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 September 30, 1998
------------------
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---5,803,909 shares as of
September 30, 1998.
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Form 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
--------------------- ----
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 1998 and March 31, 1998 1
Consolidated Statements of Income: Six and
Three Months Ended September 30, 1998 and 1997 2
Consolidated Statements of Shareholders' Equity
for the Year ended March 31, 1998 and for the
Six Months Ended September 30, 1998 3
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-12
(unaudited)
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-26
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 26
Part II. Other Information 27-28
SIGNATURES 29
EXHIBITS 30-31
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RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
As of September 30, 1998 and March 31, 1998
September 30, March 31,
(In thousands, except share data) (Unaudited) 1998 1998
- ------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$13,266 and $20,504) $ 18,540 $ 27,482
Loans held for sale 1,445 1,430
Investment securities held to maturity, at
amortized cost (fair value of $5,237 and $8,394) 5,191 8,336
Investment securities available for sale, at
fair value (amortized cost of $15,955 and $9,961) 15,752 9,977
Mortgage-backed securities held to maturity,
at amortized cost, (fair value of $16,434 and
$20,758) 16,064 20,341
Mortgage-backed securities available for sale,
at fair value (amortized cost of $61,248 and
$32,526) 61,217 32,690
Loans receivable (net of allowance of $1,075
and $984 for loan losses) 173,712 161,198
Prepaid expenses and other assets 868 882
Accrued interest receivable 1,886 1,597
Federal Home Loan Bank stock 2,516 1,966
Premises and equipment 5,307 4,802
Land held for development 471 471
Core deposit intangible 1,839 2,002
-------- --------
TOTAL ASSETS $304,808 $273,174
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit accounts $190,647 $179,825
Accrued expenses and other liabilities 2,376 2,490
Advance payment by borrowers for taxes and
insurance 29 84
Deferred income taxes, net 143 143
Federal Home Loan Bank advances 49,550 29,550
-------- --------
Total Liabilities 242,745 212,092
SHAREHOLDERS' EQUITY
Serial preferred stock, $.01 par value;
250,000 authorized, issued and outstanding,
none
Common stock, September 30, 1998 - $.01 par
value; 50,000,000 authorized; 6,188,779 issued,
5,803,909 outstanding; March 31, 1998
6,154,326, issued, 5,809,456 outstanding 62 62
Additional paid-in capital 53,506 53,399
Unearned shares issued to employee stock
ownership trust (2,993) (2,993)
Retained earnings 12,176 10,495
Treasury shares at cost - 40,000 shares and
no shares at September 30, 1998 and March 31,
1998, respectively (540) -
Net unrealized (loss) gain on securities
available for sale, net of tax (148) 119
-------- --------
Total shareholders' equity 62,063 61,082
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $304,808 $273,174
======== ========
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
Three Months Ended Six Months Ended
(In thousands, except September 30, September 30,
share data) (Unaudited) 1998 1997 1998 1997
- ----------------------------------------------------- ---------------------
INTEREST INCOME
Interest on loans receivable $ 4,205 $ 3,716 $ 8,403 $ 7,352
Interest on investment
securities 331 289 656 642
Interest on mortgage-backed
securities 739 665 1,575 1,257
Other interest and dividends 321 199 584 241
---------- ---------- ---------- ---------
Total interest income 5,596 4,869 11,218 9,492
---------- ---------- ---------- ---------
INTEREST EXPENSE
Interest on deposits 2,027 1,865 3,988 3,673
Interest on borrowings 321 558 692 1,000
---------- ---------- ---------- ---------
Total interest expense 2,348 2,423 4,680 4,673
---------- ---------- ---------- ---------
Net interest income 3,248 2,446 6,538 4,819
Less provision for loan losses 60 45 120 90
Net interest income after ---------- ---------- ---------- ---------
provision for loan losses 3,188 2,401 6,418 4,729
---------- ---------- ---------- ---------
NON-INTEREST INCOME
Fees and service charges 581 446 1,118 786
Gain on sale of loans held
for sale 48 25 109 39
Gain on sale of securities 10 24 37 33
Loan servicing income 29 66 67 132
Other 31 30 50 70
---------- ---------- ---------- ---------
Total non-interest income 699 591 1,381 1,060
---------- ---------- ---------- ---------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,171 1,064 2,347 2,035
Occupancy and depreciation 416 336 776 635
FDIC insurance premium 27 26 53 53
Amortization of excess of cost
over fair value of deposits
acquired 81 81 163 163
Marketing 84 85 154 169
Other 287 236 490 435
---------- ---------- ---------- ---------
Total non-interest expense 2,066 1,828 3,983 3,490
---------- ---------- ---------- ---------
INCOME BEFORE FEDERAL INCOME
TAXES 1,821 1,164 3,816 2,299
FEDERAL INCOME TAX EXPENSE 655 408 1,393 798
---------- ---------- ---------- ---------
NET INCOME $ 1,166 $ 756 $ 2,423 $ 1,501
========== ========== ========== =========
Earnings per common share:
Basic $ 0.20 $ 0.13 $ 0.42 $ 0.25
Diluted 0.20 0.12 0.41 0.24
Weighted average number of
shares outstanding:
Basic 5,839,633 6,046,134 5,826,984 6,045,481
Diluted 5,964,377 6,191,259 5,954,339 6,182,498
The accompanying notes are an integral part of these unaudited consolidated
statements.
2
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<TABLE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1998
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except share data) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Unearned Net
Shares Unrealized
Issued to Gain
Addi- Employee (Loss) on
Common Stock tional Stock Securities
----------------- Paid-In Ownership Retained Treasury Available
Shares Amount Capital Trust Earnings Stock for Sale Total
--------- ------ ------- -------- -------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997 6,043,656 $ 2,416 $16,043 $ (386) $ 7,033 $ - $ (84) $25,022
Net Income - - - - 3,924 - - 3,924
Retirement of Mutual
Holding Company stock (3,570,270) (1,408) 1,494 - - - - 86
Issuance and exchange of
common stock as a result
of conversion/reorgani-
zation 3,570,750 (948) 35,586 - - - - 34,638
Retirement of fractional
shares (230) - - - - - - -
Cash dividends - - - - (462) - - (462)
Exercise of stock options 26,578 2 88 - - - - 90
Shares acquired by ESOP (285,660) - - (2,856) - - - (2,856)
Earned ESOP shares 24,632 - 188 249 - - - 437
Change in unrealized gain
on securities available
for sale, net of tax - - - - - - 203 203
---------- ------- ------- ------- ------- ------ ------ -------
Balance, March 31, 1998 5,809,456 $ 62 $53,399 $(2,993) $10,495 $ - $ 119 $61,082
---------- ------- ------- ------- ------- ------ ------ -------
Net Income - - - - 2,423 - - 2,423
Cash dividends - - - - (742) - - (742)
Exercise of stock options 34,453 - 107 - - - - 107
Repurchase 40,000 treasury
shares (40,000) - - - - (540) - (540)
Change in net unrealized
loss on securities avail-
able for sale, net of tax - - - - - - (267) (267)
---------- ------- ------- ------- ------- ------ ------ -------
Balance, September 30,
1998 5,803,909 $ 62 $53,506 $(2,993) $12,176 $(540) $(148) $62,063
========== ======= ======= ======= ======= ===== ===== =======
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
Six Months Ended September 30,
(In thousands) (Unaudited) 1998 1997
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,423 $ 1,501
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 576 407
Provision for losses on loans 120 90
Increase in deferred loan origination fees,
net of amortization 226 197
Federal Home Loan Bank stock dividend (75) (71)
Net gain on sale of real estate owned, mortgage-
backed and investment securities and premises
and equipment (31) (72)
Changes in assets and liabilities:
Increase in loans held for sale (15) (372)
Decrease in prepaid expenses and other assets 14 265
Increase in accrued interest receivable (289) (12)
Increase in accrued expenses and other
liabilities 153 116
------- -------
Net cash provided by operating activities 3,102 2,049
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (77,728) (43,953)
Principal repayments on loans 64,530 38,390
Proceeds from call, maturity, or sale of
securities available for sale 10,949 2,003
Purchase of investment securities available for
sale (16,919) (3,000)
Purchase of mortgage-backed securities available
for sale (33,377) (13,214)
Proceeds from sale of mortgage-backed securities
available for sale - 2,280
Principal repayments on mortgage-backed securities
held to maturity 4,328 2,935
Principal repayments on mortgage-backed securities
available for sale 4,547 94
Purchase of investment securities held to maturity (982) -
Proceeds from call or maturity of investment
securities held to maturity 4,096 10,916
Purchase of premises and equipment (836) (458)
Purchase of Federal Home Loan Bank stock (475) (64)
Proceeds from sale of real estate 77 135
------- -------
Net cash used in investing activities (41,790) (3,936)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 10,822 19,086
Dividends paid (588) (118)
Stock acquired for ESOP - (2,856)
Treasury stock purchased (540) -
Proceeds from Federal Home Loan Bank advances 30,000 30,800
Repayment of Federal Home Loan Bank advances (10,000) (25,430)
Net decrease in advance payments by borrowers (55) (7)
Proceeds from exercise of stock options 107 34,940
------- -------
Net cash provided by financing activities 29,746 56,415
------- -------
NET (DECREASE) INCREASE IN CASH (8,942) 54,528
CASH, BEGINNING OF PERIOD 27,482 6,951
------- -------
CASH, END OF PERIOD $18,540 $61,479
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 4,801 $ 4,684
Income taxes 1,560 618
NONCASH INVESTING ACTIVITIES:
Transfer of loans to real estate owned 275 -
Dividends declared and accrued in other
liabilities 371 -
Fair value adjustment to securities available
for sale 416 15
Income tax effect related to fair value adjustment (149) (5)
The accompanying notes are an integral part of these unaudited consolidated
statements.
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 unaudited
financial statements have been included. All such adjustments are of a normal
recurring nature.
The unaudited consolidated financial statements should be read in conjunction
with the audited financial statements included in the Riverview Bancorp, Inc.
1998 Annual Report on Form 10-K. The results of operations for the three
months and six months ended September 30, 1998 are not necessarily indicative
of the results which may be expected for the entire fiscal year.
(2) Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements of Riverview
Bancorp, Inc. and Subsidiary (the "Company") include all the accounts of
Riverview Bancorp, Inc. and the consolidated accounts of its wholly-owned
subsidiary, Riverview Community Bank (the "Community Bank"), and the Community
Bank's wholly-owned subsidiary, Riverview Services, Inc. Significant
inter-company balances and transactions have been eliminated in the
consolidation.
(3) Comprehensive Income
--------------------
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income to be reported in a financial
statement that is displayed in equal prominence with the other financial
statements and to disclose as a part of shareholders' equity accumulated
comprehensive income. Comprehensive income is defined as the change in equity
during a period from transactions and other events from nonowner sources. The
Company has chosen, for purposes of its interim financial reporting, to
present comprehensive income in the notes to financial statements.
5
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Comprehensive income is the total of net income and other comprehensive
income, which for the Company is comprised entirely of unrealized gains and
losses on securities available for sale and gains and losses on sale of
securities available for sale.
For the three and six months ended September 30, 1998, the Company's total
comprehensive income was $990,000 and $2.3 million, respectively, compared to
$678,000 and $1.4 million for the three and six months ended September 30,
1997, respectively.
Total comprehensive income for the three and six months ended September 30,
1998 is comprised of net income of $1.2 million and $2.4 million and other
comprehensive income (loss) of $(176,000) and $(171,000), net of tax,
respectively. Other comprehensive income for the three and six months ended
September 30, 1998, consists of unrealized securities losses of $(170,000) and
$(148,000), net of tax benefits less gains on securities available for sale
included in non-interest income of $6,000 and $23,000, net of tax,
respectively.
Total comprehensive income for the three and six months ended September 30,
1997 is comprised of net income of $756,000 and $1.5 million and other
comprehensive income (loss) of $(78,000) and $(96,000), net of tax,
respectively. Other comprehensive income for the three and six months ended
September 30, 1997, consists of unrealized securities losses of $(62,000) and
$(74,000), net of tax benefits less gains on securities available for sale
included in non-interest income of $16,000 and $22,000, net of tax,
respectively.
(4) Earnings Per Share
------------------
Basic EPS is computed by dividing net income applicable to common stock by the
weighted average number of common shares outstanding during the period,
without considering any dilutive items. Diluted EPS is computed by dividing
net income applicable to common stock by the weighted average number of common
shares and common stock equivalents for items that are dilutive, net of shares
assumed to be repurchased using the treasury stock method at the average share
price for the Company's common stock during the period. Common stock
equivalents arise from assumed conversion of outstanding stock options.
Employee Stock Ownership Plan shares are not considered outstanding for
earnings per share purposes until they are allocated.
6
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Three Months Ended
September 30,
---------------------------
1998 1997
---- ----
Basic EPS computation:
Numerator-Net Income $1,166,000 $ 756,000
Denominator-Weighted average
common shares outstanding 5,839,633 6,046,134
Basic EPS $ 0.20 $ 0.13
========== ==========
Diluted EPS computation:
Numerator-Net Income $1,166,000 $ 756,000
Denominator-Weighted average
common shares outstanding 5,839,633 6,046,134
Effect of dilutive stock options 124,744 145,125
---------- ----------
Weighted average common shares
and common stock equivalents 5,964,377 6,191,259
Diluted EPS $ 0.20 $ 0.12
========== ==========
Six Months Ended
September 30,
---------------------------
1998 1997
---- ----
Basic EPS computation:
Numerator-Net Income $2,423,000 $ 1,501,000
Denominator-Weighted average
common shares outstanding 5,826,984 6,045,481
Basic EPS $ 0.42 $ 0.25
========== ===========
Diluted EPS computation:
Numerator-Net Income $2,423,000 $ 1,501,000
Denominator-Weighted average
common shares outstanding 5,826,984 6,045,481
Effect of dilutive stock options 127,355 137,017
---------- -----------
Weighted average common shares
and common stock equivalents 5,954,339 6,182,498
Diluted EPS $ 0.41 $ 0.24
========== ===========
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 (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 1998
- ------------------
Agency securities $ 4,229 $ 47 $ (1) $ 4,275
Municipal securities 962 - - 962
------- ---- ---- -------
Total $ 5,191 $ 47 $ (1) $ 5,237
======= ==== ==== =======
March 31, 1998
- --------------
Agency securities $ 7,336 $ 64 $ (6) $ 7,394
U.S. Treasury securities 1,000 - - 1,000
------- ---- ---- -------
Total $ 8,336 $ 64 $ (6) $ 8,394
======= ==== ==== =======
The contractual maturities of investment securities held to maturity were as
follows (in thousands):
Estimated
Amortized Fair
September 30, 1998 Cost Value
- ------------------ --------- ---------
Due in one year or less $ 4,229 $ 4,275
Due after ten years 962 962
------- -------
Total $ 5,191 $ 5,237
======= =======
There were no sales of investment securities held to maturity during the six
months ended September 30, 1998 and 1997.
The amortized cost and approximate fair value of investment securities
available for sale consisted of the following (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 1998
- ------------------
Agency securities $13,600 $ 67 $ - $13,667
U.S. Treasury securities 999 1 - 1,000
Equity securities 1,356 - (271) 1,085
------- ---- ----- -------
Total $15,955 $ 68 $(271) $15,752
======= ==== ===== =======
March 31, 1998
- --------------
Agency securities $ 7,000 $ 13 $ (9) $ 7,004
U.S. Treasury securities 2,961 12 - 2,973
------- ---- ----- -------
Total $ 9,961 $ 25 $ (9) $ 9,977
======= ==== ===== =======
The contractual maturities of investment securities available for sale are as
follows (in thousands):
Estimated
Amortized Fair
September 30, 1998 Cost Value
- ------------------ --------- ---------
Due in one year or less $ 999 $ 1,000
Due after one year through
five years 10,000 10,051
Due after five years through
ten years 3,600 3,616
Due after ten years 1,356 1,085
------- -------
Total $15,955 $15,752
======= =======
Investment securities with an amortized cost of $4,000,000 and $1,000,000 and
a fair value of $4,046,000 and $995,000 at September 30, 1998 and March 31,
1998, respectively, were pledged as collateral for treasury tax and loan funds
held by the Community Bank.
8
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(6) Mortgage-Backed Securities
--------------------------
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 1998
- ------------------
Real estate mortgage
investment conduits $ 4,152 $143 $ - $ 4,295
FHLMC mortgage-backed
securities 4,222 82 (2) 4,302
FNMA mortgage-backed
securities 7,690 151 (4) 7,837
------- ---- ----- -------
Total $16,064 $376 $ (6) $16,434
======= ==== ===== =======
March 31, 1998
- --------------
Real estate mortgage
investment conduits $ 5,627 $195 $ - $ 5,822
FHLMC mortgage-backed
securities 5,111 82 (5) 5,188
FNMA mortgage-backed
securities 9,603 155 (10) 9,748
------- ---- ----- -------
Total $20,341 $432 $ (15) $20,758
======= ==== ===== =======
The real estate mortgage investment conduits consist of Federal Home Loan
Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA)
securities.
The contractual maturities of mortgage-backed securities held to maturity were
as follows (in thousands):
Estimated
Amortized Fair
September 30, 1998 Cost Value
- ------------------ --------- ---------
Due after one year through
five years $ 307 $ 309
Due after five years through
ten years 7,178 7,293
Due after ten years 8,579 8,832
------- -------
$16,064 $16,434
======= =======
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
September 30, 1998
- ------------------
Real estate mortgage
investment conduits $55,235 $ 2 $(112) $55,125
FHLMC mortgage-backed
securities 775 15 - 790
FNMA mortgage-backed
securities 5,238 64 - 5,302
------- ---- ----- -------
Total $61,248 $ 81 $(112) $61,217
======= ==== ===== =======
March 31, 1998
- --------------
Real estate mortgage
investment conduits $21,914 $148 $ (2) $22,060
FHLMC mortgage-backed
securities 1,021 17 - 1,038
FNMA mortgage-backed
securities 9,591 16 (15) 9,592
------- ---- ----- -------
Total $32,526 $181 $ (17) $32,690
======= ==== ===== =======
The contractual maturities of mortgage-backed securities available for sale
were as follows (in thousands):
Amortized Fair
September 30, 1998 Cost Value
- ------------------ --------- ---------
Due after five years through
ten years $ 6,275 $ 6,322
Due after ten years 54,973 54,895
------- -------
$61,248 $61,217
======= =======
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.
Mortgage-backed securities held to maturity with an amortized cost of $488,000
and $522,000 and a fair value of $494,000 and $523,000 at September 30, 1998
and March 31, 1998, were pledged as collateral for public funds held by the
Community Bank.
9
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(7) Loans Receivable
----------------
Loans receivable consisted of the following (in thousands):
September 30, March 31,
1998 1998
------------- ----------
Residential:
One to four family $ 84,811 $ 94,795
Multi-family 5,878 4,790
Construction:
One to four family 41,755 35,003
Multi-family 3,971 5,352
Commercial real estate 921 -
Commercial 3,771 1,992
Consumer:
Secured 14,203 13,638
Unsecured 2,571 2,470
Land 26,342 16,431
Non-residential 13,417 9,407
--------- ---------
197,640 183,878
Less:
Undisbursed portion of loans 20,263 19,354
Deferred loan fees, net 2,588 2,340
Allowance for possible loan losses 1,075 984
Unearned discounts 2 2
--------- ---------
Loans receivable, net $ 173,712 $ 161,198
========= =========
(8) Loans Held for Sale
-------------------
The Community 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 (in thousands):
September 30, March 31,
1998 1998
------------- ----------
Federal Home Loan Bank Advances $ 49,550 $ 29,550
========= ========
Weighted average interest rate: 5.13% 5.97%
========= ========
Borrowings have the following maturities at September 30, 1998 (in thousands):
1998 $ 7,000
1999 7,000
2000 5,550
2003 30,000
-------
$49,550
=======
10
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(10) Stockholders' Equity
--------------------
Stock Option Plan
On July 23, 1998, shareholders of the Company approved the adoption of the
1998 Stock Option Plan ("1998 Plan") which authorizes the grant of stock
options. The 1998 Plan is effective October 1, 1998 and the plan will expire
on the tenth anniversary of the effective date, unless terminated sooner by
the board. The maximum number of shares of common stock of the Company to be
issued under the 1998 Plan is 357,075. Under the 1998 Plan 132,426 shares of
common stock shall be granted to executive officers and 39,992 common stock
shares shall be granted to non-employee directors.
Management Recognition and Development Plan
On July 23, 1998, shareholders of the Company approved the adoption of the
Management Recognition and Development Plan ("MRDP") for the benefit of
officers, employees and non-employee directors of the Company and its
subsidiaries.
The objective of the MRDP is to retain personnel of experience and ability in
key positions by providing them with a proprietary interest in the Company.
The Company has reserved 142,830 shares of common stock to be issued under the
MRDP which may be either authorized but unissued shares, or reacquired shares
held by the Company in its treasury. The number of restricted shares to be
granted under the MRDP will be 99,980 shares to the executive officers and
42,850 shares to the non-employee directors.
The MRDP is effective on October 1, 1998. Awards under the MDRP will be made
in the form of restricted shares of common stock that are subject to
restrictions on transfer of ownership. Compensation expense in the amount of
the fair value of the common stock at the date of the grant to the plan
participant will be recognized over a five year vesting period.
Repurchase of Common Stock
On September 15, 1998, the Company received regulatory approval to repurchase
up to 9% of the 3,570,570 shares issued during the Conversion and
Reorganization which is 321,368 shares.
Of the 321,368 shares authorized to be repurchased, up to 142,830 shares will
be reissued as awards to be granted to participants in the MRDP. Any such
shares not awarded under the MRDP will be held in the Company's treasury. The
remaining 178,538 shares to be repurchased will be held in the Company's
treasury pending the exercise of stock options to be granted under the 1998
Plan. At
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September 30, 1998, 40,000 common stock shares had been repurchased at an
average cost of $13.50 per share.
(11) Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the Financial Accounting Standards Board released SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters beginning with the fiscal
year 2001 and need not be applied retroactively to financial statements of
prior periods. The statement may be adopted early, as of the beginning of any
quarter beginning with the third quarter of 1998. The Company does not
anticipate that the adoption of SFAS No. 133 would have a material effect on
its financial position or results of operations.
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Item 2. RIVERVIEW BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Clause. This report contains certain "forward-looking
statements." The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protection of such safe harbor with forward-looking statements. These
forward-looking statement's, which are included in Management's Discussion and
Analysis, describe future plans or strategies and include the Company's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify forward-
looking statements. The Company's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could
affect actual results include interest rate trends, the whole economic climate
in the company's market area and the country as a whole, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
General
Riverview Bancorp, Inc., a Washington corporation, was organized on June 23,
1997 for the purpose of becoming the holding company for Riverview Community
Bank (formerly Riverview Savings Bank, FSB) upon the Riverview Savings Bank's
reorganization as a wholly owned subsidiary of the Company resulting from the
conversion of Riverview, M.H.C. from a federal mutual holding company to a
stock holding company ("Conversion and Reorganization"). The Conversion and
Reorganization was completed on September 30, 1997. Riverview Savings Bank,
FSB changed its name to Riverview Community Bank ("Community Bank") effective
June 29, 1998.
The Community Bank is regulated by the Office of Thrift Supervision ("OTS"),
its primary regulator, and by the Federal Deposit Insurance Corporation
("FDIC"), the insurer of its deposits. The Community Bank's deposits are
insured by the FDIC up to applicable legal limits under the Savings
Association Insurance Fund ("SAIF"). The Community Bank has been a member of
the Federal Home Loan Bank System since 1937.
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As a traditional, community-oriented, financial institution, the Community
Bank focuses on traditional financial services to residents of its primary
market area. The Community Bank considers Clark, Cowlitz, Klickitat and
Skamania counties of Washington as its primary market area. The primary
business of the Community Bank is attracting deposits from the general public
and using such funds to originate fixed-rate mortgage loans and adjustable
rate mortgage loans secured by one to four family residential real estate
located in its primary market area. The Community Bank is also an active
originator of one to four family and multi-family construction loans to both
builders and homeowners. The Community Bank is also growing the portfolio of
loans for land development and small business financing and consumer loans.
Riverview Mortgage, a mortgage broker division of the Community Bank,
originates mortgage loans (including construction loans) for various mortgage
companies predominantly in the Portland and Seattle metropolitan areas, as
well as for the Community Bank.
Year 2000
The "Year 2000 problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with "20" instead of the familiar
"19". Systems that calculate, compare or sort using the incorrect date may
cause erroneous results, ranging from system malfunctions to incorrect or
incomplete processing. If not remedied, potential risks include business
disruption or temporary shutdown and financial loss. The Company principally
utilizes third-party computer service providers and third-party software for
its information technology needs. As a result, the Year 2000 compliance of the
Company's information technology assets, such as computer hardware, software
and systems, is primarily dependent upon the Year 2000 compliance efforts and
results of its third-party vendors. The Year 2000 compliance of the Company's
non-information technology assets, which include automated teller machines
(ATMS), copiers, fax machines, elevators, microfilmers, and HVAC systems, is
also primarily dependent upon Year 2000 compliance efforts and results of
third-parties.
State of Readiness
- ------------------
The Company began developing a plan to address the Year 2000 issues in 1997,
and in 1998 appointed a Year 2000 Committee comprised of representatives from
all key areas of the Company, including Senior Management. The Year 2000
Committee has
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developed and is currently implementing a comprehensive project to make all
information technology assets and all non-information technology assets Year
2000 compliant. Testing of hardware has been completed and non- compliant
information technology hardware has been replaced or ordered. The committee
provides periodic reports to the Company's Board of Directors in order to
assist them in their Year 2000 readiness oversight role.
The Company's non-information technology assets have also been assessed for
Year 2000 compliance. Manufacturers, installers, and/or servicers of each have
been contacted for certification of Year 2000 readiness. Of the Company's
non-information technology assets, only ATM operating systems were determined
to be in need of replacement for six ATMs, and this was being carried out
within budget.
The Year 2000 Committee's plan to make all Company assets Year 2000 compliant
is comprised of the following phases:
1. Awareness Educational initiatives on Year 2000 issues
and concerns. This phase is ongoing, especially as it
relates to customers.
2. Assessment Inventory of all technology assets and
identification of third-party vendors and service
providers. This phase has been completed.
3. Renovation Review of vendor and service providers
responses to the Company's Year 2000 inquiries and
development of a follow-up plan and timeline. This
phase has been completed.
4. Validation The Year 2000 Committee's readiness
initiative is currently in this phase. This phase
consists of testing all systems as well as testing
of third-party vendors and service providers for
year 2000 issues. Testing of mission-critical
automated systems will be substantially complete by
the close of 1998. Testing of renovations and new
systems will continue throughout 1998 and 1999.
5. Implementation This phase has begun with the
replacement of all micro-computer hardware which was
determined to not be Year 2000 compliant. As
mentioned we are also replacing ATM operating
systems. The Company's Year 2000 plan provides for
Year 2000 readiness to be completed by mid-1999
consistent with OTS guidelines. As the Company
progresses through the validation phase, the Company
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expects to determine necessary remedial actions and
subsequently provide for their implementation, with
respect to any third-party vendors or service
providers who are ultimately determined to not be
Year 2000 compliant.
Costs to Address the Year 2000 Issue
- ------------------------------------
The total cost of carrying out the Company's plan to address the Year 2000
issue is currently estimated to be approximately $200,000, including estimates
of personnel costs, and is comprised primarily of costs for equipment and
software that will be acquired and depreciated over its useful life in
accordance with Company policy. Any personnel and consulting costs have been
and will continue to be expensed as incurred. These currently contemplated
Year 2000 compliance costs are expected to be funded primarily through
operating cash flows and are not expected to have a material adverse effect
on the Company's business, financial condition or results of operations. To
date, the costs incurred related to Year 2000, excluding estimates of
personnel costs, are approximately $70,000.
Risks Presented by the Year 2000 Issue
- --------------------------------------
Because the Company is substantially dependent upon the proper functioning of
its computer systems and the computer systems and services of third parties, a
failure of those computer systems and services to be Year 2000 compliant could
have a material adverse effect on the Company's business, financial condition
or results of operations. The Company relies heavily on third-party vendors
and service providers for its information technology needs. The Company's
primary third-party computer service provider is a computer service bureau
that provides data processing for virtually all of the Company's savings and
checking accounts, lending and loan servicing, general ledger, fixed assets
and accounts payable. Some of these functions operate in-house on network
micro-computers, but they are all integrated and interfaced with the
third-party service bureau system. The third-party's data processing services
are mission-critical services for the Company and a failure of this provider's
services to be Year 2000 compliant could cause substantial disruption of the
Company's business and could have a material adverse financial impact on the
Company. Testing of this third-party data processing service bureau is
scheduled for the fourth quarter of the calendar year 1998 and the first
quarter of the calendar year 1999.
If this third-party service provider or other third-party providers with which
the company has material relationships are not Year 2000 compliant, the
following problems could result: (i) in the case of vendors, important
services upon which the Company
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depends, such as telecommunications and electrical power, could be
interrupted, (ii) in the case of third-party service providers, the Company
could receive inaccurate or outdated information, which could impair the
Company's ability to perform critical data functions, such as the processing
of deposit accounts, loan servicing and internal accounting, and (iii) in the
case of governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks, such agencies and financial institutions could fail to
provide funds to the company, which could materially impair the Company's
liquidity and affect the Company's ability to fund loans and deposit
withdrawals. In addition, whether or not the Company is Year 2000 compliant,
the Company may experience an outflow of deposits if customers are concerned
about the integrity of financial institutions' records regarding customer
accounts.
Contingency Plans
- -----------------
Where it is possible to do so, the Company has scheduled testing with
third-party vendors and service providers. Where it is not possible, the
Company will rely upon certifications of Year 2000 compliance from vendors and
service providers. Most vendors and service providers have targeted December,
1998 as their expected compliance completion date. Until that time, the
Company is unable to fully assess its risks from potential Year 2000
non-compliance and to fully develop its Year 2000 contingency plans. The
Company will supplement its existing business continuity plans to deal with
the special circumstances of Year 2000 problems.
There can be no assurance that the Company's Year 2000 plans will effectively
address the Year 2000 issue, that the Company's estimates of the timing and
costs of completing the plan will ultimately be accurate or that the impact of
any failure of the Company or its third-party vendors and service providers to
be Year 2000 compliant will not have a material adverse effect on the
Company's business, financial condition or results of operations.
FINANCIAL CONDITON
At September 30, 1998, the Company had total assets of $304.8 million compared
with $273.2 million at March 31, 1998. The $31.6 million or 11.6% increase in
assets reflects the $30.0 million purchase of mortgage-backed securities to be
held as available for sale. Cash, including interest-earning accounts,
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totaled $18.5 million at September 30, 1998 compared to $27.5 million at March
31, 1998. At September 30, 1998, the Company had $197.6 million in gross
loans, an increase of $13.7 million compared to $183.9 million at March 31,
1998. Loans Receivable (Note 7), provides a detailed analysis of the $13.7
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 $190.6 million at September 30, 1998,
compared to $179.8 million at March 31, 1998. FHLB advances totaled $49.6
million at September 30, 1998 compared to $29.6 million at March 31, 1998. The
$20.0 million increase consists of a $10.0 million pay down and the borrowing
of $30.0 million which was used to purchase the $30.0 million in mortgage-
backed securities. This arbitrage strategy was entered into to increase net
interest income.
Capital Resources
Total shareholders' equity increased $1.0 million, or 1.6%, from $61.1 million
at March 31, 1998 to $62.1 million for the six months ended September 30,
1998. This increase was the net result of $2.4 million in earnings for the
year to date, dividends of $0.7 million, purchase of 40,000 treasury shares
for $0.5 million and $0.3 million change in net unrealized loss on securities
available for sale, net of tax. The Community Bank will pay a $2.0 million
dividend to Riverview Bancorp, Inc. in the quarter ended December 31, 1998.
The Community Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators, that if undertaken could have a direct
material effect on the Community Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Community Bank must meet specific capital guidelines that involve
quantitative measures of the Community Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Community Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Community Bank to maintain amounts and ratios of tangible and core
capital to adjusted total assets and of total risk-based capital to
risk-weighted assets of 1.5%, 3.0%, and 8.0%, respectively. As of September
30, 1998, the Community Bank meets all capital adequacy requirements to which
it is subject.
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As of March 31, 1998, the most recent notification from the OTS categorized
the Community Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the
Community Bank must maintain minimum core and total risk-based capital ratios
of 5.0%, and 10.0%, respectively. At September 30, 1998, the Community Bank's
tangible, core and risk-based total capital ratios amounted to 15.9%, 15.9%,
and 31.0%, respectively. There are no conditions or events since that
notification that management believes have changed the Community Bank's
category.
The Community Bank's actual and required minimum capital amounts and ratios
are presented in the following table (dollars in thousands):
Categorized
as "Well
Capitalized"
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purpose Provision
----------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 1998 ------ ----- ------ ----- ------ -----
Total Capital:
(To Risk Weighted Assets) $47,041 31.0% $12,156 8.0% $15,196 10.0%
Tier I Capital:
(To Risk Weighted Assets) 46,438 30.6 N/A N/A 9,117 6.0
Core Capital:
(To Total Assets) 46,438 15.9 8,783 3.0 14,639 5.0
Tangible Capital:
(To Tangible Assets) 46,438 15.9 4,392 1.5 N/A N/A
Categorized
as "Well
Capitalized"
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purpose Provision
----------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 1998
Total Capital:
(To Risk Weighted Assets) $44,584 32.7% $10,922 8.0% $13,653 10.0%
Tier I Capital:
(To Risk Weighted Assets) 44,071 32.3 N/A N/A 8,192 6.0
Core Capital:
(To Total Assets) 44,071 17.0 7,765 3.0 12,942 5.0
Tangible Capital:
(To Tangible Assets) 44,071 17.0 3,883 1.5 N/A N/A
The following table is a reconciliation of the Community Bank's capital,
calculated according to generally accepted accounting principles (GAAP), to
regulatory tangible and risk-based capital at September 30, 1998 (in
thousands):
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Equity $48,286
Net unrealized gain on securities
Available for sale (10)
Core deposit intangible asset (1,839)
-------
Tangible capital 46,437
Land held for development (471)
General valuation allowance 1,075
-------
Total capital $47,041
=======
Bank Liquidity
OTS regulations require the Community Bank to maintain an average daily
balance of liquid assets as a percentage of average daily net withdrawable
deposit accounts plus short-term borrowings of at least 4%. The Community
Bank's regulatory liquidity ratio was 45.3% at September 30, 1998 compared to
43.6% at March 31, 1998. The Community Bank anticipates that it will have
sufficient funds available to meet current loan commitments and other cash
needs. At September 30, 1998, the Community Bank had outstanding commitments
to originate $7.7 million mortgage loans, none of which were committed to be
sold in the secondary market.
Cash, including interest-earning overnight investments, was $18.5 million at
September 30, 1998 compared to $27.5 million at March 31, 1998. Investment
securities and mortgage-backed securities available for sale at September 30,
1998 were $15.8 million and $61.2 million, respectively, compared to $10.0
million and $32.7 million, respectively, at March 31, 1998.
Asset Quality
Allowance for loan losses was $1.1 million at September 30, 1998, compared to
$984,000 at March 31, 1998. Management deemed the allowance for loan losses at
September 30, 1998 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
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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.
Nonperforming assets were $1.5 million or 0.48% of total assets at September
30, 1998 compared with $517,000 or 0.19% of total assets at March 31, 1998.
The increase in nonaccrual residential loans presented in the following table
is the result of an increase in nonaccrual one to four family permanent and
construction loans. The following table sets forth information with respect
to the Community Bank's nonperforming assets at the dates indicated:
September 30, 1998 March 31, 1998
------------------ --------------
(Dollars in thousands)
Loans accounted for on
a nonaccrual basis:
Real Estate
Residential $1,334 $401
Commercial 115 105
Consumer 2 -
------ ----
Total 1,451 506
Accruing loans which are
contractually past due 90
days or more 6 11
------ ----
Total 6 11
------ ----
Total of nonaccrual and
90 days past due loans 1,457 517
------ ----
Real estate owned - -
------ ----
Total nonperforming assets $1,457 $517
====== ====
Total loans delinquent 90
days or more to net loans 0.83% 0.32%
Total loans delinquent 90
days or more to total assets 0.48 0.19
Total nonperforming assets
to total assets 0.48 0.19
Comparison of Operating Results for the Three Months Ended
September 30, 1998 and 1997
The Company's net income depends primarily on its net interest income, which
is the difference between interest earned on its loans and investments and the
interest paid on interest-bearing
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liabilities. Net interest income is determined by (a) the difference between
the yield earned on interest-earning assets and rates paid on interest-bearing
liabilities (interest rate spread) and (b) the relative amounts of
interest-earning assets and interest-bearing liabilities. The Company's
interest rate spread is affected by regulatory, economic and competitive
factors that influence rates, loan demand and deposit flows. Net interest
margin is calculated by dividing net interest income by the average
interest-earning assets. Net interest income and net interest margin are
affected by changes in interest rates, volume and the mix of interest-earning
assets and interest-bearing liabilities, and the level of non-performing
assets. The Company's net income is also affected by the generation of
non-interest income, which primarily consists of fees and service charges,
loan servicing income, gains on sale of securities, gains from sale of loans
and other income. In addition, net income is affected by the level of
operating expenses and establishment of a provision for loan losses.
Net income for the three months ended September 30, 1998 was $1.2 million,
$0.20 per basic share ($0.20 per diluted share). This compares to net income
of $0.8 million, $0.13 per basic share ($0.12 per diluted share) for the same
period in fiscal 1998. The earnings per basic share increase of 54% to $0.20
for the three months ending September 30, 1998 from $0.13 for the three months
ended September 30, 1997 reflected several factors. Net interest income
increased $0.8 million or 33% for the three months ended September 30, 1998
compared to the same period in fiscal 1998 due to an 18% increase in
interest-earning assets. Non-interest income increased $108,000 or 18%
reflecting increases in fees and service charges as well as gains on sales of
loans in fiscal 1999 as compared to fiscal 1998.
Average interest-earning assets increased to $265.7 million for the three
months ending September 30, 1998 from $225.0 million for the three months
ending September 30, 1997. On September 30, 1997, the Company completed the
Conversion and Reorganization. In the Conversion and Reorganization,
3,570,270 shares previously held by Riverview, M.H.C. were retired and
simultaneously 3,570,750 shares of common stock of the Company were sold at a
subscription price of $10.00 per share, resulting in net proceeds of
approximately $31.8 million.
Interest income for the three months ended September 30, 1998 was $5.6
million, an increase of $0.7 million or 15% over $4.9 million for the same
period in 1997. Yield on interest-earning assets for the three month 1998
period was 8.41% compared to 8.65% for the three month 1997 period. The lower
1998 yield on interest earning assets resulted primarily from the lower yield
received on investments in mortgage-backed and investment
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securities and overnight funds. The higher interest income resulted from
growth in loans, mortgage-backed securities and overnight investments.
Interest expense was $2.3 million and $2.4 million for the quarters ended
September 30, 1998 and 1997, respectively. The cost of interest-bearing
liabilities for the three month 1998 period was 4.67% compared to 4.93% for
the three month 1997 period.
Net interest income increased $0.8 million, or 33%, to $3.2 million for the
three months ended September 30, 1998, compared to $2.4 million for the three
months ended September 30, 1997. The interest rate spread increased from 3.73%
for the three month 1997 period to 3.74% for the three month 1998 period. The
net interest margin improved to 4.91% during the third quarter ended September
30, 1998 from 4.34% for the third quarter ended September 30, 1997. The
improved margin reflects the $41.0 million increase in average interest-
earning assets to $265.7 million during the third quarter ended September 30,
1998 from $225.0 million for the third quarter ended September 30, 1997. The
$40.7 million increase in average interest-earning assets was partially offset
by the $2.7 million increase in average interest-bearing liabilities to $199.5
million during the quarter ended September 30, 1998 from $196.8 million for
the quarter ended September 30, 1997.
The provision for loan losses was $60,000 and there were $28,000 in net
charge-offs during the three months ended September 30, 1998 compared to a
$45,000 provision and $2,000 in net charge-offs during the three months ended
September 30, 1997. During the quarter ended June 30, 1998 the loan loss
provision was increased in response to loan growth and change in loan mix. The
loan loss provision was deemed necessary based upon management's analysis of
historical and anticipated loss rates, current loan growth, and other factors
considered.
Non-interest income increased $108,000, or 18%, to $699,000 for the three
month ended September 30, 1998 from $591,000 for the three months ended
September 30, 1997. The $108,000 increase for the current quarter is primarily
due to a $40,000 increase in deposit service charges resulting from an
increased number of deposit accounts, $88,000 increase in loan origination
fees on loans brokered through Riverview Mortgage Brokerage and gains on sale
of loans.
Non-interest expense increased $238,000, or 13%, from $1.8 million for the
quarter ended September 30, 1997 to $2.1 million for the quarter ended
September 30, 1998. The 1998 quarter
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reflects the addition of four full-time equivalent employees over the 1997
quarter. This resulted from adding three loan staff reflecting expansion in
the mortgage broker division and consumer loans and one branch staff. Salaries
and employee benefits increased $107,000 to $1.2 million for the quarter ended
September 30, 1998.
Provision for federal income taxes for the second quarter fiscal 1998 was
$655,000, resulting in an effective tax rate of 36%, compared to $408,000 and
35% for the like quarter of a year ago. The 1% increase in the effective tax
rate for three months ended September 30, 1998 is attributable to the impact
of the ESOP market value adjustment.
Comparison of Operating Results for the Six Months Ended
September 30, 1998 and 1997
Net income for the six months ended September 30, 1998 was $2.4 million, $0.42
per basic share ($0.41 per diluted share). This compares to net income of
$1.5 million, $0.25 per basic share ($0.24 per diluted share) for the same
period in fiscal 1998. The earnings per basic share increase of 68% to $0.42
for the six months ended September 30, 1998 from $0.25 for the six months
ended September 30, 1997 reflected several factors. Net interest income
increased $1.7 million or 36% for the six months ended September 30, 1998
compared to the same period in fiscal 1998 due to a 20% increase in
interest-earning assets. Non-interest income increased $321,000 or 30%
reflecting increases in fees and service charges as well as gains on sales of
loans in fiscal 1999 as compared to fiscal 1998.
Average interest-earning assets increased to $263.4 million for the six months
ending September 30, 1998 from $218.7 million for the six months ending
September 30, 1997. On September 30, 1997 the Company completed the Conversion
and Reorganization which provided net proceeds of approximately $31.8 million
from the stock offering.
Interest income for the six months ended September 30, 1998 was $11.2 million,
an increase of $1.7 million or 18% over $9.5 million for the same period in
1997. Yield on interest-earning assets for the six month 1998 period was 8.51%
compared to 8.68% for the six month 1997 period. The lower 1998 yield on
interest earning assets resulted primarily from the lower yield received on
investments in mortgage-backed and investment securities and overnight funds.
The higher interest income resulted from growth in loans, mortgage-backed
securities and overnight investments.
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Interest expense was $4.7 million for each of the six months ended September
30, 1998 and 1997. The cost of interest-bearing liabilities for the six month
1998 period was 4.68% compared to 4.82% for the six month 1997 period.
Net interest income increased $1.7 million, or 36%, to $6.5 million for the
six months ended September 30, 1998, compared to $4.8 million for the six
months ended September 30, 1997. The interest rate spread decreased from 3.86%
for the six month 1997 period to 3.83% for the six month 1998 period. The net
interest margin improved to 4.97% during the six month period ended September
30, 1998 from 4.41% for the six month period ended September 30, 1997. The
improved margin reflects the $44.7 million increase in average interest-
earning assets to $263.4 million for the six months ended September 30, 1998
from $218.7 million for the six month period ended September 30, 1997. The
$44.7 million increase in average interest-earning assets was partially offset
by the $5.7 million increase in average interest-bearing liabilities to $199.6
million during the six months ended September 30, 1998 from $193.9 million for
the six months ended September 30, 1997.
The provision for loan losses was $120,000 and there were $30,000 in net
charge-offs during the six months ended September 30, 1998 compared to a
$90,000 provision and $11,000 in net charge-offs during the six months ended
September 30, 1997. During the quarter ended June 30, 1998 the loan loss
provision was increased in response to loan growth and change in loan mix. The
loan loss provision was deemed necessary based upon management's analysis of
historical and anticipated loss rates, current loan growth, and other factors
considered.
Non-interest income increased $321,000, or 30%, to $1.4 million for the six
months ended September 30, 1998 from $1.1 million for the six months ended
September 30, 1997. The $321,000 increase for the current six months is
primarily due to a $78,000 increase in deposit service charges resulting from
an increased number of deposit accounts, $184,000 increase in loan origination
fees on loans brokered through Riverview Mortgage Brokerage and gains on sale
of loans and securities.
Non-interest expense increased $493,000, or 14%, from $3.5 million for the six
months ended September 30, 1997 to $4.0 for the six months ended September 30,
1998. The 1998 six months reflects the addition of four full-time equivalent
employees over the six months ended September 30, 1997. This resulted from
adding three loan staff reflecting expansion in the mortgage broker division
and consumer loans and one branch staff. Salaries and employee benefits
increased $312,000 to $2.3 million for the six months ended September 30,
1998.
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Provision for federal income taxes for the six months ended September 30, 1998
was $1.4 million resulting in an effective tax rate of 37%, compared to $0.8
million and 35% for the like period a year ago. The 2.0% increase in the
effective tax rate for six months ended September 30, 1998 is attributable to
the impact of the ESOP market value adjustment.
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk
There has not been any material change in the market risk disclosures
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998.
26
<PAGE>
<PAGE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of Riverview Bancorp, Inc. was held on
July 23, 1998. The results of the vote on the matters presented at the
meeting is as follows:
1. The following individuals were elected as directors:
For Withheld
----------------------- -----------------------
No. of No. of
Votes Percentage Votes Percentage
--------- ---------- ------- ----------
Patrick Sheaffer 5,083,836 99.44 28,433 0.56
(one year term)
Roger Malfait 4,978,938 97.39 133,341 2.61
(one year term)
Robert K. Leick 5,083,836 99.44 28,443 0.56
(two year term)
Gary R. Douglass 5,083,836 99.44 28,443 0.56
(two year term)
Dale E. Scarbrough 5,081,836 99.40 30,443 0.60
(two year term)
Paul L. Runyan 5,083,836 99.44 28,443 0.56
(three year term)
Ron Wysaske 5,083,836 99.44 28,443 0.56
(three year term)
27
<PAGE>
<PAGE>
2.The Riverview Bancorp, Inc. 1998 Stock Option Plan was approved by the
following votes:
For 3,855,203 (93.1%) Against 251,054 (6.1%) Abstain 33,562 (.8%)
3.The Riverview Bancorp, Inc. Management Recognition and Development Plan
was approved by the following votes:
For 3,771,674 (90.1%) Against 382,777 (9.2%) Abstain 30,099 (.7%)
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of Registrant*
10.1 Employment Agreement with Patrick Sheaffer**
10.2 Employment Agreement with Ron Wysaske**
10.3 Employment Agreement with Michael C. Yount**
10.4 Employment Agreement with Karen Nelson**
10.5 Riverview Savings Bank, FBS Severance Compensation
Agreement**
10.6 Riverview Savings Bank, FSB Employee Stock Ownership
Plan***
21 Subsidiaries of Registrant***
27 Financial Data Schedule
(b) Reports on Form 8-K: No Forms 8-K were filed during the quarter
ended March 31, 1998.
(c) Reports on Form 8-K: none
- -------------
* Filed as an exhibit to the registrant's Registration Statement on Form
S-1, as amended (333-30203), and incorporated herein by reference.
** Filed as an exhibit to the Registrant's Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference.
*** Filed as an exhibit to the Registrant's Form 10-K for the year ended
March 31, 1998, and incorporated herein by reference.
28
<PAGE>
<PAGE>
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: November 13, 1998 BY: /s/ Patrick Sheaffer
----------------------------------
Patrick Sheaffer
President
DATE: November 13, 1998 BY: /s/ Ron Wysaske
----------------------------------
Ron Wysaske
Executive Vice President/Treasurer
29
<PAGE>
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