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 June 30, 2002
-------------
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.)
900 Washington, Suite 900 Vancouver, WA 98660
(Address of principal executive office)
Registrant's telephone number, including area code: (360)693-6650
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---4,361,948 shares as of July
31, 2002.
Form 10-Q
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
Part I. Financial Information Page
--------------------- ----
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets
as of June 30, 2002 and March 31, 2002 1
Consolidated Statements of Income: Three
Months Ended June 30, 2002 and 2001 2
Consolidated Statements of Shareholders' Equity
for the Year Ended March 31, 2002 and the
Three Months Ended June 30, 2002 3
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 2002 and 2001 4
Notes to Consolidated Financial Statements 5-11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-20
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 20
Part II. Other Information 21
SIGNATURES 22
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 and MARCH 31, 2002
JUNE 30, MARCH 31,
(In thousands, except share data) (Unaudited) 2002 2002
- ------------------------------------------------------------------------------
ASSETS
Cash (including interest-earning accounts of $18,971
and $14,369) $ 34,157 $ 22,492
Loans held for sale 1,265 1,826
Investment securities available for sale, at fair value
(amortized cost of $18,924 and $18,925) 18,363 18,275
Mortgage-backed securities held to maturity, at amortized
cost (fair value of $4,273 and $4,485) 4,098 4,386
Mortgage-backed securities available for sale, at fair
value (amortized cost of $30,721 and $36,462) 31,360 36,999
Loans receivable (net of allowance for loan losses of
$2,748 and $2,537) 298,935 286,704
Real estate owned 93 853
Prepaid expenses and other assets 211 525
Accrued interest receivable 1,817 1,902
Federal Home Loan Bank stock, at cost 5,397 5,317
Premises and equipment, net 10,462 10,607
Deferred income taxes, net 542 607
Core deposit intangible, net 614 696
Mortgage servicing intangible, net 867 912
--------- ---------
TOTAL ASSETS $ 408,181 $ 392,101
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposit accounts $ 301,246 $ 259,690
Accrued expenses and other liabilities 4,057 4,001
Advance payments by borrowers for taxes and insurance 48 233
Federal Home Loan Bank advances 49,500 74,500
--------- ---------
Total liabilities 354,851 338,424
COMMITMENTS AND CONTINGENCIES (NOTE 14)
SHAREHOLDERS' EQUITY:
Serial preferred stock, $.01 par value; 250,000
authorized, issued and outstanding, none - -
Common stock, $.01 par value; 50,000,000 authorized,
June 30, 2002 - 4,653,558 issued, 4,376,948 outstanding;
March 31, 2002 - 4,735,066 issued, 4,458,456 outstanding 46 47
Additional paid-in capital 34,585 35,725
Retained earnings 20,729 20,208
Unearned shares issued to employee stock ownership trust (1,959) (2,010)
Unearned shares held by the management recognition
and development plan (122) (218)
Accumulated other comprehensive income (loss) 51 (75)
--------- ---------
Total shareholders' equity 53,330 53,677
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 408,181 $ 392,101
========= =========
See notes to consolidated financial statements.
1
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
June 30,
(In thousands, except share data) (Unaudited) 2002 2001
- ------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans receivable $ 5,913 $ 6,862
Interest on investment securities 28 151
Interest on mortgage-backed securities 449 684
Other interest and dividends 390 633
-------- --------
Total interest income 6,780 8,330
-------- --------
INTEREST EXPENSE:
Interest on deposits 1,594 3,046
Interest on borrowings 1,130 1,504
-------- --------
Total interest expense 2,724 4,550
-------- --------
Net interest income 4,056 3,780
Less provision for loan losses 245 510
-------- --------
Net interest income after
provision for loan losses 3,811 3,270
-------- --------
NON-INTEREST INCOME:
Fees and service charges 928 907
Asset management fees 192 231
Gain on sale of loans held for sale 349 129
Loan servicing income (expense) (100) 21
Other 41 15
-------- --------
Total non-interest income 1,410 1,303
-------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,034 1,892
Occupancy and depreciation 592 535
Data processing 210 258
Amortization of core deposit intangible 82 82
Marketing expense 189 176
FDIC insurance premium 11 13
State and local taxes 90 100
Telecommunications 44 57
Professional fees 118 88
Other 322 319
-------- --------
Total non-interest expense 3,692 3,520
-------- --------
INCOME BEFORE FEDERAL INCOME TAXES 1,529 1,053
PROVISION FOR FEDERAL INCOME TAXES 457 296
-------- --------
NET INCOME $ 1,072 $ 757
======== ========
Earnings per common share:
Basic $0.24 $0.16
Diluted 0.24 0.16
Weighted average number of shares outstanding:
Basic 4,440,426 4,664,277
Diluted 4,486,182 4,697,741
See notes to consolidated financial statements.
2
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 2002
AND THE THREE MONTHS ENDED JUNE 30, 2002
(Unaudited)
Unearned Accum-
Shares ulated
Issued to Other
Common Addi- Employee Unearned Compre-
Stock tional Stock Shares hensive
(In thousands, except ---------------- Paid-in Retained Ownership Issued to Income
per share data) Shares Amount Capital Earnings Trust MRDP (Loss) Total
- -----------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance April 1, 2001 4,655,040 $ 50 $ 38,687 $ 17,349 $ (2,217) $ (762) $ (386) $ 52,721
Cash Dividends - - - (2,009) - - - (2,009)
Exercise of stock options 22,345 - 91 - - - - 91
Stock repurchased and
retired (268,700) (3) (3,120) - - - - (3,123)
Earned ESOP shares 24,633 - 77 - 207 - - 284
Earned MRDP shares 25,138 - (10) - - 544 - 534
--------- ---- -------- -------- -------- -------- ------- --------
4,458,456 47 35,725 15,340 (2,010) (218) (386) 48,498
Comprehensive income:
Net income - - - 4,868 - - - 4,868
Other comprehensive income:
Unrealized holding gain on
securities of $881 (net
of $454 tax effect) less
reclassification adjust-
ment for net gains included
in net income of $570 (net
of $293 tax effect) - - - - - - 311 311
--------
Total comprehensive income - - - - - - - 5,179
--------- ---- -------- -------- -------- -------- ------- --------
Balance March 31, 2002 4,458,456 47 35,725 20,208 (2,010) (218) (75) 53,677
Cash dividends - - - (551) - - - (551)
Exercise of stock options 2,992 - 25 - - - - 25
Stock repurchased and
retired (84,500) (1) (1,198) - - - - (1,199)
Earned ESOP shares - - 35 - 51 - - 86
Earned MRDP shares - - (2) - - 96 - 94
Shares forfeited and reawarded - - - - - - - -
--------- ---- -------- -------- -------- -------- ------- --------
4,376,948 46 34,585 19,657 (1,959) (122) (75) 52,132
Comprehensive income:
Net income - - - 1,072 - - - 1,072
Other comprehensive income:
Unrealized holding gain on
securities of $191 (net of
$65 tax effect) - - - - - - 126 126
--------
Total comprehensive income - - - - - - - 1,198
--------- ---- -------- -------- -------- -------- ------- --------
Balance, June 30, 2002 4,376,948 $ 46 $ 34,585 $ 20,729 $ (1,959) $ (122) $ 51 $ 53,330
========= ==== ======== ======== ======== ======== ======= ========
See notes to consolidated financial statements.
3
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands) (Unaudited) 2002 2001
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,072 $ 757
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 525 418
Provision for losses on loans 245 510
Noncash expense related to ESOP benefit 86 61
Noncash expense related to MRDP benefit 94 86
Increase in deferred loan origination fees, net of
amortization 172 170
Federal Home Loan Bank stock dividend (80) (85)
Net gain on sale of real estate owned
and premises and equipment (341) (4)
Changes in assets and liabilities:
Decrease in loans held for sale 561 157
Decrease in prepaid expenses and other assets 204 120
Decrease in accrued interest receivable 61 46
Increase in accrued expenses and other liabilities 19 277
-------- --------
Net cash provided by operating activities 2,618 2,513
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (69,959) (65,930)
Principal repayments on loans 48,027 48,956
Loans sold 9,286 7,214
Principal repayments on mortgage-backed securities
held to maturity 287 534
Principal repayments on mortgage-backed securities
available for sale 5,740 4,589
Principal repayments on investment securities AFS - 423
Purchase of premises and equipment (44) (132)
Purchase of Federal Home Loan Bank stock - (543)
Proceeds from sale of real estate 1,006 8
-------- --------
Net cash used in investing activities (5,657) (4,881)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposit accounts 41,557 (16,381)
Dividends paid (494) (517)
Repurchase of common stock (1,199) -
Proceeds from Federal Home Loan Bank advances - 20,000
Repayment of Federal Home Loan Bank advances (25,000) -
Net decrease in advance payments by borrowers (185) (164)
Proceeds from exercise of stock options 25 -
-------- --------
Net cash provided by financing activities 14,704 2,938
-------- --------
NET INCREASE IN CASH 11,665 570
CASH, BEGINNING OF PERIOD 22,492 38,935
-------- --------
CASH, END OF PERIOD $ 34,157 $ 39,505
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 2,885 $ 4,655
Income taxes 62 -
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to real estate owned $ 250 $ 385
Dividends declared and accrued in other liabilities 551 518
Fair value adjustment to securities available for sale 191 (38)
Income tax effect related to fair value adjustment (65) 13
See notes to consolidated financial statements.
4
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 accounting principles
generally accepted in the United States of America ("GAAP"). 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.
2002 Annual Report on Form 10-K. The results of operations for the three
months ended June 30, 2002 are not necessarily indicative of the results which
may be expected for the entire 2003 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
("RAMCORP."), and wholly-owned subsidiary, Riverview Services, Inc. All
references to the Company herein include the Community Bank where applicable.
All inter-company balances and transactions have been eliminated upon
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 investment securities
available for sale.
For the three months ended June 30, 2002, the Company's total comprehensive
income was $1.2 million compared to $732,000 for the three months ended June
30, 2001.
Total comprehensive income for the three months ended June 30, 2002 is
comprised of net income of $1.1 million and other comprehensive income of
$126,000, which consists of unrealized securities gains, net of tax effect.
Total comprehensive income for the three months ended June 30, 2001 is
comprised of net income of $757,000 and other comprehensive loss of $25,000,
which consists of unrealized securities losses, net of tax effect.
(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
5
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 awarded but not released
Management Recognition and Development Plan ("MRDP") shares. Employee Stock
Ownership Plan ("ESOP") shares are not considered outstanding for EPS purposes
until they are committed to be released.
Three Months Ended
June 30,
---------------------
2002 2001
---- ----
Basic EPS computation:
Numerator-Net Income $ 1,072,000 $ 757,000
Denominator-Weighted average
common shares outstanding 4,440,426 4,664,277
Basic EPS $ 0.24 $ 0.16
============ ===========
Diluted EPS computation:
Numerator-Net Income $ 1,072,000 $ 757,000
Denominator-Weighted average
common shares outstanding 4,440,426 4,664,277
Effect of dilutive stock options 33,847 27,600
Effect of dilutive MRDP 11,909 5,864
------------ -----------
Weighted average common shares
and common stock equivalents 4,486,182 4,697,741
Diluted EPS $ 0.24 $ 0.16
============ ===========
(5) Investment Securities
There were no sales of investment securities classified as held to maturity
during the quarters ended June 30, 2002 and 2001.
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
June 30, 2002 Cost Gains Losses Value
--------- ---------- ---------- ---------
Equity securities $ 16,356 $ 124 $ (795) $ 15,685
School district bonds 2,568 110 - 2,678
--------- ---------- ---------- ---------
$ 18,924 $ 234 $ (795) $ 18,363
========= ========== ========== =========
March 31, 2002
Equity securities $ 16,356 $ 27 $ (709) $ 15,674
School district bonds 2,569 34 (2) 2,601
--------- ---------- ---------- ---------
$ 18,925 $ 61 $ (711) $ 18,275
========= ========== ========== =========
The contractual maturities of securities available for sale are as follows (in
thousands):
6
Amortized Estimated
June 30, 2002 Cost Fair Value
--------- ----------
Due after one year through five years $ 340 $ 357
Due after five years through ten years 1,611 1,688
Due after ten years 16,973 16,318
--------- ----------
$ 18,924 $ 18,363
========= ==========
Investment securities with an amortized cost of $15.0 million and $15.0
million and a fair value of $14.2 million and $14.4 million at June 30, 2002
and March 31, 2002, respectively, were pledged as collateral for advances at
the Federal Home Loan Bank.
(6) Mortgage-backed Securities
--------------------------
Mortgage-backed securities held to maturity consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 30, 2002 Cost Gains Losses Value
--------- ---------- ---------- ---------
REMICs $ 1,804 $ 113 $ - $ 1,917
FHLMC mortgage-backed
securities 863 16 - 879
FNMA mortgage-backed
securities 1,431 46 - 1,477
--------- ---------- ---------- ---------
$ 4,098 $ 175 $ - $ 4,273
========= ========== ========== =========
March 31, 2002
REMICs $ 1,804 $ 40 $ - $ 1,844
FHLMC mortgage-backed
securities 964 12 - 976
FNMA mortgage-backed
securities 1,618 47 - 1,665
--------- ---------- ---------- ---------
$ 4,386 $ 99 $ - $ 4,485
========= ========== ========== =========
Mortgage-backed securities held to maturity with an amortized cost of $2.7
million and $2.8 million and a fair value of $2.8 million and $2.9 million at
June 30, 2002 and March 31, 2002, respectively, were pledged as collateral for
governmental public funds held by the Company. The real estate mortgage
investment conduits ("REMICs") consist of Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA") and
privately issued securities.
The contractual maturities of mortgage-backed securities classified as held to
maturity are as follows (in thousands):
Amortized Estimated
June 30, 2002 Cost Fair Value
--------- ----------
Due after one year through five years $ 1,225 $ 1,255
Due after five years through ten years 2 2
Due after ten years 2,871 3,016
--------- ----------
$ 4,098 $ 4,273
========= ==========
There were no sales of mortgage-backed securities held to maturity during the
three months ended June 30, 2002 and the year ended March 31, 2002,
respectively.
Mortgage-backed securities available for sale consisted of the following (in
thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 30, 2002 Cost Gains Losses Value
--------- ---------- ---------- ---------
REMICs $ 20,020 $ 151 $ (40) $ 20,131
FHLMC mortgage-backed
securities 9,963 509 - 10,472
FNMA mortgage-backed
securities 738 19 - 757
--------- ---------- ---------- ---------
$ 30,721 $ 679 $ (40) $ 31,360
========= ========== ========== =========
7
March 31, 2002
REMICs $ 25,053 $ 144 $ (83) $ 25,114
FHLMC mortgage-backed
securities 10,519 453 - 10,972
FNMA mortgage-backed
securities 890 23 - 913
--------- ---------- ---------- ---------
$ 36,462 $ 620 $ (83) $ 36,999
========= ========== ========== =========
The contractual maturities of mortgage-backed securities available for sale
are as follows (in thousands):
Amortized Estimated
June 30, 2002 Cost Fair Value
--------- ----------
Due after one year through five years $ 10,569 $ 11,092
Due after five years through ten years 801 812
Due after ten years 19,351 19,456
--------- ----------
$ 30,721 $ 31,360
========= ==========
Expected maturities of mortgage-backed securities held to maturity 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 $3.0
million and $6.3 million and a fair value of $3.1 million and $6.3 million at
June 30, 2002 and March 31, 2002, respectively, were pledged as collateral for
discount window borrowings at the Federal Reserve Bank. Mortgage-backed
securities with an amortized cost of $21.3 million and $23.3 million and a
fair value of $21.8 million and $23.8 million at June 30, 2002 and March 31,
2002, respectively, were pledged as collateral for advances at the Federal
Home Loan Bank. Mortgage-backed securities with an amortized cost of $4.7
million and $4.9 million and a fair value of $4.7 million and $4.8 million at
June 30, 2002 and March 31, 2002, respectively, were pledged as collateral for
treasury tax and loan funds held by the Company.
(7) Loans Receivable
----------------
Loans receivable consisted of the following (in thousands):
June 30, March 31,
2002 2002
-------- --------
Residential:
One- to- four family $ 69,705 $ 71,710
Multi-family 9,468 9,895
Construction:
One- to- four family 78,089 71,148
Multi-family 4,000 4,000
Commercial real estate 6,206 5,230
Commercial 29,337 23,319
Consumer:
Secured 26,078 24,932
Unsecured 1,456 1,447
Land 28,313 27,406
Commercial real estate 85,492 84,094
-------- --------
338,144 323,181
Less:
Undisbursed portion of loans 33,495 30,970
Deferred loan fees 2,966 2,970
Allowance for loan losses 2,748 2,537
-------- --------
Loans receivable, net $298,935 $286,704
======== ========
(8) Allowance for Loan Losses
-------------------------
A reconciliation of the allowance for loan losses is as follows (in
thousands):
8
Three Months Ended Year Ended
June 30, 2002 March 31, 2002
------------- --------------
Beginning balance $ 2,537 $ 1,916
Provision for losses 245 1,116
Charge-offs (37) (439)
Recoveries 3 25
Dispositions - (81)
--------- ---------
Ending balance $ 2,748 $ 2,537
========= =========
At June 30, 2002 and March 31, 2002, the Company's recorded investment in
loans for which an impairment has been recognized under the guidance of
Statement of Financial Accounting Standards ("SFAS") No. 114 and SFAS No. 118
was $1.9 million and $1.4 million, respectively. The allowance for loan losses
in excess of specific reserves is available to absorb losses from all loans,
although allocations have been made for certain loans and loan categories as
part of management's analysis of the allowance. The average investment in
impaired loans was approximately $1.7 million and $1.1 million during the
three months ended June 30, 2002 and the year ended March 31, 2002,
respectively.
(9) Loans held for Sale
-------------------
The Company identifies loans held for sale at the time of origination and they
are carried at the lower of aggregate cost or net realizable value. Market
values are derived from available market quotations for comparable mortgage
loans. Adjustments for unrealized losses, if any, are charged to income.
(10) Intangible Assets
-----------------
The results for the quarter ended June 30, 2002, include the effect of
adopting SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
provides that goodwill is no longer amortized and the value of an identifiable
intangible asset must be amortized over its useful life, unless the asset is
determined to have an indefinite life. The Company does not have goodwill,
but does have identifiable intangible assets of core deposit intangible and
mortgage servicing rights ("MSR") that will continue to be amortized.
Intangible asset balances (excluding MSR) consisted of the following (in
thousands):
June 30, 2002
-----------------------------------
Carrying Accumulated
Amount Amortization Net
------ ------------ ---
Core deposit intangible $ 3,269 $ 2,655 $ 614
======= ======= =====
March 31,2002
-----------------------------------
Carrying Accumulated
Amount Amortization Net
------ ------------ ---
Core deposit intangible $ 3,269 $ 2,573 $ 696
======= ======= =====
9
Amortization Expense
Quarter Ended June 30,
2002 2001
----------------------
Core deposit intangibles $ 82 $ 82
==== =====
Changes in balance of MSR, net of valuation, were as follows (in thousands):
Three Months Ended June 30,
2002 2001
---------------------------
Beginning balance $ 912 $ 447
Additions 139 71
Amortization (60) (31)
Impairment adjustment (124) -
----- -----
Total $ 867 $ 487
===== =====
Allowance at beginning of period $ 93 $ -
Provision for impairment 124 -
----- -----
Allowance at end of period $ 217 $ -
===== =====
Amortization expense for the net carrying amount of intangible assets at June
30, 2002 is estimated to be as follows (in thousands):
Fiscal year
-------------------
2003 $ 543
2004 569
2005 242
2006 116
2007 11
------
Total $1,481
======
(11) Borrowings
----------
Borrowings are summarized as follows (in thousands):
June 30, March 31,
2002 2002
------- -------
Federal Home Loan Bank Advances $49,500 $74,500
======= =======
Weighted average interest rate: 5.53% 6.10%
===== =====
Borrowings have the following maturities at June 30, 2002 (in thousands):
Fiscal Year
-----------
2003 $ 14,500
2004 -
2005 -
2006 15,000
2007 20,000
--------
$ 49,500
========
(12) Shareholders' Equity
--------------------
Repurchase of Common stock
In July 2001, the Company received regulatory approval to repurchase up to
10%, or 465,504 shares of its outstanding shares at June 30, 2001. At
10
June 30, 2002, 353,200 shares had been repurchased at an average cost of
$12.24 per share. Since 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.
(13) Recently Issued Accounting Pronouncements
-----------------------------------------
Recently Issued Accounting Pronouncements - In July 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 142, Goodwill and Other
Intangible Assets. The Statement required discontinuing the amortization of
goodwill and other intangible assets with indefinite useful lives. Instead,
these assets will be tested periodically for impairment and written down to
their fair market value as necessary. Upon the adoption of the provisions of
SFAS No. 142 at April 1, 2002 there was no effect on the Company's financial
statements, as the Company does not currently have any goodwill. The
Company's current intangible assets consist of core deposit intangibles and
mortgage servicing rights.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121 and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30 for the disposal of a segment of a business. SFAS No. 144 became effective
for the Company beginning April 1, 2002 and had no impact on the financial
statements of the Company.
(14) Commitments and Contingencies
-----------------------------
The Company 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, consumer and commercial 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 Company's maximum exposure to
credit loss in the event of nonperformance by the borrower is represented by
the contractual amount of those instruments. The Company uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit are conditional, and are honored for up to 45
days subject to the Company's usual terms and conditions. Collateral is not
required to support commitments.
At June 30, 2002, the Company had commitments to originate fixed rate
mortgages of $2.5 million at interest rates ranging from 5.5% to 8.25%. At
June 30, 2002 adjustable rate mortgage loan commitments were $2.4 million at
an average interest rate of 6.38%. The undisbursed balance of mortgage loans
closed was $33.5 million at June 30, 2002. Consumer loan commitments totaled
$1.0 million and unused lines of consumer credit totaled $15.3 million at June
30, 2002. Commercial real estate loan commitments totaled $150,000 and unused
lines of commercial real estate credit totaled $7.1 million at June 30, 2002.
Unused commercial lines of credit totaled $15.4 million at June 30, 2002.
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
operations, or liquidity.
11
Item 2. RIVERVIEW BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Clause. This report on Form 10-Q 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 and other risks detailed in
the Company's reports filed with the Securities and Exchange Commission.
These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such statements.
Critical Accounting Policies
The Company has established various accounting policies that govern the
application of accounting principles generally accepted in the United States
of America in the preparation of the Company's consolidated financial
statements. The Company has identified two policies, that due to judgments,
estimates and assumptions inherent in those policies, are critical to an
understanding of the Company's consolidated financial statements. These
policies relate to the methodology for the determination of the allowance for
loan losses and the valuation of mortgage servicing rights. These policies
and the judgments, estimates and assumptions are described in greater detail
in Management's Discussion and Analysis and in Note 1, Note 6 and Note 8 to
the Consolidated Financial Statements included in the Company's 2002 Annual
Report on Form 10-K. Management believes that the judgments, estimates and
assumptions used in the preparation of the Company's consolidated financial
statements are appropriate given the factual circumstances at the time.
However, given the sensitivity of the Company's consolidated financial
statements to these critical accounting policies, the use of other judgments,
estimates and assumptions could result in material differences in our results
of operations or financial condition.
General
The Company is a progressive community-oriented, financial institution, which
emphasizes local, personal service to residents of its primary market area.
The Company considers Clark, Cowlitz, Klickitat and Skamania counties of
Washington as its primary market area. The Company is engaged primarily in the
business of attracting deposits from the general public and using such funds
in its primary market area to originate mortgage loans secured by one- to
four- family residential real estate, multi-family, commercial construction,
commercial real estate and non-mortgage loans providing financing for business
commercial ("commercial") and consumer purposes. Commercial real estate loans
and commercial loans have grown from 5.22% and 0.93% of the loan portfolio,
respectively, in fiscal year 1998 to 27.12% and 8.68% respectively, at June
30, 2003. The Company continues to change the composition of its loan
portfolio and the deposit base as part of its migration to
12
commercial banking, subject to market conditions. The consolidation among
financial institutions in the Company's primary market area has created a
significant gap in the ability of the consolidated financial institutions to
serve customers. The Company's strategic plan includes targeting this customer
base, specifically small and medium size businesses, professionals and wealth
building individuals. In pursuit of these goals, the Company will emphasize
controlled growth and the diversification of its loan portfolio to include a
higher portion of commercial and commercial real estate loans. A related goal
is to increase the proportion of personal and business checking account
deposits used to fund these new loans. Significant portions of these new loan
products carry adjustable rates, higher yields, or shorter terms and higher
credit risk than the traditional fixed-rate mortgages. The strategic plan
stresses increased emphasis on non-interest income, including increased fees
for asset management and deposit service charges. The strategic plan is
designed to enhance earnings, reduce interest rate risk, and provide a more
complete range of financial services to customers and the local communities
the Company serves. The Company is well positioned to attract new customers
and to increase its market share given that the administrative headquarters
and eight of its twelve branches are located in Clark County, the fastest
growing county in the state of Washington according to the U.S Census Bureau.
In order to support its strategy of growth, without compromising its local,
personal service to its customers and a commitment to asset quality, the
Company has made significant investments in experienced branch, lending, asset
management and support personnel and has incurred significant costs in
facility expansion. The Company's efficiency ratios reflect this investment
and will remain relatively high by industry standards for the foreseeable
future due to the emphasis on growth and local, personal service. Control of
non-interest expenses remains a high priority for the management of the
Company.
The Company continuously reviews new products and services to give its
customers more financial options. With an emphasis on growth of non-interest
income and control of non-interest expense, all new technology and services
are reviewed for business development and cost saving purposes. The Company
continues to experience growth in the customer usage of the online banking
services and has recently introduced check image services to its customers.
Customers are able to conduct a full range of services on a real-time basis,
including balance inquiries, transfers and electronic bill-paying. This
online service has also enhanced the delivery of cash management services to
commercial customers. The internet banking branch web site is
www.riverviewbank.com.
The Company conducts operations from its home office in Vancouver and twelve
branch offices in Camas, Washougal, Stevenson, White Salmon, Battle Ground,
Goldendale, Vancouver (five branch offices) and Longview, Washington. The
Company's market area for lending and deposit taking activities encompasses
Clark, Cowlitz, Skamania and Klickitat Counties, throughout the Columbia River
Gorge area. The Company operates a trust and financial services company,
RAMCORP., located in downtown Vancouver, Washington. Riverview Mortgage, a
mortgage broker division of the Company originates mortgage loans (including
construction loans) for various mortgage companies predominantly in the
Portland metropolitan areas, as well as for the Company. The Business and
Professional Banking Division located at the downtown Vancouver main branch
offers commercial and business banking services. Vancouver is located in Clark
County, which is just north of Portland, Oregon.
Several businesses are located in the Vancouver area because of the favorable
tax structure and relatively lower energy costs in Washington as compared to
Oregon. Washington has no state income tax and Clark County operates a public
electric utility that provides relatively lower cost electricity. Located in
the Vancouver area are Sharp Electronics,
13
Hewlett Packard, Georgia Pacific, Underwriters Laboratory and Wafer Tech, as
well as several support industries. In addition to this industrial base, the
Columbia River Gorge Scenic Area has been a source of tourism, which has
transformed the area from its past dependence on the timber industry.
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.
Financial Condition
At June 30, 2002, the Company had total assets of $408.2 million compared with
$392.1 million at March 31, 2002. The increase in total assets reflects the
growth in loans.
At June 30, 2002, the Company had $338.1 million in gross loans, an increase
of $15.0 million compared to $323.2 million at March 31, 2002. One- to- four
family residential mortgage loans decreased $2.0 million to $69.7 million at
June 30, 2002 from $71.7 million at March 31, 2002 a result of managements
plan to sell all fixed mortgage loans to FHLMC and retain the loan servicing
of such loans. Commercial loans increased $6.0 million to $29.3 million at
June 30, 2002 from $23.3 million at March 31, 2002. Commercial real estate
loans increased $1.4 million to $85.5 million at June 30, 2002 from $84.1
million at March 31, 2002. Loans receivable (Note 7) provides a detailed
analysis of the $338.1 million gross loan portfolio at June 30, 2002 as
compared to the $323.2 million gross loan portfolio at March 31, 2002.
Consumer, commercial, and land loans carry higher interest rates and generally
a higher degree of credit risk compared to one- to- four family residential
mortgage loans.
Deposits totaled $301.2 million at June 30, 2002 compared to $259.7 million at
March 31, 2002. The deposit increase is due to an inflow of funds in all
categories of deposits. The total average outstanding balance of checking
accounts and money market accounts ("transaction accounts") increased 27.4% to
$109.8 million at June 30, 2002, compared to $86.2 million at March 31, 2002.
Transaction accounts represented 37.2% and 32.5% of average total outstanding
balance of deposits at June 30, 2002 and March 31, 2002, respectively.
FHLB advances totaled $49.5 million at June 30, 2002 and $74.5 million at
March 31, 2002. During the first quarter of fiscal year 2003, an advance from
FHLB Seattle for $25.0 million with a fixed interest rate of 7.22% was repaid.
Capital Resources
Total shareholders' equity decreased $347,000 to $53.3 million at June 30,
2002 compared to $53.7 million at March 31, 2002. The activity in
shareholders' equity for the first three months of fiscal year 2003 was $1.1
million in earnings, dividends of $551,000, exercise of stock options of
$25,000, stock repurchased $1.2 million, earned ESOP shares $86,000, earned
MRDP shares of $94,000 and $126,000 change in net unrealized gain on
securities available for sale, net of tax effect.
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
14
additional discretionary actions by regulators, that if undertaken could have
a direct material effect on the Company and 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
required 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 June 30,
2002, the Community Bank met all capital adequacy requirements to which it was
subject.
As of June 30, 2002, 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 June 30, 2002, the Community Bank's tangible, core and
risk-based total capital ratios amounted to 12.01%, 12.01%, and 16.81%,
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 June 30, 2002
Total Capital:
(To Risk Weighted Assets) $51,475 16.81% $24,495 8.0% $30,619 10.0%
Tier I Capital:
(To Risk Weighted Assets) 48,727 15.91 N/A N/A 18,371 6.0
Core Capital:
(To Total Assets) 48,727 12.01 12,171 3.0 20,285 5.0
Tangible Capital:
(To Tangible Assets) 48,727 12.01 6,086 1.5 N/A N/A
As of March 31, 2002
Total Capital:
(To Risk Weighted Assets) $51,077 17.04% $23,987 8.0% $29,984 10.0%
Tier I Capital:
(To Risk Weighted Assets) 48,549 16.19 N/A N/A 17,990 6.0
Core Capital:
(To Total Assets) 48,549 12.52 11,637 3.0 19,395 5.0
Tangible Capital:
(To Tangible Assets) 48,549 12.52 5,819 1.5 N/A N/A
The following table is a reconciliation of the Community Bank's capital,
calculated according to accounting principles generally accepted in the
15
United States of America, to regulatory tangible and risk-based capital at
June 30, 2002 (in thousands):
Equity $49,410
Net unrealized loss on securities
available for sale 18
Core deposit intangible asset (614)
Servicing asset (87)
-------
Tangible capital 48,727
General valuation allowance 2,748
-------
Total capital $51,475
=======
Bank Liquidity
The Financial Regulatory Relief and Economic Efficiency Act of 2000 repealed
the statutory liquidity requirement for savings associations, citing the
requirement as unnecessary effective July 18, 2001. In light of this action,
the OTS repealed its liquidity regulations, with the following exceptions.
Savings associations must continue to maintain sufficient liquidity to ensure
safe and sound operation; the appropriate level of liquidity will vary
depending on the activities in which the savings association engages.
Management does not believe this rule change has had any adverse impact on the
Community Bank's operations.
Sources of capital and liquidity for the Company on a stand-alone basis
include distributions from the Community Bank. Dividends and other capital
distributions from the Community Bank are subject to regulatory restrictions.
Cash, including interest-earning overnight investments, was $34.2 million at
June 30, 2002 compared to $22.5 million at March 31, 2002. Investment
securities and mortgage-backed securities available for sale at June 30, 2002
were $18.4 million and $31.4 million, respectively, compared to $18.3 million
and $37.0 million, respectively, at March 31, 2002. See "Financial Condition."
Asset Quality
Allowance for loan losses was $2.7 million at June 30, 2002, compared to $2.5
million at March 31, 2002. The Company maintains an allowance for loan losses
to provide for losses inherent in the loan portfolio. The adequacy of the
allowance is evaluated monthly to maintain the allowance at levels sufficient
to provide for inherent losses. A key component to the evaluation is the
Company's internal loan review and loan classification system. The internal
loan review system provides for at least an annual review by the internal
audit department of all loans that meet selected criteria. The Internal Loan
Classification Committee reviews and monitors the risk and quality of the
Company's loan portfolio. The Internal Loan Classification Committee members
include the Credit Administrator, Chairman and CEO, Chief Financial Officer,
Executive VP Sales & Production, Senior VP Lending and Senior VP Business &
Professional Banking. Credit officers are expected to monitor their
portfolios and make recommendations to change loan grades whenever those
changes are warranted. At least annually loans that are delinquent 60 days or
more and with specified outstanding loan balances are subject to review by the
internal audit department. The Internal Loan Classification Committee meets
quarterly to approve any changes to loan grades, monitor loan grades and to
recommend any changes to the loan grades.
The Company uses the OTS loan classifications of special mention, substandard,
doubtful and loss plus the additional loan classifications
16
of pass and watch in order to assign a loan grade to be used in the
determination of the proper amount of allowance for loan losses. The
definition of a pass classification represents a level of credit quality,
which contains no well-defined deficiency or weakness. The definition of
watch classification is used to identify a loan that currently contains no
well-defined deficiency or weakness, but it is determined to be desirable to
closely monitor the loan.
The Company utilizes the loan classifications from the internal loan review
and Internal Loan Classification Committee in the following manner to
determine the amount of the allowance for loan losses. The calculation of the
allowance for loan losses must consider loan classification in order to
determine the amount of the allowance for loan losses for the required three
separate elements of the allowance for losses: general allowances, allocated
allowances and unallocated allowances.
The general allowance element relates to assets with no well-defined
deficiency or weakness (i.e., assets classified pass or watch) and takes into
consideration loss that is imbedded within the portfolio but has not been
realized. Borrowers are impacted by events well in advance of a lender's
knowledge that may ultimately result in a loan default and eventual loss.
Examples of such loss-causing events in the case of consumer or one- to four-
family residential loans would be a borrower job loss, divorce or medical
crisis. Examples in commercial or construction loans may be loss of customers
due to competition or economy changes. General allowances for each major loan
type are determined by applying loss factors that take into consideration past
loss experience, asset duration, economic conditions and overall portfolio
quality to the associated loan balance.
The allocated allowance element relates to assets with well-defined
deficiencies or weaknesses (i.e., assets classified special mention,
substandard, doubtful or loss). The OTS loss factors are applied against
current classified asset balances to determine the amount of allocated
allowances. Included in these allowances are those amounts associated with
loans where it is probable that the value of the loan has been impaired and
the loss can be reasonably estimated.
The unallocated allowance element is more subjective and is reviewed quarterly
to take into consideration estimation errors and economic trends that are not
necessarily captured in determining the general and allocated valuation.
At June 30, 2002, the Company had an allowance for loan losses of $2.7
million, or 0.81% of total outstanding loans at that date. Based on past
experience and future expectations, management believes that loan loss
reserves are adequate.
While the Company believes it has established its existing allowance for loan
losses in accordance with GAAP, there can be no assurance that regulators, in
reviewing the Company's loan portfolio, will not request the Company to
increase significantly its allowance for loan losses, thereby negatively
affecting the Company's financial condition and results of operations.
Non-performing assets were $2.0 million, or 0.50% of total assets at June 30,
2002 compared with $2.4 million, or 0.61% of total assets at March 31, 2002.
The $1.9 million balance of non-accrual loans is made up of three residential
properties totaling $407,000, two residential construction loans totaling
$504,000, four commercial real estate loan totaling $409,000, one commercial
loan totaling $54,000, one land loan totaling $169,000 and eight consumer
loans totaling $387,000. The $93,000 balance of real estate owned consists of
one land and one lot loan. The
17
following table sets forth information with respect to the Company's
non-performing assets at the dates indicated:
June 30, 2002 March 31, 2002
------------- --------------
(Dollars in thousands)
Loans accounted for on
a non-accrual basis:
Real Estate
Residential $ 911 $ 830
Commercial 409 297
Land 169 180
Commercial 54 54
Consumer 387 39
------ ------
Total 1,930 1,400
------ ------
Accruing loans which are
contractually past due 90
days or more 3 122
------ ------
Total of non-accrual and
90 days past due loans 1,933 1,522
------ ------
Real estate owned (net) 93 853
------ ------
Total non-performing assets $2,026 $2,375
====== ======
Total loans delinquent 90
days or more to net loans 0.64% 0.53%
Total loans delinquent 90
days or more to total assets 0.47 0.39
Total non-performing assets
to total assets 0.50 0.61
Comparison of Operating Results for the Three Months Ended
June 30, 2002 and 2001
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 of non-interest income, which primarily consists of fees and
service charges, asset management fees, loan servicing income, gains and
losses on sales of securities, gains and losses 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 June 30, 2002 was $1.1 million, or $0.24
per basic share ($0.24 per diluted share). This compares to net
18
income of $757,000, or $0.16 per basic share ($0.16 per diluted share) for the
same period in fiscal 2002.
Net interest income increased $276,000 to $4.1 million for the three months
ended June 30, 2002 compared with $3.8 million for the same period in the
prior year. The increase in net interest income was due to the shift in the
deposit mix from higher interest rate certificates of deposit to lower
interest rate transaction accounts. Checking accounts and money market
accounts ("transaction accounts") total average outstanding balance increased
44.4% to $109.8 million at June 30, 2002, compared to $76.0 million at June
30, 2001. Certificates of deposits average outstanding balance decreased
29.3% to $113.5 million from $160.5 million, respectively at June 30, 2002 and
June 30, 2001. The decrease in average balance of certificates of deposit
reflected the outflow of public funds caused by the lower interest rate the
Company paid.
Interest income for the three months ended June 30, 2002 was $6.8 million, a
decrease of $1.5 million, or 18.1% compared to the $8.3 million interest
income for the same period in fiscal year 2002. Yield on interest-earning
assets for the first quarter of fiscal year 2003 was 7.13% compared to 8.14%
for the same three-month period in fiscal year 2002. The lower first quarter
fiscal 2003 yield and interest income reflects the lower interest rate
environment and lower average balance of interest earning assets as compared
to the same period for the prior year.
Average interest-earning assets decreased to $386.2 million for the three
months ended June 30, 2002 from $414.8 million for the three months ended June
30, 2001. The decrease in average interest-earning assets consisted of
decreases in mortgage loans, mortgage-backed securities, investment securities
and daily interest bearing investments partially offset by an increase in
non-mortgage loans. The change in the mix of average interest-earning assets
reflects the securitization of $40.3 million of fixed rate mortgage loans in
the quarter ended September 30, 2001. Net interest income decreased $444,000
due to the decrease in the current quarter's volume of average
interest-earning assets as compared to the volume of average interest-earning
assets in the same fiscal 2002 period.
Interest expense was $2.7 million for the quarter ended June 30, 2002, a
decrease of $1.9 million, or 41.3% compared to the $4.6 million interest
expense for the same period in fiscal year 2002. The cost of average
interest-bearing liabilities for the first quarter of fiscal year 2003 was
3.43% compared to 5.20% for the same three-month period in fiscal year 2002.
The lower interest expense for the three-month period ended June 30, 2002 is
the result of the lower interest rates in the first quarter of fiscal year
2003 compared to the same period in the prior year. Average interest-bearing
liabilities decreased to $318.7 million at June 30, 2002, from $350.6 million
for the first quarter ended June 30, 2001. The $31.9 million decrease in
average interest-earning liabilities more than offset the $28.6 million
decrease in average interest-bearing assets. The liability decrease was
primarily the result of a decrease in certificates of deposit and FHLB
borrowings partially offset by growth in transaction accounts. The proceeds
from the September 30, 2001 sale of $25.1 million of available for sale
mortgage-backed securities was used to pay down borrowings from FHLB Seattle
in the third quarter of fiscal year 2002. Growth in Now accounts during the
first quarter of fiscal year 2003 was used to repay $25.0 million in FHLB
borrowings.
The change in interest rates for this same period of comparison increased net
interest income $49,000. This quarterly comparison of the impact of the
changes in interest rates illustrates the liability sensitivity of the balance
sheet. The decrease in interest rates benefited net interest income due to
the fact that repricing opportunities in the liabilities, especially in money
market accounts and certificates of deposit outpaced the repricing that was
experienced in loans and securities. Floors and
19
fixed rates in the loans and securities enhanced the benefits that resulted
from the repricing of liabilities. The change in the interest rate average
volume mixes of assets and liabilities for the same three-month periods
reduced net interest income $233,000.
The interest rate spread increased from 2.94% for the three month 2002 period
to 3.70% for the three month 2003 period. Net interest income as a percentage
of average earning assets (net interest margin), increased to 4.30% during the
first quarter ended June 30, 2002, from 3.75% for the first quarter ended June
30, 2001. The increased fiscal year 2003 net interest margin reflects the
decrease in the interest rates and the change in the composition of the
balance sheet.
The provision for loan losses for the three-month period ended June 30, 2002
was $245,000 compared to $510,000 for the same period in the prior year.
There was $34,000 in net charge-offs during the three months ended June 30,
2002, and $62,000 in net charge-offs for the three months ended June 30, 2001.
Non-interest income increased $107,000 to $1.4 million, or 8.2% as compared to
the $1.3 million non-interest income for the three months ended June 30, 2001.
The 8.2% increase in non-interest income reflects increased fee income from
deposit service charges, asset management fees and gain on sale of loans held
for sale. The first quarter of fiscal year 2003 loan servicing loss of
$100,000 reflects a negative $184,000 valuation adjustment of mortgage
servicing assets caused by the increased PSA (the Bond Market Association's
standard prepayment) values during the quarter.
Non-interest expense increased $172,000, to $3.7 million or 4.9% as compared
to $3.5 million for the same period for the prior year. Salaries and employee
benefits increased $142,000 to $2.0 million for the quarter ended June 30,
2002 as compared to $1.9 million for the same quarter in the prior year. The
fiscal year 2003, first quarter's salaries and employee benefits reflects
there were 150 full-time equivalent employees at June 30, 2002 compared with
146 full-time equivalent employees at June 30, 2001.
Provision for federal income taxes for the first quarter of fiscal year 2003
was $457,000, resulting in an effective tax rate of 29.9%, compared to
$296,000 and 28.1% for the same quarter of fiscal year 2002.
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, 2002.
20
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(1)
3.2 Bylaws of the Registrant(1)
4 Form of Certificate of Common Stock of the Registrant(1)
10.1 Employment Agreement with Patrick Sheaffer(2)
10.2 Employment Agreement with Ronald A. Wysaske(2)
10.3 Severance Agreement with Michael C. Yount(2)
10.4 Severance Agreement with Karen Nelson(2)
10.5 Severance Agreement with John A. Karas(5)
10.6 Employee Severance Compensation Plan(2)
10.7 Employee Stock Ownership Plan(3)
10.8 Management Recognition and Development Plan(4)
10.9 1998 Stock Option Plan(4)
10.10 1993 Stock Option and Incentive Plan(4)
21 Subsidiaries of Registrant(3)
(b) Reports on Form 8-K: No Forms 8-K were filed during the
quarter ended June 30 , 2002.
- --------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-30203), and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-K for the year ended
March 31, 1998, and incorporated herein by reference.
(4) Filed on October 23, 1998, as an exhibit to the Registrant's
Registration Statement on Form S-8, and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's form 10-K for the year ended
March 31, 2002, and incorporated by reference.
21
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIVERVIEW BANCORP, INC.
DATE: July 31, 2002 BY:/S/ Patrick Sheaffer
---------------------------------
Patrick Sheaffer
President
DATE: July 31, 2002 BY:/S/ Ron Wysaske
---------------------------------
Ron Wysaske
Executive Vice President/Treasurer
22
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF RIVERVIEW BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on
Form 10-Q, that:
* the report fully complies with the requirements of Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, and
* the information contained in the report fairly presents, in all
material respects, the company's financial condition and results of
operations.
/S/ Patrick Sheaffer /S/ Ron Wysaske
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Patrick Sheaffer Ron Wysaske
Chief Executive Officer Chief Financial Officer
Dated: August 2, 2002