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, 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--- 4,962,030 shares as of
February 1, 2000.
<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 December 31, 1999 and March 31, 1999 1
Consolidated Statements of Income: Three and Nine
Months Ended December 31, 1999 and 1998 2
Consolidated Statements of Shareholders' Equity
for the Year Ended March 31, 1999 and for the
Nine Months Ended December 31, 1999 3
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 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 13-27
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
DECEMBER 31, 1999 and MARCH 31, 1999
DECEMBER 31, MARCH 31,
(In thousands, except share data) (Unaudited) 1999 1999
- ------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of
$3,960 and $11,612) $ 12,403 $ 17,207
Loans held for sale 151 341
Investment securities held to maturity, at
amortized cost (fair value of $892 and $4,980) 923 4,943
Investment securities available for sale, at fair
value (amortized cost of $14,422 and $13,751) 13,028 13,280
Mortgage-backed securities held to maturity, at
amortized cost (fair value of $9,203 and $12,939) 9,222 12,715
Mortgage-backed securities available for sale, at
fair value (amortized cost of $43,092 and $53,808) 41,425 53,372
Loans receivable (net of allowance for loan losses
of $1,231 and $1,146) 232,384 186,836
Real estate owned 323 30
Prepaid expenses and other assets 983 895
Accrued interest receivable 1,748 1,543
Federal Home Loan Bank stock 2,759 2,614
Premises and equipment 8,154 6,185
Land held for development 471 471
Deferred income taxes, net 1,016 493
Core deposit intangible, net 1,431 1,676
--------- ---------
TOTAL ASSETS $ 326,421 $ 302,601
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit accounts $ 223,783 $ 200,311
Accrued expenses, minority interest and
other liabilities 3,062 2,834
Advance payments by borrowers for taxes
and insurance 44 39
Federal Home Loan Bank advances 46,119 42,550
--------- ---------
Total liabilities 273,008 245,734
--------- ---------
COMMITMENTS 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, December 31, 1999 - 5,458,324
issued, 5,077,030 outstanding; March 31,
1999 - 5,780,824 issued, 5,346,322
outstanding 54 58
Additional paid-in capital 43,979 48,120
Retained earnings 15,052 13,602
Unearned shares issued to employee stock
ownership trust (2,474) (2,743)
Unearned shares held by the management
recognition and development plan (1,178) (1,571)
Accumulated other comprehensive loss (2,020) (599)
--------- ---------
Total shareholders' equity 53,413 56,867
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 326,421 $ 302,601
========= =========
See notes to consolidated financial statements.
1
<PAGE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
(In thousands, except December 31, December 31,
share data) (Unaudited) 1999 1998 1999 1998
- ------------------------------------------------------- ----------------------
INTEREST INCOME:
Interest and fees on loans
receivable $ 5,227 $ 4,487 $ 14,730 $ 412,890
Interest on investment
securities 207 267 685 923
Interest on mortgage-backed
securities 828 1,142 2,649 2,717
Other interest and dividends 120 257 443 841
---------- ---------- ---------- ----------
Total interest income 6,382 6,153 18,507 17,371
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 2,204 2,090 6,315 6,078
Interest on borrowings 623 544 1,682 1,236
---------- ---------- ---------- ----------
Total interest expense 2,827 2,634 7,997 7,314
---------- ---------- ---------- ----------
Net interest income 3,555 3,519 10,510 10,057
Less provision for loan
losses 242 60 422 180
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 3,313 3,459 10,088 9,877
---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Fees and service charges 596 672 1,894 1,790
Gain on sale of loans held
for sale 10 102 24 211
Gain on sale of securities 24 - 24 37
Loan servicing income 29 22 101 89
Other - 22 107 72
---------- ---------- ---------- ----------
Total non-interest income 659 818 2,150 2,199
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee
benefits 1,449 1,570 4,180 3,684
Occupancy and depreciation 544 435 1,580 1,211
Amortization of core deposit
intangible 82 82 245 245
Marketing expense 133 77 471 231
FDIC insurance premium 30 27 88 80
Other 504 425 1,418 1,148
---------- ---------- ---------- ----------
Total non-interest expense 2,742 2,616 7,982 6,599
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME
TAXES 1,230 1,661 4,256 5,477
PROVISION FOR FEDERAL INCOME
TAXES 362 606 1,394 1,999
---------- ---------- ---------- ----------
NET INCOME $ 868 $ 1,055 $ 2,862 $ 3,478
========== ========== ========== ==========
Earnings per common share:
Basic $ 0.17 $ 0.19 $ 0.55 $ 0.60
Diluted 0.17 0.18 0.54 0.59
Weighted average number of
shares outstanding:
Basic 5,097,451 5,618,046 5,208,843 5,765,291
Diluted 5,186,319 5,733,980 5,317,529 5,891,856
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999
AND THE NINE MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
Unearned
Shares
Issued to Accum-
Employee ulated
Common Addi- Stock Unearned Other
Stock tional Owner- Shares Compre-
(In thousands, except ---------------- Paid-in Retained ship Issued to hensive
per share data) Shares Amount Capital Earnings Trust MRDP Income Total
- ---------------------------------------------------------------------------------------------------------
<S> <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
Stock repurchased and
retired (413,279) (4) (5,457) - - - - (5,461)
Earned ESOP shares 24,632 - 52 - 250 - - 302
Shares acquired by MRDP (142,830) - (15) - - (1,964) - (1,979)
Earned MRDP shares 28,566 - - - - 393 - 393
--------- ---- -------- -------- -------- -------- ------- --------
5,346,322 58 48,120 9,139 (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 reclassi-
fication 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 58 48,120 13,602 (2,743) (1,571) (599) 56,867
Cash dividends - - - (1,412) - - - (1,412)
Exercise of stock
options 34,096 - 137 - - - - 137
Stock repurchased and
retired (356,583) (4) (4,298) - - - - (4,302)
Earned ESOP shares 24,629 - 20 - 269 - - 289
Earned MRDP shares 28,566 - - - - 393 - 393
--------- ---- -------- -------- -------- -------- ------- --------
5,077,030 54 43,979 12,190 (2,474) (1,178) (599) 51,972
Comprehensive income:
Net income - - - 2,862 - - - 2,862
Other comprehensive
income:
Unrealized holding loss
on securities of $1,421
(net of $732 tax
benefit) - - - - - - (1,421) (1,421)
--------
Total comprehensive income - - - - - - - 1,441
--------- ---- -------- -------- -------- -------- ------- --------
Balance December 31, 1999 5,077,030 $ 54 $ 43,979 $ 15,052 $ (2,474) $ (1,178) $(2,020) $ 53,413
========= ==== ======== ======== ======== ======== ======= ========
See notes to consolidated financial statements.
3
</TABLE>
<PAGE>
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31,
(In thousands) (Unaudited) 1999 1998
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,862 $ 3,478
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 997 900
Provision for losses on loans 422 180
Provision for deferred income taxes 208 -
Noncash expense related to ESOP benefit 211 186
Noncash expense related to MRDP benefit 295 491
Increase in deferred loan origination fees,
net of amortization 395 269
Federal Home Loan Bank stock dividend (145) (124)
Net loss (gain) on sale of real estate owned,
mortgage-backed and investment securities and
premises and equipment 14 (59)
Changes in assets and liabilities:
Decrease in loans held for sale 190 796
Decrease (increase) in prepaid expenses and
other assets 88 (84)
Increase in accrued interest receivable (205) (137)
Increase in accrued expenses, minority interest
and other liabilities 228 215
--------- ---------
Net cash provided by operating activities 5,560 6,111
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (121,331) (115,569)
Principal repayments on loans 70,418 77,683
Loans sold 3,673 22,021
Proceeds from call, maturity, or sale of
investment securities available for sale 1,000 17,049
Purchase of investment securities available
for sale (1,673) (21,908)
Purchase of mortgage-backed securities
available for sale - (33,377)
Principal repayments on mortgage-backed
securities held to maturity 3,557 5,969
Principal repayments on mortgage-backed
securities available for sale 10,488 6,907
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 4,151
Purchase of premises and equipment (2,563) (1,461)
Purchase of Federal Home Loan Bank stock - (475)
Proceeds from sale of real estate 578 222
--------- ---------
Net cash used in investing activities (31,833) (39,770)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 23,472 19,077
Dividends paid (1,412) (959)
Stock purchased and retired (4,302) (2,399)
Stock acquired for MRDP - (1,979)
Proceeds from Federal Home Loan Bank advances 110,282 30,000
Repayment of Federal Home Loan Bank advances (106,713) (17,000)
Net increase (decrease) in advance payments
by borrowers 5 (77)
Proceeds from exercise of stock options 137 132
--------- ---------
Net cash provided by financing activities 21,469 26,795
--------- ---------
NET DECREASE IN CASH (4,804) (6,864)
CASH, BEGINNING OF PERIOD 17,207 27,482
--------- ---------
CASH, END OF PERIOD $ 12,403 $ 20,618
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 7,927 $ 7,237
Income taxes 1,355 2,104
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned 876 498
Dividends declared and accrued in other
liabilities 465 371
Fair value adjustment to securities available
for sale (2,153) (1,081)
Income tax effect related to fair value
adjustment 732 389
4
See notes to consolidated financial statements.
<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 nine months ended December 31, 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 Corporation 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 gains and losses on sale of securities available for sale.
5
<PAGE>
For the three months and nine months ended December 31, 1999, the Company's
total comprehensive income was $519,000 and $1.4 million, respectively,
compared to $615,000 and $2.8 million for the three and nine months ended
December 31, 1998, respectively.
Total comprehensive income for the three and nine months ended December 31,
1999 is comprised of net income of $868,000 and $2.9 million and other
comprehensive loss of $349,000 and $1.4 million, net of tax, respectively.
Other comprehensive income for the three and nine months ended December 31,
1999, consisted of unrealized securities losses of $349,000 and $1.4 million,
net of tax benefit, 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 $440,000 and $714,000 net of taxes, respectively. Other
comprehensive income for the three and nine months ended December 31, 1998,
consisted of unrealized securities losses of $440,000 and $714,000 net of tax
benefits less gains on securities available for sale included in non-interest
income of $24,000 for the nine months, net of tax.
(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 EPS purposes until they are committed to be released.
6
<PAGE>
Three Months Ended
December 31,
------------------------------
1999 1998
---- ----
Basic EPS computation:
Numerator-Net Income $ 868,000 $1,055,000
Denominator-Weighted average
common shares outstanding 5,097,451 5,618,046
Basic EPS $ 0.17 $ 0.19
========== ==========
Diluted EPS computation:
Numerator-Net Income $ 868,000 $1,055,000
Denominator-Weighted average
common shares outstanding 5,097,451 5,618,046
Effect of dilutive stock options 88,868 115,934
Weighted average common shares ---------- ----------
and common stock equivalents 5,186,319 5,733,980
Diluted EPS $ 0.17 $ 0.18
========== =========
Nine Months Ended
December 31,
------------------------------
1999 1998
---- ----
Basic EPS computation:
Numerator-Net Income $2,862,000 $3,478,000
Denominator-Weighted average
common shares outstanding 5,208,843 5,765,291
Basic EPS $ 0.55 $ 0.60
========== =========
Diluted EPS computation:
Numerator-Net Income $2,862,000 $3,478,000
Denominator-Weighted average
common shares outstanding 5,208,843 5,765,291
Effect of dilutive stock options 102,273 124,225
Effect of dilutive MRDP 6,413 2,340
---------- ----------
Weighted average common shares
and common stock equivalents 5,317,529 5,891,856
Diluted EPS $ 0.54 $ 0.59
========== =========
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
--------- ---------- ---------- -----
December 31, 1999
- -----------------
Municipal lease $ 923 $ - $ (31) $ 892
-------- -------- --------- --------
Total $ 923 $ - $ (31) $ 892
======== ======== ========= ========
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
Cost Value
---------- ----------
December 31, 1999
- -----------------
Due after ten years $ 923 $ 892
-------- --------
Total $ 923 $ 892
======== ========
There were no sales of investment securities held to maturity during the
period ended December 31, 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
--------- ---------- ---------- -----
December 31, 1999
- -----------------
Agency securities $ 10,489 $ - $ (735) $ 9,754
Equity securities 1,356 - (502) 854
School district bonds 2,577 - (157) 2,420
-------- -------- --------- --------
Total $ 14,422 $ - $ (1,394) $ 13,028
======== ======== ========= ========
March 31, 1999
- --------------
Agency securities $ 11,489 $ 12 $ (61) $ 11,440
Equity securities 1,356 - (422) 934
School district bonds 906 - - 906
-------- -------- --------- --------
Total $ 13,751 $ 12 $ (483) $ 13,280
======== ======== ========= ========
The contractual maturities of investment securities available for sale are as
follows (In thousands):
Estimated
Amortized Fair
Cost Value
---------- ----------
December 31, 1999
- -----------------
Due after one year through five years $ 3,000 $ 2,958
Due after five years through ten years 4,460 4,208
Due after ten years 6,962 5,862
-------- --------
Total $ 14,422 $ 13,028
======== ========
Investment securities with an amortized cost of $5.1 million and $4.0 million
and a fair value of $4.9 million and $4.0 million at December 31, 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
--------- ---------- ---------- -----
December 31, 1999
- -----------------
Real estate mortgage
investment conduits $ 2,078 $ 10 $ - $ 2,088
FHLMC mortgage-backed
securities 2,534 15 (45) 2,504
FNMA mortgage-backed
securities 4,610 34 (33) 4,611
-------- -------- --------- --------
Total $ 9,222 $ 59 $ (78) $ 9,203
======== ======== ======== ========
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
======== ======== ======== ========
Mortgage-backed securities held to maturity with an amortized cost of $338,000
and $386,000 and a fair value of $333,000 and $388,000 at December 31, 1999
and March 31, 1999, respectively, were pledged as collateral for public funds
held by the Community Bank. 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
Cost Value
---------- ----------
December 31, 1999
- -----------------
Due after one year through five years $ 4,205 $ 4,147
Due after five years through ten years 507 502
Due after ten years 4,510 4,554
-------- --------
$ 9,222 $ 9,203
======== ========
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, 1999
- -----------------
Real estate mortgage
investment conduits $ 40,141 $ 9 $ (1,671) $ 38,479
FHLMC mortgage-backed
securities 636 - (3) 633
FNMA mortgage-backed
securities 2,315 9 (11) 2,313
-------- -------- --------- --------
Total $ 43,092 $ 18 $ (1,685) $ 41,425
======== ======== ========= ========
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
Cost Value
---------- ----------
December 31, 1999
- -----------------
Due after one year through five years $ 1,990 $ 1,980
Due after five years through ten years 2,329 2,322
Due after ten years 38,773 37,123
-------- --------
$ 43,092 $ 41,425
======== ========
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 available for sale with an amortized cost of $22.8
million and a fair value of $21.4 million at December 31, 1999 were pledged as
collateral for the discount window at the Federal Reserve Bank.
9
<PAGE>
(7) Loans Receivable
----------------
Loans receivable consisted of the following (in thousands):
December 31, March 31,
1999 1999
------------- -------------
Residential:
One to four family $ 93,899 $ 82,934
Multi-family 10,976 7,558
Construction:
One to four family 50,404 45,524
Multi-family 6,290 4,209
Commercial real estate 5,882 6,184
Commercial 25,015 8,676
Consumer:
Secured 14,004 12,691
Unsecured 2,862 2,769
Land 27,336 24,932
Non-residential 19,232 17,554
------------- -------------
255,900 213,031
Less:
Undisbursed portion of loans 19,119 22,278
Deferred loan fees, net 3,165 2,770
Allowance for possible loan losses 1,231 1,146
Unearned discounts 1 1
------------- -------------
Loans receivable, net $ 232,384 $ 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):
December 31, March 31,
1999 1999
------------- -------------
Federal Home Loan Bank Advances $ 46,119 $ 42,550
============= =============
Weighted average interest rate 5.70% 4.87%
============= =============
Borrowings have the following maturities at December 31, 1999 (in
thousands):
2000 $ 46,119
-------------
$ 46,119
=============
10
<PAGE>
(10) Shareholders' Equity
--------------------
Repurchase of Common Stock
On January 20, 2000, the Company received regulatory approval to repurchase up
to 10% or 545,834 shares of its outstanding common stock at December 31, 1999.
Because the State of Washington treats all treasury stock as retired upon
purchase, all purchases of treasury stock reduce stock issued and the cost of
treasury stock acquired is charged to par value and paid-in capital.
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.
At December 31, 1999, 591,324 common stock shares had been repurchased at an
average cost of $12.46 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 management recognition and development plan used 142,830 shares
of the common stock repurchased.
(11) Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards ("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 will 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 December 31, 1999, the Community Bank had commitments to originate fixed
rate mortgage loans of $1.7 million at interest rates ranging from 7.50% to
9.50%. At December 31, 1999, adjustable rate mortgage loan commitments were
$1.8 million at interest rates ranging from 9.50% to 10.50%. Collateral is
not required to support commitments. Consumer loan commitments totaled $6.0
million and commercial loan commitments totaled $14.2 million at December 31,
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 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. While the Community Bank has historically emphasized
real estate mortgage loans secured by one to four family residential real
estate, it has been diversifying its loan portfolio by focusing on increasing
the
13
<PAGE>
number of loan originations of commercial and consumer loans. The Community
Bank operates eleven branches in southwest Washington, including seven
branches in Clark County, with a new Vancouver branch and a new Washougal
facility to replace the existing Washougal branch planned for 2000. 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. The Business and Professional Banking Division located at
the downtown Vancouver Main branch offers commercial lending and business
banking services. 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 Vancouver Main branch,
which officially opened in October 1998. Assets totaling approximately $53.0
million at December 31, 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 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.
14
<PAGE>
State of Readiness
- ------------------
The Company 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 and non-
information technology assets have 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.
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
December 31, 1999, the costs incurred related to Year 2000, excluding
estimates of personnel costs, are approximately $108,000 which is within
original projections.
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's primary third-party computer service
provider is a computer service bureau that provides data processing services
that are mission critical services for the Company. Testing of this third-
party data processing service bureau started during the fourth quarter of
calendar year 1998 and was successfully completed during the quarter ended
June 30, 1999.
15
<PAGE>
Contingency Plans
- -----------------
Where it was possible to do so, the Company scheduled testing with third-party
vendors and service providers. Where it was not possible, the Company relied
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.
The change of the calendar to January 1, 2000 resulted in no "Year 2000
problem" for the Company. During the third quarter ended December 31, 1999
the Company experienced a very small dollar amount of deposit withdrawals
attributable to the Year 2000 issue. The Company will continue to maintain its
state of readiness for the remaining Year 2000 dates that have been designated
as possible Year 2000 issues.
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, 1999, the Company had total assets of $326.4 million compared
with $302.6 million at March 31, 1999. The $23.8 million, or 7.9% increase in
assets reflects the growth in loans. Cash, including interest-earning
accounts, totaled $12.4 million at December 31, 1999 compared to $17.2 million
at March 31, 1999. At December 31, 1999, the Company had $255.9 million in
gross loans, an increase of $42.9 million compared to $213.0 million at March
31, 1999. Commercial loans increased $16.3 million to $25.0 million at
December 31, 1999 from $8.7 million at March 31, 1999. The $16.3 million
increase was comprised of several loans and occurred in 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 $255.9 million gross loan portfolio at December 31, 1999 as
16
<PAGE>
compared to the $213.0 million gross loan portfolio at March 31, 1999.
Consumer, commercial, and land loans carry higher interest rates and generally
a higher degree of credit risk compared to one-to-four family mortgage loans.
Deposits totaled $223.8 million at December 31, 1999 compared to $200.3
million at March 31, 1999. FHLB advances totaled $46.1 million at December
31, 1999 and $42.6 million at March 31, 1999. During the quarter ended
December 31, 1999, the Community Bank replaced $29.0 million of matured
short-term fixed rate advances with a revolving line of credit that has a
floating rate.
Capital Resources
Total shareholders' equity decreased $3.5 million, or 6.2%, from $56.9 million
at March 31, 1999 to $53.4 million at December 31, 1999. The $3.5 million
decrease in shareholders' equity was the net result of $2.9 million in
earnings for the year to date, dividends of $1.4 million, exercise of stock
options of $137,000, purchase of 356,583 treasury shares for $4.3 million,
earned ESOP shares of $289,000, earned MRDP shares of $393,000 and $1.4
million change in net unrealized loss on securities available for sale, net of
tax benefit.
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,
1999, the Community Bank meets all capital adequacy requirements to which it
is subject.
17
<PAGE>
As of December 31, 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 December 31, 1999, the Community Bank's
tangible, core and risk-based total capital ratios amounted to 14.4%, 14.4%,
and 23.2%, 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
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provision
--------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1999
Total Capital:
(To Risk Weighted Assets) $46,525 23.5% $15,808 8.0% $19,760 10.0%
Tier I Capital:
(To Risk Weighted Assets) 45,765 23.2 N/A N/A 11,856 6.0
Core Capital:
(To Total Assets) 45,765 14.4 9,566 3.0 15,944 5.0
Tangible Capital:
(To Tangible Assets) 45,765 14.4 4,783 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, to
regulatory tangible and risk-based capital at December 31, 1999 (in
thousands):
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<PAGE>
Equity $46,423
Net unrealized loss on securities
available for sale 1,666
Core deposit intangible asset (1,431)
Deferred tax and servicing asset (893)
-------
Tangible capital 45,765
Land held for development (471)
General valuation allowance 1,231
-------
Total capital $46,525
=======
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 28.55% at December 31, 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 December 31, 1999, the Community Bank had outstanding commitments
to originate $3.5 million of mortgage loans, none of which were committed to
be sold in the secondary market, consumer loan commitments totaled $6.0
million and commercial loan commitments totaled $14.2 million.
Cash, including interest-earning overnight investments, was $12.4 million at
December 31, 1999 compared to $17.2 million at March 31, 1999. Investment
securities and mortgage-backed securities available for sale at December 31,
1999 were $13.0 million and $41.4 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 December 31, 1999, compared to
$1.1 million at March 31, 1999. Management deemed the allowance for loan
losses at December 31, 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
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<PAGE>
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. During the third quarter of 1999 the
provision for loan losses was increased to $242,000. The provision for loan
losses was $90,000 for the quarter ended September 30, 1999 and $60,000 for
the quarter ended December 31, 1998. The increase in the provision for loan
losses reflects the growth in the loan portfolio as compared to prior year and
the change in mix of the loan portfolio. The Community Bank's commercial loan
balance has increased $16.3 million or 188% during the past fiscal year from
$8.7 million at March 31, 1999 to $25.0 million at December 31, 1999. The
Community Bank's past loss experience with respect to its commercial loan
portfolio may not be representative of the risk of loss in such portfolios in
the future. The two major reasons for this fact is because the size of the
commercial loan portfolio has increased significantly and most of the loans
comprising the portfolio are unseasoned, having been originated within the
last two years. Commercial loans are considered to involve a higher degree of
credit risk than one-to-four residential loans, and to be more vulnerable to
adverse conditions in the real estate market and deteriorating economic
conditions.
Nonperforming assets were $536,000, or 0.16% of total assets at December 31,
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:
20
<PAGE>
December 31, 1999 March 31, 1999
----------------- --------------
(Dollars in thousands)
Loans accounted for on
a nonaccrual basis:
Real Estate
Residential $ 202 $1,052
Commercial - 208
Consumer - 33
------ ------
Total 202 1,293
------ ------
Accruing loans which are
contractually past due 90
days or more 11 5
------ ------
Total of nonaccrual and
90 days past due loans 213 1,298
------ ------
Real estate owned 288 30
Other personal property owned 35 -
------ ------
Total nonperforming assets $ 536 $1,328
====== ======
Total loans delinquent 90
days or more to net loans 0.09% 0.69%
Total loans delinquent 90
days or more to total assets 0.07 0.43
Total nonperforming assets
to total assets 0.16 0.44
Comparison of Operating Results for the Three Months Ended
December 31, 1999 and 1998
The Company's net income depends primarily on its net interest income, which
is the difference between interest earned on its loans and investments and the
interest paid on interest-bearing 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
21
<PAGE>
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, 1999 was $868,000, $0.17
per basic share ($0.17 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 1999. Net interest income increased $36,000, or 1.0% for the
three months ended December 31, 1999 from $3.5 million for the three months
ended December 31, 1998 due primarily to a 4.4% increase in average interest-
earning assets. Non-interest income decreased $159,000, or 19.4% for the three
months ended December 31, 1999 from $818,000 for the three months ended
December 31, 1998, reflecting increases in fees and service charges and
decreases in fees from brokered loans and gain on sale of loans held for sale.
Non-interest expense increased $126,000, or 4.8% as compared to the same
period for the prior year. The increase in non-interest expense is due
primarily to increased marketing and occupancy expense which was partially
offset by decreased salaries and employee benefit expenses reflecting the
decreased brokered loan activity.
Average interest-earning assets increased to $304.2 million for the three
months ending December 31, 1999 from $291.3 million for the three months
ending December 31, 1998. The $12.9 million increase is due primarily to
growth in the loan portfolio.
Interest income for the three months ended December 31, 1999 was $6.4 million,
an increase of $229,000, or 3.7% over the $6.2 million interest income for the
same period in 1998. Yield on interest-earning assets for the three month 1999
period was 8.37% compared to 8.38% for the same three month period in 1998.
The lower third quarter 1999 yield on interest-earning assets reflected 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 higher interest income in the 1999 third quarter as
compared to the 1998 third quarter resulted from growth in the loan portfolio.
Interest expense was $2.8 million and $2.6 million for the quarters ended
December 31, 1999 and 1998, respectively. The cost of interest-bearing
liabilities for the three month 1999 period was 4.61% compared to 4.48% for
the three month 1998
22
<PAGE>
period. The increased cost of interest-bearing liabilities is primarily due to
the increase in the interest rate on Federal Home Loan Bank advances. Growth
in the third quarter average balance of money market accounts from $22.1
million at December 31, 1998 to $42.5 million at December 31, 1999, lowered
the 1999 cost of interest-bearing liabilities.
Net interest income increased $36,000, or 1.0%, to $3.6 million for the three
months ended December 31, 1999, compared to $3.5 million for the three months
ended December 31, 1998. Net interest income was increased $630,000 due to the
change in volume of average interest-earning assets and liabilities when the
three months for fiscal 2000 are compared to the same fiscal 1999 period. The
change in interest rates for these three month periods reduced net interest
income $450,000. The change in rate volume mix for the same three month
periods reduced net interest income $140,000. The interest rate spread
decreased from 3.90% for the three month 1998 period to 3.76% for the three
month 1999 period. The net interest margin decreased to 4.67% during the
third quarter ended December 31, 1999 from 4.79% for the third quarter ended
December 31, 1998. The decreased 1999 net interest margin reflects the reduced
amount of loan fees amortized to income in the third quarter of 1999 compared
to the same period for the prior year. Average interest-earning assets
increased by $12.9 million to $304.2 million during the third quarter ended
December 31, 1999 from $291.3 million for the third quarter ended December 31,
1998. The $12.9 million increase in average interest-earning assets was
offset by the $10.8 million increase in average interest-bearing liabilities.
Average interest-bearing liabilities increased to $243.9 million during the
quarter ended December 31, 1999 from $233.1 million for the quarter ended
December 31, 1998.
The provision for loan losses was $242,000 and there were $172,249 in net
charge-offs during the three months ended December 31, 1999 compared to a
$60,000 provision and $3,973 in net recoveries during the three months ended
December 31, 1998. The increase in net charge-offs in the quarter ended
December 31, 1999 were the result of one commercial loan and several consumer
loans. The increase in the provision for loan losses is the result of growth
in the loan portfolio as compared to prior year and to replenish the allowance
for loan losses for charge-offs. Loan receivable (Note 7) provides a detailed
analysis of the $42.9 million increase in gross loans. The loan loss provision
was deemed necessary based upon management's analysis of historical and
23
<PAGE>
anticipated loss rates, current loan growth, and other factors considered.
Non-interest income decreased $159,000, or 19.4%, to $659,000 for the three
months ended December 31, 1999 from $818,000 for the three months ended
December 31, 1998. The $159,000 decrease is the result of the reduction in
real estate mortgage loan refinance activity in the 1999 quarter compared to
the 1998 quarter resulting in decreased fees on brokered real estate loans.
Non-interest expense increased $126,000, or 4.8%, from $2.6 million for the
quarter ended December 31, 1998 to $2.7 million for the quarter ended December
31, 1999. Salaries and employee benefits decreased $121,000 to $1.4 million
for the quarter ended December 31, 1999 as compared to the 1998 quarter. The
$121,000 decrease is the result of the reduction in real estate mortgage loan
refinance activity which produced less commission expense for brokered
residential real estate loans. There were 16 more full-time equivalent
employees during the 1999 quarter over the 1998 quarter. The increase in
full-time equivalent employees was due to the expansion occurring in branches,
commercial lending, trust company and support functions. In November 1999 a
new branch was opened in Clark County which brings the total number of
branches to eleven.
Provision for federal income taxes for the third quarter of fiscal 2000 was
$362,000, resulting in an effective tax rate of 29%, compared to $606,000 and
36% for the same quarter of fiscal 1999. The 7% decrease in the effective tax
rate for three months ended December 31, 1999 is primarily attributable to the
impact of tax exempt interest, ESOP dividends and the ESOP market value
adjustment.
Comparison of Operating Results for the Nine Months Ended
December 31, 1999 and 1998
Net income for the nine months ended December 31, 1999 was $2.9 million, $0.55
per basic share ($0.54 per diluted share). This compares to net income of
$3.5 million, $0.60 per basic share ($0.59 per diluted share) for the same
period in fiscal 1999. The earnings per basic share decrease of 8% to $0.55
for the nine months ended December 31, 1999 from $0.60 for the nine months
ended December 31, 1998 reflected several factors. Net interest income
increased $453,000, or 4.5% for the nine months ended December 31, 1999
compared to
24
<PAGE>
the same period in fiscal 1999 due to a 10.5% increase in interest-earning
assets. Non-interest income decreased $49,000, or 2.2% reflecting increases
in fees and service charges that were offset by decreased gains on sale of
loans held for sale in fiscal 2000 as compared to fiscal 1999.
Average interest-earning assets increased to $297.9 million for the nine
months ending December 31, 1999 from $269.7 million for the nine months ending
December 31, 1998.
Interest income for the nine months ended December 31, 1999 was $18.5 million,
an increase of $1.1 million or 6.5% over $17.4 million for the same period in
1998. Yield on interest-earning assets for the nine month 1999 period was
8.29% compared to 8.56% for the nine 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 nine months ended December 31, 1999 compared to the same
period in 1998. The 1999 mix of assets was affected by the September 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 1999 interest-earning assets as compared to the yield on interest-
earning assets in 1998. The higher interest income for the nine month period
ended December 31, 1999 as compared to the same period in 1998 resulted from
growth in the loan portfolio.
Interest expense for the nine months ended December 31, 1999 was $8.0 million,
an increase of $683,000, or 9.3% over $7.3 million for the same period in
1998. The cost of interest-bearing liabilities for the nine month 1999 period
was 4.47% compared to 4.60% for the nine month 1998 period. The increased
interest expense is due to a 12.7% growth in interest-bearing liabilities from
$211.3 million at December 31,1998 to $238.1 million at December 31, 1999.
Growth in the nine month average balance of money market accounts from $20.8
million for the nine month period ended December 31, 1998 to $35.4 million for
the nine month period ended December 31, 1999 contributed to reducing the cost
of interest-bearing liabilities for the 1999 period.
Net interest income increased $453,000, or 4.5%, to $10.5 million for the nine
months ended December 31, 1999, compared to $10.1 million for the nine months
ended December 31, 1998. The change in volume of year to date average
interest-earning assets and liabilities compared at December 31, 1998 and
December 31, 1999 increased net interest income $1.7 million.
25
<PAGE>
The change in interest rates decreased net interest income $1.0 million and
the rate volume mix decreased net interest income $233,000 for the same
period. The $453,000 increase in net interest income for the nine months ended
December 31, 1999 was due primarily to the 10.5% increase in average
interest-earning assets to $297.9 million at December 31, 1999 from $269.7
million at December 31, 1998. The interest rate spread decreased from 3.96%
for the nine month 1998 period to 3.82% for the nine month 1999 period. The
net interest margin decreased to 4.72% during the nine month period ended
December 31, 1999 from 4.96% for the nine month period ended December 31,
1998. The decreased margin reflects the change in the mix of assets for the
nine months ended December 31, 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 nine month period ended December 31,
1999 when compared to the same period for the prior year. The $28.2 million
increase in average interest-earning assets was funded by both the $26.8
million increase in average interest-bearing liabilities and the $7.5 million
increase in average non-interest-bearing deposits.
The provision for loan losses was $422,000 and there were $337,000 in net
charge-offs during the nine months ended December 31, 1999 compared to a
$180,000 provision and $25,000 in net charge-offs during the nine months ended
December 31, 1998. Total nonperforming assets to total assets has decreased
from 0.44% at March 31, 1999 to 0.16% at December 31, 1999. 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 decreased $49,000 or 2.2% to $2.2 million for the nine
months ended December 31, 1999 compared to the same period for the prior year.
The mix of non-interest income changed with the increase in deposit service
charges being offset by the decrease in the fees received on brokered real
estate residential loans as the result of reduced residential loan refinance
activity.
Non-interest expense increased $1.4 million, or 21%, from $6.6 million for the
nine months ended December 31, 1998 to $8.0 for the nine months ended December
31, 1999. The $1.4 million increase reflects the addition of 16 full-time
equivalent employees and increased occupancy expense. Full time equivalent
employees increased to 125 at December 31,
26
<PAGE>
1999 compared to 109 at December 31, 1998 due to expansion of branches,
commercial lending, trust company and support functions. Salaries and employee
benefits increased $496,000 to $4.2 million for the nine months ended December
31, 1999 as compared to the same period in fiscal 1999.
Provision for federal income taxes for the nine months ended December 31, 1999
was $1.4 million resulting in an effective tax rate of 33%, compared to $2.0
million and 36% for the like period a year ago. The 3% decrease in the
effective tax rate for the nine months ended December 31, 1999 is primarily
attributable to the impact of tax exempt interest, ESOP dividends and the ESOP
market value adjustment.
27
<PAGE>
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 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.
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: February 11, 2000 BY: /S/ Patrick Sheaffer
Patrick Sheaffer
President
DATE: February 11, 2000 BY: /S/ Ron Wysaske
Ron Wysaske
Executive Vice President/Treasurer
31
<PAGE>
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