UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

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: 000-22957


RIVERVIEW BANCORP, INC.
(Exact name of registrant as specified in its charter)


Washington
 
91-1838969
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer I.D. Number)
 
 
 
900 Washington St., Ste. 900, Vancouver, Washington   98660
(Address of principal executive offices)    (Zip Code)
     
Registrant's telephone number, including area code:   (360) 693-6650 
     
Securities registered pursuant to Section 12(b) of the Act:    

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
 Common Stock, Par Value $0.01 per share   RVSB    The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 [  ]

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes  [X]  No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [X]
Smaller reporting company [X]
Emerging growth company [  ]
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ]   No  [X]

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 per share, 22,336,235 shares outstanding as of November 13, 2020.



Form 10-Q

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX

Part I.
Financial Information
Page
 
 
 
Item 1: 
Financial Statements (Unaudited)
 
 
 
 
 
Consolidated Balance Sheets as of
September 30, 2020 and March 31, 2020
2
 
 
 
 
Consolidated Statements of Income for the
Three and Six Months Ended September 30, 2020 and 2019 
3
 
 
 
 
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended September 30, 2020 and 2019 
4
 
 
 
 
Consolidated Statements of Shareholders’ Equity for the
Three and Six Months Ended September 30, 2020 and 2019
5
 
 
 
 
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2020 and 2019 
6
 
 
 
 
Notes to Consolidated Financial Statements 
7
 
 
 
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations 
26
 
 
 
Item 3:
Quantitative and Qualitative Disclosures About Market Risk 
43
 
 
 
Item 4: 
Controls and Procedures 
43
 
 
 
Part II.
Other Information
44-45
 
 
 
Item 1:
Legal Proceedings  
     
Item 1A: Risk Factors  
     
Item 2: 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
 
Item 3: 
Defaults Upon Senior Securities
 
 
 
 
Item 4: 
Mine Safety Disclosures
 
     
Item 5: Other Information  
     
Item 6:  Exhibits  
     
SIGNATURES
46
     
Certifications   
 
     Exhibit 31.1
     Exhibit 31.2
     Exhibit 32
 




Forward-Looking Statements

As used in this Form 10-Q, the terms “we,” “our,” “us,” “Riverview” and “Company” refer to Riverview Bancorp, Inc. and its consolidated subsidiaries, including its wholly-owned subsidiary, Riverview Community Bank, unless the context indicates otherwise.

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: When used in this Form 10-Q, the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions, statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the effect of the novel coronavirus of 2019 (“COVID-19”) pandemic, including on Riverview’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in the Company’s allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in the Company’s market areas; changes in the levels of general interest rates, and the relative differences between short and long-term interest rates, deposit interest rates, the Company’s net interest margin and funding sources; uncertainty regarding the future of the London Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in the Company’s market areas; secondary market conditions for loans and the Company’s ability to originate loans for sale and sell loans in the secondary market; results of examinations of our bank subsidiary, Riverview Community Bank, by the Office of the Comptroller of the Currency and of the Company by the Board of Governors of the Federal Reserve System, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require the Company to increase its allowance for loan losses, write-down assets, reclassify its assets, change Riverview Community Bank’s regulatory capital position or affect the Company’s ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; legislative or regulatory changes that adversely affect the Company’s business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III; the Company’s ability to attract and retain deposits; the Company’s ability to control operating costs and expenses; the use of estimates in determining fair value of certain of the Company’s assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risks associated with the loans on the Company’s consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect the Company’s workforce and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; the Company’s ability to retain key members of its senior management team; costs and effects of litigation, including settlements and judgments; the Company’s ability to implement its business strategies; the Company's ability to successfully integrate any assets, liabilities, customers, systems, and management personnel it may acquire into its operations and the Company's ability to realize related revenue synergies and cost savings within expected time frames; future goodwill impairment due to changes in Riverview’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; the Company’s ability to pay dividends on its common stock; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting standards; including the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services including as a result of COVID-19; and the other risks described from time to time in our filings with the U.S. Securities and Exchange Commission (“SEC”).

The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for fiscal 2021 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Company’s consolidated financial condition and consolidated results of operations as well as its stock price performance.


1

Part I. Financial Information
Item 1. Financial Statements (Unaudited)

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2020 AND MARCH 31, 2020

(In thousands, except share and per share data) (Unaudited)
 
September 30,
2020
   
March 31,
2020
 
ASSETS
           
Cash and cash equivalents (including interest-earning accounts of $226,583 and $27,866)
$
238,016
 
$
41,968
 
Certificates of deposit held for investment
 
249
   
249
 
Loans held for sale
 
-
   
275
 
Investment securities:
           
Available for sale, at estimated fair value
 
126,273
   
148,291
 
Held to maturity, at amortized cost (estimated fair value of $24 and $28)
 
24
   
28
 
Loans receivable (net of allowance for loan losses of $18,866 and $12,624)
 
956,308
   
898,885
 
Prepaid expenses and other assets
 
16,018
   
7,452
 
Accrued interest receivable
 
5,341
   
3,704
 
Federal Home Loan Bank stock (“FHLB”), at cost
 
2,620
   
1,420
 
Premises and equipment, net
 
17,296
   
15,570
 
Financing lease right-of-use assets (“ROU”)
 
1,470
   
1,508
 
Deferred income taxes, net
 
3,076
   
3,277
 
Mortgage servicing rights, net
 
128
   
191
 
Goodwill
 
27,076
   
27,076
 
Core deposit intangible (“CDI”), net
 
689
   
759
 
Bank owned life insurance (“BOLI”)
 
30,587
   
30,155
 
TOTAL ASSETS
$
1,425,171
 
$
1,180,808
 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
           
             
LIABILITIES:
           
Deposits
$
1,199,972
 
$
990,448
 
Accrued expenses and other liabilities
 
16,087
   
11,783
 
Advanced payments by borrowers for taxes and insurance
 
1,011
   
703
 
FHLB advances
 
30,000
   
-
 
Junior subordinated debentures
 
26,705
   
26,662
 
Finance lease liability
 
2,350
   
2,369
 
Total liabilities
 
1,276,125
   
1,031,965
 
             
COMMITMENTS AND CONTINGENCIES (See Note 14)
           
             
SHAREHOLDERS’ EQUITY:
           
Serial preferred stock, $.01 par value; 250,000 shares authorized; issued and outstanding: none
 
-
   
-
 
Common stock, $.01 par value; 50,000,000 shares authorized
           
September 30, 2020 – 22,336,235 shares issued and outstanding
 
222
   
225
 
March 31, 2020 – 22,748,385 shares issued and 22,544,285 shares outstanding
           
Additional paid-in capital
 
63,420
   
64,649
 
Retained earnings
 
82,666
   
81,870
 
Accumulated other comprehensive income
 
2,738
   
2,099
 
Total shareholders’ equity
 
149,046
   
148,843
 
             
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,425,171
 
$
1,180,808
 

See accompanying notes to consolidated financial statements.


2



RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2020 AND 2019

 
Three Months Ended
September 30,
   
Six Months Ended
September 30,
 
(In thousands, except share and per share data) (Unaudited)
  2020
    2019
    2020
    2019
 
INTEREST AND DIVIDEND INCOME:
                       
Interest and fees on loans receivable
 
$
11,346
   
$
11,893
   
$
22,874
   
$
23,447
 
Interest on investment securities – taxable
   
505
     
860
     
1,160
     
1,738
 
Interest on investment securities – nontaxable
   
17
     
36
     
35
     
73
 
Other interest and dividends
   
81
     
93
     
118
     
180
 
Total interest and dividend income
   
11,949
     
12,882
     
24,187
     
25,438
 
                                 
INTEREST EXPENSE:
                               
Interest on deposits
   
657
     
660
     
1,515
     
1,011
 
Interest on borrowings
   
228
     
503
     
480
     
1,238
 
Total interest expense
   
885
     
1,163
     
1,995
     
2,249
 
Net interest income
   
11,064
     
11,719
     
22,192
     
23,189
 
Provision for loan losses
   
1,800
     
-
     
6,300
     
-
 
Net interest income after provision for loan losses
   
9,264
     
11,719
     
15,892
     
23,189
 
                                 
NON-INTEREST INCOME:
                               
Fees and service charges
   
1,663
     
1,752
     
3,061
     
3,389
 
Asset management fees
   
883
     
1,090
     
1,857
     
2,233
 
Net gains on sales of loans held for sale
   
-
     
46
     
28
     
142
 
BOLI
   
242
     
204
     
432
     
397
 
Other, net
   
31
     
77
     
64
     
144
 
Total non-interest income, net
   
2,819
     
3,169
     
5,442
     
6,305
 
                                 
NON-INTEREST EXPENSE:
                               
Salaries and employee benefits
   
5,379
     
5,697
     
10,571
     
11,412
 
Occupancy and depreciation
   
1,457
     
1,277
     
2,907
     
2,597
 
Data processing
   
697
     
669
     
1,358
     
1,349
 
Amortization of CDI
   
35
     
41
     
70
     
81
 
Advertising and marketing
   
110
     
298
     
239
     
508
 
FDIC insurance premium
   
84
     
-
     
132
     
80
 
State and local taxes
   
204
     
174
     
408
     
369
 
Telecommunications
   
85
     
76
     
171
     
162
 
Professional fees
   
321
     
263
     
641
     
588
 
Other
   
464
     
508
     
1,024
     
1,051
 
Total non-interest expense
   
8,836
     
9,003
     
17,521
     
18,197
 
                                 
INCOME BEFORE INCOME TAXES
   
3,247
     
5,885
     
3,813
     
11,297
 
PROVISION FOR INCOME TAXES
   
704
     
1,351
     
790
     
2,571
 
NET INCOME
 
$
2,543
   
$
4,534
   
$
3,023
   
$
8,726
 
                                 
Earnings per common share:
                               
Basic
 
$
0.11
   
$
0.20
   
$
0.14
   
$
0.39
 
Diluted
   
0.11
     
0.20
     
0.14
     
0.38
 
Weighted average number of common shares outstanding:
                               
Basic
   
22,261,709
     
22,643,103
     
22,259,201
     
22,631,406
 
Diluted
   
22,276,312
     
22,702,696
     
22,276,308
     
22,694,067
 

See accompanying notes to consolidated financial statements.

3



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2020 AND 2019


   
Three Months Ended
September 30,
   
Six Months Ended
September 30,
 
(In thousands) (Unaudited)
  2020
    2019
    2020
    2019
 
Net income
 
$
2,543
   
$
4,534
   
$
3,023
   
$
8,726
 
                                 
Other comprehensive income (loss):
                               
Net unrealized holding gain (loss) from available for sale investment securities arising
                               
during the period, net of tax of $8, ($223), ($201) and ($898), respectively
   
(24
)
   
712
     
639
     
2,847
 
                                 
Total comprehensive income, net
 
$
2,519
   
$
5,246
   
$
3,662
   
$
11,573
 
                                 
See accompanying notes to consolidated financial statements.






4


RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands, except share and per share data) (Unaudited)
Common Stock
   
Additional
Paid-In
   
Retained
   
Accumulated
Other
Comprehensive
   
Total
 
 
Shares
   
Amount
     Capital      Earnings      Income (Loss)      
                                     
For the three months ended September 30, 2019
                                   
                                     
Balance July 1, 2019
 
22,705,385
 
$
226
 
$
65,326
 
$
73,602
 
$
(491
)
$
138,663
 
                                     
Net income
 
-
   
-
   
-
   
4,534
   
-
   
4,534
 
Cash dividends on common stock ($0.045 per share)
 
-
   
-
   
-
   
(1,024
)
 
-
   
(1,024
)
Exercise of stock options
 
43,000
   
1
   
164
   
-
   
-
   
165
 
Stock-based compensation expense
 
-
   
-
   
69
   
-
   
-
   
69
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
712
   
712
 
Balance September 30, 2019
 
22,748,385
 
$
227
 
$
65,559
 
$
77,112
 
$
221
 
$
143,119
 
                                     
For the six months ended September 30, 2019
                                   
                                     
Balance April 1, 2019
 
22,607,712
 
$
226
 
$
65,094
 
$
70,428
 
$
(2,626
)
$
133,122
 
                                     
Net income
 
-
   
-
   
-
   
8,726
   
-
   
8,726
 
Cash dividends on common stock ($0.090 per share)
 
-
   
-
   
-
   
(2,042
)
 
-
   
(2,042
)
Exercise of stock options
 
58,000
   
1
   
216
   
-
   
-
   
217
 
Restricted stock grants
 
82,673
   
-
   
-
   
-
   
-
   
-
 
Stock-based compensation expense
 
-
   
-
   
249
   
-
   
-
   
249
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
2,847
   
2,847
 
Balance September 30, 2019
 
22,748,385
 
$
227
 
$
65,559
 
$
77,112
 
$
221
 
$
143,119
 


For the three months ended September 30, 2020
                                   
                                     
Balance July 1, 2020
 
22,245,472
 
$
222
 
$
63,254
 
$
81,240
 
$
2,762
 
$
147,478
 
                                     
Net income
 
-
   
-
   
-
   
2,543
   
-
   
2,543
 
Cash dividends on common stock ($0.05 per share)
 
-
   
-
   
-
   
(1,117
)
 
-
   
(1,117
)
Restricted stock grants
 
90,763
   
-
   
-
   
-
   
-
   
-
 
Stock-based compensation expense
 
-
   
-
   
166
   
-
   
-
   
166
 
Other comprehensive loss, net
 
-
   
-
   
-
   
-
   
(24
)
 
(24
)
Balance September 30, 2020
 
22,336,235
 
$
222
 
$
63,420
 
$
82,666
 
$
2,738
 
$
149,046
 
                                     
                                     
For the six months ended September 30, 2020
                                   
                                     
Balance April 1, 2020
 
22,544,285
 
$
225
 
$
64,649
 
$
81,870
 
$
2,099
 
$
148,843
 
                                     
Net income
 
-
   
-
   
-
   
3,023
   
-
   
3,023
 
Cash dividends on common stock ($0.10 per share)
 
-
   
-
   
-
   
(2,227
)
 
-
   
(2,227
)
Exercise of stock options
 
5,000
   
-
   
9
   
-
   
-
   
9
 
Stock repurchased
 
(295,900
)
 
(3
)
 
(1,444
)
 
-
   
-
   
(1,447
)
Restricted stock grants
 
90,763
   
-
   
-
   
-
   
-
   
-
 
Restricted stock cancelled
 
(7,913
)
 
-
   
-
   
-
   
-
   
-
 
Stock-based compensation expense
 
-
   
-
   
206
   
-
   
-
   
206
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
639
   
639
 
Balance September 30, 2020
 
22,336,235
 
$
222
 
$
63,420
 
$
82,666
 
$
2,738
 
$
149,046
 

See accompanying notes to consolidated financial statements.


5

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(In thousands) (Unaudited)
 
2020
   
2019
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
$
3,023
 
$
8,726
 
Adjustments to reconcile net income to net cash provided by operating activities:
           
Depreciation and amortization
 
1,513
   
1,496
 
Purchased loans amortization, net
 
122
   
181
 
Provision for loan losses
 
6,300
   
-
 
Stock-based compensation expense
 
206
   
249
 
Increase in deferred loan origination fees, net of amortization
 
2,351
   
96
 
Origination of loans held for sale
 
(913
)
 
(4,786
)
Proceeds from sales of loans held for sale
 
1,214
   
5,477
 
Net gains on loans held for sale and sales of premises and equipment
 
(23
)
 
(216
)
Income from BOLI
 
(432
)
 
(397
)
Changes in certain other assets and liabilities:
           
Prepaid expenses and other assets
 
(2,752
)
 
2,001
 
Accrued interest receivable
 
(1,637
)
 
92
 
Accrued expenses and other liabilities
 
(1,429
)
 
(677
)
Net cash provided by operating activities
 
7,543
   
12,242
 
             
CASH FLOWS FROM INVESTING ACTIVITIES:
           
Loan repayments (originations), net
 
(62,370
)
 
1,530
 
Purchases of loans receivable
 
(3,826
)
 
(6,992
)
Principal repayments on investment securities available for sale
 
19,105
   
14,515
 
Proceeds from calls of investment securities available for sale
 
3,000
   
3,000
 
Principal repayments on investment securities held to maturity
 
4
   
4
 
Purchases of premises and equipment and capitalized software
 
(2,338
)
 
(599
)
Redemption of certificates of deposit held for investment
 
-
   
498
 
Redemption (purchases) of FHLB stock, net
 
(1,200
)
 
2,264
 
Proceeds from sales of real estate owned (“REO”) and premises and equipment
 
-
   
81
 
Net cash provided by (used in) investing activities
 
(47,625
)
 
14,301
 
             
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Net increase in deposits
 
209,524
   
57,217
 
Dividends paid
 
(2,245
)
 
(1,923
)
Proceeds from borrowings
 
30,000
   
214,897
 
Repayment of borrowings
 
-
   
(271,483
)
Net increase in advance payments by borrowers for taxes and insurance
 
308
   
486
 
Principal payments on finance lease liability
 
(19
)
 
(16)
 
Proceeds from exercise of stock options
 
9
   
217
 
Repurchase of common stock
 
(1,447
)
 
-
 
Net cash provided by (used in) financing activities
 
236,130
   
(605
)
             
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
196,048
   
25,938
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
41,968
   
22,950
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
238,016
 
$
48,888
 
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
Cash paid during the period for:
           
Interest
$
1,901
 
$
2,202
 
Income taxes
 
2,292
   
1,482
 
             
NONCASH INVESTING AND FINANCING ACTIVITIES:
           
Dividends declared and accrued in other liabilities
$
1,117
 
$
1,023
 
Net unrealized holding gain from available for sale investment securities
 
840
   
3,745
 
Income tax effect related to other comprehensive income
 
(201
)
 
(898
)
ROU lease assets obtained in exchange for operating lease liabilities
 
5,833
   
5,603
 

See accompanying notes to consolidated financial statements.



6



RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)

1.
BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Quarterly Reports on 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 (“generally accepted accounting principles” or “GAAP”). However, all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim unaudited consolidated financial statements have been included. All such adjustments are of a normal recurring nature.

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Riverview Bancorp, Inc. Annual Report on Form 10-K for the year ended March 31, 2020 (“2020 Form 10-K”). The unaudited consolidated results of operations for the six months ended September 30, 2020 are not necessarily indicative of the results which may be expected for the entire fiscal year ending March 31, 2021.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period presentation; such reclassifications had no effect on previously reported net income or total shareholders’ equity.

2.
PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of Riverview Bancorp, Inc.; its wholly-owned subsidiary, Riverview Community Bank (the “Bank”); the Bank’s wholly-owned subsidiary, Riverview Services, Inc., and the Bank’s majority-owned subsidiary, Riverview Trust Company (the “Trust Company”) (collectively referred to as the “Company”). All inter-company transactions and balances have been eliminated in consolidation. For the period from April 1, 2017 through December 2019, the Trust Company was a wholly-owned subsidiary of the Bank. In December 2019, the Trust Company issued 1,500 shares of Trust Company stock in conjunction with the exercise of 1,500 Trust Company stock options by the Trust Company’s President and Chief Executive Officer. As a result of this transaction, the Bank’s ownership in the Trust Company decreased from 100% to 98%, resulting in a noncontrolling interest. The noncontrolling interest was $112,000 as of September 30, 2020, and net income attributable to the noncontrolling interest was $2,000 and $5,000 for the three and six months ended September 30, 2020, respectively. These amounts are not presented separately in the accompanying consolidated financial statements due to their insignificance.

3.
STOCK PLANS AND STOCK-BASED COMPENSATION

Stock Option Plans – In July 2003, shareholders of the Company approved the adoption of the 2003 Stock Option Plan (“2003 Plan”). The 2003 Plan was effective in July 2003 and expired in July 2013. Accordingly, no further option awards may be granted under the 2003 Plan; however, any awards granted prior to their respective expiration dates remain outstanding subject to their terms. Each option granted under the 2003 Plan has an exercise price equal to the fair market value of the Company’s common stock on the date of the grant, a maximum term of ten years and a vesting period from zero to five years.

In July 2017, the shareholders of the Company approved the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (“2017 Plan”). The 2017 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock and restricted stock units. The Company has reserved 1,800,000 shares of its common stock for issuance under the 2017 Plan. The 2003 Plan and the 2017 Plan are collectively referred to as “the Stock Option Plans”.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes stock option valuation model. The fair value of all awards is amortized on a straight-line basis over the requisite service periods, which are generally the vesting periods. The expected life of options granted represents the period of time that they are expected to be outstanding. The expected life is determined based on historical experience with similar options, considering the contractual terms and vesting schedules. Expected volatility is estimated at the date of grant based on the historical volatility of the Company’s common stock. Expected dividends are based on dividend trends and the market value of the Company’s common stock at the time of grant. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no stock options granted under the 2017 Stock Option Plan during the six months ended September 30, 2020 and 2019. As of September 30, 2020, all outstanding stock options were fully vested and there was no remaining unrecognized compensation expense related to stock options

7

granted under the Stock Option Plans. There was no stock-based compensation expense related to stock options for the six months ended September 30, 2020 and 2019 under the Stock Option Plans.

The following table presents the activity related to stock options under the Stock Option Plans for the periods shown:

 
Six Months Ended
September 30, 2020
 
Six Months Ended
September 30, 2019
 
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Balance, beginning of period
43,332
 
$
2.69
 
101,332
 
$
3.26
 
Options exercised
(5,000
)
 
1.97
 
(58,000
)
 
3.69
 
Balance, end of period
38,332
 
$
2.78
 
43,332
 
$
2.69
 

The following table presents information on stock options outstanding, less estimated forfeitures, as of September 30, 2020 and 2019:
               
   
2020
     
2019
 
Stock options fully vested and expected to vest:
             
Number
 
38,332
     
43,332
 
Weighted average exercise price
$
2.78
   
$
2.69
 
Aggregate intrinsic value (1)
$
52,000
   
$
203,000
 
Weighted average contractual term of options (years)
 
2.60
     
3.30
 
Stock options fully vested and currently exercisable:
             
Number
 
38,332
     
43,332
 
Weighted average exercise price
$
2.78
   
$
2.69
 
Aggregate intrinsic value (1)
$
52,000
   
$
203,000
 
Weighted average contractual term of options (years)
 
2.60
     
3.30
 
               
(1)  The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price) that would have been received by the option holders had all option holders exercised. This amount changes based on changes in the market value of the Company’s stock.

The total intrinsic value of stock options exercised was $17,000 and $238,000 for the six months ended September 30, 2020 and 2019, respectively, under the Stock Option Plans.

During the three months ended June 30, 2019, the Company granted 82,673 shares of restricted stock pursuant to the 2017 Plan of which vesting for 49,298 shares of restricted stock were time based and vesting for 33,375 shares of restricted stock were performance based subject to attaining certain performance metrics. The Company cancelled 7,913 shares of performance-based restricted stock during the quarter ended June 30, 2020 due to not achieving the underlying performance metrics. During the three months ended September 30, 2020, the Company granted 90,763 shares of restricted stock pursuant to the 2017 Plan of which vesting for 19,453 shares of restricted stock were time based and vesting for 71,310 shares of restricted stock were performance based subject to attaining certain performance metrics. Any potential cancellations of the 71,310 shares of performance-based restricted stock due to not achieving performance metrics will be determined at the end of fiscal year 2021.

The fair value of restricted stock awards is equal to the fair value of the Company’s stock on the date of grant. The related stock-based compensation expense is recorded over the requisite service period. Stock-based compensation related to restricted stock grants was $155,000 and $58,000 for the three months ended September 30, 2020 and 2019, respectively. Stock-based compensation related to restricted stock grants was $184,000 and $227,000 for the six months ended September 30, 2020 and 2019, respectively. The unrecognized stock-based compensation related to restricted stock was $516,000 at September 30, 2020. The weighted average vesting period for the restricted stock was 2.12 years at September 30, 2020.

The following table presents the activity related to restricted stock as of September 30, 2020:

 
Time Based
 
Performance Based
 
Total
 
 
Number of
Unvested
Shares
 
Weighted
Average
Market Price
 
Number of
Unvested
Shares
 
Weighted
Average
Market Price
 
Number of
Unvested
Shares
 
Weighted
Average
Market Price
 
Balance, beginning of period
49,298
 
$
8.35
 
33,375
 
$
8.35
 
82,673
 
$
8.35
 
Granted
19,453
   
4.17
 
71,310
   
4.17
 
90,763
   
4.17
 
Forfeited
-
   
-
 
-
   
-
 
-
   
-
 
Vested
(23,135
)
 
8.35
 
-
   
-
 
(23,135
)
 
8.35
 
Cancelled
-
   
-
 
(7,913
)
 
8.35
 
(7,913
)
 
8.35
 
Balance, end of period
45,616
 
$
6.57
 
96,772
 
$
5.27
 
142,388
 
$
5.69
 



8

Trust Company Stock Options – At September 30, 2020 and 2019, there were 1,000 and 2,500 Trust Company stock options outstanding, respectively, which had been granted to the President and Chief Executive Officer of the Trust Company. During each of the three and six months ended September 30, 2020 and 2019, the Trust Company incurred $11,000 and $22,000, respectively of stock-based compensation expense related to these options. No Trust Company stock options were exercised during the six months ended September 30, 2020 and 2019. There were no Trust Company stock options granted during the six months ended September 30, 2020 and 2019. Unrecognized compensation expense related to the Trust Company stock options totaled $22,000 as of September 30, 2020.

4.
EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Nonvested shares of restricted stock are included in the computation of basic EPS because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. Diluted EPS is computed by dividing net income or loss 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 the assumed exercise of outstanding stock options. For the three and six months ended September 30, 2020 and 2019, there were no stock options excluded in computing diluted EPS.

In February 2020, the Company’s Board of Directors adopted a stock repurchase program (the “repurchase program”). Under the repurchase program, the Company may repurchase up to 500,000 shares of the Company’s outstanding shares of common stock, in the open market based on prevailing market prices, or in private negotiated transactions, during the period from March 12, 2020 until the earlier of the completion of the repurchase of 500,000 shares of the Company’s common stock or the next six months, depending on market conditions. As of April 17, 2020, the Company had repurchased the 500,000 shares under the repurchase program at an average price of $4.89 per share. The Company did not repurchase any shares of its common stock during the fiscal year ended March 31, 2019 or any interim period within that fiscal year.

The following table presents a reconciliation of the components used to compute basic and diluted EPS for the periods indicated:

   
Three Months Ended
September 30,
   
Six Months Ended
September 30,
 
   
2020
   
2019
   
2020
   
2019
 
Basic EPS computation:
                       
Numerator-net income
$
2,543,000
 
$
4,534,000
 
$
3,023,000
 
$
8,726,000
 
Denominator-weighted average common shares
   outstanding
 
22,261,709
   
22,643,103
   
22,259,201
   
22,631,406
 
Basic EPS
$
0.11
 
$
0.20
 
$
0.14
 
$
0.39
 
Diluted EPS computation:
                       
Numerator-net income
$
2,543,000
 
$
4,534,000
 
$
3,023,000
 
$
8,726,000
 
Denominator-weighted average common shares
outstanding
 
22,261,709
   
22,643,103
   
22,259,201
   
22,631,406
 
Effect of dilutive stock options
 
14,603
   
59,593
   
17,107
   
62,661
 
Weighted average common shares and common
stock equivalents
 
22,276,312
   
22,702,696
   
22,276,308
   
22,694,067
 
Diluted EPS
$
0.11
 
$
0.20
 
$
0.14
 
$
0.38
 






9


5.
INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities consisted of the following at the dates indicated (in thousands):

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair
Value
September 30, 2020
                     
Available for sale:
                     
Municipal securities
$
4,733
 
$
277
 
$
-
 
$
5,010
Agency securities
 
3,006
   
4
   
(8
)
 
3,002
Real estate mortgage investment conduits (1)
 
36,312
   
811
   
-
   
37,123
Residential mortgage-backed securities (1)
 
48,302
   
1,399
   
-
   
49,701
Other mortgage-backed securities (2)
 
30,318
   
1,201
   
(82
)
 
31,437
Total available for sale
$
122,671
 
$
3,692
 
$
(90
)
$
126,273
                       
Held to maturity:
                     
Residential mortgage-backed securities (3)
$
24
 
$
-
 
$
-
 
$
24
                       


March 31, 2020
                     
Available for sale:
                     
Municipal securities
$
4,740
 
$
137
 
$
-
 
$
4,877
Agency securities
 
6,009
   
17
   
(10
)
 
6,016
Real estate mortgage investment conduits (1)
 
42,663
   
1,128
   
-
   
43,791
Residential mortgage-backed securities (1)
 
58,700
   
1,415
   
(30
)
 
60,085
Other mortgage-backed securities (2)
 
33,417
   
256
   
(151
)
 
33,522
Total available for sale
$
145,529
 
$
2,953
 
$
(191
)
$
148,291
                       
Held to maturity:
                     
Residential mortgage-backed securities (3)
$
28
 
$
-
 
$
-
 
$
28
 
(1) Comprised of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities.
(2) Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by FNMA.
(3) Comprised of FHLMC and FNMA issued securities.

The contractual maturities of investment securities as of September 30, 2020 are as follows (in thousands):

   
Available for Sale
   
Held to Maturity
 
   
Amortized
Cost
   
Estimated
Fair Value
   
Amortized
Cost
   
Estimated
Fair Value
 
Due in one year or less
$
1,000
 
$
1,004
 
$
-
 
$
-
 
Due after one year through five years
 
6,650
   
6,760
   
21
   
21
 
Due after five years through ten years
 
28,333
   
29,193
   
3
   
3
 
Due after ten years
 
86,688
   
89,316
   
-
   
-
 
Total
$
122,671
 
$
126,273
 
$
24
 
$
24
 

Expected maturities of investment securities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

The fair value of temporarily impaired investment securities, the amount of unrealized losses and the length of time these unrealized losses existed are as follows at the dates indicated (in thousands):


 
Less than 12 months
 
  12 months or longer
 
  Total
 
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
 
September 30, 2020
                                   
                                     
Available for sale:
                                   
Agency securities
$
-
 
$
-
 
$
1,998
 
$
(8
)
$
1,998
 
$
(8
)
Real estate mortgage investment conduits (1)
 
31
   
-
   
-
   
-
   
31
   
-
 
Other mortgage-backed securities (2)
 
-
   
-
   
4,536
   
(82
)
 
4,536
   
(82
)
Total available for sale
$
31
 
$
-
 
$
6,534
 
$
(90
)
$
6,565
 
$
(90
)
                                     
(1) Comprised of GNMA issued securities.
(2) Comprised of SBA issued securities.




10


 
Less than 12 months
 
  12 months or longer
 
  Total
 
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
 
March 31, 2020
                                   
                                     
Available for sale:
                                   
Agency securities
$
1,998
 
$
(10
)
$
-
 
$
-
 
$
1,998
 
$
(10
)
Residential mortgage-backed securities (1)
 
2,509
   
(22
)
 
409
   
(8
)
 
2,918
   
(30
)
Other mortgage-backed securities (2)
 
11,726
   
(58
)
 
4,911
   
(93
)
 
16,637
   
(151
)
Total available for sale
$
16,233
 
$
(90
)
$
5,320
 
$
(101
)
$
21,553
 
$
(191
)
                                     
(1) Comprised of FHLMC and FNMA issued securities.
(2) Comprised of SBA and CRE secured securities issued by FNMA.

The unrealized losses on the Company’s investment securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. The Company has the ability and intent to hold the investments until the fair value recovers. Based on management’s evaluation and intent, the unrealized losses related to the investment securities in the above tables are considered temporary.

The Company had no sales and realized no gains or losses on sales of investment securities for the three and six months ended September 30, 2020 and 2019. Investment securities available for sale with an amortized cost of $6.0 million and $6.6 million and an estimated fair value of $6.2 million and $6.8 million at September 30, 2020 and March 31, 2020, respectively, were pledged as collateral for government public funds held by the Bank. There were no held to maturity securities pledged as collateral for government public funds held by the Bank at September 30, 2020 and March 31, 2020.

6.
LOANS RECEIVABLE

Loans receivable are reported net of deferred loan fees. At September 2020, deferred loan fees totaled $6.5 million of which $2.8 million were related to the SBA’s Paycheck Protection Program (“PPP”) loans. At March 31, 2020, deferred loan fees totaled $4.1 million of which there were no deferred loan fees related to SBA PPP loans. Loans receivable are also reported net of discounts and premiums totaling $871,000 and $1.3 million, respectively, as of September 30, 2020, compared to $1.1 million and $1.5 million, respectively, as of March 31, 2020. Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands):


 
September 30,
2020
 
March 31,
2020
 
Commercial and construction
           
Commercial business (1)
$
281,670
 
$
179,029
 
Commercial real estate
 
525,977
   
507,871
 
Land
 
14,531
   
14,026
 
Multi-family
 
49,878
   
58,374
 
Real estate construction
 
28,308
   
64,843
 
Total commercial and construction
 
900,364
   
824,143
 
             
Consumer
           
Real estate one-to-four family
 
71,940
   
83,150
 
Other installment
 
2,870
   
4,216
 
Total consumer
 
74,810
   
87,366
 
             
Total loans
 
975,174
   
911,509
 
             
Less:  Allowance for loan losses
 
18,866
   
12,624
 
Loans receivable, net
$
956,308
 
$
898,885
 
             
(1) SBA PPP loans totaled $110.8 million and none at September 30, 2020 and March 31, 2020, respectively.
 

The Company considers its loan portfolio to have very little exposure to sub-prime mortgage loans since the Company has not historically engaged in this type of lending. At September 30, 2020, loans carried at $516.2 million were pledged as collateral to the Federal Home Loan Bank of Des Moines (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) pursuant to borrowing agreements.

Substantially all of the Bank’s business activity is with customers located in the states of Washington and Oregon. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulation to 15% of the Bank’s shareholders’ equity, excluding accumulated other comprehensive income (loss). As of September 30, 2020 and March 31, 2020, the Bank had no loans to any one borrower in excess of the regulatory limit.


11


7.
ALLOWANCE FOR LOAN LOSSES


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. The allowance is provided based upon management’s ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions and a detailed analysis of individual loans for which full collectability may not be assured. The detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific, general and unallocated components.

The specific component relates to loans that are considered impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value (less estimated selling costs, if applicable) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-impaired loans based on the Company’s risk rating system and historical loss experience adjusted for qualitative factors. The Company calculates its historical loss rates using the average of the last four quarterly 24-month periods. The Company calculates and applies its historical loss rates by individual loan types in its loan portfolio. These historical loss rates are adjusted for qualitative and environmental factors.

An unallocated component is maintained to cover uncertainties that the Company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses. Such factors include uncertainties in economic conditions, uncertainties in identifying triggering events that directly correlate to subsequent loss rates, changes in appraised value of underlying collateral, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current loan portfolio or economic conditions. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company as of the date of the filing of the consolidated financial statements.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for loan losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.

Management’s evaluation of the allowance for loan losses is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. Loss factors are based on the Company’s historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of impaired loans and other factors as deemed appropriate. These factors are evaluated on a quarterly basis. Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):

Three months ended
September 30, 2020
 
Commercial Business
   
Commercial
Real Estate
   
Land
   
Multi-
Family
   
Real Estate Construction
   
Consumer
   
Unallocated
   
Total
 
                                                 
Beginning balance
 
$
2,011
   
$
11,323
   
$
243
   
$
879
   
$
692
   
$
1,281
   
$
647
   
$
17,076
 
Provision for (recapture of) loan losses
   
169
     
1,886
     
2
     
(134
)
   
28
     
(116
)
   
(35
)
   
1,800
 
Charge-offs
   
-
     
-
     
-
     
-
     
-
     
(23
)
   
-
     
(23
)
Recoveries
   
-
     
-
     
-
     
-
     
-
     
13
     
-
     
13
 
Ending balance
 
$
2,180
   
$
13,209
   
$
245
   
$
745
   
$
720
   
$
1,155
   
$
612
   
$
18,866
 




12

Six months ended
September 30, 2020
 
Commercial Business
   
Commercial
Real Estate
   
Land
   
Multi-
Family
   
Real Estate Construction
   
Consumer
   
Unallocated
   
Total
 
                                                 
Beginning balance
 
$
2,008
   
$
6,421
   
$
230
   
$
854
   
$
1,149
   
$
1,363
   
$
599
   
$
12,624
 
Provision for (recapture of) loan losses
   
162
     
6,788
     
15
     
(109
)
   
(429
)
   
(140
)
   
13
     
6,300
 
Charge-offs
   
-
     
-
     
-
     
-
     
-
     
(88
)
   
-
     
(88
)
Recoveries
   
10
     
-
     
-
     
-
     
-
     
20
     
-
     
30
 
Ending balance
 
$
2,180
   
$
13,209
   
$
245
   
$
745
   
$
720
   
$
1,155
   
$
612
   
$
18,866
 

Three months ended
September 30, 2019
                                               
                                                 
Beginning balance
 
$
2,113
   
$
4,889
   
$
244
   
$
699
   
$
1,506
   
$
1,346
   
$
645
   
$
11,442
 
Provision for (recapture of) loan losses
   
(62
)
   
149
     
(25
)
   
80
     
(125
)
   
7
     
(24
)
   
-
 
Charge-offs
   
-
     
-
     
-
     
-
     
-
     
(13
)
   
-
     
(13
)
Recoveries
   
-
     
-
     
-
     
-
     
-
     
7
     
-
     
7
 
Ending balance
 
$
2,051
   
$
5,038
   
$
219
   
$
779
   
$
1,381
   
$
1,347
   
$
621
   
$
11,436
 

Six months ended
September 30, 2019
                                               
                                                 
Beginning balance
 
$
1,808
   
$
5,053
   
$
254
   
$
728
   
$
1,457
   
$
1,447
   
$
710
   
$
11,457
 
Provision for (recapture of) loan losses
   
246
     
(15
)
   
(35
)
   
51
     
(76
)
   
(82
)
   
(89
)
   
-
 
Charge-offs
   
(3
)
   
-
     
-
     
-
     
-
     
(54
)
   
-
     
(57
)
Recoveries
   
-
     
-
     
-
     
-
     
-
     
36
     
-
     
36
 
Ending balance
 
$
2,051
   
$
5,038
   
$
219
   
$
779
   
$
1,381
   
$
1,347
   
$
621
   
$
11,436
 

The following tables present an analysis of loans receivable and the allowance for loan losses, based on impairment methodology, at the dates indicated (in thousands):

   
Allowance for Loan Losses
   
Recorded Investment in Loans
 
September 30, 2020
 
Individually
Evaluated for Impairment
   
Collectively
Evaluated for Impairment
   
Total
   
Individually
Evaluated for Impairment
   
Collectively
Evaluated for Impairment
   
Total
 
                                     
Commercial business
 
$
-
   
$
2,180
   
$
2,180
   
$
129
   
$
281,541
   
$
281,670
 
Commercial real estate
   
-
     
13,209
     
13,209
     
2,349
     
523,628
     
525,977
 
Land
   
-
     
245
     
245
     
714
     
13,817
     
14,531
 
Multi-family
   
-
     
745
     
745
     
1,553
     
48,325
     
49,878
 
Real estate construction
   
-
     
720
     
720
     
-
     
28,308
     
28,308
 
Consumer
   
10
     
1,145
     
1,155
     
546
     
74,264
     
74,810
 
Unallocated
   
-
     
612
     
612
     
-
     
-
     
-
 
Total
 
$
10
   
$
18,856
   
$
18,866
   
$
5,291
   
$
969,883
   
$
975,174
 

March 31, 2020
                                   
                                     
Commercial business
 
$
-
   
$
2,008
   
$
2,008
   
$
139
   
$
178,890
   
$
179,029
 
Commercial real estate
   
-
     
6,421
     
6,421
     
2,378
     
505,493
     
507,871
 
Land
   
-
     
230
     
230
     
714
     
13,312
     
14,026
 
Multi-family
   
-
     
854
     
854
     
1,549
     
56,825
     
58,374
 
Real estate construction
   
-
     
1,149
     
1,149
     
-
     
64,843
     
64,843
 
Consumer
   
12
     
1,351
     
1,363
     
432
     
86,934
     
87,366
 
Unallocated
   
-
     
599
     
599
     
-
     
-
     
-
 
Total
 
$
12
   
$
12,612
   
$
12,624
   
$
5,212
   
$
906,297
   
$
911,509
 

Non-accrual loans:  Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 to 89 days delinquent. In general, when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months. Interest income foregone on non-accrual loans was $35,000 and $37,000 for the six months ended September 30, 2020 and 2019, respectively.



13

The following tables present an analysis of loans by aging category at the dates indicated (in thousands):


September 30, 2020
 
30-89 Days
Past Due
   
90 Days and
Greater Past
Due
   
Non-accrual
   
Total Past
Due and
Non-accrual
   
Current
   
Total Loans
Receivable
 
                                     
Commercial business
 
$
-
   
$
-
   
$
191
   
$
191
   
$
281,479
   
$
281,670
 
Commercial real estate
   
-
     
-
     
1,005
     
1,005
     
524,972
     
525,977
 
Land
   
-
     
-
     
-
     
-
     
14,531
     
14,531
 
Multi-family
   
-
     
-
     
-
     
-
     
49,878
     
49,878
 
Real estate construction
   
-
     
-
     
-
     
-
     
28,308
     
28,308
 
Consumer
   
193
     
-
     
79
     
272
     
74,538
     
74,810
 
Total
 
$
193
   
$
-
   
$
1,275
   
$
1,468
   
$
973,706
   
$
975,174
 

March 31, 2020
                                   
                                     
Commercial business
 
$
-
   
$
-
   
$
201
   
$
201
   
$
178,828
   
$
179,029
 
Commercial real estate
   
-
     
-
     
1,014
     
1,014
     
506,857
     
507,871
 
Land
   
-
     
-
     
-
     
-
     
14,026
     
14,026
 
Multi-family
   
-
     
-
     
-
     
-
     
58,374
     
58,374
 
Real estate construction
   
-
     
-
     
-
     
-
     
64,843
     
64,843
 
Consumer
   
271
     
-
     
180
     
451
     
86,915
     
87,366
 
Total
 
$
271
   
$
-
   
$
1,395
   
$
1,666
   
$
909,843
   
$
911,509
 

Credit quality indicators: The Company monitors credit risk in its loan portfolio using a risk rating system (on a scale of one to nine) for all commercial (non-consumer) loans. The risk rating system is a measure of the credit risk of the borrower based on their historical, current and anticipated future financial characteristics. The Company assigns a risk rating to each commercial loan at origination and subsequently updates these ratings, as necessary, so that the risk rating continues to reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earnings trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its allowance for loan losses.

Pass – These loans have a risk rating between 1 and 4 and are to borrowers that meet normal credit standards. Any deficiencies in satisfactory asset quality, liquidity, debt servicing capacity and coverage are offset by strengths in other areas. The borrower currently has the capacity to perform according to the loan terms. Any concerns about risk factors such as stability of margins, stability of cash flows, liquidity, dependence on a single product/supplier/customer, depth of management, etc. are offset by strengths in other areas. Typically, these loans are secured by the operating assets of the borrower and/or real estate. The borrower’s management is considered competent. The borrower has the ability to repay the debt in the normal course of business.

Watch – These loans have a risk rating of 5 and are included in the “pass” rating. However, there would typically be some reason for additional management oversight, such as the borrower’s recent financial setbacks and/or deteriorating financial position, industry concerns and failure to perform on other borrowing obligations. Loans with this rating are monitored closely in an effort to correct deficiencies.

Special mention – These loans have a risk rating of 6 and are rated in accordance with regulatory guidelines. These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the credit position at some future date. These loans pose elevated risk but their weakness does not yet justify a “substandard” classification.

Substandard – These loans have a risk rating of 7 and are rated in accordance with regulatory guidelines, for which the accrual of interest may or may not be discontinued. By definition under regulatory guidelines, a “substandard” loan has defined weaknesses which make payment default or principal exposure likely but not yet certain. Repayment of such loans is likely to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.

Doubtful – These loans have a risk rating of 8 and are rated in accordance with regulatory guidelines. Such loans are placed on non-accrual status and repayment may be dependent upon collateral which has value that is difficult to determine or upon some near-term event which lacks certainty.


14


Loss – These loans have a risk rating of 9 and are rated in accordance with regulatory guidelines. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.


The following tables present an analysis of loans by credit quality indicators at the dates indicated (in thousands):

September 30, 2020
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total Loans
Receivable
 
                                     
Commercial business
 
$
281,036
   
$
443
   
$
191
   
$
-
   
$
-
   
$
281,670
 
Commercial real estate
   
485,377
     
36,030
     
4,570
     
-
     
-
     
525,977
 
Land
   
14,531
     
-
     
-
     
-
     
-
     
14,531
 
Multi-family
   
49,804
     
41
     
33
     
-
     
-
     
49,878
 
Real estate construction
   
25,755
     
2,553
     
-
     
-
     
-
     
28,308
 
Consumer
   
74,731
     
-
     
79
     
-
     
-
     
74,810
 
Total
 
$
931,234
   
$
39,067
   
$
4,873
   
$
-
   
$
-
   
$
975,174
 

March 31, 2020
                                   
                                     
Commercial business
 
$
177,399
   
$
1,282
   
$
348
   
$
-
   
$
-
   
$
179,029
 
Commercial real estate
   
506,794
     
63
     
1,014
     
-
     
-
     
507,871
 
Land
   
14,026
     
-
     
-
     
-
     
-
     
14,026
 
Multi-family
   
58,295
     
45
     
34
     
-
     
-
     
58,374
 
Real estate construction
   
64,843
     
-
     
-
     
-
     
-
     
64,843
 
Consumer
   
87,186
     
-
     
180
     
-
     
-
     
87,366
 
Total
 
$
908,543
   
$
1,390
   
$
1,576
   
$
-
   
$
-
   
$
911,509
 

Impaired loans and troubled debt restructurings (“TDRs”): A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Typically, factors used in determining if a loan is impaired include, but are not limited to, whether the loan is 90 days or more delinquent, internally designated as substandard or worse, on non-accrual status or represents a TDR. The majority of the Company’s impaired loans are considered collateral dependent. When a loan is considered collateral dependent, impairment is measured using the estimated value of the underlying collateral, less any prior liens, and when applicable, less estimated selling costs. For impaired loans that are not collateral dependent, impairment is measured using the present value of expected future cash flows, discounted at the loan’s original effective interest rate. When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized by adjusting an allocation of the allowance for loan losses. Subsequent to the initial allocation of allowance to the individual loan, the Company may conclude that it is appropriate to record a charge-off of the impaired portion of the loan. When a charge-off is recorded, the loan balance is reduced and the specific allowance is eliminated. Generally, when a collateral dependent loan is initially measured for impairment and has not had an appraisal of the collateral in the last six months, the Company obtains an updated market valuation. Subsequently, the Company generally obtains an updated market valuation of the collateral on an annual basis. The collateral valuation may occur more frequently if the Company determines that there is an indication that the market value may have declined.

The following tables present the total and average recorded investment in impaired loans at the dates and for the periods indicated (in thousands):

September 30, 2020
 
Recorded
Investment with
No Specific
Valuation
Allowance
   
Recorded
Investment
with Specific
Valuation
Allowance
   
Total
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Specific
Valuation
Allowance
 
                               
Commercial business
 
$
129
   
$
-
   
$
129
   
$
164
   
$
-
 
Commercial real estate
   
2,349
     
-
     
2,349
     
3,433
     
-
 
Land
   
714
     
-
     
714
     
749
     
-
 
Multi-family
   
1,553
     
-
     
1,553
     
1,657
     
-
 
Consumer
   
416
     
130
     
546
     
660
     
10
 
Total
 
$
5,161
   
$
130
   
$
5,291
   
$
6,663
   
$
10
 
March 31, 2020
                                       
                                         
Commercial business
 
$
139
   
$
-
   
$
139
   
$
170
   
$
-
 
Commercial real estate
   
2,378
     
-
     
2,378
     
3,405
     
-
 
Land
   
714
     
-
     
714
     
748
     
-
 
Multi-family
   
1,549
     
-
     
1,549
     
1,662
     
-
 
Consumer
   
295
     
137
     
432
     
543
     
12
 
Total
 
$
5,075
   
$
137
   
$
5,212
   
$
6,528
   
$
12
 


15


   
Three months ended
September 30, 2020
   
Three months ended
September 30, 2019
 
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired Loans
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired Loans
 
                         
Commercial business
 
$
132
   
$
-
   
$
153
   
$
-
 
Commercial real estate
   
2,356
     
15
     
2,424
     
16
 
Land
   
714
     
10
     
722
     
10
 
Multi-family
   
1,552
     
22
     
1,577
     
23
 
Consumer
   
485
     
10
     
451
     
7
 
Total
 
$
5,239
   
$
57
   
$
5,327
   
$
56
 

   
Six months ended
September 30, 2020
   
Six months ended
September 30, 2019
 
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired Loans
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired Loans
 
                         
Commercial business
 
$
134
   
$
-
   
$
155
   
$
-
 
Commercial real estate
   
2,364
     
30
     
2,444
     
31
 
Land
   
714
     
20
     
724
     
20
 
Multi-family
   
1,551
     
44
     
1,584
     
45
 
Consumer
   
467
     
16
     
533
     
15
 
Total
 
$
5,230
   
$
110
   
$
5,440
   
$
111
 

The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above tables.

TDRs are loans for which the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk. TDRs are considered impaired loans and as such, impairment is measured as described for impaired loans above. The following table presents TDRs by interest accrual status at the dates indicated (in thousands):

   
September 30, 2020
   
March 31, 2020
 
   
Accrual
   
Nonaccrual
   
Total
   
Accrual
   
Nonaccrual
   
Total
 
                                     
Commercial business
 
$
-
   
$
129
   
$
129
   
$
-
   
$
139
   
$
139
 
Commercial real estate
   
1,344
     
1,005
     
2,349
     
1,364
     
1,014
     
2,378
 
Land
   
714
     
-
     
714
     
714
     
-
     
714
 
Multi-family
   
1,553
     
-
     
1,553
     
1,549
     
-
     
1,549