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, 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 February 7, 2020.



Form 10-Q

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX

Part I.
Financial Information
Page
 
 
 
Item 1: 
Financial Statements (Unaudited)
 
 
 
 
 
Consolidated Balance Sheets as of
December 31, 2019 and March 31, 2019 
2
 
 
 
 
Consolidated Statements of Income for the
Three and Nine months Ended December 31, 2019 and 2018 
3
 
 
 
 
Consolidated Statements of Comprehensive Income for the
Three and Nine months Ended December 31, 2019 and 2018 
4
 
 
 
 
Consolidated Statements of Shareholders’ Equity for the
Three and Nine months Ended December 31, 2019 and 2018
5
 
 
 
 
Consolidated Statements of Cash Flows for the
Nine months Ended December 31, 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 year 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 DECEMBER 31, 2019 AND MARCH 31, 2019

(In thousands, except share and per share data) (Unaudited)
 
December 31,
2019
   
March 31,
2019
 
ASSETS
           
Cash and cash equivalents (including interest-earning accounts of $48,781 and $5,844)
 
$
62,123
   
$
22,950
 
Certificates of deposit held for investment
   
249
     
747
 
Loans held for sale
   
-
     
909
 
Investment securities:
               
Available for sale, at estimated fair value
   
155,757
     
178,226
 
Held to maturity, at amortized cost (estimated fair value of $30 and $35)
   
29
     
35
 
Loans receivable (net of allowance for loan losses of $11,433 and $11,457)
   
875,100
     
864,659
 
Prepaid expenses and other assets
   
8,330
     
4,596
 
Accrued interest receivable
   
3,729
     
3,919
 
Federal Home Loan Bank stock (“FHLB”), at cost
   
1,380
     
3,644
 
Premises and equipment, net
   
16,021
     
15,458
 
Deferred income taxes, net
   
3,416
     
4,195
 
Mortgage servicing rights, net
   
215
     
296
 
Goodwill
   
27,076
     
27,076
 
Core deposit intangible (“CDI”), net
   
799
     
920
 
Bank owned life insurance (“BOLI”)
   
29,876
     
29,291
 
TOTAL ASSETS
 
$
1,184,100
   
$
1,156,921
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
LIABILITIES:
               
Deposits
 
$
990,464
   
$
925,068
 
Accrued expenses and other liabilities
   
18,483
     
12,536
 
Advanced payments by borrowers for taxes and insurance
   
329
     
631
 
FHLB advances
   
-
     
56,586
 
Junior subordinated debentures
   
26,640
     
26,575
 
Finance lease liability
   
2,378
     
2,403
 
Total liabilities
   
1,038,294
     
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
               
December 31, 2019 – 22,748,385 shares issued and outstanding
   
227
     
226
 
March 31, 2019 – 22,607,712 shares issued and outstanding
               
Additional paid-in capital
   
65,637
     
65,094
 
Retained earnings
   
80,103
     
70,428
 
Accumulated other comprehensive loss
   
(161
)
   
(2,626
)
Total shareholders’ equity
   
145,806
     
133,122
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
1,184,100
   
$
1,156,921
 

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, 2019 AND 2018

 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
(In thousands, except share and per share data) (Unaudited) 2019   2018 
  2019 
  2018 
 
INTEREST AND DIVIDEND INCOME:                        
Interest and fees on loans receivable
$
11,699
 
$
11,182
 
$
35,146
 
$
33,261
 
Interest on investment securities – taxable
 
851
   
1,110
   
2,589
   
3,424
 
Interest on investment securities – nontaxable
 
27
   
37
   
100
   
110
 
Other interest and dividends
 
189
   
60
   
369
   
271
 
Total interest and dividend income
 
12,766
   
12,389
   
38,204
   
37,066
 
                         
INTEREST EXPENSE:
                       
Interest on deposits
 
942
   
240
   
1,953
   
759
 
Interest on borrowings
 
332
   
416
   
1,570
   
1,126
 
Total interest expense
 
1,274
   
656
   
3,523
   
1,885
 
Net interest income
 
11,492
   
11,733
   
34,681
   
35,181
 
Provision for loan losses
 
-
   
-
   
-
   
50
 
Net interest income after provision for loan losses
 
11,492
   
11,733
   
34,681
   
35,131
 
                         
NON-INTEREST INCOME:
                       
Fees and service charges
 
1,661
   
1,458
   
5,050
   
4,544
 
Asset management fees
 
1,136
   
935
   
3,369
   
2,804
 
Net gains on sales of loans held for sale
 
68
   
82
   
210
   
278
 
BOLI
 
188
   
192
   
585
   
545
 
Other, net
 
110
   
62
   
254
   
267
 
Total non-interest income, net
 
3,163
   
2,729
   
9,468
   
8,438
 
                         
NON-INTEREST EXPENSE:
                       
Salaries and employee benefits
 
5,941
   
5,794
   
17,353
   
16,655
 
Occupancy and depreciation
 
1,461
   
1,306
   
4,058
   
4,016
 
Data processing
 
637
   
621
   
1,986
   
1,874
 
Amortization of CDI
 
40
   
45
   
121
   
137
 
Advertising and marketing
 
181
   
151
   
689
   
609
 
FDIC insurance premium
 
-
   
85
   
81
   
246
 
State and local taxes
 
126
   
125
   
495
   
475
 
Telecommunications
 
84
   
85
   
246
   
266
 
Professional fees
 
267
   
449
   
855
   
1,120
 
Other
 
511
   
142
   
1,561
   
1,339
 
Total non-interest expense
 
9,248
   
8,803
   
27,445
   
26,737
 
                         
INCOME BEFORE INCOME TAXES
 
5,407
   
5,659
   
16,704
   
16,832
 
PROVISION FOR INCOME TAXES
 
1,279
   
1,271
   
3,850
   
3,773
 
NET INCOME
$
4,128
 
$
4,388
 
$
12,854
 
$
13,059
 
                         
Earnings per common share:
                       
Basic
$
0.18
 
$
0.19
 
$
0.57
 
$
0.58
 
Diluted
 
0.18
   
0.19
   
0.57
   
0.58
 
Weighted average number of common shares outstanding:
                       
Basic
 
22,665,712
   
22,598,712
   
22,642,883
   
22,582,956
 
Diluted
 
22,718,255
   
22,663,919
   
22,701,415
   
22,658,153
 

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, 2019 AND 2018


 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
(In thousands) (Unaudited)
2019   2018 
  2019 
  2018 
 
                         
Net income
$
4,128
 
$
4,388
 
$
12,854
 
$
13,059
 
                         
Other comprehensive income (loss):
                       
Net unrealized holding gain (loss) from available for sale investment securities arising
                       
during the period, net of tax of $112, ($673), ($786) and ($134), respectively
 
(359
)
 
2,188
   
2,488
   
434
 
                         
Reclassification adjustment of net gain from sale of available for sale investment
                       
securities included in income, net of tax of $7, $0, $7, and $0, respectively
 
(23
)
 
-
   
(23
)
 
-
 
Total other comprehensive income (loss), net
 
(382
)
 
2,188
   
2,465
   
434
 
                         
Total comprehensive income, net
$
3,746
 
$
6,576
 
$
15,319
 
$
13,493
 
                         
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, 2019 AND 2018

(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, 2018
                                   
                                     
Balance October 1, 2018
 
22,598,712
 
$
226
 
$
65,044
 
$
63,642
 
$
(6,502
)
$
122,410
 
                                     
Net income
 
-
   
-
   
-
   
4,388
   
-
   
4,388
 
Cash dividends on common stock ($0.040 per share)
 
-
   
-
   
-
   
(904
)
 
-
   
(904
)
Stock-based compensation expense
 
-
   
-
   
12
   
-
   
-
   
12
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
2,188
   
2,188
 
Balance December 31, 2018
 
22,598,712
 
$
226
 
$
65,056
 
$
67,126
 
$
(4,314
)
$
128,094
 
                                     
For the nine months ended December 31, 2018
                                   
                                     
Balance April 1, 2018
 
22,570,179
 
$
226
 
$
64,871
 
$
56,552
 
$
(4,748
)
$
116,901
 
                                     
Net income
 
-
   
-
   
-
   
13,059
   
-
   
13,059
 
Cash dividends on common stock ($0.110 per share)
 
-
   
-
   
-
   
(2,485
)
 
-
   
(2,485
)
Exercise of stock options
 
28,533
   
-
   
151
   
-
   
-
   
151
 
Stock-based compensation expense
 
-
   
-
   
34
   
-
   
-
   
34
 
Other comprehensive income, net
 
-
   
-
   
-
   
-
   
434
   
434
 
Balance December 31, 2018
 
22,598,712
 
$
226
 
$
65,056
 
$
67,126
 
$
(4,314
)
$
128,094
 


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
 

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, 2019 AND 2018

(In thousands) (Unaudited)
 
2019
   
2018
 
             
 CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
$
12,854
 
$
13,059
 
Adjustments to reconcile net income to net cash provided by operating activities:
           
Depreciation and amortization
 
2,244
   
2,045
 
Purchased loans amortization (accretion), net
 
21
   
(47
)
Provision for loan losses
 
-
   
50
 
Stock-based compensation expense
 
317
   
34
 
Increase in deferred loan origination fees, net of amortization
 
49
   
599
 
Origination of loans held for sale
 
(7,178
)
 
(8,944
)
Proceeds from sales of loans held for sale
 
8,219
   
9,303
 
Net gains on sales of loans held for sale, sales of investment securities available for sale and sales of
       premises and equipment
 
(313
)
 
(644
)
Income from BOLI
 
(585
)
 
(545
)
Changes in certain other assets and liabilities:
           
Prepaid expenses and other assets
 
1,775
   
(261
)
Accrued interest receivable
 
190
   
(312
)
Accrued expenses and other liabilities
 
81
   
6,326
 
Net cash provided by operating activities
 
17,674
   
20,663
 
             
CASH FLOWS FROM INVESTING ACTIVITIES:
           
Loan repayments (originations), net
 
4,745
   
(36,726
)
Purchases of loans receivable
 
(15,198
)
 
(20,318
)
Principal repayments on investment securities available for sale
 
21,676
   
20,591
 
Purchases of investment securities available for sale
 
(18,125
)
 
-
 
Proceeds from calls, maturities and sales of investment securities available for sale
 
21,122
   
10,000
 
Principal repayments on investment securities held to maturity
 
6
   
6
 
Purchases of premises and equipment and capitalized software
 
(1,348
)
 
(304
)
Redemption of certificates of deposit held for investment
 
498
   
5,220
 
Redemption (purchase) of FHLB stock, net
 
2,264
   
(1,382
)
Proceeds from sales of real estate owned (“REO”) and premises and equipment
 
81
   
975
 
Net cash provided by (used in) investing activities
 
15,721
   
(21,938
)
             
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Net increase (decrease) in deposits
 
65,409
   
(52,067
)
Dividends paid
 
(2,945
)
 
(2,259
)
Proceeds from borrowings
 
214,897
   
166,255
 
Repayment of borrowings
 
(271,483
)
 
(131,712
)
Net decrease in advance payments by borrowers for taxes and insurance
 
(302
)
 
(445
)
Principal payments on finance lease liability
 
(25
)
 
(21
)
Proceeds from exercise of stock options
 
227
   
151
 
Net cash provided by (used in) financing activities
 
5,778
   
(20,098
)
             
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
39,173
   
(21,373
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
22,950
   
44,767
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
62,123
 
$
23,394
 
             
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
Cash paid during the period for:
           
Interest
$
3,406
 
$
1,811
 
Income taxes
 
2,945
   
5,063
 
             
NONCASH INVESTING AND FINANCING ACTIVITIES:
           
Dividends declared and accrued in other liabilities
$
1,138
 
$
904
 
Other comprehensive income
 
3,244
   
568
 
Income tax effect related to other comprehensive income
 
(779
)
 
(134
)
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 nine months ended December 31, 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”); 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. During the quarter ended December 31, 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, creating a noncontrolling interest. As a result of this transaction, the Bank’s ownership in the Trust Company decreased from 100% to 98% at December 31, 2019. Noncontrolling interest was $104,000 as of December 31, 2019, and net income attributable to the noncontrolling interest was $2,000 for both the three and nine months ended December 31, 2019.  These amounts are disclosed herein and not presented separately in the accompanying unaudited consolidated financial statements due to their insignificance.

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 December 31, 2019 and 2018, the Trust Company had 1,000 and 2,500, respectively, of Trust Company stock options outstanding which had been granted to the President and Chief Executive Officer of the Trust Company. During the three months ended December 31, 2019, 1,500 Trust Company stock options were exercised. During both the three and nine months ended December 31, 2019 and 2018, the Trust Company incurred $11,000 and $33,000, respectively, of stock-based compensation expense related to these options.

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 

7


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 nine months ended December 31, 2019 and 2018.

As of December 31, 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 $55,000 as of December 31, 2019. There was no stock-based compensation expense related to stock options for the three and nine months ended December 31, 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:
 
 
Nine Months Ended
December 31, 2019
 
Nine Months Ended
December 31, 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 December 31, 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)
$
239,000
   
$
442,000
 
Weighted average contractual term of options (years)
 
3.05
     
2.44
 
Stock options fully vested and currently exercisable:
             
Number
 
43,332
     
110,332
 
Weighted average exercise price
$
2.69
   
$
3.27
 
Aggregate intrinsic value (1)
$
239,000
   
$
442,000
 
Weighted average contractual term of options (years)
 
3.05
     
2.44
 
               
(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 nine months ended December 31, 2019 and 2018, respectively.

During the nine months ended December 31, 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 $57,000 and $284,000 for the three and nine months ended December 31, 2019. There was no stock-based compensation related to restricted stock for the three and nine months ended December 31, 2018. The unrecognized stock-based compensation related to restricted stock was $406,000 at December 31, 2019. The weighted average vesting period for the restricted stock was 1.98 years at December 31, 2019.

The following table presents the activity related to restricted stock as of December 31, 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 nine months ended December 31, 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
December 31,
   
Nine Months Ended
December 31,
 
   
2019
   
2018
   
2019
   
2018
 
Basic EPS computation:
                       
Numerator-net income
$
4,128,000
 
$
4,388,000
 
$
12,854,000
 
$
13,059,000
 
Denominator-weighted average common shares
     outstanding
 
22,665,712
   
22,598,712
   
22,642,883
   
22,582,956
 
Basic EPS
$
0.18
 
$
0.19
 
$
0.57
 
$
0.58
 
Diluted EPS computation:
                       
Numerator-net income
$
4,128,000
 
$
4,388,000
 
$
12,854,000
 
$
13,059,000
 
Denominator-weighted average common shares
     outstanding
 
22,665,712
   
22,598,712
   
22,642,883
   
22,582,956
 
Effect of dilutive stock options and restricted stock
 
52,543
   
65,207
   
58,532
   
75,197
 
Weighted average common shares and common
stock equivalents
 
22,718,255
   
22,663,919
   
22,701,415
   
22,658,153
 
Diluted EPS
$
0.18
 
$
0.19
 
$
0.57
 
$
0.58
 


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, 2019
                     
Available for sale:
                     
Municipal securities
$
4,746
 
$
160
 
$
-
 
$
4,906
Agency securities
 
9,431
   
76
   
(41
)
 
9,466
Real estate mortgage investment conduits (1)
 
44,577
   
166
   
(158
)
 
44,585
Residential mortgage-backed securities (1)
 
61,823
   
194
   
(256
)
 
61,761
Other mortgage-backed securities (2)
 
35,391
   
54
   
(406
)
 
35,039
Total available for sale
$
155,968
 
$
650
 
$
(861
)
$
155,757
                       
Held to maturity:
                     
Residential mortgage-backed securities (3)
$
29
 
$
1
 
$
-
 
$
30
                       
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 December 31, 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
$
1,001
 
$
1,008
 
$
-
 
$
-
 
Due after one year through five years
 
5,953
   
5,934
   
26
   
27
 
Due after five years through ten years
 
35,598
   
35,789
   
3
   
3
 
Due after ten years
 
113,416
   
113,026
   
-
   
-
 
Total
$
155,968
 
$
155,757
 
$
29
 
$
30
 

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
 
December 31, 2019
                                   
                                     
Available for sale:
                                   
Municipal securities
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
Agency securities
 
1,998
   
(11
)
 
2,969
   
(30
)
 
4,967
   
(41
)
Real estate mortgage investment conduits (1)
 
22,033
   
(140
)
 
2,850
   
(18
)
 
24,883
   
(158
)
Residential mortgage-backed securities (1)
 
8,707
   
(18
)
 
25,116
   
(238
)
 
33,823
   
(256
)
Other mortgage-backed securities (2)
 
15,987
   
(246
)
 
8,509
   
(160
)
 
24,496
   
(406
)
Total available for sale
$
48,725
 
$
(415
)
$
39,444
 
$
(446
)
$
88,169
 
$
(861
)
 

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 securities 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.

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. The Company had no sales and realized no gains or losses on investment securities for both the three and nine months ended December 31, 2018. Investment securities available for sale with an amortized cost of $6.9 million and $5.8 million and an estimated fair value of $6.9 million and $5.7 million at December 31, 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 December 31, 2019 and March 31, 2019.



10

6.    LOANS RECEIVABLE



Loans receivable as of both December 31, 2019 and March 31, 2019 are reported net of deferred loan fees totaling $4.0 million. Loans receivable are also reported net of discounts and premiums totaling $1.1 million and $1.5 million, respectively, as of December 31, 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):


 
December 31,
2019
 
March 31,
2019
Commercial and construction
         
Commercial business
$
165,526
 
$
162,796
Commercial real estate
 
470,163
   
461,432
Land
 
15,163
   
17,027
Multi-family
 
57,792
   
51,570
Real estate construction
 
88,872
   
90,882
Total commercial and construction
 
797,516
   
783,707
           
Consumer
         
Real estate one-to-four family
 
83,978
   
84,053
Other installment (1)
 
5,039
   
8,356
Total consumer
 
89,017
   
92,409
           
Total loans
 
886,533
   
876,116
           
Less:  Allowance for loan losses
 
11,433
   
11,457
Loans receivable, net
$
875,100
 
$
864,659
           
(1) Includes purchased automobile loans totaling $2.5 million and $5.8 million at December 31, 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 December 31, 2019, loans carried at $471.6 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.

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 December 31, 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
December 31, 2019
Commercial 
Business
 
Commercial
Real Estate
 
Land
 
Multi-
Family
 
Real Estate Construction
 
Consumer
 
Unallocated
 
Total
 
                                                 
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
 

Three months ended
December 31, 2018
Commercial 
Business
 
Commercial
Real Estate
 
Land
 
Multi-
Family
 
Real Estate Construction
 
Consumer
 
Unallocated
 
Total
 
                                                 
Beginning balance
$
1,858
 
$
5,361
 
$
237
 
$
696
 
$
1,007
 
$
1,641
 
$
713
 
$
11,513
 
Provision for (recapture of)
  loan losses
 
84
   
(80
)
 
31
   
19
   
186
   
(177
)
 
(63
)
 
-
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(52
)
 
-
   
(52
)
Recoveries
 
-
   
-
   
-
   
-
   
-
   
41
   
-
   
41
 
Ending balance
$
1,942
 
$
5,281
 
$
268
 
$
715
 
$
1,193
 
$
1,453
 
$
650
 
$
11,502
 

Nine months ended
December 31, 2018
                                               
                                                 
Beginning balance
$
1,668
 
$
4,914
 
$
220
 
$
822
 
$
618
 
$
1,809
 
$
715
 
$
10,766
 
Provision for (recapture of)
  loan losses
 
274
   
(456
)
 
48
   
(107
)
 
575
   
(219
)
 
(65
)
 
50
 
Charge-offs
 
-
   
-
   
-
   
-
   
-
   
(236
)
 
-
   
(236
)
Recoveries
 
-
   
823
   
-
   
-
   
-
   
99
   
-
   
922
 
Ending balance
$
1,942
 
$
5,281
 
$
268
 
$
715
 
$
1,193
 
$
1,453
 
$
650
 
$
11,502
 


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
 
December 31, 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
 
$
144
 
$
165,382
 
$
165,526
 
Commercial real estate
 
-
   
5,018
   
5,018
   
2,392
   
467,771
   
470,163
 
Land
 
-
   
235
   
235
   
716
   
14,447
   
15,163
 
Multi-family
 
-
   
765
   
765
   
1,563
   
56,229
   
57,792
 
Real estate construction
 
-
   
1,467
   
1,467
   
-
   
88,872
   
88,872
 
Consumer
 
8
   
1,260
   
1,268
   
439
   
88,578
   
89,017
 
Unallocated
 
-
   
629
   
629
   
-
   
-
   
-
 
Total
$
8
 
$
11,425
 
$
11,433
 
$
5,254
 
$
881,279
 
$
886,533
 

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 nine months. Interest income foregone on non-accrual loans was $57,000 and $75,000 for the nine months ended December 31, 2019 and 2018, respectively.

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

December 31, 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
$
-
 
$
-
 
$
299
 
$
299
 
$
165,227
 
$
165,526
Commercial real estate
 
-
   
-
   
1,019
   
1,019
   
469,144
   
470,163
Land
 
-
   
-
   
-
   
-
   
15,163
   
15,163
Multi-family
 
-
   
-
   
-
   
-
   
57,792
   
57,792
Real estate construction
 
-
   
-
   
-
   
-
   
88,872
   
88,872
Consumer
 
505
   
8
   
191
   
704
   
88,313
   
89,017
Total
$
505
 
$
8
 
$
1,509
 
$
2,022
 
$
884,511
 
$
886,533
   
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):

December 31, 2019
Pass
 
Special
Mention
 
Substandard
 
Doubtful
 
Loss
 
Total Loans
Receivable
                                   
Commercial business
$
162,291
 
$
1,375
 
$
1,860
 
$
-
 
$
-
 
$
165,526
Commercial real estate
 
469,080
   
64
   
1,019
   
-
   
-
   
470,163
Land
 
15,163
   
-
   
-
   
-
   
-
   
15,163
Multi-family
 
57,725
   
32
   
35
   
-
   
-
   
57,792
Real estate construction
 
88,872
   
-
   
-
   
-
   
-
   
88,872
Consumer
 
88,826
   
-
   
191
   
-
   
-
   
89,017
Total
$
881,957
 
$
1,471
 
$
3,105
 
$
-
 
$
-
 
$
886,533

March 31, 2019