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 December 31, 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, 22,345,235 shares outstanding as of February 11, 2021.



Form 10-Q

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX

Part I.
Financial Information
Page
 
 
 
Item 1: 
Financial Statements (Unaudited)
 
 
 
 
 
Consolidated Balance Sheets as of
December 31, 2020 and March 31, 2020
2
 
 
 
 
Consolidated Statements of Income for the
Three and Nine months Ended December 31, 2020 and 2019
3
 
 
 
 
Consolidated Statements of Comprehensive Income for the
Three and Nine months Ended December 31, 2020 and 2019
4
 
 
 
 
Consolidated Statements of Shareholders’ Equity for the
Three and Nine months Ended December 31, 2020 and 2019
5
 
 
 
 
Consolidated Statements of Cash Flows for the
Nine months Ended December 31, 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 
44
 
 
 
Item 4: 
Controls and Procedures 
44
 
 
 
Part II.
Other Information
45-46
 
 
 
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
47
     
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") and the Consolidated Appropriations Act, 2021 (“CAA 2021”), 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 DECEMBER 31, 2020 AND MARCH 31, 2020

(In thousands, except share and per share data) (Unaudited)
 
December 31,
2020
   
March 31,
2020
 
ASSETS
           
Cash and cash equivalents (including interest-earning accounts of $220,597 and $27,866)
$
235,834
 
$
41,968
 
Certificates of deposit held for investment
 
249
   
249
 
Loans held for sale
 
-
   
275
 
Investment securities:
           
Available for sale, at estimated fair value
 
153,219
   
148,291
 
Held to maturity, at amortized cost (estimated fair value of $33,494 and $28)
 
33,425
   
28
 
Loans receivable (net of allowance for loan losses of $19,192 and $12,624)
 
912,276
   
898,885
 
Prepaid expenses and other assets
 
13,365
   
7,452
 
Accrued interest receivable
 
5,283
   
3,704
 
Federal Home Loan Bank stock (“FHLB”), at cost
 
1,420
   
1,420
 
Premises and equipment, net
 
17,909
   
15,570
 
Financing lease right-of-use assets (“ROU”)
 
1,451
   
1,508
 
Deferred income taxes, net
 
3,141
   
3,277
 
Mortgage servicing rights, net
 
102
   
191
 
Goodwill
 
27,076
   
27,076
 
Core deposit intangible (“CDI”), net
 
654
   
759
 
Bank owned life insurance (“BOLI”)
 
30,780
   
30,155
 
TOTAL ASSETS
$
1,436,184
 
$
1,180,808
 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
           
             
LIABILITIES:
           
Deposits
$
1,236,933
 
$
990,448
 
Accrued expenses and other liabilities
 
18,155
   
11,783
 
Advanced payments by borrowers for taxes and insurance
 
156
   
703
 
Junior subordinated debentures
 
26,726
   
26,662
 
Finance lease liability
 
2,340
   
2,369
 
Total liabilities
 
1,284,310
   
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
           
December 31, 2020 – 22,345,235 shares issued and outstanding
 
223
   
225
 
March 31, 2020 – 22,748,385 shares issued and 22,544,285 shares outstanding
           
Additional paid-in capital
 
63,539
   
64,649
 
Retained earnings
 
85,584
   
81,870
 
Accumulated other comprehensive income
 
2,528
   
2,099
 
Total shareholders’ equity
 
151,874
   
148,843
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,436,184
 
$
1,180,808
 

See accompanying notes to consolidated financial statements.


2


RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 2020 AND 2019

 
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
(In thousands, except share and per share data) (Unaudited)   2020     2019     2020     2019  
INTEREST AND DIVIDEND INCOME:                        
Interest and fees on loans receivable
 
$
11,601
   
$
11,699
   
$
34,475
   
$
35,146
 
Interest on investment securities – taxable
   
549
     
851
     
1,709
     
2,589
 
Interest on investment securities – nontaxable
   
44
     
27
     
79
     
100
 
Other interest and dividends
   
98
     
189
     
216
     
369
 
Total interest and dividend income
   
12,292
     
12,766
     
36,479
     
38,204
 
                                 
INTEREST EXPENSE:
                               
Interest on deposits
   
556
     
942
     
2,071
     
1,953
 
Interest on borrowings
   
207
     
332
     
687
     
1,570
 
Total interest expense
   
763
     
1,274
     
2,758
     
3,523
 
Net interest income
   
11,529
     
11,492
     
33,721
     
34,681
 
Provision for loan losses
   
-
     
-
     
6,300
     
-
 
Net interest income after provision for loan losses
   
11,529
     
11,492
     
27,421
     
34,681
 
                                 
NON-INTEREST INCOME:
                               
Fees and service charges
   
1,654
     
1,661
     
4,715
     
5,050
 
Asset management fees
   
889
     
1,136
     
2,746
     
3,369
 
Net gains on sales of loans held for sale
   
-
     
68
     
28
     
210
 
BOLI
   
193
     
188
     
625
     
585
 
Other, net
   
76
     
110
     
140
     
254
 
Total non-interest income, net
   
2,812
     
3,163
     
8,254
     
9,468
 
                                 
NON-INTEREST EXPENSE:
                               
Salaries and employee benefits
   
5,698
     
5,941
     
16,269
     
17,353
 
Occupancy and depreciation
   
1,434
     
1,461
     
4,341
     
4,058
 
Data processing
   
638
     
637
     
1,996
     
1,986
 
Amortization of CDI
   
35
     
40
     
105
     
121
 
Advertising and marketing
   
144
     
181
     
383
     
689
 
FDIC insurance premium
   
89
     
-
     
221
     
81
 
State and local taxes
   
190
     
126
     
598
     
495
 
Telecommunications
   
74
     
84
     
245
     
246
 
Professional fees
   
321
     
267
     
962
     
855
 
Other
   
484
     
511
     
1,508
     
1,561
 
Total non-interest expense
   
9,107
     
9,248
     
26,628
     
27,445
 
                                 
INCOME BEFORE INCOME TAXES
   
5,234
     
5,407
     
9,047
     
16,704
 
PROVISION FOR INCOME TAXES
   
1,199
     
1,279
     
1,989
     
3,850
 
NET INCOME
 
$
4,035
   
$
4,128
   
$
7,058
   
$
12,854
 
                                 
Earnings per common share:
                               
Basic
 
$
0.18
   
$
0.18
   
$
0.32
   
$
0.57
 
Diluted
   
0.18
     
0.18
     
0.32
     
0.57
 
Weighted average number of common shares outstanding:
                               
Basic
   
22,320,699
     
22,748,385
     
22,279,774
     
22,701,806
 
Diluted
   
22,337,644
     
22,776,193
     
22,296,827
     
22,741,652
 


See accompanying notes to consolidated financial statements.


3

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 2020 AND 2019

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
(In thousands) (Unaudited)
  2020     2019     2020
    2019
 
Net income
 
$
4,035
   
$
4,128
   
$
7,058
   
$
12,854
 
                                 
Other comprehensive income (loss):
                               
Net unrealized holding gain (loss) from available for sale investment securities arising
                               
during the period, net of tax of $66, 112, ($135) and ($786), respectively
   
(210
)
   
(359
)
   
429
     
2,488
 
                                 
    Reclassification adjustment of net gain from sale of available for sale investment
                               
       securities included in income, net of tax of $0, $7, $0 and $7, respectively
   
-
     
(23
)
   
-
     
(23
)
Total other comprehensive income (loss), net
   
(210
)
   
(382
)
   
429
     
2,465
 
                                 
Total comprehensive income, net
 
$
3,825
   
$
3,746
   
$
7,487
   
$
15,319
 
                                 
See accompanying notes to consolidated financial statements.







4

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019

(In thousands, except share and per share data) (Unaudited)
Common Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
 
Shares
   
Amount
                 
                                     
For the three months ended December 31, 2019
                                   
                                     
Balance October 1, 2019
 
22,748,385
 
$
227
 
$
65,559
 
$
77,112
 
$
221
 
$
143,119
 
                                     
Net income
 
-
   
-
   
-
   
4,128
   
-
   
4,128
 
Cash dividends on common stock ($0.050 per share)
 
-
   
-
   
-
   
(1,137
)
 
-
   
(1,137
)
Exercise of stock options
 
-
   
-
   
10
   
-
   
-
   
10
 
Stock-based compensation expense
 
-
   
-
   
68
   
-
   
-
   
68
 
Other comprehensive loss, net
 
-
   
-
   
-
   
-
   
(382
)
 
(382
)
Balance December 31, 2019
 
22,748,385
 
$
227
 
$
65,637
 
$
80,103
 
$
(161
)
$
145,806
 
                                     
For the nine months ended December 31, 2019
                                   
                                     
Balance April 1, 2019
 
22,607,712
 
$
226
 
$
65,094
 
$
70,428
 
$
(2,626
)
$
133,122
 
                                     
Net income
 
-
   
-
   
-
   
12,854
   
-
   
12,854
 
Cash dividends on common stock ($0.140 per share)
 
-
   
-
   
-
   
(3,179
)
 
-
   
(3,179
)
Exercise of stock options
 
58,000
   
1
   
226
   
-
   
-
   
227
 
Restricted stock grants
 
82,673
   
-
   
-
   
-
   
-
   
-
 
Stock-based compensation expense
 
-
   
-
   
317
   
-
   
-
   
317
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
2,465
   
2,465
 
Balance December 31, 2019
 
22,748,385
 
$
227
 
$
65,637
 
$
80,103
 
$
(161
)
$
145,806
 
                                     
For the three months ended December 31, 2020
                                   
                                     
Balance October 1, 2020
 
22,336,235
 
$
222
 
$
63,420
 
$
82,666
 
$
2,738
 
$
149,046
 
                                     
Net income
 
-
   
-
   
-
   
4,035
   
-
   
4,035
 
Cash dividends on common stock ($0.050 per share)
 
-
   
-
   
-
   
(1,117
)
 
-
   
(1,117
)
Exercise of stock options
 
9,000
   
1
   
24
   
-
   
-
   
25
 
Stock-based compensation expense
 
-
   
-
   
95
   
-
   
-
   
95
 
Other comprehensive loss, net
 
-
   
-
   
-
   
-
   
(210
)
 
(210
)
Balance December 31, 2020
 
22,345,235
   
223
   
63,539
   
85,584
   
2,528
   
151,874
 
                                     
                                     
For the nine months ended December 31, 2020
                                   
                                     
Balance April 1, 2020
 
22,544,285
 
$
225
 
$
64,649
 
$
81,870
 
$
2,099
 
$
148,843
 
                                     
Net income
 
-
   
-
   
-
   
7,058
   
-
   
7,058
 
Cash dividends on common stock ($0.150 per share)
 
-
   
-
   
-
   
(3,344
)
 
-
   
(3,344
)
Exercise of stock options
 
14,000
   
1
   
33
   
-
   
-
   
34
 
Stock repurchased
 
(295,900
)
 
(3
)
 
(1,444)
   
-
   
-
   
(1,447
)
Restricted stock grants
 
90,763
   
-
   
-
   
-
   
-
   
-
 
Restricted stock cancelled
 
(7,913
)
 
-
   
-
   
-
   
-
   
-
 
Stock-based compensation expense
 
-
   
-
   
301
   
-
   
-
   
301
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
429
   
429
 
Balance December 31, 2020
 
22,345,235
   
223
   
63,539
   
85,584
   
2,528
   
151,874
 

See accompanying notes to consolidated financial statements.

5

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019

(In thousands) (Unaudited)
 
2020
   
2019
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
$
7,058
 
$
12,854
 
Adjustments to reconcile net income to net cash provided by operating activities:
           
Depreciation and amortization
 
2,347
   
2,244
 
Purchased loans amortization, net
 
243
   
21
 
Provision for loan losses
 
6,300
   
-
 
Stock-based compensation expense
 
301
   
317
 
Increase in deferred loan origination fees, net of amortization
 
1,232
   
49
 
Origination of loans held for sale
 
(913
)
 
(7,178
)
Proceeds from sales of loans held for sale
 
1,214
   
8,219
 
Net gains on sales of loans held for sale, sales of investment securities available for sale and sales of
       premises and equipment
 
(23
)
 
(313
)
Income from BOLI
 
(625
)
 
(585
)
Changes in certain other assets and liabilities:
           
Prepaid expenses and other assets
 
(101
)
 
1,775
 
Accrued interest receivable
 
(1,579
)
 
190
 
Accrued expenses and other liabilities
 
652
   
81
 
Net cash provided by operating activities
 
16,106
   
17,674
 
             
CASH FLOWS FROM INVESTING ACTIVITIES:
           
Loan repayments (originations), net
 
(17,340
)
 
4,745
 
Purchases of loans receivable
 
(3,826
)
 
(15,198
)
Principal repayments on investment securities available for sale
 
29,879
   
21,676
 
Purchases of investment securities available for sale
 
(39,407
)
 
(18,125
)
Proceeds from calls, maturities and sales of investment securities available for sale
 
4,000
   
21,122
 
Principal repayments on investment securities held to maturity
 
47
   
6
 
Purchases of investment securities held to maturity
 
(33,463
)
 
-
 
Purchases of premises and equipment and capitalized software
 
(3,267
)
 
(1,348
)
Redemption of certificates of deposit held for investment
 
-
   
498
 
Redemption of FHLB stock, net
 
-
   
2,264
 
Proceeds from sales of real estate owned (“REO”) and premises and equipment
 
-
   
81
 
Net cash provided by (used in) investing activities
 
(63,377
)
 
15,721
 
             
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Net increase in deposits
 
246,488
   
65,409
 
Dividends paid
 
(3,362
)
 
(2,945
)
Proceeds from borrowings
 
30,000
   
214,897
 
Repayment of borrowings
 
(30,000
)
 
(271,483
)
Net increase in advance payments by borrowers for taxes and insurance
 
(547
)
 
(302
)
Principal payments on finance lease liability
 
(29
)
 
(25
)
Proceeds from exercise of stock options
 
34
   
227
 
Repurchase of common stock
 
(1,447
)
 
-
 
Net cash provided by financing activities
 
241,137
   
5,778
 
             
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
193,866
   
39,173
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
41,968
   
22,950
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
235,834
 
$
62,123
 
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
Cash paid during the period for:
           
Interest
$
2,646
 
$
3,406
 
Income taxes
 
3,435
   
2,945
 
             
NONCASH INVESTING AND FINANCING ACTIVITIES:
           
Dividends declared and accrued in other liabilities
$
1,117
 
$
1,138
 
Net unrealized holding gain from available for sale investment securities
 
564
   
3,244
 
Income tax effect related to other comprehensive income
 
(135
)
 
(779
)
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 nine months ended December 31, 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. In October 2020, the Trust Company issued an additional 500 shares of Trust Company stock with the exercise of 500 Trust Company stock options by the Trust Company’s President and Chief Executive Officer. As a result of these transactions, the Bank’s ownership in the Trust Company decreased from 100% to 97.8%, resulting in a noncontrolling interest. The noncontrolling interest was $152,000 as of December 31, 2020, and net income attributable to the noncontrolling interest was $3,000 and $8,000 for the three and nine months ended December 31, 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 nine months ended December 31, 2020 and 2019. As of December 31, 2020, all outstanding

7


stock options were fully vested and there was no remaining unrecognized compensation expense related to stock options granted under the Stock Option Plans. There was no stock-based compensation expense related to stock options for the nine months ended December 31, 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:

 
Nine Months Ended
December 31, 2020
 
Nine Months Ended
December 31, 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
(14,000
)
 
2.49
 
(58,000
)
 
3.69
 
Balance, end of period
29,332
   
2.78
 
43,332
   
2.69
 

The following table presents information on stock options outstanding, less estimated forfeitures, as of December 31, 2020 and 2019:

   
2020
     
2019
 
Stock options fully vested and expected to vest:
             
Number
 
29,332
     
43,332
 
Weighted average exercise price
$
2.78
   
$
2.69
 
Aggregate intrinsic value (1)
$
73,000
   
$
239,000
 
Weighted average contractual term of options (years)
 
2.54
     
3.05
 
Stock options fully vested and currently exercisable:
             
Number
 
29,332
     
43,332
 
Weighted average exercise price
$
2.78
   
$
2.69
 
Aggregate intrinsic value (1)
$
73,000
   
$
239,000
 
Weighted average contractual term of options (years)
 
2.54
     
3.05
 
               
(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 $41,000 and $238,000 for the nine months ended December 31, 2020 and 2019, respectively, under the Stock Option Plans.

During the nine months ended December 31, 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 nine months ended December 31, 2020 due to not achieving the underlying performance metrics. During the nine months ended December 31, 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 $84,000 and $57,000 for the three months ended December 31, 2020 and 2019, respectively. Stock-based compensation related to restricted stock grants was $268,000 and $284,000 for the nine months ended December 31, 2020 and 2019, respectively. The unrecognized stock-based compensation related to restricted stock was $432,000 at December 31, 2020. The weighted average vesting period for the restricted stock was 1.87 years at December 31, 2020.

The following table presents the activity related to restricted stock for the nine months ended December 31, 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 December 31, 2020 and 2019, there were 500 and 1,000 Trust Company stock options outstanding, respectively, which had been granted to the President and Chief Executive Officer of the Trust Company. During the three and nine months ended December 31, 2020 and 2019, the Trust Company incurred $11,000 and $33,000, respectively of stock-based compensation expense related to these options. During the three and nine months ended December 31, 2020, 500 Trust Company stock options were exercised. During the three and nine months ended December 31, 2019, 1,500 Trust Company stock options were exercised. There were no Trust Company stock options granted during the nine months ended December 31, 2020 and 2019. Unrecognized compensation expense related to the Trust Company stock options totaled $11,000 as of December 31, 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 nine months ended December 31, 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 nine 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
December 31,
 
Nine Months Ended
December 31,
 
 
2020
 
2019
 
2020
 
2019
 
Basic EPS computation:
                       
Numerator-net income
$
4,035,000
 
$
4,128,000
 
$
7,058,000
 
$
12,854,000
 
Denominator-weighted average common shares
    outstanding
 
22,320,699
   
22,748,385
   
22,279,774
   
22,701,806
 
Basic EPS
$
0.18
 
$
0.18
 
$
0.32
 
$
0.57
 
Diluted EPS computation:
                       
Numerator-net income
$
4,035,000
 
$
4,128,000
 
$
7,058,000
 
$
12,854,000
 
Denominator-weighted average common shares
    outstanding
 
22,320,699
   
22,748,385
   
22,279,774
   
22,701,806
 
Effect of dilutive stock options
 
16,945
   
27,808
   
17,053
   
39,846
 
Weighted average common shares and common
stock equivalents
 
22,337,644
   
22,776,193
   
22,296,827
   
22,741,652
 
Diluted EPS
$
0.18
 
$
0.18
 
$
0.32
 
$
0.57
 







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
December 31, 2020
                     
Available for sale:
                     
Municipal securities
$
22,201
 
$
494
 
$
(10
)
$
22,685
Agency securities
 
11,001
   
8
   
(20
)
 
10,989
Real estate mortgage investment conduits (1)
 
44,905
   
657
   
(79
)
 
45,483
Residential mortgage-backed securities (1)
 
42,809
   
1,286
   
-
   
44,095
Other mortgage-backed securities (2)
 
28,977
   
1,048
   
(58
)
 
29,967
Total available for sale
$
149,893
 
$
3,493
 
$
(167
)
$
153,219
                       
Held to maturity:
                     
Municipal securities
$
6,009
 
$
136
 
$
(32
)
$
6,113
Agency securities
 
7,700
   
2
   
(8
)
 
7,694
Real estate mortgage investment conduits (1)
 
9,324
   
9
   
(7
)
 
9,326
Residential mortgage-backed securities (3)
 
6,295
   
10
   
(41
)
 
6,264
Other mortgage-backed securities (2)
 
4,097
   
-
   
-
   
4,097
     Total held to maturity
$
33,425
 
$
157
 
$
(88
)
$
33,494

                       
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 December 31, 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
$
-
 
$
-
 
$
-
 
$
-
 
Due after one year through five years
 
6,618
   
6,732
   
20
   
20
 
Due after five years through ten years
 
37,163
   
37,932
   
8,600
   
8,599
 
Due after ten years
 
106,112
   
108,555
   
24,805
   
24,875
 
Total
$
149,893
 
$
153,219
 
$
33,425
 
$
33,494
 

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




10


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
 
December 31, 2020
                                   
                                     
Available for sale:
                                   
Municipal securities
$
1,886
 
$
(10
)
$
-
 
$
-
 
$
1,886
 
$
(10
)
Agency securities
 
5,975
   
(20
)
 
-
   
-
   
5,975
   
(20
)
Real estate mortgage investment conduits (1)
 
15,540
   
(79
)
 
-
   
-
   
15,540
   
(79
)
Other mortgage-backed securities (2)
 
-
   
-
   
2,316
   
(58
)
 
2,316
   
(58
)
Total available for sale
$
23,401
 
$
(109
)
$
2,316
 
$
(58
)
$
25,717
 
$
(167
)
                                     
                                     
Held to maturity:
                                   
Municipal securities
$
2,278
 
$
(32
)
$
-
 
$
-
 
$
2,278
 
$
(32
)
Agency securities
 
6,193
   
(8
)
 
-
   
-
   
6,193
   
(8
)
Real estate mortgage investment conduits (3)
 
3,104
   
(7
)
 
-
   
-
   
3,104
   
(7
)
Residential mortgage-backed securities (4)
 
3,130
   
(41
)
 
-
   
-
   
3,130
   
(41
)
    Total held to maturity
$
14,705
 
$
(88
)
$
-
 
$
-
 
$
14,705
 
$
(88
)
                                     
March 31, 2020
                                   
                                     
Available for sale:
                                   
Agency securities
$
1,998
 
$
(10
)
$
-
 
$
-
 
$
1,998
 
$
(10
)
Residential mortgage-backed securities (5)
 
2,509
   
(22
)
 
409
   
(8
)
 
2,918
   
(30
)
Other mortgage-backed securities (6)
 
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, FNMA and GNMA issued securities.
(2) Comprised of SBA issued securities.
(3) Comprised of FHLMC issued securities.
(4) Comprised of FNMA issued securities.
(5) Comprised of FHLMC and FNMA issued securities.
(6) 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 nine months ended December 31, 2020. Proceeds from the sale of investment securities totaled $17.8 million for both the three and nine months ended December 31, 2019. Net realized gains on sales of investment securities totaled $30,000 for both the three and nine months ended December 31, 2019. Investment securities available for sale with an amortized cost of $5.7 million and $6.6 million and an estimated fair value of $5.8 million and $6.8 million at December 31, 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 December 31, 2020 and March 31, 2020.



11


6.
LOANS RECEIVABLE

Loans receivable are reported net of deferred loan fees. At December 31, 2020, deferred loan fees totaled $5.4 million of which $1.6 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 $813,000 and $1.1 million, respectively, as of December 31, 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):


 
December 31,
2020
 
March 31,
2020
 
Commercial and construction
           
Commercial business (1)
$
252,687
 
$
179,029
 
Commercial real estate
 
541,417
   
507,871
 
Land
 
12,126
   
14,026
 
Multi-family
 
42,166
   
58,374
 
Real estate construction
 
16,922
   
64,843
 
Total commercial and construction
 
865,318
   
824,143
 
             
Consumer
           
Real estate one-to-four family
 
63,621
   
83,150
 
Other installment
 
2,529
   
4,216
 
Total consumer
 
66,150
   
87,366
 
             
Total loans
 
931,468
   
911,509
 
             
Less:  Allowance for loan losses
 
19,192
   
12,624
 
Loans receivable, net
$
912,276
 
$
898,885
 
             
(1) SBA PPP loans totaled $80.8 million and none at December 31, 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 December 31, 2020, loans carried at $488.6 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 December 31, 2020 and March 31, 2020, the Bank had no loans to any one borrower in excess of the regulatory limit.

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.

12


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
December 31, 2020
Commercial Business
 
Commercial
Real Estate
 
Land
 
Multi-
Family
 
Real Estate Construction
 
Consumer
 
Unallocated
 
Total
 
                                                 
Beginning balance
$
2,180
 
$
13,209
 
$
245
 
$
745
 
$
720
 
$
1,155
 
$
612
 
$
18,866
 
Provision for (recapture of)
  loan losses
 
286
   
181
   
(43
)
 
(121
)
 
(198
)
 
(137
)
 
32
   
-
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(15
)
 
-
   
(15
)
Recoveries
 
-
   
332
   
-
   
-
   
-
   
9
   
-
   
341
 
Ending balance
$
2,466
   
13,722
   
202
   
624
   
522
   
1,012
   
644
   
19,192
 
                                                 
Nine months ended
December 31, 2020
                                               
                                                 
Beginning balance
$
2,008
 
$
6,421
 
$
230
 
$
854
 
$
1,149
 
$
1,363
 
$
599
 
$
12,624
 
Provision for (recapture of)
  loan losses
 
448
   
6,969
   
(28
)
 
(230
)
 
(627
)
 
(277
)
 
45
   
6,300
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(103
)
 
-
   
(103
)
Recoveries
 
10
   
332
   
-
   
-
   
-
   
29
   
-
   
371
 
Ending balance
$
2,466
   
13,722
   
202
   
624
   
522
   
1,012
   
644
   
19,192
 
                                                 
Three months ended
December 31, 2019
                                               
                                                 
Beginning balance
$
2,051
 
$
5,038
 
$
219
 
$
779
 
$
1,381
 
$
1,347
 
$
621
 
$
11,436
 
Provision for (recapture of)
  loan losses
 
-
   
(20
)
 
16
   
(14
)
 
86
   
(76
)
 
8
   
-
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(13
)
 
-
   
(13
)
Recoveries
 
-
   
-
   
-
   
-
   
-
   
10
   
-
   
10
 
Ending balance
$
2,051
 
$
5,018
 
$
235
 
$
765
 
$
1,467
 
$
1,268
 
$
629
 
$
11,433
 
                                                 
Nine months ended
December 31, 2019
                                               
                                                 
Beginning balance
$
1,808
 
$
5,053
 
$
254
 
$
728
 
$
1,457
 
$
1,447
 
$
710
 
$
11,457
 
Provision for (recapture
  of) loan losses
 
246
   
(35
)
 
(19
)
 
37
   
10
   
(158
)
 
(81
)
 
-
 
Charge-offs
 
(3
)
 
-
   
-
   
-
   
-
   
(67
)
 
-
   
(70
)
Recoveries
 
-
   
-
   
-
   
-
   
-
   
46
   
-
   
46
 
Ending balance
$
2,051
 
$
5,018
 
$
235
 
$
765
 
$
1,467
 
$
1,268
 
$
629
 
$
11,433
 




13

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
 
December 31, 2020
Individually
Evaluated for
Impairment
 
Collectively
Evaluated for
Impairment
   
Total
 
Individually
Evaluated for Impairment
 
Collectively
Evaluated for
Impairment
   
Total
 
                                     
Commercial business
$
-
 
$
2,466
 
$
2,466
 
$
125
 
$
252,562
 
$
252,687
 
Commercial real estate
 
-
   
13,722
   
13,722
   
1,483
   
539,934
   
541,417
 
Land
 
-
   
202
   
202
   
714
   
11,412
   
12,126
 
Multi-family
 
-
   
624
   
624
   
1,157
   
41,009
   
42,166
 
Real estate construction
 
-
   
522
   
522
   
-
   
16,922
   
16,922
 
Consumer
 
13
   
999
   
1,012
   
539
   
65,611
   
66,150
 
Unallocated
 
-
   
644
   
644
   
-
   
-
   
-
 
Total
$
13
 
$
19,179
 
$
19,192
 
$
4,018
 
$
927,450
 
$
931,468
 
                                     
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 nine months. Interest income foregone on non-accrual loans was $42,000 and $57,000 for the nine months ended December 31, 2020 and 2019, respectively.

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

December 31, 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
$
31
 
$
-
 
$
187
 
$
218
 
$
252,469
 
$
252,687
Commercial real estate
 
-
   
-
   
149
   
149
   
541,268
   
541,417
Land
 
-
   
-
   
-
   
-
   
12,126
   
12,126
Multi-family
 
-
   
-
   
-
   
-
   
42,166
   
42,166
Real estate construction
 
-
   
-
   
-
   
-
   
16,922
   
16,922
Consumer
 
297
   
-
   
57
   
354
   
65,796
   
66,150
Total
$
328
 
$
-
 
$
393
 
$
721
 
$
930,747
 
$
931,468
                                   
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,

14

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.

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):

December 31, 2020
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total Loans
Receivable
                                   
Commercial business
$
251,761
 
$
739
 
$
187
 
$
-
 
$
-
 
$
252,687
Commercial real estate
 
494,631
   
43,072
   
3,714
   
-
   
-
   
541,417
Land
 
12,126
   
-
   
-
   
-
   
-
   
12,126
Multi-family
 
42,093
   
49
   
24
   
-
   
-
   
42,166
Real estate construction
 
14,301
   
2,621
   
-
   
-
   
-
   
16,922
Consumer
 
66,093
   
-
   
57
   
-
   
-
   
66,150
Total
$
881,005
 
$
46,481
 
$
3,982
 
$
-
 
$
-
 
$
931,468
                                   
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

15

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 nine 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):

December 31, 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
$
125
 
$
-
 
$
125
 
$
161
 
$
-
Commercial real estate
 
1,483
   
-
   
1,483
   
1,578
   
-
Land
 
714
   
-
   
714
   
745
   
-
Multi-family
 
1,157
   
-
   
1,157
   
1,257
   
-
Consumer
 
283
   
256
   
539
   
656
   
13
Total
$
3,762
 
$
256
 
$
4,018
 
$
4,397
 
$
13
                             
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

 
Three months ended
December 31, 2020
   
Three months ended
December 31, 2019
 
Average
Recorded
Investment
 
Interest
Recognized on
Impaired Loans
   
Average
Recorded
Investment
 
Interest
Recognized on
Impaired Loans
                         
Commercial business
$
127
 
$
-
   
$
147
 
$
-
Commercial real estate
 
1,916
   
15
     
2,401
   
16
Land
 
714
   
10
     
718
   
10
Multi-family
 
1,355
   
21
     
1,567
   
22
Consumer
 
542
   
8
     
443
   
7
Total
$
4,654
 
$
54
   
$
5,276
 
$
55

 
Nine months ended
December 31, 2020
   
Nine months ended
December 31, 2019
 
Average
Recorded
Investment
 
Interest
Recognized on
Impaired Loans
   
Average
Recorded
Investment
 
Interest
Recognized on
Impaired Loans
                         
Commercial business
$
132
 
$
-
   
$
152
 
$
-
Commercial real estate
 
2,143
   
46
     
2,431
   
47
Land
 
714
   
30
     
722
   
30
Multi-family
 
1,453
   
65
     
1,579
   
68
Consumer
 
485
   
23
     
509
   
21
Total
$
4,927
 
$
164
   
$
5,393
 
$
166

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.


16

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):

 
December 31, 2020
 
March 31, 2020
 
 
Accrual
 
Nonaccrual
 
Total
 
Accrual
 
Nonaccrual
 
Total
 
                                     
Commercial business
$
-
 
$
125
 
$
125
 
$
-
 
$
139
 
$
139
 
Commercial real estate
 
1,334
   
149
   
1,483
   
1,364
   
1,014

 
2,378
 
Land
 
714
   
-
   
714
   
714
   
-
   
714
 
Multi-family
 
1,157
   
-
   
1,157
   
1,549
   
-
   
1,549
 
Consumer
 
539
   
-
   
539
   
432
   
-
   
432
 
Total
$
3,744
 
$
274
 
$
4,018
 
$
4,059
 
$
1,153
 
$
5,212
 

At December 31, 2020, the Company had no commitments to lend additional funds on TDR loans. At December 31, 2020, all of the Company’s TDRs were paying as agreed.

There were no new TDRs for the three months ended December 31, 2020. There was one new TDR for the nine months ended December 31, 2020. The new TDR is a consumer real estate loan secured by a one-to-four family property located in Northwest Oregon whereby the Company granted a three month payment deferral which extended the maturity date by three months. The recorded investment in the loan prior to modification and at December 31, 2020 was $129,000. There were no new TDRs for the three months ended December 31, 2019. There was one new TDR for the nine months ended December 31, 2019. This TDR is a consumer real estate loan secured by a one-to-four family property located in Southwest Washington, whereby the Company granted a rate reduction to market interest rates and extended the maturity date by 10 years. The recorded investment in the loan prior to modification and at December 31, 2019 was $27,000 and $25,000, respectively.

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act, CAA 2021 and related regulatory guidance provides that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a TDR. This includes short-term (e.g. nine months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Accordingly, the Company does not account for such loan modifications as TDRs. For additional information on these loan modifications, see Note 12 – New Accounting Pronouncements and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Recent Developments Related to COVID-19-Loan Modifications.”

In accordance with the Company’s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. Consumer installment loans delinquent nine months or more that have not received at least 75% of their required monthly payment in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy protection with no payments received for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four to five consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly charged off.

8.
GOODWILL

Goodwill and certain other intangibles generally arise from business combinations accounted for under the purchase method of accounting. Goodwill and other intangibles deemed to have indefinite lives generated from business combinations are not subject to amortization and are instead tested for impairment not less than annually. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been allocated to the Bank reporting unit.

The Company performed an impairment assessment as of October 31, 2020 and determined that no impairment of goodwill exists. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to progress to the second step. In the second step, the Company calculates the implied fair value of goodwill and compares the implied fair value of goodwill to the carrying amount of goodwill in the Company’s consolidated balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as

17

goodwill recognized in a business combination. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value, and, therefore, a step two analysis was not required; however, no assurance can be given that the Company’s goodwill will not be written down in future periods, including as a result of the effects of the COVID-19 pandemic as well as its impact on the financial markets and economy and the Company’s common stock price and market capitalization. Any impairment charge could have a material adverse effect on our results of operations and financial condition. However, such an impairment would not impact the Company’s liquidity, operations or regulatory capital.

9.
FEDERAL HOME LOAN BANK ADVANCES

The Bank did not have any outstanding FHLB advances as of December 31, 2020 or March 31, 2020. During the nine months ended December 31, 2020, all outstanding FHLB advances were paid off and the weighted average interest rate on the borrowing activity related to FHLB advances was 0.31% for the nine months ended December 31, 2020. During the twelve months ended March 31, 2020, all outstanding FHLB advances were paid off and the weighted average interest rate on the borrowing activity related to FHLB advances was 2.54% for the twelve months ended March 31, 2020.

The Bank has a credit line with the FHLB equal to 45% of total assets, limited by available collateral. At December 31, 2020, based on collateral values, the Bank had additional borrowing capacity of $224.9 million from the FHLB.

FHLB advances are collateralized with the FHLB by certain investment and mortgage-backed securities, FHLB stock owned by the Bank, deposits with the FHLB, and certain mortgages on deeds of trust securing such properties as provided in the agreements with the FHLB. At December 31, 2020, loans carried at $382.6 million were pledged as collateral to the FHLB.

10.
JUNIOR SUBORDINATED DEBENTURES

The Company has wholly-owned subsidiary grantor trusts that were established for the purpose of issuing trust preferred securities and common securities. The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts. The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock.

The Debentures issued by the Company to the grantor trusts, totaling $26.7 million at both December 31, 2020 and March 31, 2020, are reported as “junior subordinated debentures” in the consolidated balance sheets. The common securities issued by the grantor trusts were purchased by the Company, and the Company’s investment in the common securities of $836,000 at both December 31, 2020 and March 31, 2020, is included in prepaid expenses and other assets in the consolidated balance sheets. The Company records interest expense on the Debentures in the consolidated statements of income.

The following table is a summary of the terms and the amounts outstanding of the Debentures at December 31, 2020 (dollars in thousands):

Issuance Trust
 
Issuance
Date
   
Amount
Outstanding
 
Rate Type
 
Initial
Rate
 
Current
Rate
 
Maturity
Date
                           
Riverview Bancorp Statutory Trust I
 
12/2005
 
$
7,217
 
Variable (1)
 
5.88
%
1.58
%
3/2036
Riverview Bancorp Statutory Trust II
 
06/2007
   
15,464
 
Variable (2)
 
7.03
%
1.57
%
9/2037
Merchants Bancorp Statutory Trust I (4)
 
06/2003
   
5,155
 
Variable (3)
 
4.16
%
3.35
%
6/2033
         
27,836
               
Fair value adjustment (4)
       
(1,110
)
             
Total Debentures
     
$
26,726
               
                           
(1)  The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.36%.
(2) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.35%.
(3)  The trust preferred securities reprice quarterly based on the three-month LIBOR plus 3.10%.
(4)  Amount, net of accretion, attributable to a prior year’s business combination.



18


11.
FAIR VALUE MEASUREMENTS

Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels.  Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are:

Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means.

Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

Financial instruments are presented in the tables that follow by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the consolidated financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, as a result of an event or circumstance, were required to be remeasured at fair value after initial recognition in the consolidated financial statements at some time during the reporting period.

The following tables present assets that are measured at estimated fair value on a recurring basis at the dates indicated (in thousands):

 
 
 
    
Estimated Fair Value Measurements Using
December 31, 2020
Total Estimated
Fair Value
 
 Level 1
 
 Level 2
 
 Level 3
               
Investment securities available for sale:
   
 
   
 
   
 
   
Municipal securities
$
22,685
 
$
-
 
$
22,685
 
$
-
Agency securities
 
10,989
   
-
   
10,989
   
-
Real estate mortgage investment conduits
 
45,483
   
-
   
45,483
   
-
Residential mortgage-backed securities
 
44,095
   
-
   
44,095
   
-
Other mortgage-backed securities
 
29,967
   
-
   
29,967
   
-
Total assets measured at fair value on a recurring basis
$
153,219
 
$
-
 
$
153,219
 
$
-



March 31, 2020
     
               
Investment securities available for sale:
   
 
   
 
   
 
   
Municipal securities
$
4,877
 
$
-
 
$
4,877
 
$
-
Agency securities
 
6,016
   
-
   
6,016
   
-
Real estate mortgage investment conduits
 
43,791
   
-
   
43,791
   
-
Residential mortgage-backed securities
 
60,085
   
-
   
60,085
   
-
Other mortgage-backed securities
 
33,522
   
-
   
33,522
   
-
Total assets measured at fair value on a recurring basis
$
148,291
 
$
-
 
$
148,291
 
$
-

There were no transfers of assets into or out of Levels 1, 2 or 3 for the nine months ended December 31, 2020 and the year ended March 31, 2020.

The following methods were used to estimate the fair value of financial instruments above:

Investment securities are included within Level 1 of the hierarchy when quoted prices in an active market for identical assets are available. The Company uses a third-party pricing service to assist the Company in determining the fair value of its Level 2 securities, which incorporates pricing models and/or quoted prices of investment securities with similar characteristics. Investment securities are included within Level 3 of the hierarchy when there are significant unobservable inputs.

19


For Level 2 securities, the independent pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data from market research publications. The Company’s third-party pricing service has established processes for the Company to submit inquiries regarding the estimated fair value. In such cases, the Company’s third-party pricing service will review the inputs to the evaluation in light of any new market data presented by the Company. The Company’s third-party pricing service may then affirm the original estimated fair value or may update the evaluation on a go-forward basis.

Management reviews the pricing information received from the third-party pricing service through a combination of procedures that include an evaluation of methodologies used by the pricing service, analytical reviews and performance analysis of the prices against statistics and trends. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. As necessary, management compares prices received from the pricing service to discounted cash flow models or by performing independent valuations of inputs and assumptions similar to those used by the pricing service in order to help ensure prices represent a reasonable estimate of fair value.

The following tables present assets that are measured at estimated fair value on a nonrecurring basis at the dates indicated (in thousands):

 
 
 
    
Estimated Fair Value Measurements Using
December 31, 2020
Total Estimated
Fair Value
 
Level 1
 
Level 2
 
 Level 3
   
 
 
    
 
    
 
Impaired loans
$
243
 
$
-
 
$
-
 
$
243
               
March 31, 2020
             
   
 
 
    
 
    
 
Impaired loans
$
125
 
$
-
 
$
-
 
$
125

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at December 31, 2020 and March 31, 2020:

   
Valuation Technique
 
Significant Unobservable Inputs
 
Range
             
Impaired loans
 
Appraised value
 
Discounted cash flows
 
Adjustment for market conditions
 
Discount rate
 
N/A(1)
 
5.375% - 8.00%
             
(1) There were no adjustments to appraised values of impaired loans as of December 31, 2020 and March 31, 2020.

For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 7 – Allowance for Loan Losses.

In determining the estimated net realizable value of the underlying collateral, the Company primarily uses third-party appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.

Impaired loans are reviewed and evaluated quarterly for additional impairment and adjusted accordingly based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.

The following disclosure of the estimated fair value of financial instruments is made in accordance with GAAP. The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair value amounts. However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in the future. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.



20


The carrying amount and estimated fair value of financial instruments is as follows at the dates indicated (in thousands):

December 31, 2020
Carrying
Amount
 
Level 1
  
Level 2
  
Level 3
   
Estimated
Fair Value
Assets:
   
 
   
 
   
 
         
Cash and cash equivalents
$
235,834
 
$
235,834
 
$
-
 
$
-
 
$
235,834
Certificates of deposit held for investment
 
249
   
-
   
263
   
-
   
263
Investment securities available for sale
 
153,219
   
-
   
153,219
   
-
   
153,219
Investment securities held to maturity
 
33,425
   
-
   
33,494
   
-
   
33,494
Loans receivable, net
 
912,276
   
-
   
-
   
902,606
   
902,606
FHLB stock
 
1,420
   
-
   
1,420
   
-
   
1,420
                             
Liabilities:
                           
Certificates of deposit
 
127,829
   
-
   
129,217
   
-
   
129,217
Junior subordinated debentures
 
26,726
   
-
   
-
   
12,782
   
12,782
                     
March 31, 2020
                   
Assets:
   
 
         
  
         
Cash and cash equivalents
$
41,968
 
$
41,968
 
$
-
 
$
-
 
$
41,968
Certificates of deposit held for investment
 
249
   
-
   
258
   
-
   
258
Loans held for sale
 
275
   
-
   
275
   
-
   
275
Investment securities available for sale
 
148,291
   
-
   
148,291
   
-
   
148,291
Investment securities held to maturity
 
28
   
-
   
28
   
-
   
28
Loans receivable, net
 
898,885
   
-
   
-
   
889,398
   
889,398
FHLB stock
 
1,420
   
-
   
1,420
   
-
   
1,420
                             
Liabilities:
                           
Certificates of deposit
 
134,941
   
-
   
136,997
   
-
   
136,997
Junior subordinated debentures
 
26,662
   
-
   
-
   
12,127
   
12,127

Fair value estimates were based on existing financial instruments without attempting to estimate the value of anticipated future business. The fair value was not estimated for assets and liabilities that were not considered financial instruments.

12.
NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11. ASU 2016-13 replaces the existing incurred losses methodology for estimating allowances with a current expected credit losses methodology with respect to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held to maturity investment securities and off-balance sheet commitments. In addition, ASU 2016-13 requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction of carrying amount. ASU 2016-13 also changes the accounting for purchased credit impaired debt securities and loans. ASU 2016-13 retains many of the current disclosure requirements in GAAP and expands certain disclosure requirements. As a SEC “smaller reporting company” filer, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairment of investment securities available for sale will be replaced with an allowance approach. The Company is reviewing the requirements of ASU 2016-13 and has begun developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. At this time, management anticipates the allowance for loan losses will increase as a result of the implementation of ASU 2016-13; however, until management’s evaluation is complete, the magnitude of the increase will not be known.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should

21

recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2022. Early application of ASU 2017-04 is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's future consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing, among other things (1) the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items, and (2) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2019-12 is not expected to have a material impact on the Company's future consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. ASU 2020-04 permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. The Company’s current interest rates on its junior subordinated debentures are based upon the three-month LIBOR plus a spread. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has not adopted ASU 2020-04 as of December 31, 2020. The adoption of ASU 2020-04 is not expected to have a material impact on the Company’s future consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08, “Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”). ASU 2020-08 clarifies that the Company should reevaluate whether a callable debt security is within the scope of paragraph FASB Accounting Standards Codification (“ASC”) 310-20-35-33 for each reporting period. ASU 2020-08 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2020-08 is not expected to have a material impact on the Company’s future consolidated financial statements.

The CARES Act, signed into law on March 27, 2020, and the CAA 2021, signed into law on December 27, 2020, which extended the CARES Act treatment of TDRs, amended GAAP with respect to the modification of loans to borrowers affected by the COVID-19 pandemic. Among other criteria, this guidance provided that short-term loan modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g., nine months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the national emergency by the President or (b) January 1, 2022. As of December 31, 2020, the Company’s modifications totaled eight loans related to the COVID-19 pandemic with an outstanding loan balance, net of deferred fees, totaling $26.6 million. Loan modifications in accordance with the CARES Act are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.


13. REVENUE FROM CONTRACTS WITH CUSTOMERS

In accordance with ASC Topic 606 “Revenues from Contracts with Customers” (“ASC 606”), revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Company expects to be entitled to receive. The largest portion of the Company’s revenue is from interest income, which is not within the scope of ASC 606. All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income.

If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue as it satisfies a performance obligation. Payments from customers are generally collected at the time services are rendered, monthly, or quarterly. For contracts with customers within the scope of ASC 606, revenue is either earned at a point in time or revenue is earned over time. Examples of revenue earned at a point in time are automated teller machine (“ATM”) transaction fees, wire transfer fees, overdraft fees and interchange fees. Revenue earned at a point in time is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by the Company’s systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer’s transaction. The Company is generally the principal in these contracts, with the exception of interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal. Examples of revenue earned over time, which

22

generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust and investment management fees and safe deposit box fees. Revenue is generally derived from transactional information accumulated by the Company’s systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer.

Disaggregation of Revenue

The following table includes the Company’s non-interest income, net disaggregated by type of service for the periods shown (in thousands):

 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
2020
 
2019
 
2020
 
2019
                       
Asset management fees
$
889
 
$
1,136
 
$
2,746
 
$
3,369
Debit card and ATM fees
 
771
   
758
   
2,287
   
2,403
Deposit related fees
 
392
   
559
   
1,143
   
1,691
Loan related fees
 
357
   
202
   
886
   
474
BOLI (1)
 
193
   
188
   
625
   
585
Net gains on sales of loans held for sale (1)
 
-
   
68
   
28
   
210
FHLMC loan servicing fees (1)
 
23
   
31
   
72
   
113
Other, net
 
187
   
221
   
467
   
623
Total non-interest income
$
2,812
 
$
3,163
 
$
8,254
 
$
9,468
                       
(1) Not within the scope of ASC 606
                     

For the three and nine months ended December 31, 2020 and 2019, substantially all of the Company’s revenues within the scope of ASC 606 are for performance obligations satisfied at a point in time.

Revenues recognized within scope of ASC 606

Asset management fees: Asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and amounts invested by clients through the Trust Company. Asset management fees are recognized over the period that services are provided, and when the portfolio values are known or can be estimated at the end of each quarter.

Debit card and ATM fees: Debit and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the MasterCard® payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income.

Deposit related fees: Fees are earned on the Bank’s deposit accounts for various products offered to or services performed for the Bank’s customers. Fees include business account fees, non-sufficient fund fees, stop payment fees, wire services, safe deposit box and others. These fees are recognized on a daily, monthly or quarterly basis, depending on the type of service.

Loan related fees: Non-interest loan fee income is earned on loans that the Bank services, excluding loans serviced for the FHLMC which are not within the scope of ASC 606. Loan related fees include prepayment fees, late charges, brokered loan fees, maintenance fees and others. These fees are recognized on a daily, monthl