Item 1A. Risk Factors – “Risks Related to Our Lending- Loans originated under the SBA Paycheck Protection Program subject us to credit, forgiveness and guarantee risk” and Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Recent Developments Related to COVID-19."
Commercial business lending typically involves risks that are different from those associated with residential and commercial real estate lending. Although commercial business loans are often collateralized by
equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or
of limited use, among other things. Accordingly, the repayment of commercial business loans, other than SBA PPP loans, depends primarily on the cash flow and credit-worthiness of the borrower and secondarily on the underlying collateral provided by
the borrower. Additionally, the borrower’s cash flow may be unpredictable and collateral securing these loans may fluctuate in value.
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Other Real Estate Mortgage Lending. At March 31, 2021, the other real estate mortgage loan portfolio totaled $602.5 million, or 63.9% of total loans. The Company originates
other real estate mortgage loans secured by office buildings, warehouse/industrial, retail, assisted living facilities and single-purpose facilities (collectively “commercial real estate loans” or “CRE”); as well as land and multi-family loans
primarily located in its market area. At March 31, 2021, owner occupied properties accounted for 29.2% and non-owner occupied properties accounted for 70.8% of the Company’s commercial real estate loan portfolio.
Commercial real estate and multi-family loans typically have higher loan balances, are more difficult to evaluate and monitor, and involve a higher degree of risk than one-to-four family residential loans. As a result,
commercial real estate and multi-family loans are generally priced at a higher rate of interest than residential one-to-four family loans. Often payments on loans secured by commercial properties are dependent on the successful operation and
management of the property securing the loan or business conducted on the property securing the loan; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. Real estate lending is generally
considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default.
The Company seeks to minimize these risks by generally limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the
loan. Loans are secured by first mortgages and often require specified debt service coverage (“DSC”) ratios depending on the characteristics of the collateral. The Company generally imposes a minimum DSC ratio of 1.20 for loans secured by income
producing properties. Rates and other terms on such loans generally depend on our assessment of credit risk after considering such factors as the borrower’s financial condition and credit history, loan-to-value ratio, DSC ratio and other factors.
The Company actively pursues commercial real estate loans. Loan demand within the Company’s market area was competitive in fiscal year 2021 as economic conditions and competition for strong credit-worthy borrowers
remained high. At March 31, 2021, the Company had one commercial real estate loan of $144,000 on non-accrual status. At March 31, 2020, the Company had two commercial real estate loans totaling $1.0 million on non-accrual status. For more information
concerning risks related to commercial real estate loans, see Item 1A. “Risk Factors – Risks Related to Our Lending – Our emphasis on commercial real estate lending may expose us to increased lending risks.”
Land acquisition and development loans are included in the other real estate mortgage loan portfolio balance and represent loans made to developers for the purpose of acquiring raw land and/or for the subsequent
development and sale of residential lots. Such loans typically finance land purchases and infrastructure development of properties (e.g. roads, utilities, etc.) with the aim of making improved lots ready for subsequent sales to consumers or builders
for ultimate construction of residential units. The primary source of repayment is generally the cash flow from developer sale of lots or improved parcels of land, secondary sources and personal guarantees, which may provide an additional measure of
security for such loans. At March 31, 2021, land acquisition and development loans totaled $14.0 million, or 1.49% of total loans compared to $14.0 million, or 1.54% of total loans at March 31, 2020. The largest land acquisition and development loan
had an outstanding balance at March 31, 2021 of $2.7 million and was performing according to its original payment terms. At March 31, 2021, all of the land acquisition and development loans were secured by properties located in Washington and Oregon.
At March 31, 2021 and 2020, the Company had no land acquisition and development loans on non-accrual status.
Real Estate Construction. The Company originates three types of residential construction loans: (i) speculative construction loans, (ii) custom/presold construction loans and
(iii) construction/permanent loans. The Company also originates construction loans for the development of business properties and multi-family dwellings. All of the Company’s real estate construction loans were made on properties located in
Washington and Oregon.
The composition of the Company’s construction loan portfolio, including undisbursed funds, was as follows at the dates indicated (dollars in thousands):
At March 31,
Amount (1) Percent Amount (1) Percent
(1)Includes undisbursed funds of $13.6 million
and $24.0 million at March 31, 2021 and 2020, respectively.
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At March 31, 2021, the balance of the Company’s construction loan portfolio, including undisbursed funds, was $30.6 million compared to $88.8 million at March 31, 2020. The $58.2 million decrease was primarily due to a
$48.3 million decrease in commercial/multi-family construction loans along with a decrease of $8.1 million in custom and presold construction loans. The Company plans to continue to proactively manage its construction loan portfolio in fiscal year
2022 while continuing to originate new construction loans to selected customers.
Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment
for permanent financing with either the Company or another lender for the finished home. The home buyer may be identified either during or after the construction period, with the risk that the builder will have to service the speculative construction
loan and finance real estate taxes and other carrying costs of the completed home for a significant period of time after the completion of construction until a home buyer is identified. The largest speculative construction loan at March 31, 2021 was
a loan to finance the construction of a single family home totaling $299,000. This loan is to a single borrower that is secured by a property located in the Company’s market area. The average balance of loans in the speculative construction loan
portfolio at March 31, 2021 was $166,000. At March 31, 2021 and 2020, the Company had no speculative construction loans on non-accrual status.
The composition of land acquisition and development and speculative construction loans by geographical area is as follows at the dates indicated (in thousands):
Northwest Oregon Other Southwest Washington Total
Unlike speculative construction loans, presold construction loans are made for homes that have buyers. Presold construction loans are made to homebuilders who, at the time of construction, have a signed contract with a
home buyer who has a commitment for permanent financing for the finished home from the Company or another lender. Presold construction loans are generally originated for a term of 12 months. At March 31, 2021 and 2020, presold construction loans
totaled $4.0 million and $8.4 million, respectively.
Unlike speculative and presold construction loans, custom construction loans are made directly to the homeowner. At March 31, 2021 and 2020, the Company had no custom construction loans. Construction/permanent loans
are originated to the homeowner rather than the homebuilder along with a commitment by the Company to originate a permanent loan to the homeowner to repay the construction loan at the completion of construction. The construction phase of a
construction/permanent loan generally lasts six to nine months. At the completion of construction, the Company may either originate a fixed-rate mortgage loan or an adjustable rate mortgage (“ARM”) loan or use its mortgage brokerage capabilities to
obtain permanent financing for the customer with another lender. For adjustable rate loans, the interest rates adjust on their first adjustment date. See “Mortgage Brokerage” and “Mortgage Loan Servicing” below for more information. At March 31,
2021, construction/permanent loans totaled $1.3 million, had a total commitment balance of $1.4 million and were performing according to their original repayment terms. The average balance of loans in the construction/permanent loan portfolio
excluding undisbursed funds at March 31, 2021 was $450,000.
The Company provides construction financing for non-residential business properties and multi-family dwellings. At March 31, 2021, commercial construction loans totaled $9.8 million, or 57.7% of total real estate
construction loans and 1.0% of total loans. Borrowers may be the business owner/occupier of the building who intends to operate their business from the property upon construction, or non-owner developers. The expected source of repayment of these
loans is typically the sale or refinancing of the project upon completion of the construction phase. In certain circumstances, the Company may provide or commit to take-out financing upon construction. Take-out financing is subject to the project
meeting specific underwriting guidelines. No assurance can be given that such take-out financing will be available upon project completion. These loans are secured by office buildings, retail rental space, mini storage facilities, assisted living
facilities and multi-family dwellings located in the Company’s market area. At March 31, 2021, the largest commercial construction loan had a balance of $3.7 million and was performing according to its original repayment terms. The average balance of
loans in the commercial construction loan portfolio at March 31, 2021 was $1.6 million. At March 31, 2021 and 2020, the Company had no commercial construction loans on non-accrual status.
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The Company has originated construction and land acquisition and development loans where a component of the cost of the project was the interest required to service the debt during the construction period of the loan,
sometimes known as interest reserves. The Company allows disbursements of this interest component as long as the project is progressing as originally projected and if there has been no deterioration in the financial standing of the borrower or the
underlying project. If the Company makes a determination that there is such deterioration, or if the loan becomes nonperforming, the Company halts any disbursement of those funds identified for use in paying interest. In some cases, additional
interest reserves may be taken by use of deposited funds or through credit lines secured by separate and additional collateral. For additional information concerning the risks related to construction lending, see Item 1A. "Risk Factors – Risks
Related to our Lending Activities –Our real estate construction and land acquisition and development loans expose us to risk."
Consumer Lending. Consumer loans totaled $58.6 million at March 31, 2021 and were comprised of $44.2 million of one-to-four family mortgage loans, $11.1 million of home equity
lines of credit, $1.2 million of land loans to consumers for the future construction of one-to-four family homes and $2.2 million of other secured and unsecured consumer loans, which included $237,000 of purchased automobile loans.
One-to-four family residences located in the Company’s primary market area secure the majority of the residential loans. Underwriting standards require that one-to-four family portfolio loans generally be owner
occupied and that loan amounts not exceed 80% (95% with private mortgage insurance) of the lesser of current appraised value or cost of the underlying collateral. Terms typically range from 15 to 30 years. The Company also offers balloon mortgage
loans with terms of either five or seven years and originates both fixed-rate mortgages and ARMs with repricing based on the one-year constant maturity U.S. Treasury index or other index. At March 31, 2021, the Company had three residential real
estate loans totaling $64,000 on non-accrual status compared to three residential real estate loans totaling $152,000 at March 31, 2020. All of these loans were secured by properties located in Oregon and Washington.
The Company also originates a variety of installment loans, including loans for debt consolidation and other purposes, automobile loans, boat loans and savings account loans. At March 31, 2021 and 2020, the Company had
no installment loans on non-accrual statusother than purchased automobile loans of $6,000 and $28,000, respectively.The Company did not purchase any automobile loans during
fiscal years 2021 and 2020 and does not have plans to purchase any additional automobile loan pools.
Installment consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as mobile
homes, automobiles, boats and recreational vehicles. In these cases, we face the risk that any collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Thus, the recovery and sale of such
property could be insufficient to compensate us for the principal outstanding on these loans as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further collection efforts against the
borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability and are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit our ability to recover on such loans.
Loan Maturity. The following table sets forth certain information at March 31, 2021 regarding the dollar amount of loans maturing in the Company’s total loan portfolio based on
their contractual terms to maturity but does not include potential prepayments. Demand loans, loans having no stated schedule of repayments or stated maturity and overdrafts are reported as due in one year or less. Loan balances are reported net of
deferred fees (in thousands):
Commercial and construction:
Consumer:
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The following table sets forth the dollar amount of loans due after one year from March 31, 2021, which have fixed and adjustable interest rates (in thousands):
Fixed Rate Adjustable Rate Total
Commercial and construction:
Consumer:
Loan Commitments. The Company issues commitments to originate commercial loans, other real estate mortgage loans, construction loans, residential mortgage loans and other
installment loans conditioned upon the occurrence of certain events. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to
45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments. At March 31, 2021, the Company had outstanding commitments to originate loans of $12.7 million compared to $35.8 million at March 31,
2020.
Mortgage Brokerage. The Company employs commissioned brokers who originate mortgage loans (including construction loans) for various mortgage companies, as well as for the
Company. The loans brokered to mortgage companies are closed in the name of, and funded by, the purchasing mortgage company and are not originated as an asset of the Company. In return, the Company receives a fee ranging from 1.5% to 2.0% of the loan
amount that it shares with the commissioned broker. Loans brokered to the Company are closed on the Company's books and the commissioned broker receives a portion of the origination fee. During the year ended March 31, 2021, brokered loans totaled
$63.0 million (including $5.2 million brokered to the Company) compared to $45.5 million (including $11.1 million brokered to the Company) of brokered loans in fiscal year 2020. Gross fees of $1.1 million and $666,000, which includes brokered loan
fees and fees for loans sold to the Federal Home Loan Mortgage Company (“FHLMC”), were earned for the years ended March 31, 2021 and 2020, respectively. The interest rate environment has a strong influence on the loan volume and amount of fees
generated from the mortgage broker activity. In general, during periods of rising interest rates, the volume of loans and the amount of loan fees generally decrease as a result of slower mortgage loan demand. Conversely, during periods of falling
interest rates, the volume of loans and the amount of loan fees generally increase as a result of the increased mortgage loan demand.Beginning in fiscal year 2021, the Company transitioned to a model where the
Company is no longer originating and selling mortgages loans to the FHLMC as all mortgage loan originations will instead be brokered to various third-party mortgage companies. The Company will, however, continue to service its existing FHLMC
portfolio.
Mortgage Loan Servicing. The Company is a qualified servicer for the FHLMC. The Company generally sells fixed-rate residential one-to-four family mortgage loans that it
originates with maturities of 15 years or more and balloon mortgages to the FHLMC as part of its asset/liability strategy. Mortgage loans are sold to the FHLMC on a non-recourse basis whereby foreclosure losses are the responsibility of the FHLMC and
not the Company. The Company's general policy is to close its residential loans on FHLMC modified loan documents to facilitate future sales to the FHLMC. Upon sale, the Company continues to collect payments on the loans, supervise foreclosure
proceedings, and otherwise service the loans. At March 31, 2021, total loans serviced for others were $120.9 million, of which $63.3 million were serviced for the FHLMC.
Nonperforming Assets. Nonperforming assets were $571,000 or 0.04% of total assets at March 31, 2021 compared with $1.4 million or 0.12% of total assets at March 31, 2020. The
Company had net recoveries totaling $254,000 during fiscal 2021 compared to net charge-offs of $83,000 during fiscal 2020. Credit quality metrics for nonperforming assets improved in the past fiscal year and the real estate market in our primary
market area has remained strong.
Loans are reviewed regularly and it is the Company’s general policy that 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 any unrecoverable accrued interest is established and charged against operations. In general, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a
cash-basis method.
The Company continues to proactively manage its residential construction and land acquisition and development loan portfolios. At March 31, 2021, the Company’s residential construction and land acquisition and
development loan portfolios were $7.2 million and $14.0 million, respectively, as compared to $12.2 million and $14.0 million, respectively, at March 31, 2020. At March 31, 2021 and 2020, there were no nonperforming loans in the residential
construction loan portfolio or the
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land acquisition and development portfolio. For the years ended March 31, 2021 and 2020, there were no charge-offs or recoveries in the residential construction and land acquisition and development loan portfolios.
The following table sets forth information regarding the Company’s nonperforming loans at the dates indicated (dollars in thousands):
Number of Loans Balance Number of Loans Balance
Nonperforming loans decreased compared to the prior fiscal year as the Company continues its efforts to work out problem loans, seek full repayment or pursue foreclosure proceedings. The decrease in non-performing
loans during fiscal year 2021 is primarily attributed to the payoff of one commercial real estate loan of $851,000. At March 31, 2021, all of these non-performing loans are to borrowers with properties located in Oregon and Washington, with the
exception of two automobile loans totaling $7,000 and one commercial business loan for $175,000. At March 31, 2021, 46.15% of the Company’s nonperforming loans, totaling $263,000, were measured for impairment. These loans have been charged down to
the estimated fair market value of the collateral less selling costs or carry a specific reserve to reduce the net carrying value. There were no reserves associated with these nonperforming loans that were measured for impairment at March 31, 2021.
At March 31, 2021, the largest single nonperforming loan was a commercial business loan for $175,000.
The following table sets forth information regarding the Company’s nonperforming assets at the dates indicated (in thousands):
At March 31,
Loans accounted for on a non-accrual basis:
Accruing loans which are contractually past due 90 days or more 176 - 3 - 34
Real estate owned (“REO”) - - - 298 298
Foregone interest on non-accrual loans $ 49 $ 75 $ 94 $ 102 $ 81
The following tables set forth information regarding the Company’s nonperforming assets by loan type and geographical area at the dates indicated (in thousands):
Other Oregon Southwest Washington Other Total
Commercial real estate - 144 - 144
Total nonperforming assets $ - $ 389 $ 182 $ 571
Commercial business $ - $ 201 $ - $ 201
Other loans of concern, which are classified as substandard loans and are not presently included in the non-accrual category, consist of loans where the borrowers have cash flow problems, or the collateral securing the
respective loans may be inadequate. In either or both of these situations, the borrowers may be unable to comply with the present loan repayment terms, and the loans may subsequently be included in the non-accrual category. Management considers the
allowance for loan losses to be adequate at March 31, 2021, to cover the probable losses inherent in these and other loans.
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The following table sets forth information regarding the Company’s other loans of concern at the dates indicated (dollars in thousands):
Number of Loans Balance Number of Loans Balance
Commercial business - $ - 3 $ 147
Commercial real estate 2 7,268 - -
At both March 31, 2021 and 2020, loans delinquent 30 – 89 days were 0.03% of total loans. At March 31, 2021, loans 30 – 89 days past due were comprised of commercial business and consumer loans. At March 31, 2020, loans 30 – 89 days past due were
comprised of consumer loans. At March 31, 2020, there were no loans 30 – 89 days past due in our commercial business portfolio. There were no loans 30 – 89 days past due in our commercial real estate (“CRE”) portfolio at March 31, 2021 or March 31,
2020. CRE loans represent the largest portion of our loan portfolio at 57.62% of total loans and commercial business loans represent 28.11% of total loans.
Troubled debt restructurings (“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, when a loan is deemed to be impaired, the amount of the impairment is measured using discounted cash flows and the original note rate, except when the loan is collateral
dependent. In these cases, the estimated fair value of the collateral (less any selling costs, if applicable) is used. Impairment is recognized as a specific component within the allowance for loan losses if the estimated value of the impaired loan
is less than the recorded investment in the loan. When the amount of the impairment represents a confirmed loss, it is charged-off against the allowance for loan losses. At March 31, 2021, the Company had TDRs totaling $3.6 million, of which $3.3
million were on accrual status. The $264,000 of TDRs accounted for on a non-accrual basis at March 31, 2021 are included as nonperforming loans in the nonperforming asset table above. All of the Company’s TDRs were paying as agreed at March 31, 2021.
The related amount of interest income recognized on these TDR loans was $207,000 for the year ended March 31, 2021.
The Company has determined that, in certain circumstances, it is appropriate to split a loan into multiple notes. This typically includes a nonperforming charged-off loan that is not supported by the cash flow of the
relationship and a performing loan that is supported by the cash flow. These may also be split into multiple notes to align portions of the loan balance with the various sources of repayment when more than one exists. Generally, the new loans are
restructured based on customary underwriting standards. In situations where they are not, the policy exception qualifies as a concession, and if the borrower is experiencing financial difficulties, the loans are accounted for as TDRs.
The CARES Act, signed into law on March 27, 2020, as amended by the CAA 2021, signed into law on December 27, 2020, allows banks to elect to suspend requirements under accounting principles generally accepted in the
United States of America (“GAAP”) for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR for accounting purposes, until the
earlier of 60 days after the termination date of the national emergency or, January 1, 2022. The suspension of GAAP is applicable for the entire term of the modification. The federal banking agencies also issued guidance to encourage banks to make
loan modifications for borrowers affected by COVID-19 by providing that short-term modifications made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant
related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification is implemented is not a TDR. The Company has followed the CARES Act and interagency guidance from the federal banking
agencies when determining if a borrower's modification is subject to TDR classification. As of March 31, 2021, the Company had five loan modifications related to the COVID-19 pandemic 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. For additional information related to loan modifications as a result of the COVID-19 pandemic, see “Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Recent Developments Related to COVID-19.
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The accrual status of a loan may change after it has been classified as a TDR. The Company’s general policy related to TDRs is to perform a credit evaluation of the borrower’s financial condition and prospects for
repayment under the revised terms. This evaluation includes consideration of the borrower’s sustained historical repayment performance for a reasonable period of time. A sustained period of repayment performance generally would be a minimum of six
months and may include repayments made prior to the restructuring date. If repayment of principal and interest appears doubtful, it is placed on non-accrual status.
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 payment in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy
protection with no payments received for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four to five
consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of
the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed
loan loss it is promptly charged-off.
Asset Classification. Federal regulations provide for the classification of lower quality loans and other assets (such as other real estate owned and repossessed property), debt
and equity securities, as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets have a well-defined
weakness and include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with
the additional characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
When the Company classifies problem assets as either substandard or doubtful, we may determine that the loan is impaired and establish a specific allowance in an amount we deem prudent to address the risk specifically
or we may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have
not been specifically allocated to particular problem assets. When a problem asset is classified by us as a loss, we are required to charge off the asset in the period in which it is deemed uncollectible.
The aggregate amount of the Company's classified loans (comprised entirely of substandard loans), general loss allowances, specific loss allowances and net charge-offs (recoveries) were as follows at the dates
indicated (in thousands):
At or For the Year
Ended March 31,
Specific loss allowances 11 12
Net charge-offs (recoveries) (254 ) 83
All of the loans on non-accrual status as of March 31, 2021 were categorized as classified loans. Classified loans at March 31, 2021 were comprised of three commercial business loans totaling $182,000, three commercial
real estate loans totaling $7.4 million (the largest of which was $3.7 million), two multi-family loans totaling $24,000, three one-to-four family real estate loans totaling $64,000 and one purchased automobile loan totaling $6,000. The $6.1 million
increase in classified loans is primarily attributed to COVID-19 related downgrades of two commercial real estate loans totaling $7.3 million and two one-to-four family real estate loans totaling $56,000. These downgrades were offset by the payoffs
of three commercial business loans totaling $146,000, one commercial real estate loan for $851,000, and one one-to-four family real estate loan for $47,000 along with risk rating upgrades totaling $104,000.
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Allowance for Loan Losses. The Company maintains an allowance for loan losses to provide for probable losses inherent in the loan portfolio consistent with GAAP guidelines. The
adequacy of the allowance is evaluated monthly to maintain the allowance at levels sufficient to provide for inherent losses existing at the balance sheet date. The key components to the evaluation are the Company’s internal loan review function by
its credit administration, which reviews and monitors the risk and quality of the loan portfolio; as well as the Company’s external loan reviews and its loan classification systems. Credit officers are expected to monitor their loan portfolios and
make recommendations to change loan grades whenever changes are warranted. Credit administration approves any changes to loan grades and monitors loan grades. For additional discussion of the Company’s methodology for assessing the appropriate level
of the allowance for loan losses see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies."
In accordance with GAAP, loans acquired from MBank during the fiscal year ended March 31, 2017 were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, of which a
portion reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and, as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date. The discount recorded on
the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios. However, we believe it should be considered when comparing certain financial ratios of the Company calculated in periods after the MBank
transaction, compared to the same financial ratios of the Company in periods prior to the MBank transaction. The net discount on these acquired loans was $722,000 and $1.1 million at March 31, 2021 and 2020, respectively.
The Company recorded a provision for loan losses of $6.3 million and $1.3 million for the years ended March 31, 2021 and 2020, respectively. The increase in the allowance for loan losses in fiscal year 2021 was
necessary as a result of the evolving uncertainty around the COVID-19 pandemic, and its adverse economic effect on the respective industry exposures within our loan portfolio. Our SBA PPP loans were omitted from the calculation of the required
allowance for loan losses at March 31, 2021 as these loans are fully guaranteed by the SBA and management expects that a majority of SBA PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA, which in turn, the
SBA will reimburse the Bank for the amount forgiven.
At March 31, 2021, the Company had an allowance for loan losses of $19.2 million, or 2.03% of total loans, compared to $12.6 million, or 1.38% at March 31, 2020. During fiscal year 2021, the Company experienced
improvement in the level of delinquent and nonperforming loans. Net recoveries totaled $254,000 for the fiscal year ended March 31, 2021 compared to net charge-offs of $83,000 in the prior fiscal year. Nonperforming loans decreased $824,000 and 30-89
day delinquent loans decreased $30,000 during the fiscal year ended March 31, 2021. Criticized loans increased $41.1 million to $42.5 million at March 31, 2021 from $1.4 million at March 31, 2020. Classified loans increased $6.1 million to $7.7
million at March 31, 2021 compared to $1.6 million at March 31, 2020. The increase in criticized and classified loansreflects risk rating downgrades primarily associated with loans that were granted COVID-19
loan modifications. The coverage ratio of allowance for loan losses to nonperforming loans was 3,358.67% at March 31, 2021 compared to 904.95% at March 31, 2020. The Company’s general valuation allowance to non-impaired loans was 2.04% and 1.39% at
March 31, 2021 and 2020, respectively.
Management considers the allowance for loan losses to be adequate at March 31, 2021 to cover probable losses inherent in the loan portfolio based on the assessment of various factors affecting the loan portfolio, and
the Company believes it has established its existing allowance for loan losses in accordance with GAAP. However, a decline in national and local economic conditions (including declines as a result of the COVID-19 pandemic), results of examinations by
the Company’s banking regulators, or other factors could result in a material increase in the allowance for loan losses and may adversely affect the Company’s future financial condition and results of operations. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses will be adequate or that substantial increases will not be necessary should the quality of any loans
deteriorate or should collateral values decline as a result of the factors discussed elsewhere in this document.
15
The following table sets forth an analysis of the Company's allowance for loan losses for the periods indicated (dollars in thousands):
Year Ended March 31,
Recoveries:
Commercial and construction
Real estate construction - - - - -
Consumer
Charge-offs:
Commercial and construction
Commercial business - 64 - - 1
Other real estate mortgage - - - 68 117
Real estate construction - - - - -
Total commercial and construction - 64 - 68 118
Consumer
Real estate one-to-four family 12 - 30 12 -
16
The following table sets forth the breakdown of the allowance for loan losses by loan category as of the dates indicated (dollars in thousands):
At March 31,
Commercial and construction:
Consumer:
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Investment Activities
The Board sets the investment policy of the Company. The Company's investment objectives are: to provide and maintain liquidity within regulatory guidelines; to maintain a balance of high quality, diversified
investments to minimize risk; to provide collateral for pledging requirements; to serve as a balance to earnings; and to optimize returns. The policy permits investment in various types of liquid assets (generally debt and asset-backed securities)
permissible under applicable regulations, which includes U.S. Treasury obligations, securities of various federal agencies, "bank qualified" municipal bonds, certain certificates of deposit of insured banks, repurchase agreements, federal funds, real
estate mortgage investment conduits (“REMICS”) and mortgage-backed securities (“MBS”), but does not permit investment in non-investment grade bonds. The policy also dictates the criteria for classifying investment securities into one of three
categories: held to maturity, available for sale or trading. At March 31, 2021, no investment securities were held for trading purposes. At March 31, 2021, the Company’s investment portfolio consists of debt securities and does not include any equity
securities. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies."
The Company primarily purchases agency securities with maturities of five years or less and purchases a combination of MBS backed by government agencies (FHLMC, Fannie Mae (“FNMA”), U.S. Small Business Administration
(“SBA”) or Ginnie Mae (“GNMA”)). FHLMC and FNMA securities are not backed by the full faith and credit of the U.S. government, while SBA and GNMA securities are backed by the full faith and credit of the U.S. government. At March 31, 2021, the
Company owned no privately issued MBS. Our REMICS are MBS issued by FHLMC, FNMA and GNMA and our CRE MBS are issued by FNMA. The Company does not believe that it has any exposure to sub-prime lending in its investment securities portfolio. See Note 3
of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional information.
The following table sets forth the investment securities portfolio and carrying values at the dates indicated (dollars in thousands):
At March 31,
Available for sale (at estimated fair value):
Held to maturity (at amortized cost):
Agency securities 7,688 3.01 - - - -
The following table sets forth the maturities and weighted average yields in the securities portfolio at March 31, 2021 (dollars in thousands):
(1) For available for sale securities carried at estimated fair value, the weighted average yield is computed using amortized cost without a tax equivalent
adjustment for tax-exempt obligations.
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Management reviews investment securities quarterly for the presence of other than temporary impairment (“OTTI”), taking into consideration current market conditions, the extent and nature of changes in estimated fair
value, issuer rating changes and trends, financial condition of the underlying issuers, current analysts’ evaluations, the Company’s ability and intent to hold investments until a recovery of estimated fair value, which may be maturity, as well as
other factors. There was no OTTI charge for investment securities for the years ended March 31, 2021, 2020 or 2019. However, additional deterioration in market and economic conditions related to the COVID-19 pandemic may have an adverse impact on
credit quality in the future and result in OTTI charges.
Deposit Activities and Other Sources of Funds
General. Deposits, loan repayments and loan sales are the major sources of the Company's funds for lending and other investment purposes. Loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. They may also be used on a longer-term basis for general business purposes.
Deposit Accounts. The Company attracts deposits from within its primary market area by offering a broad selection of deposit instruments, including demand deposits, negotiable
order of withdrawal ("NOW") accounts, money market accounts, savings accounts, certificates of deposit and retirement savings plans. The Company has focused on building customer relationship deposits which include both business and consumer
depositors. Deposit account terms vary according to, among other factors, the minimum balance required, the time periods the funds must remain on deposit and the interest rate. In determining the terms of its deposit accounts, the Company considers
the rates offered by its competition, profitability to the Company, matching deposit and loan products and customer preferences and concerns.
The following table sets forth the average balances of deposit accounts held by the Company at the dates indicated (dollars in thousands):
Year Ended March 31,
Deposit accounts totaled $1.3 billion at March 31, 2021 compared to $990.4 million at March 31, 2020. The Company did not have any wholesale-brokered deposits at March 31, 2021 and 2020. The Company continues to focus
on core deposits and growth generated by customer relationships as opposed to obtaining deposits through the wholesale markets, although the Company continued to experience competition for customer deposits within its market area during fiscal year
2021. Core branch deposits (comprised of all demand, savings, interest checking accounts and all time deposits excluding wholesale-brokered deposits, trust account deposits, Interest on Lawyer Trust Accounts (“IOLTA”), public funds, and internet
based deposits) increased $344.7 million since March 31, 2020 reflecting the Company’s commitment to increasing core deposits through organic growth in customer relationships versus relying on wholesale funding as well as deposits generated from SBA
PPP loans, government stimulus checks being deposited directly into customer accounts and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19. At March 31, 2021, the Company had $37.9 million, or 2.81%
of total deposits, in Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) deposits, which were gathered from customers within the Company’s primary market-area. CDARS and ICS deposits allow customers access to
FDIC insurance on deposits exceeding the $250,000 FDIC insurance limit.
At March 31, 2021 and 2020, the Company also had $16.8 million and $12.2 million, respectively, in deposits from public entities located in the States of Washington and Oregon, all of which were fully covered by FDIC
insurance or secured by pledged collateral.
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The Company is enrolled in an internet deposit listing service. Under this listing service, the Company may post certificates of deposit rates on an internet site where institutional investors have the ability to
deposit funds with the Company. At March 31, 2021 and 2020, the Company did not have any deposits through this listing service as the Company chose not to utilize these internet based deposits. Although the Company did not originate any internet
based deposits during the year ended March 31, 2021, the Company may do so in the future consistent with its asset/liability objectives.
Deposit growth remains a key strategic focus for the Company and our ability to achieve deposit growth, particularly growth in core deposits, is subject to many risk factors including the effects of competitive pricing
pressures, changing customer deposit behavior, and increasing or decreasing interest rate environments. Adverse developments with respect to any of these risk factors could limit the Company’s ability to attract and retain deposits and could have a
material negative impact on the Company’s future financial condition, results of operations and cash flows.
The following table presents the maturity period, amount and weighted average rate of certificates of deposit equal to or greater than $100,000 at March 31, 2021 (dollars in thousands):
Maturity Period Amount Weighted Average Rate
Over three through six months 18,477 1.48
Borrowings. The Company relies upon advances from the FHLB and borrowings from the Federal Reserve Bank of San Francisco (“FRB”) to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. Advances from the FHLB and borrowings from the FRB are typically secured by the Bank's commercial business loans, commercial real estate loans and first mortgage residential loans. At March 31, 2021 and 2020, the
Bank did not have any FHLB advances or FRB borrowings.
The FHLB functions as a central reserve bank providing credit for member financial institutions. As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the
security of such stock and certain of its mortgage loans and other assets (primarily securities which are obligations of, or guaranteed by, the U.S.) provided certain standards related to credit-worthiness have been met. The FHLB determines specific
lines of credit for each member institution and the Bank has a line of credit with the FHLB equal to 45% of its total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. At March 31, 2021, the Bank had an
available credit capacity of $645.7 million, subject to sufficient collateral and stock investment.
The Bank also has a borrowing arrangement with the FRB with an available credit facility of $50.8 million, subject to pledged collateral, as of March 31, 2021. The following table sets forth certain information
concerning the Company's borrowings for the periods indicated (dollars in thousands):
Year Ended March 31,
Weighted average rate on FHLB advances 0.31 % 2.54 % 2.58 %
Maximum amounts of FRB borrowings outstanding at any month end $ - $ - $ -
Average FRB borrowings outstanding - 33 3
Weighted average rate on FRB borrowings 0.00 % 1.92 % 3.00 %
Additionally, the Federal Reserve recently established the FRB's Paycheck Protection Program Liquidity Facility (“PPPLF”), pursuant to which the Company may pledge its PPP loans at face value as collateral to obtain
FRB non-recourse borrowings. As of March 31, 2021, the Bank had not sought approval to utilize PPPLF as it held a substantial cash and cash equivalent position as a result of SBA PPP disbursed funds remaining unused in borrower deposit accounts and
due to deposit customers increasing their balances due to COVID-19. For additional information, see “Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments Related to COVID-19.”
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At March 31, 2021, the Company had three wholly-owned subsidiary grantor trusts totaling $26.7 million 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 common securities issued by the grantor trusts are held 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 included in the Consolidated Financial Statements contained in Item 8 of this Form 10-K. For more information, see also Note 10 of the Notes to
Consolidated Financial Statements contained in Item 8 of this Form 10-K.
Taxation
For details regarding the Company’s taxes, see Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.
Employees and Human Capital
As of March 31, 2021, the Company had 232 full‐time equivalent employees, none of whom are represented by a collective bargaining unit. The Company believes its relationship with its employees is good.
To facilitate talent attraction and retention, we strive to make the Bank an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by competitive
compensation and benefits programs. At March 31, 2021, approximately 67% of our workforce was female and 33% male, and our average tenure was 8.4 years. Additional programs include quarterly or annual incentive opportunities, a Company sponsored
Employee Stock Ownership Plan ("ESOP"), a Company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and employee assistance programs including educational reimbursement
opportunities.
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety, and wellness of our employees. In support of our commitment, we have onsite
gym facilities at our operations center to promote health and wellness. In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the
communities in which we operate, and which comply with government regulations. This includes having the many of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work. Additionally,
the Bank provided up to 80 hours of paid time off in addition to The Family First Coronavirus Response Act (“FFCRA”) benefit to employees for COVID-19 related absences.
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Corporate Information
The Company’s principal executive offices are located at 900 Washington Street, Vancouver, Washington 98660. Its telephone number is (360) 693-6650. The Company maintains a website with the address
www.riverviewbank.com. The information contained on the Company’s website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet access charges, the Company makes
available free of charge through its website the Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after it has electronically filed such
material with, or furnished such material to, the Securities and Exchange Commission (“SEC”).
Subsidiary Activities
Riverview Bancorp, Inc. has one operating subsidiary, the Bank. The Bank has one wholly-owned subsidiary, Riverview Services, Inc. (“Riverview Services”) and a majority-owned subsidiary, the Trust Company.
Riverview Services 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. Riverview Services had net income of $26,000 for the fiscal year
ended March 31, 2021 and total assets of $1.3 million at March 31, 2021. Riverview Services’ operations are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.
The Trust Company is an asset management company providing trust, estate planning and investment management services. The Trust Company had net income of $478,000 for the fiscal year ended March 31, 2021 and total
assets of $7.5 million at that date. The Trust Company earns fees on the management of assets held in fiduciary or agency capacity. At March 31, 2021, total assets under management were $1.3 billion. The Trust Company’s operations are included in the
Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.
22
Information about our Executive Officers. The following table sets forth certain information regarding the executive officers of the Company and its subsidiaries:
Name Age (1) Position
Kevin J. Lycklama 43 President and Chief Executive Officer
David Lam 44 Executive Vice President and Chief Financial Officer
Daniel D. Cox 43 Executive Vice President and Chief Credit Officer
Kim J. Capeloto 59 Executive Vice President and Chief Banking Officer
Steven P. Plambeck 61 Executive Vice President and Chief Lending Officer
(1) At March 31, 2021
Kevin J. Lycklama is President and Chief Executive Officer of the Company, positions he has held since April 2018. Prior to assuming the role of President and Chief Executive
Officer, Mr. Lycklama served as Executive Vice President and Chief Operating Officer of the Company, positions he had held since July 2017. Prior to July 2017, Mr. Lycklama served as Executive Vice President and Chief Financial Officer of the Company
since 2008 and Vice President and Controller of the Bank since 2006. Prior to joining Riverview, Mr. Lycklama spent five years with a local public accounting firm advancing to the level of audit manager. He holds a Bachelor of Arts degree from
Washington State University, is a graduate of the Pacific Coast Banking School and is a certified public accountant (CPA). Mr. Lycklama is a member of the Washington State University Vancouver Advisory Council.
David Lam is Executive Vice President and Chief Financial Officer of the Company, positions he has held since July 2017. Prior to July 2017, Mr. Lam served as Senior Vice
President and Controller of the Bank since 2008. He is responsible for accounting, SEC reporting and treasury functions for the Bank and the Company. Prior to joining Riverview, Mr. Lam spent ten years working in the public accounting sector
advancing to the level of audit manager. Mr. Lam holds a Bachelor of Arts degree in business administration with an emphasis in accounting from Oregon State University. Mr. Lam is a CPA, holds a chartered global management accountant designation and
is a member of both the American Institute of CPAs and Oregon Society of CPAs.
Daniel D. Cox is Executive Vice President and Chief Credit Officer and is responsible for credit administration related to the Bank’s commercial, mortgage and consumer loan
activities. Mr. Cox joined Riverview in August 2002 and spent five years as a commercial lender and progressed through the credit administration function, most recently serving as Senior Vice President of Credit Administration. He holds a Bachelor of
Arts degree from Washington State University and was an Honor Roll graduate of the Pacific Coast Banking School. Mr. Cox is an active mentor in the local schools and was the Past Treasurer and Endowment Chair for the Washougal Schools Foundation and
Past Board Member of Camas-Washougal Chamber of Commerce.
Kim J. Capeloto is Executive Vice President and Chief Banking Officer. Mr. Capeloto has been employed by the Bank since September 2010. Mr. Capeloto has over 30 years of banking
experience serving as regional manager for Union Bank of California and Wells Fargo Bank directing small business and personal banking activities. Prior to joining the Bank, Mr. Capeloto held the position of President and Chief Executive Officer of
the Greater Vancouver Chamber of Commerce. Mr. Capeloto is active in numerous professional and civic organizations.
Steven P. Plambeckis Executive Vice President and Chief Lending Officer, a position he has held since March 2018. Mr. Plambeck is
responsible for all loan production including commercial, consumer, mortgage and builder/developer construction loans. Mr. Plambeck joined Riverview in January 2011 as Director of Medical Banking. For the past two years Mr. Plambeck served as Senior
Vice President and Team Leader for the Portland Commercial Team. Mr. Plambeck holds a Bachelor of Science degree in Accounting from the University of Wyoming and is also a graduate of the Pacific Coast Banking School. Mr. Plambeck is a board member
for the Providence St. Vincent Council of Trustees, Providence Heart and Vascular Institute and the Providence Brain and Spine Institute. Mr. Plambeck is also a member of the Medical and Dental Advisory Team.
Christopher P. Cline is President and Chief Executive Officer of the Trust Company, a majority-owned subsidiary of the Bank. Mr. Cline joined the Trust Company in 2016, after
having spent eight years managing the trust department of Wells Fargo’s Private Bank in Oregon and Southwest Washington. Prior to that, Mr. Cline was an estate planning attorney for 17 years, most recently as a partner at Holland & Knight. Mr.
Cline manages all aspects of the trust business, is a Fellow of the American College of Trust and Estate Counsel and is a nationally recognized speaker and author, having written books on estate planning and trust administration. Mr. Cline holds a
Bachelor of Arts degree from San Francisco State University and a Juris Doctor degree from Hastings College of the Law in San Francisco.
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REGULATION
General.
On April 28, 2021, the Bank converted from a federally chartered savings bank to a Washington state-chartered commercial bank. As a Washington state-chartered commercial bank, the Bank’s regulators are the WDFI and the
FDIC, rather than the OCC. The Company converted from a Savings and Loan Holding Company to a Bank Holding and the Federal Reserve remained its primary federal regulator.
The following is a brief description of certain laws and regulations which are applicable to the Company and the Bank. The description of these laws and regulations, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.
Legislation is introduced from time to time in the United States Congress (“Congress”) or the Washington State Legislature that may affect the Company’s and Bank’s
operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the WDFI, the FDIC, the Federal Reserve or the SEC, as appropriate. Any such legislation or regulatory changes in the future could have
an adverse effecton our operations and financial condition. We cannot predict whether any such changes may occur.
The WDFI and FDIC have extensive enforcement authority over all Washington state-chartered commercial banks, including the Bank. The Federal Reserve has the same type of authority over Riverview Bancorp, Inc.
Regulation and Supervision of the Bank
General. As a state-chartered commercial bank, the Bank is subject to applicable provisions of Washington state law and regulations of the WDFI in addition to federal law and
regulations of the FDIC applicable to state banks that are not members of the Federal Reserve System. State law and regulations govern the Bank’s ability to take deposits and pay interest, to make loans on or invest in residential and other real
estate, to make consumer loans, to invest in securities, to offer various banking services to its customers and to establish branch offices. Under state law, commercial banks in Washington also generally have all of the powers that national banks
have under federal laws and regulations. The Bank is subject to periodic examination by and reporting requirements of the WDFI and FDIC.
Capital Requirements. Federally insured financial institutions, such as the Bank andtheir holding companies, are required to maintain a
minimum level of regulatory capital. The Bank is subject to capital regulations adopted by the FDIC, which establish minimum required ratios for a common equity Tier 1 (“CET1”) capital to risk-based assets ratio, a Tier 1 capital to risk-based assets
ratio, a total capital to risk-based assets ratio and a Tier 1 capital to total assets leverage ratio. The capital standards require the maintenance of the following minimum capital ratios: (i) a CET1 capital ratio of 4.5%; (ii) a Tier 1 capital
ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Consolidated regulatory capital requirements identical to those applicable to subsidiary banks generally apply to bank holding companies. However, the Federal
Reserve has provided a “Small Bank Holding Company” exception to its consolidated capital requirements, and bank holding companies with less than $3.0 billion of consolidated assets are not subject to the consolidated holding company capital
requirements unless otherwise directed by the Federal Reserve.
The Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in May 2018, required the federal banking agencies, including the FDIC, to establish for institutions with assets of less than $10
billion a “community bank leverage ratio” or “CBLR” of between 8 to 10%. Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total
assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The CBLR was
established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to
meet any qualifying criteria is provided with a two- quarter grace period to again achieve compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply
with the generally applicable capital requirements. The Bank has not elected to use the CBLR framework as of March 31, 2021.
Certain changes in what constitutes regulatory capital, including the phasing-out of certain instruments as qualifying capital, are subject to transition periods, most of which have expired. The Bank does not have any
such instruments. Because of the Bank’s asset size, the Bank elected to take a one-time option to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in its capital calculations.
The Bank also must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid
limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.
24
In order to be considered well-capitalized under the prompt corrective action regulations, the Bank must maintain a CET1 risk-based ratio of 6.5%, a Tier 1 risk-based ratio of 8%, a total risk-based capital ratio of
10% and a leverage ratio of 5%, and the Bank must not be subject to an individualized order, directive or agreement under which its primary federal banking regulator requires it to maintain a specific capital level. As of March 31, 2021, the Bank met
the requirements to be “well capitalized” and met the fully phased-in capital conservation buffer requirement. For a complete description of the Bank’s required and actual capital levels on March 31, 2021, see Note 13 of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K.
The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard for GAAP that will be effective for us for our first fiscal year beginning after December 15, 2022. This standard, referred to as
Current Expected Credit Loss (“CECL”) requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. CECL covers a broader range of assets than the
current method of recognizing credit losses and generally results in earlier recognition of credit losses. Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal
year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL is generally likely to reduce retained
earnings, and to affect other items, in a manner that reduces its regulatory capital.
The federal banking regulators (the Federal Reserve, the OCC and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on
its regulatory capital.
Prompt Corrective Action. Federal statutes establish a supervisory framework for FDIC-insured institutions based on five capital categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution’s category generally depends upon where its capital levels are in relation to relevant capital measures, which include risk-based capital
measures, a leverage ratio capital measure, and certain other factors. An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally.
Any institution which is neither well capitalized nor adequately capitalized is considered under- capitalized. The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a
qualifying institution whose capital exceeds the CBLR and opts to use that framework will be considered “well capitalized” for purposes of prompt corrective action.
Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions which become more extensive as an institution becomes more severely undercapitalized.
Failure by the Bank to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital
directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator. Banking regulators will take prompt corrective action with respect to depository institutions that do not meet
minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements.
Federal Home Loan Bank System. The Bank is a member of the FHLB, which is one of 11 regional Federal Home Loan Banks that administer the home financing credit function of savings
institutions, each of which serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans or advances to
members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Agency. All advances from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. See Business – “Deposit Activities and Other Sources of Funds – Borrowings.” As a member, the Bank is required to
purchase and maintain stock in the FHLB. At March 31, 2021, the Bank held $1.7 million in FHLB stock, which was in compliance with this requirement. During the year ended March 31, 2021, the Bank purchased $302,000 of FHLB membership stock at par and
redeemed $1.2 million of FHLB activity stock at par with the payoff of borrowed funds.
The FHLB continues to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects.
These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank's
FHLB stock may result in a decrease in net income and possibly capital.
25
Insurance of Accounts and Regulation by the FDIC. The Bank’s deposits are insured up to $250,000 per separately insured deposit ownership right or category by the Deposit
Insurance Fund (“DIF”) of the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. The FDIC assesses deposit insurance premiums quarterly
on each FDIC-insured institution applied to its deposit base, which is their average consolidated total assets minus its Tier 1 capital. No institution may pay a dividend if it is in default on its federal deposit insurance assessment. Total base
assessment rates currently range from 3 to 30 basis points subject to certain adjustments. For the fiscal year ended March 31, 2021, the Bank paid $319,000 in FDIC premiums. The FDIC has authority to increase insurance assessments, and any
significant increases would have an adverse effect on the operating expenses and results of operations of the Company. Management cannot predict what assessment rates will be in the future. In a banking industry emergency, the FDIC may also impose a
special assessment. As insurer, the FDIC is authorized to conduct examinations of and to require reporting by FDIC-insured institutions.
The FDIC also may prohibit any insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the DIF. The FDIC also has the authority to take enforcement actions
against banks and savings associations. Management is not aware of any existing circumstances which would result in termination of the Bank's deposit insurance.
Activities and Investments of Insured State-Chartered Financial Institutions. Federal law generally limits the activities and equity investments of FDIC-insured, state-chartered
banks to those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership the sole
purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, (3) acquiring up
to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions and (4) acquiring or
retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.
Washington State has enacted a law regarding financial institution parity. Primarily, the law affords Washington state‐chartered commercial banks the same powers as Washington state-chartered savings banks and provides
that Washington state-chartered commercial banks may exercise any of the powers that the Federal Reserve has determined to be closely related to the business of banking and the powers of national banks, subject to the approval of the Director of the
WDFI in certain situations. Finally, the law provides additional flexibility for Washington state-chartered commercial and savings banks with respect to interest rates on loans and other extensions of credit. Specifically, they may charge the maximum
interest rate allowable for loans and other extensions of credit by federally-chartered financial institutions to Washington residents.
Transactions with Affiliates. Riverview Bancorp, Inc. and the Bank are separate and distinct legal entities. The Bank is an affiliate of Riverview Bancorp, Inc. and any non-bank
subsidiary of Riverview Bancorp, Inc., federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates. Transactions deemed to be a “covered transaction” under Section 23A of the Federal Reserve Act between a
bank and an affiliate are limited to 10% of a bank's capital and surplus and, with respect to all affiliates, to an aggregate of 20% of a bank's capital and surplus. Further, covered transactions that are loans and extensions of credit generally are
required to be secured by eligible collateral in specified amounts. Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as
favorable to a bank as transactions with non-affiliates.
Community Reinvestment Act. The Bank is subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”), which require the appropriate federal
bank regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the Bank, including low and moderate income neighborhoods. The regulatory agency’s assessment of the Bank’s record is made
available to the public. Further, a bank’s CRA performance must be considered in connection with a bank’s application, to among other things, establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. An unsatisfactory rating may be the basis for denial of certain applications. The Bank received a “satisfactory” rating during its most recent CRA
examination.
Dividends. The amount of dividends payable by the Bank to Riverview Bancorp, Inc. depends upon the Bank’s earnings and capital position, and is limited by
federal and state laws, regulations and policies. According to Washington law, the Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (1) the amount required for liquidation accounts
or (2) the net worth requirements, if any, imposed by the Director of the WDFI. In addition, dividends may not be declared or paid if the Bank is in default in payment of any assessments due to the FDIC. Dividends on the Bank’s capital stock may not
be paid in an aggregate amount greater than the aggregate retained earnings of the Bank, without the approval of the Director of the WDFI.
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The amount of dividends actually paid during any one period is affected by the Bank’s policy of maintaining a strong capital position. Federal law further restricts dividends payable by an
institution that does not meet the capital conservation buffer requirement and provides that no insured depository institution may pay a cash dividend if it would cause the institution to be “undercapitalized,” as defined in the prompt corrective
action regulations. Moreover, the federal bank regulatory agencies also have the general authority to limit the dividends paid by insured banks if such payments are deemed to constitute an unsafe and unsound practice.
Standards for Safety and Soundness. Each federal banking agency, including the FDIC, has adopted guidelines establishing general standards relating to internal controls,
information and internal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder. If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution
to submit to the FDIC an acceptable plan to achieve compliance.
Federal Reserve System. The Federal Reserve requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking
accounts. In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. At March 31, 2021, the Bank was in compliance with
the reserve requirements.
The Bank is authorized to borrow from the Federal Reserve Bank of San Francisco's "discount window." An eligible institution need not exhaust other sources of funds before going to the discount window, nor are there
restrictions on the purposes for which the institution can use primary credit. Beginning in 2020 in response to the pandemic, the Federal Reserve instituted the PPPLF. At March 31, 2021, the Bank had no outstanding borrowings under either program
from the Federal Reserve.
Commercial Real Estate Lending Concentrations. The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate
lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as
opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank’s commercial real estate lending but to guide banks in developing risk management practices
and capital levels commensurate with the level and nature of real estate concentrations. The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant
commercial real estate loan concentration risk. A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following
supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital
adequacy.
Environmental Issues Associated with Real Estate Lending. The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), is a federal statute that generally
imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term “owner and operator” excludes a person whose ownership is
limited to protecting its security interest in the site. Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for
cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential hazardous waste
contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which could substantially exceed the value of the collateral property.
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Anti-Money Laundering and Customer Identification. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(“USA PATRIOT Act”) was signed into law on October 26, 2001. The USA PATRIOT Act and the Bank Secrecy Act requires financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist
activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish
procedures for identifying and verifying the identity of customers seeking to open new financial accounts, and, effective in 2018, the beneficial owners of accounts. Bank regulators are directed to consider a holding company’s effectiveness in
combating money laundering when ruling on Bank Holding Company Act and Bank Merger Act applications.
Privacy Standards. The Bank is subject to FDIC regulations implementing the privacy protection provisions of the Gramm-Leach-Bliley Financial Services
Modernization Act of 1999. These regulations require the Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.In addition, Washington and other state cybersecurity and data privacy laws and regulations may expose the Bank to risk and result in certain risk management costs.
Other Consumer Protection Laws and Regulations. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) established the Consumer Financial
Protection Bureau (“CFPB”) and empowered it to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. The Bank is subject to consumer protection regulations issued by
the CFPB, but as a financial institution with assets of less than $10 billion, the Bank is generally subject to supervision and enforcement by the FDIC with respect to its compliance with federal consumer financial protection laws and CFPB
regulations.
The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While not exhaustive, these laws and
regulations include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the
Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the
Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business
practices and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits,
making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal
penalties, punitive damages and the loss of certain contractual rights.
Regulation and Supervision of Riverview Bancorp, Inc.
General. Riverview Bancorp, Inc., as sole shareholder of the Bank, is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to
comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (“BHCA”), and the regulations of the FRB. Accordingly, Riverview Bancorp, Inc. is required to file semi-annual reports with the Federal Reserve and
provide additional information as the Federal Reserve may require. The Federal Reserve may examine Riverview Bancorp, Inc., and any of its subsidiaries, and charge Riverview Bancorp, Inc. for the cost of the examination. The Federal Reserve also has
extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including
its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Riverview Bancorp, Inc. is also required to file certain reports with, and otherwise comply with the rules
and regulations of the SEC.
The Bank Holding Company Act. Under the BHCA, Riverview Bancorp, Inc. is supervised by the Federal Reserve. The Federal Reserve has a policy that a bank holding company is
required to serve as a source of financial and managerial strength to its subsidiary bank and may not conduct its operations in an unsafe or unsound manner. In addition, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank
holding company should serve as a source of strength to its subsidiary bank by having the ability to provide financial assistance to its subsidiary bank during periods of financial distress to the bank. A bank holding company’s failure to meet its
obligation to serve as a source of strength to its subsidiary bank will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve’s regulations or both. No regulations have yet
been proposed by the Federal Reserve to implement the source of strength provisions required by the Dodd-Frank Act. Riverview Bancorp, Inc. and any subsidiaries that it may control are considered “affiliates” within the meaning of the Federal Reserve
Act, and transactions between the Bank and affiliates are subject to numerous restrictions. With some exceptions, Riverview Bancorp, Inc. and its subsidiaries are
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prohibited from tying the provision of various services, such as extensions of credit, to other services offered by Riverview Bancorp, Inc. or by its affiliates.
Acquisitions. The BHCA prohibits a bank holding company, with certain exceptions, from acquiring ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. Under the BHCA, the Federal Reserve may approve the ownership of shares by a
bank holding company in any company, the activities of which the Federal Reserve has determined to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. These activities include:
operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance
agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers’ checks and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities brokerage services for customers. The Federal Reserve must approve the acquisition (or acquisition of control) of a bank or other FDIC-insured depository institution by a
bank holding company, and the appropriate federal banking regulator must approve a bank’s acquisition (or acquisition of control) of another bank or other FDIC-insured institution.
Acquisition of Control of a Bank Holding Company. Under federal law, a notice or application must be submitted to the appropriate federal banking regulator if any person
(including a company), or group acting in concert, seeks to acquire “control” of a bank holding company. An acquisition of control can occur upon the acquisition of 10% or more of the voting stock of a bank holding company or as otherwise defined by
federal regulations. In considering such a notice or application, the Federal Reserve takes into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any
company that acquires control becomes subject to regulation as a bank holding company. Depending on circumstances, a notice or application may be required to be filed with appropriate state banking regulators and may be subject to their approval or
non-objection.
Regulatory Capital Requirements.
As discussed above, pursuant to the “Small Bank Holding Company” exception, effective August 30, 2018, bank holding companies with less than $3 billion in consolidated assets were generally no longer subject to the
Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. At the time of this change, Riverview Bancorp, Inc. was considered “well capitalized” as defined for a bank holding company with a
total risk-based capital ratio of 10.0% or more and a Tier 1 risk-based capital ratio of 8.0% or more, and was not subject to an individualized order, directive or agreement under which the Federal Reserve requires it to maintain a specific capital
level.
Restrictions on Dividends. The Federal Reservehas issued a policy statement on the payment of cash dividends by bank holding companies
which expresses its view that a bank holding company must maintain an adequate capital position and generally should not pay cash dividends unless the company’s net income for the past year is sufficient to fully fund the cash dividends and that the
prospective rate of earnings appears consistent with the company’s capital needs, asset quality, and overall financial condition. The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends.The capital conservation buffer requirement may also limit or preclude dividends payable by the Company. For additional information, see Item 1.A. “Risk
Factors – Risks Related to Regulatory and Compliance Matters – Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions” in this report.
Stock Repurchases. A bank holding company, except for certain “well-capitalized” and highly rated bank holding companies, is required to give the Federal Reserve prior written
notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve
months, is equal to 10% or more of its consolidated net worth.The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice
or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.
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Federal Securities Laws. Riverview Bancorp, Inc.’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”). The Company is subject to information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.The SEC has adopted regulations and policies under the
Sarbanes-Oxley Act of 2002 that apply to Riverview Bancorp, Inc. as a registered company under the Exchange Act. The stated goals of these requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and
auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SEC and Sarbanes-Oxley-related regulations and policies include very
specific additional disclosure requirements and corporate governance rules.
Recent Regulatory Reform
In response to the COVID-19 pandemic, the U.S. Congress, through the enactment of the CARES Act, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and
procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the following:
As the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, life cycle, and eligibility requirements for the various CARES Act
programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that the U.S. Congress will enact supplementary COVID-19 response legislation. The Company continues to assess the impact of the CARES Act and other
statues, regulations and supervisory guidance related to the COVID-19 pandemic.
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Item 1A. Risk Factors
An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described
below together with all of the other information included in this report. In addition to the risks and uncertainties described below, other risks
and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations.The value or market
price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. The risks below also include forward-looking statements. This report is qualified in its entirety by these
risk factors.
Risks Related to Macroeconomic Conditions
The COVID-19 pandemic has adversely affected our ability to conduct business and is expected to adversely impact our future financial results and those of our customers. The ultimate impact will
depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the COVID-19 pandemic.
The worldwide COVID-19 pandemic has caused major economic disruption and volatility in the financial markets both in the United States and globally and has negatively affected our operations and the banking and
financial services we provide, primarily to businesses and individuals in the states of Washington and Oregon where all of our branches are located. In our market areas, stay-at-home orders, social distancing and travel restrictions, and similar
orders imposed across the United States to restrict the spread of COVID-19, resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and significant layoffs and furloughs. While the
stay-at-home orders have terminated or been phased-out along with reopening of businesses in all of the localities in which we operate still apply capacity restrictions and health and safety recommendations that encourage continued social distancing
and working remotely, limiting the ability of businesses to return to pre-pandemic levels of activity.
The COVID-19 pandemic resulted in changes to our business operations during the current year and could continue to result in changes to operations in future periods. Currently, some of our employees are working
remotely to enable us to continue to provide banking services to our customers. Heightened cybersecurity, information security and operational risks may result from these work-from-home arrangements. Depending on the severity and length of the
COVID-19 pandemic, which is impossible to predict, we could experience significant disruptions in our business operations if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions resulting
from the COVID-19 pandemic, as well as decreased demand for our products and services.Further, we also rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If
any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. We have business continuity plans and other safeguards in place, however, there is no assurance that such
plans and safeguards will be effective.
The COVID-19 pandemic has resulted in declines in demand for certain types of loans and has negatively impacted some of our business and consumer borrowers' ability to make their loan payments. Because the length of
the pandemic and the efficacy of the extraordinary measures being put in place to address the economic consequences are unknown, including a continued low targeted federal funds rate, until the pandemic subsides, we expect our net interest income and
net interest margin will continue to be adversely affected in the near term, if not longer.
There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant
and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values.
Asset quality may deteriorate and our allowance for loan losses may not be sufficient for future loan losses we experience. This could require us to increase our reserves and recognize more expense in the future. The
changes in market rates of interest and the impact that has on our ability to price our products may reduce our net interest income or negatively impact the demand for our products. There is some risk that operational costs could continue to increase
as we maintain existing facilities in accordance with health guidelines, while potentially incurring incremental costs to support staff who continue to work remotely.