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, 1999
------------------
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---5,089,973 shares as of
September 30, 1999.
<PAGE>
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, 1999 and March 31, 1999 1
Consolidated Statements of Income: Six and Three
Months Ended September 30, 1999 and 1998 2
Consolidated Statements of Shareholders' Equity
for the Year Ended March 31, 1999 and for the
Six Months Ended September 30, 1999 3
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-12
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-28
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 28
Part II. Other Information 29-30
SIGNATURES 31
EXHIBITS 32-33
<PAGE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND MARCH 31, 1999
SEPTEMBER 30, MARCH 31,
(in thousands, except share data) (Unaudited) 1999 1999
- -----------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$1,921 and $11,612) $ 10,802 $ 17,207
Loans held for sale - 341
Investment securities held to maturity, at
amortized cost (fair value of $916 and $4,980) 923 4,943
Investment securities available for sale, at
fair value (amortized cost of $14,423 and
$13,751) 13,108 13,280
Mortgage-backed securities held to maturity, at
amortized cost (fair value of $10,161 and
$12,939) 10,116 12,715
Mortgage-backed securities available for sale,
at fair value (amortized cost of $45,920 and
$53,808) 44,703 53,372
Loans receivable (net of allowance for loan losses
of $1,162 and $1,146) 221,375 186,836
Real estate owned 418 30
Prepaid expenses and other assets 832 895
Accrued interest receivable 1,662 1,543
Federal Home Loan Bank stock 2,710 2,614
Premises and equipment 6,906 6,185
Land held for development 471 471
Deferred income taxes, net 993 493
Core deposit intangible, net 1,512 1,676
---------- ----------
TOTAL ASSETS $ 316,531 $ 302,601
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit accounts $ 215,213 $ 200,311
Accrued expenses, minority interest and other
liabilities 3,237 2,834
Advance payments by borrowers for taxes and
insurance 101 39
Federal Home Loan Bank advances 44,550 42,550
---------- ----------
Total liabilities 263,101 245,734
---------- ----------
COMMITMENT AND CONTINGENCIES (NOTE 12)
SHAREHOLDERS' EQUITY
Serial preferred stock, $.01 par value;
250,000 authorized, issued and outstanding,
none - -
Common stock, $.01 par value; 50,000,000
authorized, September 30 ,1999 - 6,228,199
issued, 5,089,973 outstanding; March 31,
1999 - 6,194,103 issued, 5,346,322
outstanding 62 62
Additional paid-in capital 53,652 53,577
Retained earnings 14,649 13,602
Treasury shares at cost - 703,724 shares and
413,279 shares at September 30, 1999 and
March 31, 1999, respectively (9,010) (5,461)
Unearned shares issued to employee stock
ownership trust (2,681) (2,743)
Unearned shares held by the management
recognition and development plan (1,571) (1,571)
Accumulated other comprehensive loss (1,671) (599)
---------- ----------
Total shareholders' equity 53,430 56,867
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 316,531 $ 302,601
========== ==========
See notes to consolidated financial statements.
1
<PAGE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
(in thousands, Septermber30, September 30,
except share data) (Unaudited) 1999 1998 1999 1998
- ------------------------------------------------------ -----------------
INTEREST INCOME:
Interest and fees on loans
receivable $ 4,890 $ 4,205 $ 9,503 $ 8,403
Interest on investment
securities 224 331 478 656
Interest on mortgage-backed
securities 878 739 1,821 1,575
Other interest and dividends 161 321 323 584
--------- --------- --------- ---------
Total interest income 6,153 5,596 12,125 11,218
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 2,087 2,027 4,111 3,988
Interest on borrowings 538 321 1,059 692
--------- --------- --------- ---------
Total interest expense 2,625 2,348 5,170 4,680
--------- --------- --------- ---------
Net interest income 3,528 3,248 6,955 6,538
Less provision for loan losses 90 60 180 120
--------- --------- --------- ---------
Net interest income after
provision for loan losses 3,438 3,188 6,775 6,418
--------- --------- --------- ---------
NON-INTEREST INCOME:
Fees and service charges 620 581 1,296 1,118
Gain on sale of loans held for
sale 9 48 14 109
Gain on sale of securities - 10 - 37
Loan servicing income 39 29 72 67
Other 60 31 109 50
--------- --------- --------- ---------
Total non-interest income 728 699 1,491 1,381
--------- --------- --------- ---------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,334 1,076 2,731 2,114
Occupancy and depreciation 520 416 1,036 776
Amortization of core deposit
intangible 81 81 163 163
Marketing expense 195 84 338 154
FDIC insurance premium 29 27 58 53
Other 453 382 914 723
--------- --------- --------- ---------
Total non-interest expense 2,612 2,066 5,240 3,983
--------- --------- --------- ---------
INCOME BEFORE FEDERAL INCOME TAXES 1,554 1,821 3,026 3,816
PROVISION FOR FEDERAL INCOME TAXES 523 655 1,032 1,393
--------- --------- --------- ---------
NET INCOME $ 1,031 $ 1,166 $ 1,994 $ 2,423
========= ========= ========= =========
Earnings per common share:
Basic $ 0.20 $ 0.20 $ 0.38 $ 0.41
Diluted 0.19 0.19 0.37 0.41
Weighted average number of
shares outstanding:
Basic 5,207,396 5,855,028 5,264,843 5,839,316
Diluted 5,319,721 5,979,772 5,377,577 5,966,672
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED MARCH 31, 1999
AND THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
Unearned Accumu-
Shares lated
Issued to Other
Addi- Employee Unearned Compre-
Common Stock tional Stock Shares hensive
(In thousands, ------------------ Paid-in Retained Treasury Ownership Issued Income/
except share data) Shares Amount Capital Earnings Stock Trust to MRDP (Loss) Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance April 1,
1998 5,809,456 $62 $53,399 $10,495 $ - $(2,993) $ - $ 119 $61,082
Cash dividends - - - (1,356) - - - - (1,356)
Exercise of stock
options 39,777 - 141 - - - - - 141
Earned ESOP shares 24,632 - 52 - - 250 - - 302
Treasury shares
acquired (413,279) - - - (5,461) - - - (5,461)
Shares acquired by
MRDP (142,830) - (15) - - - (1,964) - (1,979)
Earned MRDP shares 28,566 - - - - - 393 - 393
--------- --- ------- ------- ------- ------- ------- ------- -------
5,346,322 62 53,577 9,139 (5,461) (2,743) (1,571) 119 53,122
Comprehensive income:
Net income - - - 4,463 - - - - 4,463
Other comprehensive
income:
Unrealized holding
loss on securities
of $694 (net of
$357 tax benefit)
less reclassifica-
tion adjustment
for gains included
in net income of
$24 (net of $13
tax expense) - - - - - - - (718) (718)
-------
Total comprehensive
income - - - - - - - - 3,745
--------- --- ------- ------- ------- ------- ------- ------- -------
Balance March 31,
1999 5,346,322 62 53,577 13,602 (5,461) (2,743) (1,571) (599) 56,867
Cash dividends - - - (947) - - - - (947)
Earned ESOP shares - - (62) - - 62 - - -
Exercise of stock
options 34,096 137 137
Treasury shares
acquired (290,445) - - - (3,549) - - - (3,549)
--------- --- ------- ------- ------- ------- ------- ------- -------
5,089,973 62 53,652 12,655 (9,010) (2,681) (1,571) (599) 52,508
Comprehensive income:
Net income - - - 1,994 - - - - 1,994
Other comprehensive
income:
Unrealized holding
loss on securities
of $1,624 (net of
$552 tax benefit) - - - - - - - (1,072) (1,072)
-------
Total comprehensive
income - - - - - - - - 922
--------- --- ------- ------- ------- ------- ------- ------- -------
Balance September
30, 1999 5,089,973 $62 $53,652 $14,649 $(9,010) $(2,681) $(1,571) $(1,671) $53,430
========= === ======= ======= ======= ======= ======= ======= =======
See notes to consolidated financial statements.
3
</TABLE>
<PAGE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASHFLOWS
FOR SIX MONTHS ENDED SEPTEMBER 30,
(in thousands) (Unaudited) 1999 1998
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,994 $ 2,423
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 668 576
Provision for losses on loans 180 120
Provision for deferred income taxes, net (107) -
Noncash expense related to ESOP benefit 146 208
Noncash expense related to MRDP benefit 196 -
Increase in deferred loan origination fees,
net of amortization 384 226
Federal Home Loan Bank stock dividend (96) (75)
Net gain on sale of real estate owned,
mortgage-backed and investment securities
and premises and equipment 6 (31)
Changes in assets and liabilities:
Decrease (increase) in loans held for sale 341 (15)
Decrease in prepaid expenses and other assets 63 14
Increase in accrued interest receivable (119) (289)
Increase (decrease) in accrued expenses,
minority interest and other liabilities 220 (55)
--------- ---------
Net cash provided by operating activities 3,876 3,102
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (90,784) (77,728)
Principal repayments on loans 52,086 52,320
Loans sold 2,754 12,210
Proceeds from call, maturity, or sale of
investment securities available for sale 1,000 10,949
Purchase of investment securities available
for sale (1,673) (16,919)
Purchase of mortgage-backed securities
available for sale - (33,377)
Principal repayments on mortgage-backed
securities held to maturity 2,653 4,328
Principal repayments on mortgage-backed
securities available for sale 7,724 4,547
Principal repayments on investment
securities held to maturity 20 -
Purchase of investment securities held to
maturity - (982)
Proceeds from call or maturity of investment
securities held to maturity 4,000 4,096
Purchase of premises and equipment (1,114) (836)
Purchase of Federal Home Loan Bank stock - (475)
Proceeds from sale of real estate 448 77
--------- ---------
Net cash used in investing activities (22,886) (41,790)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 14,902 10,822
Dividends paid (947) (588)
Treasury stock purchased (3,549) (540)
Proceeds from Federal Home Loan Bank advances 32,000 30,000
Repayment of Federal Home Loan Bank advances (30,000) (10,000)
Net increase (decrease) in advance payments
by borrowers 62 (55)
Proceeds from exercise of stock options 137 107
--------- ---------
Net cash provided by financing activities 12,605 29,746
--------- ---------
NET DECREASE IN CASH (6,405) (8,942)
CASH, BEGINNING OF PERIOD 17,207 27,482
--------- ---------
CASH, END OF PERIOD $ 10,802 $ 18,540
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 5,246 $ 4,801
Income taxes 960 1,560
NONCASH INVESTING ACTIVITIES:
Transfer of loans to real estate owned 841 275
Dividends declared and accrued in other
liabilities 468 371
Fair value adjustment to securities
available for sale (1,624) 416
Income tax effect related to fair value
adjustment 552 (149)
See notes to consolidated financial statements.
4
<PAGE>
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.
1999 Annual Report on Form 10-K. The results of operations for the three
months and six months ended September 30, 1999 are not necessarily indicative
of the results which may be expected for the entire fiscal year.
(2) Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements of Riverview
Bancorp, Inc. and Subsidiary (the "Company") include all the accounts of
Riverview Bancorp, Inc. and the consolidated accounts of its wholly-owned
subsidiary, Riverview Community Bank (the "Community Bank"), and the Community
Bank's majority-owned subsidiary, Riverview Asset Management, Corp. and
wholly-owned subsidiary, Riverview Services, Inc. Significant inter-company
balances and transactions have been eliminated in the consolidation.
(3) Comprehensive Income
--------------------
Comprehensive income is defined as the change in equity during a period from
transactions and other events from nonowner sources. Comprehensive income is
the total of net income and other comprehensive income, which for the Company
is comprised entirely of unrealized gains and losses on securities available
for sale and sales and losses on sale of securities available for sale.
5
<PAGE>
For the three months and six months ended September 30, 1999, the Company's
total comprehensive income was $1.1 million and $922,000, respectively,
compared to $989,000 and $2.1 million for the three and six months ended
September 30, 1998, respectively.
Total comprehensive income for the three and six months ended September 30,
1999 is comprised of net income of $1.0 million and $2.0 million and other
comprehensive income (loss) of $96,000 and $(1.1) million, net of tax,
respectively. Other comprehensive income for the three and six months ended
September 30, 1999, consists of unrealized securities gains (losses) of
$96,000 and $(1.1) million, net of tax.
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 loss of $177,000 and $274,000 net of taxes, respectively. Other
comprehensive income for the three and six months ended September 30, 1998,
consisted of unrealized securities losses of $171,000 and $250,000 net of tax
benefits less gains on securities available for sale included in non-interest
income of $6,000 and $24,000 net of tax, respectively.
(4) Earnings Per Share
------------------
Basic Earnings per Share ("EPS") is computed by dividing net income applicable
to common stock by the weighted average number of common shares outstanding
during the period, without considering any dilutive items. Diluted EPS is
computed by dividing net income applicable to common stock by the weighted
average number of common shares and common stock equivalents for items that
are dilutive, net of shares assumed to be repurchased using the treasury stock
method at the average share price for the Company's common stock during the
period. Common stock equivalents arise from assumed conversion of outstanding
stock options and unassigned Management Recognition and Development
Plan("MRDP") shares. Employee Stock Ownership Plan shares are not considered
outstanding for earnings per share purposes until they are committed to be
released.
6
<PAGE>
Three Months Ended
September 30,
----------------------------
1999 1998
---- ----
Basic EPS computation:
Numerator-Net Income $1,031,000 $1,166,000
Denominator-Weighted average
common shares outstanding 5,207,396 5,855,028
Basic EPS $ 0.20 $ 0.20
========== ==========
Diluted EPS computation:
Numerator-Net Income $1,031,000 $1,166,000
Denominator-Weighted average
common shares outstanding 5,207,396 5,855,028
Effect of dilutive stock options 106,071 124,744
Effect of dilutive MRDP 6,254 -
---------- -----------
Weighted average common shares
and common stock equivalents 5,319,721 5,979,772
Diluted EPS $ 0.19 $ 0.19
========== ==========
Six Months Ended
September 30,
----------------------------
1999 1998
---- ----
Basic EPS computation:
Numerator-Net Income $1,994,000 $ 2,423,000
Denominator-Weighted average
common shares outstanding 5,264,843 5,839,316
Basic EPS $ 0.38 $ 0.41
========== ==========
Diluted EPS computation:
Numerator-Net Income $1,994,000 $ 2,423,000
Denominator-Weighted average
common shares outstanding 5,264,843 5,839,316
Effect of dilutive stock options 108,993 127,356
Effect of dilutive MRDP 3,741 -
---------- -----------
Weighted average common shares
and common stock equivalents 5,377,577 5,966,672
Diluted EPS $ 0.37 $ 0.41
========== ==========
7
<PAGE>
(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, 1999
- ------------------
Municipal lease $ 923 $ - $ (7) $ 916
--------- ---------- ---------- ----------
Total $ 923 $ - $ (7) $ 916
========= ========== ========== ==========
March 31, 1999
- --------------
Agency securities $ 4,000 $ 13 $ - $ 4,013
Municipal lease 943 24 - 967
--------- ---------- ---------- ----------
Total $ 4,943 $ 37 $ - $ 4,980
========= ========== ========== ==========
The contractual maturities of investment securities held to maturity were as
follows (in thousands):
Estimated
Amortized Fair
September 30, 1999 Cost Value
- ------------------ ---------- ----------
Due after ten years $ 923 $ 916
---------- ----------
Total $ 923 $ 916
========== ==========
There were no sales of investment securities held to maturity during the
period ended September 30, 1999 and 1998.
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, 1999
- ------------------
Agency securities $ 10,489 $ - $ (713) $ 9,776
Equity securities 1,356 - (483) 873
School district bonds 2,578 - (119) 2,459
--------- ---------- --------- ----------
Total $ 14,423 $ - $ (1,315) $ 13,108
========= ========== ========= ==========
March 31, 1999
- --------------
Agency securities $ 11,489 $ 13 $ (62) $ 11,440
Equity securities 1,356 - (422) 934
School district bonds 906 - (0) 906
--------- ---------- --------- ----------
Total $ 13,751 $ 13 $ (484) $ 13,280
========= ========== ========= ==========
The contractual maturities of investment securities available for sale are as
follows (in thousands):
Estimated
Amortized Fair
September 30, 1999 Cost Value
- ------------------ ----------- ------------
Due after one year through five years $ 3,000 $ 2,979
Due after five years through ten years 3,931 3,777
Due after ten years 7,492 6,352
----------- ------------
Total $ 14,423 $ 13,108
=========== ============
Investment securities with an amortized cost of $5.1 million and $4.0 million
and a fair value of $5.0 million and $4.0 million at September 30, 1999 and
March 31, 1999, respectively, were pledged as collateral for treasury tax and
loan funds held by the Community Bank.
8
<PAGE>
(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, 1999
- ------------------
Real estate mortgage
investment conduits $ 2,238 $ 47 $ 0 $ 2,285
FHLMC mortgage-backed
securities 2,888 15 (41) 2,862
FNMA mortgage-backed
securities 4,990 39 (15) 5,014
--------- ---------- --------- ----------
Total $ 10,116 $ 101 $ (56) $ 10,161
========= ========== ========= ==========
March 31, 1999
- --------------
Real estate mortgage
investment conduits $ 3,162 $ 100 $ - $ 3,262
FHLMC mortgage-backed
securities 3,370 33 (5) 3,398
FNMA mortgage-backed
securities 6,183 97 (1) 6,279
--------- ---------- --------- ----------
Total $ 12,715 $ 230 $ (6) $ 12,939
========= ========== ========= ==========
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, 1999 Cost Value
- ------------------ ---------- ----------
Due in one year or less $ 75 $ 75
Due after one year through five years 4,588 4,557
Due after five years through ten years 523 522
Due after ten years 4,930 5,007
---------- ----------
$ 10,116 $ 10,161
========== ==========
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, 1999
- ------------------
Real estate mortgage
investment conduits $ 42,763 $ 35 $ (1,260) $ 41,538
FHLMC mortgage-backed
securities 653 3 - 656
FNMA mortgage-backed
securities 2,504 8 (3) 2,509
--------- ---------- --------- ----------
Total $ 45,920 $ 46 $ (1,263) 44,703
========= ========== ========= ==========
March 31, 1999
- --------------
Real estate mortgage
investment conduits $ 50,002 $ 34 $ (534) $ 49,502
FHLMC mortgage-backed
securities 686 15 - 701
FNMA mortgage-backed
securities 3,120 49 - 3,169
--------- ---------- --------- ----------
Total $ 53,808 $ 98 $ (534) $ 53,372
========= ========== ========= ==========
The contractual maturities of mortgage-backed securities available for sale
were as follows (in thousands):
Estimated
Amortized Fair
September 30, 1999 Cost Value
- ------------------ ---------- ----------
Due after one year through five years $ 2,108 $ 2,104
Due after five years through ten years 2,368 2,398
Due after ten years 41,444 40,201
---------- ----------
$ 45,920 $ 44,703
========== ==========
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 $355,000
and $386,000 and a fair value of $350,000 and $388,000 at September 30, 1999
and March 31, 1999, respectively, were pledged as collateral for public fund
held by the Community Bank.
9
<PAGE>
(7) Loans Receivable
----------------
Loans receivable consisted of the following (in thousands):
September 30, March 31,
1999 1999
------------- -----------
Residential:
One to four family $ 90,266 $ 82,934
Multi-family 9,989 7,558
Construction:
One to four family 53,045 45,524
Multi-family 4,724 4,209
Commercial real estate 6,621 6,184
Commercial 19,594 8,676
Consumer:
Secured 13,658 12,691
Unsecured 3,008 2,769
Land 28,768 24,932
Non-residential 18,736 17,554
----------- -----------
248,409 213,031
Less:
Undisbursed portion of loans 22,717 22,278
Deferred loan fees, net 3,154 2,770
Allowance for possible loan losses 1,162 1,146
Unearned discounts 1 1
----------- -----------
Loans receivable, net $ 221,375 $ 186,836
=========== ===========
(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,
1999 1999
------------- -----------
Federal Home Loan Bank Advances $ 44,550 $ 42,550
============= ===========
Weighted average interest rate: 5.86% 4.87%
============= ===========
Borrowings have the following maturities at September 30, 1999 (in thousands):
1999 $ 29,000
2000 15,550
-------------
$ 44,550
=============
10
<PAGE>
(10) Stockholders' Equity
--------------------
Repurchase of Common Stock
On February 9, 1999, the Company received regulatory approval to repurchase up
to 10% or 601,324 shares of its outstanding common stock at December 31, 1998.
The shares repurchased will be held in the Company's treasury. At September
30, 1999, 525,186 common stock shares had been repurchased at an average cost
of $12.59 per share.
On September 15, 1998, the Company received regulatory approval to repurchase
up to 9% or 321,368 shares of the 3,570,570 shares issued during Conversion
and Reorganization (as hereinafter defined). Prior to December 31, 1998,
321,368 common stock shares had been repurchased at an average cost of $13.62
per share. The shares repurchased will be held in the Company's treasury with
142,830 shares to be used by the management recognition and development plan.
(11) Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards ("SFAS") 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 Company does not anticipate that the adoption of SFAS No.
133 would have a material effect on its financial position or results of
operations.
11
<PAGE>
(12) Commitments and Contingencies
-----------------------------
The Community Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments generally include commitments to
originate mortgage and consumer loans. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The Community Bank's maximum exposure to
credit loss in the event of nonperformance by the borrower is represented by
the contractual amount of those instruments. The Community Bank uses the same
credit policies in making commitments as it does for on-balance sheet
instruments. Commitments to extend credit are conditional 14-day agreements
to lend to a customer subject to the Community Bank's usual terms and
conditions.
At September 30, 1999, the Community Bank had commitments to originate fixed
rate mortgage loans of $3.1 million at interest rates ranging from 7.38% to
10.50%. At September 30, 1999, adjustable rate mortgage loan commitments were
$5.1 million at interest rates ranging from 6.75% to 10.25%. Collateral is
not required to support commitments. Consumer loan commitments totaled $6.2
million and commercial loan commitments totaled $8.8 million at September 30,
1999.
The Company is a party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a
material effect, if any, on the Company's financial position, results of
operation, or liquidity.
12
<PAGE>
Item 2. RIVERVIEW BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Clause. This report contains certain "forward-looking
statements." The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protection of such safe harbor with forward-looking statements. These
forward-looking statements, which are included in Management's Discussion and
Analysis, describe future plans or strategies and include the Company's
expectations of future financial results. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify forward-
looking statements. The Company's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could
affect actual results include interest rate trends, the economic climate in
the Company's market area and the country as a whole, loan delinquency rates,
and changes in federal and state regulation. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
General
The Company, a Washington corporation, was organized on June 23, 1997 for the
purpose of becoming the holding company for Riverview Community Bank (formerly
Riverview Savings Bank, FSB) upon Riverview Savings Bank's reorganization as a
wholly owned subsidiary of the Company resulting from the conversion of
Riverview, M.H.C. from a federal mutual holding company to a stock holding
company ("Conversion and Reorganization"). The Conversion and Reorganization
was completed on September 30, 1997. Riverview Savings Bank, FSB changed its
name to Riverview Community Bank effective June 29, 1998.
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
13
<PAGE>
by the FDIC up to applicable legal limits under the Savings Association
Insurance Fund ("SAIF"). The Community Bank has been a member of the Federal
Home Loan Bank ("FHLB") System since 1937.
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 has also increased the portfolio
of loans for land development and small business financing and consumer loans.
The Community Bank operates ten branches in southwest Washington, including
six branches in Clark County, with two new Vancouver branches planned for
1999. 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 $40.0 million at September 30,
1999 were managed 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
14
<PAGE>
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 developed and has implemented 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. 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.
15
<PAGE>
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
during the quarter ended March 31, 1999. Testing of renovations and
new systems will continue throughout 1999.
5. Implementation - This phase has been substantially completed 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. As required
by the Company's Year 2000 plan, the Year 2000 readiness program was
substantially completed by June 30, 1999, consistent with the OTS
guidelines. The Company will continue to monitor its vendors and
internal processes for Year 2000 readiness throughout 1999.
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. As of
September 30, 1999, the costs incurred related to Year 2000, excluding
estimates of personnel costs, are approximately $108,000 which is within
original projections.
16
<PAGE>
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 was successfully
completed during the quarter ended June 30, 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 FHLB, 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.
17
<PAGE>
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 third-party vendors
and service providers. Certifications of Year 2000 compliance have been
received from the Company's third-party vendors and service providers.
Testing with selected mission critical providers was completed during the
quarter ended March 31, 1999. The Company will supplement its existing
business continuity plans to deal with the special circumstances of Year 2000
problems. These contingency plans provide timetables to pursue various
alternatives based upon the failure of a system to be adequately modified or
sufficiently tested and validated to ensure Year 2000 compliance.
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 September 30, 1999, the Company had total assets of $316.5 million compared
with $302.6 million at March 31, 1999. The $13.9 million, or 4.6% increase in
assets reflects the growth in loans. Cash, including interest-earning
accounts, totaled $10.8 million at September 30, 1999 compared to $17.2
million at March 31, 1999. At September 30, 1999, the Company had $248.4
million in gross loans, an increase of $35.4 million compared to $213.0
million at March 31, 1999. Commercial loans increased $10.9 million to $19.6
million at September 30, 1999 from $8.7 million at March 31, 1999. The $10.9
million increase was made up of several loans and occurred in commercial loans
secured by real estate, commercial loans secured by equipment, commercial
loans secured by other collateral and unsecured commercial loans. Loans
receivable (Note 7), provides a detailed analysis of the $35.4 million
increase in gross loans. Consumer, commercial, and land loans
18
<PAGE>
carry higher interest rates and a higher degree of credit risk compared to
one-to-four family mortgage loans. Deposits totaled $215.2 million at
September 30, 1999 compared to $200.3 million at March 31, 1999. FHLB
advances totaled $44.6 million at September 30, 1999 and $42.6 million at
March 31, 1999. During the quarter ended September 30, 1999, the Community
Bank replaced the called $30.0 million, five year term, 4.49% rate putable
advance with short term fixed rate advances of $22.0 million, 5.38% rate and
$10.0 million, 5.74% rate.
Capital Resources
Total shareholders' equity decreased $3.5 million, or 6.5%, from $56.9 million
at March 31, 1999 to $53.4 million at September 30, 1999. The $3.5 million
decrease in shareholders' equity was the net result of $2.0 million in
earnings for the year to date, dividends of $947,000, purchase of 290,445
treasury shares for $3.5 million and $1.1 million change in net unrealized
loss on securities available for sale, net of tax.
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, 1999, the Community Bank meets all capital adequacy requirements to which
it is subject.
19
<PAGE>
As of September 30, 1999, 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,
1999, the Community Bank's tangible, core and risk-based total capital ratios
amounted to 15.4%, 15.4%, and 25.2%, 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 September 30, 1999 ------ ----- ------ ----- ------ -----
Total Capital:
(To Risk Weighted
Assets) $48,392 25.6% $15,142 8.0% $18,927 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 47,701 25.2 N/A N/A 11,356 6.0
Core Capital:
(To Total Assets) 47,701 15.4 9,325 3.0 15,542 5.0
Tangible Capital:
(To Tangible Assets) 47,701 15.4 4,663 1.5 N/A N/A
As of March 31, 1999
Total Capital:
(To Risk Weighted
Assets) $47,145 28.6% $13,213 8.0% $16,516 10.0%
Tier I Capital:
(To Risk Weighted
Assets) 46,470 28.1 N/A N/A 9,909 6.0
Core Capital:
(To Total Assets) 46,470 15.7 8,861 3.0 14,768 5.0
Tangible Capital:
(To Tangible Assets) 46,470 15.7 4,430 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, 1999 (in
thousands):
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<PAGE>
Equity $48,754
Net unrealized loss on securities
available for sale 1,340
Core deposit intangible asset (1,512)
Deferred tax and servicing asset (881)
-------
Tangible capital 47,701
Land held for development (471)
General valuation allowance 1,162
-------
Total capital $48,392
=======
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 35.3% at September 30, 1999 compared to
52.9% at March 31, 1999. The Community Bank anticipates that it will have
sufficient funds available to meet current loan commitments and other cash
needs. At September 30, 1999, the Community Bank had outstanding commitments
to originate $8.3 million of mortgage loans, none of which were committed to
be sold in the secondary market.
Cash, including interest-earning overnight investments, was $10.8 million at
September 30, 1999 compared to $17.2 million at March 31, 1999. Investment
securities and mortgage-backed securities available for sale at September 30,
1999 were $13.1 million and $44.7 million, respectively, compared to $13.3
million and $53.4 million, respectively, at March 31, 1999. See "Financial
Condition".
Asset Quality
Allowance for loan losses was $1.2 million at September 30, 1999, compared to
$1.1 million at March 31, 1999. Management deemed the allowance for loan
losses at September 30, 1999 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, industry
trends, industry data, current and anticipated economic conditions, and
detailed analysis of individual loans. The appropriate allowance level is
21
<PAGE>
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 0.31% of total assets at September
30, 1999 compared with $1.3 million, or 0.44% of total assets at March 31,
1999. The following table sets forth information with respect to the Community
Bank's nonperforming assets at the dates indicated:
September 30, 1999 March 31, 1999
------------------ --------------
(Dollars in thousands)
Loans accounted for on
a nonaccrual basis:
Real Estate
Residential $ 92 $1,052
Commercial 192 208
Consumer 29 33
------ ------
Total 313 1,293
------ ------
Accruing loans which are
contractually past due 90
days or more 240 5
------ ------
Total of nonaccrual and
90 days past due loans 553 1,298
------ ------
Real estate owned 338 30
Other personal property owned 80 -
------ ------
Total nonperforming assets $ 971 $1,328
====== ======
Total loans delinquent 90
days or more to net loans 0.25% 0.69%
Total loans delinquent 90
days or more to total assets 0.17 0.43
Total nonperforming assets
to total assets 0.31 0.44
Comparison of Operating Results for the Three Months Ended
September 30, 1999 and 1998
The Company's net income depends primarily on its net interest income, which
s the difference between interest earned on its loans and investments and the
interest paid on interest-bearing liabilities. Net interest income is
22
<PAGE>
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, 1999 was $1.0 million,
$0.20 per basic share ($0.19 per diluted share). This compares to net income
of $1.2 million, $0.20 per basic share ($0.19 per diluted share) for the same
period in fiscal 1999. Net interest income increased $280,000, or 9% for the
three months ended September 30, 1999 from $3.2 million for the three months
ended September 30, 1998 due primarily to a 14% increase in average
interest-earning assets. Non-interest income increased $29,000, or 4% for the
three months ended September 30, 1999 from $699,000 for the three months ended
September 30, 1998, reflecting increases in fees and service charges and
decreases in fees from brokered loans. Non-interest expense increased
$546,000, or 26% as compared to the same period for the prior year. The
increase in non-interest expense is due primarily to increased salaries and
employee benefits, marketing and occupancy expense.
Average interest-earning assets increased to $298.6 million for the three
months ending September 30, 1999 from $261.0 million for the three months
ending September 30, 1998. The $37.6 million increase is due primarily to
growth in the loan portfolio.
Interest income for the three months ended September 30, 1999 was $6.2
million, an increase of $600,000, or 11% over the $5.6 million interest income
for the same period in 1998. Yield on interest-earning assets for the three
month 1999 period was 8.21% compared to 8.51% for the same three month
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<PAGE>
period in 1998. The lower second quarter 1999 yield on interest-earning
assets reflects the decrease in loan fees amortized into income resulting from
the reduction in real estate mortgage loan refinance activity in the 1999
quarter compared to the 1998 quarter. The 1999 second quarter mix of assets
was effected by the September 29, 1998 purchase of $30.0 million in mortgage-
backed securities. Mortgage-backed securities have a lower interest yield
than loans and contributed to the lower yield in the 1999 second quarter
interest-earning assets as compared to the second quarter 1998. The higher
interest income in the 1999 second quarter as compared to the 1998 second
quarter resulted from growth in the loan portfolio and the increase in the
average balance of mortgage-backed securities.
Interest expense was $2.6 million and $2.3 million for the quarters ended
September 30, 1999 and 1998, respectively. The cost of interest-bearing
liabilities for the three month 1999 period was 4.38% compared to 4.70% for
the three month 1998 period. The mix of interest-bearing liabilities changed
due to a $30.0 million FHLB borrowing that was used to purchase $30.0 million
of mortgage-backed securities. The $30.0 million FHLB borrowing at 4.49%
contributed to the lower 1999 cost of interest-bearing liabilities. Growth in
the second quarter average balance of money market accounts from $20.9 million
at September 30, 1998 to $36.4 million at September 30, 1999 also lowered the
1999 cost of interest-bearing liabilities.
Net interest income increased $300,000, or 9%, to $3.5 million for the three
months ended September 30, 1999, compared to $3.2 million for the three months
ended September 30, 1998. The change in volume of average interest-earning
assets and liabilities when the second quarter averages are compared for
quarter ending September 30, 1998 and September 30, 1999 increased net
interest income $500,000. The change in interest rates for the same period
reduced net interest income $200,000. The interest rate spread increased from
3.80% for the three month 1998 period to 3.83% for the three month 1999
period. The net interest margin decreased to 4.71% during the second quarter
ended September 30, 1999 from 4.94% for the second quarter ended September 30,
1998. The decreased 1999 net interest margin reflects the change in the mix of
interest-earning assets caused by the September 29, 1998 $30.0 million
purchase of mortgage-backed securities. The reduced amount of loan fees
amortized to income in the second quarter of 1999 compared to the same period
for the
24
<PAGE>
prior year is also reflected in the reduced 1999 net interest margin when
compared to the same period a year earlier. Average interest-earning assets
increased by $37.6 million to $298.6 million during the second quarter ended
September 30, 1999 from $261.0 million for the second quarter ended September
30, 1998. The $37.6 million increase in average interest-earning assets was
offset by the $40.6 million increase in average interest-bearing liabilities.
Interest-bearing liabilities increased to $238.6 million during the quarter
ended September 30, 1999 from $198.0 million for the quarter ended September
30, 1998.
The provision for loan losses was $90,000 and there were $120,000 in net
charge-offs during the three months ended September 30, 1999 compared to a
$60,000 provision and $28,000 in net charge-offs during the three months ended
September 30, 1998. 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 $29,000, or 4%, to $728,000 for the three months
ended September 30, 1999 from $699,000 for the three months ended September
30, 1998. The $29,000 increase for the current quarter is primarily due to a
$39,000 increase in deposit service charges resulting from an increased number
of deposit accounts and the result of a new fee schedule.
Non-interest expense increased $546,000, or 26%, from $2.1 million for the
quarter ended September 30, 1998 to $2.6 million for the quarter ended
September 30, 1999. Salaries and employee benefits increased $258,000 to $1.3
million for the quarter ended September 30, 1999 as compared to the 1998
quarter. There were 22 more full-time equivalent employees during the 1999
quarter over the 1998 quarter. This resulted from expansion of services
offered by adding the new branch, the new trust corporation, Riverview Asset
Management Corporation, and the new commercial lending department in the
Vancouver Financial Center. Expansion also occurred in the mortgage broker
division and support functions.
Provision for federal income taxes for the second quarter of fiscal 1999 was
$523,000, resulting in an effective tax rate of 34%, compared to $655,000 and
36% for the like quarter of a year ago. The 2% decrease in the effective tax
rate for three months ended September 30, 1999 is primarily
25
<PAGE>
attributable to the impact of the ESOP market value adjustment.
Comparison of Operating Results for the Six Months Ended
September 30, 1999 and 1998
Net income for the six months ended September 30, 1999 was $2.0 million, $0.38
per basic share ($0.37 per diluted share). This compares to net income of
$2.4 million, $0.41 per basic share ($0.41 per diluted share) for the same
period in fiscal 1998. The earnings per basic share decrease of 7% to $0.38
for the six months ended September 30, 1999 from $0.41 for the six months
ended September 30, 1998 reflected several factors. Net interest income
increased $417,000, or 6% for the six months ended September 30, 1999 compared
to the same period in fiscal 1999 due to a 14% increase in interest-earning
assets. Non-interest income increased $110,000, or 8% reflecting increases in
fees and service charges in fiscal 2000 as compared to fiscal 1999.
Average interest-earning assets increased to $294.1 million for the six months
ending September 30, 1999 from $258.8 million for the six months ending
September 30, 1998.
Interest income for the six months ended September 30, 1999 was $12.1 million,
an increase of $907,000, or 8% over $11.2 million for the same period in 1998.
Yield on interest-earning assets for the six month 1999 period was 8.26%
compared to 8.64% for the six month 1998 period. The lower 1999 yield on
interest-earning assets reflects the decrease in loan fees amortized into
income resulting from the reduction in residential real estate loan refinance
activity for the six months ended September 30, 1999 compared to the same
period in 1998. The mix of assets for the six months ended September 30, 1999
was effected by the September 29, 1998 purchase of $30.0 million in
mortgage-backed securities. Mortgage-backed securities have a lower interest
yield than loans and contributed to the lower yield on the interest-earning
assets at September 30, 1999 as compared to yield on interest-earning assets
at September 30, 1998. The higher interest income for the six month period
ended September 30, 1999 as compared to the same period in 1998 resulted from
growth in the loan portfolio and the increase in the average balance of
mortgage-backed securities.
Interest expense for the six months ended September 30, 1999 was $5.2 million,
an increase of $490,000, or 10% over $4.7 million for the same period in 1998.
The cost of interest-
26
<PAGE>
bearing liabilities for the six month 1999 period was 4.40% compared to 4.71%
for the six month 1998 period. The mix of interest- bearing liabilities
changed due to the September 29, 1998 $30.0 million FHLB borrowing. The $30.0
million FHLB borrowing at 4.49% contributed to the lower 1999 cost of
interest-bearing liabilities. Growth in the six month average balance of
money market accounts from $20.1 million for the quarter ended September 30,
1998 to $31.8 million for the quarter ended September 30, 1999 also lowered
the 1999 cost of interest-bearing liabilities.
Net interest income increased $417,000, or 6%, to $7.0 million for the six
months ended September 30, 1999, compared to $6.5 million for the six months
ended September 30, 1998. The change in volume of average interest-earning
assets and liabilities when the year to date averages are compared at
September 30, 1998 and September 30, 1999 increased net interest income
$900,000. The change in interest rates for the same period reduced net
interest income $460,000 million. The $417,000 increase in net interest income
for the six months ended September 30, 1999 was due primarily to the 14%
increase in average interest-earning assets to $294.1 million at September 30,
1999 from $258.8 million at September 30, 1998. The interest rate spread
decreased from 3.93% for the six month 1998 period to 3.86% for the six month
1999 period. The net interest margin decreased to 4.75% during the six month
period ended September 30, 1999 from 5.04% for the six month period ended
September 30, 1998. The decreased margin reflects the change in the mix of
assets for the six months ended September 30, 1999 caused by the September 29,
1998 $30.0 million purchase of mortgage-backed securities. The decreased
margin also reflects the decrease in loan fees due to the decline in
residential real estate loan refinance activity for the six month period ended
September 30, 1999 when compared to the same period for the prior year. The
$35.3 million increase in average interest-earning assets was offset by the
$37.1 million increase in average interest-bearing liabilities. Interest-
bearing liabilities increased to $235.1 million during the six months ended
September 30, 1999 from $198.0 million for the six months ended September 30,
1998.
The provision for loan losses was $180,000 and there were $164,000 in net
charge-offs during the six months ended September 30, 1999 compared to a
$120,000 provision and $30,000 in net charge-offs during the six months ended
September 30, 1998. The balance of nonperforming assets has decreased from
year end March 31, 1999. The loan loss
27
<PAGE>
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 $110,000, or 8%, to $1.5 million for the six
months ended September 30, 1999 from $1.4 million for the six months ended
September 30, 1998. The $110,000 increase for the current six months is
primarily due to a $145,000 increase in deposit service charges resulting from
an increased number of deposit accounts and the result of a new fee schedule.
Non-interest expense increased $1.2 million, or 30%, from $4.0 million for the
six months ended September 30, 1998 to $5.2 for the six months ended September
30, 1999. The $1.2 million increase for the six months ended September 30,
1999 reflects the addition of 22 full-time equivalent employees over the six
months ended September 30, 1998. This resulted from expansion of services
offered by adding the new branch, the new trust corporation, Riverview Asset
Management Corporation, and the new commercial lending department in the
Vancouver Financial Center. Expansion also occurred in the mortgage broker
division and support functions. Salaries and employee benefits increased
$617,000 to $2.7 million for the six months ended September 30, 1999 as
compared to the same period in fiscal 1998.
Provision for federal income taxes for the six months ended September 30, 1999
was $1.0 million resulting in an effective tax rate of 34%, compared to $1.4
million and 37% for the like period a year ago. The 3.0% decrease in the
effective tax rate for six months ended September 30, 1999 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, 1999.
28
<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 Schaeffer**
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.
29
<PAGE>
- --------------
* 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.
30
<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 5, 1999 BY:/S/ Patrick Sheaffer
Patrick Schaeffer
President
DATE:November 5, 1999 BY:/S/ Ron Wysaske
Ron Wysaske
Executive Vice President/Treasurer
31
<PAGE>
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