proceeds. Federal Home Loan Bank (FHLB) advances increased $2.4 million at December 31, 1997 compared to March 31, 1997. Deposits increased $2.0 million at December 31, 1997 compared to March 31, 1997. Net earnings were $2.6 million for the nine months ended December 31, 1997. Cash, including interest-earning accounts, totaled $11.5 million at December 31, 1997 compared to $7.0 million at March 31, 1997. At December 31, 1997, the Company had $180.3 million in gross loans an increase of $14.8 million compared to $165.6 million at March 31, 1997. Note 7 Loans Receivable provides a detailed break down of the $14.8 million increase in gross loans. Consumer, commercial, and land loans carry higher interest rates and a higher degree of risk compared to one-to-four family mortgage loans. Deposits totaled $171.4 million at December 31, 1997, compared to $169.4 million at March 31, 1997. FHLB advances totaled $29.6 million at December 31, 1997 compared to $27.2 million at March 31, 1997. Capital Resources Total stockholders' equity increased $34.8 million for the nine months to $59.8 million primarily as a result of the stock offering which was completed September 30, 1997, and resulted in net proceeds of $31.8 million. The 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 Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's 11
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the 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, 1997, the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification from the OTS categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain minimum tangible, core and total risk-based capital ratios of 5.0%, 6.0%, and 10.0%, respectively. At December 31, 1997, the Bank's tangible, core and risk-based capital ratios amounted to 17.2%, 17.2%, and 33.9%, respectively. There are no conditions or events since that notification that management believes have changed the Bank's category. Percent of Adjusted Amount Total Assets(1) ------ --------------- (Dollars in thousands) Tangible capital $42,860 17.2% Tangible capital requirement 3,743 1.5 ------- ---- Excess $39,117 15.7% ------- ---- Core capital $42,860 17.2% Core capital requirement(2) 7,486 3.0 ------- ---- Excess $35,374 14.2% ------- ---- Risk-based capital(3) $43,346 33.9% Risk-based capital requirement 10,245 8.0% ------- ---- Excess $33,101 25.9% ------- ---- (1) Based on tangible assets of $249.5 million for purposes of the tangible capital requirement, total adjusted assets of $249.5 million for purposes of the core capital requirements, and risk-weighted assets of $128.0 million for purposes of risk-based capital requirement. (2) The current OTS core capital requirement for savings associations is 3% of total adjusted assets. The OTS has proposed core capital requirements that would require a core capital ratio of 3% of total adjusted assets for thrifts that receive the 12
highest supervisory rating for safety and soundness and a capital ratio of 4% to 5% for all other thrifts. (3) Percentage represents total core and supplementary capital divided by total risk-weighted assets. Bank Liquidity OTS regulations require the 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 Bank's regulatory liquidity ratio was 11.5% at December 31, 1997 compared to 18.0% at March 31, 1997. The Bank anticipates that it will have sufficient funds available to meet current loan commitments and other cash needs. At December 31, 1997, the Bank had outstanding commitments to originate $4.7 million mortgage loans, none of which were committed to be sold in the secondary market. Cash, including interest-earning overnight investments, was $11.5 million at December 31, 1997 compared to $7.0 million at March 31, 1997. Investment securities and mortgage-backed securities available for sale at December 31, 1997 were $11.0 million and $33.9 million respectively, compared to $3.9 million and $3.0 million respectively at March 31, 1997. Asset Quality Real estate owned was zero at December 31, 1997, compared to $135,000 at March 31, 1997. Allowance for loan losses was $957,000 at December 31, 1997, compared to $831,000 at March 31, 1997. Management deemed the allowance for loan losses at December 31, 1997 to be adequate at that date. No assurances, however, can be given that future additions to the allowance for loan losses will not be necessary. The allowance for loan losses is maintained at a level sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. Pertinent factors considered include size and composition of the portfolio, actual loss experience, 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. Loans 30-89 days past due increased $231,000 to $821,000 at December 31, 1997. Non-accrual loans increased $353,000 to 13
seven loans that totaled $439,000. In January 1998 three of the seven non-accrual loans moved out of the non-accrual classification; one loan paid off, one loan was cured and was reinstated to accrual, and one loan is now under 90 days delinquent. Non-accrual loans and loans past due were as follows: ---------At December 31, 1997------ (Dollars in thousands) 30-89 days Non-accrual Total ---------- ----------- ----- One to four Family $552 $255 $ 807 Construction - 174 174 Non-residential - - - Land - - - Commercial 106 - 106 Consumer 163 10 173 ---- ---- ------ Total $821 $439 $1,260 ---- ---- ------ ---------At March 31, 1997--------- (Dollars in thousands) 30-89 days Non-accrual Total ---------- ----------- ----- One to four Family $212 $ 77 $ 289 Non-residential - - - Land - - - Commercial 109 - 109 Consumer 269 10 279 ---- ---- ------ Total $590 $ 87 $ 677 ---- ---- ------ Recapture of Bad Debt Reserves Recently enacted federal legislation repeals the reserve method of accounting for bad debt reserves for tax years beginning after December 31, 1996. As a result, savings associations are no longer able to calculate their deduction for bad debts using the percentage-of-taxable-income method, but instead are required to compute their deduction based on specific charge-offs during the taxable year or, if the savings association or its controlled group had assets of less than $500 million, based on actual loss experience over a period of years. This legislation also requires savings associations to recapture into income over a six-year period their post-1987 additions to their bad debt tax reserves, thereby generating additional tax liability. At December 31, 1997, the Company's post-1987 reserves were approximately $873,000. The recapture may be suspended for up to two years 14
if, during those years, the institution satisfies a residential loan requirement. The Company met the requirement to delay recapture for the tax year ended March 31, 1997, and expects to meet the requirement for the tax year ending March 31, 1998. Comparison of Operating Results for the Three Months Ended December 31, 1997 and 1996 Net interest income is the principle source of operating earnings of the Company, and results from the amount of income generated by interest-earning assets (primarily loans, mortgage-backed and other securities) less the interest cost incurred on interest-bearing liabilities (primarily customer deposits, and advances from the FHLB). Net income for the three months ended December 31, 1997 was $1,073,000, or $0.19 per share, compared to $610,000, for the three months ended December 31, 1996. Per share information for the prior periods is not comparable as the Company did not complete its stock offering until September 30, 1997. Interest income for the three months ended December 31, 1997 was $5.3 million, an increase of $927,000 or 21% over $4.4 million for the same period in 1996. Yield on interest-earning assets, excluding loan fees, for the three month 1997 period was 7.90% compared to 7.94% for the three month 1996 period. The lower 1997 yield on interest earning assets resulted primarily from the overnight investment of the stock offering net proceeds of approximately $31.8 million. The higher interest income resulted from growth in loans and overnight investments. Interest expense for the three months ended December 31, 1997 was $2.4 million, an increase of $94,000 or 4.1% over $2.3 million for the same period in 1996. The cost of interest-bearing liabilities for the three month 1997 period was 4.59% compared to 4.67% for the three month 1996 period. The higher interest expense resulted from the increase in deposits and borrowings over the previous year. Net interest income increased $833,000, or 40.2%, to $2.9 million for the three months ended December 31, 1997, compared to $2.1 million for the three months ended December 31, 1996. The Company's interest rate spread, or difference between yield on interest-earning assets (excluding loan fees) and cost of interest-bearing liabilities, for the three 15
months ended December 31, 1997 averaged 3.31% compared to 3.27% for the three months ended December 31, 1996. Net interest income increased as a result of the increase in average balance of securities and interest earning deposits and the decrease in the rates paid for interest-bearing liabilities. The provision for loan losses was $45,000 for both the current quarter and last year, same quarter. The loan loss provision was deemed necessary based upon management's analysis of historical loss rates, current loan growth, and other factors considered. Non-interest income for the three months ended December 31, 1997 was $579,000, compared to $419,000 for the same period a year ago. The $160,000 increase for the current quarter is primarily due to an $32,000 increase in deposit service charges resulting from an increased number of deposit accounts, and a $99,000 increase in loan origination fees on loans brokered through Riverview Mortgage Brokerage. Non-interest expense was $1.8 million for the three months ended December 31, 1997, in comparison to $1.5 million for the three months ended December 31, 1996. The 1997 quarter reflects the addition of eleven full-time equivalent employees over the 1996 quarter. This resulted from adding two additional branch staff, five loan staff, and four administrative staff. Salaries and employee benefits increased $325,000 to $1.1 million for the quarter ended December 31, 1997, reflecting increased staff, increased mortgage broker compensation, and increased ESOP compensation expenses of $158,000 for the 1997 quarter compared to $75,000 for the 1996 quarter. Provision for federal income taxes were $559,000 and $312,000, for the 1997 and 1996 periods, respectively. Comparison of Operating Results for the Nine Months Ended December 30, 1997 and 1996 Net income for the nine months ended December 31, 1997 was $2.6 million, compared to $1.3 million for the nine months ended December 31, 1996. The increased earnings for the 1997 period resulted from increased average balances of loans outstanding, securities and interest earning deposits. The FDIC Savings Association Insurance Fund one time special assessment of $947,000 is included in the 1996 period. Interest income for the nine months ended December 31, 1997 was $14.8 million, an increase of $1.8 million or 14.1% over 16
$13.0 million for the same period in 1996. Yield on interest-earning assets (excluding loan fees) for the nine month 1997 period was 8.02% compared to 7.88% for the nine month 1996 period. The higher interest income resulted primarily from growth in loans, mortgage backed securities and overnight investments. Interest expense for the nine months ended December 31, 1997 was $7.1 million, an increase of $375,000 or 5.6% over $6.7 million for the same period in 1996. The cost of interest-bearing liabilities for the nine month 1997 period was 4.63% compared to 4.70% for the nine month 1996 period. The higher interest expense resulted from the increase in deposits and borrowings over the previous year. Net interest income increased $1.5 million, or 23.2%, to $7.7 million for the nine months ended December 31, 1997, compared to $6.3 million for the nine months ended December 31, 1996. The Bank's interest rate spread, or difference between yield on interest-earning assets (excluding loan fees) and cost of interest-bearing liabilities, for the nine months ended December 31, 1997 averaged 3.39% compared to 3.18% for the nine months ended December 31, 1996. Net interest income increased as a result of the increase in average loans outstanding, securities, and the decrease in the rates paid for interest-bearing liabilities. The provision for loan losses was $135,000 for both of the nine month periods ended December 31, 1997 and 1996. The loan loss provision was deemed necessary based upon management's analysis of historical loss rates, current loan growth, and other factors considered. Non-interest income for the nine months ended December 31, 1997 was $1.6 million compared to $1.3 for the same period a year ago. The $297,000 increase is primarily due to a $175,000 increase in loan fees on loans brokered through Riverview Mortgage Brokerage, and an $86,000 increase in service charges on deposit accounts as a result of increased deposit accounts. Non-interest expense was $5.3 million for the nine months ended December 31, 1997, in comparison to $5.5 million for the nine months ended December 31, 1996. The FDIC Savings Association Insurance Fund one-time special assessment of $947,000 is included in the 1996 period. The 1997 period also reflects the addition of eleven full-time equivalent employees over the 1996 period. Salaries and employee benefits increased $703,000 to $3.2 million for the nine months ended December 31, 1997. The salaries and employee benefits increase reflects increased staff, mortgage broker 17
commissions and increased ESOP compensation expense. ESOP compensation expense was $437,000 year to date 1997 compared to $172,000 year to date 1996. Provision for federal income taxes was $1.4 million and $666,000, for the 1997 and 1996 periods, respectively. The SAIF special assessment produced a tax-deductible expense of $947,000 and reduced net income before tax to $1.9 million for the nine months ended December 31, 1996, compared to $3.9 million for the period ended December 31, 1997. YEAR 2000 Compliance Data processing for the Company is provided by a third party service bureau. Software purchased from the service bureau's strategic alliances is used for such applications as general ledger, teller platform, mortgage banking, fixed assets and accounts payable. As with other organizations, the data processing programs were originally designed to recognize calendar years by their last two digits. Calculations performed using these truncated fields will not work properly with dates beyond 1999. The service bureau has stated that all their processing will be Year 2000 compliant by September 1998. During the October 1998 to March 1999 time period the service bureau will coordinate an end to end test. At a minimum, testing will involve bank/branch input to service bureau, production cycles and feedback to general ledger, and other key interfaces to facilitate completion of the end to end test. The Company has established a committee to address Year 2000 issues related to data processing. All personal computers and related software throughout the Company have been inventoried and non-compliant hardware and software have been identified. A schedule of replacement has been implemented for non-compliant hardware and software. The Company believes that the Year 2000 problem will not pose significant operational problems and is not anticipated to be material to its financial position or results of operations in any given year. 18
RIVERVIEW BANCORP, INC. AND SUBSIDIARY PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- Use of Proceeds - As discussed in Note 3 to Notes to Consolidated Financial Statements under Item 1 of this Quarterly Report, the Conversion and Reorganization was completed on September 30, 1997. In connection therewith: 1. The effective date of the Registration Statement on Form S-1 , as amended (File No. 333-30203) ("Registration Statement"), was August 12, 1997. 2. The offering terminated on September 30, 1997 with the sale of all securities registered pursuant to the Registration Statement. 3. Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc. acted as marketing agent for the Company. 4. The class of securities registered pursuant to the Registration Statement was common stock, par value $0.01 per share. The aggregate amount of such securities registered and sold was 6,133,326 shares (3,570,750 shares related to the conversion offering and 2,562,576 shares related to the exchange offering) for an aggregate dollar amount of $61,333,260 ($35,707,500 related to the offering and $25,625,760 related to the exchange offering). 5. The total conversion offering expense incurred by the Company were $1,071,173.29, none of which were paid directly or indirectly to directors or officers of the Company or their associates. 6. The net proceeds of the conversion offering were $34,636,326.71, which were used as follows: $3,107,961.40 to fund a loan to the Bank's employee stock 19
ownership plan ("ESOP") to purchase 285,660 shares in the conversion offering and to repay the $251,361.40 existing third-party loan to the ESOP; $17,357,750 to acquire all of the issued and outstanding common stock of the Bank; and the remaining $14,170,615.31 to invest primarily in U.S. Government and agency obligations. Item 3. Defaults Upon Senior Securities ------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- Not applicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 3(a) Articles of incorporation of the Company (incorporated by reference to the Company's Registration Statement on Form S-1, as amended (333-30203)) 3(b) Bylaws of the Company (incorporated by reference to the Company's Registration Statement on Form S-1, as amended (333- 30203)) 10(a) Employment Agreement with Patrick Sheaffer (incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1997) 10(b) Employment Agreement with Ron Wysaske (incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1997) 10(c) Severance Agreement with Michael C. Yount (incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1997) 20
10(d) Severance Agreement with Karen Nelson (incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1997) 10(e) Riverview Savings Bank, FSB Employee Severance Compensation Plan (incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1997) 27 Financial Data Schedule (b) Reports on Form 8-K: none 21
SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIVERVIEW BANCORP, INC. DATE: February 10, 1998 BY: /s/ Patrick Sheaffer ------------------- ----------------------------------- Patrick Sheaffer President DATE: February 10, 1998 BY: /s/ Rob Wysaske ------------------- ----------------------------------- Ron Wysaske Executive Vice President/Treasurer 22