RIVERVIEW BANCORP INC 10-K

Item 8. Financial Statements and Supplementary Data RIVERVIEW BANCORP, INC. AND SUBSIDIARY Consolidated Financial Statements for the Years Ended March 31, 2021, 2020 and 2019 Report of Independent Registered Public Accounting Firm TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm 66 Consolidated Balance Sheets as of March 31, 2021 and 2020 68 Consolidated Statements of Income for the Years Ended March 31, 2021, 2020 and 2019 69 Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2021, 2020 and 2019 70 Consolidated Statements of Shareholders’ Equity for the Years Ended March 31, 2021, 2020 and 2019 71 Consolidated Statements of Cash Flows for the Years Ended March 31, 2021, 2020 and 2019 72 Notes to Consolidated Financial Statements 73 65 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Riverview Bancorp, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Riverview Bancorp, Inc. and Subsidiary (collectively, "the Company") as of March 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2021, and the related notes (collectively referred to as "the financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America (U.S.). Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to an account or disclosures that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. 66 Allowance for Loan Losses Critical Audit Matter Description As described in Notes 1 and 5 to the financial statements, the Company's allowance for loan losses (ALL) is a valuation account that reflects the estimated loan losses based on known and inherent risks in the loan portfolio to the extent they are both probable and reasonable to estimate. The allowance for loan losses was approximately $19,178,000 as of March 31, 2021, which consists of specific and general components in the amounts of $11,000 and $19,167,000, respectively. The specific component relates to loans that are classified as impaired. The Company measures impairment and the related asset specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. If the loan is collateral dependent, the Company measures impairment based upon the fair value of the underlying collateral, which the Company determines based on the current fair value of the collateral less estimated selling costs, instead of discounted cash flows. Loans are identified as collateral dependent if the Company believes that collateral is the sole source of repayment. The general component is based on historical losses, general economic conditions, and other qualitative risk factors both internal and external to the Company. The historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The qualitative risk factors are generally determined by evaluating, among other things: (i) lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; (ii) national and local economic trends and conditions; (iii) nature and volume of the portfolio and terms of loans; (iv) experience, ability, and depth of lending management and staff; (v) volume and severity of past due, classified and nonaccrual loans as well as other loan modifications; (vi) quality of the Company's loan review system; (vii) existence and effect of any concentrations of credit and changes in the level of such concentrations; (viii) changes in the value of underlying collateral, and (ix) other external factors. The evaluation of the qualitative factor adjustments requires a significant amount of judgment by management and involves a high degree of subjectivity. We identified the ALL as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty. How the Critical Audit Matter Was Addressed in the Audit The primary audit procedures we performed to address this critical matter included the following, among others: • We obtained an understanding of the relevant controls related to management’s establishment of the qualitative factors, assessment, and review and approval of the qualitative factors, and the data used in determining the qualitative factors. • We obtained an understanding of how management developed the estimates and related assumptions, including: o Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources as well as evaluating the estimated correlation to potential loss. o Evaluating the reasonableness of the qualitative factors established by management as compared to the underlying internal or external information sources. • We obtained an understanding of the loans excluded from the general component calculation for propriety of classification as acquired or impaired loans. We have served as the Company's auditor since 2015. Lake Oswego, Oregon June 18, 2021 67 RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2021 AND 2020 (In thousands, except share and per share data) 2021 2020 ASSETS Cash and cash equivalents (including interest-earning accounts of $254,205 and $27,866) $ 265,408 $ 41,968 Certificates of deposit held for investment 249 249 Loans held for sale - 275 Investment securities: Available for sale, at estimated fair value 216,304 148,291 Held to maturity, at amortized cost (estimated fair value of $38,220 and $28) 39,574 28 Loans receivable (net of allowance for loan losses of $19,178 and $12,624) 924,057 898,885 Prepaid expenses and other assets 13,189 7,452 Accrued interest receivable 5,236 3,704 Federal Home Loan Bank (“FHLB”) stock, at cost 1,722 1,420 Premises and equipment, net 17,824 15,570 Financing lease right-of-use assets (“ROU”) 1,432 1,508 Deferred income taxes, net 5,419 3,277 Mortgage servicing rights, net 81 191 Goodwill 27,076 27,076 Core deposit intangible (“CDI”), net 619 759 Bank owned life insurance (“BOLI”) 30,968 30,155 TOTAL ASSETS $ 1,549,158 $ 1,180,808 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES: Deposits $ 1,346,060 $ 990,448 Accrued expenses and other liabilities 21,906 11,783 Advance payments by borrowers for taxes and insurance 521 703 Junior subordinated debentures 26,748 26,662 Finance lease liability 2,329 2,369 Total liabilities 1,397,564 1,031,965 COMMITMENTS AND CONTINGENCIES (See Note 17) 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 March 31, 2021 – 22,351,235 shares issued and outstanding 223 225 March 31, 2020 – 22,748,385 shares issued and 22,544,285 shares outstanding Additional paid-in capital 63,650 64,649 Retained earnings 87,881 81,870 Accumulated other comprehensive income (loss) (160 ) 2,099 Total shareholders’ equity 151,594 148,843 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,549,158 $ 1,180,808 See accompanying notes to consolidated financial statements . 68 RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019 (In thousands, except share and per share data) 2021 2020 2019 INTEREST AND DIVIDEND INCOME: Interest and fees on loans receivable $ 45,498 $ 46,405 $ 44,938 Interest on investment securities – taxable 2,422 3,440 4,456 Interest on investment securities – nontaxable 129 117 146 Other interest and dividends 295 533 329 Total interest and dividend income 48,344 50,495 49,869 INTEREST EXPENSE: Interest on deposits 2,544 2,890 996 Interest on borrowings 883 1,874 1,819 Total interest expense 3,427 4,764 2,815 Net interest income 44,917 45,731 47,054 Provision for loan losses 6,300 1,250 50 Net interest income after provision for loan losses 38,617 44,481 47,004 NON-INTEREST INCOME: Fees and service charges 6,382 6,541 5,948 Asset management fees 3,646 4,408 3,791 Net gains on sales of loans held for sale 28 252 317 BOLI 813 864 734 Other, net 221 295 317 Total non-interest income, net 11,090 12,360 11,107 NON-INTEREST EXPENSE: Salaries and employee benefits 22,570 22,805 22,320 Occupancy and depreciation 5,780 5,576 5,334 Data processing 2,662 2,629 2,467 Amortization of CDI 140 161 183 Advertising and marketing 466 856 769 FDIC insurance premium 319 81 326 State and local taxes 794 675 651 Telecommunications 295 327 353 Professional fees 1,231 1,120 1,426 Other 1,997 2,033 1,870 Total non-interest expense 36,254 36,263 35,699 INCOME BEFORE INCOME TAXES 13,453 20,578 22,412 PROVISION FOR INCOME TAXES 2,981 4,830 5,146 NET INCOME $ 10,472 $ 15,748 $ 17,266 Earnings per common share: Basic $ 0.47 $ 0.69 $ 0.76 Diluted 0.47 0.69 0.76 Weighted average number of common shares outstanding: Basic 22,296,195 22,707,624 22,588,395 Diluted 22,312,831 22,744,045 22,659,594 See accompanying notes to consolidated financial statements. 69 RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019 (In thousands) 2021 2020 2019 Net income $ 10,472 $ 15,748 $ 17,266 Other comprehensive income (loss): Net unrealized holding gain (loss) from available for sale investment securities arising during the period, net of tax of $713, ($1,499) and ($629), respectively (2,259 ) 4,748 2,122 Reclassification adjustment of net gain from sale of available for sale investment securities included in income, net of tax of $0, $7 and $0, respectively - (23 ) - Total other comprehensive income (loss), net (2,259 ) 4,725 2,122 Total comprehensive income, net $ 8,213 $ 20,473 $ 19,388 See accompanying notes to consolidated financial statements. 70 RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019 (In thousands, except share and per share data) Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Total Shares Amount Capital Earnings Income (Loss) Balance April 1, 2018 22,570,179 $ 226 $ 64,871 $ 56,552 $ (4,748) $ 116,901 Net income - - - 17,266 - 17,266 Cash dividend on common stock ($0.15 per share) - - - (3,390 ) - (3,390 ) Exercise of stock options 37,533 - 179 - - 179 Stock-based compensation expense - - 44 - - 44 Other comprehensive income, net - - - - 2,122 2,122 Balance March 31, 2019 22,607,712 226 65,094 70,428 (2,626 ) 133,122 Net income - - - 15,748 - 15,748 Cash dividend on common stock ($0.19 per share) - - - (4,306 ) - (4,306 ) Exercise of stock options 58,000 1 226 - - 227 Restricted stock grants 82,673 - - - - - Stock repurchased (204,100 ) (2 ) (1,017 ) - - (1,019 ) Stock-based compensation expense - - 346 - - 346 Other comprehensive income, net - - - - 4,725 4,725 Balance March 31, 2020 22,544,285 225 64,649 81,870 2,099 148,843 Net income - - - 10,472 - 10,472 Cash dividend on common stock ($0.20 per share) - - - (4,461 ) - (4,461 ) Exercise of stock options 20,000 1 49 - - 50 Stock repurchased (295,900 ) (3 ) (1,444 ) - - (1,447 ) Restricted stock grants 90,763 - - - - - Restricted stock cancelled (7,913 ) - - - - - Stock-based compensation expense - - 396 - - 396 Other comprehensive income, net - - - - (2,259 ) (2,259 ) Balance March 31, 2021 22,351,235 $ 223 $ 63,650 $ 87,881 $ (160 ) $ 151,594 See accompanying notes to consolidated financial statements. 71 RIVERVIEW BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019 (In thousands) 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,472 $ 15,748 $ 17,266 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,212 2,963 2,718 Purchased loans amortization (accretion), net 274 53 (147 ) Provision for loan losses 6,300 1,250 50 Provision for deferred income taxes (1,429 ) (574 ) (11 ) Stock-based compensation expense 396 346 44 Increase in deferred loan origination fees, net of amortization 2,477 138 498 Origination of loans held for sale (913 ) (8,941 ) (11,105 ) Proceeds from sales of loans held for sale 1,214 9,743 10,579 Net gains on sales of loans held for sale, sales of investment securities, sales of real estate owned (“REO”) and sales of premises and equipment (14 ) (355 ) (682 ) Income from BOLI (813 ) (864 ) (734 ) Changes in assets and liabilities: Prepaid expenses and other assets 391 2,622 (868 ) Accrued interest receivable (1,532 ) 215 (442 ) Accrued expenses and other liabilities 4,132 (6,427 ) 2,988 Net cash provided by operating activities 24,167 15,917 20,154 CASH FLOWS FROM INVESTING ACTIVITIES: Loan originations, net (30,379 ) (11,786 ) (34,427 ) Purchases of loans receivable (3,844 ) (23,818 ) (29,929 ) Principal repayments on investment securities available for sale 43,824 28,371 26,519 Purchases of investment securities available for sale (120,371 ) (18,125 ) - Proceeds from calls, maturities, and sales of investment securities available for sale 4,000 24,623 10,000 Principal repayments on investment securities held to maturity 248 7 7 Purchases of investment securities held to maturity (39,871 ) - - Purchases of premises and equipment and capitalized software (3,552 ) (2,953 ) (1,046 ) Redemption of certificates of deposits held for investment - 498 5,220 Redemption (purchase) of Federal Home Loan Bank stock, net (302 ) 2,224 (2,291 ) Proceeds from sales of REO and premises and equipment - 81 976 Net cash used in investing activities (150,247 ) (878 ) (24,971 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 355,617 65,394 (70,568 ) Dividends paid (4,478 ) (4,075 ) (3,163 ) Proceeds from borrowings 31,000 224,897 326,956 Repayment of borrowings (31,000 ) (281,483 ) (270,370 ) Net increase (decrease) in advance payments by borrowers for taxes and insurance (182 ) 72 (6 ) Principal payments on finance lease liability (40 ) (34 ) (28 ) Proceeds from exercise of stock options 50 227 179 Repurchase of common stock (1,447 ) (1,019 ) - Net cash provided by (used in) financing activities 349,520 3,979 (17,000 ) NET INCREASE (DECREASE) IN CASH 223,440 19,018 (21,817 ) CASH, BEGINNING OF PERIOD 41,968 22,950 44,767 CASH, END OF PERIOD $ 265,408 $ 41,968 $ 22,950 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $ 3,255 $ 4,576 $ 2,686 Income taxes 4,738 4,438 6,877 NONCASH INVESTING AND FINANCING ACTIVITIES: Dividends declared and accrued in other liabilities $ 1,118 $ 1,135 $ 904 Other comprehensive income (loss) (2,972 ) 6,217 2,751 Income tax effect related to other comprehensive income (loss) 713 (1,492 ) (629 ) ROU lease assets obtained in exchange for operating lease liabilities 6,148 5,603 - See accompanying notes to consolidated financial statements. 72 RIVERVIEW BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2021, 2020 and 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Riverview Bancorp, Inc.; its wholly-owned subsidiary, Riverview Community Bank (the “Bank”); the Bank’s wholly-owned subsidiary, Riverview Services, Inc., and the Bank’s majority-owned subsidiary, Riverview Trust Company (the “Trust Company”) (collectively referred to as the “Company”). As a Washington state-chartered commercial bank, the Bank's regulators are the Washington State Department of Financial Institutions ("WDFI") and the Federal Deposit Insurance Corporation ("FDIC"). The Board of Governors of the Federal Reserve System ("Federal Reserve") is the primary federal regulator for Riverview Bancorp, Inc. All inter-company transactions and balances have been eliminated in consolidation. For the period from April 1, 2017 through December 2019, the Trust Company was a wholly-owned subsidiary of the Bank. In December 2019, the Trust Company issued 1,500 shares of Trust Company stock in conjunction with the exercise of 1,500 Trust Company stock options by the Trust Company’s President and Chief Executive Officer. In October 2020, the Trust Company issued an additional 500 shares of Trust Company stock with the exercise of options for 500 shares of Trust Company common stock by the Trust Company’s President and Chief Executive Officer. As a result of these transactions, the Bank’s ownership in the Trust Company decreased from 100% to 97.8%, resulting in a noncontrolling interest. The noncontrolling interest was $154,000 and $107,000 as of March 31, 2021 and 2020, respectively, and net income attributable to the noncontrolling interest was $10,000 and $5,000 for the years ended March 31, 2021 and 2020, respectively. These amounts are not presented separately in the accompanying consolidated financial statements due to their insignificance. The Company has three subsidiary grantor trusts which were established in connection with the issuance of trust preferred securities (see Note 10). In accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”), the accounts and transactions of the trusts are not included in the accompanying consolidated financial statements. Nature of Operations – The Bank is a community-oriented financial institution which operates 17 branches in rural and suburban communities in southwest Washington State and Multnomah, Washington and Marion counties of Oregon. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds, together with other borrowings, to make various commercial business, commercial real estate, land, multi-family real estate, real estate construction and consumer loans. Additionally, the Trust Company offers trust and investment services and Riverview Services, Inc. acts as a trustee for deeds of trust on mortgage loans granted by the Bank and receives a reconveyance fee for each deed of trust. Business segments – The Company's operations are managed along two operating segments, consisting of banking operations performed by the Bank and trust and investment services performed by the Trust Company. While the chief operating decision maker uses financial information related to these segments to analyze business performance and allocate resources, the trust and investment services segment does not meet the quantitative threshold under GAAP to be considered a reportable segment. As such, these operating segments are aggregated into a single reportable operating segment in the consolidated financial statements. No revenues are derived from foreign countries. Use of Estimates in the Preparation of Consolidated Financial Statements – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of related revenue and expense during the reporting period. Actual results could differ from those estimates. The estimates utilized to determine the appropriate allowance for loan losses at March 31, 2021 may be materially different from actual results due to the novel coronavirus of 2019 (“COVID-19”) pandemic. Cash and Cash Equivalents – Cash and cash equivalents include amounts on hand, due from banks and interest-earning deposits in other banks. Cash and cash equivalents have a maturity of 90 days or less at the time of purchase. Certificates of Deposit Held for Investment – Certificates of deposit held for investment include amounts invested with financial institutions at a stated interest rate and maturity date. Early withdrawal penalties apply; however, the Company plans to hold these investments to maturity. Loans Held for Sale – The Company identifies loans held for sale at the time of origination and such loans are carried at the lower of aggregate cost or estimated fair value. Estimated fair values are derived from available market quotations for comparable pools of mortgage loans. Adjustments for unrealized losses, if any, are charged to income. 73 Gains or losses on sales of loans held for sale are recognized at the time of sale and are determined by the difference between the net sales proceeds and the allocated basis of these loans sold. The Company capitalizes mortgage servicing rights (“MSRs”) acquired through the sale of originated mortgage loans or the securitization of mortgage loans with servicing rights retained. Upon the sale of mortgage loans held for sale, the total cost of the loans designated for sale is allocated to mortgage loans with and without MSRs based on their relative fair values. The MSRs are included as a component of net gains on sales of loans held for sale. The MSRs are amortized in proportion to and over the estimated period of the net servicing income and such amortization is reflected as a component of loan servicing income and is included in the consolidated statements of income in other non-interest income. Investment Securities – Investments in debt securities are classified as held to maturity when the Company has the ability and positive intent to hold such securities to maturity. Investments in debt securities held to maturity are carried at amortized cost. Unrealized losses on investments in debt securities held to maturity due to fluctuations in fair value are recognized when it is determined that a credit-related other than temporary decline in value has occurred. Investments in debt securities bought and held principally for the purpose of sale in the near-term are classified as trading securities. Investments in debt securities that the Company intends to hold for an indefinite period, but not necessarily to maturity, are classified as available for sale. Such debt securities may be sold to implement the Company’s asset/liability management strategies and in response to changes in interest rates and similar factors. Investments in debt securities available for sale are reported at estimated fair value. Unrealized gains and losses on investment securities available for sale, net of the related deferred tax effect, are included in total comprehensive income and are reported as a net amount in a separate component of shareholders’ equity entitled “accumulated other comprehensive income (loss).” Realized gains and losses on sales of investments in debt securities available for sale, determined using the specific identification method, are included in earnings on the trade date. Amortization of premiums and accretion of discounts are recognized in interest income over the period to contractual maturity or expected call, if sooner. The Company’s investment portfolio consists of debt securities and does not include any equity securities. The Company analyzes investments in debt securities for other than temporary impairment (“OTTI”) on a quarterly basis. OTTI is separated into a credit component and a noncredit component. Credit component losses are reported in non-interest income when the present value of expected future cash flows is less than the amortized cost. Noncredit component losses are recorded in other comprehensive income (loss) when the Company (1) does not intend to sell the security or (2) is not more likely than not to have to sell the security prior to the security’s anticipated recovery. If the Company is likely to sell an investment in a debt security, any noncredit component losses are recognized and are reported in non-interest income. Loans Receivable – Loans are stated at the amount of unpaid principal, reduced by net deferred loan origination fees and an allowance for loan losses. Interest on loans is accrued daily based on the principal amount outstanding. Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 days to 89 days delinquent. In general, when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months. The Company did not designate loans with payment deferrals granted due to the COVID-19 pandemic as delinquent in accordance with provisions of The Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) and the Consolidated Appropriations Act, 2021 (the “CAA 2021”) and related regulatory guidance. Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment of the yield of the related loan. Acquired Loans – Purchased loans, including loans acquired in business combinations, are recorded at their estimated fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired (“PCI”) or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The excess of the cash flows expected to be collected over a PCI loan's carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the PCI loan using the effective yield method. The excess of the undiscounted contractual balances due over the cash flows expected to be collected is considered to be the nonaccretable difference. The nonaccretable difference represents the Company's estimate of the credit losses expected to occur and would be considered in determining the estimated fair value of the loans as of the acquisition date. Subsequent to the acquisition date, any increases in expected cash flows over those expected at the purchase date in excess of fair value are adjusted 74 through a change to the accretable yield on a prospective basis. Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording an allowance for loan losses. The Company had no PCI loans as of March 31, 2021 and 2020. For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the lives of the related loans. Any subsequent deterioration in credit quality is recognized by recording an allowance for loan losses. Allowance for Loan Losses – The allowance for loan losses is maintained at a level sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon management’s ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions and a detailed analysis of individual loans for which full collectability may not be assured. The detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are considered impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value (less estimated selling costs, if applicable) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans based on the Company’s risk rating system and historical loss experience adjusted for qualitative factors. The Company calculates its historical loss rates using the average of the last four quarterly 24-month periods. The Company calculates and applies its historical loss rates by individual loan types in its loan portfolio. These historical loss rates are adjusted for qualitative and environmental factors. An unallocated component is maintained to cover uncertainties that the Company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses. Such factors include uncertainties in economic conditions, uncertainties in identifying triggering events that directly correlate to subsequent loss rates, changes in appraised value of underlying collateral, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current loan portfolio or economic conditions. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company as of the date of the filing of the consolidated financial statements. When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for loan losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Typically, factors used in determining if a loan is impaired include, but are not limited to, whether the loan is 90 days or more delinquent, internally designated as substandard or worse, on non-accrual status or represents a troubled debt restructuring (“TDR”). The Company elected to apply the temporary relief under the CARES Act and related regulatory guidance to certain eligible short-term modifications, past due loans, and modifications. Qualifying loan modifications were not classified as a TDR for accounting or disclosure purposes. The majority of the Company’s impaired loans are considered collateral dependent. When a loan is considered collateral dependent, impairment is measured using the estimated value of the underlying collateral, less any prior liens, and when applicable, less estimated selling costs. For impaired loans that are not collateral dependent, impairment is measured using the present value of expected future cash flows, discounted at the loan’s original effective interest rate. When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized by adjusting an allocation of the allowance for loan losses. Subsequent to the initial allocation of allowance to the individual loan, the Company may conclude that it is appropriate to record a charge-off of the impaired portion of the loan. When a charge-off is recorded, the loan balance is reduced and the specific allowance is eliminated. Generally, when a collateral dependent loan is initially measured for impairment and has not had an appraisal of the collateral in the last six months, the Company obtains an updated market valuation. Subsequently, the Company generally obtains an updated market valuation of the collateral on an annual basis. The collateral valuation may occur more frequently if the Company determines that there is an indication that the market value may have declined. 75 In accordance with the Company’s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. Consumer installment loans delinquent six months or more that have not received at least 75% of their required monthly payments in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy protection with no payments received for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value of the underlying collateral is generally charged-off if no payments are received for four to five consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is charged-off. A provision for loan losses is charged against income and is added to the allowance for loan losses based on regular assessments of the loan portfolio. The allowance for loan losses is allocated to certain loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio. While management has allocated the allowance for loan losses to various loan portfolio segments, the allowance is general in nature and is available for the loan portfolio in its entirety. 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. Allowance for Unfunded Loan Commitments – The allowance for unfunded loan commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. The allowance for unfunded loan commitments is included in accrued expenses and other liabilities in the consolidated balance sheets, with changes to the balance charged against non-interest expense. REO – REO consists of properties acquired through foreclosure and is initially recorded at the estimated fair value of the properties, less estimated costs of disposal. At the time of foreclosure, specific charge-offs are taken against the allowance for loan losses based upon a detailed analysis of the fair value of collateral on the underlying loans on which the Company is in the process of foreclosing. Subsequently, the Company performs an evaluation of the properties and records a valuation allowance with an offsetting charge to REO expenses for any declines in value. Management considers third-party appraisals, as well as independent fair market value assessments from realtors or persons involved in selling real estate, in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. The amounts the Company will ultimately recover and record in the accompanying consolidated financial statements from the disposition of REO may differ from the amounts used in arriving at the net carrying value of these assets because of future market factors beyond the Company’s control or because of changes in the Company’s strategy for the sale of the property. Costs relating to development and improvement of the properties or assets are capitalized, while costs relating to holding the properties or assets are expensed. At March 31, 2021, there were no mortgage loans secured by residential real estate for which formal foreclosure proceedings were in process. Federal Home Loan Bank Stock – The Bank, as a member of the Federal Home Loan Bank of Des Moines (“FHLB”), is required to maintain a minimum investment in capital stock of the FHLB based on specific percentages of its outstanding FHLB advances. The Company’s investment in FHLB stock is carried at cost, which approximates fair value. The Company views its investment in FHLB stock as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, the value is determined based on the ultimate redemption of the par value rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate redemption value is influenced by criteria such as: (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount of the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory 76 changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB. The Company evaluated its investment in FHLB stock for OTTI, consistent with its accounting policy. Based on the Company’s evaluation, the Company determined there is not any OTTI on its FHLB stock at March 31, 2021. Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvements are amortized over the estimated term of the related lease or the estimated useful life of the improvements, whichever is less. Depreciation and amortization is generally computed on the straight-line method over the following estimated useful lives: buildings and improvements – up to 45 years; furniture and equipment – 3 to 20 years; and leasehold improvements – 15 to 25 years, or estimated lease term if shorter. Gains or losses on dispositions are reflected in earnings. The cost of maintenance and repairs is charged to expense as incurred. Assets are reviewed for impairment when events indicate their carrying value may not be recoverable. If management determines impairment exists the asset is reduced by an offsetting charge to expense. The assets held under the finance lease are amortized on a straight-line basis over the lease term and the amortization is included in depreciation and amortization expense. MSRs – The Company services certain loans that it has originated and sold to the Federal Home Loan Mortgage Corporation (“FHLMC”). Loan servicing includes collecting payments; remitting funds to investors, insurance companies and tax authorities; collecting delinquent payments; and foreclosing on properties when necessary. Fees earned for servicing loans for the FHLMC are reported as income when the related mortgage loan payments are collected. Loan servicing costs are charged to expense as incurred. In addition, the Company has recorded MSRs, which represent the rights to service loans. The Company records its originated MSRs at fair value in accordance with GAAP, which requires the Company to allocate the total cost of all mortgage loans sold between the MSRs and the loans (without the MSRs) based on their relative fair values if it is practicable to estimate those fair values. The Company stratifies its MSRs based on the predominant characteristics of the underlying financial assets including the coupon interest rate and the contractual maturity of the mortgage. The Company is amortizing the MSRs in proportion to and over the period of estimated net servicing income. MSRs are reviewed quarterly for impairment based on their estimated fair value using a discounted cash flow model. The model estimates the present value of the future net cash flows of the servicing loan portfolio based on various factors, such as servicing costs, servicing income, expected prepayment speeds, discount rate, loan maturity and interest rate. Market sources are used to determine prepayment speeds, ancillary income, servicing cost and pre-tax required yield. The effect of changes in market interest rates on estimated rates of loan prepayments represents the predominant risk characteristic underlying the MSRs portfolio. Impairment losses are recognized through a valuation allowance for each impaired stratum, with any associated provision recorded as a component of loan servicing income. Business Combinations, CDI and Goodwill – GAAP requires the total purchase price in a business combination to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets. Subsequent adjustments to the initial allocation of the purchase price may be made related to fair value estimates for which all relevant information has not been obtained, known, or discovered relating to the acquired entity during the allocation period (which is the period of time required to identify and measure the estimated fair values of the assets acquired and liabilities assumed in a business combination). The allocation period is generally limited to one year following consummation of a business combination. CDI represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of a business combination. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. At both March 31, 2021 and 2020, gross CDI was $1.36 million. At March 31, 2021 and 2020, accumulated amortization was $744,000 and $604,000, respectively. The amortization expense for CDI in future years is estimated to be $125,000, $116,000, $108,000, $100,000, $93,000 and $77,000 for the years ending March 31, 2022, 2023, 2024, 2025, 2026 and thereafter, respectively. Goodwill and certain other intangibles generally arise from business combinations. Goodwill and other intangibles generated from business combinations that are deemed to have indefinite lives are not subject to amortization and are instead tested for impairment not less than annually. The Company performs an annual review in the third quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired (see Note 7). 77 BOLI – BOLI policies are recorded at their cash surrender value less applicable surrender charges. Income from BOLI is recognized when earned. Advertising and Marketing – Costs incurred for advertising, merchandising, market research, community investment and business development are classified as advertising and marketing expense and are expensed as incurred. Income Taxes – Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some portion of the potential deferred tax asset will not be realized. The Company files a consolidated federal income tax return. The Bank provides for income taxes separately and remits to the Company amounts currently due. Transfers of financial assets – Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Trust Assets – Assets held by the Trust Company in a fiduciary or agency capacity for trust customers are not included in the consolidated financial statements because such items are not assets of the Company. Assets totaling $1.3 billion and $1.2 billion were held in trust as of March 31, 2021 and 2020, respectively. Earnings Per Share – GAAP requires all companies whose capital structure includes dilutive potential common shares to make a dual presentation of basic and diluted earnings per share for all periods presented. The Company’s basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period, without consideration of any dilutive items. Nonvested shares of restricted stock are included in the computation of basic earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. The Company’s diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and has been computed after giving consideration to the weighted average diluted effect of the Company’s stock options. Stock-Based Compensation – The Company measures compensation cost for all stock-based awards based on the grant-date fair value of the awards and recognizes compensation cost over the service period of stock-based awards. The fair value of stock options is determined using the Black-Scholes valuation model. The fair value of restricted stock is determined based on the grant date fair value of the Company’s common stock. ESOP – The Company sponsors a leveraged ESOP; however, all ESOP debt was fully repaid during the year ended March 31, 2018. As shares were released, compensation expense was recorded equal to the then current market price of the shares and the shares became available for earnings per share calculations. The Company recorded cash dividends on unallocated shares as a reduction of debt and accrued interest. See Note 12 for further discussion. Accounting Pronouncements Recently Issued or Adopted– In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11. ASU 2016-13 replaces the existing incurred losses methodology for estimating allowances with a current expected credit losses methodology with respect to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held to maturity investment securities and off-balance sheet commitments. In addition, ASU 2016-13 requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction of carrying amount. ASU 2016-13 also changes the accounting for purchased credit impaired debt securities and loans. ASU 2016-13 retains many of the current disclosure requirements in GAAP and expands certain disclosure requirements. As a “smaller reporting company” filer with the U.S. Securities and Exchange Commission, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and 78 procedures for other-than-temporary impairment of investment securities available for sale will be replaced with an allowance approach. The Company is reviewing the requirements of ASU 2016-13 and has begun developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. At this time, management anticipates the allowance for loan losses will increase as a result of the implementation of ASU 2016-13; however, until management’s evaluation is complete, the magnitude of the increase will not be known. In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2022. Early application of ASU 2017-04 is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's future consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing, among other things (1) the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items, and (2) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2019-12 is not expected to have a material impact on the Company's future consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. ASU 2020-04 permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. The Company’s current interest rates on its junior subordinated debentures are based upon the three-month LIBOR plus a spread. In January 2021, ASU 2021-01 updated amendments in the new ASU to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification. The amendments in ASU 2021-01 have differing effective dates, beginning with interim periods including and subsequent to March 12, 2020 through December 31, 2022. The Company has not adopted ASU 2020-04 as of March 31, 2021. The adoption of ASU 2020-04 is not expected to have a material impact on the Company’s future consolidated financial statements. In October 2020, the FASB issued ASU 2020-08, “Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”). ASU 2020-08 clarifies that the Company should reevaluate whether a callable debt security is within the scope of paragraph FASB Accounting Standards Codification (“ASC”) 310-20-35-33 for each reporting period. ASU 2020-08 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2020-08 is not expected to have a material impact on the Company’s future consolidated financial statements. The CARES Act, signed into law on March 27, 2020, and the CAA 2021, signed into law on December 27, 2020, which extended the CARES Act treatment of TDRs, amended GAAP with respect to the modification of loans to borrowers affected by the COVID-19 pandemic. Among other criteria, this guidance provided that short-term loan modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g., nine months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the national emergency by the President or (b) January 1, 2022. As of March 31, 2021, the Company’s modifications totaled 79 five loans related to the COVID-19 pandemic with an outstanding loan balance, net of deferred fees, totaling $18.1 million. Loan modifications in accordance with the CARES Act are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired. Reclassifications – Certain prior period amounts have been reclassified to conform to the current period presentation; such reclassifications had no effect on previously reported net income or total shareholders’ equity. 2. RESTRICTED ASSETS Regulations of the Board of Governors of the Federal Reserve System require that the Bank maintain minimum reserve balances either on hand or on deposit with the Federal Reserve Bank of San Francisco (“FRB”) based on a percentage of deposits. Effective March 26, 2020, the reserve requirement was reduced to zero and the Bank was not required to maintain any such reserve balances as of March 31, 2021 and 2020, respectively. 3. 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 March 31, 2021 Available for sale: Municipal securities $ 23,883 $ 238 $ (555 ) $ 23,566 Agency securities 25,996 5 (686 ) 25,315 Real estate mortgage investment conduits (1) 55,826 469 (480 ) 55,815 Residential mortgage-backed securities (1) 71,787 1,075 (614 ) 72,248 Other mortgage-backed securities (2) 39,022 514 (176 ) 39,360 Total available for sale $ 216,514 $ 2,301 $ (2,511 ) $ 216,304 Held to maturity: Municipal securities $ 10,391 $ - $ (509 ) $ 9,882 Agency securities 7,688 - (220 ) 7,468 Real estate mortgage investment conduits (1) 9,207 - (141 ) 9,066 Residential mortgage-backed securities (3) 6,175 - (119 ) 6,056 Other mortgage-backed securities (2) 6,113 - (365 ) 5,748 Total held to maturity $ 39,574 $ - $ (1,354 ) $ 38,220 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value March 31, 2020 Available for sale: Municipal securities $ 4,740 $ 137 $ - $ 4,877 Agency securities 6,009 17 (10 ) 6,016 Real estate mortgage investment conduits (1) 42,663 1,128 - 43,791 Residential mortgage-backed securities (1) 58,700 1,415 (30 ) 60,085 Other mortgage-backed securities (2) 33,417 256 (151 ) 33,522 Total available for sale $ 145,529 $ 2,953 $ (191 ) $ 148,291 Held to maturity: Residential mortgage-backed securities (3) $ 28 $ - $ - $ 28 (1) Comprised of Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities. (2) Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by FNMA. (3) Comprised of FHLMC and FNMA issued securities. 80 The contractual maturities of investment securities as of March 31, 2021 are as follows (in thousands): Available for Sale Held to Maturity Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year or less $ - $ - $ - $ - Due after one year through five years 5,919 5,992 18 18 Due after five years through ten years 57,704 57,409 8,595 8,193 Due after ten years 152,891 152,903 30,961 30,009 Total $ 216,514 $ 216,304 $ 39,574 $ 38,220 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 March 31, 2021 Available for sale: Municipal securities $ 17,529 $ (555 ) $ - $ - $ 17,529 $ (555 ) Agency securities 23,306 (686 ) - - 23,306 (686 ) Real estate mortgage investment conduits (1) 25,462 (480 ) - - 25,462 (480 ) Residential mortgage-backed securities 33,164 (614 ) - - 33,164 (614 ) Other mortgage-backed securities (2) 5,856 (125 ) 2,225 (51 ) 8,081 (176 ) Total available for sale $ 105,317 $ (2,460 ) $ 2,225 $ (51 ) $ 107,542 $ (2,511 ) Held to maturity: Municipal securities $ 9,882 $ (509 ) $ - $ - $ 9,882 $ (509 ) Agency securities 7,468 (220 ) - - 7,468 (220 ) Real estate mortgage investment conduits (4) 9,066 (141 ) - - 9,066 (141 ) Residential mortgage-backed securities (5) 6,035 (119 ) - - 6,035 (119 ) Other mortgage-backed securities 5,748 (365 ) - - 5,748 (365 ) Total held to maturity $ 38,199 $ (1,354 ) $ - $ - $ 38,199 $ (1,354 ) March 31, 2020 Available for sale: Agency securities $ 1,998 $ (10 ) $ - $ - $ 1,998 $ (10 ) Residential mortgage-backed securities (5) 2,509 (22 ) 409 (8 ) 2,918 (30 ) Other mortgage-backed securities (6) 11,726 (58 ) 4,911 (93 ) 16,637 (151 ) Total available for sale $ 16,233 $ (90 ) $ 5,320 $ (101 ) $ 21,553 $ (191 ) (1) Comprised of FHLMC, FNMA and GNMA issued securities. (2) Comprised of SBA issued securities. (3) Comprised of FHLMC issued securities. (4) Comprised of FNMA issued securities. (5) Comprised of FHLMC and FNMA issued securities. (6) Comprised of SBA and CRE secured securities issued by FNMA. The unrealized losses on the Company’s investment securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. Based on management’s evaluation and intent, the unrealized losses related to the investment securities in the above tables are considered temporary. The Company had no sales and realized no gains or losses on sales of investment securities for the year ended March 31, 2021. Proceeds from the sale of investment securities totaled $17.8 million for the year ended March 31, 2020. Gross realized gains on sales of investment securities totaled $30,000 for the year ended March 31, 2020 and are included in other non-interest income in the accompanying consolidated statements of income. The Company had no sales and realized no gains or losses on sales of investment securities for the year ended March 31, 2019. 81 Investment securities available for sale with an amortized cost of $5.3 million and $6.6 million and a fair value of $5.4 million and $6.8 million at March 31, 2021 and 2020, respectively, were pledged as collateral for government public funds held by the Bank. Investment securities held to maturity with an amortized cost of $3.1 million and a fair value of $3.0 million at March 31, 2021 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 March 31, 2020. 4. LOANS RECEIVABLE Loans receivable are reported net of deferred loan fees and discounts, and inclusive of premiums. At March 31, 2021, deferred loan fees totaled $6.6 million of which $2.7 million were related to the SBA’s Paycheck Protection Program (“PPP”) loans. At March 31, 2020, deferred loan fees totaled $4.1 million of which there were no deferred loan fees related to SBA PPP loans. Loans receivable discounts and premiums totaled $722,000 and $956,000, respectively, as of March 31, 2021, compared to $1.1 million and $1.5 million, respectively, as of March 31, 2020. Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands): March 31, 2021 March 31, 2020 Commercial and construction Commercial business (1) $ 265,145 $ 179,029 Commercial real estate 543,467 507,871 Land 14,040 14,026 Multi-family 45,014 58,374 Real estate construction 16,990 64,843 Total commercial and construction 884,656 824,143 Consumer Real estate one-to-four family 56,405 83,150 Other installment 2,174 4,216 Total consumer 58,579 87,366 Total loans 943,235 911,509 Less: Allowance for loan losses 19,178 12,624 Loans receivable, net $ 924,057 $ 898,885 (1) SBA PPP loans totaled $93.4 million at March 31, 2021 and none at March 31, 2020. The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which there was no evidence of credit deterioration at their acquisition date and for which it was probable that the Company would be able to collect all contractually required payments, are referred to collectively as “loans”. The Company originates commercial business, commercial real estate, land, multi-family real estate, real estate construction, residential real estate and other consumer loans. At March 31, 2021 and 2020, the Company had no loans to foreign domiciled businesses or foreign countries, or loans related to highly leveraged transactions. Substantially all of the mortgage loans in the Company’s loan portfolio are secured by properties located in Washington and Oregon, and accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in the local economic conditions in these markets. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulations to 15% of the Bank’s shareholders’ equity, excluding accumulated other comprehensive income (loss) (“AOCI”). 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 March 31, 2021, loans carried at $486.7 million were pledged as collateral to the FHLB and FRB for borrowing arrangements. Aggregate loans to officers and directors, all of which are current, consist of the following for the periods indicated (in thousands): Year Ended March 31, 2021 2020 2019 Beginning balance $ 625 $ 778 $ 981 Originations 8,174 977 359 Principal repayments (3,491 ) (1,130 ) (562 ) Ending balance $ 5,308 $ 625 $ 778 82 Loan segment risk characteristics – The Company considers its loan classes to be the same as its loan segments. The following are loan segment risk characteristics of the Company’s loan portfolio: Commercial business – Commercial business loans, other than SBA PPP loans, are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers may be volatile and the value of the collateral securing these loans may be difficult to measure. Most commercial business loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and generally include a personal guarantee based on a review of personal financial statements. The Company will extend some short-term loans on an unsecured basis to highly qualified borrowers. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment, because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. Accordingly, the repayment of a commercial business loan depends primarily on the credit-worthiness of the borrower (and any guarantors), while the liquidation of collateral is a secondary and potentially insufficient source of repayment. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the management of the business and the credit-worthiness of the borrowers and the guarantors. Commercial real estate – The Company originates commercial real estate loans within its primary market areas secured by properties such as office buildings, warehouse/industrial, retail, assisted living, single purpose facilities, and other commercial properties. These are cash flow loans that share characteristics of both real estate and commercial business loans. The primary source of repayment is cash flow from the operation of the collateral property and secondarily through liquidation of the collateral. These loans are generally higher risk than other classifications of loans in that they typically involve higher loan amounts, are dependent on the management experience of the owners, and may be adversely affected by conditions in the real estate market or the economy. Owner-occupied commercial real estate loans are generally of lower credit risk than non-owner occupied commercial real estate loans as the borrowers' businesses are likely dependent on the properties. Underwriting for these loans is primarily dependent on the repayment capacity derived from the operation of the occupying business rather than rents paid by third-parties. The Company attempts to mitigate these risks by generally limiting the maximum loan-to-value ratio to 65%-80% depending on the property type and scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. Land – The Company has historically originated loans for the acquisition of raw land upon which the purchaser can then build or make improvements necessary to build or sell as improved lots. Currently, the Company is originating new land loans on a limited basis. Loans secured by undeveloped land or improved lots involve greater risks than one-to-four family residential mortgage loans because these loans are more difficult to evaluate. If the estimate of value proves to be inaccurate, in the event of default or foreclosure, the Company may incur a loss. The Company attempts to minimize this risk by generally limiting the maximum loan-to-value ratio on raw land loans to 65% and on improved land loans to 75%. Multi-family – The Company originates loans secured by multi-family dwelling units (more than four units). These loans involve a greater degree of risk than one-to-four family residential mortgage loans as these loans are usually greater in amount, dependent on the cash flow capacity of the project, and are more difficult to evaluate and monitor. Repayment of loans secured by multi-family properties typically depends on the successful operation and management of the properties. Consequently, repayment of such loans may be affected by adverse conditions in the real estate market or economy. The Company attempts to mitigate these risks by thoroughly evaluating the global financial condition of the borrower, the management experience of the borrower, and the quality of the collateral property securing the loan. Real estate construction- – The Company originates construction loans for one-to-four family residential, multi-family, and commercial real estate properties. The one-to-four family residential construction loans include construction of consumer custom homes whereby the home buyer is the borrower as well as speculative and presold loans for home builders. Speculative one-to four-family construction loans are loans for which the home builder does not have, at the time of the loan origination, a signed contract with a home buyer who has a commitment for permanent financing with the Company or another lender for the finished home. The home buyer may be identified either during or after the construction period. Multi-family construction loans are originated to construct apartment buildings and condominium projects. Commercial construction loans are originated to construct properties such as office buildings, retail rental space and mini-storage facilities, and assisted living facilities. All construction loans are short-term and generally the rate is variable in nature. Construction lending can involve a higher level of risk than other types of lending because funds are advanced based on a prospective value of the project at completion, the total estimated construction cost of 83 the project, and the borrowers’ equity at risk. Additionally, the repayment of the loan is conditional on the success of the ultimate project which is subject to interest rate changes, governmental regulations, general economic conditions and the ability of the borrower to sell or lease the property or refinance the indebtedness. If the Company’s estimate of the value of a project at completion proves to be overstated, it may have inadequate security for repayment of the loan and may incur a loss if the borrower does not repay the loan. Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors. Loans to construct homes for which no purchaser has been identified carry more risk because the payoff for the loan depends on the builder’s ability to sell the property prior to the time that the construction loan is due. Although the nature of real estate construction loans is such that they are generally more difficult to evaluate and monitor, the Company attempts to closely monitor the construction project by on-site inspections. The Company also attempts to mitigate the risks of construction lending by adhering to its underwriting policies, disbursement procedures and monitoring practices. Real estate one-to-four family – The Company originates both fixed-rate and adjustable-rate loans secured by one- to-four family residences located in its primary market areas. The majority of the fixed-rate one-to-four family loans are sold in the secondary market for asset/liability management purposes and to generate non-interest income. The Company’s lending policies generally limit the maximum loan-to-value on one-to-four family loans to 80% of the lesser of the appraised value or the purchase price. However, the Company usually obtains private mortgage insurance on the portion of the principal amount that exceeds 80% of the appraised value of the property. Terms of maturity typically range from 15 to 30 years. The Company also originates home equity lines of credit and second mortgage loans. Home equity lines of credit and second mortgage loans have a greater credit risk than one-to-four family residential mortgage loans because they are secured by mortgages subordinated to the existing first mortgage on the property, which may or may not be held by the Company. The Company attempts to mitigate residential lending risks by adhering to its underwriting policies in evaluating the collateral and the credit-worthiness of the borrower. Other installment – The Company originates other consumer loans, which include automobile, boat, motorcycle, recreational vehicle, savings account and unsecured loans. Other consumer loans generally have shorter terms to maturity than mortgage loans. Other consumer loans generally involve a greater degree of risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the credit-worthiness of the borrower. 5. ALLOWANCE FOR LOAN LOSSES The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands): March 31, 2021 Commercial Business Commercial Real Estate Land Multi- Family Real Estate Construction Consumer Unallocated Total Beginning balance $ 2,008 $ 6,421 $ 230 $ 854 $ 1,149 $ 1,363 $ 599 $ 12,624 Provision for (recapture of) loan losses 398 7,336 3 (216 ) (855 ) (423 ) 57 6,300 Charge-offs - - - - - (124 ) - (124 ) Recoveries 10 332 - - - 36 - 378 Ending balance $ 2,416 $ 14,089 $ 233 $ 638 $ 294 $ 852 $ 656 $ 19,178 March 31, 2020 Beginning balance $ 1,808 $ 5,053 $ 254 $ 728 $ 1,457 $ 1,447 $ 710 $ 11,457 Provision for (recapture of) loan losses 264 1,368 (24 ) 126 (308 ) (65 ) (111 ) 1,250 Charge-offs (64 ) - - - - (82 ) - (146 ) Recoveries - - - - - 63 - 63 Ending balance $ 2,008 $ 6,421 $ 230 $ 854 $ 1,149 $ 1,363 $ 599 $ 12,624 March 31, 2019 Beginning balance $ 1,668 $ 4,914 $ 220 $ 822 $ 618 $ 1,809 $ 715 $ 10,766 Provision for (recapture of) loan losses 139 (685 ) 34 (94 ) 839 (178 ) (5 ) 50 Charge-offs - - - - - (291 ) - (291 ) Recoveries 1 824 - - - 107 - 932 Ending balance $ 1,808 $ 5,053 $ 254 $ 728 $ 1,457 $ 1,447 $ 710 $ 11,457 84 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 March 31, 2021 Individually Evaluated for Impairment Collectively Evaluated for Impairment Total Individually Evaluated for Impairment Collectively Evaluated for Impairment Total Commercial business $ - $ 2,416 $ 2,416 $ 120 $ 265,025 $ 265,145 Commercial real estate - 14,089 14,089 1,468 541,999 543,467 Land - 233 233 710 13,330 14,040 Multi-family - 638 638 753 44,261 45,014 Real estate construction - 294 294 - 16,990 16,990 Consumer 11 841 852 530 58,049 58,579 Unallocated - 656 656 - - - Total $ 11 $ 19,167 $ 19,178 $ 3,581 $ 939,654 $ 943,235 March 31, 2020 Commercial business $ - $ 2,008 $ 2,008 $ 139 $ 178,890 $ 179,029 Commercial real estate - 6,421 6,421 2,378 505,493 507,871 Land - 230 230 714 13,312 14,026 Multi-family - 854 854 1,549 56,825 58,374 Real estate construction - 1,149 1,149 - 64,843 64,843 Consumer 12 1,351 1,363 432 86,934 87,366 Unallocated - 599 599 - - - Total $ 12 $ 12,612 $ 12,624 $ 5,212 $ 906,297 $ 911,509 Changes in the allowance for unfunded loan commitments were as follows for the years indicated (in thousands): Year Ended March 31, 2021 2020 2019 Beginning balance $ 474 $ 469 $ 480 Net change in allowance for unfunded loan commitments 35 5 (11 ) Ending balance $ 509 $ 474 $ 469 The following tables present an analysis of loans by aging category at the dates indicated (in thousands): March 31, 2021 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 $ 98 $ 175 $ 182 $ 455 $ 264,690 $ 265,145 Commercial real estate - - 144 144 543,323 543,467 Land - - - - 14,040 14,040 Multi-family - - - - 45,014 45,014 Real estate construction - - - - 16,990 16,990 Consumer 143 1 69 213 58,366 58,579 Total $ 241 $ 176 $ 395 $ 812 $ 942,423 $ 943,235 March 31, 2020 Commercial business $ - $ - $ 201 $ 201 $ 178,828 $ 179,029 Commercial real estate - - 1,014 1,014 506,857 507,871 Land - - - - 14,026 14,026 Multi-family - - - - 58,374 58,374 Real estate construction - - - - 64,843 64,843 Consumer 271 - 180 451 86,915 87,366 Total $ 271 $ - $ 1,395 $ 1,666 $ 909,843 $ 911,509 Interest income foregone on non-accrual loans was $49,000, $75,000 and $94,000 for the years ended March 31, 2021, 2020 and 2019, respectively. 85 Credit quality indicators – The Company monitors credit risk in its loan portfolio using a risk rating system (on a scale of one to nine) for all commercial (non-consumer) loans. The risk rating system is a measure of the credit risk of the borrower based on their historical, current and anticipated future financial characteristics. The Company assigns a risk rating to each commercial loan at origination and subsequently updates these ratings, as necessary, so that the risk rating continues to reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earnings trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its allowance for loan losses. Pass – These loans have a risk rating between 1 and 4 and are to borrowers that meet normal credit standards. Any deficiencies in satisfactory asset quality, liquidity, debt servicing capacity and coverage are offset by strengths in other areas. The borrower currently has the capacity to perform according to the loan terms. Any concerns about risk factors such as stability of margins, stability of cash flows, liquidity, dependence on a single product/supplier/customer, depth of management, etc. are offset by strengths in other areas. Typically, these loans are secured by the operating assets of the borrower and/or real estate. The borrower’s management is considered competent. The borrower has the ability to repay the debt in the normal course of business. Watch – These loans have a risk rating of 5 and are included in the “pass” rating. However, there would typically be some reason for additional management oversight, such as the borrower’s recent financial setbacks and/or deteriorating financial position, industry concerns and failure to perform on other borrowing obligations. Loans with this rating are monitored closely in an effort to correct deficiencies. Special mention – These loans have a risk rating of 6 and are rated in accordance with regulatory guidelines. These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the credit position at some future date. These loans pose elevated risk but their weakness does not yet justify a “substandard” classification. Substandard – These loans have a risk rating of 7 and are rated in accordance with regulatory guidelines, for which the accrual of interest may or may not be discontinued. By definition under regulatory guidelines, a “substandard” loan has defined weaknesses which make payment default or principal exposure likely but not yet certain. Repayment of such loans is likely to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business. Doubtful – These loans have a risk rating of 8 and are rated in accordance with regulatory guidelines. Such loans are placed on non-accrual status and repayment may be dependent upon collateral which has value that is difficult to determine or upon some near-term event which lacks certainty. 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. 86 The following tables present an analysis of loans by credit quality indicators at the dates indicated (in thousands): March 31, 2021 Pass Special Mention Substandard Doubtful Loss Total Loans Receivable Commercial business $ 264,564 $ 399 $ 182 $ - $ - $ 265,145 Commercial real estate 494,010 42,045 7,412 - - 543,467 Land 14,040 - - - - 14,040 Multi-family 44,941 49 24 - - 45,014 Real estate construction 16,990 - - - - 16,990 Consumer 58,510 - 69 - - 58,579 Total $ 893,055 $ 42,493 $ 7,687 $ - $ - $ 943,235 March 31, 2020 Commercial business $ 177,399 $ 1,282 $ 348 $ - $ - $ 179,029 Commercial real estate 506,794 63 1,014 - - 507,871 Land 14,026 - - - - 14,026 Multi-family 58,295 45 34 - - 58,374 Real estate construction 64,843 - - - - 64,843 Consumer 87,186 - 180 - - 87,366 Total $ 908,543 $ 1,390 $ 1,576 $ - $ - $ 911,509 Impaired loans – The following tables present information regarding impaired loans at the dates and for the years indicated (in thousands): March 31, 2021 Recorded Investment with No Specific Valuation Allowance Recorded Investment with Specific Valuation Allowance Total Recorded Investment Unpaid Principal Balance Related Specific Valuation Allowance Commercial business $ 120 $ - $ 120 $ 157 $ - Commercial real estate 1,468 - 1,468 1,556 - Land 710 - 710 740 - Multi-family 753 - 753 856 - Consumer 278 252 530 643 11 Total $ 3,329 $ 252 $ 3,581 $ 3,952 $ 11 March 31, 2020 Commercial business $ 139 $ - $ 139 $ 170 $ - Commercial real estate 2,378 - 2,378 3,405 - Land 714 - 714 748 - Multi-family 1,549 - 1,549 1,662 - Consumer 295 137 432 543 12 Total $ 5,075 $ 137 $ 5,212 $ 6,528 $ 12 Year ended March 31, 2021 Year ended March 31, 2020 Year ended March 31, 2019 Average Recorded Investment Interest Recognized on Impaired Loans Average Recorded Investment Interest Recognized on Impaired Loans Average Recorded Investment Interest Recognized on Impaired Loans Commercial business $ 130 $ - $ 150 $ 62 $ 334 $ - Commercial real estate 2,008 61 2,420 40 2,607 64 Land 713 40 720 90 742 7 Multi-family 1,313 77 1,573 - 1,620 88 Consumer 494 29 494 29 992 45 Total $ 4,658 $ 207 $ 5,357 $ 221 $ 6,295 $ 204 The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above tables. 87 TDRs and other loan modifications – TDRs are loans for which the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk. TDRs are considered impaired loans and as such, impairment is measured as described for impaired loans in Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses. The following table presents TDRs by interest accrual status at the dates indicated (in thousands): March 31, 2021 March 31, 2020 Accrual Nonaccrual Total Accrual Nonaccrual Total Commercial business $ - $ 120 $ 120 $ - $ 139 $ 139 Commercial real estate 1,324 144 1,468 1,364 1,014 2,378 Land 710 - 710 714 - 714 Multi-family 753 - 753 1,549 - 1,549 Consumer 530 - 530 432 - 432 Total $ 3,317 $ 264 $ 3,581 $ 4,059 $ 1,153 $ 5,212 At March 31, 2021, the Company had no commitments to lend additional funds on these loans. At March 31, 2021, all of the Company’s TDRs were paying as agreed. There was one new TDR for the year ended March 31, 2021. The new TDR is a consumer real estate loan secured by a one-to-four family property located in Northwest Oregon where the Company granted a deferral of principal, interest, and escrow payments. The recorded investment in the loan prior to modification and at March 31, 2021 was $129,000. There was one new TDR for the year ended March 31, 2020. This TDR is a consumer real estate loan secured by a 1-4 family property located in Southwest Washington, for which the Company granted a rate reduction and extended the maturity date by 10 years. The recorded investment in the loan prior to modification and at March 31, 2020 was $27,000 and $25,000, respectively. There were no new TDRs for the year ended March 31, 2019. In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by banking regulatory agencies provides that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. Loan modifications in accordance with the CARES Act are still subject to an impairment evaluation. See Note 1 – Summary of Significant Accounting Policies for more information. 6. PREMISES AND EQUIPMENT Premises and equipment consisted of the following at the dates indicated (in thousands): March 31, 2021 2020 Land $ 5,247 $ 4,531 Buildings and improvements 18,097 15,356 Leasehold improvements 3,123 1,666 Furniture and equipment 10,734 10,819 Construction in progress 32 3,245 Total 37,233 35,617 Less accumulated depreciation and amortization (19,409 ) (20,047 ) Premises and equipment, net $ 17,824 $ 15,570 Depreciation and amortization expense was $1.4 million, $1.3 million and $1.1 million for the years ended March 31, 2021, 2020 and 2019, respectively. 88 7. GOODWILL Goodwill and certain other intangibles generally arise from business combinations accounted for under the purchase method of accounting. Goodwill and other intangibles deemed to have indefinite lives generated from business combinations are not subject to amortization and are instead tested for impairment not less than annually. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been allocated to the Bank reporting unit. The Company performed its annual impairment assessment as of October 31, 2020 and determined that no impairment of goodwill exists. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to progress to the second step. In the second step, the Company calculates the implied fair value of goodwill and compares the implied fair value of goodwill to the carrying amount of goodwill in the Company’s consolidated balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value, and, therefore, a step two analysis was not required; however, no assurance can be given that the Company’s goodwill will not be written down in future periods. As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company 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. 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. Any impairment charge could have a material adverse effect on our results of operations and financial condition. 8. DEPOSITS Deposit accounts consisted of the following at the dates indicated (in thousands): Account Type March 31, 2021 March 31, 2020 Non-interest-bearing $ 435,098 $ 271,031 Interest-bearing checking 258,014 187,798 Money market 240,554 169,798 Savings accounts 291,769 226,880 Certificates of deposit 120,625 134,941 Total $ 1,346,060 $ 990,448 Individual certificates of deposit in amounts of $250,000 or more totaled $31.7 million and $35.9 million at March 31, 2021 and 2020, respectively. Scheduled maturities of certificates of deposit for future years ending March 31 are as follows (in thousands): Year Ending March 31: 2022 $ 83,948 2023 26,635 2024 5,988 2025 2,586 2026 999 Thereafter 469 Total $ 120,625 Interest expense by deposit type was as follows for the years indicated (in thousands): Year Ended March 31, 2021 2020 2019 Interest-bearing checking $ 85 $ 100 $ 101 Money market 153 229 302 Savings accounts 418 1,054 145 Certificates of deposit 1,888 1,507 448 Total $ 2,544 $ 2,890 $ 996 89 9. FEDERAL HOME LOAN BANK ADVANCES The Bank did not have any outstanding FHLB advances at both March 31, 2021 and 2020. During the years ended March 31, 2021 and 2020, all outstanding FHLB advances were paid off and the weighted average interest rates on the borrowing activity related to FHLB advances were 0.31% and 2.54% for the years ended March 31, 2021 and 2020, respectively. The Bank has a credit line with the FHLB equal to 45% of total assets, limited by available collateral. At March 31, 2021, based on collateral values, the Bank had additional borrowing capacity of $226.7 million from the FHLB. FHLB advances are collateralized with the FHLB by certain investment and mortgage-backed securities, FHLB stock owned by the Bank, deposits with the FHLB, and certain mortgages on deeds of trust securing such properties as provided in the agreements with the FHLB. At March 31, 2021, loans carried at $388.2 million were pledged as collateral to the FHLB. 10. JUNIOR SUBORDINATED DEBENTURES The Company has wholly-owned subsidiary grantor trusts that were established for the purpose of issuing trust preferred securities and common securities. The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts. The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock. The Debentures issued by the Company to the grantor trusts, totaling $26.7 million at both March 31, 2021 and 2020, respectively, are reported as “junior subordinated debentures” in the consolidated balance sheets. The common securities issued by the grantor trusts were purchased by the Company, and the Company’s investment in the common securities of $836,000 at both March 31, 2021 and 2020, is included in prepaid expenses and other assets in the consolidated balance sheets. The Company records interest expense on the Debentures in the consolidated statements of income. The following table is a summary of the terms and the amounts outstanding of the Debentures at March 31, 2021 (dollars in thousands): Issuance Trust Issuance Date Amount Outstanding Rate Type Initial Rate Current Rate Maturity Date Riverview Bancorp Statutory Trust I 12/2005 $ 7,217 Variable (1) 5.88 % 1.54 % 3/2036 Riverview Bancorp Statutory Trust II 06/2007 15,464 Variable (2) 7.03 % 1.53 % 9/2037 Merchants Bancorp Statutory Trust I (4) 06/2003 5,155 Variable (3) 4.16 % 3.30 % 6/2033 27,836 Fair value adjustment (4) (1,088 ) Total Debentures $ 26,748 (1) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.36%. (2) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.35%. (3) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 3.10%. (4) Amount, net of accretion, attributable to a prior year’s business combination. 90 11. INCOME TAXES Provision for income taxes consisted of the following for the periods indicated (in thousands): Year Ended March 31 2021 2020 2019 Current $ 4,410 $ 5,404 $ 5,157 Deferred (1,429 ) (574 ) (11 ) Total $ 2,981 $ 4,830 $ 5,146 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows at the dates indicated (in thousands): March 31, 2021 March 31, 2020 Deferred tax assets: Deferred compensation $ 75 $ 63 Allowance for loan losses 4,725 3,143 Accrued expenses 212 137 Accumulated depreciation and amortization 862 935 Deferred gain on sale 90 129 Purchase accounting 101 123 Net unrealized loss on investment securities available for sale 50 - Operating lease liabilities 2,204 971 Other 412 352 Total deferred tax assets 8,731 5,853 Deferred tax liabilities: FHLB stock dividend (38 ) (38 ) Prepaid expenses (214 ) (84 ) Operating lease right-of-use assets (2,108 ) (947 ) Net unrealized gain on investment securities available for sale - (663 ) Loan fees/costs (952 ) (844 ) Total deferred tax liabilities (3,312 ) (2,576 ) Deferred tax assets, net $ 5,419 $ 3,277 A reconciliation of the Company’s effective income tax rate with the federal statutory tax rate is as follows for the years indicated: Year Ended March 31, 2021 2020 2019 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % State and local income tax rate 3.0 3.0 3.0 ESOP market value adjustment (0.1 ) (0.1 ) (0.1 ) BOLI (1.5 ) (1.0 ) (0.8 ) Other, net (0.3 ) 0.6 (0.1 ) Effective federal income tax rate 22.1 % 23.5 % 23.0 % For the fiscal years ended 2021 and 2020, the Company utilized a federal corporate income tax rate of 21.0%. The Bank’s retained earnings at both March 31, 2021 and 2020 include a base year allowance for loan losses, which amounted to $2.2 million, for which no federal income tax liability has been recognized. The related unrecognized deferred tax liability at March 31, 2021 and 2020 was $528,000. This represents the balance of the allowance for loan losses created for tax purposes as of December 31, 1987. This amount is subject to recapture in the unlikely event that the Company’s banking subsidiaries (1) make distributions in excess of current and accumulated earnings and profits, as calculated for federal tax purposes, (2) redeem their stock, or (3) liquidate. Management does not expect this temporary difference to reverse in the foreseeable future. At March 31, 2021 and 2020, the Company had no unrecognized tax benefits or uncertain tax positions. In addition, the Company had no accrued interest or penalties related to income tax matters as of March 31, 2021 and 2020. It is the Company’s policy to recognize potential accrued interest and penalties related to income tax matters as a component of the provision for income taxes. The Company is subject to U.S federal and State of Oregon income taxes. The years 2018 to 2020 remain open to examination for federal income taxes, and the years 2017 to 2020 remain open to State of Oregon examination. 91 12. EMPLOYEE BENEFIT PLANS Retirement Plan – The Riverview Bancorp, Inc. Employees’ Savings and Profit Sharing Plan (the “Plan”) is a defined contribution profit-sharing plan incorporating the provisions of Section 401(k) of the Internal Revenue Code. Company expenses related to the Plan for the years ended March 31, 2021, 2020 and 2019 were $525,000, $561,000 and $527,000, respectively. Directors’ and Executive Officers’ Deferred Compensation Plan (“Deferred Compensation Plan”) – The Deferred Compensation Plan is a nonqualified deferred compensation plan. Directors may elect to defer their monthly directors’ fees until retirement with no income tax payable by the director until retirement benefits are received. The Chairman, President, and Executive and Senior Vice Presidents of the Company may also defer salary into the Deferred Compensation Plan. The Company accrues annual interest on the unfunded liability under the Deferred Compensation Plan based upon a formula relating to gross revenues, which was 3.61%, 4.46% and 4.28% for the years ended March 31, 2021, 2020 and 2019, respectively. The estimated liability under the Deferred Compensation Plan is accrued as earned by the participants. At March 31, 2021 and 2020, the Company’s aggregate liability under the Deferred Compensation Plan was $312,000 and $263,000, respectively, which is recorded in accrued expenses and other liabilities in the accompanying consolidated balance sheets. Stock Option Plans – In July 2003, shareholders of the Company approved the adoption of the 2003 Stock Option Plan (“2003 Plan”). The 2003 Plan was effective in July 2003 and expired in July 2013. Accordingly, no further option awards may be granted under the 2003 Plan; however, any awards granted prior to their respective expiration dates remain outstanding subject to their terms. Each option granted under the 2003 Plan has an exercise price equal to the fair market value of the Company’s common stock on the date of the grant, a maximum term of ten years and a vesting period from zero to five years. In July 2017, the shareholders of the Company approved the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (“2017 Plan”). The 2017 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock and restricted stock units. The Company has reserved 1,800,000 shares of its common stock for issuance under the 2017 Plan. The 2003 Plan and the 2017 Plan are collectively referred to as “the Stock Option Plans.” The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes stock option valuation model. The fair value of all awards is amortized on a straight-line basis over the requisite service periods, which are generally the vesting periods. The expected life of options granted represents the period of time that they are expected to be outstanding. The expected life is determined based on historical experience with similar options, giving consideration to the contractual terms and vesting schedules. Expected volatility is estimated at the date of grant based on the historical volatility of the Company’s common stock. Expected dividends are based on dividend trends and the market value of the Company’s common stock at the time of grant. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no stock options granted during the years ended March 31, 2021, 2020 and 2019 under the Stock Option Plans. As of March 31, 2021, all outstanding stock options were fully vested and there was no remaining unrecognized compensation expense related to stock options granted under the Stock Option Plans. There was no stock-based compensation expense related to stock options for the years ended March 31, 2021, 2020 and 2019 under the Stock Option Plans. 92 The following table presents the activity related to stock options under the Stock Option Plans for the years indicated: Year Ended March 31, 2021 2020 2019 Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Balance, beginning of year 43,332 $ 2.69 101,332 $ 3.26 141,365 $ 3.77 Options exercised (20,000 ) 2.58 (58,000 ) 3.69 (37,533 ) 4.84 Options expired - - - - (2,500 ) 8.12 Balance, end of year 23,332 $ 2.78 43,332 $ 2.69 101,332 $ 3.26 Additional information regarding stock options outstanding as of March 31, 2021 is as follows: ` Options Outstanding Options Exercisable Weighted Avg Weighted Weighted Remaining Average Average Range of Contractual Exercise Exercise Exercise Price Life (years) Number Price Number Price $1.00 - $3.00 2.29 23,332 $ 2.78 23,332 $ 2.78 The following table presents information on stock options outstanding, less estimated forfeitures, as of March 31, 2021 and 2020: March 31, 2021 March 31, 2020 Stock options fully vested and expected to vest: Number 23,332 43,332 Weighted average exercise price $ 2.78 $ 2.69 Aggregate intrinsic value (1) $ 97,000 $ 101,000 Weighted average contractual term of options (years) 2.29 2.80 Stock options fully vested and currently exercisable: Number 23,332 43,332 Weighted average exercise price $ 2.78 $ 2.69 Aggregate intrinsic value (1) $ 97,000 $ 101,000 Weighted average contractual term of options (years) 2.29 2.80 (1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price) that would have been received by the option holders had all option holders exercised. This amount changes based on changes in the market value of the Company’s stock. The total intrinsic value of stock options exercised was $68,000, $238,000 and $153,000 for the years ended March 31, 2021, 2020 and 2019, respectively. During the year ended March 31, 2021, the Company granted a total of 90,763 shares of restricted stock pursuant to the 2017 Plan of which vesting for 19,453 shares of restricted stock were time based and vesting for 71,310 shares of restricted stock were performance based subject to attaining certain performance metrics. During the year ended March 31, 2020, the Company granted a total of 82,673 shares of restricted stock pursuant to the 2017 Plan of which vesting for 49,298 shares of restricted stock were time based and vesting for 33,375 shares of restricted stock were performance based subject to attaining certain performance metrics. The Company cancelled 7,913 shares of performance-based restricted stock during the year ended March 31, 2021. The fair value of restricted stock awards is equal to the fair value of the Company’s stock on the date of grant. The related stock-based compensation expense is recorded over the requisite service period. Stock-based compensation related to restricted stock was $352,000 and $302,000 for the years ended March 31, 2021 and 2020, respectively. There was no stock-based compensation related to restricted stock for the year ended March 31, 2019. The unrecognized stock-based compensation related to restricted stock was $348,000 and $323,000 at March 31, 2021 and 2020. The weighted average vesting period for the restricted stock was 1.63 years and 1.68 years at March 31, 2021 and 2020, respectively. 93 The following table presents the activity related to restricted stock for the year ended March 31, 2021 : Time-Based Performance-Based Total Number of Unvested Shares Weighted Average Market Price Number of Unvested Shares Weighted Average Market Price Number of Unvested Shares Weighted Average Market Price Balance, beginning of period 49,298 $ 8.35 33,375 $ 8.35 82,673 $ 8.35 Granted 19,453 4.17 71,310 4.17 90,763 4.17 Forfeited - - - - - - Vested (23,135 ) 8.35 - - (23,135 ) 8.35 Cancelled - - (7,913 ) 8.35 (7,913 ) 8.35 Balance, end of period 45,616 $ 6.57 96,772 $ 5.27 142,388 $ 5.69 Employee Stock Ownership Plan - The Company sponsors an ESOP that covers all employees with at least one year and 1,000 hours of service who are over the age of 21. For the years ended March 31, 2021, 2020 and 2019, the Bank purchased 5,354, 43,545 and 25,000 shares of common stock, respectively, on the open market and contributed such shares to the ESOP as a discretionary employer contribution. As of March 31, 2021, all shares of common stock purchased for the ESOP have been allocated to participant accounts. As of March 31, 2020, there were approximately 19,000 shares, which had not been allocated to participant accounts under the Company’s ESOP. As of March 31, 2019, there were an insignificant number of shares which had not been allocated to participant accounts under the Company’s ESOP. The Company recorded employee benefits expense of $96,000, $195,000 and $197,000 for these contributions for the years ended March 31, 2021, 2020 and 2019, respectively, which represented the fair value of the related common stock on the date it was acquired. Shares held by the ESOP at March 31, 2021 and 2020 totaled 394,316 and 410,045, respectively. Trust Company Stock Options – At March 31, 2021 and 2020, there were 500 and 1,000 Trust Company stock options outstanding, respectively, which had been granted to the President and Chief Executive Officer of the Trust Company. During each of the years ended March 31, 2021 and 2020, the Trust Company incurred $44,000 of stock-based compensation expense related to these options. For the years ended March 31, 2021 and 2020, 500 and 1,500 Trust Company stock options were exercised, respectively. There were no Trust Company stock options granted during the years ended March 31, 2021, 2020 and 2019. 13. SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL REQUIREMENTS The Bank is a state-chartered, federally insured institution subject to various regulatory capital requirements administered by the FDIC . Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements . Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and tier I capital to risk-weighted assets, core capital to total assets and tangible capital to tangible assets (set forth in the table below). Management believes the Bank met all capital adequacy requirements to which it was subject as of March 31, 2021. 94 As of March 31, 2021, the Bank was categorized as “well capitalized” under the FDIC’s regulatory framework for prompt corrective action. The Bank’s actual and required minimum capital amounts and ratios were as follows at the dates indicated (dollars in thousands): Actual For Capital Adequacy Purposes “Well Capitalized” Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio March 31, 2021 Total Capital: (To Risk-Weighted Assets) $ 151,555 17.35 % $ 69,879 8.0 % $ 87,349 10.0 % Tier 1 Capital: (To Risk-Weighted Assets) 140,529 16.09 52,409 6.0 69,879 8.0 Common equity tier 1 Capital: (To Risk-Weighted Assets) 140,529 16.09 39,307 4.5 56,777 6.5 Tier 1 Capital (Leverage): (To Average Tangible Assets) 140,529 9.63 58,344 4.0 72,930 5.0 Actual For Capital Adequacy Purposes “Well Capitalized” Under Prompt Corrective Action March 31, 2020 Amount Ratio Amount Ratio Amount Ratio Total Capital: (To Risk-Weighted Assets) $ 145,949 17.01 % $ 68,630 8.0 % $ 85,787 10.0 % Tier 1 Capital: (To Risk-Weighted Assets) 135,196 15.76 51,472 6.0 68,630 8.0 Common equity tier 1 Capital: (To Risk-Weighted Assets) 135,196 15.76 38,604 4.5 55,762 6.5 Tier 1 Capital (Leverage): (To Average Tangible Assets) 135,196 11.79 45,851 4.0 57,313 5.0 In addition to the minimum common equity tier 1 (“CET1”), Tier 1 and total capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. The capital conservation buffer is required to be an amount greater than 2.5% of risk-weighted assets. As of March 31, 2021, the Bank’s CET1 capital exceeded the required capital conservation buffer at an amount greater than 2.5%. For a bank holding company, such as the Company, the capital guidelines apply on a bank only basis. The Federal Reserve expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If the Company was subject to regulatory guidelines for bank holding companies at March 31, 2021, the Company would have exceeded all regulatory capital requirements. At periodic intervals, the Company’s banking regulators routinely examine the Company’s financial condition and risk management processes as part of their legally prescribed oversight. Based on their examinations, these regulators can direct that the Company’s consolidated financial statements be adjusted in accordance with their findings. A future examination could include a review of certain transactions or other amounts reported in the Company’s 2021 consolidated financial statements. 14. EARNINGS PER SHARE Basic earnings per share (“EPS”) is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Nonvested shares of restricted stock are included in the computation of basic EPS because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. Diluted EPS is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period. Common stock equivalents arise from the assumed exercise of outstanding stock options. For the years ended March 31, 2021, 2020 and 2019, there were no stock options excluded in computing diluted EPS. 95 In February 2020, the Company’s Board of Directors adopted a stock repurchase program (the “repurchase program”). Under the repurchase program, the Company was authorized to repurchase up to 500,000 shares of the Company’s outstanding shares of common stock, in the open market based on prevailing market prices, or in private negotiated transactions, during the period from March 12, 2020 until the earlier of the completion of the repurchase of 500,000 shares of the Company’s common stock or the next six months, depending on market conditions. As of March 31, 2020, the Company had repurchased 204,100 shares under the repurchase program at an average price of $4.94 per share. As of April 17, 2020, the Company had repurchased the remaining 295,900 shares at an average price of $4.85 per share. The Company did not repurchase any shares of its common stock during the year ended March 31, 2019. The following table presents a reconciliation of the components used to compute basic and diluted EPS for the years indicated: Year Ended March 31, (Dollars and share data in thousands, except per share data) 2021 2020 2019 Basic EPS computation: Numerator-net income $ 10,472 $ 15,748 $ 17,266 Denominator-weighted average common shares outstanding 22,296 22,708 22,588 Basic EPS $ 0.47 $ 0.69 $ 0.76 Diluted EPS computation: Numerator-net income $ 10,472 $ 15,748 $ 17,266 Denominator-weighted average common shares outstanding 22,296 22,708 22,588 Effect of dilutive stock options 17 36 72 Weighted average common shares and common stock equivalents 22,313 22,744 22,660 Diluted EPS $ 0.47 $ 0.69 $ 0.76 15. FAIR VALUE MEASUREMENTS Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are: Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means. Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. Financial instruments are presented in the tables that follow by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the consolidated financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, as a result of an event or circumstance, were required to be remeasured at fair value after initial recognition in the consolidated financial statements at some time during the reporting period. 96 The following tables present assets that are measured at estimated fair value on a recurring basis at the dates indicated (in thousands): Estimated Fair Value Measurements Using March 31, 2021 Total Estimated Fair Value Level 1 Level 2 Level 3 Investment securities available for sale: Municipal securities $ 23,566 $ - $ 23,566 $ - Agency securities 25,315 - 25,315 - Real estate mortgage investment conduits 55,815 - 55,815 - Residential mortgage-backed securities 72,248 - 72,248 - Other mortgage-backed securities 39,360 - 39,360 - Total assets measured at fair value on a recurring basis $ 216,304 $ - $ 216,304 $ - Estimated Fair Value Measurements Using March 31, 2020 Total Estimated Fair Value Level 1 Level 2 Level 3 Investment securities available for sale: Municipal securities $ 4,877 $ - $ 4,877 $ - Agency securities 6,016 - 6,016 - Real estate mortgage investment conduits 43,791 - 43,791 - Residential mortgage-backed securities 60,085 - 60,085 - Other mortgage-backed securities 33,522 - 33,522 - Total assets measured at fair value on a recurring basis $ 148,291 $ - $ 148,291 $ - There were no transfers of assets into or out of Levels 1, 2 or 3 during the years ended March 31, 2021 and 2020. The following methods were used to estimate the fair value of investment securities in the above table: Investment securities are included within Level 1 of the hierarchy when quoted prices in an active market for identical assets are available. The Company uses a third-party pricing service to assist the Company in determining the fair value of its Level 2 securities, which incorporates pricing models and/or quoted prices of investment securities with similar characteristics. Investment securities are included within Level 3 of the hierarchy when there are significant unobservable inputs. For Level 2 securities, the independent pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data from market research publications. The Company’s third-party pricing service has established processes for the Company to submit inquiries regarding the estimated fair value. In such cases, the Company’s third-party pricing service will review the inputs to the evaluation in light of any new market data presented by the Company. The Company’s third-party pricing service may then affirm the original estimated fair value or may update the evaluation on a go-forward basis. Management reviews the pricing information received from the third-party pricing service through a combination of procedures that include an evaluation of methodologies used by the pricing service, analytical reviews and performance analysis of the prices against statistics and trends. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. As necessary, management compares prices received from the pricing service to discounted cash flow models or by performing independent valuations of inputs and assumptions similar to those used by the pricing service in order to help ensure prices represent a reasonable estimate of fair value. 97 The following tables present assets that are measured at estimated fair value on a nonrecurring basis at the dates indicated (in thousands): Estimated fair value measurements using March 31, 2021 Total estimated fair value Level 1 Level 2 Level 3 Impaired loans $ 241 $ - $ - $ 241 March 31, 2020 Impaired loans $ 125 $ - $ - $ 125 The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at March 31, 2021 and 2020: Valuation technique Significant unobservable inputs Range Impaired loans Appraised value Discounted cash flows Adjustment for market conditions Discount rate N/A (1) 5.375% - 8.000% ( 1) There were no adjustments to appraised values of impaired loans as of March 31, 2021 and 2020. For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses. In determining the estimated net realizable value of the underlying collateral, the Company primarily uses third-party appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions. Impaired loans are reviewed and evaluated quarterly for additional impairment and adjusted accordingly based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions. The following disclosure of the estimated fair value of financial instruments is made in accordance with GAAP. The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair value amounts. However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in the future. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. 98 The carrying amounts and estimated fair values of financial instruments are as follows at the dates indicated (in thousands): March 31, 2021 Carrying Amount Level 1 Level 2 Level 3 Estimated Fair Value Assets: Cash and cash equivalents $ 265,408 $ 265,408 $ - $ - $ 265,408 Certificates of deposit held for investment 249 - 262 - 262 Investment securities available for sale 216,304 - 216,304 - 216,304 Investment securities held to maturity 39,574 - 38,220 - 38,220 Loans receivable, net 924,057 - - 920,102 920,102 FHLB stock 1,722 - 1,722 - 1,722 Liabilities: Certificates of deposit 120,625 - 121,610 - 121,610 Junior subordinated debentures 26,748 - - 14,434 14,434 March 31, 2020 Assets: Cash and cash equivalents $ 41,968 $ 41,968 $ - $ - $ 41,968 Certificates of deposit held for investment 249 - 258 - 258 Loans held for sale 275 - 275 - 275 Investment securities available for sale 148,291 - 148,291 - 148,291 Investment securities held to maturity 28 - 28 - 28 Loans receivable, net 898,885 - - 889,398 889,398 FHLB stock 1,420 - 1,420 - 1,420 Liabilities: Certificates of deposit 134,941 - 136,997 - 136,997 Junior subordinated debentures 26,662 - - 12,127 12,127 Fair value estimates were based on existing financial instruments without attempting to estimate the value of anticipated future business. The fair value was not estimated for assets and liabilities that were not considered financial instruments. 16. REVENUE FROM CONTRACTS WITH CUSTOMERS In accordance with ASC Topic 606 “Revenues from Contracts with Customers” (“ASC 606”), revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Company expects to be entitled to receive. The largest portion of the Company’s revenue is from interest income, which is not within the scope of ASC 606. All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of REO, which are included in non-interest expense. If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue as it satisfies a performance obligation. Payments from customers are generally collected at the time services are rendered, monthly, or quarterly. For contracts with customers within the scope of ASC 606, revenue is either earned at a point in time or revenue is earned over time. Examples of revenue earned at a point in time are automated teller machine (“ATM”) transaction fees, wire transfer fees, overdraft fees and interchange fees. Revenue earned at a point in time is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by the Company’s systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer’s transaction. The Company is generally the principal in these contracts, with the exception of interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal. Examples of revenue earned over time, which generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust and investment management fees and safe deposit box fees. Revenue is generally derived from transactional information accumulated by the Company’s systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer. 99 Disaggregation of Revenue The following table includes the Company’s non-interest income disaggregated by type of service (in thousands): Year Ended March 31 2021 2020 2019 Asset management fees $ 3,646 $ 4,408 $ 3,791 Debit card and ATM fees 3,103 3,102 3,104 Deposit related fees 1,514 2,212 1,721 Loan related fees 1,229 605 507 BOLI (1) 813 864 734 Net gains on sales of loans held for sale (1) 28 252 317 FHLMC loan servicing fees (1) 94 147 141 Other, net 663 770 792 Total non-interest income $ 11,090 $ 12,360 $ 11,107 (1) Not within the scope of ASC 606 For the years ended March 31, 2021, 2020 and 2019, substantially all of the Company’s revenues within the scope of ASC 606 are for performance obligations satisfied at a point in time. Revenues recognized within the scope of ASC 606 Asset management fees : Asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and amounts invested by clients through the Trust Company. Asset management fees are recognized over the period that services are provided, and when the portfolio values are known or can be estimated at the end of each quarter. Debit card and ATM fees : Debit and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the MasterCard® payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income. Deposit related fees : Fees are earned on the Bank’s deposit accounts for various products offered to or services performed for the Bank’s customers. Fees include business account fees, non-sufficient fund fees, stop payment fees, wire services, safe deposit box and others. These fees are recognized on a daily, monthly or quarterly basis, depending on the type of service. Loan related fees : Non-interest loan fee income is earned on loans that the Bank services, excluding loans serviced for the FHLMC which are not within the scope of ASC 606. Loan related fees include prepayment fees, late charges, brokered loan fees, maintenance fees and others. These fees are recognized on a daily, monthly, quarterly or annual basis, depending on the type of service. Other : Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle. Contract Balances As of March 31, 2021 and 2020, the Company had no significant contract liabilities where the Company had an obligation to transfer goods or services for which the Company had already received consideration. In addition, the Company had no material unsatisfied performance obligations as of March 31, 2021 and 2020. 100 17. COMMITMENTS AND CONTINGENCIES Off-balance sheet arrangements – In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts 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. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies and is required in instances where the Company deems it necessary. Significant off-balance sheet commitments are listed below at the dates indicated (in thousands): Contract or Notional Amount March 31, 2021 March 31, 2020 Commitments to originate loans: Adjustable-rate $ 6,156 $ 18,712 Fixed-rate 6,522 17,085 Standby letters of credit 1,999 2,045 Undisbursed loan funds and unused lines of credit 134,781 122,840 Total $ 149,458 $ 160,682 At March 31, 2021, the Company had no commitments to sell residential loans to the FHLMC. Other Contractual Obligations – In connection with certain asset sales, the Company typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Company may have an obligation to repurchase the assets or indemnify the purchaser against loss. At March 31, 2021, loans under warranty totaled $63.3 million, which substantially represents the unpaid principal balance of the Company’s loans serviced for the FHLMC. The Company believes that the potential for loss under these arrangements is remote. At March 31, 2021, the Company had an allowance for FHLMC loans of $12,000. The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof, and municipal corporations. In accordance with applicable state law, in the event of default of a participating bank, all other participating banks in the state collectively assure that no loss of funds are suffered by any public depositor. Generally, in the event of default by a public depository, the assessment attributable to all public depositories is allocated on a pro rata basis in proportion to the maximum liability of each depository as it existed on the date of loss. The Company has not incurred any losses related to public depository funds for the years ended March 31, 2021, 2020 and 2019. The Bank has entered into employment contracts with certain key employees, which provide for contingent payments subject to future events. 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 consolidated financial position, results of operations and cash flows. 101 18. LEASES The Company has a finance lease for the shell of the building constructed as the Company's operations center which expires in November 2039. The Company is also obligated under various noncancelable operating lease agreements for land, buildings and equipment that require future minimum rental payments. For operating each lease, the Company records an operating lease right-of-use asset (representing the right to use the underlying asset for the lease term) and an operating lease liability (representing the obligation to make lease payments required under the terms of the lease). Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate – derived from information available at the lease commencement date – as the discount rate when determining the present value of lease payments. The Company does not have any operating leases with an initial term of 12 months or less. Certain operating leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Certain operating leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term. Lease extensions are not reasonably certain and the Company generally does not include payments occurring during option periods in the calculation of its operating lease right-of-use assets and operating lease liabilities. The Company adopted the requirements of ASC 842 effective April 1, 2019, which required the Company to record in the consolidated balance sheet operating lease right-of-use (“ROU”) assets and operating lease liabilities for leases with an initial term of more than 12 months for leases that existed as of April 1, 2019. The periods prior to the date of adoption are accounted for under superseded ASC 840; therefore, the following disclosures include only the period for which ASC 842 was effective. The table below presents the ROU assets and lease liabilities recorded in the consolidated balance sheet at the dates indicated (in thousands): Leases March 31, 2021 March 31, 2020 Classification in the consolidated balance sheets Finance lease ROU assets $ 1,432 $ 1,508 Financing lease ROU assets Finance lease liability $ 2,329 $ 2,369 Finance lease liability Finance lease remaining lease term 18.68 years 19.68 years Finance lease discount rate 7.16 % 7.16 % Operating lease ROU assets $ 8,782 $ 3,949 Prepaid expenses and other assets Operating lease liabilities $ 9,201 $ 4,046 Accrued expenses and other liabilities Operating lease weighted-average remaining lease term 7.87 years 3.92 years Operating lease weighted-average discount rate 1.77 % 2.77 % The table below presents certain information related to the lease costs for operating leases, which are recorded in occupancy and depreciation in the accompanying consolidated statements of income at the dates indicated (in thousands): Lease Costs Year ended March 31, 2021 Year ended March 31, 2020 Finance lease amortization of right-of-use asset $ 77 $ 77 Finance lease interest on lease liability 168 171 Operating lease costs 1,312 1,508 Variable lease costs 209 209 Total lease cost (1) $ 1,766 $ 1,965 (1) income related to sub-lease activity is not significant and not presented herein. Rent expense was $2.0 million for the year ended March 31, 2019. Supplemental cash flow information - Operating cash flows paid for operating lease amounts included in the measurement of lease liabilities was $1.5 million and $1.7 million for the years ended March 31, 2021 and 2020, respectively. During the years ended March 31, 2021 and 2020, the Company recorded operating lease ROU assets that were exchanged for operating lease liabilities of $6.1 million and $5.6 million, respectively. 102 The following table reconciles the undiscounted cash flows for the periods presented related to the Company’s lease liabilities as of March 31, 2021 (in thousands): Years Ending March 31: Operating Leases Finance Lease 2022 $ 1,448 $ 212 2023 1,274 215 2024 1,290 219 2025 1,292 222 2026 1,040 226 Thereafter 3,527 3,174 Total minimum lease payments 9,871 4,268 Less: amount of lease payment representing interest (670 ) (1,939 ) Lease liabilities $ 9,201 $ 2,329 In March 2010, the Company sold two of its branch locations. The Company maintains a substantial continuing involvement in the locations through various non-cancellable operating leases that contain certain renewal options. The resulting gain on sale of $2.1 million was deferred and is being amortized over the lives of the respective leases. At March 31, 2021 and 2020, the remaining deferred gain was $377,000 and $537,000, respectively, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheet. 103 19. RIVERVIEW BANCORP, INC. (PARENT COMPANY ONLY) BALANCE SHEETS AS OF MARCH 31, 2021 AND 2020 (In thousands) 2021 2020 ASSETS Cash and cash equivalents $ 10,006 $ 10,269 Investment in the Bank 168,064 165,130 Other assets 1,454 1,440 TOTAL ASSETS $ 179,524 $ 176,839 LIABILITIES AND SHAREHOLDERS’ EQUITY Accrued expenses and other liabilities $ 64 $ 199 Dividend payable 1,118 1,135 Borrowings 26,748 26,662 Shareholders' equity 151,594 148,843 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 179,524 $ 176,839 STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019 (In thousands) 2021 2020 2019 INCOME: Interest on investment securities and other short-term investments $ 17 $ 33 $ 35 Total income 17 33 35 EXPENSE: Management service fees paid to the Bank 143 143 143 Other expenses 731 1,233 1,298 Total expense 874 1,376 1,441 LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED INCOME OF THE BANK (857 ) (1,343 ) (1,406 ) BENEFIT FOR INCOME TAXES (180 ) (282 ) (294 ) LOSS OF PARENT COMPANY (677 ) (1,061 ) (1,112 ) EQUITY IN UNDISTRIBUTED INCOME OF THE BANK 11,149 16,809 18,378 NET INCOME $ 10,472 $ 15,748 $ 17,266 There were no items of other comprehensive income that were solely attributable to the parent company. 104 RIVERVIEW BANCORP, INC. (PARENT COMPANY ONLY) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019 (In thousands) 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,472 $ 15,748 $ 17,266 Adjustments to reconcile net income to net cash used in operating activities: Equity in undistributed income of the Bank (11,149 ) (16,809 ) (18,378 ) Amortization 86 87 91 Provision for deferred income taxes - - 10 Stock-based compensation 396 346 44 Changes in assets and liabilities: Other assets 224 (278 ) (447 ) Accrued expenses and other liabilities (417 ) 364 97 Net cash used in operating activities (388 ) (542 ) (1,317 ) CASH FLOWS FROM INVESTING ACTIVITIES: Dividend from the Bank 6,000 11,500 2,000 Net cash provided by investing activities 6,000 11,500 2,000 CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (4,478 ) (4,075 ) (3,163 ) Proceeds from exercise of stock options 50 227 179 Repurchase of common stock (1,447 ) (1,019 ) - Net cash used in financing activities (5,875 ) (4,867 ) (2,984 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (263 ) 6,091 (2,301 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,269 4,178 6,479 CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,006 $ 10,269 $ 4,178 105 RIVERVIEW BANCORP, INC. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): (Dollars in thousands, except per share data) Three Months Ended March 31 December 31 September 30 June 30 Fiscal 2021: Interest and dividend income $ 11,865 $ 12,292 $ 11,949 $ 12,238 Interest expense 669 763 885 1,110 Net interest income 11,196 11,529 11,064 11,128 Provision for loan losses - - 1,800 4,500 Non-interest income, net 2,836 2,812 2,819 2,623 Non-interest expense 9,626 9,107 8,836 8,685 Income before income taxes 4,406 5,234 3,247 566 Provision for income taxes 992 1,199 704 86 Net income $ 3,414 $ 4,035 $ 2,543 $ 480 Basic earnings per common share (1) $ 0.15 $ 0.18 $ 0.11 $ 0.02 Diluted earnings per common share (1) $ 0.15 $ 0.18 $ 0.11 $ 0.02 Fiscal 2020: Interest and dividend income $ 12,291 $ 12,766 $ 12,882 $ 12,556 Interest expense 1,241 1,274 1,163 1,086 Net interest income 11,050 11,492 11,719 11,470 Provision for loan losses 1,250 - - - Non-interest income, net 2,892 3,163 3,169 3,136 Non-interest expense 8,818 9,248 9,003 9,194 Income before income taxes 3,874 5,407 5,885 5,412 Provision for income taxes 980 1,279 1,351 1,220 Net income $ 2,894 $ 4,128 $ 4,534 $ 4,192 Basic earnings per common share (1) $ 0.13 $ 0.18 $ 0.20 $ 0.19 Diluted earnings per common share (1) $ 0.13 $ 0.18 $ 0.20 $ 0.18 (1) Quarterly earnings per common share may vary from annual earnings per common share due to rounding. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.