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, 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---5,578,734 shares as of
December 31, 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 December 31, 1998 and March 31, 1998 1
Consolidated Statements of Income: Nine and
Three Months Ended December 31, 1998 and 1997 2
Consolidated Statements of Shareholders' Equity
for the Year ended March 31, 1998 and for the
Nine Months Ended December 31, 1998 3
Consolidated Statements of Cash Flows for the
Nine Months Ended December 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 13-27
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 28
Part II. Other Information 29
SIGNATURES 30
EXHIBITS 31-32
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RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
As of December 31, 1998 and March 31, 1998
December 31, March 31,
(In thousands, except share data) (Unaudited) 1998 1998
- ------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$14,692 and $20,504) $20,618 $27,482
Loans held for sale 634 1,430
Investment securities held to maturity, at amortized
cost (fair value of $5,167 and $8,394) 5,136 8,336
Investment securities available for sale, at fair value
(amortized cost of $14,845 and $9,961) 14,489 9,977
Mortgage-backed securities held to maturity, at
amortized cost, (fair value of $14,754 and $20,758) 14,397 20,341
Mortgage-backed securities available for sale, at fair
value (amortized cost of $58,797 and $32,526) 58,252 32,690
Loans receivable (net of allowance of $1,139
and $984 for loan losses) 175,838 161,198
Real estate owned 223 -
Prepaid expenses and other assets 966 882
Accrued interest receivable 1,734 1,597
Federal Home Loan Bank stock 2,565 1,966
Premises and equipment 5,776 4,802
Land held for development 471 471
Core deposit intangible 1,757 2,002
-------- --------
TOTAL ASSETS $302,856 $273,174
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit accounts $198,902 $179,825
Accrued expenses and other liabilities 2,049 2,490
Advance payment by borrowers for taxes and insurance 7 84
Deferred income taxes, net 143 143
Federal Home Loan Bank advances 42,550 29,550
-------- --------
Total Liabilities 243,651 212,092
SHAREHOLDERS' EQUITY
Serial preferred stock, $.01 par value; 250,000
authorized, issued and outstanding , none
Common stock, December 31, 1998- $.01 par value;
50,000,000 authorized; 6,191,774 issued, 5,578,734
outstanding; March 31, 1998 6,154,326 issued,
5,809,456 outstanding 62 62
Additional paid-in capital 53,568 53,399
Unearned shares issued to employee stock ownership trust (2,743) (2,993)
Retained earnings 12,861 10,495
Treasury shares at cost- 178,538 shares and no shares at
December 31, 1998 and March 31, 1998, respectively (2,399) -
Unearned shares issued to MRDP at grant cost-142,830
shares and no shares at December 31, 1998 and March
31, 1998, respectively (1,571) -
Net unrealized (loss) gain on securities available for
sale, net of tax (573) 119
-------- --------
Total shareholders' equity 59,205 61,082
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $302,856 $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
For Three Months and Nine Months Ended December 31, 1998 and 1997
Three Months Ended Nine Months Ended
(In thousands, except share data) December 31, December 31,
(Unaudited) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
INTEREST INCOME
Interest on loans receivable $4,487 $3,798 $12,890 $11,150
Interest on investment securities 267 273 923 915
Interest on mortgage-backed securities 1,142 849 2,717 2,106
Other interest and dividends 257 368 841 609
------ ------ ------- -------
Total interest income 6,153 5,288 17,371 14,780
------ ------ ------- -------
INTEREST EXPENSE
Interest on deposits 2,090 1,870 6,078 5,543
Interest on borrowings 544 514 1,236 1,514
------ ------ ------- -------
Total interest expense 2,634 2,384 7,314 7,057
------ ------ ------- -------
Net interest income 3,519 2,904 10,057 7,723
Less provision for loan losses 60 45 180 135
------ ------ ------- -------
Net interest income after
provision for loan losses 3,459 2,859 9,877 7,588
------ ------ ------- -------
NON-INTEREST INCOME
Fees and service charges 672 477 1,790 1,263
Gain on sale of loans held for sale 102 18 211 57
Gain on sale of securities - 5 37 38
Loan servicing income 22 62 89 194
Other 22 17 72 87
------ ------ ------- -------
Total non-interest income 818 579 2,199 1,639
------ ------ ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,693 1,118 4,040 3,153
Occupancy and depreciation 435 335 1,211 970
FDIC insurance premium 27 26 80 79
Amortization of excess of cost over fair
value of deposits acquired 82 82 245 245
Marketing 77 43 231 212
Other 302 202 792 637
------ ------ ------- -------
Total non-interest expense 2,616 1,806 6,599 5,296
------ ------ ------- -------
INCOME BEFORE FEDERAL INCOME TAXES 1,661 1,632 5,477 3,931
FEDERAL INCOME TAX EXPENSE 606 559 1,999 1,357
------ ------ ------- -------
NET INCOME $1,055 $1,073 $ 3,478 $ 2,574
====== ====== ======= =======
Earnings per common share:
Basic $0.19 $0.19 $0.60 $0.43
Diluted 0.18 0.18 0.59 0.42
Weighted average number of shares
outstanding:
Basic 5,614,967 5,782,415 5,762,212 5,963,767
Diluted 5,730,901 5,949,280 5,893,191 6,113,749
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 Nine Months Ended December 31, 1998
(In thousands, except share data) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
- ---
Net Un-
Unearned realized
Shares Gain
Issued to (Loss) on
Addi- Employee Unearned Securities
Common Stock tional Stock Shares Avail-
--------------- Paid-In Ownership Retained Treasury Issued able for
Shares Amount Capital Trust Earnings Stock to MRDP Sale
Total
------ ------ ------- --------- -------- ----- ------- -------- ----
- -
<S> <C> <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 conver-
sion/reorganization 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 - - - - 3,478 - - -
3,478
Cash dividends - - - - (1,112) - - -
(1,112)
Exercise of stock
options 37,448 - 132 - - - - -
132
Earned ESOP shares 24,632 52 250
302
Repurchase treasury
shares (178,538) - - - - (2,399) - -
(2,399)
Repurchase MRDP shares (142,830) - (15) - - - (1,964) -
(1,979)
Earned MRDP shares 28,566 - - - - - 393 -
393
Change in net unrealized
loss on securities
available for sale,
net of tax - - - - - - - (692)
(692)
--------- ------ ------- ------- ------- ------- ------- ------ -----
- --
Balance December 31,
1998 5,578,734 $ 62 $53,568 $(2,743) $12,861 $(2,399) $(1,571) $ (573)
$59,205
========= ====== ======= ======= ======= ======= ======= ======
=======
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
Nine Months Ended December 31,
(In thousands) (Unaudited) 1998 1997
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,478 $2,574
Adjustments to reconcile net income to cash used
in operating activities:
Depreciation and amortization 900 615
Provision for losses on loans 180 135
Noncash expense related to ESOP benefit 186 373
Noncash expense related to MRDP benefit 491 -
Increase in deferred loan origination fees, net of
amortization 269 331
Federal Home Loan Bank stock dividend (124) (109)
Net gain on sale of real estate owned, mortgage-backed
and investment securities and premises and equipment (59) (95)
Changes in assets and liabilities:
Decrease (increase) in loans held for sale 796 (629)
(Increase) decrease in prepaid expenses and other assets (84) 252
Increase in accrued interest receivable (137) (106)
Increase (decrease) in accrued expenses and other
liabilities 215 (53)
------- -------
Net cash provided by operating activities 6,111 3,288
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (115,569) (70,801)
Principal repayments on loans 99,704 59,072
Proceeds from call, maturity, or sale of securities
available for sale 17,049 5,003
Purchase of investment securities available for sale (21,908) (12,000)
Purchase of mortgage-backed securities available for sale (33,377) (33,632)
Proceeds from sale of mortgage-backed securities available
for sale - 2,280
Principal repayments on mortgage-backed securities held to
maturity 5,969 4,434
Principal repayments on mortgage-backed securities available
for sale 6,907 498
Purchase of investment securities held to maturity (982) -
Proceeds from call or maturity of investment securities held
to maturity 4,151 10,978
Purchase of premises and equipment (1,461) (520)
Purchase of Federal Home Loan Bank stock (475) (64)
Proceeds from sale of real estate 222 135
------- -------
Net cash used in investing activities (39,770) (34,617)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 19,077 1,963
Dividends paid (959) (304)
Proceeds from issuance of common stock, net related costs 34,755
Stock acquired for ESOP - (2,856)
Treasury stock acquired (2,399) -
Stock acquired for MRDP (1,979) -
Proceeds from Federal Home Loan Bank advances 30,000 35,800
Repayment of Federal Home Loan Bank advances (17,000) (33,430)
Net decrease in advance payments by borrowers (77) (70)
Proceeds from exercise of stock options 132 -
------- -------
Net cash provided by financing activities 26,795 35,858
------- -------
NET (DECREASE) INCREASE IN CASH (6,864) 4,529
CASH, BEGINNING OF PERIOD 27,482 6,951
------- -------
CASH, END OF PERIOD $20,618 $11,480
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $7,237 $7,099
Income taxes 2,104 1,403
NONCASH INVESTING ACTIVITIES:
Transfer of loans to real estate owned 498 -
Dividends declared and accrued in other liabilities 371 -
Fair value adjustment to securities available for sale (1,081) 133
Income tax effect related to fair value adjustment 389 45
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 nine months ended December 31, 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 subsidiaries, Riverview Asset Management, Inc. and
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
5
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comprehensive income in the notes to financial statements. 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 nine months ended December 31, 1998, the Company's total
comprehensive income was $630,000 and $2.8 million, respectively, compared to
$1.1 million and $2.6 million for the three and nine months ended December 31,
1997, respectively.
Total comprehensive income for the three and nine months ended December 31,
1998 is comprised of net income of $1.1 million and $3.5 million and other
comprehensive loss of $425,000 and $715,000, net of tax, respectively. Other
comprehensive income for the three and nine months ended December 31, 1998,
consists of unrealized securities losses of $425,000 and $692,000, net of tax
benefits less gains on securities available for sale included in non-interest
income of zero and $23,000, net of tax, respectively.
Total comprehensive income for the three and nine months ended December 31,
1997 is comprised of net income of $1.1 million and $2.6 million and other
comprehensive income of $75,000 and $63,000, net of tax, respectively. Other
comprehensive income for the three and nine months ended December 31, 1997,
consists of unrealized securities gains of $78,000 and $88,000, net of tax
benefits less gains on securities available for sale included in non-interest
income of $3,000 and $25,000, 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 and
unassigned MRDP shares. Employee Stock Ownership Plan shares are not
considered outstanding for earnings per share purposes until they are
committed to be released.
6
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Three Months Ended
December 31,
---------------------
1998 1997
---- ----
Basic EPS computation:
Numerator-Net Income $1,055,000 $1,073,000
Denominator-Weighted average
common shares outstanding 5,614,967 5,782,415
Basic EPS $ 0.19 $ 0.19
========== ==========
Diluted EPS computation:
Numerator-Net Income $1,055,000 $1,073,000
Denominator-Weighted average
common shares outstanding 5,614,967 5,782,415
Effect of dilutive stock options 115,934 166,865
---------- ----------
Weighted average common shares
and common stock equivalents 5,730,901 5,949,280
Diluted EPS $ 0.18 $ 0.18
========== ==========
Nine Months Ended
December 31,
---------------------
1998 1997
---- ----
Basic EPS computation:
Numerator-Net Income $3,478,000 $2,574,000
Denominator-Weighted average
common shares outstanding 5,762,212 5,963,767
Basic EPS $ 0.60 $ 0.43
========== ==========
Diluted EPS computation:
Numerator-Net Income $3,478,000 $ 2,574,000
Denominator-Weighted average
common shares outstanding 5,762,212 5,963,767
Effect of dilutive stock options 124,225 149,982
Effect of dilutive MRDP shares 6,754 -
---------- ----------
Weighted average common shares
and common stock equivalents 5,893,191 6,113,749
Diluted EPS $ 0.59 $ 0.42
========== ==========
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
December 31, 1998 -------- -------- -------- --------
-----------------
Agency securities $ 4,174 $ 31 $ - $ 4,205
Municipal securities 962 - - 962
-------- -------- -------- --------
Total $ 5,136 $ 31 $ - $ 5,167
======== ======== ======== ========
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
December 31, 1998 Cost Value
- ------------------ -------- --------
Due in one year or less $ 4,174 $ 4,205
Due after ten years 962 962
------- -------
Total $ 5,136 $ 5,167
======= =======
There were no sales of investment securities held to maturity during the nine
months ended December 31, 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
December 31, 1998 -------- -------- -------- --------
-----------------
Agency securities $13,489 $$ 29 $ (33) $13,485
Equity securities 1,356 - (352) 1,004
------- ------- ------- -------
Total $14,845 $ 29 $ (385) $14,489
======= ======= ======= =======
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
December 31, 1998 Cost Value
- ----------------- -------- -------
Due after one year through five years $ 6,000 $ 6,029
Due after five years through ten years 2,500 2,487
Due after ten years 6,345 5,973
------- -------
Total $14,845 $14,489
======= =======
Investment securities with an amortized cost of $4.0 million and $1.0 million
and a fair value of $4,031,000 and $995,000 at December 31, 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
December 31, 1998 -------- ---------- ---------- ---------
-----------------
Real estate mortgage investment
conduits $ 3,749 $ 223 $ - $ 3,972
FHLMC mortgage-backed securities 3,807 47 (3) 3,851
FNMA mortgage-backed securities 6,841 95 (5) 6,931
------- ------ ----- -------
Total $14,397 $ 365 $ (8) $14,754
======= ====== ===== =======
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
December 31, 1998 Cost Value
----------------- -------- --------
Due in one year or less $ 226 $ 227
Due after one year through five years 40 43
Due after five years through ten years 6,594 6,671
Due after ten years 7,537 7,813
------- -------
$14,397 $14,754
======= =======
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1998 -------- ---------- ---------- ---------
-----------------
Real estate mortgage investment
conduits $54,304 $ 43 $(646) $53,701
FHLMC mortgage-backed securities 703 11 - 714
FNMA mortgage-backed securities 3,790 47 - 3,837
------- ------ ----- -------
Total $58,797 $ 101 $(646) $58,252
======= ====== ===== =======
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):
Estimated
Amortized Fair
December 31, 1998 Cost Value
----------------- -------- --------
Due after five years through ten years $ 5,587 $ 5,630
Due after ten years 53,210 52,622
------- -------
$58,797 $58,252
======= =======
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 $401,000
and $522,000 and a fair value of $403,000 and $523,000 at December 31, 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):
December 31, March 31,
1998 1998
Residential: ----------- ---------
One to four family $82,018 $94,795
Multi-family 7,053 4,790
Construction:
One to four family 41,286 35,003
Multi-family 4,013 5,352
Commercial real estate 3,177 -
Commercial 4,370 1,992
Consumer:
Secured 14,474 13,638
Unsecured 2,616 2,470
Land 26,041 16,431
Non-residential 14,058 9,407
-------- --------
199,106 183,878
Less:
Undisbursed portion of loans 19,518 19,354
Deferred loan fees, net 2,609 2,340
Allowance for possible loan losses 1,139 984
Unearned discounts 2 2
-------- --------
Loans receivable, net $175,838 $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):
December 31, March 31,
1998 1998
-------- --------
Federal Home Loan Bank Advances $42,550 $29,550
======= =======
Weighted average interest rate: 4.94% 5.97%
======= =======
Borrowings have the following maturities at December 31, 1998 (in
thousands):
1999 $ 7,000
2000 5,550
2003 30,000
-------
$42,550
=======
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 was effective October 1, 1998 and the plan will expire
on the tenth anniversary of the effective date, unless terminated sooner by
the board. On October 1, 1998 under the 1998 Plan 257,962 shares were granted
to executive officers, non-employee directors and employees.
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 was effective on October 1, 1998. Awards under the MRDP 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.
On October 1, 1998 the number of restricted shares granted under the MRDP were
99,980 shares to executive officers and 42,850 shares to non-employee
directors. Compensation expense of $392,783 was recognized using the fair
value of the stock at $13.75.
Repurchase of Common Stock
On September 15, 1998, the Company received regulatory approval to repurchase
up to 9% or 321,368 shares of the
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3,570,570 shares issued during the Conversion and Reorganization.
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 December 31, 1998, 321,368 common stock shares had been repurchased
at an average cost of $13.62 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.
12
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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 statements, which are included in Management's Discussion and
Analysis, describe future plans or strategies and include the Company's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify forward-
looking statements. The Company's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could
affect actual results include interest rate trends, the economic climate in
the Company's market area and the country as a whole, loan delinquency rates,
and changes in federal and state regulation. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
General
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 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
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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.
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. On November 25, 1998 the Community Bank
received regulatory approval to offer trust and investment services to its
customers. Riverview Asset Management Corporation, a subsidiary of the
Community Bank, was established to operate the trust and investment
activities. The headquarters of the trust department are in the Community
Bank's newest branch, the Vancouver Main branch, which officially opened in
October 1998. Assets totaling approximately $2.0 million at December 31, 1998
were held by the Riverview Asset Management Corporation in fiduciary or agency
capacity.
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
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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 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 these ATM operating
systems have been replaced.
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.
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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 was
substantially completed at the close of 1998. Testing of renovations
and new systems will continue throughout 1999.
5. Implementation - This phase has begun with the replacement of all
micro-computer hardware which was determined not to be Year 2000
compliant. As previously mentioned, six ATM operating systems have
been replaced in connection with this phase. 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 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 $90,000.
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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 started
during the fourth quarter of the calendar year 1998 and will continue through
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 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.
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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. As of December 31, 1998, certifications of year 2000
compliance have been received from most of the Company's third-party vendors
and service providers. Testing with selected mission critical providers has
been scheduled for the first quarter of 1999. 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 CONDITION
At December 31, 1998, the Company had total assets of $302.9 million compared
with $273.2 million at March 31, 1998. The $29.7 million or 10.9% 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,
totaled $20.6 million at December 31, 1998 compared to $27.5 million at March
31, 1998. At December 31, 1998, the Company had $199.1 million in gross
loans, an increase of $15.2 million compared to $183.9 million at March 31,
1998. Loans Receivable (Note 7), provides a detailed analysis of the $15.2
million increase in gross loans. Consumer, commercial, and land loans carry
higher interest rates and a higher degree of credit risk compared to
one-to-four family mortgage loans. Deposits totaled $198.9 million at
December 31, 1998, compared to $179.8 million at March 31, 1998. FHLB
advances totaled $42.6 million at December 31, 1998 compared to $29.6 million
at March 31, 1998. The $13.0 million increase consists of $17.0 million in
pay downs and the borrowing of $30.0 million which was used to purchase the
$30.0 million in
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mortgage-backed securities. This arbitrage strategy was entered into to
increase net interest income.
Capital Resources
Total shareholders' equity decreased $1.9 million, or 3.1%, from $61.1 million
at March 31, 1998 to $59.2 million at December 31, 1998. The $1.9 decrease in
shareholders' equity was the net result of $3.5 million in earnings for the
year to date, dividends of $1.1 million, exercise of stock options and earned
ESOP of $0.4 million, purchase of 178,538 treasury shares for $2.4 million,
purchase of 142,830 shares for $2.0 million to be used under the Management
Recognition and Development Plan ("MRDP"), the award of 28,566 MRDP shares for
a total of $0.4 million and $0.7 million change in net unrealized loss on
securities available for sale, net of tax. The Community Bank paid 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 December 31,
1998, the Community Bank meets all capital adequacy requirements to which it
is subject.
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
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ratios of 5.0%, and 10.0%, respectively. At December 31, 1998, the Community
Bank's tangible, core and risk-based total capital ratios amounted to 15.6%,
15.6%, and 29.1%, 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
Actual Adequacy Purpose Action Provision
-------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1998
Total Capital:
(To Risk
Weighted Assets) $46,156 29.5% $12,512 8.0% $15,640 10.0%
Tier I Capital:
(To Risk
Weighted Assets) 45,489 29.1 N/A N/A 9,384 6.0
Core Capital:
(To Total Assets) 45,489 15.6 8,767 3.0 14,612 5.0
Tangible Capital:
(To Tangible Assets) 45,489 15.6 4,384 1.5 N/A N/A
Categorized
as "Well
Capitalized"
Under Prompt
For Capital Corrective
Actual Adequacy Purpose Action 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 December 31, 1998 (in
thousands):
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Equity $46,893
Net unrealized loss on securities
Available for sale 353
Core deposit intangible asset (1,757)
-------
Tangible capital 45,489
Land held for development (471)
General valuation allowance 1,138
-------
Total capital $46,156
=======
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 58.6% at December 31, 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 December 31, 1998, the Community Bank had outstanding commitments
to originate $9.0 million mortgage loans, none of which were committed to be
sold in the secondary market.
Cash, including interest-earning overnight investments, was $20.6 million at
December 31, 1998 compared to $27.5 million at March 31, 1998. Investment
securities and mortgage-backed securities available for sale at December 31,
1998 were $14.5 million and $58.3 million, respectively, compared to $10.0
million and $32.7 million, respectively, at March 31, 1998. See "Financial
Condition."
Asset Quality
Allowance for loan losses was $1.1 million at December 31, 1998, compared to
$984,000 at March 31, 1998. Management deemed the allowance for loan losses
at December 31, 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 $1.0 million or 0.34% of total assets at December
31, 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:
December 31, 1998 March 31, 1998
----------------- --------------
(Dollars in thousands)
Loans accounted for on
a nonaccrual basis:
Real Estate
Residential $ 704 $401
Commercial - 105
Land 47 -
Consumer 2 -
------ ----
Total 753 506
Accruing loans which are
contractually past due 90
days or more 54 11
------ ----
Total 54 11
------ ----
Total of nonaccrual and
90 days past due loans 807 517
------ ----
Real estate owned 223 -
------ ----
Total nonperforming assets $1,030 $517
====== ====
Total loans delinquent 90
days or more to net loans 0.46% 0.32%
Total loans delinquent 90
days or more to total assets 0.27 0.19
Total nonperforming assets
to total assets 0.34 0.19
Comparison of Operating Results for the Three Months Ended
December 31, 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
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interest-bearing liabilities. Net interest income is determined by (a) the
difference between the yield earned on interest-earning assets and rates paid
on interest-bearing liabilities (interest rate spread) and (b) the relative
amounts of interest-earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence rates, loan demand and deposit flows. Net
interest margin is calculated by dividing net interest income by the average
interest-earning assets. Net interest income and net interest margin are
affected by changes in interest rates, volume and the mix of interest-earning
assets and interest-bearing liabilities, and the level of non-performing
assets. The Company's net income is also affected by the generation of non-
interest income, which primarily consists of fees and service charges, 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 December 31, 1998 was $1.1 million,
$0.19 per basic share ($0.18 per diluted share). This compares to net income
of $1.1 million, $0.19 per basic share ($0.18 per diluted share) for the same
period in fiscal 1998. The earnings per basic share showed no growth for the
three months ending December 31, 1998 as compared to the three months ended
December 31, 1997. Net interest income increased $0.6 million or 21% for the
three months ended December 31, 1998 from $2.9 million for the three months
ended December 31, 1997 due to a 17% increase in interest-earning assets.
Non-interest income increased $239,000 or 41% for the three months ended
December 31, 1998 from $579,000 for the three months ended December 31, 1997,
reflecting increases in fees and service charges as well as gains on sales of
loans. These increases were offset by an $810,000 increase in non-interest
expense or 45% due primarily to increased salaries and employee benefits.
Average interest-earning assets increased to $295.2 million for the three
months ending December 31, 1998 from $251.5 million for the three months
ending December 31, 1997. The $43.7 million increase is due primarily to the
$30.0 million purchase of mortgage-backed securities in the quarter ending
September 30, 1998 and a $23.4 million increase in average net loans
outstanding.
Interest income for the three months ended December 31, 1998 was $6.2 million,
an increase of $0.9 million or 17% over
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$5.3 million for the same period in 1997. Yield on interest-earning assets
for the three month 1998 period was 8.27% compared to 8.39% 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 securities and overnight funds. The higher interest income
resulted from growth in loans, and mortgage-backed securities.
Interest expense was $2.6 million and $2.4 million for the quarters ended
December 31, 1998 and 1997, respectively. The cost of interest-bearing
liabilities for the three month 1998 period was 4.48% compared to 4.87% for
the three month 1997 period.
Net interest income increased $0.6 million, or 21%, to $3.5 million for the
three months ended December 31, 1998, compared to $2.9 million for the three
months ended December 31, 1997. The interest rate spread increased from 3.53%
for the three month 1997 period to 3.78% for the three month 1998 period. The
net interest margin improved to 4.73% during the third quarter ended December
31, 1998 from 4.60% for the third quarter ended December 31, 1997. The
improved margin reflects the $43.7 million increase in average interest-
earning assets to $295.2 million during the third quarter ended December 31,
1998 from $251.5 million for the third quarter ended December 31, 1997. The
$43.7 million increase in average interest-earning assets was partially offset
by the $37.3 million increase in average interest-bearing liabilities to
$233.1 million during the quarter ended December 31, 1998 from $195.8 million
for the quarter ended December 31, 1997.
The provision for loan losses was $60,000 and there were $4,000 in net
recoveries during the three months ended December 31, 1998 compared to a
$45,000 provision and $2,800 in net recoveries during the three months ended
December 31, 1997. 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 $239,000, or 41%, to $818,000 for the three
month ended December 31, 1998 from $579,000 for the three months ended
December 31, 1997. The $239,000 increase for the current quarter is primarily
due to a $38,000 increase in deposit service charges resulting from an
increased number of deposit accounts and the results of one
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month of a new fee schedule, $107,000 increase in loan origination fees on
loans brokered through Riverview Mortgage Brokerage and an $84,000 increase in
gains on sale of loans.
Non-interest expense increased $810,000, or 45%, from $1.8 million for the
quarter ended December 31, 1997 to $2.6 million for the quarter ended December
31, 1998. Salaries and employee benefits increased $575,000 to $1.7 million
for the quarter ended December 31, 1998. The 1998 quarter reflects the MRDP
cost of $491,000 which consists of the first year award of $393,000 plus three
months of the 1999 MRDP award. This was partially offset by reduced ESOP
compensation expense of a net $22,000 credit for the 1998 quarter compared to
a $173,000 compensation expense in the 1997 quarter. In addition there were
18 more full-time equivalent employees over the 1997 quarter. This resulted
from expansion of services offered by adding the new branch Vancouver Main,
trust department, commercial lending department and expansion in the mortgage
broker division and consumer loans.
Provision for federal income taxes for the third quarter of fiscal 1998 was
$606,000, resulting in an effective tax rate of 36%, compared to $559,000 and
34% for the like quarter of a year ago. The 2% increase in the effective tax
rate for three months ended December 31, 1998 is primarily attributable to the
impact of the ESOP market value adjustment.
Comparison of Operating Results for the Nine Months Ended
December 31, 1998 and 1997
Net income for the nine months ended December 31, 1998 was $3.5 million, $0.60
per basic share ($0.59 per diluted share). This compares to net income of
$2.6 million, $0.43 per basic share ($0.42 per diluted share) for the same
period in fiscal 1998. The earnings per basic share increase of 40% to $0.60
for the nine months ended December 31, 1998 from $0.43 for the nine months
ended December 31, 1997 reflected several factors. Net interest income
increased $2.3 million or 30% for the nine months ended December 31, 1998
compared to the same period in fiscal 1998 due to a 19% increase in interest-
earning assets. Non-interest income increased $560,000 or 34% reflecting
increases in fees and service charges as well as gains on sales of loans in
fiscal 1999 as compared to fiscal 1998.
25
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Average interest-earning assets increased to $273.3 million for the nine
months ending December 31, 1998 from $230.2 million for the nine months ending
December 31, 1997. The $43.1 million increase is due primarily to the $30.0
million purchase of mortgage-backed securities in the quarter ended September
30, 1998 and a $18.5 million increase in average net loans outstanding.
Interest income for the nine months ended December 31, 1998 was $17.4 million,
an increase of $2.6 million or 18% over $14.8 million for the same period in
1997. Yield on interest-earning assets for the nine month 1998 period was
8.44% compared to 8.56% for the nine 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 and
investment securities and overnight investments.
Interest expense for the nine months ended December 31, 1998 was $7.3 million,
an increase of $257,000 or 4% over $7.1 million for the same period in 1997.
The cost of interest-bearing liabilities for the nine month 1998 period was
4.60% compared to 4.89% for the nine month 1997 period.
Net interest income increased $2.4 million, or 31%, to $10.1 million for the
nine months ended December 31, 1998, compared to $7.7 million for the nine
months ended December 31, 1997. The interest rate spread increased from 3.67%
for the nine month 1997 period to 3.85% for the nine month 1998 period. The
net interest margin improved to 4.89% during the nine month period ended
December 31, 1998 from 4.47% for the nine month period ended December 31,
1997. The improved margin reflects the $43.1 million increase in average
interest-earning assets to $273.3 million for the nine months ended December
31, 1998 from $230.2 million for the nine month period ended December 31,
1997. The $43.1 million increase in average interest-earning assets was
partially offset by the $18.9 million increase in average interest-bearing
liabilities to $211.3 million during the nine months ended December 31, 1998
from $192.4 million for the nine months ended December 31, 1997.
The provision for loan losses was $180,000 and there were $26,000 in net
charge-offs during the nine months ended December 31, 1998 compared to a
$135,000 provision and $8,000 in net charge-offs during the nine months ended
December 31,
26
<PAGE>
<PAGE>
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 $560,000, or 35%, to $2.2 million for the nine
months ended December 31, 1998 from $1.6 million for the nine months ended
December 31, 1997. The $560,000 increase for the current nine months is
primarily due to a $98,000 increase in deposit service charges primarily
resulting from an increased number of deposit accounts, $291,000 increase in
loan origination fees on loans brokered through Riverview Mortgage Brokerage
and gains on sale of loans and securities.
Non-interest expense increased $1.3 million, or 25%, from $5.3 million for the
nine months ended December 31, 1997 to $6.6 million for the nine months ended
December 31, 1998. Salaries and employee benefits increased $887,000 to $4.0
million for the nine months ended December 31, 1998. The 1999 fiscal year
reflects the MRDP cost of $491,000 which consists of the first year award of
$393,000 plus three months of the 1999 award. This was partially offset by
lower ESOP compensation expense of $186,000 year to date fiscal 1999 as
compared to $373,000 ESOP compensation expense year to date fiscal 1998. In
addition there were eighteen more full-time equivalent employees in fiscal
1999 compared to the same period a year ago. This resulted from expansion of
services offered by adding the new branch Vancouver Main, trust department,
commercial lending department and expansion in the mortgage broker division
and consumer loans.
Provision for federal income taxes for the nine months ended December 31, 1998
was $2.0 million resulting in an effective tax rate of 36%, compared to $1.4
million and 35% for the like period a year ago. The 1.0% increase in the
effective tax rate for nine months ended December 31, 1998 is primarily
attributable to the impact of the ESOP market value adjustment.
27
<PAGE>
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There has not been any material change in the market risk disclosures
contained in theCompany's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998.
28
<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
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of Registrant*
10.1 Employment Agreement with Patrick Sheaffer**
10.2 Employment Agreement with Ron Wysaske**
10.3 Employment Agreement with Michael C. Yount**
10.4 Employment Agreement with Karen Nelson**
10.5 Riverview Savings Bank, FBS Severance Compensation
Agreement**
10.6 Riverview Savings Bank, FSB Employee Stock Ownership
Plan***
10.7 The Riverview Bancorp, Inc. 1998 Stock Option Plan****
10.8 The Riverview Bancorp, Inc. Management Recognition and
Development 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 December 31, 1998.
- ------------
* Filed as an exhibit to the registrant's Registration Statement on Form
S-1, as amended (333-30203), and incorporated herein by reference.
** Filed as an exhibit to the Registrant's Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference.
*** Filed as an exhibit to the Registrant's Form 10-K for the year ended
March 31, 1998, and incorporated herein by reference.
**** Filed as an exhibit to the Registrant's definitive proxy statement dated
June 5, 1998, and incorporated herein by reference.
29
<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: February 11, 1999 BY: /s/ Patrick Sheaffer
----------------- -----------------------------
Patrick Sheaffer
President
DATE: February 11, 1999 BY: /s/ Ron Wysaske
----------------- -----------------------------
Ron Wysaske
Executive Vice President/Treasurer
30
<PAGE>
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