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RIVERVIEW BANCORP INC - Quarter Report: 2015 September (Form 10-Q)

riv10q93015.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 
FORM 10-Q

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

For the quarterly period ended September 30, 2015

OR

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
            For the transition period from _____ to _____

Commission File Number: 0-22957
 
RIVERVIEW BANCORP, INC.

(Exact name of registrant as specified in its charter)

 
Washington    91-1838969 
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer I.D. Number) 
     
900 Washington St., Ste. 900,Vancouver, Washington    98660 
(Address of principal executive offices)    (Zip Code) 
     
Registrant's telephone number, including area code:    (360) 693-6650 
 

 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ] 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes [X]  No [   ] 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [   ]    Accelerated filer  [X]      Non-accelerated filer [   ]      Smaller Reporting Company [   ] 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [   ]  No  [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  Common Stock, $.01 par value per share, 22,507,890 shares outstanding as of November 6, 2015.

 
 

 
Form 10-Q

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
INDEX
 
Part I.   Page
     
Item 1:  Financial Statements (Unaudited)   
     
 
Consolidated Balance Sheets
as of September 30, 2015 and March 31, 2015
     
 
Consolidated Statements of Income for the
Three and Six Months Ended September 30, 2015 and 2014
     
 
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended September 30, 2015 and 2014
4
     
 
Consolidated Statements of Equity for the
Six Months Ended September 30, 2015 and 2014
     
 
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2015 and 2014
     
  Notes to Consolidated Financial Statements
     
Item 2: 
Management's Discussion and Analysis of
Financial Condition and Results of Operations
24 
     
Item 3:  Quantitative and Qualitative Disclosures About Market Risk 38 
     
Item 4:  Controls and Procedures 38 
     
Part II. Other Information 39-40 
     
Item 1: Legal Proceedings   
     
Item 1A: Risk Factors   
     
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds   
     
Item 3: Defaults Upon Senior Securities  
     
Item 4:  Mine Safety Disclosures  
     
Item 5: Other Information  
     
Item 6:  Exhibits  
     
SIGNATURES
41 
     
Certifications  
  Exhibit 31.1  
  Exhibit 31.2  
  Exhibit 32  
 
 
 

 
 Forward-Looking Statements

As used in this Form 10-Q, the terms “we,” “our,” “us”, “Riverview” and “Company” refer to Riverview Bancorp, Inc. and its consolidated subsidiaries, including its wholly-owned subsidiary, Riverview Community Bank, unless the context indicates otherwise.

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: When used in this Form 10-Q, the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in the Company’s allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in the Company’s market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, the Company’s net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in the Company’s market areas; secondary market conditions for loans and the Company’s ability to sell loans in the secondary market; results of examinations of our bank subsidiary, Riverview Community Bank, by the Office of the Comptroller of the Currency and of the Company by the Board of Governors of the Federal Reserve System, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require the Company to increase its reserve for loan losses, write-down assets, reclassify its assets, change Riverview Community Bank’s regulatory capital position or affect the Company’s ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; legislative or regulatory changes that adversely affect the Company’s business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III; the Company’s ability to attract and retain deposits; increases in premiums for deposit insurance; the Company’s ability to control operating costs and expenses; the use of estimates in determining fair value of certain of the Company’s assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risks associated with the loans on the Company’s consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect the Company’s workforce and potential associated charges; computer systems on which the Company depends could fail or experience a security breach; the Company’s ability to retain key members of its senior management team; costs and effects of litigation, including settlements and judgments; the Company’s ability to implement its business strategies; the Company’s ability to successfully integrate any assets, liabilities, customers, systems, and management personnel it may acquire into its operations and the Company’s ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; the Company’s ability to pay dividends on its common stock and interest or principal payments on its junior subordinated debentures; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services and the other risks described from time to time in our filings with the Securities and Exchange Commission.

The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for fiscal 2016 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company’s consolidated financial condition and results of operations as well as its stock price performance.
 
 
 
 
1

 
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
 
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2015 AND MARCH 31, 2015
(In thousands, except share and per share data) (Unaudited)
 
September 30,
2015
   
March 31,
2015
 
ASSETS
           
Cash and cash equivalents (including interest-earning accounts of $55,094 and $45,490)
  $ 68,865     $ 58,659  
Certificates of deposit held for investment
    21,247       25,969  
Loans held for sale
    950       778  
Investment securities available for sale, at fair value
(amortized cost of $15,926 and $15,927)
    15,750       15,751  
Mortgage-backed securities held to maturity, at amortized
cost (fair value of $82 and $88)
    80       86  
Mortgage-backed securities available for sale, at fair value
(amortized cost of $117,752 and $95,382)
    118,821       96,712  
Loans receivable (net of allowance for loan losses of $10,113 and $10,762)
    585,784       569,010  
Real estate owned
    909       1,603  
Prepaid expenses and other assets
    3,256       3,238  
Accrued interest receivable
    2,181       2,139  
Federal Home Loan Bank stock, at cost
    988       5,924  
Premises and equipment, net
    15,059       15,434  
Deferred income taxes, net
    11,153       12,568  
Mortgage servicing rights, net
    392       399  
Goodwill
    25,572       25,572  
Bank owned life insurance
    25,295       24,908  
TOTAL ASSETS
  $ 896,302     $ 858,750  
LIABILITIES AND EQUITY
               
                 
LIABILITIES:
               
Deposits
  $ 756,996     $ 720,850  
Accrued expenses and other liabilities
    6,497       8,111  
Advanced payments by borrowers for taxes and insurance
    712       495  
Junior subordinated debentures
    22,681       22,681  
Capital lease obligations
    2,484       2,276  
Total liabilities
    789,370       754,413  
                 
COMMITMENTS AND CONTINGENCIES (See Note 14)
               
                 
EQUITY:
               
Shareholders’ equity
               
Serial preferred stock, $.01 par value; 250,000 authorized; issued and outstanding: none
    -       -  
Common stock, $.01 par value; 50,000,000 authorized
               
September 30, 2015 – 22,507,890 issued and outstanding
    225       225  
March 31, 2015 – 22,489,890 issued and outstanding
               
Additional paid-in capital
    65,333       65,268  
Retained earnings
    40,460       37,830  
Unearned shares issued to employee stock ownership plan (“ESOP”)
    (232 )     (284 )
Accumulated other comprehensive income
    576       762  
Total shareholders’ equity
    106,362       103,801  
                 
Noncontrolling interest
    570       536  
Total equity
    106,932       104,337  
TOTAL LIABILITIES AND EQUITY
  $ 896,302     $ 858,750  
 
See accompanying notes to consolidated financial statements.
 
 
2

 

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2015 AND 2014
 
 
Three Months Ended
September 30,
   
Six Months Ended
September 30,
 
(In thousands, except share and per share data) (Unaudited)
 
2015
   
2014
   
2015
   
2014
 
INTEREST AND DIVIDEND INCOME:
                       
    Interest and fees on loans receivable
  $ 6,789     $ 6,486     $ 13,649     $ 12,657  
Interest on investment securities – taxable
    62       98       126       182  
Interest on mortgage-backed securities
    640       508       1,158       988  
Other interest and dividends
    111       118       230       249  
Total interest and dividend income
    7,602       7,210       15,163       14,076  
                                 
INTEREST EXPENSE:
                               
Interest on deposits
    300       342       603       702  
Interest on borrowings
    139       148       273       295  
Total interest expense
    439       490       876       997  
Net interest income
    7,163       6,720       14,287       13,079  
Recapture of loan losses
    (300 )     (350 )     (800 )     (650 )
Net interest income after recapture of loan losses
    7,463       7,070       15,087       13,729  
                                 
NON-INTEREST INCOME:
                               
Fees and service charges
    1,132       1,158       2,428       2,228  
Asset management fees
    801       710       1,625       1,530  
Net gain on sale of loans held for sale
    79       155       300       281  
Bank owned life insurance
    190       194       387       332  
Other
    14       6       25       62  
Total non-interest income
    2,216       2,223       4,765       4,433  
                                 
NON-INTEREST EXPENSE:
                               
Salaries and employee benefits
    4,236       4,341       8,650       8,515  
Occupancy and depreciation
    1,154       1,322       2,323       2,409  
Data processing
    431       434       921       904  
Advertising and marketing expense
    208       203       384       353  
FDIC insurance premium
    122       180       248       355  
State and local taxes
    123       117       260       254  
Telecommunications
    74       74       147       150  
Professional fees
    218       257       451       546  
Real estate owned expenses
    167       186       446       802  
Other
    551       560       1,199       1,121  
Total non-interest expense
    7,284       7,674       15,029       15,409  
                                 
INCOME BEFORE INCOME TAXES
    2,395       1,619       4,823       2,753  
PROVISION FOR INCOME TAXES
    743       535       1,576       929  
NET INCOME
  $ 1,652     $ 1,084     $ 3,247     $ 1,824  
                                 
Earnings per common share:
                               
Basic
  $ 0.07     $ 0.05     $ 0.14     $ 0.08  
Diluted
    0.07       0.05       0.14       0.08  
    Weighted average number of common shares outstanding:
                               
Basic
    22,449,386       22,388,753       22,441,898       22,385,691  
Diluted
    22,490,351       22,419,469       22,483,711       22,414,212  

 
See accompanying notes to consolidated financial statements.

 
3

 
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2015 AND 2014

   
Three Months
Ended September 30
   
Six Months Ended
September 30,
 
(In thousands) (Unaudited)
 
2015
   
2014
   
2015
   
2014
 
                         
Net income
  $ 1,652     $ 1,084     $ 3,247     $ 1,824  
                                 
Other comprehensive income:
                               
Net unrealized holding gain (loss) from available for sale securities arising
                               
during the period, net of tax of ($317), $84,  $75 and ($224), respectively
    578       (164 )     (186 )     435  
                                 
Noncontrolling interest
    19       15       34       34  
Total comprehensive income
  $ 2,249     $ 935     $ 3,095     $ 2,293  
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 
4

 

RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

  (In thousands, except share data)
Common Stock
     
Additional
Paid-In
     Retained      
Unearned
Shares
Issued to
     
Accumulated
Other
Comprehensive
     
Noncontrolling
       
(Unaudited)
 
Shares
   
Amount
   
Capital
   
Earnings
   
ESOP
   
Income (Loss)
   
Interest
   
Total
 
                                                 
Balance April 1, 2014
    22,471,890     $ 225     $ 65,195     $ 33,592     $ (387 )   $ (647 )   $ 471     $ 98,449  
                                                                 
Net income
    -       -       -       1,824       -       -       -       1,824  
Stock based compensation expense
    -       -       27       -       -       -       -       27  
Earned ESOP shares
    -       -       (5 )     -       52       -       -       47  
Unrealized holding gain on securities available for sale
    -       -       -       -       -       435       -       435  
Noncontrolling interest
    -       -       -       -       -       -       34       34  
                                                                 
Balance September 30, 2014
    22,471,890     $ 225     $ 65,217     $ 35,416     $ (335 )   $ (212 )   $ 505     $ 100,816  
                                                                 
                                                                 
Balance April 1, 2015
    22,489,890     $ 225     $ 65,268     $ 37,830     $ (284 )   $ 762     $ 536     $ 104,337  
                                                                 
Net income
    -       -       -       3,247       -       -       -       3,247  
Cash dividend ($0.0275 per share)
    -       -       -       (617 )     -       -       -       (617 )
Exercise of stock options
    18,000       -       62       -       -       -       -       62  
Earned ESOP shares
    -       -       3       -       52       -       -       55  
Unrealized holding loss on securities available for sale
    -       -       -       -       -       (186 )     -       (186 )
Noncontrolling interest
    -       -       -       -       -       -       34       34  
                                                                 
Balance September 30, 2015
    22,507,890     $ 225     $ 65,333     $ 40,460     $ (232 )   $ 576     $ 570     $ 106,932  

See accompanying notes to consolidated financial statements.
 
 
5

 
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
 
Six Months Ended
September 30,
 
(In thousands) (Unaudited)
 
2015
   
2014
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
$
3,247
 
$
1,824
 
Adjustments to reconcile net income to net cash provided by operating activities:
           
Depreciation and amortization
 
1,585
   
1,407
 
Recapture of loan losses
 
(800
)
 
(650
)
Provision for deferred income taxes
 
1,490
   
908
 
Expense related to ESOP
 
55
   
47
 
Increase in deferred loan origination fees, net of amortization
 
211
   
1
 
Origination of loans held for sale
 
(9,367
)
 
(7,912
)
Proceeds from sales of loans held for sale
 
9,411
   
8,775
 
Stock-based compensation expense
 
-
   
27
 
Writedown of real estate owned
 
262
   
640
 
Net gains on loans held for sale, sales of real estate owned and premises and equipment
 
(228
)
 
(237
)
Income from bank owned life insurance
 
(387
)
 
(332
)
Changes in assets and liabilities:
           
Prepaid expenses and other assets
 
(30
)
 
(98
)
Accrued interest receivable
 
(42
)
 
(211
)
Accrued expenses and other liabilities
 
(1,585
)
 
2,049
 
Net cash provided by operating activities
 
3,822
   
6,238
 
             
CASH FLOWS FROM INVESTING ACTIVITIES:
           
Loan originations, net
 
(16,463
)
 
(10,963
)
Purchases of loans receivable
 
-
   
(8,726
)
Proceeds from calls, maturities, and sales of investment securities available for sale
 
-
   
6,000
 
Principal repayments on mortgage-backed securities available for sale
 
11,087
   
7,994
 
Principal repayments on mortgage-backed securities held to maturity
 
6
   
11
 
Purchases of investment securities available for sale
 
-
   
(2,000
)
Purchases of mortgage-backed securities available for sale
 
(33,968
)
 
(50,199
)
Redemption of certificates of deposit held for investment, net
 
4,722
   
3,984
 
Proceeds from redemption of Federal Home Loan Bank stock
 
4,936
   
420
 
Purchase of bank owned life insurance
 
-
   
(6,500
)
Purchases of premises and equipment and capitalized software
 
(166
)
 
(282
)
Proceeds from sales of real estate owned and premises and equipment
 
370
   
3,730
 
Net cash used in investing activities
 
(29,476
)
 
(56,531
)
             
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Net increase in deposits
 
36,146
   
12,569
 
Dividends paid
 
(532
)
 
-
 
Proceeds from borrowings
 
2,000
   
3,000
 
Repayment of borrowings
 
(2,000
)
 
(3,000
)
Principal payments on capital lease obligations
 
(33
)
 
(42
)
Net increase in advance payments by borrowers
 
217
   
177
 
Proceeds from exercise of stock options
 
62
   
-
 
Net cash provided by financing activities
 
35,860
   
12,704
 
             
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
10,206
   
(37,589
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
58,659
   
68,577
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
68,865
 
$
30,988
 
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
Cash paid during the period for:
           
Interest
$
789
 
$
721
 
Income taxes
 
100
   
15
 
             
NONCASH INVESTING AND FINANCING ACTIVITIES:
           
Dividends declared and accrued in other liabilities
$
339
 
$
-
 
Transfer of loans to real estate owned
 
-
   
804
 
Transfer of real estate owned to loans
 
-
   
406
 
Adjustment to capital lease obligations and premises and equipment
 
241
   
-
 
Unrealized holding gain (loss) from securities available for sale
 
(261
)
 
659
 
Income tax effect related to unrealized holding gain (loss) from securities available for sale
 
75
   
(224
)
 
See accompanying notes to consolidated financial statements.
 
6

 
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)

1.  
BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all adjustments that are, in the opinion of management, necessary for a fair presentation of the interim unaudited consolidated financial statements have been included. All such adjustments are of a normal recurring nature.

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Riverview Bancorp, Inc. Annual Report on Form 10-K for the year ended March 31, 2015 (“2015 Form 10-K”). The unaudited consolidated results of operations for the six months ended September 30, 2015 are not necessarily indicative of the results which may be expected for the entire fiscal year ending March 31, 2016.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the September 30, 2015 presentation; such reclassifications had no effect on net income or total equity previously reported.

2.  
PRINCIPLES OF CONSOLIDATION

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

3.  
STOCK PLANS AND STOCK-BASED COMPENSATION

In July 1998, shareholders of the Company approved the adoption of the 1998 Stock Option Plan (“1998 Plan”). The 1998 Plan was effective October 1998 and expired in October 2008. Accordingly, no further option awards may be granted under the 1998 Plan; however, any awards granted prior to its expiration remain outstanding subject to their terms. Each option granted under the 1998 Plan has an exercise price equal to the fair market value of the Company’s common stock on the date of the grant, a maximum term of ten years and a vesting period from zero to five years.

In July 2003, shareholders of the Company approved the adoption of the 2003 Stock Option Plan (“2003 Plan”). The 2003 Plan was effective July 2003 and expired in July 2013. Accordingly, no further option awards may be granted under the 2003 Plan; however, any awards granted prior to its expiration remain outstanding subject to their terms. Each option granted under the 2003 Plan has an exercise price equal to the fair market value of the Company’s common stock on the date of the grant, a maximum term of ten years and a vesting period from zero to five years.

The following table presents information related to stock options outstanding for the periods shown.

   
Six Months Ended
September 30, 2015
   
Six Months Ended
September 30, 2014
 
   
Number of
Shares
   
Weighted
Average
Exercise
Price
   
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Balance, beginning of period
    424,654     $ 8.00       474,654     $ 7.91  
Options exercised
    (18,000 )     3.49       -       -  
Forfeited
    (8,000 )     12.98       -       -  
Expired
    (8,000 )     11.79       (32,000 )     9.55  
Balance, end of period
    390,654     $ 8.03       442,654     $ 7.79  

 
7

 
The following table presents information on stock options outstanding for the periods shown, less estimated forfeitures:
   
Six Months
Ended
September 30, 2015
   
Six Months
Ended
September 30, 2014
 
Stock options fully vested and expected to vest:
           
Number
    390,654       442,504  
Weighted average exercise price
  $ 8.03     $ 7.79  
Aggregate intrinsic value (1)
  $ 251,000     $ 151,000  
Weighted average contractual term of options (years)
    3.09       4.20  
Stock options fully vested and currently exercisable:
               
Number
    390,654       442,054  
Weighted average exercise price
  $ 8.03     $ 7.79  
Aggregate intrinsic value (1)
  $ 251,000     $ 150,000  
Weighted average contractual term of options (years)
    3.09       4.20  
 
(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price) that would have been received by the option holders had all option holders exercised. This amount changes based on changes in the market value of the Company’s stock.

There was no stock-based compensation expense related to stock options for the six months ended September 30, 2015. Stock-based compensation expense related to stock options for the six months ended September 30, 2014 was $27,000. As of September 30, 2015, all outstanding stock options were fully vested, and there was no remaining unrecognized compensation expense. The total intrinsic value of stock options exercised was $16,000 for the six months ended September 30, 2015. There were ­­­­­no stock options exercised during the six months ended September 30, 2014.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes stock option valuation model. There were no stock options granted during the six months ended September 30, 2015 and 2014.

4.  
EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted EPS is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period. Common stock equivalents arise from the assumed exercise of outstanding stock options. Shares owned by the Company’s Employee Stock Ownership Plan (“ESOP”) that have not been allocated are not considered to be outstanding for the purpose of computing basic and diluted EPS. As of September 30, 2015 and 2014, there were ­­­74,000 and 99,000 shares, respectively, which had not been allocated under the Company’s ESOP. For the three and six months ended September 30, 2015, stock options for 220,000 and 223,000 shares, respectively, of common stock were excluded in computing diluted EPS because they were antidilutive. For the three and six months ended September 30, 2014, stock options for 330,000 and 331,000 shares, respectively, of common stock were excluded in computing diluted EPS because they were antidilutive.

The following table presents a reconciliation of the components used to compute basic and diluted EPS for the periods indicated:
   
Three Months
Ended September 30,
   
Six Months Ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Basic EPS computation:
                       
Numerator-net income
  $ 1,652,000     $ 1,084,000     $ 3,247,000     $ 1,824,000  
Denominator-weighted average common shares
  outstanding
    22,449,386       22,388,753       22,441,898       22,385,691  
Basic EPS
  $ 0.07     $ 0.05     $ 0.14     $ 0.08  
Diluted EPS computation:
                               
Numerator-net income
  $ 1,652,000     $ 1,084,000     $ 3,247,000     $ 1,824,000  
Denominator-weighted average common shares
  outstanding
    22,449,386       22,388,753       22,441,898       22,385,691  
Effect of dilutive stock options
    40,965       30,716       41,813       28,521  
Weighted average common shares and common stock
  equivalents
    22,490,351       22,419,469       22,483,711       22,414,212  
Diluted EPS
  $ 0.07     $ 0.05     $ 0.14     $ 0.08  
 
8

 
 
5.  
INVESTMENT SECURITIES

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

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
September 30, 2015
                       
Trust preferred
  $ 1,919     $ -     $ (151 )   $ 1,768  
Agency securities
    14,007       35       (60 )     13,982  
Total
  $ 15,926     $ 35     $ (211 )   $ 15,750  
                                 
March 31, 2015
                               
Trust preferred
  $ 1,919     $ -     $ (107 )   $ 1,812  
Agency securities
    14,008       38       (107 )     13,939  
Total
  $ 15,927     $ 38     $ (214 )   $ 15,751  

The contractual maturities of investment securities available for sale as of September 30, 2015 are as follows (in thousands):
   
Amortized
Cost
   
Estimated
Fair Value
 
Due after one year through five years
  $ 13,000     $ 12,940  
Due after five years through ten years
    1,007       1,042  
Due after ten years
    1,919       1,768  
Total
  $ 15,926     $ 15,750  

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

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

   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
 
September 30, 2015
                                   
                                     
Trust preferred
  $ -     $ -     $ 1,768     $ (151 )   $ 1,768     $ (151 )
Agency securities
    2,994       (6 )     9,946       (54 )     12,940       (60 )
Total
  $ 2,994     $ (6 )   $ 11,714     $ (205 )   $ 14,708     $ (211 )
                                                 
March 31, 2015
                                               
                                                 
Trust preferred
  $ -     $ -     $ 1,812     $ (107 )   $ 1,812     $ (107 )
Agency securities
    -       -       12,893       (107 )     12,893       (107 )
Total
  $ -     $ -     $ 14,705     $ (214 )   $ 14,705     $ (214 )

At September 30, 2015, the Company had a single collateralized debt obligation which is secured by a pool of trust preferred securities issued by 15 other holding companies. The Company holds the mezzanine tranche of this security. All tranches senior to the mezzanine tranche have been repaid by the issuer. Four of the issuers of trust preferred securities in this pool have defaulted (representing 51% of the remaining collateral, including excess collateral), and one other issuer is currently deferring interest payments (2% of the remaining collateral). The Company has estimated an expected default rate of 44% for its portion of this security. The expected default rate was estimated based primarily on an analysis of the financial condition of the underlying issuers. The Company estimates that a default rate of 72% would trigger additional other than temporary impairment (“OTTI”) of this security. The Company utilized a discount rate of 10% to estimate the fair value of this security. There was no excess subordination on this security.

During the three and six months ended September 30, 2015, the Company determined that there was no additional OTTI charge on this collateralized debt obligation. The Company does not intend to sell this security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of the remaining amortized cost basis.

 
9

 
To determine the component of gross OTTI related to credit losses, the Company compared the amortized cost basis of the collateralized debt obligation to the present value of the revised expected cash flows, discounted using the current pre-impairment yield. The revised expected cash flow estimates are based primarily on an analysis of default rates, prepayment speeds and third-party analytical reports. Significant judgment of management is required in this analysis that includes, but is not limited to, assumptions regarding the ultimate collectability of principal and interest on the underlying collateral.

The unrealized losses on the Company’s agency securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of the agency securities to recover as the agency securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that the agency securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. Based on management’s evaluation and intent, the unrealized losses related to the agency securities in the above table are considered temporary.

The Company realized no gains or losses on sales of investment securities for the three and six months ended September 30, 2015 and 2014. Investment securities with an amortized cost of $3.0 million at both September 30, 2015 and March 31, 2015 and a fair value of $3.0 million at both September 30, 2015 and March 31, 2015, were pledged as collateral for government public funds held by the Bank.

6.  
MORTGAGE-BACKED SECURITIES

Mortgage-backed securities held to maturity consisted of the following at the dates indicated (in thousands):
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
September 30, 2015
                       
Mortgage-backed securities (1)
  $ 80     $ 2     $ -     $ 82  
                                 
March 31, 2015
                               
Mortgage-backed securities (1)
  $ 86     $ 2     $ -     $ 88  
 
(1) Comprised of Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“ FHLMC”) issued securities.

The contractual maturities of mortgage-backed securities classified as held to maturity as of September 30, 2015 are as follows (in thousands):
   
Amortized
Cost
   
Estimated
Fair Value
 
Due after five years through ten years
  $ 69     $ 71  
Due after ten years
    11       11  
Total
  $ 80     $ 82  

Mortgage-backed securities held to maturity with an amortized cost of $25,000 and $27,000 and a fair value of $26,000 and $27,000 at September 30, 2015 and March 31, 2015, respectively, were pledged as collateral for government public funds held by the Bank.

Mortgage-backed securities available for sale consisted of the following at the dates indicated (in thousands):
September 30, 2015
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
Real estate mortgage investment conduits (1)
  $ 35,672     $ 316     $ (1 )   $ 35,987  
Mortgage-backed securities (1)
    76,940       783       (103 )     77,620  
Other mortgage-backed securities (2)
    5,140       86       (12 )     5,214  
Total
  $ 117,752     $ 1,185     $ (116 )   $ 118,821  
March 31, 2015
                               
Real estate mortgage investment conduits (1)
  $ 22,455     $ 255     $ (1 )   $ 22,709  
Mortgage-backed securities (1)
    67,568       1,006       (60 )     68,514  
Other mortgage-backed securities (2)
    5,359       142       (12 )     5,489  
Total
  $ 95,382     $ 1,403     $ (73 )   $ 96,712  
 
(1) Comprised of FHLMC, FNMA and Ginnie Mae (“GNMA”) issued securities.
(2) Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by private issuers.
 
10

 

The contractual maturities of mortgage-backed securities available for sale as of September 30, 2015 are as follows (in thousands):
   
Amortized
Cost
   
Estimated
Fair Value
 
Due in one year or less
  $ 1     $ 1  
Due after one year through five years
    2,473       2,513  
Due after five years through ten years
    6,792       6,846  
Due after ten years
    108,486       109,461  
Total
  $ 117,752     $ 118,821  

Expected maturities of mortgage-backed securities held to maturity and available for sale will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

The fair value of temporarily impaired securities, the amount of unrealized losses and the length of time these unrealized losses existed are as follows at the dates indicated (in thousands):
   
Less than 12 months
   
12 months or longer
   
Total
 
   
Estimated Fair Value
   
Unrealized
Losses
   
Estimated Fair Value
   
Unrealized
Losses
   
Estimated Fair Value
   
Unrealized
Losses
 
September 30, 2015
                                   
                                     
Real estate mortgage investment conduits (1)
  $ 1,060     $ (1 )   $ -     $ -     $ 1,060     $ (1 )
Mortgage-backed securities (2)
    3,769       (16 )     4,738       (87 )     8,507       (103 )
Other mortgage-backed securities (3)
    -       -       1,387       (12 )     1,387       (12 )
Total
  $ 4,829     $ (17 )   $ 6,125     $ (99 )   $ 10,954     $ (116 )
 
March 31, 2015
                                   
                                     
Real estate mortgage investment conduits (4)
  $ 1,323     $ (1 )   $ -     $ -     $ 1,323     $ (1 )
Mortgage-backed securities (2)
    -       -       5,098       (60 )     5,098       (60 )
Other mortgage-backed securities (3)
    -       -       1,417       (12 )     1,417       (12 )
Total
  $ 1,323     $ (1 )   $ 6,515     $ (72 )   $ 7,838     $ (73 )
 
(1) Comprised of a GNMA issued securities.
(2) Comprised of FHLMC and FNMA issued securities.
(3) Comprised of SBA issued securities.
(4) Comprised of a FHLMC security.

The unrealized losses on the above mortgage-backed securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of the mortgage-backed securities to recover as the mortgage-backed securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that the mortgage-backed securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. Based on management’s evaluation and intent, the unrealized losses related to the mortgage-backed securities in this table are considered temporary. Mortgage-backed securities available for sale with an amortized cost of $5.7 million and $1.3 million and a fair value of $5.7 million and $1.3 million at September 30, 2015 and March 31, 2015, respectively, were pledged as collateral for government public funds held by the Bank.

7.  
LOANS RECEIVABLE

Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands):
   
September 30,
2015
   
March 31,
2015
 
Commercial and construction
           
Commercial business
  $ 78,138     $ 77,186  
Other real estate mortgage (1)
    380,529       345,506  
Real estate construction
    17,304       30,498  
Total commercial and construction
    475,971       453,190  
                 
Consumer
               
Real estate one-to-four family
    89,520       89,801  
Other installment
    30,406       36,781  
Total consumer
    119,926       126,582  
                 
Total loans
    595,897       579,772  
                 
Less:  Allowance for loan losses
    10,113       10,762  
Loans receivable, net
  $ 585,784     $ 569,010  
 
 (1) Other real estate mortgage consists of commercial real estate, land and multi-family loans.
 
11

 
The Company considers its loan portfolio to have very little exposure to sub-prime mortgage loans since the Company has not historically engaged in this type of lending. At September 30, 2015, loans carried at $383.4 million were pledged as collateral to the Federal Home Loan Bank of Seattle (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) pursuant to/under borrowing agreements.

Most of the Bank’s business activity is with customers located in the states of Washington and Oregon. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulation to 15% of the Bank’s shareholders’ equity, excluding accumulated other comprehensive loss. As of September 30, 2015 and March 31, 2015, the Bank had no loans to any one borrower in excess of the regulatory limit.

8.  
ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon the Company’s ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions and detailed analysis of individual loans for which full collectability may not be assured. The detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are considered impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value (less estimated selling costs, if applicable) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans based on the Company’s risk rating system and historical loss experience adjusted for qualitative factors. The Company calculates its historical loss rates using the average of the last four quarterly 24-month periods. The Company calculates and applies its historical loss rates by individual loan types in its portfolio. These historical loss rates are adjusted for qualitative and environmental factors. An unallocated component is maintained to cover uncertainties that the Company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses. Such factors include uncertainties in economic conditions and in identifying triggering events that directly correlate to subsequent loss rates, changes in appraised value of underlying collateral, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current portfolio or economic conditions. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company as of the date of the filing of the consolidated financial statements.

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

Management’s evaluation of the allowance for loan losses is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. Loss factors are based on the Company’s historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of impaired loans and other factors as deemed appropriate. These factors are evaluated on a quarterly basis. Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter. The Company also considers bank regulatory examination results and findings of credit examiners in its quarterly evaluation of the allowance for loan losses.

 
12

 
The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):
 
Three months ended
September 30, 2015
 
Commercial 
Business
   
Commercial Real Estate
   
Land
   
Multi-Family
   
Real Estate Construction
   
Consumer
   
Unallocated
   
Total
 
                                                 
Beginning balance
  $ 1,469     $ 4,246     $ 502     $ 219     $ 622     $ 2,354     $ 925     $ 10,337  
Provision for (recapture of) loan losses
    (115 )     47       (74 )     275       (342 )     (27 )     (64 )     (300 )
Charge-offs
    -       -       -       -       -       (59 )     -       (59 )
Recoveries
    6       -       62       -       6       61       -       135  
Ending balance
  $ 1,360     $ 4,293     $ 490     $ 494     $ 286     $ 2,329     $ 861     $ 10,113  
 
Six months ended
September 30, 2015
                                               
                                                 
Beginning balance
  $ 1,263     $ 4,268     $ 539     $ 348     $ 769     $ 2,548     $ 1,027     $ 10,762  
Provision for (recapture of) loan losses
    79       25       (172 )     146       (489 )     (223 )     (166 )     (800 )
Charge-offs
    -       -       -       -       -       (73 )     -       (73 )
Recoveries
    18       -       123       -       6       77       -       224  
Ending balance
  $ 1,360     $ 4,293     $ 490     $ 494     $ 286     $ 2,329     $ 861     $ 10,113  
 
Three months ended
September 30, 2014
                                               
                                                 
Beginning balance
  $ 1,606     $ 5,393     $ 297     $ 260     $ 354     $ 2,862     $ 1,509     $ 12,281  
Provision for (recapture of) loan losses
    44       (203 )     (89 )     100       (35 )     (127 )     (40 )     (350 )
Charge-offs
    (73 )     (3 )     -       -       -       (28 )     -       (104 )
Recoveries
    2       -       57       -       -       115       -       174  
Ending balance
  $ 1,579     $ 5,187     $ 265     $ 360     $ 319     $ 2,822     $ 1,469     $ 12,001  
 
Six months ended
September 30, 2014
                                               
                                                 
Beginning balance
  $ 2,409     $ 5,269     $ 340     $ 203     $ 387     $ 2,653     $ 1,290     $ 12,551  
Provision for (recapture of) loan losses
    (762 )     (54 )     (193 )     157       (68 )     91       179       (650 )
Charge-offs
    (73 )     (28 )     -       -       -       (58 )     -       (159 )
Recoveries
    5       -       118       -       -       136       -       259  
Ending balance
  $ 1,579     $ 5,187     $ 265     $ 360     $ 319     $ 2,822     $ 1,469     $ 12,001  
 
The following tables present an analysis of loans receivable and the allowance for loan losses, which were evaluated individually and collectively for impairment at the dates indicated (in thousands):
 
 
Allowance for loan losses
 
Recorded investment in loans
 
September 30, 2015
 
Individually
Evaluated for
Impairment
   
Collectively
Evaluated for
Impairment
   
Total
   
Individually
Evaluated for
Impairment
   
Collectively
Evaluated for
Impairment
   
Total
 
                                     
Commercial business
$
-
 
$
1,360
 
$
1,360
 
$
617
 
$
77,521
 
$
78,138
 
Commercial real estate
 
-
   
4,293
   
4,293
   
14,288
   
317,150
   
331,438
 
Land
 
-
   
490
   
490
   
801
   
13,301
   
14,102
 
Multi-family
 
-
   
494
   
494
   
1,901
   
33,088
   
34,989
 
Real estate construction
 
-
   
286
   
286
   
-
   
17,304
   
17,304
 
Consumer
 
121
   
2,208
   
2,329
   
1,864
   
118,062
   
119,926
 
Unallocated
 
-
   
861
   
861
   
-
   
-
   
-
 
Total
$
121
 
$
9,992
 
$
10,113
 
$
19,471
 
$
576,426
 
$
595,897
 
 
March 31, 2015
                                   
                                     
Commercial business
$
-
 
$
1,263
 
$
1,263
 
$
1,091
 
$
76,095
 
$
77,186
 
Commercial real estate
 
-
   
4,268
   
4,268
   
15,939
   
283,752
   
299,691
 
Land
 
-
   
539
   
539
   
801
   
14,557
   
15,358
 
Multi-family
 
-
   
348
   
348
   
1,922
   
28,535
   
30,457
 
Real estate construction
 
-
   
769
   
769
   
-
   
30,498
   
30,498
 
Consumer
 
147
   
2,401
   
2,548
   
2,622
   
123,960
   
126,582
 
Unallocated
 
-
   
1,027
   
1,027
   
-
   
-
   
-
 
Total
$
147
 
$
10,615
 
$
10,762
 
$
22,375
 
$
557,397
 
$
579,772
 

 
13

 
Non-accrual loans:  Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 days to 89 days delinquent. In general, when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. As a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months. Interest income foregone on non-accrual loans was $56,000 and $269,000 during the six months ended September 30, 2015 and 2014, respectively.

The following tables present an analysis of past due loans at the dates indicated (in thousands):

September 30, 2015
 
30-89 Days
Past Due
   
90 Days
and
Greater
Past Due
   
Non-accrual
   
Total Past
Due and
Non-
accrual
   
Current
   
Total Loans
Receivable
 
                                     
Commercial business
  $ 195     $ -     $ -     $ 195     $ 77,943     $ 78,138  
Commercial real estate
    222       -       2,525       2,747       328,691       331,438  
Land
    -       -       801       801       13,301       14,102  
Multi-family
    -       -       -       -       34,989       34,989  
Real estate construction
    -       -       -       -       17,304       17,304  
Consumer
    438       14       431       883       119,043       119,926  
Total
  $ 855     $ 14     $ 3,757     $ 4,626     $ 591,271     $ 595,897  


March 31, 2015
                                   
                                     
Commercial business
  $ 359     $ -     $ -     $ 359     $ 76,827     $ 77,186  
Commercial real estate
    225       -       3,291       3,516       296,175       299,691  
Land
    -       -       801       801       14,557       15,358  
Multi-family
    -       -       -       -       30,457       30,457  
Real estate construction
    -       -       -       -       30,498       30,498  
Consumer
    902       -       1,226       2,128       124,454       126,582  
Total
  $ 1,486     $ -     $ 5,318     $ 6,804     $ 572,968     $ 579,772  

Credit quality indicators: The Company monitors credit risk in its loan portfolio using a risk rating system for all commercial (non-consumer) loans. The risk rating system is a measure of the credit risk of the borrower based on their historical, current and anticipated future financial characteristics. The Company assigns a risk rating to each commercial loan at origination and subsequently updates these ratings, as necessary, so that the risk rating continues to reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earning trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its allowance for loan loss.

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

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

 
14

 
Special mention – These loans have a risk rating of 6 and are rated in accordance with regulatory guidelines. These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the credit position at some future date. These loans pose elevated risk, but their weakness does not yet justify a “Substandard” classification.
 
Substandard – These loans have a risk rating of 7 and are rated in accordance with regulatory guidelines, for which the accrual of interest may or may not be discontinued. By definition under regulatory guidelines, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.
 
Doubtful – These loans have a risk rating of 8 and are rated in accordance with regulatory guidelines. Such loans are placed on non-accrual status and repayment may be dependent upon collateral which has value that is difficult to determine or upon some near-term event which lacks certainty.
 
Loss – These loans have a risk rating of 9 and are rated in accordance with regulatory guidelines. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

The following tables present an analysis of credit quality indicators at the dates indicated (dollars in thousands):
 
September 30, 2015
 
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Loss
   
Total Loans
Receivable
                                   
Commercial business
$
76,724
 
$
1,142
 
$
272
 
$
-
 
$
-
 
$
78,138
Commercial real estate
 
313,829
   
14,452
   
3,157
   
-
   
-
   
331,438
Land
 
10,589
   
2,712
   
801
   
-
   
-
   
14,102
Multi-family
 
33,061
   
1,915
   
13
   
-
   
-
   
34,989
Real estate construction
 
17,304
   
-
   
-
   
-
   
-
   
17,304
Consumer
 
119,495
   
-
   
431
   
-
   
-
   
119,926
Total
$
571,002
 
$
20,221
 
$
4,674
 
$
-
 
$
-
 
$
595,897

March 31, 2015
                                 
                                   
Commercial business
$
75,643
 
$
977
 
$
566
 
$
-
 
$
-
 
$
77,186
Commercial real estate
 
277,156
   
15,570
   
6,965
   
-
   
-
   
299,691
Land
 
11,665
   
2,892
   
801
   
-
   
-
   
15,358
Multi-family
 
28,508
   
14
   
1,935
   
-
   
-
   
30,457
Real estate construction
 
28,670
   
-
   
1,828
   
-
   
-
   
30,498
Consumer
 
125,356
   
-
   
1,226
   
-
   
-
   
126,582
Total
$
546,998
 
$
19,453
 
$
13,321
 
$
-
 
$
-
 
$
579,772

Impaired loans and troubled debt restructurings (“TDRs”): A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Typically, factors used in determining if a loan is impaired include, but are not limited to, whether the loan is 90 days or more delinquent, internally designated as substandard or worse, on non-accrual status or represents a TDR. The majority of the Company’s impaired loans are considered collateral dependent. When a loan is considered collateral dependent, impairment is measured using the estimated value of the underlying collateral, less any prior liens, and when applicable, less estimated selling costs. For impaired loans that are not collateral dependent, impairment is measured using the present value of expected future cash flows, discounted at the loan’s original effective interest rate. When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized by adjusting an allocation of the allowance for loan losses. Subsequent to the initial allocation of allowance to the individual loan, the Company may conclude that it is appropriate to record a charge-off of the impaired portion of the loan. When a charge-off is recorded, the loan balance is reduced and the specific allowance is eliminated. Generally, when a collateral dependent loan is initially measured for impairment and has not had an appraisal of the collateral performed in the last six months, the Company obtains an updated market valuation. Subsequently, the Company generally obtains an updated market valuation of the collateral on an annual basis. The collateral valuation may occur more frequently if the Company determines that there is an indication that the market value may have declined.

 
15

 
The following tables present the total and average recorded investment in impaired loans at the dates and for the periods indicated (in thousands):

September 30, 2015
 
Recorded
Investment with
No Specific
Valuation
Allowance
   
Recorded
Investment
with Specific
Valuation
Allowance
   
Total
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Specific
Valuation
Allowance
 
                               
Commercial business
  $ 617     $ -     $ 617     $ 619     $ -  
Commercial real estate
    14,288       -       14,288       15,442       -  
Land
    801       -       801       804       -  
Multi-family
    1,901       -       1,901       2,044       -  
Consumer
    647       1,217       1,864       2,054       121  
Total
  $ 18,254     $ 1,217     $ 19,471     $ 20,963     $ 121  
                                         
March 31, 2015
                                       
                                         
Commercial business
  $ 1,091     $ -     $ 1,091     $ 1,125     $ -  
Commercial real estate
    15,939       -       15,939       17,188       -  
Land
    801       -       801       804       -  
Multi-family
    1,922       -       1,922       2,058       -  
Consumer
    1,276       1,346       2,622       3,211       147  
Total
  $ 21,029     $ 1,346     $ 22,375     $ 24,386     $ 147  


   
Three Months ended
September 30, 2015
   
Three Months ended
September 30, 2014
 
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired
Loans
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired
Loans
 
                         
Commercial business
  $ 619     $ 6     $ 1,074     $ 11  
Commercial real estate
    14,481       133       17,286       114  
Land
    801       -       813       -  
Multi-family
    1,907       26       2,326       -  
Consumer
    1,871       20       3,336       19  
Total
  $ 19,679     $ 185     $ 24,835     $ 144  

   
Six Months ended
September 30, 2015
   
Six Months ended
September 30, 2014
 
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired
Loans
   
Average
Recorded
Investment
   
Interest
Recognized on
Impaired
Loans
 
                         
Commercial business
  $ 776     $ 13     $ 1,031     $ 22  
Commercial real estate
    14,967       266       17,565       225  
Land
    801       -       828       -  
Multi-family
    1,912       52       2,222       -  
Consumer
    2,121       36       3,560       38  
Total
  $ 20,577     $ 367     $ 25,206     $ 285  

TDRs are loans where the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk. TDRs are considered impaired loans and as such, impairment is measured as described for impaired loans above.

At September 30, 2015 and March 31, 2015, the Company had TDRs totaling $19.2 million and $21.4 million, respectively, of which $16.1 million and $17.3 million, respectively, were on accrual status. At September 30, 2015, the Company had no commitments at these dates to lend additional funds on these loans. At September 30, 2015, all of the Company’s TDRs are paying as agreed except for one of the Company’s TDRs that defaulted since the loan was modified.
 
16

 
The following table presents new TDRs for the periods indicated (dollars in thousands):

   
Six Months Ended September 30, 2015
   
Six Months Ended September 30, 2014
 
   
Number of
 Contracts
   
Pre-
Modification
Outstanding
Recorded
Investment
   
Post-
Modification
Outstanding
Recorded
Investment
   
Number of
Contracts
   
Pre-
Modification
Outstanding
Recorded
Investment
   
Post-
Modification
Outstanding
Recorded
Investment
 
                                     
Commercial real estate
    -     $ -       -       1     $ 344     $ 340  

There were no loans modified as a TDR within the previous twelve months that subsequently defaulted in the six months ended September 30, 2015.

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 will be 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.

9.  
GOODWILL

Goodwill and certain other intangibles generally arise from business combinations accounted for under the purchase method. Goodwill and other intangibles deemed to have indefinite lives generated from business combinations are not subject to amortization and are instead tested for impairment not less than annually. The Company has one reporting unit, the Bank, for purposes of computing goodwill.

The Company performed an impairment assessment as of October 31, 2014 and determined that no impairment of goodwill exists. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to progress to the second step. In the second step, the Company calculates the implied fair value of goodwill. GAAP with respect to goodwill requires that the Company compare the implied fair value of goodwill to the carrying amount of goodwill on the Company’s consolidated balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The estimated fair value of the Company is allocated to all of the Company’s individual assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination and the estimated fair value of the Company is the price paid to acquire it. The allocation process is performed only for purposes of determining the amount of goodwill impairment, as no assets or liabilities are written up or down, nor are any additional unrecognized identifiable intangible assets recorded as a part of this process. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value, and, therefore, a step two analysis was not required; however, no assurance can be given that the Company’s goodwill will not be written down in future periods.

An interim impairment test was not deemed necessary as of September 30, 2015 due to there not being a significant change in the reporting unit’s assets, liabilities and the Company’s stock price since the date of the most recent goodwill impairment assessment; the amount by which the fair value of the reporting unit exceeded the carrying value as of the date of the most recent goodwill impairment test; and because the Company determined that, based on an analysis of events that have occurred and circumstances that have changed since the most recent valuation date, the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is remote.

 
17

 
10.  
JUNIOR SUBORDINATED DEBENTURES

At September 30, 2015, the Company had two wholly-owned subsidiary grantor trusts that were established for the purpose of issuing trust preferred securities and common securities. The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts. The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of our common stock.

The Debentures issued by the Company to the grantor trusts, totaling $22.7 million, are reflected in the consolidated balance sheets in the liabilities section, under the caption “junior subordinated debentures.” The common securities issued by the grantor trusts were purchased by the Company, and the Company’s investment in the common securities of $681,000 at both September 30, 2015 and March 31, 2015, is included in prepaid expenses and other assets in the consolidated balance sheets. The Company records interest expense on the Debentures in the consolidated statements of income.

The following table is a summary of the terms of the Company’s Debentures at September 30, 2015 (dollars in thousands):

Issuance Trust
 
Issuance Date
   
Amount Outstanding
 
Rate Type
 
Initial Rate
 
Current Rate
 
Maturity Date
                           
Riverview Bancorp Statutory Trust I
 
12/2005
 
$
7,217
 
Variable (1)
 
5.88
%
1.70
%
3/2036
Riverview Bancorp Statutory Trust II
 
06/2007
   
15,464
 
Variable (2)
 
7.03
%
1.69
%
9/2037
       
$
22,681
               
                           
(1) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.36%
(2) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.35%

11.  
FAIR VALUE MEASUREMENTS

GAAP defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements. The categories of fair value measurement prescribed by GAAP and used in the tables presented under fair value measurements are as follows:

Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means.

Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

Financial instruments are presented in the tables that follow by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the consolidated financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, as a result of an event or circumstance, were required to be remeasured at fair value after initial recognition in the consolidated financial statements at some time during the reporting period.

 
18

 
The following tables present assets that are measured at fair value on a recurring basis at the dates indicated (in thousands):
 
         
Estimated fair value measurements using
 
September 30, 2015
 
Total estimated
fair value
   
Level 1
   
Level 2
   
Level 3
 
                         
Investment securities available for sale:
                       
Trust preferred
  $ 1,768     $ -     $ -     $ 1,768  
Agency securities
    13,982       -       13,982       -  
Mortgage-backed securities available for sale:
                               
Real estate mortgage investment conduits
    35,987       -       35,987       -  
Mortgage-backed securities
    77,620       -       77,620       -  
Other mortgage-backed securities
    5,214       -       5,214       -  
Total recurring assets measured at fair value
  $ 134,571     $ -     $ 132,803     $ 1,768  

March 31, 2015
                       
Investment securities available for sale:
                       
Trust preferred
  $ 1,812     $ -     $ -     $ 1,812  
Agency securities
    13,939       -       13,939       -  
Mortgage-backed securities available for sale:
                               
Real estate mortgage investment conduits
    22,709       -       22,709       -  
Mortgage-backed securities
    68,514       -       68,514       -  
Other mortgage-backed securities
    5,489       -       5,489       -  
Total recurring assets measured at fair value
  $ 112,463     $ -     $ 110,651     $ 1,812  

There were no transfers of assets in to or out of Level 1, 2 or 3 for the six months ended September 30, 2015 and 2014.

The following table presents a reconciliation of assets that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated (in thousands):

   
For the Six Months Ended
 
   
September 30,
2015
   
September 30,
2014
 
   
Available for
sale securities
   
Available for
sale securities
 
             
Beginning balance
  $ 1,812     $ 1,903  
Transfers in to Level 3
    -       -  
Included in earnings
    -       -  
Included in other comprehensive income
    (44 )     (18 )
Ending balance
  $ 1,768     $ 1,885  

The following methods were used to estimate the fair value of financial instruments above:

Investment Securities and Mortgage-Backed Securities – Investments and mortgage-backed securities available-for-sale are included within Level 1 of the hierarchy when quoted prices in an active market for identical assets are available. The Company uses a third-party pricing service to assist the Company in determining the fair value of its Level 2 securities, which incorporates pricing models and/or quoted prices of investment securities with similar characteristics. The Company’s Level 3 assets consist of a single pooled trust preferred security.

For Level 2 securities, the independent pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data from market research publications. The Company’s third-party pricing service has established processes for the Company to submit inquiries regarding the estimated fair value. The Company’s third-party pricing service will review the inputs to the evaluation in light of any new market data presented by the Company. The Company’s third-party pricing service may then affirm the original estimated fair value or may update the evaluation on a go-forward basis.

Management reviews the pricing information received from the third-party pricing service through a combination of procedures that include an evaluation of methodologies used by the pricing service, analytical reviews and performance analysis of the prices against statistics and trends. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. As necessary, the Company compares prices received from the pricing service to discounted cash flow models or through performing
 
 
19

 
independent valuations of inputs and assumptions similar to those used by the pricing service in order to ensure prices represent a reasonable estimate of fair value.

The Company has determined that the market for its collateralized debt obligation secured by a pool of trust preferred securities is inactive. This determination was made by the Company after considering the last known trade dates for this specific security, the low number of transactions for similar types of securities, the low number of new issuances for similar securities, the bid-ask spread in the brokered markets in which these securities trade, the implied liquidity risk premium for similar securities, the lack of information that is released publicly and discussions with third-party industry analysts. Due to the inactivity in the market, observable market data was not readily available for all significant inputs for this security. Accordingly, the collateralized debt obligation was classified as Level 3 in the fair value hierarchy. The Company utilized observable inputs where available and unobservable data and modeled the cash flows adjusted by an appropriate liquidity and credit risk adjusted discount rate using an income approach valuation technique in order to measure the fair value of the security. Significant unobservable inputs were used that reflect the Company’s estimate of assumptions that a market participant would use to price the security. Significant unobservable inputs included the discount rate, the default rate and repayment assumptions. The Company estimated the discount rate by comparing rates for similarly rated corporate bonds, with additional consideration given to market liquidity. The default rates and repayment assumptions were estimated based on the individual issuer’s financial conditions and historical repayment information, as well as the Company’s future expectations of the capital markets.

The following table presents certain loans and real estate owned (“REO”) which were marked down to their estimated fair values during the six months ended September 30, 2015. The following are assets that are measured at fair value on a nonrecurring basis (in thousands):

       
Estimated fair value measurements using
 
 
Total estimated
fair value
 
Level 1
 
Level 2
 
Level 3
 
                 
Impaired loans
  $ 946     $ -     $ -     $ 946  
REO
    500       -       -       500  
Total nonrecurring assets measured at fair value
  $ 1,446     $ -     $ -     $ 1,446  

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at September 30, 2015:

   
Valuation
technique
 
Significant unobservable inputs
 
Range (1)
             
Impaired loans
 
Appraised value
 
Adjustment for market conditions
 
N/A
             
REO
 
Appraised value
 
Adjustment for market conditions
 
N/A
(1) There were no adjustments to appraised values for the six months ended September 30, 2015.

The following methods were used to estimate the fair value of each class of financial instrument above:

Impaired loans – For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 8 – Allowance For Loan Losses.

In determining the estimated net realizable value of the underlying collateral, the Company primarily uses third-party appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.

Impaired loans are reviewed and evaluated quarterly for additional impairment and adjusted accordingly based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.

REO – REO is real property that the Bank has taken ownership of in partial or full satisfaction of a loan or loans. REO is recorded at the estimated fair value less estimated costs to sell. This amount becomes the property’s new basis. Any write downs based on the property’s estimated fair value less estimated costs to sell at the date of acquisition are charged to the allowance for loan losses. At acquisition date, any write ups (whereby the fair value less estimated costs to sell exceeds the loan basis) are first recovered through the allowance for loan losses if there was a prior charge-off and then applied to any outstanding accrued interest. If no prior charge-off or accrued interest is present, the amount is recorded as gain on transfer of REO.

 
20

 
The Company considers third-party appraisals in determining the fair value of particular properties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.

Management periodically reviews REO to ensure the property is carried at the lower of its new basis or fair value, net of estimated costs to sell. Any additional write-downs based on re-evaluation of the property’s fair value are charged to non-interest expense. Because of the high degree of judgment required in estimating the fair value of REO and because of the relationship between fair value and general economic conditions, the Company considers the fair value of REO to be highly sensitive to changes in market conditions.

12.  
NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), “Revenue from Contracts with Customers" (“ASU 2014-09”). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Adoption of ASU 2014-09 is not expected to have a significant impact on the Company's consolidated financial statements.
 
In August 2014, the FASB issued, “Presentation of Financial Statements – Going Concern" (“ASU 2014-15”). ASU 2014-15 provides guidance in connection with preparing financial statements for each annual and interim reporting period for which an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued (or within one year after the date that the consolidated financial statements are available to be issued when applicable). ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim periods within annual periods beginning after December 15, 2016. Adoption of ASU 2014-15 is not expected to have a significant impact on the Company's consolidated financial statements.
 
In January 2015, the FASB issued, “Income Statement – Extraordinary and Unusual Items” (“ASU 2015-01”). ASU 2015-01 eliminates the need to separately classify, present and disclose extraordinary events. The disclosure of events or transactions that are unusual or infrequent in nature will be included in other guidance. The amendments in ASU 2015-01 are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a significant impact on the Company’s consolidated financial statements.
 
In February 2015, the FASB issued, “Consolidation: Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, ASU 2015-02 simplifies the FASB Accounting Standards Codification and improves current GAAP by placing more emphasis on risk of loss when determining a controlling financial interest. ASU 2015-02 will be effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2015-02 is not expected to have a significant impact on the Company’s consolidated financial statements.

13.  
FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments is made in accordance with applicable GAAP. The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair value amounts. However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in the future. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 
21

 
The estimated fair value of financial instruments is as follows at the dates indicated (in thousands):

September 30, 2015
Carry value
 
Level 1
 
Level 2
 
Level 3
   
Fair value
 
Assets:
                             
Cash and cash equivalents
  $ 68,865     $ 68,865     $ -     $ -     $ 68,865  
Certificates of deposit held for investment
    21,247       -       21,422       -       21,422  
Loans held for sale
    950       -       950       -       950  
Investment securities available for sale
    15,750       -       13,982       1,768       15,750  
Mortgage-backed securities held to maturity
    80       -       82       -       82  
Mortgage-backed securities available for sale
    118,821       -       118,821       -       118,821  
Loans receivable, net
    585,784       -       -       534,881       534,881  
FHLB stock
    988       -       988       -       988  
                                         
Liabilities:
                                       
Demand – savings deposits
    626,146       626,146       -       -       626,146  
Time deposits
    130,850       -       130,678       -       130,678  
Junior subordinated debentures
    22,681       -       -       8,300       8,300  
                     
March 31, 2015
                                       
Assets:
                                       
Cash and cash equivalents
  $ 58,659     $ 58,659     $ -     $ -     $ 58,659  
Certificates of deposit held for investment
    25,969       -       26,256       -       26,256  
Loans held for sale
    778       -       778       -       778  
Investment securities available for sale
    15,751       -       13,939       1,812       15,751  
Mortgage-backed securities held to maturity
    86       -       88       -       88  
Mortgage-backed securities available for sale
    96,712       -       96,712       -       96,712  
Loans receivable, net
    569,010       -       -       548,908       548,908  
FHLB stock
    5,924       -       5,924       -       5,924  
                                         
Liabilities:
                                       
Demand – savings deposits
    582,011       582,011       -       -       582,011  
Time deposits
    138,839       -       138,744       -       138,744  
Junior subordinated debentures
    22,681       -       -       9,769       9,769  

Fair value estimates were based on existing financial instruments without attempting to estimate the value of anticipated future business. The fair value was not estimated for assets and liabilities that were not considered financial instruments.

Fair value estimates, methods and assumptions are set forth below.

Cash and cash equivalents – Fair value approximates the carrying amount.

Certificates of deposit held for investment – The fair value of certificates of deposit with stated maturities was based on the discounted value of contractual cash flows. The discount rate was estimated using rates currently available in the local market.

Investment securities and mortgage-backed securities – Fair values were based on quoted market rates and dealer quotes. The fair value of the trust preferred investment was determined using a discounted cash flow method (see also Note 11 – Fair Value Measurements).

Loans receivable and loans held for sale – Loans were priced using a discounted cash flow analysis. The fair value of loans held for sale was based on the loans carrying values as the agreements to sell these loans are short term fixed rate commitments and no material difference between the carrying value and expected sales price is deemed likely.

FHLB stock – The carrying amount approximates the estimated fair value of this investment.

Deposits – The fair value of deposits with no stated maturities such as non-interest-bearing demand deposits, interest checking, money market and savings accounts was equal to the amount payable on demand. The fair value of time deposits with stated maturities was based on the discounted value of contractual cash flows. The discount rate was estimated using rates currently available in the local market.

 
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Junior subordinated debentures – The fair value of the Debentures was based on the discounted cash flow method. Management believes that the discount rate utilized is indicative of those that would be used by market participants for similar types of debentures.

Off-balance sheet financial instruments – The estimated fair value of loan commitments approximates fees recorded associated with such commitments. Since the majority of the Company’s off-balance-sheet instruments consist of non-fee producing, variable rate commitments, the Company has determined they do not have a distinguishable fair value.

14.  
COMMITMENTS AND CONTINGENCIES

Off-balance sheet arrangements.  In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional, and are honored for up to 45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies and is required in instances where the Company deems necessary.

Significant off-balance sheet commitments at September 30, 2015 are listed below (in thousands):

   
Contract or
Notional Amount
 
Commitments to originate loans:
     
       Adjustable-rate
  $ 23,488  
       Fixed-rate
    25,955  
Standby letters of credit
    1,160  
Undisbursed loan funds, and unused lines of credit
    75,897  
Total
  $ 126,500  

At September 30, 2015, the Company had firm commitments to sell $2.3 million of residential loans to the FHLMC. Typically, these agreements are short-term fixed rate commitments and no material gain or loss is likely.

Other Contractual Obligations.  In connection with certain asset sales, the Company typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Company may have an obligation to repurchase the assets or indemnify the purchaser against loss. At September 30, 2015, loans under warranty totaled $118.0 million, which substantially represents the unpaid principal balance of the Company’s loans serviced for FHLMC. The Company believes that the potential for loss under these arrangements is remote.  Accordingly, no related contingent liability has been recorded in the consolidated financial statements.

The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof and, municipal corporations. In accordance with applicable state law, in the event of default of a participating bank, all other participating banks in the state collectively assure that no loss of funds are suffered by any public depositor.  Generally, in the event of default by a public depositary, the assessment attributable to all public depositaries is allocated on a pro rata basis in proportion to the maximum liability of each depository as it existed on the date of loss. The Company has not incurred any losses related to public depository funds for the six months ended September 30, 2015 and 2014.

The Company is party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect, if any, on the Company’s consolidated financial position, results of operations and cash flows.

The Bank has entered into employment contracts with certain key employees, which provide for contingent payment subject to future events.

 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains certain financial information determined by methods other than in accordance with GAAP. These measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis. Management uses these non-GAAP measures in its analysis of the Company’s performance. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 34% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Critical Accounting Policies

Critical accounting policies and estimates are discussed in our 2015 Form 10-K under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies.” That discussion highlights estimates the Company makes that involve uncertainty or potential for substantial change. There have not been any material changes in the Company’s critical accounting policies and estimates as compared to the disclosure contained in the Company’s 2015 Form 10-K.

Executive Overview

As a progressive, community-oriented financial services company, the Company emphasizes local, personal service to residents of its primary market area. The Company considers Clark, Cowlitz, Klickitat and Skamania counties of Washington and Multnomah and Marion counties of Oregon as its primary market area. The counties of Multnomah, Clark and Skamania are part of the Portland metropolitan area as defined by the U.S. Census Bureau. The Company is engaged predominantly in the business of attracting deposits from the general public and using such funds in its primary market area to originate commercial business, commercial real estate, multi-family real estate, real estate construction, residential real estate and other consumer loans. The Company’s loan portfolio totaled $585.8 million at September 30, 2015 compared to $569.0 million at March 31, 2015.

Most recently, the Company’s primary focus has been on increasing commercial business loans and owner occupied commercial real estate loans with a specific focus on medical professionals and the medical industry. Beginning in 2014, the Company began purchasing from time to time pools of automobile loans from another financial institution as a way to further diversify its loan portfolio and to earn a higher yield than earned on its cash or short-term investments. These indirect automobile loans are originated through a single dealership group located outside the Company’s primary market area. The collateral for these loans is comprised of a mix of used automobiles. These loans are purchased with servicing retained by the seller. At September 30, 2015, the Company’s purchased automobile loan portfolio was $28.5 million. In October 2015, the Company purchased an additional $14.8 million pool of automobile loans. The Company may purchase additional automobile loans during fiscal year 2016, subject to these loans meeting our investment criteria, underwriting standards and internal loan concentration limits. As of September 30, 2015, 13 of the purchased automobile loans totaling $172,000 were on non-accrual status.

The Bank’s subsidiary, RAMCorp, a trust and financial services company located in downtown Vancouver, Washington, provides full-service brokerage activities, trust and asset management services. The Bank’s Business and Professional Banking Division, with two lending offices in Vancouver and one in Portland, offers commercial and business banking services.

Vancouver is located in Clark County, Washington, which is just north of Portland, Oregon. Many businesses are located in the Vancouver area because of the favorable tax structure and lower energy costs in Washington as compared to Oregon. Companies located in the Vancouver area include Sharp Microelectronics, Hewlett Packard, Georgia Pacific, Underwriters Laboratory, Wafer Tech, Nautilus, Barrett Business Services, PeaceHealth and Fisher Investments, as well as several support industries. In addition to this industry base, the Columbia River Gorge Scenic Area is a source of tourism, which has helped to transform the area from its past dependence on the timber industry.

The Company’s strategic plan includes targeting the commercial banking customer base in its primary market area for loan originations and deposit growth, specifically small and medium size businesses, professionals and wealth building individuals. In pursuit of these goals, the Company will seek to increase the loan portfolio consistent with its strategic plan and asset/liability and regulatory capital objectives, which includes maintaining a significant amount of commercial and commercial real estate loans in its loan portfolio. Significant portions of our new loan originations which are mainly concentrated in commercial business, commercial real estate and multifamily loans carry adjustable rates, higher yields or shorter terms and higher credit risk than traditional fixed-rate consumer mortgages.

At September 30, 2015, checking accounts totaled $308.9 million, or 40.8% of our total deposit mix compared to $252.4 million or 35.9% a year ago. Our strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management through RAMCorp and deposit service charges. The strategic plan is designed to
 
 
24

 
enhance earnings, reduce interest rate risk and provide a more complete range of financial services to customers and the local communities the Company serves. We believe we are well positioned to attract new customers and to increase our market share through our 17 branches, including ten in Clark County, two in the Portland metropolitan area and three lending centers.

Economic conditions in the Company’s market areas have continued to improve from the recent recessionary downturn. According to the Washington State Employment Security Department, unemployment in Clark County decreased to 6.2% at August 31, 2015 compared to 6.8% at March 31, 2015 and 7.0% at September 30, 2014. According to the Oregon Employment Department, unemployment in Portland increased to 5.3% at August 31, 2015 compared to 4.8% at March 31, 2015 and decreased compared to 6.1% at September 30, 2014. According to the Regional Multiple Listing Services (“RMLS”), residential home inventory levels in Portland, Oregon have remained at 1.9 months at September 30, 2015 and at March 31, 2015 and decreased compared to 3.1 months at September 30, 2014. Residential home inventory levels in Clark County have slightly increased to 2.7 months at September 30, 2015 compared to 2.6 months at March 31, 2015 and decreased compared to 3.7 months at September 30, 2014. According to the RMLS, closed home sales in Clark County increased 22.5% and 26.6% during September 2015 compared to March 2015 and September 2014, respectively. Closed home sales in Portland increased 10.1% and 4.5% during September 2015 compared to March 2015 and September 2014, respectively. The Company has also seen an increase in sales activity for building lots during the past twelve months. Commercial real estate leasing activity in the Portland/Vancouver area has performed better than the residential real estate market; however, it is generally affected by a slow economy later than other indicators. According to Norris Beggs Simpson (a firm specializing in Pacific Northwest commercial real estate sales and management) commercial vacancy rates in Clark County, Washington and Portland, Oregon were approximately 12.55% and 12.63%, respectively, as of September 30, 2015 compared to 11.41% and 14.03%, respectively, at September 30, 2014.

Operating Strategy

The Company’s goal is to deliver returns to shareholders by managing problem assets, increasing higher-yielding assets (in particular commercial real estate and commercial business loans), increasing core deposit balances, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives:

Focusing on Asset Quality. The Company is focused on monitoring existing performing loans, resolving nonperforming loans and selling foreclosed assets. The Company has aggressively sought to reduce its level of nonperforming assets through write-downs, collections, modifications and sales of nonperforming loans and real estate owned. The Company has taken proactive steps to resolve its nonperforming loans, including negotiating repayment plans, forbearances, loan modifications and loan extensions with borrowers when appropriate, and accepting short payoffs on delinquent loans, particularly when such payoffs result in a smaller loss than foreclosure. In connection with the downturn in real estate markets, the Company applied more conservative and stringent underwriting practices to new loans, including, among other things, increasing the amount of required collateral or equity requirements, reducing loan-to-value ratios and increasing debt service coverage ratios. Nonperforming assets decreased $2.2 million to $4.7 million at September 30, 2015 compared to $6.9 million at March 31, 2015. However, there can be no assurance that the ongoing economic conditions affecting our borrowers will not result in future increases in nonperforming and classified loans.

Improving Earnings by Expanding Product Offerings. The Company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate and commercial loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, while maintaining compliance with its heightened regulatory capital requirements. The Company also intends to selectively add additional products to further diversify revenue sources and to capture more of each customer’s banking relationship by cross selling loan and deposit products and additional services to Bank customers, including services provided through RAMCorp to increase its fee income. Assets under management by RAMCorp totaled $410.5 million and $363.7 million at September 30, 2015 and 2014, respectively.

The Company continuously reviews new products and services to provide its customers more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Bank has implemented remote check capture at all of its branches and for selected customers of the Bank. The Company continues to experience growth in customer use of its online banking services, which allows customers to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill paying. The Company also upgraded its online banking product for consumer customers, including the introduction of mobile deposit capture, providing consumer customers greater flexibility and convenience in conducting their online banking. The Company’s online service has also enhanced the delivery of cash management services to business customers. The Company also participates in an internet deposit listing service which allows the Company to post time deposit rates on an internet site where institutional investors have the ability to deposit funds with the Company. Although the Company has currently chosen not to utilize these internet based deposits, the Company will continue to have accessibility to these funds in the future. Furthermore, the Company may utilize the internet deposit listing service to purchase certificates of deposit at other financial institutions. The Company also offers Insured Cash Sweep (ICS™), a reciprocal money market product, to its customers along with the
 
 
25

 
Certificate of Deposit Account Registry Service (CDARS™) program which allows customers access to FDIC insurance on deposits exceeding the $250,000 FDIC insurance limit.

Attracting Core Deposits and Other Deposit Products. The Company’s strategic focus is to emphasize total relationship banking with its customers to internally fund its loan growth. The Company has reduced its reliance on other wholesale funding sources, including FHLB and FRB advances, by focusing on the continued growth of core customer deposits. The Company believes that a continued focus on customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition to its retail branches, the Company maintains technology-based products, such as personal financial management, business cash management, and business remote deposit products, that enable it to compete effectively with banks of all sizes. 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 $28.3 million during the quarter-ended September 30, 2015.

Continued Expense Control.  Management has undertaken several initiatives to reduce non-interest expense and continues to make it a priority to identify cost savings opportunities throughout all aspects of the Company’s operations, including forming a cost saving committee whose mission is to find additional cost saving opportunities at the Company. The Company has instituted expense control measures such as cancelling certain projects and capital purchases, and reducing travel and entertainment expenditures. In October 2014, the Company closed one of its branches as a result of its failure to meet the Company’s required growth and profitability standards. This was an in-store branch located in Portland Oregon. The Company experienced minimal impact to its customers and deposit totals as a result of this branch’s proximity to its Gresham, Oregon branch which opened in the summer of 2012.

Recruiting and Retaining Highly Competent Personnel with a Focus on Commercial Lending. The Company’s ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success. The Company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships. The Company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers. The goal is to compete with other financial service providers by relying on the strength of the Company’s customer service and relationship banking approach. The Company believes that one of its strengths is that its employees are also significant shareholders through the Company’s employee stock ownership (“ESOP”) and 401(k) plans.

Disciplined Franchise Expansion.  The Company believes opportunities currently exist within its market area to grow its franchise. The Company anticipates organic growth as the local economy and loan demand strengthens, through its marketing efforts and as a result of the opportunities being created as a result of the consolidation of financial institutions occurring in its market area. The Company may also seek to expand its franchise through the selective acquisition of individual branches, loan purchases and whole bank transactions that meet its investment and market objectives. The Company expects to gradually expand its operations further in the Portland, Oregon metropolitan area which has a population of approximately two million people. The Company will continue to be disciplined as it pertains to future expansion focusing on the Pacific Northwest markets it knows and understands.

Loan Composition

The following table sets forth the composition of the Company’s commercial and construction loan portfolios based on loan purpose at the dates indicated (in thousands):

   
Commercial
Business
   
Other Real
Estate
Mortgage
   
Real Estate 
Construction
   
Commercial &
Construction
Total
 
September 30, 2015
     
                         
Commercial business
  $ 78,138     $ -     $ -     $ 78,138  
Commercial construction
    -       -       10,167       10,167  
Office buildings
    -       114,904       -       114,904  
Warehouse/industrial
    -       44,607       -       44,607  
Retail/shopping centers/strip malls
    -       57,745       -       57,745  
Assisted living facilities
    -       1,828       -       1,828  
Single purpose facilities
    -       112,354       -       112,354  
Land
    -       14,102       -       14,102  
Multi-family
    -       34,989       -       34,989  
One-to-four family construction
    -       -       7,137       7,137  
Total
  $ 78,138     $ 380,529     $ 17,304     $ 475,971  

 
26

 
 
   
Commercial
Business
   
Other Real
Estate
Mortgage
   
Real Estate 
Construction
   
Commercial &
Construction
Total
 
March 31, 2015
     
                         
Commercial business
  $ 77,186     $ -     $ -     $ 77,186  
Commercial construction
    -       -       27,967       27,967  
Office buildings
    -       86,813       -       86,813  
Warehouse/industrial
    -       42,173       -       42,173  
Retail/shopping centers/strip malls
    -       60,736       -       60,736  
Assisted living facilities
    -       1,846       -       1,846  
Single purpose facilities
    -       108,123       -       108,123  
Land
    -       15,358       -       15,358  
Multi-family
    -       30,457       -       30,457  
One-to-four family construction
    -       -       2,531       2,531  
Total
  $ 77,186     $ 345,506     $ 30,498     $ 453,190  

Comparison of Financial Condition at September 30, 2015 and March 31, 2015

Cash and cash equivalents, including interest-earning accounts, totaled $68.9 million at September 30, 2015 compared to $58.7 million at March 31, 2015. The Company has deployed a portion of its excess cash balances into mortgage-backed securities to earn higher yields than cash held in interest-earning accounts based on its asset/liability program and liquidity objectives in order to maximize earnings. As a part of this strategy, the Company also invests a portion of its excess cash in short-term certificates of deposit. All of the certificates of deposit held for investment are fully insured by the FDIC. At September 30, 2015, certificates of deposits held for investment totaled $21.2 million compared to $26.0 million at March 31, 2015.

Investment securities available for sale totaled $15.8 million at September 30, 2015 and March 31, 2015. The Company primarily purchases agency securities with maturities of five years or less. For the quarter ended September 30, 2015, the Company determined that none of its investment securities required an OTTI charge. For additional information, see Note 11 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Mortgage-backed securities available for sale totaled $118.8 million at September 30, 2015 compared to $96.7 million at March 31, 2015. The increase was due to a decision by the Company to invest additional excess cash into higher yielding mortgage-backed securities. During the six month period ended September 30, 2015, the Company purchased $34.0 million of mortgage-backed securities. The Company primarily purchases a combination of mortgage-backed securities backed by government agencies (FHLMC, FNMA, SBA or GNMA).
 
Loans receivable, net, totaled $585.8 million at September 30, 2015 compared to $569.0 million at March 31, 2015. The Company has seen steady loan demand in its market areas and anticipates organic loan growth. However, the Company has continued to experience an elevated level of payoffs on existing loans outpacing loan originations in some recent quarters. A substantial portion of the loan portfolio is secured by real estate, either as primary or secondary collateral, located in the Company’s primary market areas. Risks associated with loans secured by real estate include decreasing land and property values, increases in interest rates, deterioration in local economic conditions, tightening credit or refinancing markets, and a concentration of loans within any one area. The Company has no option adjustable-rate mortgage (ARM), or teaser residential real estate loans in its portfolio.

Deposits increased $36.1 million to $757.0 million at September 30, 2015 compared to $720.9 million at March 31, 2015. The Company had no wholesale-brokered deposits as of September 30, 2015 or March 31, 2015. Core branch deposits accounted for 95.3% of total deposits at September 30, 2015 compared to 96.2% at March 31, 2015. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets.

Shareholders’ Equity and Capital Resources

Shareholders' equity increased $2.6 million to $106.4 million at September 30, 2015 from $103.8 million at March 31, 2015. The increase was mainly attributable to net income of $3.2 million. Partially offsetting this increase were cash dividends declared of $617,000 for the six months ended September 30, 2015.

The Bank is subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. As of September 30, 2015, the Bank was “well capitalized” as defined under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain the minimum capital ratios set forth in the table below.

 
27

 
The Bank’s actual and required minimum capital amounts and ratios are as follows at the dates indicated (dollars in thousands):
   
Actual
   
For Capital
Adequacy Purposes
   
“Well Capitalized”
Under Prompt
Corrective Action
 
   
Amount
 
Ratio
   
Amount
 
Ratio
   
Amount
 
Ratio
 
September 30, 2015
                             
Total Capital:
                             
(To Risk-Weighted Assets)
$
102,409
 
16.45
%
$
49,792
 
8.0
%
$
74,689
 
12.0
%(1)
Tier 1 Capital:
                             
(To Risk-Weighted Assets)
 
94,565
 
15.19
   
37,344
 
6.0
   
49,793
 
8.0
 
Common equity tier 1 capital:
                             
    (To Risk-Weighted Assets)
 
94,565
 
15.19
   
28,008
 
4.5
   
40,457
 
6.5
 
Tier 1 Capital (Leverage):
                             
    (To Adjusted Tangible Assets)
 
94,565
 
11.22
   
33,725
 
4.0
   
75,882
 
9.0
 (1)
Tangible Capital:
                             
(To Tangible Assets)
 
94,565
 
11.22
   
12,647
 
1.5
   
N/A
 
N/A
 
 
   
Actual
   
For Capital
Adequacy Purposes
   
“Well Capitalized”
Under Prompt
Corrective Action
 
   
Amount
 
Ratio
   
Amount
 
Ratio
   
Amount
 
Ratio
 
March 31, 2015
                             
Total Capital:
                             
(To Risk-Weighted Assets)
$
95,713
 
15.89
%
$
48,188
 
8.0
%
$
72,282
 
12.0
% (1)
Tier 1 Capital:
                             
(To Risk-Weighted Assets)
 
88,122
 
14.63
   
36,141
 
6.0
   
48,188
 
8.0
 
Common equity tier 1 capital:
                             
    (To Risk-Weighted Assets)
 
88,122
 
14.63
   
27,106
 
4.5
   
39,152
 
6.5
 
Tier 1 Capital (Leverage):
                             
    (To Adjusted Tangible Assets)
 
88,122
 
10.89
   
32,355
 
4.0
   
72,799
 
9.0
 (1)
Tangible Capital:
                             
(To Tangible Assets)
 
88,122
 
10.89
   
12,133
 
1.5
   
N/A
 
N/A
 

(1) The Bank agreed with the OCC to establish higher minimum capital ratios and to maintain a Tier 1 capital (leverage) ratio of not less than 9.0% and a total risked-based capital ratio of not less than 12.0% in order to be deemed “well capitalized”.

For a savings and loan holding company with less than $1.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If the Company was subject to regulatory guidelines for bank holding companies with $1.0 billion or more in assets, at September 30, 2015 the Company would have exceeded all regulatory capital requirements.

Liquidity
Liquidity is essential to our business. The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. Core relationship deposits are the primary source of the Bank’s liquidity. As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the Bank.

Liquidity management is both a short- and long-term responsibility of the Company's management. The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities. These sources of funds may be used on a long or short-term basis to compensate for reduction in other sources of funds or on a long-term basis to support lending activities.

The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, proceeds from the sale of loans, maturing securities, FHLB advances and FRB borrowings. While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions and competition. Management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available. However, depositor or counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions.
 
28

 
The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals and continuing operations, satisfy other financial commitments and take advantage of investment opportunities. During the six months ended September 30, 2015, the Company used its sources of funds primarily to fund loan commitments, purchase investment securities and to fund deposit withdrawals. At September 30, 2015, cash and available for sale investments totaled $224.7 million, or 25.1% of total assets. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity management practice is to increase or decrease short-term borrowings, including FRB borrowings and FHLB advances. At September 30, 2015, the Company had no advances from the FRB and a borrowing capacity of $45.3 million from the FRB. At September 30, 2015, there were no borrowings from the FHLB and the Company had an available credit facility of $205.3 million. At September 30, 2015, the Company had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at their discretion.

An additional source of wholesale funding includes brokered certificate of deposits. While the Bank has utilized brokered deposits from time to time, the Bank historically has not extensively relied on brokered deposits to fund its operations. At September 30, 2015, the Bank had no wholesale-brokered deposits. The Bank also participates in the CDARS and ICS deposit products, which allows the Bank to accept deposits in excess of the FDIC insurance limit for that depositor and obtain “pass-through” insurance for the total deposit. The Bank’s aggregate CDARS and ICS balances were $28.4 million, or 3.7% of total deposits, and $37.4 million, or 5.2% of total deposits, at September 30, 2015 and March 31, 2015, respectively. Although the FDIC permanently raised the insurance limit to $250,000, demand for CDARS deposits remains strong with continued renewals of existing CDARS deposits and the opening of new accounts. In addition, the Bank is enrolled in an internet deposit listing service. Under this listing service, the Bank may post time deposit rates on an internet site where institutional investors have the ability to deposit funds with the Bank. The Company does not currently have any internet based deposits; however, the Company will continue to have accessibility to these funds in the future. The combination of all the Bank’s funding sources gives the Bank available liquidity of liquidity of $583.7 million, or 65.1% of total assets at September 30, 2015.

At September 30, 2015, the Company had total commitments of $126.5 million, which includes commitments to extend credit of $49.4 million, unused lines of credit and undisbursed balances of $75.9 million and standby letters of credit totaling $1.2 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year totaled $86.0 million. Historically, the Company has been able to retain a significant amount of its deposits as they mature. Partially offsetting these cash outflows are scheduled loan maturities of less than one year totaling $52.3 million.

As a separate legal entity from the Bank, Riverview Bancorp, Inc. must provide for its own liquidity. Sources of capital and liquidity for Riverview Bancorp, Inc. include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. At September 30, 2015, Riverview Bancorp, Inc. had $2.4 million in cash to meet liquidity needs.

Asset Quality

Nonperforming assets, consisting of nonperforming loans and REO, totaled $4.7 million or 0.52% of total assets at September 30, 2015 compared to $6.9 million or 0.81% of total assets at March 31, 2015.

The following table sets forth information regarding the Company’s nonperforming loans at the dates indicated (dollars in thousands):

   
September 30, 2015
   
March 31, 2015
 
   
Number of Loans
   
Balance
   
Number of Loans
   
Balance
 
                         
Commercial real estate
    3     $ 2,525       4     $ 3,291  
Land
    1       801       1       801  
Consumer
    17       445       8       1,226  
Total
    21     $ 3,771       13     $ 5,318  

The Company has continued to focus on managing the residential construction and land acquisition and development portfolios. At September 30, 2015, the Company’s residential construction and land acquisition and development loan portfolios were $7.1 million and $14.1 million, respectively, as compared to $2.8 million and $14.7 million at September 30, 2014. At September 30, 2015 and 2014, there were no nonperforming loans in the residential construction loan portfolio. The percentage of nonperforming loans in the land acquisition and development portfolio at September 30, 2015 was 5.68% compared to 5.43% a year ago. For the six months ended September 30, 2015, there were no charge-offs in the residential construction portfolio or the land development portfolio. Recoveries in the residential construction portfolio and land development portfolio totaled $6,000 and $123,000, respectively, for the six months ended September 30, 2015.

 
29

 
REO totaled $909,000 at September 30, 2015 compared to $1.6 million at March 31, 2015. During the six months ended September 30, 2015, REO sales totaled $432,000 and valuation write-downs totaled $262,000. During the six months ended September 30, 2015, there were no transfers to REO. The $909,000 balance of REO is comprised of residential building lots totaling $490,000 and land development property totaling $419,000. All of these properties are located in Washington and Oregon.

The allowance for loan losses was $10.1 million or 1.70% of total loans at September 30, 2015 compared to $10.8 million or 1.86% of total loans at March 31, 2015. The decrease in the balance of the allowance for loan losses at September 30, 2015 reflects the continuing trend of lower levels of delinquent and classified loans, decreased charge-offs and increased recoveries, as well as increasing real estate values, which resulted in the Company recording a recapture of loan losses of $800,000 for the six months ended September 30, 2015.

The coverage ratio of allowance for loan losses to nonperforming loans was 268.18% at September 30, 2015 compared to 202.37% at March 31, 2015. At September 30, 2015, the Company identified $3.3 million or 88.18% of its nonperforming loans as impaired and performed a specific valuation analysis on each loan resulting in no specific reserves being required for these impaired loans. Management considers the allowance for loan losses to be adequate at September 30, 2015 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 local economic conditions, results of examinations by the Company’s regulators, or other factors could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations. 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. For further information regarding the Company’s impaired loans and allowance for loan losses, see Note 8 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Troubled debt restructurings (“TDRs”) are loans where 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, 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 using the original note rate, except when the loan is collateral dependent. In these cases, the estimated fair value of the collateral and when applicable, less selling costs, are used. Impairment is recognized as a specific component within the allowance for loan losses if the 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 September 30, 2015, the Company had TDRs totaling $19.2 million of which $16.1 million were on accrual status. However, all of the Company’s TDRs are paying as agreed except for one commercial real estate loan totaling $1.3 million that defaulted since the loan was modified. The related amount of interest income recognized on TDRs was $367,000 and $285,000 for the six months ended September 30, 2015 and 2014, respectively.

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 were not, the policy exception qualifies as a concession, and if the borrower is experiencing financial difficulties, the loans are accounted for as TDRs.

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.


 
30

 
The following table sets forth information regarding the Company’s nonperforming assets at the dates indicated:
   
September 30,
2015
   
March 31,
2015
 
   
(Dollars in thousands)
 
Loans accounted for on a non-accrual basis:
           
Other real estate mortgage
  $ 3,326     $ 4,092  
Consumer
    431       1,226  
Total
    3,757       5,318  
Accruing loans which are contractually
past due 90 days or more
    14       -  
Total nonperforming loans
    3,771       5,318  
REO
    909       1,603  
Total nonperforming assets
  $ 4,680     $ 6,921  
                 
Foregone interest on non-accrual loans (1)
  $ 56     $ 433  
Total nonperforming loans to total loans
    0.63 %     0.92 %
Total nonperforming loans to total assets
    0.42       0.62  
Total nonperforming assets to total assets
    0.52       0.81  
 
(1) Six months ended September 30, 2015 and year ended March 31, 2015.

The composition of the Company’s nonperforming assets by loan type and geographical area is as follows at the dates indicated:
 
 
Northwest
Oregon
   
Other
Oregon
   
Southwest
Washington
   
Other
Washington
   
Other
   
Total
September 30, 2015
(In thousands)
                                   
Commercial real estate
$
277
 
$
1,325
 
$
923
 
$
-
 
$
-
 
$
2,525
Land
 
-
   
801
   
-
   
-
   
-
   
801
Consumer
 
-
   
-
   
26
   
233
   
186
   
445
Total nonperforming loans
 
277
   
2,126
   
949
   
233
   
186
   
3,771
REO
 
374
   
-
   
490
   
45
   
-
   
909
Total nonperforming assets
$
651
 
$
2,126
 
$
1,439
 
$
278
 
$
186
 
$
4,680
 
March 31, 2015
 
                                   
Commercial real estate
$
993
 
$
1,372
 
$
926
 
$
-
 
$
-
 
$
3,291
Land
 
-
   
801
   
-
   
-
   
-
   
801
Consumer
 
440
   
14
   
489
   
265
   
18
   
1,226
Total nonperforming loans
 
1,433
   
2,187
   
1,415
   
265
   
18
   
5,318
REO
 
706
   
-
   
852
   
45
   
-
   
1,603
Total nonperforming assets
$
2,139
 
$
2,187
 
$
2,267
 
$
310
 
$
18
 
$
6,921

The composition of the land development and speculative construction loan portfolios by geographical area is as follows at the dates indicated:
   
Northwest
Oregon
   
Other
Oregon
   
Southwest
Washington
   
Total
 
September 30, 2015
       
(In thousands)
       
                         
Land development
103
 
$
2,835
 
$
11,164
 
$
14,102
 
Speculative construction
 
-
   
126
   
5,908
   
6,034
 
Total land development and speculative construction
103
 
$
2,961
 
$
17,072
 
$
20,136
 
                         
March 31, 2015
                       
                         
Land development
108
 
$
2,895
 
$
12,355
 
$
15,358
 
Speculative construction
 
-
   
108
   
1,578
   
1,686
 
Total land development and speculative construction
108
 
$
3,003
 
$
13,933
 
$
17,044
 

Other loans of concern, which are classified as substandard loans, 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 to cover the probable losses inherent in these and other loans.
 
31

 
The following table sets forth information regarding the Company’s other loans of concern at the dates indicated (dollars in thousands):

   
September 30, 2015
   
March 31, 2015
 
   
Number
of Loans
   
Balance
   
Number
of Loans
   
Balance
 
                         
Commercial business
    5     $ 272       7     $ 566  
Commercial real estate
    4       633       8       3,674  
Multi-family
    1       12       2       1,935  
Commercial construction
    -       -       1       1,828  
Total
    10     $ 917       18     $ 8,003  

At September 30, 2015 and March 31, 2015, loans delinquent 30 - 89 days were 0.14% and 0.26%, respectively, of total loans. At September 30, 2015, the 30 - 89 days delinquency rate in the commercial business portfolio was 0.25% while the delinquency rate in the commercial real estate loan portfolio was 0.07%. At that date, commercial real estate loans represented the largest portion of the loan portfolio at 55.62% of total loans and commercial business loans represented 13.11% of total loans. At September 30, 2015, the 30-89 days delinquency rate in the real estate one-to-four family loan portfolio was 0.34%.

Off-Balance Sheet Arrangements and Other Contractual Obligations

Through the normal course of operations, the Company enters into certain contractual obligations and other commitments. Obligations generally relate to funding of operations through deposits and borrowings as well as leases for premises. Commitments generally relate to lending operations.

The Company has obligations under long-term operating and capital leases, principally for building space and land. Lease terms generally cover a five-year period, with options to extend, and are not subject to cancellation. During the second quarter of fiscal 2016, the Company modified its lease agreement on its operations center reducing the Company’s square footage leased and extending the lease agreement to November 2039.

The Company has commitments to originate fixed and variable rate mortgage loans to customers. Because some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Undisbursed loan funds and unused lines of credit include funds not disbursed, but committed to construction projects and home equity and commercial lines of credit. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

For further information regarding the Company’s off-balance sheet arrangements and other contractual obligations, see Note 14 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Goodwill Valuation

Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. The Company has one reporting unit, the Bank, for purposes of computing goodwill. All of the Company’s goodwill has been allocated to this single reporting unit. The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill is impaired. If the fair value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any. The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; adverse action or assessment by a regulator; and unanticipated competition. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements.

 
32

 
The Company performed its annual goodwill impairment test during the quarter-ended December 31, 2014. The goodwill impairment test involves a two-step process. Step one of the goodwill impairment test estimates the fair value of the reporting unit utilizing the allocation of corporate value approach, the income approach and the market approach in order to derive an enterprise value of the Company. The allocation of corporate value approach applies the aggregate market value of the Company and divides it among the reporting units. A key assumption in this approach is the control premium applied to the aggregate market value. A control premium is utilized as the value of a company from the perspective of a controlling interest is generally higher than the widely quoted market price per share. The Company used an expected control premium of 30%, which was based on comparable transactional history. The income approach uses a reporting unit’s projection of estimated operating results and cash flows that is discounted using a rate that reflects current market conditions. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures. Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue growth rate that approximated 8.5%, a net interest margin that approximated 4.1% and a return on assets that ranged from 0.60% to 1.11% (average of 0.86%). In addition to utilizing the above projections of estimated operating results, key assumptions used to determine the fair value estimate under the income approach was the discount rate of 15.2% utilized for our cash flow estimates and a terminal value estimated at 2.1 times the ending book value of the reporting unit. The Company used a build-up approach in developing the discount rate that included: an assessment of the risk free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company. The market approach estimates fair value by applying tangible book value multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics as those of the reporting unit. In applying the market approach method, the Company selected eight publicly traded comparable institutions based on a variety of financial metrics (tangible equity, leverage ratio, return on assets, return on equity, net interest margin, nonperforming assets, net charge-offs, and reserves for loan losses) and other relevant qualitative factors (geographical location, lines of business, business model, risk profile, availability of financial information, etc.). After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.3 times tangible book value. The Company calculated a fair value of its reporting unit of $130.5 million using the corporate value approach, $135.5 million using the income approach and $134.7 million using the market approach, with a final concluded value of $135.0 million, with primary weight given to the market approach. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value and therefore no impairment of goodwill exists.

Even though the Company determined that there was no goodwill impairment, a decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge.

It is possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected; however, such an impairment charge would have no impact on our liquidity, operations or regulatory capital.

Comparison of Operating Results for the Three and Six Months Ended September 30, 2015 and 2014

Net Income. Net income for the three months ended September 30, 2015 and 2014 was $1.7 million, or $0.07 per diluted share, and $1.1 million, or $0.05 per diluted share, respectively. Net income for the six months ended September 30, 2015 and 2014 was $3.2 million, or $0.14 per diluted share, and $1.8 million, or $0.08 per diluted share, respectively. The earnings for the three and six month ended September 30, 2015 compared to the same prior year periods reflect the improvement in net interest income. Further, earnings improved for the six months ended September 30, 2015 due to the decrease in non-interest expense, primarily due to the ­­­­­­decrease in REO expenses. In addition, net income for the six months ended September 30, 2015 included a recapture of loan losses of $800,000 compared to a recapture of loan losses of $650,000 for the six months ended September 30, 2014.

Net Interest Income. The Company’s profitability depends primarily on its net interest income, which is the difference between the income it receives on interest-earning assets and the interest paid on deposits and borrowings. When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest income. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies.

 
33

 
Net interest income for the three and six months ended September 30, 2015 was $7.2 million and $14.3 million, respectively, representing a $443,000 and $1.2 million increase, respectively, compared to the three and six months ended September 30, 2014. The net interest margin for the three and six months ended September 30, 2015 was 3.64% and 3.67%, respectively compared to 3.61% and 3.54% for the three and six months ended September 30, 2014, respectively. This increase in the net interest margin was primarily the result of the increase in the average balance and the average yield on loans receivable.

The Company achieves better net interest margins in a stable or increasing interest rate environment as a result of the balance sheet being slightly asset interest rate sensitive. At September 30, 2015, 6.03% of our loan portfolio had adjustable (floating) interest rates. At September 30, 2015, $22.8 million, or 63.44% of our adjustable (floating) loan portfolio contained interest rate floors, below which the loans’ contractual interest rate may not adjust. The inability of these loans to adjust downward has contributed to increased income in the currently low interest rate environment; however, net interest income will be reduced in a rising interest rate environment until such time as the current rate exceeds these interest rate floors. At September 30, 2015, $22.8 million or 3.82% of the loans in the Company’s loan portfolio were at the floor interest rate of which $19.4 million or 85.09% had yields that would begin floating again once the Wall Street Journal Prime Rate increases at least 150 basis points. While the Company does not anticipate further significant reductions in market interest rates, further modest reductions in its deposit costs are expected due to decreases in its deposit rate offerings and as existing long-term deposits renew upon maturity and reprice at a lower rate. The amount and timing of these reductions is dependent on competitive pricing pressures, yield curve shape and changes in interest rate spread.

Interest Income. Interest income for the three and six months ended September 30, 2015 was $7.6 million and $15.2 million, respectively, compared to $7.2 million and $14.1 million, respectively, for the same periods in the prior year. The increase was due primarily to the increase in the average balance and yield of loans and mortgage-backed securities which resulted in an increase in interest income of $992,000 and $170,000, respectively for the six months ended September 30, 2015 compared to the same prior year period.

The average balance of net loans increased $24.7 million and $30.6 million to $576.2 million and $575.5 million for the three and six months ended September 30, 2015, respectively, from $551.5 million and $544.9 million for the same prior year periods, respectively. The average yield on net loans was 4.69% and 4.74% for the three and six months ended September 30, 2015, respectively, compared to 4.67% and 4.63% for the same three and six months in the prior year, respectively. During the three and six months ended September 30, 2015, the Company also reversed an insignificant dollar amount and $5,000, respectively, of interest income on nonperforming loans compared to $6,000 and $13,000 for the same three and six month periods in the prior year, respectively.

Interest Expense. Interest expense decreased $51,000 and $121,000 to $439,000 and $876,000 for the three and six months ended September 30, 2015, respectively, compared to $490,000 and $997,000 for the three and six months ended September 30, 2014, respectively. The decrease in interest expense was primarily the result of declining deposit costs, due to the Company’s decision to maintain low interest offerings on its deposit products in addition to the downward shift in the percentage of deposits representing certificates of deposit that yield a higher interest rate compared to savings and demand deposit accounts that yield a lower interest rate. The weighted average interest rate on interest-bearing deposits decreased to 0.21% for the three and six months ended September 30, 2015 from 0.25% for the same periods in the prior year.
 
34

 
The following tables set forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest earned on average interest-earning assets and interest paid on average interest-bearing liabilities, resultant yields, interest rate spread, ratio of interest-earning assets to interest-bearing liabilities and net interest margin:

   
Three Months Ended September 30,
 
   
2015
 
2014
 
   
Average
Balance
 
Interest and
Dividends
 
Yield/Cost
 
Average
Balance
 
Interest and
Dividends
 
Yield/Cost
 
           
(Dollars in thousands)
         
Interest-earning assets:
                         
Mortgage loans
  $ 449,779   $ 5,378     4.76 % $ 424,904   $ 5,035     4.70 %
Non-mortgage loans
    126,439     1,411     4.44     126,639     1,451     4.55  
  Total net loans (1)
    576,218     6,789     4.69     551,543     6,486     4.67  
                                       
Mortgage-backed securities (2)
    121,313     640     2.10     101,341     508     1.99  
Investment securities (2)
    15,926     62     1.55     20,479     98     1.90  
Daily interest-bearing assets
    21     -     -     1,265     -     -  
Other earning assets
    69,893     111     0.63     63,131     118     0.74  
  Total interest-earning assets
    783,371     7,602     3.86     737,759     7,210     3.88  
                                       
Non-interest-earning assets:
                                     
Office properties and equipment, net
    15,056                 16,182              
Other non-interest-earning assets
    77,404                 76,309              
Total assets
  $ 875,831               $ 830,250              
                                       
Interest-bearing liabilities:
                                     
Regular savings accounts
  $ 81,195     20     0.10   $ 69,553     18     0.10  
Interest checking accounts
    125,676     25     0.08     101,941     19     0.07  
Money market deposit accounts
    230,709     68     0.12     229,188     71     0.12  
Certificates of deposit
    132,136     187     0.56     151,930     234     0.61  
Total interest-bearing deposits
    569,716     300     0.21     552,612     342     0.25  
                                       
Other interest-bearing liabilities
    24,951     139     2.22     25,046     148     2.34  
Total interest-bearing liabilities
    594,667     439     0.29     577,658     490     0.34  
                                       
Non-interest-bearing liabilities:
                                     
  Non-interest-bearing deposits
    168,135                 141,386              
  Other liabilities
    6,258                 10,180              
Total liabilities
    769,060                 729,224              
Shareholders’ equity
    106,771                 101,026              
Total liabilities and shareholders’ equity
  $ 875,831               $ 830,250              
Net interest income
        $ 7,163               $ 6,720        
Interest rate spread
                3.57 %               3.54 %
Net interest margin
                3.64 %               3.61 %
Ratio of average interest-earning assets to average interest-bearing liabilities
                131.73 %               127.72 %
 
(1) Includes non-accrual loans.
 
               
(2) For purposes of the computation of average yield on investments available for sale, historical cost balances were utilized;
    therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.
 

 
35

 
   
Six Months Ended September 30,
 
   
2015
   
2014
 
   
Average
Balance
 
Interest and
Dividends
 
Yield/Cost
   
Average
Balance
 
Interest and
Dividends
   
Yield/Cost
 
           
(Dollars in thousands)
           
Interest-earning assets:
                             
Mortgage loans
  $ 445,760   $ 10,742     4.82 %   $ 421,641   $ 9,823       4.65 %
Non-mortgage loans
    129,708     2,907     4.48       123,215     2,834       4.59  
Total net loans (1)
    575,468     13,649     4.74       544,856     12,657       4.63  
                                           
Mortgage-backed securities (2)
    110,142     1,158     2.10       98,009     988       2.01  
Investment securities (2)
    15,927     126     1.58       21,344     182       1.70  
Daily interest-bearing assets
    1,088     -     -       1,189     -       -  
Other earning assets
    76,861     230     0.60       72,338     249       0.69  
Total interest-earning assets
    779,486     15,163     3.89       737,736     14,076       3.81  
                                           
Non-interest-earning assets:
                                         
Office properties and equipment, net
    15,192                   16,253                
Other non-interest-earning assets
    73,533                   69,455                
Total assets
  $ 868,211                 $ 823,444                
                                           
Interest-bearing liabilities:
                                         
Regular savings accounts
  $ 79,644     40     0.10     $ 68,300     34       0.10  
Interest checking accounts
    123,008     48     0.08       101,331     39       0.08  
Money market deposit accounts
    229,927     134     0.12       228,606     140       0.12  
Certificates of deposit
    134,241     381     0.57       155,028     489       0.63  
Total interest-bearing deposits
    566,820     603     0.21       553,265     702       0.25  
                                           
Other interest-bearing liabilities
    24,950     273     2.19       25,040     295       2.35  
Total interest-bearing liabilities
    591,770     876     0.30       578,305     997       0.34  
                                           
Non-interest-bearing liabilities:
                                         
  Non-interest-bearing deposits
    163,693                   134,823                
  Other liabilities
    6,552                   9,952                
Total liabilities
    762,015                   723,080                
Shareholders’ equity
    106,196                   100,364                
Total liabilities and shareholders’ equity
  $ 868,211                 $ 823,444                
Net interest income
        $ 14,287                 $ 13,079          
Interest rate spread
                3.59 %                   3.47 %
Net interest margin
                3.67 %                   3.54 %
Ratio of average interest-earning assets to average interest-bearing liabilities
                131.72 %                   127.57 %
 
(1) Includes non-accrual loans.
 
             
(2) For purposes of the computation of average yield on investments available for sale, historical cost balances were utilized;
     therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.
 

 
36

 
The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the periods ended September 30, 2015 compared to September 30, 2014. Variances that were insignificant have been allocated based upon the percentage relationship of changes in volume and changes in rate to the total net change.

   
Three Months Ended September 30,
   
Six Months Ended September 30,
 
   
2015 vs. 2014
   
2015 vs. 2014
 
   
Increase (Decrease) Due to
         
Increase (Decrease) Due to
       
               
Total
               
Total
 
               
Increase
               
Increase
 
(In thousands)
 
Volume
   
Rate
   
(Decrease)
   
Volume
   
Rate
   
(Decrease)
 
                                     
Interest Income:
                                   
Mortgage loans
  $ 282     $ 61     $ 343     $ 561     $ 358     $ 919  
Non-mortgage loans
    (2 )     (38 )     (40 )     144       (71 )     73  
Mortgage-backed securities
    103       29       132       125       45       170  
Investment securities (1)
    (20 )     (16 )     (36 )     (44 )     (12 )     (56 )
Daily interest-bearing
    -       -       -       -       -       -  
Other earning assets
    12       (19 )     (7 )     15       (34 )     (19 )
Total interest income
    375       17       392       801       286       1,087  
                                                 
Interest Expense:
                                               
Regular savings accounts
    2       -       2       6       -       6  
Interest checking accounts
    3       3       6       9       -       9  
Money market deposit accounts
    (3 )     -       (3 )     (6 )     -       (6 )
Certificates of deposit
    (29 )     (18 )     (47 )     (63 )     (45 )     (108 )
Other interest-bearing liabilities
    (1 )     (8 )     (9 )     (1 )     (21 )     (22 )
Total interest expense
    (28 )     (23 )     (51 )     (55 )     (66 )     (121 )
Net interest income
  $ 403     $ 40     $ 443     $ 856     $ 352     $ 1,208  
 
(1) Interest is presented on a fully tax-equivalent basis using a tax rate of 34%.
 

Provision for Loan Losses. The recapture of loan losses for the three and six months ended September 30, 2015 was $300,000 and $800,000, respectively. This compares to the recaptures of loan losses for the three and six months ended September 30, 2014 of $350,000 and $650,000, respectively. The recapture of loan losses were primarily a result of a decrease in net charge-offs and the decline in the level of delinquent, nonperforming and classified loans, as well as the stabilization of real estate values in our market areas.

Net recoveries for the three and six months ended September 30, 2015 were $76,000 and $151,000, respectively compared to net recoveries for the three months and six months ended September 30, 2014 totaling $70,000 and $100,000, respectively. Annualized net recoveries to average net loans for the six-month period ended September 30, 2015 was 0.05% compared to 0.04% for the same period in the prior year. The net recoveries occurred primarily as a result of the decrease in nonperforming loans and stabilization of real estate values as well as an increase in recoveries on previously charged off loans. Nonperforming loans were $3.8 million at September 30, 2015 compared to $11.7 million at September 30, 2014. The ratio of allowance for loan losses to nonperforming loans was 268.18% at September 30, 2015 compared to 102.21% at September 30, 2014. See “Asset Quality” above for additional information related to asset quality that management considers in determining the provision for loan losses.

Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan. As of September 30, 2015, the Company had identified $19.5 million of impaired loans. Because the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the fair value of the collateral. Of those impaired loans, $18.3 million have no specific valuation allowance as their estimated collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs. Charge-offs on these impaired loans totaled $378,000 from their original loan balance. The remaining $1.2 million have specific valuation allowances totaling $121,000.

Non-Interest Income. Non-interest income remained constant at $2.2 million for the three months ended September 30, 2015 and 2014. Non-interest income increased $332,000 to $4.8 million for the six months ended September 30, 2015 compared to $4.4 million for the six months ended September 30, 2014. The $332,000 increase between the six months ended September 30, 2015 compared to the same period in 2014 was due to an increase in fees and services charges of $200,000 as a result of an increase in prepayment penalties on loan payoffs and an increase in asset management fees of $95,000 due to an increase in assets under management. Bank owned life insurance income increased for the six months ended September 30, 2015 due to an increase in the balance of bank owned life insurance.

Non-Interest Expense. Non-interest expense decreased for the three and six months ended September 30, 2015 as compared to the same prior year period. Non-interest expense decreased $390,000 to $7.3 million for three months ended September 30, 2015 compared to $7.7 million for same prior year period. The decrease for the three months ended September 30, 2015 was due to a decrease of $105,000 in salaries and employee benefits and a decrease of $168,000 in occupancy and depreciation expense.
 
37

 
Non-interest expense decreased $380,000 to $15.0 million for six months ended September 30, 2015 compared to $15.4 million for same prior year period. REO expenses (which include operating costs and write-downs on REO property) decreased $356,000 for the six months ended September 30, 2015 primarily due to the overall decrease in REO balances at September 30, 2015 compared to September 30, 2014. Further, FDIC insurance premiums and professional fees decreased $107,000 and $95,000, respectively for the six months ended September 30, 2015 compared to the same prior year period. Partially offsetting these decreases was an increase in salaries and employee benefits of $135,000 for the six months ended September 30, 2015 compared to the same prior year period. The increase in salaries and employee benefits was due to the reinstatement of incentive plans for the Company and the associated increase in payroll tax and benefit expenses.
 
Income Taxes. The provision for income taxes was $743,000 and $1.6 million for the three and six months ended September 30, 2015 compared to a provision for income taxes of $535,000 and $929,000 for the three and six months ended September 30, 2014. The effective tax rate was 31.0% and 32.7% for the three and six months ended September 30, 2015 compared to 33.0% and 33.7% for the three and six months ended September 30, 2014. As of September 30, 2015, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary. At September 30, 2015, the Company had a deferred tax asset of $11.2 million compared to $12.6 million at March 31, 2015.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There has not been any material change in the market risk disclosures contained in the 2015 Form 10-K.

Item 4.  Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13(a) - 15(e) of the Securities Exchange Act of 1934) as of September 30, 2015 was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as in effect on September 30, 2015 were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Securities and Exchange Act of 1934 is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In the quarter-ended September 30, 2015, the Company did not make any changes in its internal control over financial reporting that has materially affected, or is reasonably likely to materially affect these controls.

While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements attributable to error or fraud may occur and not be detected.
 
 
 
 
 
 
 
38

 
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material effect, on the Company’s financial position, results of operations, or liquidity.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company’s Form 10-K for the year ended March 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

                      None

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable
 
 
 

 
 
39

 
Item 6. Exhibits
(a)             Exhibits
     
  3.1  Articles of Incorporation of the Registrant (1)
  3.2  Bylaws of the Registrant (1)
  Form of Certificate of Common Stock of the Registrant (1)
  10.1 
Form of Employment Agreement between the Bank and each Patrick Sheaffer, Ronald A. Wysaske, and Kevin J. Lycklama (2)
  10.2 
Form of Change in Control Agreement between the Bank and each of Patrick Sheaffer, Ronald A. Wysaske and Kevin J. Lycklama (2)
  10.3  Employee Severance Compensation Plan (4)
  10.4  Form of Employment Agreement between the Bank and John A. Karas (3)
  10.5  Employee Stock Ownership Plan (5)
  10.6  1998 Stock Option Plan (6)
  10.7 2003 Stock Option Plan (7)
  10.8  Form of Incentive Stock Option Award Pursuant to 2003 Stock Option Plan (8)
  10.9   Form of Non-qualified Stock Option Award Pursuant to 2003 Stock Option Plan (8)
  10.10 
Deferred Compensation Plan (9)
  10.11
Standstill Agreement, dated August 26, 2015, by and among, Riverview Bancorp, Inc. and Ancora Advisors, LLC, Merlin Partners LP, Ancora Catalyst Fund, Frederick DiSanto, Brian Hopkins, Patrick Sweeney and James M. Chadwick (10)
  11 
Statement recomputation of per share earnings (See Note 4 of Notes to Consolidated Financial Statements contained herein.)
  31.1 
Certifications of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
  31.2 
Certifications of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
  32 
Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
  101 
The following materials from Riverview Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted on Extensible Business Reporting Language (XBRL) (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Equity (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements

(1)
Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Registration No. 333-30203), and incorporated herein by reference.
(2)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended December 31, 2014, and incorporated herein by reference.
(3)
Filed as an exhibit to the Registrant's Current Report on Form 8-K filed with the SEC on September 18, 2007 and incorporated herein by reference.
(4)
Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter-ended September 30, 1997, and incorporated herein by reference.
(5)
Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended March 31, 1998, and incorporated herein by reference.
(6)
Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-66049), and incorporated herein by reference.
(7)
Filed as an exhibit to the Registrant’s Definitive Annual Meeting Proxy Statement (000-22957), filed with the Commission on June 5, 2003, and incorporated herein by reference.
(8)
Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter-ended December 31, 2005, and incorporated herein by reference.
(9)
Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009 and incorporated herein by reference.
(10)
Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on August 31, 2015, and incorporated herein by reference.
 
 
40

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
  RIVERVIEW BANCORP, INC.
 
 
 
By:    /S/ Patrick Sheaffer By:    /S/ Kevin J. Lycklama
          Patrick Sheaffer            Kevin J. Lycklama 
          Chairman of the Board and
          Executive Vice President and
          Chief Executive Officer
          Chief Financial Officer
          (Principal Executive Officer)           (Principal Financial Officer)
   
Date: November 6, 2015  Date: November 6, 2015 
 
                                             
 
 
 
 
 
 
 
41

 
 
EXHIBIT INDEX

 
31.1
Certifications of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
 
31.2
Certifications of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
 
32
Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
 
101
The following materials from Riverview Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted on Extensible Business Reporting Language (XBRL) (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Equity (d) Consolidated Statements of Cash Flows; and (e) Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42