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.
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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
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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
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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
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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
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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
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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
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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
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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
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(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
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(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
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(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
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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
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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
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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
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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
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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
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<PAGE>
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
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<PAGE>
$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
<PAGE>
<PAGE>
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
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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
<PAGE>
<PAGE>
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
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<PAGE>
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
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<PAGE>
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
<PAGE>
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 11480
<INT-BEARING-DEPOSITS> 5843
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44871
<INVESTMENTS-CARRYING> 31547
<INVESTMENTS-MARKET> 32087
<LOANS> 162792
<ALLOWANCE> 957
<TOTAL-ASSETS> 263045
<DEPOSITS> 171379
<SHORT-TERM> 17000
<LIABILITIES-OTHER> 2343
<LONG-TERM> 12550
0
0
<COMMON> 61
<OTHER-SE> 59712
<TOTAL-LIABILITIES-AND-EQUITY> 263045
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<INTEREST-OTHER> 609
<INTEREST-TOTAL> 14780
<INTEREST-DEPOSIT> 5543
<INTEREST-EXPENSE> 7057
<INTEREST-INCOME-NET> 7723
<LOAN-LOSSES> 1353
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<EXPENSE-OTHER> 5296
<INCOME-PRETAX> 3931
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2574
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.43
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</TABLE>
