RIVERVIEW BANCORP INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations General Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto contained in Item 8 of this Form 10-K and the other sections contained in this Form 10-K. This section contains certain financial information determined by methods other than in accordance with GAAP. These measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis. Management uses these non-GAAP measures in its analysis of the Company’s performance. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Recent Developments Related to COVID-19 In response to the current global situation surrounding the novel coronavirus of 2019 (“COVID-19”) pandemic, the Company is offering a variety of relief options designed to support our customers and the communities we serve. Paycheck Protection Program ("PPP") Participation – The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was signed into law on March 27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under the PPP, a new loan program. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020. Under terms of the PPP, all PPP loans have: (a) an interest rate of 1.0% and (b) a two-year or five-year loan term to maturity. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA provided the borrower meets the SBA loan forgiveness requirements. In addition to the 1% interest earned on these loans, the SBA pays us fees for processing PPP loans in the following amounts: (i) five percent for loans of not more than $350,000; (ii) three percent for loans of more than $350,000 and less than $2,000,000; and one percent for loans of at least $2,000,000. We may not collect any fees from the loan applicants. Through the conclusion of this initial PPP on August 8, 2020, we had funded PPP loans totaling $113.5 million. The PPP loans that were originated consisted primarily of existing customers who are small to midsize businesses as well as independent contractors, sole proprietors, partnerships and not-for-profits as allowed under the PPP guidance. Paycheck Protection Program Part 2 ("PPP2") Participation – The Consolidated Appropriations Act, 2021 (“CAA 2021”) signed into law on December 27, 2020, reopened the PPP through May 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and non-profits. In January 2021, the Bank began accepting and processing loan applications under PPP2. The Bank is also continuing to work with its customers to assist them with accessing other borrowing options, including SBA and other government sponsored lending programs, as appropriate. The significant terms of PPP2 are as follows. • The maximum for a first-draw PPP loan is $10 million, the same as the initial PPP; • Revised lender fee structure; o Loans up to $50,000 – lesser of $2,500 or 50% of principal amount; o Loans from $50,000 to $349,999 – 5% of principal amount; o Loans $350,000 or higher – 3% of principal amount; • A second draw is available to original PPP borrowers up to $2.0 million that have: o 300 or fewer employees; o sustained a 25% drop in revenue for any 2020 quarter compared to the same quarter in 2019, and o used, or expect to use, 100% of the initial PPP loan. All PPP2 loans have: (a) an interest rate of 1.0% and (b) five-year loan term to maturity. The SBA guarantees 100% of the PPP2 loans made to eligible borrowers. The entire principal amount of the borrower’s PPP2 loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA, provided the borrower meets the SBA loan forgiveness guidelines. 49 As of March 31, 2021, the total outstanding loan balance and unamortized fees related to SBA PPP loans totaled $96.1 million and $2.7 million, respectively. As of March 31, 2021, we had received SBA PPP loan forgiveness approvals for 517 SBA PPP loans totaling $69.9 million. The SBA has recently released a simplified forgiveness process for PPP loans of $150,000 or less. As of March 31, 2021, the Bank held 540 PPP loans of $150,000 or less with a combined balance of $25.5 million. Loan Modifications – As of March 31, 2021, the Bank’s loan portfolio exposures to the industry most affected by the COVID-19 pandemic was as follows (dollars in thousands): Balance Percent to total loans Weighted Average Loan- To-Value Percentage Weighted Average Debt- Service-Coverage Ratio Hotel/Motel $ 104,370 11.1 % 55.92 % 1.86 The Company is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. The Company has made available the following short-term relief option to all borrowers affected by COVID-19: • Interest only payments or full payment deferrals based upon the respective borrowers’ circumstances subject to credit administration review and approval which may include submission of specified documentation and recovery plans; • Loan re-amortization, especially in cases where significant prepayments of principal have occurred and to provide for continuing payment reduction at the end of the deferment period; • Covenant waivers and resets; and • Extension of up to six months on maturing loans. All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate. As of March 31, 2021, the Company had approved payment deferrals for five commercial loans that were impacted by the COVID-19 pandemic totaling $18.1 million which consisted of deferral of regularly scheduled principal and interest payments which is a decrease compared to eight commercial loans totaling $26.6 million, thirteen commercial loans totaling $49.7 million, and ninety-eight commercial loans totaling $161.6 million at December 31, 2020, September 30, 2020, and June 30, 2020, respectively. As of March 31, 2021, there were no consumer and mortgage loans approved for payment deferrals compared to December 31, 2020 and September 30, 2020 when there were two consumer and mortgage loans totaling $462,000 and four consumer and mortgage loans totaling $471,000, respectively. Consumer and mortgage loan modifications have significantly decreased compared to June 30, 2020 when the Company had forty-three consumer and mortgage loans totaling $10.1 million. Further, three mortgage loans serviced for FHLMC totaling $916,000 were approved for payment deferrals as of March 31, 2021. These modifications were not classified as TDRs in accordance with the guidance of the CARES Act, CAA 2021 and bank regulatory guidance. The primary method of relief granted by the Company has been to allow the borrower to defer their loan payments for up to 90 days with a possibility depending on economic conditions to defer their loan payments for an additional 90 days subject to an evaluation by the Company prior to granting the additional 90 day deferral. After the deferral period, normal loan payments will continue, however, payments will be applied first to interest until the deferred interest is repaid and thereafter applied to both principal and interest with any deficiency in amortized principal payments added to the balloon payment due at maturity. We believe the steps we are taking are necessary to effectively manage our portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic. Branch Operations and Additional Customer Support – We have taken various steps to ensure the safety of our customers and our personnel. Many of our employees are working remotely or have flexible work schedules, and we have established measures within our offices to help ensure the safety of those employees who must work on-site. The Family First Coronavirus Response Act (“FFCRA”) also provides additional flexibility to our employees to help navigate their individual challenges. The COVID-19 pandemic has caused significant disruptions to our branch operations resulting in the implementation of various social distancing measures at the Company to address client and community needs. To ensure the safety of our customers and employees, we encourage our customers to utilize services that are offered through drive up facilities, ATMs, online banking, and our call center operations. 50 Critical Accounting Policies The Company has established various accounting policies that govern the application of GAAP in the preparation of the Company’s Consolidated Financial Statements. The Company has identified policies that due to judgments, estimates and assumptions inherent in those policies are critical to an understanding of the Company’s Consolidated Financial Statements. These policies relate to the methodology for the determination of the allowance for loan losses, the valuation of investment securities, goodwill valuation and the calculation of income taxes. These policies and the judgments, estimates and assumptions are described in greater detail in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. In particular, Note 1 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” describes generally the Company’s accounting policies. Management believes that the judgments, estimates and assumptions used in the preparation of the Company’s Consolidated Financial Statements are appropriate given the factual circumstances at the time. However, given the sensitivity of the Company’s Consolidated Financial Statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition. Operating Strategy Fiscal year 2021 marked the 98 th anniversary since the Bank began operations in 1923. The primary business strategy of the Company is to provide comprehensive banking and related financial services within its primary market area. The historical emphasis had previously been on residential real estate lending. Since 1998, however, the Company has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios. At March 31, 2021, commercial and construction loans represented 93.8% of total loans. Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter terms than residential lending which can increase the loan portfolio’s profitability. The Company’s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit balances, managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives: Execution of our Business Plan . The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction loans, and its core deposits by expanding its customer base throughout its primary market areas. By emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers. To build its core deposit base, the Company will continue to utilize additional product offerings, technology and a focus on customer service in working toward this goal. The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of individual branches, loan purchases and whole bank transactions that meet its investment and market objectives. In this regard, the Company previously announced plans for three new branches located in Clark County, Washington, to complement its existing branch network. A new branch in both downtown Camas and in the Cascade Park neighborhood of Vancouver opened in fiscal 2021. A construction delay due to COVID-19 has pushed the opening of the new branch location in Ridgefield to the fall of 2021. Maintaining Strong Asset Quality . The Company believes that strong asset quality is a key to long-term financial success. The Company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts, marketing saleable properties upon foreclosure or repossession, and through work-outs of classified assets and loan charge-offs. The Company’s approach to credit management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2021. Although the Company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, the Company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending. Implementation of a Profit Improvement Plan (“PIP”) . The Company’s PIP committee is comprised of several members of management and the Board of Directors to undertake several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the Company’s operations. The PIP committee’s mission is not only to find additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement. As a result, the Company has improved its efficiency ratio over the last several years from 98.0% at March 31, 2014 to 64.7% at March 31, 2021. 51 Introduction of New Products and Services . The Company continuously reviews new products and services to provide its customers more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking. The products are tailored to meet the needs of small to medium size businesses and households in the markets we serve. The Company launched a new online mortgage origination platform in June 2019 and MobiMoney™ in January 2021 which allows account holder’s the ability to control their respective Riverview debit card from a smartphone or tablet. The Company intends to selectively add other products to further diversify revenue sources and to capture more of each customer’s banking relationship by cross selling loan and deposit products and additional services, including services provided through the Trust Company to increase its fee income. Assets under management by the Trust Company totaled $1.3 billion and $1.2 billion at March 31, 2021 and March 31, 2020, respectively. The Company also offers a third-party identity theft product to its customers. The identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service. Attracting Core Deposits and Other Deposit Products . The Company offers personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate. To build its core deposit base, the Company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including FHLB and FRB advances. The Company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers’ needs. The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes. Core branch deposits increased $344.7 million at March 31, 2021 compared to March 31, 2020 reflecting the Company’s commitment to increasing core deposits versus relying on wholesale funding. Recruiting and Retaining Highly Competent Personnel with a Focus on Commercial Lending . The Company’s ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success. The Company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships. The Company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers. The goal is to compete with other financial service providers by relying on the strength of the Company’s customer service and relationship banking approach. The Company believes that one of its strengths is that its employees are also shareholders through the Company’s employee stock ownership (“ESOP”) and 401(k) plans. Comparison of Financial Condition at March 31, 2021 and 2020 Cash and cash equivalents, including interest-earning accounts, totaled $265.4 million at March 31, 2021 compared to $42.0 million at March 31, 2020. Deposit growth outpaced the growth in loans receivable providing significant excess funds invested in these interest-earning accounts. The Company’s cash balances typically fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings. As a part of this strategy, the Company also invests a portion of its excess cash in short-term certificates of deposit held for investment. All of the certificates of deposit held for investment are fully insured by the FDIC. Certificates of deposits held for investment totaled $249,000 at both March 31, 2021 and 2020. Investment securities totaled $255.9 million and $148.3 million at March 31, 2021 and 2020, respectively. The increase was due to investment purchases offset by normal pay downs, calls and maturities. During the fiscal years ended March 31, 2021 and 2020, purchases of investment securities totaled $160.2 million and $18.1 million, respectively. The Company primarily purchases a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA). At March 31, 2021, the Company determined that none of its investment securities required an OTTI charge. For additional information on the Company’s investment securities, see Note 3 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. 52 Loans receivable, net, totaled $924.1 million at March 31, 2021, compared to $898.9 million at March 31, 2020, an increase of $25.2 million. The increase was mainly due to the origination of SBA PPP loans partially offset by normal paydowns of principal and loan payoffs. At March 31, 2021, SBA PPP loans totaled $93.4 million which are included in the commercial business loan category. In addition, commercial real estate loans increased $35.6 million or 7.0%. These increases were offset by a decrease in in real estate construction loans of $47.9 million, or 73.8%. Due to the timing of the completion of these real estate construction projects, balances may fluctuate in these categories. Once these projects are completed, these loans will roll to permanent financing and be classified within a category under other real estate mortgage. In addition, consumer and multifamily loans decreased $28.8 million, or 32.9% and $13.4 million, or 22.9%, respectively. The Company had also made purchases of the guaranteed portion of SBA loans as a way to supplement loan originations, further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments. These SBA loans are originated through another financial institution located outside the Company’s primary market area. These loans are purchased with servicing retained by the seller. At March 31, 2021, the Company’s purchased SBA loan portfolio was $47.4 million compared to $74.8 million at March 31, 2020. During the year ended March 31, 2021, the Bank purchased $2.5 million of SBA loans, including premiums. Goodwill was $27.1 million at both March 31, 2021 and 2020. For additional information on our goodwill impairment testing, see "Goodwill Valuation" included in this Item 7. Prepaid expenses and other assets increased $5.7 million to $13.2 million at March 31, 2021 compared to $7.5 million at March 31, 2020. The increase is mainly due to the recording of three operating lease right-of-use assets totaling $6.1 million with a corresponding increase in operating lease liabilities which are recorded in accrued expenses and other liabilities. For additional information on the Company’s leases, see Note 18 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-K. Deposits increased $355.6 million to $1.3 billion at March 31, 2021 compared to $990.4 million at March 31, 2020. The increase was mainly due to proceeds from SBA PPP loans deposited directly into customer accounts, government stimulus checks and an increase in savings trends and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19. The Company had no wholesale-brokered deposits at March 31, 2021 and 2020. Core branch deposits accounted for 97.4% of total deposits at March 31, 2021 compared to 97.6% at March 31, 2020. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets. Shareholders' equity increased $2.8 million to $151.6 million at March 31, 2021 from $148.8 million at March 31, 2020. The increase was primarily attributable to net income of $10.5 million for the fiscal year ended March 31, 2021. This increase was offset by a decrease in the accumulated other comprehensive income related to the unrealized holding gains and losses on available for sale investment securities, net of tax, of $2.3 million. Further, the increase was offset by the payments of cash dividends totaling $4.5 million and the repurchase of 295,900 shares of common stock totaling $1.4 million for the fiscal year ended March 31, 2021. Goodwill Valuation Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been allocated to the Bank reporting unit. The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill is impaired. If the fair value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit is greater than its fair value, there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any. The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference. 53 A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; adverse action or assessment by a regulator; and unanticipated competition. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements. The Company performed its annual goodwill impairment test as of October 31, 2020. The goodwill impairment test involves a two-step process. Step one of the goodwill impairment test estimates the fair value of the reporting unit utilizing the allocation of corporate value approach, the income approach, the whole bank transaction approach and the market approach in order to derive an enterprise value of the Company. The allocation of corporate value approach applies the aggregate market value of the Company and divides it among the reporting units. A key assumption in this approach is the control premium applied to the aggregate market value. A control premium is utilized as the value of a company from the perspective of a controlling interest is generally higher than the widely quoted market price per share. The Company used an expected control premium of 35%, which was based on comparable transactional history. The income approach uses a reporting unit’s projection of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures. Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue growth rate that approximated 8.1%, a net interest margin that approximated 3.3% and a return on assets that ranged from 0.91% to 1.39% (average of 1.11%). In addition to utilizing the above projections of estimated operating results, key assumptions used to determine the fair value estimate under the income approach were the discount rate of 14.86% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit. The Company used a build-up approach in developing the discount rate that included: an assessment of the risk-free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company. The whole bank transaction approach estimates fair value by applying key financial variables in transactions involving acquisitions of similar institutions. In applying the whole bank transaction approach method, the Company identified transactions that occurred during the first 10 months of calendar 2020 utilizing a multiple of 1.1 times price to book value. The market approach estimates fair value by applying tangible book value multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit. In applying the market approach method, the Company selected four publicly traded comparable institutions. After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 0.8 times tangible book value. The Company calculated a fair value of its reporting unit of $143.0 million using the corporate value approach, $179.0 million using the income approach, $184 million using the whole bank transaction approach and $180.0 million using the market approach, with a final concluded value of $181.0 million, with half the weight given to the income approach and one quarter weight given to the whole bank approach and the market approach. No weight was given to the corporate value approach. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value and therefore no impairment of goodwill exists. Even though the Company determined that there was no goodwill impairment, a sustained decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge. As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company also completed a qualitative assessment of goodwill as of March 31, 2021 and concluded that it is more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at March 31, 2021. If adverse economic conditions or decreases in the Company’s common stock price and market capitalization as a result of the COVID-19 pandemic were deemed sustained in the future rather than temporary, it may significantly affect the fair value of the reporting unit and may trigger future goodwill impairment charges. It is also possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected; however, such an impairment charge would have no impact on our liquidity, operations or regulatory capital. 54 Estimated Fair Value of Level 3 Assets The Company determines the estimated fair value of certain assets that are classified as Level 3 under the fair value hierarchy established under GAAP. These Level 3 assets are valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets. These Level 3 assets are certain loans measured for impairment for which there is neither an active market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model. Under these circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair value requires significant management judgment or estimation. Valuations using models or other techniques are dependent upon assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of the valuation date. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. Judgment is then applied in formulating those inputs. Certain loans included in the loan portfolio were deemed impaired at March 31, 2021. Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is no active market for these loans. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment was measured based on a number of factors, including recent independent appraisals which are further reduced for estimated selling costs or by estimating the present value of expected future cash flows, discounted at the loan’s effective interest rate. For additional information on our Level 1, 2 and 3 fair value measurements see Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. Comparison of Operating Results for the Years Ended March 31, 2021 and 2020 Net Income. Net income was $10.5 million, or $0.47 per diluted share, for the fiscal year ended March 31, 2021, compared to $15.7 million, or $0.69 per diluted share, for the fiscal year ended March 31, 2020. The Company’s net income decreased primarily as a result of the increased provision for loan losses to $6.3 million for the fiscal year ended March 31, 2021 compared to $1.3 million provision for loan losses for the fiscal year ended March 31, 2020. Net Interest Income. The Company’s profitability depends primarily on its net interest income, which is the difference between the income it receives on interest-earning assets and the interest paid on deposits and borrowings. When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest income. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies. Net interest income for fiscal year 2021 decreased $814,000, or 1.8%, to $44.9 million compared to $45.7 million in fiscal year 2020. The net interest margin for the fiscal year ended March 31, 2021 was 3.41% compared to 4.26% for the prior fiscal year. The decrease in the net interest margin was primarily the result of the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields on the SBA PPP loan portfolio and lower loan yields on new loan originations causing a decrease in the average yield on interest-earning assets partially offset by the decrease in the average yield on interest-bearing liabilities. The decrease was also due to yields earned on interest-earning assets declining at a faster rate than interest rates paid on interest-bearing liabilities as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rate changes. Interest and Dividend Income. Interest and dividend income decreased $2.2 million to $48.3 million for the fiscal year ended March 31, 2021 from $50.5 million for the fiscal year ended March 31, 2020. The decrease for the fiscal year ended March 31, 2021 was due primarily to the 103 basis point decrease in the average yield on interest-earning assets to 3.67% compared to 4.70% for the fiscal year ended March 31, 2020. The substantial increase in the average balance of overnight cash balances as a result of the increase in deposit balances related to SBA PPP loans, is negatively impacting the average yield on interest earning assets. Interest and dividend income included $4.5 million of interest income and fees earned related to SBA PPP loans for the fiscal year ended March 31, 2021. There was no interest income and fees related to SBA PPP loans for the fiscal year ended March 31, 2020 The average balance of net loans increased $81.6 million to $966.1 million for fiscal year ended March 31, 2021 compared to $884.5 million for the same period in the prior year due primarily to SBA PPP loans. Although the average balance of loans increased, the average yield on net loans decreased and was 4.71% for fiscal year ended March 31, 2021 compared to 5.25% for the same period in the prior year, due primarily to the low interest rate environment resulting from the emergency 150 basis point reduction in the targeted federal funds rate in March 2020 due to the COVID-19 pandemic and secondarily 55 due to the impact of SBA PPP loans. For the fiscal year ended March 31, 2021, the average balance of SBA PPP loans was $96.4 million and the average yield on SBA PPP loans was 4.62% for the fiscal year ended March 31, 2021, which included the recognition of the net deferred fees. This resulted in a positive impact, primarily due to the accelerated SBA PPP loan fee recognition due to SBA PPP loan forgiveness, to the average loan yield on net loans of one basis point for the fiscal year ended March 31, 2021. The impact of SBA PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met. This decrease in the average yield on net loans was the primary reason for the overall decrease in interest and dividend income. Interest Expense. Interest expense for the fiscal year ended March 31, 2021 totaled $3.4 million, a $1.3 million or 28.1% decrease from $4.8 million for the fiscal year ended March 31, 2020. The decrease in interest expense was primarily the result of a 26 basis points decrease in the weighted average interest rate on interest-bearing liabilities for the year ended March 31, 2021 compared to the prior fiscal year. The weighted average interest rate on interest-bearing deposits decreased to 0.31% for the fiscal year ended March 31, 2021 from 0.43% for the prior fiscal year due primarily to the decrease in the weighted average interest rate on deposits excluding certificates of deposit. The weighted average interest rate on certificates of deposit increased due to pricing pressures and competition in our local markets. The average balance of interest-bearing deposits increased $141.2 million to $817.7 million for the fiscal year ended March 31, 2021 compared to $676.5 million for the fiscal year ended March 31, 2020. Although the average balance of interest-bearing deposits increased, interest expense on deposits decreased $346,000 due to the decrease in the average cost of interest-bearing deposits primarily as a result of the Company decreasing the interest rates paid on deposit products due to the overall decreasing rate environment. The increase in the average balance of interest-bearing deposits is due primarily to proceeds from SBA PPP loans deposited directly into customer accounts, government stimulus checks and an increase in savings trends and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19. Interest expense on borrowings decreased $991,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year. The weighted average interest rate on other interest-bearing liabilities decreased to 2.00% for the fiscal year ended March 31, 2021 compared to 3.78% for the prior fiscal year. The average balance of other interest-bearing liabilities decreased to $44.1 million for fiscal year ended March 31, 2021 compared to $49.6 million for the same period in the prior year. Provision for Loan Losses. The provision for loan losses totaled $6.3 million and $1.3 million for the fiscal years ended March 31, 2021 and 2020, respectively. The increase in the provision for loan losses for the fiscal year 2021 was primarily due to the economic conditions resulting from the COVID-19 pandemic and the continued uncertainty around the COVID-19 pandemic and its adverse economic effect on the respective industry exposures within our loan portfolio. Any future decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations. At March 31, 2021, the Company had an allowance for loan losses of $19.2 million, or 2.03% of total loans, compared to $12.6 million, or 1.38% at March 31, 2020. Net recoveries for the year ended March 31, 2021 were $254,000 compared to net charge-offs of $83,000 for the year ended March 31, 2020. Net recoveries to average net loans for the year ended March 31, 2021 was (0.03%). Net charge-offs to average net loans for the year ended March 31, 2020 was 0.01%. Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan. As of March 31, 2021, the Company had identified $3.6 million of impaired loans. Because the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the estimated fair value of the collateral. Of those impaired loans, $3.3 million have no specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs. The remaining $252,000 of impaired loans have specific valuation allowances totaling $11,000. Charge-offs on these impaired loans totaled $83,000 from their original loan balances. Based on a comprehensive analysis, management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at March 31, 2021. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for loan losses. 56 Non-Interest Income. Non-interest income decreased $1.3 million to $11.1 million for the year ended March 31, 2021 from $12.4 million for fiscal year 2020. The decrease in non-interest income was due to the decrease in fees and service charges of $159,000 for the fiscal year ended March 31, 2021 compared the same period in the prior year primarily from a decrease in transactions due to a change in customer spending habits during the COVID-19 pandemic. Additionally, the decrease in non-interest income was due to the decrease in asset management fees of $762,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year as a result of the decline in interest rates on fee generating products. Furthermore, net gains on sales of loans held for sale decreased $224,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year as the Company transitioned to a model where mortgage loan originations are brokered to various third-party mortgage companies. Non-Interest Expense. Non-interest expense remained unchanged at $36.3 million for the fiscal years ended March 31, 2021 and 2020. Although non-interest expense remained unchanged, there were increases in occupancy and depreciation expense of $204,000 and an increase in data processing of $33,000 for the year ended March 31, 2021 compared to the prior fiscal year due to continued investments into enhancing our information technology infrastructure and technology expenditures incurred as a result of employees working from home during the COVID-19 pandemic. In addition, FDIC insurance premium expense increased as FDIC insurance premium assessments returned to normal levels. The Bank utilized its remaining FDIC credits for previously paid deposit insurance premiums to partially offset assessments in the prior fiscal year. Offsetting these increases were decreases in salaries and employee benefits of $235,000 for the year ended March 31, 2021 compared to the prior fiscal year which is attributable to the loan origination cost offset related to the origination of the SBA PPP loans and the Company’s focus to manage controllable costs. Advertising and marketing expenses decreased $390,000 for the year ended March 31, 2021 compared to the prior fiscal year primarily due to reduced opportunities for community sponsorships and cancellations of sponsored events due to COVID-19 restrictions. Income Taxes. The provision for income taxes was $3.0 million and $4.8 million for the fiscal years ended March 31, 2021 and 2020, respectively, primarily reflecting lower pre-tax income. The effective tax rate was 22.2% for the year ended March 31, 2021 compared to 23.5% for the year ended March 31, 2020. At March 31, 2021, the Company had a deferred tax asset of $5.4 million. As of March 31, 2021, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary. See Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion of the Company’s income taxes. 57 Average Balance Sheet . The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities, resultant yields, interest rate spread, ratio of interest-earning assets to interest-bearing liabilities and net interest margin. Average balances for a period have been calculated using monthly average balances during such period. Non-accruing loans were included in the average loan amounts outstanding. Loan fees, net, of $4.5 million, $1.5 million and $1.5 million were included in interest income for the years ended March 31, 2021, 2020 and 2019, respectively. Years Ended March 31, 2021 2020 2019 Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost (Dollars in thousands) Interest-earning assets: Mortgage loans $ 681,999 $ 33,989 4.98 % $ 695,930 $ 37,721 5.42 % $ 663,225 $ 36,476 5.50 % Non-mortgage loans 284,071 11,509 4.05 188,568 8,684 4.61 180,917 8,462 4.68 Total net loans (1) 966,070 45,498 4.71 884,498 46,405 5.25 844,142 44,938 5.32 Investment securities (2) 156,723 2,592 1.65 164,028 3,594 2.19 199,463 4,647 2.33 Daily interest-earning assets 917 - - 95 1 1.05 64 1 1.56 Other earning assets 196,399 295 0.15 26,676 532 1.99 15,394 328 2.13 Total interest-earning assets 1,320,109 48,385 3.67 1,075,297 50,532 4.70 1,059,063 49,914 4.71 Non-interest-earning assets: Office properties and equipment, net 18,469 15,830 15,485 Other non-interest-earning assets 77,775 74,591 66,142 Total assets $ 1,416,353 $ 1,165,718 $ 1,140,690 Interest-bearing liabilities: Savings accounts $ 257,285 $ 418 0.16 % $ 189,207 $ 1,054 0.56 % $ 136,720 $ 145 0.11 % Interest checking accounts 225,579 85 0.04 180,969 100 0.06 180,256 101 0.06 Money market accounts 204,931 153 0.07 194,061 229 0.12 252,202 302 0.12 Certificates of deposit 129,928 1,888 1.45 112,282 1,507 1.34 105,049 448 0.43 Total interest-bearing deposits 817,723 2,544 0.31 676,519 2,890 0.43 674,227 996 0.15 Other interest-bearing liabilities 44,097 883 2.00 49,573 1,874 3.78 44,368 1,819 4.10 Total interest-bearing liabilities 861,820 3,427 0.40 726,092 4,764 0.66 718,595 2,815 0.39 Non-interest-bearing liabilities: Non-interest-bearing deposits 387,579 284,748 289,707 Other liabilities 15,304 11,226 7,846 Total liabilities 1,264,703 1,022,066 1,016,148 Shareholders’ equity 151,650 143,652 124,542 Total liabilities and shareholders’ equity $ 1,416,353 $ 1,165,718 $ 1,140,690 Net interest income $ 44,958 $ 45,768 $ 47,099 Interest rate spread 3.27 % 4.04 % 4.32 % Net interest margin 3.41 % 4.26 % 4.45 % Ratio of average interest-earning assets to average interest-bearing liabilities 153.18 % 148.09 % 147.38 % Tax-Equivalent Adjustment (3) $ 41 $ 37 $ 45 (1) Includes non-accrual loans. (2) For purposes of the computation of average yield on investment securities available for sale, historical cost balances were utilized; therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity. (3) Tax-equivalent adjustment relates to non-taxable investment interest income and preferred equity securities dividend income. 58 Rate/Volume Analysis The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the fiscal year ended March 31, 2021 compared to the fiscal year ended March 31, 2020, and the fiscal year ended March 31, 2020 compared to the fiscal year ended March 31, 2019. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume). Variances that were insignificant have been allocated based upon the percentage relationship of changes in volume and changes in rate to the total net change (in thousands). The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected on the Company’s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income. Year Ended March 31, 2021 vs. 2020 2020 vs. 2019 Increase (Decrease) Due to Increase (Decrease) Due to Total (Dollars in thousands) Volume Rate Increase (Decrease) Volume Rate Total Increase Interest Income: Mortgage loans $ (738 ) $ (2,994 ) $ (3,732 ) $ 1,781 $ (536 ) $ 1,245 Non-mortgage loans 3,982 (1,157 ) 2,825 351 (129 ) 222 Investment securities (1) (153 ) (849 ) (1,002 ) (787 ) (266 ) (1,053 ) Daily interest-earning 1 (2 ) (1 ) - - - Other earning assets 650 (887 ) (237 ) 227 (23 ) 204 Total interest income 3,742 (5,889 ) (2,147 ) 1,572 (954 ) 618 Interest Expense: Savings accounts 294 (930 ) (636 ) 78 831 909 Interest checking accounts 24 (39 ) (15 ) (1 ) - (1 ) Money market accounts 14 (90 ) (76 ) (73 ) - (73 ) Certificates of deposit 250 131 381 33 1,026 1,059 Other interest-bearing liabilities (188 ) (803 ) (991 ) 203 (148 ) 55 Total interest expense 394 (1,731 ) (1,337 ) 240 1,709 1,949 Net interest income $ 3,348 $ (4,158 ) $ (810 ) $ 1,332 $ (2,663 ) $ (1,331 ) (1) Interest on municipal securities is presented on a fully tax-equivalent basis. Asset and Liability Management The Company's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Company's interest-earning assets and interest-bearing liabilities. Interest rate sensitivity increases by retaining portfolio loans with interest rates subject to periodic adjustment to market conditions and selling fixed-rate one-to-four family mortgage loans with terms to maturity of more than 15 years. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a stable source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with terms up to ten years. The Company has adopted a strategy that is designed to maintain or improve the interest rate sensitivity of assets relative to its liabilities. The primary elements of this strategy involve: the origination of adjustable rate loans; increasing commercial loans, consumer loans that are adjustable rate and other short-term loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one-to-four family residential mortgage loans; matching asset and liability maturities; investing in short-term securities; and selling most long term, fixed-rate, one-to-four family mortgage loan originations. The strategy for liabilities has been to shorten the maturities for both deposits and borrowings. The longer-term objective is to increase the proportion of noninterest bearing demand deposits, low interest bearing demand deposits, money market accounts, and savings deposits relative to certificates of deposit to reduce our overall cost of funds. The Company's mortgage servicing activities provide additional protection from interest rate risk. The Company retains servicing rights on all mortgage loans sold. As market interest rates rise, the fixed-rate loans held in the loan portfolio diminish in value. However, the value of the servicing loan portfolio tends to rise as market interest rates increase because borrowers tend not to prepay the underlying mortgages, thus providing an interest rate risk hedge versus the fixed-rate loan portfolio. See "Item 1. Business – Lending Activities – Mortgage Loan Servicing." 59 Consumer loans, such as home equity lines of credit and installment loans, commercial loans and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans, and accordingly reduce the Company's exposure to fluctuations in interest rates. Adjustable interest rate loans totaled $461.1 million or 48.89% of total loans at March 31, 2021 as compared to $491.7 million or 53.95% at March 31, 2020. Although the Company has sought to originate adjustable rate loans, the ability to originate and purchase such loans depends to a great extent on market interest rates and borrowers' preferences. Particularly in lower interest rate environments, borrowers often prefer to obtain fixed-rate loans. See Item 1. “Business - Lending Activities – Real Estate Construction " and “- Lending Activities - Consumer Lending." The Company may also invest in short-term to medium-term U.S. Government securities as well as mortgage-backed securities issued or guaranteed by U.S. Government agencies. At March 31, 2021, the combined investment portfolio carried at $255.9 million had an average life of 5.2 years. Adjustable rate mortgage-backed securities totaled $7.6 million at March 31, 2021 compared to $11.6 million at March 31, 2020. See Item 1. “Business – Investment Activities" for additional information. Liquidity and Capital Resources Liquidity is essential to our business. The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. Core relationship deposits are the primary source of the Bank’s liquidity. As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the Bank. Liquidity management is both a short and long-term responsibility of the Company's management. The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities. These sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities. The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, proceeds from the sale of loans, maturing securities, FHLB advances and FRB borrowings. While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions and competition. Management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available. However, depositor or counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions. The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals and continuing operations, satisfy other financial commitments and take advantage of investment opportunities. During the year ended March 31, 2021, the Bank used its sources of funds primarily to fund loan commitments and investment purchases. At March 31, 2021, cash and cash equivalents, certificates of deposit held for investment and available for sale investment securities totaled $482.0 million, or 31.1% of total assets. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity management practice is to manage short-term borrowings, including FRB borrowings and FHLB advances consistent with its asset/liability objectives. At March 31, 2021, the Bank had no advances from the FRB and maintains a credit facility with the FRB with available borrowing capacity of $50.8 million, subject to sufficient collateral. At March 31, 2021, the Bank had no advances from the FHLB and had an available borrowing capacity of $226.7 million, subject to sufficient collateral and stock investment. At March 31, 2021, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at their discretion. Additionally, the Federal Reserve established the PPPLF to bolster the effectiveness of the SBA PPP. The Bank may utilize the PPPLF pursuant to approval from the FRB to which the Bank would pledge SBA PPP loans at face value as collateral to obtain FRB non-recourse advances. As of March 31, 2021, the Bank had not sought approval to utilize PPPLF as it held a substantial cash and cash equivalent position as a result of SBA PPP disbursed funds remaining unused in borrower deposit accounts and due to deposit customers increasing their balances due to COVID-19. An additional source of wholesale funding includes brokered certificates of deposit. While the Company has utilized brokered deposits from time to time, the Company historically has not extensively relied on brokered deposits to fund its operations. At March 31, 2021 and 2020, the Bank had no wholesale brokered deposits. The Bank also participates in the CDARS and ICS deposit products, which allow the Company to accept deposits in excess of the FDIC insurance limit for a depositor and obtain “pass-through” insurance for the total deposit. The Bank’s CDARS and ICS balances were $37.9 60 million, or 2.8% of total deposits, and $5.3 million, or 0.54% of total deposits, at March 31, 2021 and 2020, respectively. In addition, the Bank is enrolled in an internet deposit listing service. Under this listing service, the Bank may post time deposit rates on an internet site where institutional investors have the ability to deposit funds with the Bank. At March 31, 2021 and 2020, the Company had no deposits through this listing service. Although the Company did not originate any internet based deposits during the year ended March 31, 2021, the Company may do so in the future consistent with its asset/liability objectives. The combination of all the Bank’s funding sources gives the Bank available liquidity of $983.0 million, or 63.5% of total assets at March 31, 2021. At March 31, 2021, the Company had total commitments of $149.5 million, which includes commitments to extend credit of $12.7 million, unused lines of credit totaling $121.2 million, undisbursed construction loans totaling $13.6 million, and standby letters of credit totaling $2.0 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2021 totaled $83.9 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Offsetting these cash outflows are scheduled loan maturities of less than one year totaling $36.6 million at March 31, 2021. Riverview Bancorp, Inc., as a separate legal entity from the Bank, must provide for its own liquidity. Sources of capital and liquidity for Riverview Bancorp, Inc. include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. At March 31, 2021, Riverview Bancorp, Inc. had $10.0 million in cash to meet its liquidity needs. Effect of Inflation and Changing Prices The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. New Accounting Pronouncements For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Litigation The Company is periodically a party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material adverse effect, if any, on the Company’s future financial position, results of operations, or liquidity. The Bank has entered into employment contracts with certain key employees, which provide for contingent payment subject to future events. Off-Balance Sheet Arrangements The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to 45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments. At March 31, 2021, the Company had commercial loan commitments of $3.1 million and undisbursed commercial lines of credit of $97.3 million. Commercial real estate mortgage loan commitments totaled $6.3 million and the undisbursed balance of commercial real estate mortgage loans was $755,000 at March 31, 2021. At March 31, 2021, construction loan commitments totaled $2.8 million and undisbursed construction loans totaled $13.6 million. Unused lines of credit secured by land development loans totaled $391,000. Real estate one-to-four family loan commitments totaled $471,000 and unused lines of credit secured by real estate one-to-four family loans totaled $19.8 million at March 31, 2021. Other installment loan commitments totaled $13,000. Unused lines of credit on other installment loans totaled $1.1 million and unused lines of credit secured by multi-family real estate totaled $1.8 million at March 31, 2021. At March 31, 2021, the Company had standby letters of credit totaling $2.0 million. For additional information regarding future financial commitments, this discussion and analysis should be read in conjunction with Note 17 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. 61