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

FORM 10-Q

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

For the quarterly period ended September 30, 2019

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 [X]                                   Non-accelerated filer [   ]
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, 22,748,385 shares outstanding as of November 7, 2019.


Form 10-Q

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX

Part I.
Financial Information
Page
 
 
 
Item 1:
Financial Statements (Unaudited)
 
 
 
 
 
Consolidated Balance Sheets as of
September 30, 2019 and March 31, 2019
2
 
 
 
 
Consolidated Statements of Income for the
Three and Six months Ended September 30, 2019 and 2018
3
 
 
 
 
Consolidated Statements of Comprehensive Income for the
Three and Six months Ended September 30, 2019 and 2018
4
 
 
 
 
Consolidated Statements of Shareholders’ Equity for the
Three and Six months Ended September 30, 2019 and 2018
5
 
 
 
 
Consolidated Statements of Cash Flows for the
Six months Ended September 30, 2019 and 2018
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
41
 
 
 
Item 4:
Controls and Procedures
41
 
 
 
Part II.
Other Information
42-43
 
 
 
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
44
     
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 and statements about future performance. 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, including, but not limited to: 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; 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 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; increases in premiums for deposit insurance; 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 and any goodwill charges related thereto; 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 and interest or principal payments on its junior subordinated debentures; 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; other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services; and the other risks described from time to time in our filings with the Securities and Exchange Commission.

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 2020 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Company’s consolidated financial condition and consolidated results of operations as well as its stock price performance.



1


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

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 AND MARCH 31, 2019

(In thousands, except share and per share data) (Unaudited)
 
September 30,
2019
   
March 31, 2019
 
ASSETS
           
Cash and cash equivalents (including interest-earning accounts of $32,632 and $5,844)
$
48,888
 
$
22,950
 
Certificates of deposit held for investment
 
249
   
747
 
Loans held for sale
 
310
   
909
 
Investment securities:
           
Available for sale, at estimated fair value
 
163,682
   
178,226
 
Held to maturity, at amortized cost (estimated fair value of $32 and $35)
 
31
   
35
 
Loans receivable (net of allowance for loan losses of $11,436 and $11,457)
 
869,880
   
864,659
 
Prepaid expenses and other assets
 
8,136
   
4,596
 
Accrued interest receivable
 
3,827
   
3,919
 
Federal Home Loan Bank stock (“FHLB”), at cost
 
1,380
   
3,644
 
Premises and equipment, net
 
15,490
   
15,458
 
Deferred income taxes, net
 
3,296
   
4,195
 
Mortgage servicing rights, net
 
247
   
296
 
Goodwill
 
27,076
   
27,076
 
Core deposit intangible (“CDI”), net
 
839
   
920
 
Bank owned life insurance (“BOLI”)
 
29,688
   
29,291
 
TOTAL ASSETS
$
1,173,019
 
$
1,156,921
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
           
             
LIABILITIES:
           
Deposits
$
982,275
 
$
925,068
 
Accrued expenses and other liabilities
 
17,502
   
12,536
 
Advanced payments by borrowers for taxes and insurance
 
1,117
   
631
 
FHLB advances
 
-
   
56,586
 
Junior subordinated debentures
 
26,619
   
26,575
 
Finance lease liability
 
2,387
   
2,403
 
Total liabilities
 
1,029,900
   
1,023,799
 
             
 COMMITMENTS AND CONTINGENCIES (See Note 14)
           
             
SHAREHOLDERS’ EQUITY:
           
Serial preferred stock, $.01 par value; 250,000 shares authorized; issued and outstanding: none
 
-
   
-
 
Common stock, $.01 par value; 50,000,000 shares authorized
           
September 30, 2019 – 22,748,385 shares issued and outstanding
 
227
   
226
 
March 31, 2019 – 22,607,712 shares issued and outstanding
           
Additional paid-in capital
 
65,559
   
65,094
 
Retained earnings
 
77,112
   
70,428
 
Accumulated other comprehensive income (loss)
 
221
   
(2,626
)
Total shareholders’ equity
 
143,119
   
133,122
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,173,019
 
$
1,156,921
 

See accompanying notes to consolidated financial statements.

2


RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2019 AND 2018

 
Three Months Ended
September 30,
   
Six Months Ended
September 30,
 
(In thousands, except share and per share data) (Unaudited)
 
2019
   
2018
   
2019
   
2018
 
INTEREST AND DIVIDEND INCOME:
                       
Interest and fees on loans receivable
$
11,893
 
$
11,119
 
$
23,447
 
$
22,079
 
Interest on investment securities – taxable
 
860
   
1,116
   
1,738
   
2,314
 
Interest on investment securities – nontaxable
 
36
   
36
   
73
   
73
 
Other interest and dividends
 
93
   
118
   
180
   
211
 
Total interest and dividend income
 
12,882
   
12,389
   
25,438
   
24,677
 
                         
INTEREST EXPENSE:
                       
Interest on deposits
 
660
   
259
   
1,011
   
519
 
Interest on borrowings
 
503
   
352
   
1,238
   
710
 
Total interest expense
 
1,163
   
611
   
2,249
   
1,229
 
Net interest income
 
11,719
   
11,778
   
23,189
   
23,448
 
Provision for loan losses
 
-
   
250
   
-
   
50
 
Net interest income after provision for loan losses
 
11,719
   
11,528
   
23,189
   
23,398
 
                         
NON-INTEREST INCOME:
                       
Fees and service charges
 
1,752
   
1,514
   
3,389
   
3,086
 
Asset management fees
 
1,090
   
943
   
2,233
   
1,869
 
Net gains on sales of loans held for sale
 
46
   
44
   
142
   
196
 
BOLI
 
204
   
174
   
397
   
353
 
Other, net
 
77
   
165
   
144
   
205
 
Total non-interest income, net
 
3,169
   
2,840
   
6,305
   
5,709
 
                         
NON-INTEREST EXPENSE:
                       
Salaries and employee benefits
 
5,697
   
5,283
   
11,412
   
10,861
 
Occupancy and depreciation
 
1,277
   
1,351
   
2,597
   
2,710
 
Data processing
 
669
   
622
   
1,349
   
1,253
 
Amortization of CDI
 
41
   
46
   
81
   
92
 
Advertising and marketing
 
298
   
266
   
508
   
458
 
FDIC insurance premium
 
-
   
85
   
80
   
161
 
State and local taxes
 
174
   
182
   
369
   
350
 
Telecommunications
 
76
   
88
   
162
   
181
 
Professional fees
 
263
   
387
   
588
   
671
 
Other
 
508
   
605
   
1,051
   
1,197
 
Total non-interest expense
 
9,003
   
8,915
   
18,197
   
17,934
 
                         
INCOME BEFORE INCOME TAXES
 
5,885
   
5,453
   
11,297
   
11,173
 
PROVISION FOR INCOME TAXES
 
1,351
   
1,224
   
2,571
   
2,502
 
NET INCOME
$
4,534
 
$
4,229
 
$
8,726
 
$
8,671
 
                         
Earnings per common share:
                       
Basic
$
0.20
 
$
0.19
 
$
0.39
 
$
0.38
 
Diluted
 
0.20
   
0.19
   
0.38
   
0.38
 
Weighted average number of common shares outstanding:
                       
Basic
 
22,643,103
   
22,579,839
   
22,631,406
   
22,575,009
 
Diluted
 
22,702,696
   
22,658,737
   
22,694,067
   
22,655,297
 

See accompanying notes to consolidated financial statements.


3


RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2019 AND 2018

 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
(In thousands) (Unaudited)
 
2019
   
2018
   
2019
   
2018
 
                         
Net income
$
4,534
 
$
4,229
 
$
8,726
 
$
8,671
 
                         
Other comprehensive income (loss):
                       
Net unrealized holding gain (loss) from available for sale investment securities arising
                       
during the period, net of tax of ($223), $313, ($898) and $539, respectively
 
712
   
(1,018
)
 
2,847
   
(1,754
)
                         
Total comprehensive income, net
$
5,246
 
$
3,211
 
$
11,573
 
$
6,917
 


See accompanying notes to consolidated financial statements.







4

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

 
Common Stock
                         
(In thousands, except share data) (Unaudited)
 
Shares
   
Amount
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
                                     
For the three months ended September 30, 2018
                                   
                                     
Balance July 1, 2018
   
22,570,179
   
$
226
   
$
64,882
   
$
60,204
   
$
(5,484
)
 
$
119,828
 
                                                 
Net income
   
-
     
-
     
-
     
4,229
     
-
     
4,229
 
Cash dividends on common stock ($0.035 per share)
   
-
     
-
     
-
     
(791
)
   
-
     
(791
)
Exercise of stock options
   
28,533
     
-
     
151
     
-
     
-
     
151
 
Stock-based compensation expense
   
-
     
-
     
11
     
-
     
-
     
11
 
Other comprehensive loss, net
   
-
     
-
     
-
     
-
     
(1,018
)
   
(1,018
)
Balance September 30, 2018
   
22,598,712
   
$
226
   
$
65,044
   
$
63,642
   
$
(6,502
)
 
$
122,410
 
                                                 
For the six months ended September 30, 2018
                                               
                                                 
Balance April 1, 2018
   
22,570,179
   
$
226
   
$
64,871
   
$
56,552
   
$
(4,748
)
 
$
116,901
 
                                                 
Net income
   
-
     
-
     
-
     
8,671
     
-
     
8,671
 
Cash dividends on common stock ($0.070 per share)
   
-
     
-
     
-
     
(1,581
)
   
-
     
(1,581
)
Exercise of stock options
   
28,533
     
-
     
151
     
-
     
-
     
151
 
Stock-based compensation expense
   
-
     
-
     
22
     
-
     
-
     
22
 
Other comprehensive loss, net
   
-
     
-
     
-
     
-
     
(1,754
)
   
(1,754
)
Balance September 30, 2018
   
22,598,712
   
$
226
   
$
65,044
   
$
63,642
   
$
(6,502
)
 
$
122,410
 


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

See accompanying notes to consolidated financial statements.


5


RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands) (Unaudited)
 
2019
   
2018
 
             
 CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
 
$
8,726
   
$
8,671
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
1,496
     
1,404
 
Purchased loans amortization, net
   
181
     
9
 
Provision for loan losses
   
-
     
50
 
Stock-based compensation expense
   
249
     
22
 
Increase in deferred loan origination fees, net of amortization
   
96
     
506
 
Origination of loans held for sale
   
(4,786
)
   
(6,110
)
Proceeds from sales of loans held for sale
   
5,477
     
6,419
 
Net gains on sales of loans held for sale and sales of premises and equipment
   
(216
)
   
(198
)
Income from BOLI
   
(397
)
   
(353
)
Changes in certain other assets and liabilities:
               
Prepaid expenses and other assets
   
2,001
     
(1,307
)
Accrued interest receivable
   
92
     
(194
)
Accrued expenses and other liabilities
   
(677
)
   
4,303
 
Net cash provided by operating activities
   
12,242
     
13,222
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Loan repayments (originations), net
   
1,530
     
(21,874
)
Purchases of loans receivable
   
(6,992
)
   
(16,350
)
Principal repayments on investment securities available for sale
   
14,515
     
14,496
 
Proceeds from calls of investment securities available for sale
   
3,000
     
5,000
 
Principal repayments on investment securities held to maturity
   
4
     
4
 
Purchases of premises and equipment and capitalized software
   
(599
)
   
(194
)
Redemption of certificates of deposit held for investment
   
498
     
1,983
 
Redemption of FHLB stock, net
   
2,264
     
-
 
Proceeds from sales of real estate owned (“REO”) and premises and equipment
   
81
     
326
 
Net cash provided by (used in) investing activities
   
14,301
     
(16,609
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase (decrease) in deposits
   
57,217
     
(13,384
)
Dividends paid
   
(1,923
)
   
(1,467
)
Proceeds from borrowings
   
214,897
     
59,740
 
Repayment of borrowings
   
(271,483
)
   
(59,740
)
Net increase in advance payments by borrowers for taxes and insurance
   
486
     
413
 
Principal payments on finance lease liability
   
(16
)
   
(13
)
Proceeds from exercise of stock options
   
217
     
151
 
Net cash used in financing activities
   
(605
)
   
(14,300
)
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
25,938
     
(17,687
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
22,950
     
44,767
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
48,888
   
$
27,080
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash paid during the period for:
               
Interest
 
$
2,202
   
$
1,183
 
Income taxes
   
1,482
     
4,591
 
                 
NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Dividends declared and accrued in other liabilities
 
$
1,023
   
$
791
 
Other comprehensive income (loss)
   
3,745
     
(2,293
)
Income tax effect related to other comprehensive income (loss)
   
(898
)
   
539
 
Right-of-use lease assets obtained in exchange for operating lease liabilities
   
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, 2019 (“2019 Form 10-K”). The unaudited consolidated results of operations for the six months ended September 30, 2019 are not necessarily indicative of the results which may be expected for the entire fiscal year ending March 31, 2020.

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 equity.

2.
PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements include the accounts of Riverview Bancorp, Inc.; its wholly-owned subsidiary, Riverview Community Bank (the “Bank”); and the Bank’s wholly-owned subsidiaries, Riverview Services, Inc. and Riverview Trust Company (the “Trust Company”) (collectively referred to as the “Company”). All inter-company transactions and balances have been eliminated in consolidation.

3.
STOCK PLANS AND STOCK-BASED COMPENSATION

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”.

As of September 30, 2019 and 2018, the Trust Company had 2,500 Trust Company stock options outstanding which had been granted to the President and Chief Executive Officer of the Trust Company. During both the three and six months ended September 30, 2019 and 2018, the Trust Company incurred $11,000 and $22,000, respectively, of stock-based compensation expense related to these options. No Trust Company stock options were exercised as of September 30, 2019 and 2018.

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, giving consideration to 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 three and six months ended September 30, 2019 and 2018.



7


As of September 30, 2019, all outstanding stock options were fully vested and there was no remaining unrecognized compensation expense under the Stock Option Plans. Unrecognized compensation expense related to the Trust Company stock options totaled $66,000 as of September 30, 2019. There was no stock-based compensation expense related to stock options for the three and six months ended September 30, 2019 and 2018 under the Stock Option Plans.

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

 
Six Months Ended
September 30, 2019
 
Six Months Ended
September 30, 2018
 
 
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Balance, beginning of period
101,332
 
$
3.26
 
141,365
 
$
3.77
 
Options exercised
(58,000
)
 
3.69
 
(28,533
)
 
5.30
 
Expired
-
   
-
 
(2,500
)
 
8.12
 
Balance, end of period
43,332
 
$
2.69
 
110,332
 
$
3.27
 

The following table presents information on stock options outstanding under the Stock Option Plans as of September 30, 2019 and 2018:

               
   
2019
     
2018
 
Stock options fully vested and expected to vest:
             
Number
 
43,332
     
110,332
 
Weighted average exercise price
$
2.69
   
$
3.27
 
Aggregate intrinsic value (1)
$
203,000
   
$
614,000
 
Weighted average contractual term of options (years)
 
3.30
     
2.70
 
Stock options fully vested and currently exercisable:
             
Number
 
43,332
     
110,332
 
Weighted average exercise price
$
2.69
   
$
3.27
 
Aggregate intrinsic value (1)
$
203,000
   
$
614,000
 
Weighted average contractual term of options (years)
 
3.30
     
2.70
 
               
(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 under the Stock Option Plans was $238,000 and $118,000 for the six months ended September 30, 2019 and 2018, respectively.

During the six months ended September 30, 2019, the Company granted 82,673 shares of restricted stock pursuant to the 2017 Plan. The fair value of restricted stock awards is equal to the fair value of the Company’s stock on the date of grant. Stock-based compensation expense is recorded over the requisite service period. Stock-based compensation related to restricted stock grants was $58,000 and $227,000 for the three and six months ended September 30, 2019. There was no stock-based compensation related to restricted stock for the three and six months ended September 30, 2018. The unrecognized stock-based compensation related to restricted stock was $463,000 at September 30, 2019. The weighted average vesting period for the restricted stock was 2.23 years at September 30, 2019.

The following table presents the activity related to restricted stock as of September 30, 2019:

 
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
-
 
$
-
 
-
 
$
-
 
-
 
$
-
 
Granted
49,298
   
8.35
 
33,375
   
8.35
 
82,673
   
8.35
 
Forfeited
-
   
-
 
-
   
-
 
-
   
-
 
Vested
-
   
-
 
-
   
-
 
-
   
-
 
Balance, end of period
49,298
 
$
8.35
 
33,375
 
$
8.35
 
82,673
 
$
8.35
 


8


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. 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 and assumed vesting of restricted stock. For the three and six months ended September 30, 2019 and 2018, there were no stock options excluded in computing diluted EPS.

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

   
Three Months Ended
September 30,
   
Six Months Ended
September 30,
 
   
2019
   
2018
   
2019
   
2018
 
Basic EPS computation:
                       
Numerator-net income
$
4,534,000
 
$
4,229,000
 
$
8,726,000
 
$
8,671,000
 
Denominator-weighted average common shares
  outstanding
 
22,643,103
   
22,579,839
   
22,631,406
   
22,575,009
 
Basic EPS
$
0.20
 
$
0.19
 
$
0.39
 
$
0.38
 
Diluted EPS computation:
                       
Numerator-net income
$
4,534,000
 
$
4,229,000
 
$
8,726,000
 
$
8,671,000
 
Denominator-weighted average common shares
  outstanding
 
22,643,103
   
22,579,839
   
22,631,406
   
22,575,009
 
Effect of dilutive stock options and restricted stock
 
59,593
   
78,898
   
62,661
   
80,288
 
Weighted average common shares and common
stock equivalents
 
22,702,696
   
22,658,737
   
22,694,067
   
22,655,297
 
Diluted EPS
$
0.20
 
$
0.19
 
$
0.38
 
$
0.38
 


5.
INVESTMENT SECURITIES

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

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated Fair
Value
 
September 30, 2019
                       
Available for sale:
                       
Municipal securities
 
$
8,807
   
$
236
   
$
-
   
$
9,043
 
Agency securities
   
9,429
     
76
     
(26
)
   
9,479
 
Real estate mortgage investment conduits (1)
   
36,135
     
242
     
(37
)
   
36,340
 
Residential mortgage-backed securities (1)
   
69,849
     
204
     
(395
)
   
69,658
 
Other mortgage-backed securities (2)
   
39,172
     
204
     
(214
)
   
39,162
 
Total available for sale
 
$
163,392
   
$
962
   
$
(672
)
 
$
163,682
 
                                 
Held to maturity:
                               
Residential mortgage-backed securities (3)
 
$
31
   
$
1
   
$
-
   
$
32
 
                                 
March 31, 2019
                               
Available for sale:
                               
Municipal securities
 
$
8,885
   
$
30
   
$
(34
)
 
$
8,881
 
Agency securities
   
12,426
     
22
     
(107
)
   
12,341
 
Real estate mortgage investment conduits (1)
   
40,835
     
-
     
(673
)
   
40,162
 
Residential mortgage-backed securities (1)
   
77,402
     
7
     
(1,588
)
   
75,821
 
Other mortgage-backed securities (2)
   
42,133
     
12
     
(1,124
)
   
41,021
 
Total available for sale
 
$
181,681
   
$
71
   
$
(3,526
)
 
$
178,226
 
                                 
Held to maturity:
                               
Residential mortgage-backed securities (3)
 
$
35
   
$
-
   
$
-
   
$
35
 
   
(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.
 

9

The contractual maturities of investment securities as of September 30, 2019 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
$
728
 
$
727
 
$
-
 
$
-
 
Due after one year through five years
 
9,556
   
9,581
   
28
   
29
 
Due after five years through ten years
 
47,240
   
47,583
   
3
   
3
 
Due after ten years
 
105,868
   
105,791
   
-
   
-
 
Total
$
163,392
 
$
163,682
 
$
31
 
$
32
 

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

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


   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
 
September 30, 2019
                                   
                                     
Available for sale:
                                   
Municipal securities
 
$
1,183
   
$
-
   
$
-
   
$
-
   
$
1,183
   
$
-
 
Agency securities
   
1,998
     
(13
)
   
2,987
     
(13
)
   
4,985
     
(26
)
Real estate mortgage investment conduits (1)
   
6,990
     
(10
)
   
4,703
     
(27
)
   
11,693
     
(37
)
Residential mortgage-backed securities (1)
   
8,391
     
(6
)
   
33,311
     
(389
)
   
41,702
     
(395
)
Other mortgage-backed securities (2)
   
14,734
     
(68
)
   
9,230
     
(146
)
   
23,964
     
(214
)
Total available for sale
 
$
33,296
   
$
(97
)
 
$
50,231
   
$
(575
)
 
$
83,527
   
$
(672
)
   

March 31, 2019
                                   
                                     
Available for sale:
                                   
Municipal securities
 
$
-
   
$
-
   
$
6,554
   
$
(34
)
 
$
6,554
   
$
(34
)
Agency securities
   
-
     
-
     
6,861
     
(107
)
   
6,861
     
(107
)
Real estate mortgage investment conduits (1)
   
-
     
-
     
40,126
     
(673
)
   
40,126
     
(673
)
Residential mortgage-backed securities (1)
   
-
     
-
     
74,288
     
(1,588
)
   
74,288
     
(1,588
)
Other mortgage-backed securities (2)
   
-
     
-
     
40,409
     
(1,124
)
   
40,409
     
(1,124
)
Total available for sale
 
$
-
   
$
-
   
$
168,238
   
$
(3,526
)
 
$
168,238
   
$
(3,526
)
                                                 
(1) Comprised of FHLMC, FNMA and GNMA issued securities.
 
(2) Comprised of SBA issued 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. Based on management’s evaluation and intent, the unrealized losses related to the investment securities in the above tables are considered temporary.

The Company had no sales and realized no gains or losses on sales of investment securities for the three and six months ended September 30, 2019 and 2018. Investment securities available for sale with an amortized cost of $5.3 million and $5.8 million and an estimated fair value of $5.4 million and $5.7 million at September 30, 2019 and March 31, 2019, respectively, were pledged as collateral for government public funds held by the Bank. There were no held to maturity securities pledged as collateral for government public funds held by the Bank at September 30, 2019 and March 31, 2019.


10


6.
LOANS RECEIVABLE

Loans receivable as of September 30, 2019 and March 31, 2019 are reported net of deferred loan fees totaling $4.1 million and $4.0 million, respectively. Loans receivable are also reported net of discounts and premiums totaling $1.3 million and $1.6 million, respectively, as of September 30, 2019, compared to $1.5 million and $1.8 million, respectively, as of March 31, 2019. Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands):


   
September 30,
2019
   
March 31,
2019
Commercial and construction
         
Commercial business
$
167,782
 
$
162,796
Commercial real estate
 
471,571
   
461,432
Land
 
14,166
   
17,027
Multi-family
 
55,978
   
51,570
Real estate construction
 
83,174
   
90,882
Total commercial and construction
 
792,671
   
783,707
           
Consumer
         
Real estate one-to-four family
 
82,578
   
84,053
Other installment (1)
 
6,067
   
8,356
Total consumer
 
88,645
   
92,409
           
Total loans
 
881,316
   
876,116
           
Less:  Allowance for loan losses
 
11,436
   
11,457
Loans receivable, net
$
869,880
 
$
864,659
           
(1) Includes purchased automobile loans totaling $3.4 million and $5.8 million at September 30, 2019 and March 31, 2019, respectively.

The Company considers its loan portfolio to have very little exposure to sub-prime mortgage loans since the Company has not historically engaged in this type of lending. At September 30, 2019, loans carried at $502.4 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.

Most of the Bank’s business activity is with customers located in the states of Washington and Oregon. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulation to 15% of the Bank’s shareholders’ equity, excluding accumulated other comprehensive income (loss). As of September 30, 2019 and March 31, 2019, 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 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 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 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.

11


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

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

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

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

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

Three months ended
September 30, 2018
 
Commercial  Business
   
Commercial
Real Estate
   
Land
   
Multi-
Family
   
Real Estate Construction
   
Consumer
   
Unallocated
   
Total
 
                                                 
Beginning balance
$
1,799
 
$
5,139
 
$
258
 
$
781
 
$
855
 
$
1,788
 
$
729
 
$
11,349
 
Provision for (recapture of)
  loan losses
 
59
   
222
   
(21
)
 
(85
)
 
152
   
(61
)
 
(16
)
 
250
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(92
)
 
-
   
(92
)
Recoveries
 
-
   
-
   
-
   
-
   
-
   
6
   
-
   
6
 
Ending balance
$
1,858
 
$
5,361
 
$
237
 
$
696
 
$
1,007
 
$
1,641
 
$
713
 
$
11,513
 

Six months ended
September 30, 2018

                                               
                                                 
Beginning balance
$
1,668
 
$
4,914
 
$
220
 
$
822
 
$
618
 
$
1,809
 
$
715
 
$
10,766
 
Provision for (recapture of)
  loan losses
 
190
   
(376
)
 
17
   
(126
)
 
389
   
(42
)
 
(2
)
 
50
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(184
)
 
-
   
(184
)
Recoveries
 
-
   
823
   
-
   
-
   
-
   
58
   
-
   
881
 
Ending balance
$
1,858
 
$
5,361
 
$
237
 
$
696
 
$
1,007
 
$
1,641
 
$
713
 
$
11,513
 


12

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

 
Allowance for Loan Losses
 
Recorded Investment in Loans
 
September 30, 2019
 
Individually
Evaluated for Impairment
   
Collectively
Evaluated for Impairment
   
Total
   
Individually
Evaluated for Impairment
   
Collectively
Evaluated for Impairment
   
Total
 
                                     
Commercial business
$
-
 
$
2,051
 
$
2,051
 
$
150
 
$
167,632
 
$
167,782
 
Commercial real estate
 
-
   
5,038
   
5,038
   
2,408
   
469,163
   
471,571
 
Land
 
-
   
219
   
219
   
720
   
13,446
   
14,166
 
Multi-family
 
-
   
779
   
779
   
1,571
   
54,407
   
55,978
 
Real estate construction
 
-
   
1,381
   
1,381
   
-
   
83,174
   
83,174
 
Consumer
 
10
   
1,337
   
1,347
   
448
   
88,197
   
88,645
 
Unallocated
 
-
   
621
   
621
   
-
   
-
   
-
 
Total
$
10
 
$
11,426
 
$
11,436
 
$
5,297
 
$
876,019
 
$
881,316
 

March 31, 2019
                                   
                                     
Commercial business
$
-
 
$
1,808
 
$
1,808
 
$
160
 
$
162,636
 
$
162,796
 
Commercial real estate
 
-
   
5,053
   
5,053
   
2,482
   
458,950
   
461,432
 
Land
 
-
   
254
   
254
   
728
   
16,299
   
17,027
 
Multi-family
 
-
   
728
   
728
   
1,598
   
49,972
   
51,570
 
Real estate construction
 
-
   
1,457
   
1,457
   
-
   
90,882
   
90,882
 
Consumer
 
22
   
1,425
   
1,447
   
697
   
91,712
   
92,409
 
Unallocated
 
-
   
710
   
710
   
-
   
-
   
-
 
Total
$
22
 
$
11,435
 
$
11,457
 
$
5,665
 
$
870,451
 
$
876,116
 

Non-accrual loans:  Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 to 89 days delinquent. In general, when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months. Interest income foregone on non-accrual loans was $36,681 and $47,000 for the six months ended September 30, 2019 and 2018, respectively.

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

September 30, 2019
 
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
 
$
187
   
$
-
   
$
243
   
$
430
   
$
167,352
   
$
167,782
 
Commercial real estate
   
-
     
-
     
1,026
     
1,026
     
470,545
     
471,571
 
Land
   
-
     
-
     
-
     
-
     
14,166
     
14,166
 
Multi-family
   
-
     
-
     
-
     
-
     
55,978
     
55,978
 
Real estate construction
   
-
     
-
     
-
     
-
     
83,174
     
83,174
 
Consumer
   
171
     
-
     
216
     
387
     
88,258
     
88,645
 
Total
 
$
358
   
$
-
   
$
1,485
   
$
1,843
   
$
879,473
   
$
881,316
 

March 31, 2019
                                   
                                     
Commercial business
 
$
-
   
$
-
   
$
225
   
$
225
   
$
162,571
   
$
162,796
 
Commercial real estate
   
-
     
-
     
1,081
     
1,081
     
460,351
     
461,432
 
Land
   
-
     
-
     
-
     
-
     
17,027
     
17,027
 
Multi-family
   
-
     
-
     
-
     
-
     
51,570
     
51,570
 
Real estate construction
   
-
     
-
     
-
     
-
     
90,882
     
90,882
 
Consumer
   
345
     
3
     
210
     
558
     
91,851
     
92,409
 
Total
 
$
345
   
$
3
   
$
1,516
   
$
1,864
   
$
874,252
   
$
876,116
 

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

13


reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earnings trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its allowance for loan losses.

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

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

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

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

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

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

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

September 30, 2019
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total Loans
Receivable
                                   
Commercial business
$
164,196
 
$
1,817
 
$
1,769
 
$
-
 
$
-
 
$
167,782
Commercial real estate
 
469,963
   
-
   
1,608
   
-
   
-
   
471,571
Land
 
13,446
   
-
   
720
   
-
   
-
   
14,166
Multi-family
 
55,457
   
501
   
20
   
-
   
-
   
55,978
Real estate construction
 
83,174
   
-
   
-
   
-
   
-
   
83,174
Consumer
 
88,429
   
-
   
216
   
-
   
-
   
88,645
Total
$
874,665
 
$
2,318
 
$
4,333
 
$
-
 
$
-