SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2020 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-22957
RIVERVIEW BANCORP, INC.
(Exact name of registrant as specified in its charter)
| | |
Washington | 91-1838969 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer I.D. Number) |
| | |
900 Washington St., Ste. 900, Vancouver, Washington | | 98660 |
(Address of principal executive offices) | | (Zip Code) |
| | |
Registrant’s telephone number, including area code: | | (360) 693-6650 |
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value $0.01 per share | RVSB | The NASDAQ Stock Market LLC |
| | |
Securities registered pursuant to Section 12(g) of the Act: | | None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 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 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing sales price of the DOCUMENTS INCORPORATED BY REFERENCE Portions of Table of Contents PAGE 4 32 45 45 45 45 46 46 Management’s Discussion and Analysis of Financial Condition and Results of Operations 47 61 63 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 107 107 107 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 107 108 108 108 Certain Relationships and Related Transactions, and Director Independence 109 109 110 110 111 2 References in this Forward-Looking Statements “Safe Harbor” statement under the Private Securities Litigation Reform Act of The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information or to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for fiscal 3 General Riverview Bancorp, Inc., a Washington corporation, is the Substantially all of the Company’s business is conducted through the Bank, which 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, Klickitat and Skamania counties of Washington, and Multnomah, Washington and Marion counties of Oregon as its primary market area. 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, land, real estate construction, residential real estate and other consumer loans. The Company’s loans receivable, net, totaled 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 business and commercial real estate loans in its loan Our strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management through the Trust Company and deposit service charges. The strategic plan is designed to 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 4 Market Area The Company conducts operations from its home office in Vancouver, Washington and 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, WaferTech, Nautilus, Barrett Business Services, PeaceHealth and Banfield Pet Hospitals, as well as several support industries. In addition to this industry base, the Columbia River Gorge Scenic Area and the Portland metropolitan area are sources of Lending Activities General Loan Portfolio Analysis At March 31, 2023 2022 Amount Percent Amount Percent Commercial and construction: Commercial business $ 232,868 23.08 % $ 228,091 23.03 % Commercial real estate 564,496 55.95 582,837 58.85 Land 6,437 0.64 11,556 1.16 Multi-family 55,836 5.54 60,211 6.08 Real estate construction 47,762 4.73 24,160 2.44 Total commercial and construction 907,399 89.94 906,855 91.56 Consumer: Real estate one-to-four family 99,673 9.88 82,006 8.28 Other installment 1,784 0.18 1,547 0.16 Total consumer 101,457 10.06 83,553 8.44 Total loans 1,008,856 100.00 % 990,408 100.00 % Less: Allowance for loan losses 15,309 14,523 Total loans receivable, net $ 993,547 $ 975,885 5 Loan Portfolio Composition. Other Commercial and Commercial Real Estate Real Estate Construction Business Mortgage Construction Total March 31, 2023 Commercial business $ 232,859 $ — $ — $ 232,859 SBA PPP 9 — — 9 Commercial construction — — 29,565 29,565 Office buildings — 117,045 — 117,045 Warehouse/industrial — 106,693 — 106,693 Retail/shopping centers/strip malls — 82,700 — 82,700 Assisted living facilities — 396 — 396 Single purpose facilities — 257,662 — 257,662 Land — 6,437 — 6,437 Multi-family — 55,836 — 55,836 One-to-four family construction — — 18,197 18,197 Total $ 232,868 $ 626,769 $ 47,762 $ 907,399 March 31, 2022 Commercial business $ 225,006 $ — $ — $ 225,006 SBA PPP 3,085 — — 3,085 Commercial construction — — 12,741 12,741 Office buildings — 124,690 — 124,690 Warehouse/industrial — 100,184 — 100,184 Retail/shopping centers/strip malls — 97,192 — 97,192 Assisted living facilities — 663 — 663 Single purpose facilities — 260,108 — 260,108 Land — 11,556 — 11,556 Multi-family — 60,211 — 60,211 One-to-four family construction — — 11,419 11,419 Total $ 228,091 $ 654,604 $ 24,160 $ 906,855 Commercial Business Lending. Commercial business lending typically involves risks that are different from those associated with residential and commercial real estate lending. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use, among other things. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit-worthiness of the borrower and secondarily on the underlying collateral provided by the borrower. Additionally, the borrower’s cash flow may be unpredictable and collateral securing these loans may fluctuate in value. 6 Other Real Estate Mortgage Lending. Commercial real estate and multi-family loans typically have higher loan balances, are more difficult to evaluate and monitor, and involve a higher degree of risk than residential one-to-four family The Company actively pursues commercial real estate loans. Loan demand within the Company’s market area was competitive in fiscal year Land Real Estate Construction. 7 The composition of the Company’s construction loan portfolio, including undisbursed funds, was as follows at the dates indicated (dollars in thousands): At March 31, 2023 2022 Amount (1) Percent Amount (1) Percent Speculative construction $ 16,224 19.23 % $ 16,561 26.22 % Commercial/multi-family construction 63,973 75.85 37,429 59.27 Custom/presold construction 4,149 4.92 9,160 14.51 Total $ 84,346 100.00 % $ 63,150 100.00 % (1) Includes undisbursed funds of At March 31, Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed contract with a home buyer who has a commitment for permanent financing with either the Company or another lender for the finished home. The home buyer may be identified either during or after the construction period, with the risk that the builder will have to service the speculative construction loan and finance real estate taxes and other carrying costs of the completed home for a significant period of time after the completion of construction until a home buyer is identified. The largest speculative construction loan at March 31, Presold construction loans are made to homebuilders who, at the time of construction, have a signed contract with a home buyer who has a commitment for permanent financing for the finished home from the Company or another lender. Presold construction loans are generally originated for a term of 12 months. At March 31, The composition of land and Northwest Southwest Other Oregon Washington Washington Total March 31, 2023 Land $ 1,884 4,553 $ — $ 6,437 Speculative and presold construction — 17,105 1,092 18,197 Total $ 1,884 $ 21,658 $ 1,092 $ 24,634 March 31, 2022 Land $ 2,111 9,445 $ — $ 11,556 Speculative and presold construction — 10,989 430 11,419 Total $ 2,111 $ 20,434 $ 430 $ 22,975 Unlike speculative and presold construction loans, custom construction loans are made directly to the homeowner. 8 brokerage capabilities to obtain permanent financing for the customer with another lender. For adjustable rate loans, the interest rates adjust on their first adjustment date. See “Mortgage Brokerage” and “Mortgage Loan Servicing” below for more information. At March 31, The Company provides construction financing for non-residential business properties and multi-family dwellings. At March 31, The Company has originated construction and land acquisition and development loans where a component of the cost of the project was the interest required to service the debt during the construction period of the loan, sometimes known as interest reserves. The Company allows disbursements of this interest component as long as the project is progressing as originally projected and if there has been no deterioration in the financial standing of the borrower or the underlying project. If the Company makes a determination that there is such deterioration, or if the loan becomes nonperforming, the Company halts any disbursement of those funds identified for use in paying interest. In some cases, additional interest reserves may be taken by use of deposited funds or through credit lines secured by separate and additional collateral. For additional information concerning the risks related to construction lending, see Item 1A. Consumer Lending. The majority of our real estate one-to-four family loans The Company Installment consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as mobile homes, automobiles, boats and recreational vehicles. In these cases, we face the risk that any collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Thus, the recovery and sale of such property could be insufficient to compensate us for the principal outstanding on these loans as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability and are more likely to be adversely affected by job loss, Loan Maturity. 9 loans, loans having no stated schedule of repayments or stated maturity and overdrafts are reported as due in one year or less. Loan balances are reported net of deferred fees (in thousands): Within Between 1-5 Between 5-15 Beyond 15 1 Year Years Years Years Total Commercial and construction: Commercial business $ 10,646 $ 28,033 $ 100,415 $ 93,774 $ 232,868 Commercial real estate 13,862 145,950 397,232 7,452 564,496 Land 3,284 1,885 1,268 — 6,437 Multi-family 83 5,199 48,639 1,915 55,836 Real estate construction 9,103 7,106 31,553 — 47,762 Total commercial and construction 36,978 188,173 579,107 103,141 907,399 Consumer: Real estate one-to-four family — 596 3,552 95,525 99,673 Other installment 49 1,274 461 — 1,784 Total consumer 49 1,870 4,013 95,525 101,457 Total loans $ 37,027 $ 190,043 $ 583,120 $ 198,666 $ 1,008,856 The following table sets forth the dollar amount of loans due after one year from March 31, Adjustable Fixed Rate Rate Total Commercial and construction: Commercial business $ 138,306 $ 83,916 $ 222,222 Commercial real estate 295,059 255,575 550,634 Land 2,528 625 3,153 Multi-family 46,865 8,888 55,753 Real estate construction 20,994 17,665 38,659 Total commercial and construction 503,752 366,669 870,421 Consumer: Real estate one-to-four family 86,864 12,809 99,673 Other installment 1,355 380 1,735 Total consumer 88,219 13,189 101,408 Total loans $ 591,971 $ 379,858 $ 971,829 Loan Commitments Mortgage Brokerage. 10 of loan fees generally decrease as a result of Mortgage Loan Servicing. Nonperforming Assets. Loans are reviewed regularly and it is the Company’s general policy that when a loan is 90 days or more delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for any unrecoverable accrued interest is established and charged against operations. In general, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cash-basis method. The Company continues to proactively manage its residential construction and land acquisition and development loan portfolios. At March 31, The following table sets forth information regarding the Company’s nonperforming loans at the dates indicated (dollars in thousands): March 31, 2023 March 31, 2022 Number of Number of Loans Balance Loans Balance Commercial business 1 $ 79 1 $ 100 Commercial real estate 1 100 1 122 Consumer 3 86 2 51 Subtotal 5 265 4 273 SBA and USDA Government Guaranteed 6 1,587 66 21,826 Total 11 $ 1,852 70 $ 22,099 The Company continues its efforts to work out problem loans, seek full repayment or pursue foreclosure 11 continues to work with Colson on the reconciliation and transfer of the two remaining loans. The Bank expects the reconciliation and unwinding process to continue and until these processes are completed for all loans being transferred, with such loans continuing to be reflected as past due. These nonperforming government guaranteed loans are not considered non-accrual loans because there is no concern of the collectability of the full principal and interest given the Company purchased the guaranteed portion of these loans which is backed by government guaranteed interest certificates. At March 31, 2023, all of the Company’s nonperforming loans exclusive of the SBA and USDA government guaranteed loans are to borrowers with properties located in The following table sets forth information regarding the Company’s nonperforming assets at the dates indicated (in thousands): At March 31, 2023 2022 Loans accounted for on a non-accrual basis: Commercial business $ 97 $ 118 Commercial real estate 100 122 Consumer 86 51 Total 283 291 Accruing loans which are contractually past due 90 days or more 1,569 21,808 Total nonperforming loans 1,852 22,099 Real estate owned (“REO”) — — Total nonperforming assets $ 1,852 $ 22,099 Foregone interest on non-accrual loans $ 14 $ 24 The following tables set forth information regarding the Company’s nonperforming assets by loan type and geographical area at the dates indicated (in thousands): Southwest Washington Other Total March 31, 2023 Commercial business $ 79 $ — $ 79 Commercial real estate 100 — 100 Consumer 86 — 86 Subtotal 265 — 265 SBA and USDA Government Guaranteed — 1,587 1,587 Total nonperforming assets $ 265 $ 1,587 $ 1,852 March 31, 2022 Commercial business $ 100 $ — $ 100 Commercial real estate 122 — 122 Consumer 51 — 51 Subtotal 273 — 273 SBA and USDA Government Guaranteed — 21,826 21,826 Total nonperforming assets $ 273 $ 21,826 $ 22,099 12 Other loans of concern, which are classified as substandard loans and are not presently included in the non-accrual category, consist of loans where the borrowers have cash flow problems, or the collateral securing the respective loans may be inadequate. In either or both of these situations, the borrowers may be unable to comply with the present loan repayment terms, and the loans may subsequently be included in the non-accrual category. Management considers the allowance for loan losses to be adequate at March 31, The following table sets forth information regarding the Company’s other loans of concern at the dates indicated (dollars in thousands): March 31, 2023 March 31, 2022 Number of Number of Loans Balance Loans Balance Commercial business 1 $ 38 1 $ 45 Commercial real estate 2 2,344 3 6,087 Total 3 $ 2,382 4 $ 6,132 At March 31, Troubled debt restructurings (“TDRs”) are loans for which the Company, for economic or legal reasons related to the TDRs are considered impaired loans The Company has determined that, in certain circumstances, it is appropriate to split a loan into multiple notes. This typically includes a nonperforming charged-off loan that is not supported by the cash flow of the relationship and a performing loan that is supported by the cash flow. These may also be split into multiple notes to align portions of the loan balance with the various sources of repayment when more than one exists. Generally, the new loans are restructured based on customary underwriting standards. In situations where they are not, the policy exception qualifies as a concession, and if the borrower is experiencing financial difficulties, the loans are accounted for as TDRs. The accrual status of a loan may change after it has been classified as a TDR. The Company’s general policy related to TDRs is to perform a credit evaluation of the borrower’s financial condition and prospects for repayment under the revised terms. This evaluation includes consideration of the borrower’s sustained historical repayment performance for a reasonable period of time. A sustained period of repayment performance generally would be a minimum of six months and may include repayments made prior to the restructuring date. If repayment of principal and interest appears doubtful, it is placed on non-accrual status. In accordance with the Company’s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. Consumer installment loans delinquent six months or more that have not received at least 75% of their required monthly payment in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy protection with no payments 13 received for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four to five consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly Asset Classification. When the Company classifies problem assets as either substandard or doubtful, we may determine that the loan is impaired and establish a specific allowance in an amount we deem prudent to address the risk specifically or we may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets. When a problem asset is classified by us as a loss, we are required to charge off the asset in the period in which it is deemed uncollectible. The aggregate amount of the At or For the Year Ended March 31, 2023 2022 Classified loans $ 2,647 $ 6,405 General loss allowances 15,303 14,515 Specific loss allowances 6 8 Net charge-offs (recoveries) (36) 30 All Allowance for Loan Losses. 14 In accordance with GAAP, loans acquired from MBank during the fiscal year ended March 31, 2017 were recorded at their estimated fair value, which resulted in a net discount to the loans’ contractual amounts, of which a portion reflects a discount for possible credit losses. Credit discounts are included in the determination of fair value, and, as a result, no allowance for loan losses is recorded for acquired loans at the acquisition date. The discount recorded on the acquired loans is not reflected in the allowance for loan losses or related allowance coverage ratios. However, we believe it should be considered when comparing certain financial ratios of the Company calculated in periods after the MBank transaction, compared to the same financial ratios of the Company in periods prior to the MBank transaction. The net discount on these acquired loans was The Company recorded a provision for loan losses of At March 31, Management considers the allowance for loan losses to be adequate at March 31, 15 The following table sets forth the breakdown of the allowance for loan losses by loan category as of the dates indicated (dollars in thousands): At March 31, 2023 2022 Loan Category Loan Category as a Percent as a Percent Amount of Total Loans Amount of Total Loans Commercial and construction: Commercial business $ 3,123 23.08 % $ 2,422 23.03 % Commercial real estate 8,894 55.95 9,037 58.85 Land 93 0.64 168 1.16 Multi-family 798 5.54 845 6.08 Real estate construction 764 4.73 393 2.44 Consumer: Real estate one-to-four family 1,087 9.88 905 8.28 Other installment 40 0.18 38 0.16 Unallocated 510 — 715 — Total allowance for loan losses $ 15,309 100.00 % $ 14,523 100.00 % 16 The following table shows certain credit ratios at and for the periods indicated and each component of the ratio’s calculations. At or For the Year Ended March 31, 2023 2022 2021 Allowance for loan losses as a percentage of total loans outstanding at period end 1.52 % 1.47 % 2.03 % Allowance for loan losses $ 15,309 $ 14,523 $ 19,178 Total loans outstanding 1,008,856 990,408 943,235 Non-accrual loans as a percentage of total loans outstanding at period end 0.03 % 0.03 % 0.04 % Total non-accrual loans $ 283 $ 291 $ 395 Total loans outstanding 1,008,856 990,408 943,235 Allowance for loan losses as a percentage of non-accrual loans at period end 5,409.54 % 4,990.72 % 4,855.19 % Allowance for loan losses $ 15,309 $ 14,523 $ 19,178 Total non-accrual loans 283 291 395 Net charge-offs/(recoveries) during period to average loans outstanding: Commercial business: — % 0.03 % — % Net charge-offs/(recoveries) $ — $ 69 $ (10) Average loans receivable, net 233,884 225,677 268,363 Commercial real estate: — % — % (0.06) % Net charge-offs/(recoveries) $ — $ — $ (332) Average loans receivable, net 568,999 559,275 526,965 Land: — % — % — % Net charge-offs/(recoveries) $ — $ — $ — Average loans receivable, net 8,486 13,498 13,765 Multi-family: — % — % — % Net charge-offs/(recoveries) $ — $ — $ — Average loans receivable, net 57,548 48,651 50,489 Real estate construction: — % — % — % Net charge-offs/(recoveries) $ — $ — $ — Average loans receivable, net 38,214 16,828 32,834 Consumer: (0.04) % (0.06) % 0.12 % Net charge-offs/(recoveries) $ (36) $ (39) $ 88 Average loans receivable, net 99,914 70,813 73,654 Total loans: — % — % (0.03) % Total net recoveries/(recoveries) $ (36) $ 30 $ (254) Total average loans receivable, net 1,007,045 934,742 966,070 Investment Activities The Board sets the investment policy of the Company. The The Company primarily purchases agency securities 17 CRE MBS are issued by FNMA. The Company does not believe that it has any exposure to sub-prime lending in its investment securities portfolio. See Note 3 of the Notes to The following table sets forth the investment securities portfolio and carrying values at the dates indicated (dollars in thousands): At March 31, 2023 2022 Carrying Percent of Carrying Percent of Value Portfolio Value Portfolio Available for sale (at estimated fair value): Municipal securities $ 40,261 8.84 % $ 39,604 9.45 % Agency securities 85,907 18.87 40,705 9.72 REMICs 28,877 6.34 32,717 7.81 Residential MBS 15,471 3.40 16,945 4.05 Other MBS 40,983 9.00 35,811 8.55 211,499 46.45 165,782 39.58 Held to maturity (at amortized cost): Municipal securities 10,344 2.27 10,368 2.47 Agency securities 53,941 11.85 45,277 10.81 REMICs 35,186 7.73 39,394 9.40 Residential MBS 123,773 27.18 137,343 32.79 Other MBS 20,599 4.52 20,718 4.95 243,843 53.55 253,100 60.42 Total investment securities $ 455,342 100.00 % $ 418,882 100.00 % The following table sets forth the maturities and weighted average yields in the securities portfolio at March 31, After One Year After Five Years One Year or Less Through Five Years Through Ten Years After Ten Years Weighted Weighted Weighted Weighted Average Average Average Average Amount Yield (1) Amount Yield (1) Amount Yield (1) Amount Yield (1) Available for sale: Municipal securities $ — — % $ 3,970 3.29 % $ 8,874 2.74 % $ 27,417 2.04 % Agency securities 8,890 3.01 61,647 2.60 15,370 1.26 — — REMICS 1 5.86 — — 544 2.09 28,332 1.73 Residential MBS — — 624 1.95 5,870 1.78 8,977 2.99 Other MBS 3,370 2.82 11,963 4.23 16,556 1.73 9,094 2.96 Total available for sale $ 12,261 2.96 % $ 78,204 2.88 % $ 47,214 1.76 % $ 73,820 2.13 % Held to maturity: Municipal securities $ — — % $ — — % $ — — % $ 10,344 2.34 % Agency securities — — 38,937 1.84 11,913 1.42 3,091 0.80 REMICS — — — — — — 35,186 1.76 Residential MBS 4 3.84 — — 2,473 1.20 121,296 1.77 Other MBS — — 3,274 1.95 15,309 1.48 2,016 1.33 Total held to maturity $ 4 3.84 % $ 42,211 1.85 % $ 29,695 1.43 % $ 171,933 1.78 % Management reviews investment securities quarterly for the presence of other than temporary impairment (“OTTI”), taking into consideration current market conditions, the extent and nature of changes in estimated fair value, issuer rating changes and trends, financial condition of the underlying issuers, current analysts’ evaluations, the Company’s ability and intent to hold investments 18 until a recovery of estimated fair value, which may be maturity, as well as other factors. There was no OTTI charge for investment securities for the years ended March 31, Deposit Activities and Other Sources of Funds General. Deposit Accounts. The following table sets forth the average balances of deposit accounts held by the Company at the dates indicated (dollars in thousands): Year Ended March 31, 2023 2022 2021 Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate Non-interest-bearing demand $ 480,029 0.00 % $ 476,203 0.00 % $ 387,579 0.00 % Interest-bearing checking 286,627 0.03 279,053 0.03 225,579 0.04 Savings accounts 308,840 0.07 318,885 0.08 257,285 0.16 Money market accounts 266,795 0.16 272,161 0.06 204,931 0.07 Certificates of deposit 103,484 0.75 117,391 0.80 129,928 1.45 Total $ 1,445,775 0.10 % $ 1,463,693 0.10 % $ 1,205,302 0.21 % Deposit accounts totaled At March 31, The Company is enrolled in an internet deposit listing service. Under this listing service, the Company may post certificates of deposit rates on an internet site where institutional investors have the ability to deposit funds with the Company. At March 31, 19 Deposit growth remains a key strategic focus for the Company and our ability to achieve deposit growth, particularly As of March 31, 2023 and 2022, approximately $225.7 million and $320.0 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The following table presents the maturity period Maturity Period Amount Three months or less $ 1,741 Over three through six months 5,195 Over six through 12 months 19,592 Over 12 months 13,787 Total $ 40,315 For more information, see also Note 8 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. Borrowings. The FHLB functions as a central reserve bank providing credit for member financial institutions. As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of such stock and certain of its mortgage loans and other assets (primarily securities which are obligations of, or guaranteed by, the U.S.) provided certain standards related to credit-worthiness have been met. The FHLB determines specific lines of credit for each member institution and the Bank has a line of credit with the FHLB equal to 45% of its total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock. At March 31, The Bank also has a borrowing arrangement with the FRB with an available credit facility of Year Ended March 31, 2023 2022 2021 Maximum amounts of FHLB advances outstanding at any month end $ 123,754 $ — $ 30,000 Average FHLB advances outstanding 21,045 3 15,044 Weighted average rate on FHLB advances 4.88 % 0.31 % 0.31 % Maximum amounts of FRB borrowings outstanding at any month end $ — $ — $ — Average FRB borrowings outstanding 13 3 — Weighted average rate on FRB borrowings 4.62 % 0.25 % — % 20 At March 31, Taxation For details regarding the Company’s taxes, see Note 11 of the Notes to Employees and Human Capital As of March 31, To facilitate talent attraction and retention, we strive to make the Bank an inclusive, safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by competitive compensation and benefits programs. Approximately 65.8% of our workforce was female and 34.2% male, 58.0% of our management roles were held by females and 42.0% were held by males and our average tenure was seven years. The ethnicity of our workforce was 84.0% White, 5.4% Asian, 4.6% Hispanic or Latinx, 1.3% two or more races, 1.7% American Indian or Alaskan Native, 1.3% Native Hawaiian or Pacific Islander and 1.7% African American or Black. Benefit programs include quarterly or annual incentive opportunities, a Company sponsored Employee Stock Ownership Plan (“ESOP”), a Company-matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and employee assistance programs including educational reimbursement opportunities. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety, and wellness of our employees. In support of our commitment, we have onsite gym facilities at our operations center to promote health and wellness. In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. We continue to utilize a hybrid work model which is supported by technology that promotes flexibility to work remotely while also recognizing the benefits of in-person collaboration. The Company recognizes that the skills and knowledge of its employees are critical to the success of the organization, and promotes training and continuing education as an ongoing function for its employees. The Bank’s compliance training program provides required annual training courses to assure that all employees know the rules applicable to their jobs. 21 Corporate Information The Company’s principal executive offices are located at 900 Washington Street, Vancouver, Washington 98660. Its telephone number is (360) 693-6650. The Company maintains a website with the address www.riverviewbank.com. The information contained on the Company’s website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet access charges, the Company makes available free of charge through its website the Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after it has electronically filed such material with, or furnished such material to, the Securities and Exchange Commission (“SEC”). Subsidiary Activities Riverview has one operating subsidiary, the Bank. The Bank Riverview Services acts as a trustee for deeds of trust on mortgage loans granted by the Bank and receives a reconveyance fee for each deed of trust. Riverview Services had net income of The Trust Company is an asset management company providing trust, estate planning and investment management services. The Trust Company had net income of 22 Information about our Executive Officers Name Age (1) Position Kevin J. Lycklama 45 President and Chief Executive Officer David Lam 46 Executive Vice President and Chief Financial Officer Daniel D. Cox 45 Executive Vice President and Chief Credit Officer Tracie L. Jellison 54 Executive Vice President and Chief Retail Banking Officer Steven P. Plambeck 63 Executive Vice President and Chief Lending Officer Evan Sowers 45 President and Chief Executive Officer of Riverview Trust Company Kevin J. Lycklama David Lam Daniel D. Cox Tracie L. Jellisonis Executive Vice President and Chief Retail Banking Steven P. Plambeck Evan Sowers is President and Chief Executive Officer of the Trust Company, a wholly-owned subsidiary of the Bank. Mr. 23 REGULATION General. On April 28, 2021, the Bank converted from a federally chartered savings bank to a Washington state-chartered commercial bank. As a Washington state-chartered commercial bank, the Bank’s regulators are the WDFI and the FDIC, rather than the OCC. The Company converted from a Savings and Loan Holding Company to a Bank Holding Company and the Federal Reserve remained its primary federal regulator. The following is a brief description of certain laws and regulations which are applicable to the Company and the Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations. Legislation is introduced from time to time in the United States Congress (“Congress”) or the Washington State Legislature that may affect the Company’s and Bank’s operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the The WDFI and FDIC have extensive enforcement authority over all Washington state-chartered commercial banks, including the Bank. The Federal Reserve has the same type of authority over Riverview. Regulation and Supervision of the Bank General.As a Capital Requirements. The Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in May 2018, required the federal banking agencies, including the FDIC, to establish for institutions with assets of less than $10 billion a “community bank leverage ratio” or “CBLR” of between 8 to 10%. Institutions with capital meeting or exceeding the ratio and otherwise complying with the specified requirements (including off-balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The CBLR was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to meet any qualifying criteria is provided with a two- quarter grace period to again achieve compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable capital requirements. The Bank has not elected to use the CBLR framework as of March 31, 2023. 24 Certain changes in what constitutes regulatory capital, including the The Bank also must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. In order to be considered well-capitalized under the prompt corrective action regulations described below, the Bank must maintain a CET1 risk-based ratio of 6.5%, a Tier 1 risk-based ratio of 8%, a total risk-based capital ratio of 10% and a leverage ratio of 5%, and the Bank must not be subject to The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard for GAAP that is effective for us for our first fiscal year beginning after December 15, 2022. This standard, referred to as Current Expected Credit Loss (“CECL”) requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses. Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL may reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital. The federal banking regulators (the Federal Reserve, the OCC and the FDIC) have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital. Prompt Corrective Action. Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions which become more extensive as an institution becomes more severely undercapitalized. Failure by the Bank to comply with Federal Home Loan Bank System. 25 in FHLB stock, which The FHLB continues to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Insurance Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to The FDIC Activities and Investments of Insured State-Chartered Financial Institutions. Federal law generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the Washington State has enacted a law regarding financial institution parity. Primarily, the law affords Washington state-chartered commercial banks the same powers as Washington state-chartered savings banks and provides that Washington state-chartered commercial banks may exercise any of the powers that the Federal Reserve has determined to be closely related to the business of banking and the powers of national banks, subject to the approval of the Director of the WDFI in certain situations. Finally, the law provides additional flexibility for Washington state-chartered commercial and savings banks with respect to interest rates on loans and other extensions of credit. Specifically, they may charge the maximum interest rate allowable for loans and other extensions of credit by federally-chartered financial institutions to Washington residents. 26 Transactions with Affiliates. Riverview and the Bank are Community Reinvestment On May 5, 2022, the federal bank regulatory agencies overhauled the CRA and jointly issued a proposal to Dividends. The amount of dividends payable by the Bank to Riverview depends upon the Bank’s earnings and capital position, and is limited by federal and state laws, regulations and policies. Under Washington law, the Bank may not declare or pay a cash dividend on its capital stock if it would cause its net worth to be reduced below (1) the amount required for liquidation accounts or (2) the net worth requirements, if any, imposed by the Director of the WDFI. In addition, dividends may not be declared or paid if the Bank is in The amount of Standards for Safety and Soundness. Federal Reserve System. 27 reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and The Commercial Real Estate Lending Concentrations The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. Environmental Issues Associated with Real Estate Lending. Anti-Money Laundering Privacy Standards and Cybersecurity. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other 28 notification requirements for banking organizations and their service providers for significant cybersecurity incidents. Specifically, the new rule requires a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred. Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the Other Consumer Protection Laws and Regulations. The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While Regulation and General. The Bank Holding Company Act. Under the BHCA, Riverview is supervised by the Federal Reserve. The 29 subsidiaries are prohibited from tying the Acquisitions. The BHCA prohibits a bank holding company, Acquisition of Control of a Bank Holding Company. Under federal law, a notice or application must be submitted to the appropriate federal banking regulator if any person (including a company), or group acting in concert, seeks to acquire Regulatory Capital Requirements. As discussed above, pursuant to the “Small Bank Holding Company” exception, effective August 30, 2018, bank holding companies Restrictions on Dividends. The Federal 30 Stock Repurchases. A bank holding company, except for certain “well-capitalized” and highly rated bank holding companies, is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of its consolidated net worth.The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve. Federal Securities Laws. Riverview’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, 31 An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report. In addition to the risks and uncertainties described below, Risks Related to Our business may be adversely affected by downturns in the national and the regional economies on which we depend. Substantially all of our loans are to businesses and individuals in the states of Washington and Oregon. A decline in the economies of the seven counties in which we operate, including the Portland, Oregon metropolitan area, which we consider to be our primary market area, could have a A deterioration in economic conditions in the market areas we serve Many of the loans in our Inflationary pressures and Inflation has risen sharply since the end of 2021 to levels not seen in more than 40 years. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition. Risks Related to our Lending Activities Our real estate construction loans are based upon estimates of costs and the value of the completed project, and as with land We make construction and land 32 the loan is under contract for sale. At March 31, In general, construction and land lending Construction loans often involve the disbursement of funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. Moreover, during the term of most of our construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve. Increases in market rates of interest also may have a more pronounced effect on construction loans by rapidly increasing the Loans on land under development or raw land held for future construction, including lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can Commercial and While commercial and multi-family real estate Commercial and multi-family real estate loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential loan. Repayment on these loans is dependent upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be 33 adversely affected by changes in the economy or local market conditions. For example, if the cash flow from the borrower’s project is reduced as a result of leases not being obtained or renewed, the borrower’s ability to repay the loan may be impaired. Commercial and multi-family mortgage loans also expose a lender to greater credit risk than loans secured by one-to-four family residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate. In addition, many of our commercial and multi-family real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. A secondary market for most types of commercial real estate and multi-family loans is not readily liquid, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these loans. As a result of these characteristics, if we foreclose on a commercial or multi-family real estate loan, our holding period for the collateral typically is longer than for one-to-four family residential mortgage loans because there are fewer potential purchasers of the collateral. Accordingly, charge-offs on commercial and multi-family real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. Our business may be adversely affected by credit risk associated with residential At March 31, This type of lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. A Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At March 31, Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio. Lending money is a substantial part of our business and each loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other things: 34 We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, which we believe is appropriate to provide for probable losses in our loan portfolio. The amount of this allowance is determined by management through periodic reviews and consideration of several factors, including, but not limited to: The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. If our estimates are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in our allowance for loan losses through the provision for losses on loans which is charged against income. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may also require an increase in the allowance for loan losses. Additionally, pursuant to our growth strategy, management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions. In addition, the FASB has adopted Any increases in the Risks Related to Market and Changes in interest rates may reduce our net interest income and may result in higher defaults in a rising rate environment. Our earnings and cash flows are largely dependent upon our net interest income, which is the difference, or spread, between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings, and other interest-bearing liabilities. Interest rates are highly sensitive to many factors that are beyond our control, including 35 points to a range of We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. Changes in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations or by reducing our margins and profitability. Our net interest margin is the difference between the yield we earn on our assets and the interest rate we pay for deposits and our other sources of funding. Changes in interest rates—up or down—could adversely affect our net interest margin and, as a result, our net interest income. Although the yields we earn on our assets and our funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing our net interest margin to expand or contract. Our liabilities tend to be shorter in duration than our assets, so they may adjust faster in response to changes in interest rates. As a result, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest margin to contract until the yield catches up. Changes in the slope of the “yield curve”—or the spread between short-term and long-term interest rates—could also reduce our net interest margin. Normally, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our A sustained increase in market interest rates could adversely affect our earnings. A significant portion of our loans have fixed interest rates and longer terms than our deposits and borrowings. As is the case with many financial institutions, our emphasis on increasing the development of core deposits, those deposits bearing no or a relatively low rate of interest with no stated maturity date, has Changes in interest rates also affect the value of Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our consolidated balance sheet or projected operating results. We Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect to the 36 securities, defaults by, or other adverse events affecting, the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the Revenue from Our mortgage A general decline in economic conditions may adversely affect the fees generated by our asset management company. To the extent our asset management clients and their assets become adversely affected by weak economic and stock market conditions, they may choose to withdraw the amount of assets managed by us and the value of their assets may decline. Our asset management revenues are based on the value of the assets we manage. If our clients withdraw assets or the value of their assets decline, the revenues generated by the Trust Company will be adversely affected. Risks Related to Regulatory, Legal and Compliance Matters The continued focus on increasing our commercial real estate loan portfolio may The 37 We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations. The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s shareholders. These regulations may sometimes impose significant limitations on operations. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. The USA PATRIOT Act and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected. Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject. These risks include, among others, liquidity, credit, market, interest rate, operational, legal and compliance, and reputational risk. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. We also maintain a compliance program to identify, measure, assess, and report on our adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations. The effects of climate change continue to create an alarming level of concern for the state of the global environment. As a result, 38 the U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change. Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. The lack of empirical data surrounding the credit and other financial Risks Related to Cybersecurity, Data and Fraud We are subject to certain risks in connection with our use of technology. Our security measures may not be sufficient to mitigate the risk of a cyber-attack Further, our cardholders use their debit and credit cards to make purchases from third parties or through third-party processing services. As such, we are subject to risk from data breaches of such third-party’s information systems or their payment processors. Such a data security breach could compromise our account information. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for losses associated with reimbursing our clients for such fraudulent transactions on clients’ card accounts, as well as costs incurred by payment card issuing banks and other third parties or may be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. We may also incur other costs related to data security breaches, such as replacing cards associated with compromised card accounts. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs. Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information, including employees. The Company is continuously working to install new and upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to further protect the Company against cyber risks and security breaches. There continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for 39 companies, including ours. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, some of our clients may have been affected by third-party breaches, which could increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with us. Security breaches in our internet banking activities could further expose us to possible liability and damage our reputation Our security measures may not protect us from system failures or interruptions We cannot assure that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. We may not be insured against all types of losses as a result of third-party failures and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions. If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all. Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of these occurrences could have a The board of directors oversees the risk management process, including the risk of cybersecurity, and engages with management on cybersecurity issues. Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes. As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Nationally, reported incidents of fraud and other financial crimes have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur. 40 Risks Related to Accounting Matters The Company’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future. The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. The Company’s management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment regarding the most appropriate manner to report the Company’s financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in the Company’s reporting materially different results than would have been reported under a different alternative. Certain accounting policies are critical to presenting the Company’s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting estimates include, but are not limited to the allowance for loan losses, the valuation of investment securities, goodwill valuation and the calculation of income taxes, including tax provisions and realization of deferred tax assets; and the fair value of assets and liabilities. Because of the uncertainty of estimates involved in these matters, the Company may be required, among other things, to significantly increase the allowance for loan losses, sustain credit losses that are significantly higher than the reserve provided, and/or record a write-off of goodwill as a result of impairment. For more information, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” contained in this Form 10-K. We may experience future goodwill impairment, which could reduce our earnings. We performed our annual goodwill impairment test as of October 31, 2022, and the test concluded that recorded goodwill was not impaired. Our assessment of the fair value of goodwill is based on an evaluation of current purchase transactions, discounted cash flows from forecasted earnings, our current market capitalization, and a valuation of our assets. Our evaluation of the fair value of goodwill involves a substantial amount of judgment. If our judgment was incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill resulting in a charge to earnings, which would adversely affect our results of operations, perhaps materially; however, it would have no impact on our liquidity, operations or regulatory capital. We performed a qualitative assessment of goodwill at March 31, 2023 and concluded that recorded goodwill was not impaired. Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price. Risks Related to our Business and Industry General We rely on other companies to provide key components of our business infrastructure. We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations. We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us. Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties. Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition. 41 We will be required to transition from the use of LIBOR in the future. We have junior subordinated debentures indexed to LIBOR to calculate the interest rate. ICE Benchmark Administration, the authorized and regulated administrator of LIBOR, ended publication of the one-week and two-month U.S. Dollar (“USD”) LIBOR tenors on December 31, 2021 and the remaining USD LIBOR tenors will end publication in June 2023. Financial services regulators and industry groups have collaborated to develop alternate reference rate indices or reference rates. The transition to a new reference rate requires changes to contracts, risk and pricing models, valuation tools, systems, product design and hedging strategies. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR (with the exception of overnight repurchase agreements, which are expected to be based on the Secured Overnight Financing Rate, or SOFR). The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected. If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected. The implementation of a substitute index or indices for the calculation of interest rates under our agreements may result in incurring significant expenses in effecting the transition, may result in reduced loan balances if the substitute index or indices is not accepted and may result in disputes or litigation with customers and creditors over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations. Ineffective liquidity management could adversely affect our financial results and condition. Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans or investment securities, or other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the Washington or Oregon markets in which our loans are concentrated, negative operating results, or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets. Any decline in available funding in amounts adequate to finance our activities or on terms which are acceptable could adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying our borrowings or meeting deposit withdraw demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity” of this Form 10-K. Additionally, collateralized public funds are bank deposits of state and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality’s fiscal policies and cash flow needs. Our branching strategy may cause our expenses to increase faster than revenues. Since June 2020, we opened three new branches in Clark County, Washington and may open additional branches in our market area in the future. The success of our branch expansion strategy is contingent upon numerous factors, such as our ability to secure managerial resources, hire and retain qualified personnel and implement effective marketing strategies. The opening of new branches may not increase the volume of our loans and deposits as quickly or to the degree that we hope and opening new branches will increase our operating expenses. On average, de novo branches do not become profitable until three to four years after opening. Further, the projected timeline and the estimated dollar amounts involved in opening de novo branches could differ significantly from actual results. We may not successfully manage the costs and implementation risks associated with our branching strategy. Accordingly, any new branch may negatively impact our earnings for some period of time until the branch reaches certain economies of scale. Finally, there is a risk that our new branches will not be successful even after they have been established. 42 Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high. We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, any additional capital we obtain may result in the dilution of the interests of existing holders of our common stock. Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action. If we fail to meet the expectations of our stakeholders with respect to our environmental, social and governance (“ESG”) practices, including those relating to sustainability, it may have an adverse effect on our reputation and results of operation. Our reputation may also be negatively impacted by our diversity, equity and inclusion (“DEI”) efforts if they fall short of expectations. In addition, various private third-party organizations have developed ratings processes for evaluating companies on their approach to ESG and DEI matters. These ratings may be used by some investors to assist with their investment and voting decisions. Any unfavorable ratings may lead to reputational damage and negative sentiment among our investors and other stakeholders. Furthermore, increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Competition with other financial institutions could adversely affect our profitability. Although we consider ourselves competitive in our market areas, we face intense competition in both making loans and attracting deposits. Price competition for loans and deposits might result in our earning less on our loans and paying more on our deposits, which reduces net interest income. Some of the institutions with which we compete have substantially greater resources than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability will depend upon our continued ability to compete successfully in our market areas. Our ability to retain and recruit key management personnel and bankers is critical to the success of our business strategy and any failure to do so could impair our customer relationships and adversely affect our business and results of operations. Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the community banking industry where the Bank conducts its business. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel. In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President and Chief Executive Officer, and certain other employees. Our ability to retain and grow our loans, deposits, and fee income depends upon the business generation capabilities, reputation, and relationship management skills of our lenders. If we were to lose the services of any of our bankers, including successful bankers employed by banks that we may acquire, to a new or existing competitor, or otherwise, we may not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor instead of our services. In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors. 43 Managing reputational risk is important to attracting and maintaining customers, investors and employees. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality or operational failures due to integration or conversion challenges as a result of acquisitions we undertake, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental regulation. We rely on dividends from the Bank for substantially all of our revenue at the holding company level. Riverview is a separate legal entity 44 None. The executive offices of the Company are located in downtown Vancouver, Washington at 900 Washington Street. The Company’s operational center is also located in Vancouver, Washington (both offices are leased). At March 31, Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which the Company holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Company’s business. The Company is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition, results of operations or liquidity of the Company. Not applicable. 45 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders The Purchases of On The The following table sets forth the Company’s repurchases of its outstanding common stock under the November 2022 repurchase program during the Total Dollar Maximum Dollar Value Total Average Value Purchased of Shares that Number of Price as Part of Publicly May Yet Be Purchased Shares Paid per Announced Stock Under the Stock Period Purchased Share Repurchase Program Repurchase Program January 1, 2023 $ 2,418,939 January 1, 2023 - January 31, 2023 42,814 $ 7.33 $ 313,862 2,105,077 February 1, 2023 - February 28, 2023 105,791 7.31 773,668 1,331,409 March 1, 2023 - March 31, 2023 125,770 6.00 754,000 577,409 Total 274,375 $ 6.71 $ 1,841,530 $ 577,409 Equity Compensation The equity compensation plan information presented in Part III, Item 12 46 General Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto contained in Item 8 of this Form 10-K and the other sections contained in this Form 10-K. Critical Accounting Estimates We prepare our consolidated financial The Company has identified policies that due to Allowance for Loan Losses The allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the The allowance for loan losses is maintained at a level sufficient to provide for probable losses based on evaluating known and inherent risks in the loan portfolio and upon our continuing analysis of the factors underlying the quality of the loan portfolio. The allowance for loan losses is comprised of a general component, a specific component and an unallocated component. The general component is based on historical loss experience applied to loan segments adjusted by qualitative factors. These qualitative factors include: lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; national and local economic trends and conditions; nature and volume of the 47 Valuation of Investment Securities. The Company determines the estimated fair value of certain assets that are classified as Level 3 under the fair value hierarchy established under GAAP. These Level 3 assets are valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets. These Level 3 assets are certain loans measured for impairment for which there is neither an active market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model. Under these circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair value requires significant management judgment or estimation. Valuations using models or other techniques are dependent upon assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of the valuation date. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. Judgment is then applied in formulating those inputs. Certain loans included in the loan portfolio were deemed impaired at March 31, 2023. Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is no active market for these loans. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment was measured based on a number of factors, including recent independent appraisals which are further reduced for estimated selling costs or by estimating the present value of expected future cash flows, discounted at the loan’s effective interest rate. For additional information on our Level 1, 2 and 3 fair value measurements see Note 15 of the Notes to Goodwill Valuation Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been allocated to the Bank reporting unit. The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill is impaired. If the fair value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit is greater than its fair value, there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any. The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; adverse action or assessment by a regulator; and unanticipated competition. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements. The Company performed its annual goodwill impairment test as of October 31, 48 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 The Company also completed a qualitative assessment of goodwill as of March 31, 2023 and concluded that it is more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at that date. Even though the Company determined that there was no goodwill impairment, a sustained decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge. It is also possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected; however, such an impairment charge would have no impact on our liquidity, operations or regulatory capital. For additional information concerning critical accounting policies, see Note 1 of the Operating Strategy and Selected Financial Information Fiscal year 2024 marks the 100th anniversary for Riverview Bank, which opened for business in 1923. Our primary business strategy is to provide comprehensive banking and related financial services within our primary market area. The Company’s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit balances, managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives: Execution of 49 transactions that Maintaining Strong Asset Quality. The Company believes that strong asset quality is a key to long-term financial success. The Company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts, marketing saleable properties upon foreclosure or repossession, and through work-outs of classified assets and loan charge-offs. The Company’s approach to credit management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2023. Although the Company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more Introduction of New Products and Services. The Company continuously reviews new products and services to provide its customers more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Company continues to experience growth in customer use of its online banking services, where the Bank Attracting Core Deposits and Other Deposit Products. The Company offers personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate. To build its core deposit base, the 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 Selected Financial Data: The following financial condition data as of March 31, 2023 and 2022 and operating data and key financial ratios for the fiscal years ended March 31, 2023, 2022, and 2021 have been derived from the Company’s audited consolidated financial statements. The information below is qualified in its entirety by the detailed information included elsewhere herein and should be read along with this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial Statements and Supplementary Data” included in this Form 10-K. 50 At March 31, 2023 2022 (In thousands) FINANCIAL CONDITION DATA: Total assets $ 1,589,712 $ 1,740,096 Loans receivable, net 993,547 975,885 Investment securities available for sale 211,499 165,782 Investment securities held to maturity 243,843 253,100 Cash and cash equivalents 22,044 241,424 Deposits 1,265,217 1,533,878 FHLB advances 123,754 — Shareholders’ equity 155,239 157,249 Year Ended March 31, 2023 2022 2021 (Dollars in thousands, except per share data) OPERATING DATA: Interest and dividend income $ 55,666 $ 49,825 $ 48,344 Interest expense 4,060 2,200 3,427 Net interest income 51,606 47,625 44,917 Provision for (recapture of) loan losses 750 (4,625) 6,300 Net interest income after provision for (recapture of) loan losses 50,856 52,250 38,617 Other non-interest income 12,194 12,744 11,090 Non-interest expense 39,371 36,718 36,254 Income before income taxes 23,679 28,276 13,453 Provision for income taxes 5,610 6,456 2,981 Net income $ 18,069 $ 21,820 $ 10,472 Earnings per share: Basic $ 0.84 $ 0.98 $ 0.47 Diluted 0.83 0.98 0.47 Dividends per share 0.240 0.215 0.200 51 At or For the Years Ended March 31, 2023 2022 2021 KEY FINANCIAL RATIOS: Performance Ratios: Return on average assets 1.08 % 1.31 % 0.74 % Return on average equity 11.71 13.62 6.91 Dividend payout ratio (1) 28.92 21.94 42.55 Interest rate spread 3.12 2.95 3.27 Net interest margin 3.26 3.03 3.41 Non-interest expense to average assets 2.36 2.20 2.56 Efficiency ratio (2) 61.71 60.82 64.73 Average equity to average assets 9.25 9.58 10.71 Asset Quality Ratios: Allowance for loan losses to total loans at end of period 1.52 1.47 2.03 Allowance for loan losses to nonperforming loans 826.62 65.72 3,358.67 Net charge-offs (recoveries) to average outstanding loans during the period — — (0.03) Ratio of nonperforming assets to total assets 0.12 1.27 0.04 Ratio of nonperforming loans to total loans 0.18 2.23 0.06 Capital Ratios: Total capital to risk-weighted assets 16.94 16.38 17.35 Tier 1 capital to risk-weighted assets 15.69 15.12 16.09 Common equity tier 1 capital to risk-weighted assets 15.69 15.12 16.09 Leverage ratio 10.47 9.19 9.63 52 Comparison of Financial Condition at March 31, 2023 and 2022 Cash and cash equivalents, including interest-earning accounts, totaled $22.0 million at March 31, 2023 compared to $241.4 million at March 31, 2022. The Company’s cash balances typically fluctuate based upon funding needs, deposit activity and investment securities purchases. Based on the Company’s asset/liability management program and liquidity objectives, the Company may Investment securities totaled $455.3 million and $418.9 million at March 31, 2023 and 2022, respectively. The increase was due to investment purchases, partially offset by normal pay downs, calls and maturities. During the fiscal years ended March 31, 2023 and 2022, purchases of investment securities totaled $81.8 million and $224.6 million, respectively. The Company primarily purchases a combination of securities backed by government agencies (FHLMC, FNMA, SBA or Loans receivable, net, totaled $993.5 million at March 31, 2023, compared to $975.9 million at March 31, 2022, an increase of $17.6 million. The increase was primarily attributed to increases in real estate construction loans of $23.6 million, commercial business loans of $4.8 million and real estate one-to-four family loans of $17.7 million. The increases in commercial business loans and real estate one-to-four family loans were attributable to the purchase of $28.7 million and $26.8 million of such loans, respectively. These increases were partially offset by decreases in commercial real estate, multi-family and land loans of $18.3 million, $4.4 million and $5.1 million, respectively, since March 31, 2022. In addition, these increases were offset by a decrease in SBA PPP loans related to forgiveness repayments. At March 31, 2023, SBA PPP loans, net of deferred fees which are included in the commercial business loan category were insignificant compared to $3.1 million at March 31, 2022. The Company no longer originates real estate one-to-four family loans and will from time to time purchase these loans consistent with its asset/liability objectives. Additionally, the Company will purchase commercial business loans to supplement loan originations and diversify the commercial loan portfolio. These loans were originated by a third-party located outside of the Company’s primary market area and totaled $26.2 million and $14.7 million at March 31, 2023 and 2022, respectively. The Company also purchases the guaranteed portion of SBA loans as a way to supplement loan originations, to further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments. These SBA loans are originated through another financial institution located outside of the Company’s primary market area and are purchased with servicing retained by the seller. At March 31, 2023, the Company’s purchased SBA loan portfolio was $55.5 million compared to $59.4 million at March 31, 2022. Goodwill was $27.1 million at both March 31, 2023 and 2022. For additional information on our goodwill impairment testing, see “Goodwill Valuation” included in this Item 7. Prepaid expenses and other assets increased $3.6 million to $16.0 million at March 31, 2023 compared to $12.4 million at March 31, 2022. The increase was primarily due to a computer software contract for a new loan origination system that was executed in the fourth quarter of fiscal year 2023. Deposits decreased $268.7 million to $1.3 billion at March 31, 2023 compared to $1.5 billion at March 31, 2022 due to increased competition, pricing and an overall decrease in market liquidity. The decrease in deposits was attributable to reductions in non-interest-bearing accounts of $89.9 million, regular savings accounts of $84.9 million, money market accounts of $78.0 million and interest checking of $33.3 million. These decreases were partially offset by an increase of $17.5 million in certificates of deposit. The Company had no wholesale-brokered deposits at March 31, 2023 and 2022. Core branch deposits accounted for 97.5% of total deposits at March 31, 2023 compared to 96.8% at March 31, 2022. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets. 53 FHLB advances increased to $123.8 million at March 31, 2023 and were comprised of overnight advances and a short-term borrowing of $73.8 million and $50.0 million, respectively. There were no outstanding FHLB advances at March 31, 2022. These FHLB advances were utilized to offset the decrease in deposit balances. Shareholders’ equity decreased $2.0 million to $155.2 million at March 31, 2023 from $157.2 million at March 31, 2022. The decrease was mainly attributable to the increase in the accumulated other comprehensive loss related to the change in unrealized holding losses on securities available for sale, net of tax, of $8.4 million, the repurchase of 975,666 shares of common stock totaling $6.7 million, and the payment of cash dividends totaling $5.2 million. These decreases were partially offset by net income of $18.1 million. Comparison of Operating Results for the Years Ended March 31, Net Income. Net Interest Income. Net interest income for fiscal year Interest and Dividend Income. Interest and dividend income increased $5.8 million to $55.7 million for the fiscal year ended March 31, 2023 from $49.8 million for the fiscal year ended March 31, 2022. The increase was primarily related to the increase in interest income on the investment securities portfolio due to the overall increase in average balance of and yield on investment securities. Interest income on investment securities increased $3.8 million to $9.0 million at March 31, 2023 compared to $5.2 million at March 31, 2022. This increase was also attributable to the increase of $665,000 on interest and fees earned on loans receivable for the fiscal year ended March 31, 2023 compared to the prior fiscal year due to the increase in the average balance of average net loans. The impact of the increase in the 54 Interest Expense. Interest expense for the fiscal year ended March 31, Interest expense on borrowings increased $1.8 million for the fiscal year ended March 31, 2023 compared to the prior fiscal year due to an increase in the average balance of FHLB advances. The average balance of FHLB advances increased to $21.0 million for fiscal year ended March 31, 2023 compared to $3,000 for the same period in the prior year. The weighted average interest rate on FHLB advances increased to 4.88% for the fiscal year ended March 31, 2023 compared to 0.31% for the prior fiscal year. The weighted average interest rate on the junior subordinated debentures increased 281 basis points to 5.09% for the fiscal year ended March 31, 2023 compared to 2.28% for the prior fiscal year. Provision for Loan Losses.The Company recorded a provision for loan losses At March 31, Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan. As of March 31, Non-Interest Income. 55 Non-Interest Expense. Non-interest expense increased Income Taxes. 56 Average Balance Sheet Years Ended March 31, 2023 2022 2021 Interest Interest Interest Average and Yield/ Average and Yield/ Average and Yield/ Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost (Dollars in thousands) Interest-earning assets: Mortgage loans $ 760,821 $ 34,694 4.56 % $ 696,700 $ 33,280 4.78 % $ 681,999 $ 33,989 4.98 % Non-mortgage loans 246,224 10,050 4.08 238,042 10,799 4.54 284,071 11,509 4.05 Total net loans (1) 1,007,045 44,744 4.44 934,742 44,079 4.72 966,070 45,498 4.71 Investment securities (2) 472,396 9,129 1.93 345,869 5,314 1.54 156,723 2,592 1.65 Interest-bearing deposits in other banks 100,694 1,773 1.76 291,897 439 0.15 194,456 198 0.10 Other earning assets 3,696 103 2.79 2,560 69 2.70 2,860 97 3.39 Total interest-earning assets 1,583,831 55,749 3.52 1,575,068 49,901 3.17 1,320,109 48,385 3.67 Non-interest-earning assets: Office properties and equipment, net 19,621 18,933 18,469 Other non-interest-earning assets 63,511 77,135 77,775 Total assets $ 1,666,963 $ 1,671,136 $ 1,416,353 Interest-bearing liabilities: Savings accounts $ 308,840 $ 219 0.07 % $ 318,885 $ 247 0.08 % $ 257,285 $ 418 0.16 % Interest checking accounts 286,627 89 0.03 279,053 87 0.03 225,579 85 0.04 Money market accounts 266,795 415 0.16 272,161 150 0.06 204,931 153 0.07 Certificates of deposit 103,484 779 0.75 117,391 940 0.80 129,928 1,888 1.45 Total interest-bearing deposits 965,746 1,502 0.16 987,490 1,424 0.14 817,723 2,544 0.31 Junior subordinated debentures 26,873 1,368 5.09 26,789 611 2.28 26,703 667 2.50 FHLB advances 21,046 1,027 4.88 3 — 0.31 15,044 47 0.31 Other interest-bearing liabilities 2,271 163 7.18 2,310 165 7.14 2,350 169 7.19 Total interest-bearing liabilities 1,015,936 4,060 0.40 1,016,592 2,200 0.22 861,820 3,427 0.40 Non-interest-bearing liabilities: Non-interest-bearing deposits 480,029 476,203 387,579 Other liabilities 16,757 18,186 15,304 Total liabilities 1,512,722 1,510,981 1,264,703 Shareholders’ equity 154,241 160,155 151,650 Total liabilities and shareholders’ equity $ 1,666,963 $ 1,671,136 $ 1,416,353 Net interest income $ 51,689 $ 47,701 $ 44,958 Interest rate spread 3.12 % 2.95 % 3.27 % Net interest margin 3.26 % 3.03 % 3.41 % Ratio of average interest-earning assets to average interest-bearing liabilities 155.90 % 154.94 % 153.18 % Tax-Equivalent Adjustment (3) $ 83 $ 76 $ 41 57 Rate/Volume Analysis The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the fiscal year ended March 31, Year Ended March 31, 2023 vs. 2022 2022 vs. 2021 Increase (Decrease) Due to Increase (Decrease) Due to Total Increase Total Volume Rate (Decrease) Volume Rate Increase Interest Income: Mortgage loans $ 2,986 $ (1,572) $ 1,414 $ 705 $ (1,414) $ (709) Non-mortgage loans 365 (1,114) (749) (2,000) 1,290 (710) Investment securities (1) 2,255 1,560 3,815 2,906 (184) 2,722 Interest-bearing deposits in other banks (464) 1,798 1,334 121 121 242 Other earning assets 32 2 34 (9) (20) (29) Total interest income 5,174 674 5,848 1,723 (207) 1,516 Interest Expense: Regular savings accounts (6) (22) (28) 78 (249) (171) Interest checking accounts 2 — 2 23 (21) 2 Money market accounts (3) 268 265 26 (29) (3) Certificates of deposit (105) (56) (161) (168) (780) (948) Junior subordinated debentures 2 755 757 2 (58) (56) FHLB advances 1,027 — 1,027 (47) — (47) Other interest-bearing liabilities (3) 1 (2) (3) (1) (4) Total interest expense 914 946 1,860 (89) (1,138) (1,227) Net interest income $ 4,260 $ (272) $ 3,988 $ 1,812 $ 931 $ 2,743 Asset and Liability Management The The Company has adopted a strategy that is designed to maintain or improve the interest rate sensitivity of assets relative to its liabilities. The primary elements of this strategy involve: the origination of adjustable rate loans; increasing commercial loans, consumer loans that are adjustable rate and other short-term loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than 58 The longer-term objective is to increase the proportion of Consumer loans, such as home equity lines of credit and installment loans, commercial loans and construction loans typically have shorter terms and higher yields than The Company may also invest in short-term to medium-term U.S. Government securities as well as mortgage-backed securities issued or guaranteed by U.S. Government agencies. At March 31, Liquidity and Capital Resources Liquidity is essential to our business. The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. Core relationship deposits are the primary source of the Bank’s liquidity. As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the Bank. Liquidity management is both a short and long-term responsibility of the The 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 fiscal year ended March 31, 59 The Bank Term Funding Program (BTFP) was created by the Federal Reserve to support and make additional funding available to eligible depository institutions to help banks meet the needs of their depositors. Riverview has registered and is eligible to utilize the BTFP. Riverview does not intend to utilize the BTFP, but could do so should the need arise. During the fiscal year ended March 31, 2023, deposits decreased $268.7 million. During the fiscal year ended March 31, 2022, deposits increased $187.8 million. An additional source of wholesale funding includes brokered certificates of deposit. While the Company has utilized brokered deposits from time to time, the Company historically has not extensively relied on brokered deposits to fund its operations. At March 31, At March 31, The Company incurs capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on our current capital allocation objectives, during fiscal 2024 we expect cash expenditures of approximately $3.7 million for capital investment in premises and equipment. Riverview, Bank holding companies and federally-insured state-chartered banks are required to maintain minimum levels of New Accounting Pronouncements For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to 60 Our financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve. Our profitability is dependent to a large extent on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. Our activities, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution’s assets, liabilities and off-balance-sheet contracts. Interest rate risk is measured by the variability of financial performance and economic value resulting from changes in interest rates. Interest rate risk is the primary market risk affecting our financial performance. Our Asset/Liability Management Committee (“ALCO”) is responsible for monitoring and reviewing asset/liability processes and interest rate risk exposure to determine the level of risk appropriate given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the Board of Directors. Through such management, we seek to reduce the vulnerability of our earnings and capital position to changes in the level of interest rates. Our actions in this regard are taken under the guidance of the ALCO, which is comprised of members of our senior management. The ALCO closely monitors our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances. The Company does not maintain a trading account for any class of financial instrument nor does it engage in hedging activities or purchase high-risk derivative instruments. Furthermore, the Company is not subject to foreign currency exchange rate risk or commodity price risk. For information regarding the sensitivity to interest rate risk of the The Consumer and commercial loans are originated and held in the loan portfolio as the short-term nature of these portfolio loans match durations more closely with the short-term nature of retail deposits such as interest checking, money market accounts and savings accounts. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with longer terms to maturity. Except for immediate short-term cash needs, and depending on the current interest rate environment, FHLB advances will have short or long-term maturities. FRB borrowings have short-term maturities. For additional information, see Item 7. A number of measures are utilized to monitor and manage interest rate risk, including simulation modeling and traditional interest rate gap analysis. While both methods provide an indication of risk for a given change in interest rates, the simulation model is primarily used to assess the impact on earnings that changes in interest rates may produce. Key assumptions in the model include cash flows and maturities of financial instruments, changes in market conditions, loan volumes and pricing, deposit sensitivity, consumer preferences and management’s capital leverage plans. These assumptions are inherently uncertain; therefore, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results may significantly differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and specific strategies among other factors. 61 The following table shows the approximate percentage change in net interest income as of March 31, Percent change in net Percent change in net interest income (12 interest income (24 Change in interest rates months) months) Up 300 basis points (13.0) % (3.2) % Up 200 basis points (9.1) % (0.9) % Up 100 basis points (4.2) % 4.0 % Base case — 7.2 % Down 100 basis points 0.4 % 5.7 % Down 200 basis points (0.1) % 2.3 % Down 300 basis points (1.6) % (2.8) % In general, interest-earning assets reprice faster than interest-bearing liabilities in a given period. However, due to a number of loans in our loan portfolio with fixed interest As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Furthermore, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. 62 Consolidated Financial Statements for the Years Ended March 31, Report of Independent Registered Public Accounting Firm[ ]☐ No [X][ ]☐ No [X][X]☒ No [ ][X]☒ No [ ]Act[ ]
☐[ ][X][X][ ][ ][ ][ ]☐ No [X]registrant'sregistrant’s Common Stock as quoted on the Nasdaq Global Select Market System under the symbol "RVSB"“RVSB” on September 30, 20192022 was $167,883,081 (22,748,385$136,570,288 (21,507,132 shares at $7.38$6.35 per share). As of June 17, 2020,14, 2023, there were 21,118,086 shares issued and outstanding 22,753,385 and 22,253,385 shares, respectively, of the registrant’s common stock.registrant'sregistrant’s Definitive Proxy Statement for the 20202023 Annual Meeting of Stockholders (Part III)., which will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.1Table of ContentsPAGE31PART IISelected Financial Data48506466108PART III109109110110110PART IV1111121132Forward-Looking StatementsAs usedForm 10-K, the terms “we,” “our,” “us,”document to “Riverview” and “Company” refer to Riverview Bancorp, Inc. and references to the “Bank” refer to Riverview Bank. References to “we,” “our,” “us,” or the “Company” refer to Riverview and its consolidated subsidiaries, including its wholly-owned subsidiary, Riverview Communitythe Bank, unless the context indicates otherwise.1995:1995 (“PSLRA”): When used in this Form 10-K, 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.PSLRA. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions, statements about future economic performance and projections of financial items. 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 or implied by our forward-looking statements, including, but not limited to: potential adverse impacts to economic conditions in our local market areas, other markets where the effectCompany has lending relationships, or other aspects of the novel coronavirusCompany's business operations or financial markets, including, without limitation, as a result of 2019 (“COVID-19”) pandemic,employment levels, labor shortages and the effects of inflation, a potential recession, the failure of the U.S. Congress to increase the debt ceiling, or slowed economic growth caused by increasing political instability from acts of war including on Riverview’s credit quality and business operations,Russia’s invasion of Ukraine, as well as its impact on general economicsupply chain disruptions, recent bank failures and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity;any governmental or societal responses thereto; 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; the transition away from London Interbank Offered Rate ("LIBOR") toward new interest rate benchmarks; 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 originate loans for sale and sell loans in the secondary market; results of examinations of our bank subsidiary, Riverview Communitythe Bank by the OfficeFederal Deposit Insurance Corporation (“FDIC”) and the Washington State Department of the ComptrollerFinancial Institutions, Division of the CurrencyBanks (“WDFI”), and of the Company by the Board of Governors of the Federal Reserve System (“Federal Reserve”), or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require the Company to increase its allowance for loan losses, write-down assets, reclassify its assets, change Riverview Communitythe 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 banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III;rules; the Company’s ability to attract and retain deposits; the unexpected outflow of uninsured deposits that may require us to sell investment securities at a loss; the Company’s ability to control operating costs and expenses; the use of estimates in determining fair value of certain of the Company’s assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risks associated with the loans on the Company’s consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect the Company’s workforce and potential associated charges; disruptions, security breaches or other adverse events, failures or interruptions in or attacks on our information technology systems or on the third-party vendors who perform several of our critical processing functions; the Company’s ability to retain key members of its senior management team; costs and effects of litigation, including settlements and judgments; the Company’s ability to implement its business strategies; the Company's ability to successfully integrate any assets, liabilities, customers, systems, and management personnel it may acquire into its operations and the Company's ability to realize related revenue synergies and cost savings within expected time frames and anyframes; future goodwill charges related thereto;impairment due to changes in Riverview’s business, changes in market conditions, or other factors; 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; the quality and composition of our securities portfolio and the impact of and adverse changes in the securities markets;markets, including market liquidity; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting standards; including the Coronavirus Aid, Relief,effects of climate change, severe weather events, natural disasters, pandemics, epidemics and Economic Security Actother public health crises, acts of 2020 ("CARES Act"),war or terrorism, and other external events on our business; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services;services, and the other risks described from time to time in our filingsreports filed with and furnished to the U.S. Securities and Exchange Commission.20212024 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us and could negatively affect the Company’s consolidated financial condition and consolidated results of operations as well as its stock price performance.3savings and loanbank holding company of Riverview Community Bank (the “Bank”).Bank. At March 31, 2020,2023, the Company had total assets of $1.2$1.6 billion, total deposits of $990.4 million$1.3 billion and shareholders'total shareholders’ equity of $148.8$155.2 million. The Company’s executive offices are located in Vancouver, Washington. The Bank's subsidiary,Bank has two subsidiaries Riverview Trust Company (the “Trust Company”), and Riverview Services, Inc. (“Riverview Services”). The Trust Company is a trust and financial services company located in downtown Vancouver, Washington, and provides full-service brokerage activities, trust and asset management services.The Company is subject to regulation Riverview Services acts as a trustee for deeds of trust on mortgage loans granted by the BoardBank and receives a reconveyance fee for each deed of Governors of the Federal Reserve Systems (“Federal Reserve”). trust.is regulateduntil April 28, 2021, was a federal savings bank subject to extensive regulation by the Office of the Comptroller of the Currency ("OCC"(“OCC”), its primary regulator,. The Bank converted from a federally chartered savings bank to a Washington state-chartered commercial bank on April 28, 2021. As a Washington state-chartered commercial bank, the Bank’s regulators are the Washington State Department of Financial Institutions (“WDFI”) and by the Federal Deposit Insurance Corporation ("FDIC"(“FDIC”), the insurer of its deposits. The Bank'sBank’s deposits are insured by the FDIC up to applicable legal limits underby the Deposit Insurance Fund ("DIF"FDIC. The Board of Governors of the Federal Reserve System (“Federal Reserve”). remains the primary federal regulator for the Company. In connection with the Bank’s charter conversion, the Company converted from a Savings and Loan Holding Company to a Bank Holding Company. The Bank is also a member of the Federal Home Loan Bank of Des Moines ("FHLB"(“FHLB”) which is one of the 11 regional banks in the Federal Home Loan Bank System (“FHLB System”).$898.9$993.5 million at March 31, 20202023 compared to $864.7$975.9 million at March 31, 2019.portfolio. Significant portions of our new loan originations –portfolio which are mainly concentrated in commercial business and commercial real estate loans –typically carry adjustable rates, higher yields orand shorter terms, andas well as higher credit risk, thancompared to traditional fixed-rate consumer real estate one-to-four family mortgages.18 branches,17 branch locations, including, among others, ten10 in Clark County, fourthree in the Portland metropolitan area and three lending centers.1817 branch offices located in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale, Ridgefield and Vancouver, Washington (seven(six branch offices), and Portland, (two branch offices), Gresham, Tualatin and Aumsville, Oregon. The Trust Company has two locations, one in downtown Vancouver, Washington and one in Lake Oswego, Oregon, and providesproviding full-service brokerage activities, trust and asset management services. Riverview Mortgage, a mortgage broker division of the Bank, originates mortgage loans for various mortgage companies predominantly in the Vancouver/Portland metropolitan areas, as well as for the Bank. The Bank’s Business and Professional Banking Division, with two lending offices located in Vancouver and one in Portland, offers commercial and business banking services.tourism, which has helped to transform the area from its past dependence on the timber industry.4Economic conditions in the Company’s market areas have generally been positive until the recent COVID-19 pandemic. According to the Washington State Employment Security Department, unemployment in Clark County decreased to 4.3% at March 31, 2020 compared to 5.3% at March 31, 2019. According to the Oregon Employment Department, unemployment in Portland decreased to 3.4% at March 31, 2020 compared to 3.9% at March 31, 2019. Unemployment levels have increased since March 31, 2020 due to the COVID-19 pandemic, as the governors of both Washington and Oregon have instituted stay-at-home orders and closed non-essential businesses and schools. Once these stay-at-home orders are modified, unemployment levels may begin to reverse the upward trend resulting from COVID-19. According to the Regional Multiple Listing Services (“RMLS”), residential home inventory levels in Portland, Oregon have decreased to 1.8 months at March 31, 2020 compared to 2.2 months at March 31, 2019. Residential home inventory levels in Clark County have decreased to 2.1 months at March 31, 2020 compared to 2.4 months March 31, 2019. According to the RMLS, closed home sales in March 2020 in Clark County decreased 3.0% compared to March 2019. Closed home sales during March 2020 in Portland increased 7.9% compared to March 2019.2020,2023, the Company'sCompany’s net loans receivable totaled $898.9$993.5 million, or 76.1%62.5% of total assets at that date. The principal lending activity of the Company is the origination of loans collateralized by commercial properties and commercial business loans. A substantial portion of the Company'sCompany’s loan portfolio is secured by real estate, either as primary or secondary collateral, located in its primary market area. The Company’s lending activities are subject to the written, non-discriminatory, underwriting standards and loan origination procedures established by the Bank’s Board of Directors (“Board”) and management. The customary sources of loan originations are realtors, walk-in customers, referrals and existing customers. The Bank also uses commissioned loan brokers and print advertising to market its products and services. Loans are approved at various levels of management, depending upon the amount of the loan.5Company'sCompany’s loan portfolio, excluding loans held for sale, by type of loan at the dates indicated (dollars in thousands): At March 31, 2020 2019 2018 2017 2016 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Commercial and construction: Commercial business $ 179,029 19.64 % $ 162,796 18.58 % $ 137,672 16.97 % $ 107,371 13.78 % $ 69,397 11.11 % 580,271 63.66 530,029 60.50 529,014 65.20 506,661 65.00 399,527 63.94 Real estate construction 64,843 7.12 90,882 10.37 39,584 4.88 46,157 5.92 26,731 4.28 Total commercial and construction 824,143 90.42 783,707 89.45 706,270 87.05 660,189 84.70 495,655 79.33 Consumer: Real estate one-to-four family 83,150 9.12 84,053 9.60 90,109 11.10 92,865 11.91 88,780 14.21 Other installment 4,216 0.46 8,356 0.95 14,997 1.85 26,378 3.39 40,384 6.46 Total consumer 87,366 9.58 92,409 10.55 105,106 12.95 119,243 15.30 129,164 20.67 Total loans 911,509 100.00 % 876,116 100.00 % 811,376 100.00 % 779,432 100.00 % 624,819 100.00 % Less: Allowance for loan losses 12,624 11,457 10,766 10,528 9,885 Total loans receivable, net $ 898,885 $ 864,659 $ 800,610 $ 768,904 $ 614,934 6Company'sCompany’s commercial and construction loan portfolio based on loan purpose at the dates indicated (in thousands): Real Estate Construction Commercial business $ 179,029 $ - $ - $ 179,029 Commercial construction - - 52,608 52,608 Office buildings - 113,433 - 113,433 Warehouse/industrial - 91,764 - 91,764 Retail/shopping centers/strip malls - 76,802 - 76,802 Assisted living facilities - 1,033 - 1,033 Single purpose facilities - 224,839 - 224,839 Land acquisition and development - 14,026 - 14,026 Multi-family - 58,374 - 58,374 One-to-four family construction - - 12,235 12,235 Total $ 179,029 $ 580,271 $ 64,843 $ 824,143 Commercial business $ 162,796 $ - $ - $ 162,796 Commercial construction - - 70,533 70,533 Office buildings - 118,722 - 118,722 Warehouse/industrial - 91,787 - 91,787 Retail/shopping centers/strip malls - 64,934 - 64,934 Assisted living facilities - 2,740 - 2,740 Single purpose facilities - 183,249 - 183,249 Land acquisition and development - 17,027 - 17,027 Multi-family - 51,570 - 51,570 One-to-four family construction - - 20,349 20,349 Total $ 162,796 $ 530,029 $ 90,882 $ 783,707 2020,2023, the commercial business loan portfolio totaled $179.0$232.9 million, or 19.6%23.1% of total loans. Commercial business loans are typically secured by business equipment, accounts receivable, inventory or other property. The Company’s commercial business loans may be structured as term loans or as lines of credit. Commercial term loans are generally made to finance the purchase of assets and usually have maturities of five years or less. Commercial lines of credit are typically made for the purpose of providing working capital and usually have a term of one year or less. Lines of credit are made at variable rates of interest equal to a negotiated margin above an index rate and term loans are at either a variable or fixed rate. The Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements.At March 31, 2020, the other real estate mortgage loan portfolio totaled $580.3 million, or 63.7% of total loans. The Company originates other real estate mortgage loans secured by office buildings, warehouse/industrial, retail, assisted living facilities and single-purpose facilities (collectively “commercial real estate loans” or “CRE”); as well as and land and multi-family loans primarily located in its market area.area, collectively referred to herein as the “other real estate mortgage loan portfolio”. At March 31, 2020,2023, the other real estate mortgage loan portfolio totaled $564.5 million, or 56.0% of total loans. At March 31, 2023, owner occupied properties accounted for 29.9%27.8% and non-owner occupied properties accounted for 70.1%72.2% of the Company’s commercial real estate loan portfolio.7 residential loans. As a result, commercial real estate and multi-family loans are generally priced at a higher rate of interest than residential one-to-four family loans. Often payments on loans secured by commercial properties are dependent on the successful operation and management of the property securing the loan or business conducted on the property securing the loan; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. The Company seeks to minimize these risks by generally limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. Loans are secured by first mortgages and often require specified debt service coverage (“DSC”) ratios depending on the characteristics of the collateral. The Company generally imposes a minimum DSC ratio of 1.20 for loans secured by income producing properties. Rates and other terms on such loans generally depend on our assessment of credit risk after considering such factors as the borrower’s financial condition and credit history, loan-to-value ratio, DSC ratio and other factors.20202023 as economic conditions and competition for strong credit-worthy borrowers remained high. At March 31, 2020 and 2019,2023, the Company had the same twoone commercial real estate loans totaling $1.0 million and $1.1 million, respectively,loan of $100,000 on non-accrual status. At March 31, 2022, the Company had one commercial real estate loan of $122,000 on non-accrual status. For more information concerning risks related to commercial real estate loans, see Item 1A. “Risk Factors – Risks Related to Our emphasis on commercialLending – Commercial and multi-family real estate lending may exposeinvolves higher risks than one-to-four family real estate and other consume lending, which exposes us to increased lending risks.”acquisition and development loans are included in the other real estate mortgage loan portfolio balance and represent loans made to developers for the purpose of acquiring raw land and/or for the subsequent development and sale of residential lots. Such loans typically finance land purchases and infrastructure development of properties (e.g., roads, utilities, etc.) with the aim of making improved lots ready for subsequent sales to consumers or builders for ultimate construction of residential units. The primary source of repayment is generally the cash flow from developer sale of lots or improved parcels of land, secondary sources and personal guarantees, which may provide an additional measure of security for such loans. At March 31, 2020,2023, land acquisition and development loans totaled $14.0$6.4 million, or 1.54%0.64% of total loans, compared to $17.0$11.6 million, or 1.94%1.16% of total loans at March 31, 2019.2022. The largest land acquisition and development loan had an outstanding balance at March 31, 20202023 of $2.0$1.8 million and was performing according to its original payment terms. At March 31, 2020,2023, all of the land acquisition and development loans were secured by properties located in Washington and Oregon. At March 31, 20202023 and 2019,2022, the Company had no land acquisition and development loans on non-accrual status. At March 31, 2020 2019 Percent Percent Speculative construction $ 5,016 5.65 % $ 12,315 8.01 % Commercial/multi-family construction 62,929 70.85 116,815 76.01 Custom/presold construction 19,117 21.52 19,643 12.78 Construction/permanent 1,759 1.98 4,923 3.20 Total $ 88,821 100.00 % $ 153,696 100.00 % $24.0$36.6 million and $62.8$39.0 million at March 31, 20202023 and 2019,2022, respectively.2020,2023, the balance of the Company’s construction loan portfolio, including undisbursed funds, was $88.8$84.3 million compared to $153.7$63.2 million at March 31, 2019.2022. The $64.9$21.1 million decreaseincrease was primarily due to a $53.9$26.5 million decreaseincrease in commercial/multi-family construction loans, along withpartially offset by a decrease of $7.3$5.0 million in speculativecustom/presold construction loans. The Company plans to continue to proactively manage and control the growth in its construction loan portfolio in fiscal year 20212024 while continuing to originate new construction loans to selected customers.820202023 was a loan to finance the construction of a single family home36 townhomes totaling $458,000. This loan is to a single borrower$8.1 million that is secured by a property located in the Company’s market area. The average balance of loans in the speculative construction loan portfolio at March 31, 20202023 was $260,000.$959,000. At March 31, 20202023 and 2019,2022, the Company had no speculative construction loans on non-accrual status.The composition of land acquisition and development and speculative construction loans by geographical area is as follows at the dates indicated (in thousands): Southwest Washington Total Land acquisition and development $ 2,124 $ 1,834 $ 10,068 $ 14,026 Speculative construction 282 - 11,745 12,027 Total $ 2,406 $ 1,834 $ 21,813 $ 26,053 Land acquisition and development $ 2,184 $ 1,908 $ 12,935 $ 17,027 Speculative construction 1,680 104 15,284 17,068 Total $ 3,864 $ 2,012 $ 28,219 $ 34,095 Unlike speculative construction loans, presold construction loans are made for homes that have buyers. 20202023 and 2019,2022, presold construction loans totaled $8.4$4.1 million and $8.5$4.5 million, respectivelyrespectively.are included inspeculative/presold construction loans by geographical area is as follows at the speculative construction loan category. At March 31, 2020 and 2019, the Company had no custom construction loans. Construction/permanent loans are originated to the homeowner rather than the homebuilder along with a commitment by the Company to originate a permanent loan to the homeowner to repay the construction loan at the completion of construction. The construction phase of a construction/permanent loan generally lasts six to nine months. At the completion of construction, the Company may either originate a fixed-rate mortgage loan or an adjustable rate mortgage (“ARM”) loan or use its mortgage2020,2023, the Company had no construction/permanent loans totaled $207,000, had a total commitment balance of $1.8 million and all were performing according to their original repayment terms. The average balance of loans in the construction/permanent loan portfolio excluding undisbursed funds at March 31, 2020 was $69,000.20202023, commercial construction loans totaled $52.6$29.6 million, or 81.1%61.9% of total real estate construction loans, and 5.8%2.9% of total loans. Borrowers may be the business owner/occupier of the building who intends to operate their business from the property upon construction, or non-owner developers. The expected source of repayment of these loans is typically the sale or refinancing of the project upon completion of the construction phase. In certain circumstances, the Company may provide or commit to take-out financing upon construction. Take-out financing is subject to the project meeting specific underwriting guidelines. No assurance can be given that such take-out financing will be available upon project completion. These loans are secured by office buildings, retail rental space, mini storage facilities, assisted living facilities and multi-family dwellings located in the Company’s market area. At March 31, 2020,2023, the largest commercial construction loan had a balance of $9.5$6.6 million and was performing according to its original repayment terms. The average balance of loans in the commercial construction loan portfolio at March 31, 20202023 was $3.8$2.1 million. At March 31, 20202023 and 2019,2022, the Company had no commercial construction loans on non-accrual status.9"Risk“Risk Factors – Risks Related to our Lending Activities – Our real estate construction and land acquisition and development loans expose us to risk."$87.4$101.5 million at March 31, 20202023 and were comprised of $65.9$88.8 million of real estate one-to-four family mortgage loans, $15.5$10.3 million of home equity lines of credit, $1.8 million$552,000 of land loans to consumers for the future construction of one-to-four family homes and $4.2$1.8 million of other secured and unsecured consumer loans.which included $1.8 million of purchased automobile loans.One-to-four family residencesare located in the Company’s primary market area secure the majority of the residential loans.area. Underwriting standards require that real estate one-to-four family portfolio loans generally be owner occupied and that originated loan amounts not exceed 80% (95% with private mortgage insurance) of the lesser of current appraised value or cost of the underlying collateral. Terms typically range from 15 to 30 years. The Company also offers balloon mortgage loans with terms of either five or seven years and originates both fixed-rate mortgages and ARMs with repricing based on the one-year constant maturity U.S. Treasury index or other index. At March 31, 2020,2023, the Company had three residential real estate loans totaling $152,000$86,000 on non-accrual status compared to threetwo residential real estate loans totaling $169,000$51,000 at March 31, 2019.2022. All of these loans were secured by properties located in Oregon and Washington.had previouslyno longer originates real estate one-to-four family loans. During the fiscal year 2023, the Company purchased pools of automobile$26.8 million real estate one-to-four family loans from another financial institution as a way to further diversify itssupplement loan portfolio and to earn a higher yield than 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. Unlike a direct loan where the borrower makes an application directly to the lender,originations in these loans the dealer, who has a direct financial interest in the loan transaction, assists the borrower in preparing the loan application. Indirect automobile loans we purchased are underwritten by us using substantially similar guidelines to our internal guidelines. However, because these loans are originated through a third-party and not directly by us, we do not have direct contact with the borrower and therefore these loans may be more susceptible to a material misstatement on the loan application and present greater risks than other types of lending activities. The collateral for these loans is comprised of a mix of used automobiles. These loans are purchased with servicing retained by the seller. this category.did not purchase any automobile loans during fiscal years 2020 and 2019 and does not have plans to purchase any additional automobile loan pools. At March 31, 2020, six of the purchased automobile loans were on non-accrual status totaling $28,000. At March 31, 2019, twelve of the purchased automobile loans were on non-accrual status totaling $41,000. The Companyalso originates a variety of installment loans, including loans for debt consolidation and other purposes, automobile loans, boat loans and savings account loans. At March 31, 20202023 and 2019, excluding the purchased automobile loans noted above,2022, the Company had no installment loans on non-accrual status.(especially now as a result of the COVID-19 pandemic), divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit our ability to recover on such loans.1020202023 regarding the dollar amount of loans maturing in the Company’s total loan portfolio based on their contractual terms to maturity, but does not include potential prepayments. Demand 1 – 3 Years Total Commercial and construction: Commercial business $ 22,035 $ 11,591 $ 16,388 $ 48,733 $ 80,282 $ 179,029 Other real estate mortgage 19,952 40,054 54,559 397,165 68,541 580,271 Real estate construction 11,923 1,689 - 44,668 6,563 64,843 Total commercial and construction 53,910 53,334 70,947 490,566 155,386 824,143 Consumer: Real estate one-to-four family 127 365 594 4,262 77,802 83,150 Other installment 1,031 1,480 1,172 233 300 4,216 Total consumer 1,158 1,845 1,766 4,495 78,102 87,366 Total loans $ 55,068 $ 55,179 $ 72,713 $ 495,061 $ 233,488 $ 911,509 2020,2023, which have fixed and adjustable interest rates (in thousands): Total Commercial and construction: Commercial business $ 95,081 $ 61,913 $ 156,994 Other real estate mortgage 224,767 335,552 560,319 Real estate construction 16,346 36,574 52,920 Total commercial and construction 336,194 434,039 770,233 Consumer: Real estate one-to-four family 64,522 18,501 83,023 Other installment 2,638 547 3,185 Total consumer 67,160 19,048 86,208 Total loans $ 403,354 $ 453,087 $ 856,441 residential mortgagereal estate one-to-four family loans and other installment loans conditioned upon the occurrence of certain events. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to 45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments. At March 31, 2020,2023, the Company had outstanding commitments to originate loans of $35.8$12.5 million compared to $40.7$20.0 million at March 31, 2019.companies, as well as for the Company.companies. The loans brokered to mortgage companies are closed in the name of, and funded by, the purchasing mortgage company and are not originated as an asset of the Company. In return, the Company receives a fee ranging from 1.5% to 2.0% of the loan amount that it shares with the commissioned broker. Loans previously brokered to the Company are closed on the Company'sCompany’s books and the commissioned broker receives a portion of the origination fee. During the year ended March 31, 2020, brokered loans totaled $45.5 million (including $11.1 million brokered to the Company) compared to $35.0 million (including $10.4 million brokered to the Company) of brokered loans in fiscal year 2019. Beginning in fiscal year 2022,2021, the Company is planning to transitiontransitioned to a model where it no longer originates and sells mortgage loans to the Federal Home Loan Mortgage Company (“FHLMC”) as all future mortgage loan originations will beare instead brokered to various third-party mortgage companies. The Company does, however, continue to service its existing FHLMC portfolio. Brokered loans totaled $22.0 million and $58.1 million as of March 31, 2023 and 2022, respectively. There were no loans brokered to the Company for the fiscal year ended March 31, 2023 and 2022. Gross fees of $666,000 and $504,000,$346,000, including brokered loan fees, were earned in the fiscal year ended March 31, 2023. For the fiscal year ended March 31, 2022, gross fees earned were $1.1 million, which includesincluded brokered loan fees and fees for loans sold to the Federal Home Loan Mortgage Company (“FHLMC”), were earned for the years ended March 31, 2020 and 2019, respectively.FHLMC. The interest rate environment has a strong influence on the loan volume and amount of fees generated from the mortgage broker activity. In general, during periods of rising interest rates, the volume of loans and the amountslowerdecreased mortgage loan demand. Conversely, during periods of falling interest rates, the volume of loans and the amount of loan fees generally increase as a result of the increased mortgage loan demand.11ThePrior to the fiscal year ended March 31, 2021, the Company generally sellshistorically sold its fixed-rate residential one-to-four family mortgage loans that it originatesoriginated with maturities of 15 years or more and balloon mortgages to the FHLMC as part of its asset/liability strategy. Mortgage loans arewere sold to the FHLMC on a non-recourse basis whereby foreclosure losses are the responsibility of the FHLMC and not the Company. The Company's general policy is to close its residential loans on FHLMC modified loan documents to facilitate future sales to the FHLMC. Upon sale, the Company continues to collect payments on the loans, supervise foreclosure proceedings, and otherwise service the loans. At March 31, 2020,2023, total loans serviced for others were $146.8$63.4 million, of which $99.5$36.5 million were serviced for the FHLMC. Beginning in fiscal year 2021, the Company does not intend to originate and sell mortgages loans to FHLMC; however, the Company will continue to service its existing FHLMC portfolio.$1.4$1.9 million or 0.12% of total assets at March 31, 20202023 compared with $1.5$22.1 million or 0.13%1.27% of total assets at March 31, 2019.2022. The Company had net loan charge-offsrecoveries totaling $83,000$36,000 during fiscal 20202023 compared to net recoveriescharge-offs of $641,000$30,000 during fiscal 2019. Credit quality metrics continued to improve in the past fiscal year and the real estate market in our primary market area has improved steadily. Economic conditions have been stable and even continued to improve throughout a majority of the fiscal year; however, the current economic downturn in our market area related to the COVID-19 pandemic could result in future increases2022. The decrease in nonperforming assets is attributed to the progress made in resolving the provision for loan lossesdelay in servicing transfer between two third-party servicers of SBA and in loan charge-offs that may materially adversely affect our resultsUnited States Department of operations and financial condition.2020,2023, the Company’s residential construction and land acquisition and development loan portfolios were $12.2$18.2 million and $14.0$6.4 million, respectively, as compared to $20.3$11.4 million and $17.0$11.6 million, respectively, at March 31, 2019.2022. At March 31, 20202023 and 2019,2022, there were no nonperforming loans in the residential construction loan portfolio or the land acquisition and development portfolio. For the years ended March 31, 20202023 and 2019,2022, there were no charge-offs or recoveries in the residential construction and land acquisition and development loan portfolios. March 31, 2020 March 31, 2019 Balance Balance Commercial business 2 $ 201 2 $ 225 Commercial real estate 2 1,014 2 1,081 Consumer 9 180 16 213 Total 13 $ 1,395 20 $ 1,519 Nonperforming loans decreased compared to the prior fiscal year as theproceedings. Allproceedings and has made significant progress in regards to the SBA and USDA government guaranteed loan servicing transfer. At March 31, 2023, the Bank holds approximately $1.6 million of the government guaranteed portion of SBA and USDA loans originated by other banks that, when purchased, were placed into a Direct Registration Certificate (“DRC”) program by the SBA’s former fiscal transfer agent, Colson Inc. (“Colson”) that remain to be reconciled. Under the DRC program, Colson was required to remit monthly payments to the investor holding the guaranteed balance, whether or not a payment had actually been received from the borrower. In 2020, Colson did not successfully retain its existing contract as the SBA’s fiscal transfer agent and began transitioning servicing over to a new company called Guidehouse. In late 2021, Guidehouse, under their contract with the SBA, declined to continue the DRC program. After declining to continue the DRC program, all payments under the DRC program began to be held by Guidehouse or Colson until the DRC program could be unwound and the DRC holdings converted into normal pass through certificates. As part of unwinding the DRC program, Colson has requested investors who had received payments in advance of the borrower actually remitting payment return advanced funds before they will process the conversion of certificates. The BankOregon and Washington, with the exception of six automobile loans totaling $28,000.Southwest Washington. At March 31, 2020, 82.67%2023, 9.69% of the Company’s nonperforming loans, totaling $1.2 million,$179,000 were measured for impairment. These loans have been charged down to the estimated fair market value of the collateral less selling costs or carry a specific reserve to reduce the net carrying value. There were no reserves associated with these nonperforming loans that were measured for impairment at March 31, 2020.2023. At March 31, 2020,2023, the largest single nonperforming loan was a USDA government guaranteed loan for $879,000. The largest single nonperforming loan exclusive of the SBA and USDA government guaranteed loans was a commercial real estate loan totaling $851,000. This loan was measured for impairment during fiscal year 2020 and management determined that a specific reserve was not required.12 At March 31, 2020 2019 2018 2017 2016 Loans accounted for on a non-accrual basis: Commercial business $ 201 $ 225 $ 178 $ 294 $ - Other real estate mortgage 1,014 1,081 1,963 2,143 2,360 Consumer 180 210 277 278 334 Total 1,395 1,516 2,418 2,715 2,694 - 3 - 34 20 Total nonperforming loans 1,395 1,519 2,418 2,749 2,714 Real estate owned (“REO”) - - 298 298 595 Total nonperforming assets $ 1,395 $ 1,519 $ 2,716 $ 3,047 $ 3,309 Foregone interest on non-accrual loans $ 75 $ 94 $ 102 $ 81 $ 112 Southwest Washington Total Commercial business $ - $ - $ 201 $ - $ 201 Commercial real estate - 851 163 - 1,014 Consumer - - 152 28 180 Total nonperforming assets $ - $ 851 $ 516 $ 28 $ 1,395 Commercial business $ 65 $ - $ 160 $ - $ 225 Commercial real estate - 896 185 - 1,081 Consumer - - 169 44 213 Total nonperforming assets $ 65 $ 896 $ 514 $ 44 $ 1,519 2020,2023, to cover the probable losses inherent in these and other loans. March 31, 2020 March 31, 2019 Balance Balance Commercial business 3 $ 147 9 $ 1,734 Commercial real estate - - 3 2,308 Land - - 1 728 Multi-family 3 34 2 20 Total 6 $ 181 15 $ 4,790 2020,2023 and 2022, loans delinquent 30 – 89 days were 0.03%0.20% and 0.81% of total loans, compared to 0.04%respectively. At March 31, 2023, loans 30 – 89 days past due were comprised of SBA government guaranteed loans (which are included in commercial business), commercial business and consumer loans. The SBA government guaranteed loans comprise a substantial amount of the total loans 30-89 days past due at March 31, 2019 and2023. At March 31, 2022, loans 30 – 89 days past due were comprised of SBA government guaranteed loans, residential real estate construction and consumer loans. There were no loans 30-89 days past due in our commercial real estate (“CRE”) or commercial business portfolioloans 30 – 89 days past at March 31, 20202023 or March 31, 2019.2022. At March 31, 2023, CRE loans represent the largest portion of our loan portfolio at 55.72%55.95% of total loans and commercial business loans represent 19.64%23.08% of total loans.13borrower'sborrower’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. and as such, when a loan is deemed to be impaired, the amount of the impairment is measured using discounted cash flows and the original note rate, except when the loan is collateral dependent. In these cases, the estimated fair value of the collateral (less any selling costs, if applicable) is used. Impairment is recognized as a specific component within the allowance for loan losses if the estimated value of the impaired loan is less than the recorded investment in the loan. When the amount of the impairment represents a confirmed loss, it is charged offcharged-off against the allowance for loan losses. At March 31, 2020,2023, the Company had TDRs totaling $5.2 million,$629,000, of which $4.0 million$450,000 were on accrual status. The $1.2 million$179,000 of TDRs accounted for on a non-accrual basis at March 31, 20202023 are included as nonperforming loans in the nonperforming asset table above. All of the Company’s TDRs were paying as agreed at March 31, 2020 except for one commercial real estate loan totaling $851,000.2023. The related amount of interest income recognized on these TDR loans was $221,000$24,000 for the fiscal year ended March 31, 2020.The CARES Act, signed into law on March 27, 2020, amended accounting principles generally accepted in the United States of America (“GAAP”) with respect to the modification of loans to borrowers affected by the COVID-19 pandemic. Among other criteria, this guidance provided that short-term loan modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. To qualify as an eligible loan under the CARES Act, a loan modification must be 1) related to COVID-19; 2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and 3) executed between March 1, 2020, and the earlier of A) 60 days after the date of termination of the national emergency by the President or B) December 31, 2020. As of At March 31, 2020 the Company2023, no loans had approved ten loan modifications related to the COVID-19 pandemic totaling $36.2 million which consisted of deferral of regularly scheduled principal and interest payments for three months. Loan modificationsbeen restructured in accordance with the CARES Act are still subject to an evaluation in regards to determining whether or not a loan is deemed to be impaired. For additional information related to loan modifications as a result of the COVID-19 pandemic, see “Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments Related to COVID-19.charged off.14 The OCC has adopted various Federal regulations regarding problemprovide for the classification of lower quality loans and other assets of savings institutions. The regulations require that each insured institution review(such as other real estate owned and classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, OCC examiners have authority to identify problem assetsrepossessed property), debt and if appropriate, require them to be classifiedequity securities, as such. There are three classifications for problem assets: substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and loss (collectively “classified loans”).pay capacity of the borrower or of any collateral pledged. Substandard assets have one or more defined weaknessesa well-defined weakness and areinclude those characterized by the distinct possibility that the insured institutionCompany will sustain some loss if the deficiencies are not corrected. Doubtful assetsAssets classified as doubtful have all the weaknesses ofinherent in those classified substandard assets with the additional characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values questionable, and there is a high possibility of loss. An assetvalues. Assets classified as loss isare those considered uncollectible and of such little value that their continuance as an assetassets without the establishment of the institutiona specific loss reserve is not warranted.Company'sCompany’s classified loans (comprised entirely of substandard loans), general loss allowances, specific loss allowances and net recoveriescharge-offs (recoveries) were as follows at the dates indicated (in thousands): At or For the Year Ended March 31, 2020 2019 Classified loans $ 1,576 $ 6,306 General loss allowances 12,612 11,435 Specific loss allowances 12 22 Net charge-offs (recoveries) 83 (641 ) of the loans on non-accrual status as of March 31, 20202023 were categorized as classified loans.loans with the exception of one commercial business loan for $18,000 which is fully guaranteed by the SBA. Classified loans at March 31, 20202023 were comprised of fivethree commercial business loans totaling $348,000, two$117,000, three commercial real estate loans totaling $1.0$2.4 million (the largest of which was $851,000), three multi-family loans totaling $34,000,$1.5 million) and three one-to-four family real estate loans totaling $152,000$86,000. The net decrease in classified loans is primarily attributed to the upgrade of one commercial real estate loan totaling $3.6 million. As discussed earlier, nonperforming SBA and sixUSDA government guaranteed loans totaled $1.6 million. These nonperforming government guaranteed loans are not considered classified as there is no well-defined weakness and do not include the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected in regard to these loans. The Company purchased automobilethe guaranteed portion of these loans totaling $28,000.GAAPaccounting principles generally accepted in the United States of America (“GAAP”) guidelines. The adequacy of the allowance is evaluated monthly to maintain the allowance at levels sufficient to provide for inherent losses existing at the balance sheet date. The key components to the evaluation are the Company’s internal loan review function by its credit administration, which reviews and monitors the risk and quality of the loan portfolio; as well as the Company’s external loan reviews and its loan classification systems. Credit officers are expected to monitor their loan portfolios and make recommendations to change loan grades whenever changes are warranted. Credit administration approves any changes to loan grades and monitors loan grades. For additional discussion of the Company’s methodology for assessing the appropriate level of the allowance for loan losses see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies."Estimates.”$1.1 million$228,000 and $1.5 million$371,000 at March 31, 20202023 and 2019,2022, respectively.$1.3 million and $50,000$750,000 for the yearsfiscal year ended March 31, 2020 and 2019, respectively. 2023 compared to a recapture of loan losses of $4.6 million for the fiscal year ended March 31, 2022. The increase in the allowance for loan losses in fiscal year 2023 is mainly attributed to an isolated downgrade of a commercial real estate loan for $15.9 million that occurred in the fourth quarter.2020,2023, the Company had an allowance for loan losses of $12.6$15.3 million, or 1.38%1.52% of total loans, compared to $11.5$14.5 million, or 1.31%1.47% of total loans at March 31, 2019. The increase in the balance of the allowance for loan losses at March 31, 2020 reflects the consideration of the weakening economic conditions as a result of the COVID-19 pandemic and to a lesser extent, the $35.4 million increase in loan balances from March 31, 2019 compared to March 31, 2020. During fiscal year 2020, the Company experienced improvement in the level of delinquent, nonperforming and classified loans.2022. Net15charge-offs recoveries totaled $83,000$36,000 for the fiscal year ended March 31, 20202023 compared to net recoveriescharge-offs of $641,000$30,000 in the prior fiscal year. NonperformingCriticized loans, decreased $124,000which are comprised of watch and 30-89 day delinquentspecial mention loans, decreased $74,000 during the fiscal year ended March 31, 2020. Classified loans were $1.6increased $11.3 million to $19.1 million at March 31, 2020 compared to $6.32023 from $7.8 million at March 31, 2019.2022. Classified loans decreased $3.8 million to $2.6 million at March 31, 2023 compared to $6.4 million at March 31, 2022. The $4.7 million decreasenet increase in criticized loans is primarilymainly attributed to the payoffdowngrade of sixthe $15.9 million commercial real estate loan mentioned above offset by the upgrade to a pass rating of a $6.6 million commercial real estate loan that was part of the criticized total at March 31, 2022. Additionally, the criticized balance at March 31, 2023 includes three commercial business loans with an unpaid principal balance of $1.1 million during fiscal year 2020 along with risk rating upgrades totaling $3.3 million, including twoand one commercial real estate loan totaling $1.3 million to a related borrower that were downgraded in the third quarter. The decrease in classified loans totaling $2.2 million.is mainly due to the upgrade to a pass rating of a $3.6 million commercial real estate loan. The coverage ratio of allowance for loan losses to nonperforming loans was 904.95%826.62% at March 31, 20202023 compared to 754.25%65.72% at March 31, 2019.2022, and excluding SBA and USDA government guaranteed loans was 5777.0% at March 31, 2023. The Company’s general valuation allowance to non-impaired loans was 1.39%1.52% and 1.31%1.47% at March 31, 20202023 and 2019,2022, respectively.20202023 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 further decline in national and local economic conditions (including declines as a result of the COVID-19 pandemic)recession and continued inflationary pressures), results of examinations by the Company’s banking regulators, or other factors could result in a material increase in the allowance for loan losses and may adversely affect the Company’s future financial condition and results of operations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses will be adequate or that substantial increases will not be necessary should the quality of any loans deteriorate or should collateral values decline as a result of the factors discussed elsewhere in this document.The following table sets forth an analysis of the Company's allowance for loan losses for the periods indicated (dollars in thousands): Year Ended March 31, 2020 2019 2018 2017 2016 Balance at beginning of year $ 11,457 $ 10,766 $ 10,528 $ 9,885 $ 10,762 Provision for (recapture of) loan losses 1,250 50 - - (1,150 ) Recoveries: Commercial and construction Commercial business - 1 240 492 30 Other real estate mortgage - 824 347 463 331 Real estate construction - - - - 6 Total commercial and construction - 825 587 955 367 Consumer Real estate one-to-four family 30 80 11 89 153 Other installment 33 27 48 57 27 Total consumer 63 107 59 146 180 Total recoveries 63 932 646 1,101 547 Charge-offs: Commercial and construction Commercial business 64 - - 1 - Other real estate mortgage - - 68 117 - Real estate construction - - - - - Total commercial and construction 64 - 68 118 - Consumer Real estate one-to-four family - 30 12 - 8 Other installment 82 261 328 340 266 Total consumer 82 291 340 340 274 Total charge-offs 146 291 408 458 274 Net charge-offs (recoveries) 83 (641 ) (238 ) (643 ) (273 ) Balance at end of year $ 12,624 $ 11,457 $ 10,766 $ 10,528 $ 9,885 1.38 % 1.31 % 1.33 % 1.35 % 1.58 % 0.01 (0.08 ) (0.03 ) (0.10 ) (0.05 ) Ratio of allowance to total nonperforming loans 904.95 754.25 445.24 382.98 364.22 16 At March 31, 2020 2019 2018 2017 2016 Amount Amount Amount Amount Amount Commercial and construction: Commercial business $ 2,008 19.64 % $ 1,808 18.58 % $ 1,668 16.97 % $ 1,418 13.78 % $ 1,048 11.11 % Other real estate mortgage 7,505 63.66 6,035 60.50 5,956 65.20 5,609 65.00 5,310 63.94 Real estate construction 1,149 7.12 1,457 10.37 618 4.88 714 5.92 416 4.28 Consumer: Real estate one-to-four family 1,237 9.12 1,208 9.60 1,400 11.10 1,525 11.91 1,652 14.21 Other installment 126 0.46 239 0.95 409 1.85 574 3.39 751 6.46 Unallocated 599 - 710 - 715 - 688 - 708 - Total allowance for loan losses $ 12,624 100.00 % $ 11,457 100.00 % $ 10,766 100.00 % $ 10,528 100.00 % $ 9,885 100.00 % Company'sCompany’s investment objectives are: to provide and maintain liquidity within regulatory guidelines; to maintain a balance of high quality, diversified investments to minimize risk; to provide collateral for pledging requirements; to serve as a balance to earnings; and to optimize returns. The policy permits investment in various types of liquid assets (generally debt and asset-backed securities) permissible under OCC regulation,applicable regulations, which includes U.S. Treasury obligations, securities of various federal agencies, "bank qualified"“bank qualified” municipal bonds, certain certificates of deposit of insured banks, repurchase agreements, federal funds, real estate mortgage investment conduits (“REMICS”) and mortgage-backed securities (“MBS”), but does not permit investment in non-investment grade bonds. The policy also dictates the criteria for classifying investment securities into one of three categories: held to maturity, available for sale or trading. At March 31, 2020,2023, no investment securities were held for trading purposes. At March 31, 2020,2023, the Company’s investment portfolio consistsconsisted of solely debt securities and does not include anyno equity securities. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies."with maturities of five years or less and purchases a combination of MBS backed by government agencies (FHLMC, Fannie Mae (“FNMA”), U.S. Small Business Administration (“SBA”)SBA or Ginnie Mae (“GNMA”)). FHLMC and FNMA securities are not backed by the full faith and credit of the U.S. government, while SBA and GNMA securities are backed by the full faith and credit of the U.S. government. At March 31, 2020,2023, the Company owned no privately issued MBS. Our REMICS are MBS issued by FHLMC, FNMA and GNMA and ourthe Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional information. At March 31, 2020 2019 2018 Available for sale (at estimated fair value): Municipal securities $ 4,877 3.29 % $ 8,881 4.98 % $ 8,732 4.09 % Agency securities 6,016 4.06 12,341 6.92 22,102 10.36 REMICs 43,791 29.52 40,162 22.53 46,955 22.02 Residential MBS 60,085 40.51 75,821 42.54 89,074 41.77 Other MBS 33,522 22.60 41,021 23.01 46,358 21.74 148,291 99.98 178,226 99.98 213,221 99.98 Held to maturity (at amortized cost): Residential MBS 28 0.02 35 0.02 42 0.02 Total investment securities $ 148,319 100.00 % $ 178,261 100.00 % $ 213,263 100.00 % 20202023 (dollars in thousands):(1) The weighted average yields are calculated by multiplying each amortized cost value by its yield and dividing the sum of these results by the total amortized cost values. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis. Less Than One Year One to Five Years Amount Amount Amount Amount Municipal securities $ - - % $ 51 2.66 % $ 2,333 5.03 % $ 2,493 3.00 % Agency securities 1,015 2.47 1,998 1.95 3,003 1.75 - - REMICS - - 748 1.52 12,492 1.44 30,551 1.82 Residential MBS - - 25 3.58 8,462 2.08 51,626 1.95 Other MBS - - 1,523 1.76 7,696 2.33 24,303 2.23 Total $ 1,015 2.47 % $ 4,345 1.82 % $ 33,986 2.08 % $ 108,973 2.00 % (1) For available for sale securities carried at estimated fair value, the weighted average yield is computed using amortized cost without a tax equivalentadjustment for tax-exempt obligations.182020, 20192023, 2022 or 2018. However,2021. See Note 3 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional deterioration in market and economic conditions related to the COVID-19 pandemic may have an adverse impact on credit quality in the future and result in OTTI charges.Company'sCompany’s funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They may also be used on a longer-term basis for general business purposes.("NOW"(“NOW”) accounts, money market accounts, savings accounts, certificates of deposit and retirement savings plans. The Company has focused on building customer relationship deposits which include both business and consumer depositors. Deposit account terms vary according to, among other factors, the minimum balance required, the time periods the funds must remain on deposit and the interest rate. In determining the terms of its deposit accounts, the Company considers the rates offered by its competition, profitability to the Company, matching deposit and loan products and customer preferences and concerns. Year Ended March 31, 2020 2019 2018 Non-interest-bearing demand $ 284,748 0.00 % $ 289,707 0.00 % $ 264,128 0.00 % Interest-bearing checking 180,969 0.06 180,256 0.06 170,124 0.06 Savings accounts 189,207 0.56 136,720 0.11 132,376 0.10 Money market accounts 194,061 0.12 252,202 0.12 275,092 0.12 Certificates of deposit 112,282 1.34 105,049 0.43 136,370 0.47 Total $ 961,267 0.30 % $ 963,934 0.10 % $ 978,090 0.12 % $990.4 million$1.3 billion at March 31, 20202023 compared to $925.1 million$1.5 billion at March 31, 2019.2022. The Company did not have any wholesale-brokered deposits at March 31, 20202023 and 2019.2022. The Company continues to focus on core deposits and growth generated by customer relationships as opposed to obtaining deposits through the wholesale markets, although the Company continued to experience increased competition for customer deposits within its market area during fiscal year 2020.2023. 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 $58.7at March 31, 2023 decreased $250.1 million since March 31, 2019.2022 due to deposit pricing pressures in our market and customers seeking higher yielding investment alternatives. At March 31, 2020,2023, the Company had $5.3$22.8 million, or 0.01%1.80% of total deposits, in Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) deposits, which were gathered from customers within the Company’s primary market-area. CDARS and ICS deposits allow customers access to FDIC insurance on deposits exceeding the $250,000 FDIC insurance limit.20202023 and 2019,2022, the Company also had $12.2$21.3 million and $3.2$25.9 million, respectively, in deposits from public entities located in the States of Washington and Oregon, all of which were fully covered by FDIC insurance or secured by pledged collateral.1920202023 and 2019,2022, the Company did not have any deposits through this listing service as the Company chose not to utilize these internet basedinternet-based deposits. Although the Company did not originate any internet based deposits during the fiscal year ended March 31, 2020,2023, the Company may do so in the future consistent with its asset/liability objectives. growth in core deposits, is subject to many risk factors including the effects of competitive pricing pressures, changing customer deposit behavior, and increasing or decreasing interest rate environments. Adverse developments with respect to any of these risk factors could limit the Company’s ability to attract and retain deposits and could have a material negative impact on the Company’s future financial condition, results of operations and cash flows.amount and weighted average rateamount of certificates of deposit equal to or greater than $100,000$250,000 at March 31, 20202023 (dollars in thousands): Amount Three months or less $ 7,959 1.07 % Over three through six months 14,065 1.76 Over six through 12 months 24,365 1.71 Over 12 months 45,345 2.32 Total $ 91,734 1.96 % Bank'sBank’s commercial business loans, commercial real estate loans and first mortgage residentialreal estate one-to-four family loans. At March 31, 2020,2023, the Bank had FHLB advances totaling $123.8 million and no FRB borrowings. At March 31, 2022, the Bank did not have any FHLB advances or FRB borrowings. At March 31, 2019, the Bank had FHLB advances totaling $56.6 million and no FRB borrowings.2020,2023, the Bank had an available credit capacity of $532.5$718.9 million, subject to sufficient collateral and stock investment.$67.3$57.4 million, subject to pledged collateral, as of March 31, 2020.2023. The following table sets forth certain information concerning the Company'sCompany’s borrowings for the periods indicated (dollars in thousands): Year Ended March 31, 2020 2019 2018 Maximum amounts of FHLB advances outstanding at any month end $ 77,241 $ 62,638 $ 14,050 Average FHLB advances outstanding 20,532 15,400 787 Weighted average rate on FHLB advances 2.54 % 2.58 % 1.60 % Maximum amounts of FRB borrowings outstanding at any month end $ - $ - $ - Average FRB borrowings outstanding 33 3 1 Weighted average rate on FRB borrowings 1.92 % 3.00 % 1.50 % The CARES Act authorized the SBA to temporarily guarantee loans under a new federal loan program called the Paycheck Protection Program (“PPP”) pursuant to which we have originated COVID-19 related loans. We may utilize the FRB's Paycheck Protection Program Liquidity Facility pursuant to which the Company will pledge its PPP loans as collateral at face value to obtain FRB non-recourse borrowings. For additional information, see “Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments Related to COVID-19.”202020,2023, the Company had three wholly-owned subsidiary grantor trusts totaling $26.7$26.9 million that were established for the purpose of issuing trust preferred securities and common securities. The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts. The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock. The common securities issued by the grantor trusts are held by the Company, and the Company’s investment in the common securities of $836,000 at both March 31, 20202023 and 20192022 is included in prepaid expenses and other assets in the Consolidated Balance Sheets included in the Consolidated Financial Statements contained in Item 8 of this Form 10-K. For more information, see also Note 10 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.the Consolidated Financial Statements contained in Item 8 of this Form 10-K.Personnel2020,2023, the Company had 252 full‑time229 full-time equivalent employees, none of whom are represented by a collective bargaining unit. The Company believes its relationship with its employees is good.Under OCC regulations,is authorized to invest up to 3% of its assets in subsidiary corporations classified as service corporations, with amounts in excess of 2% only if primarily for community purposes, and unlimited amounts in operating subsidiaries. At March 31, 2020, the Bank’s investments in itshas two wholly-owned subsidiary of $1.3 million insubsidiaries, Riverview Services Inc. (“Riverview Services”) and majority-owned subsidiary of $6.4 million in the Trust Company were within these limitations.$23,000$21,000 for the fiscal year ended March 31, 20202023 and total assets of $1.3 million at March 31, 2020.2023. Riverview Services’ operations are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.$991,000$860,000 for the fiscal year ended March 31, 20202023 and total assets of $6.9$9.0 million at that date.March 31, 2023. The Trust Company earns fees on the management of assets held in fiduciary or agency capacity. At March 31, 2020,2023, total assets under management were $1.2 billion.$890.6 million. The Trust Company’s operations are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.21NameAge(1)Position424342Kim J. Capeloto5860Christopher P. Cline59(1) At March 31, 2023 (1) At March 31, 2020 2, 2018. Prior to assuming the role of President and Chief Executive Officer, Mr. Lycklama served as Executive Vice President and Chief Operating Officer of the Company, positions he had held since July 2017. Prior to July 2017, Mr. Lycklama served as Executive Vice President and Chief Financial Officer of the Company since 2008 and Vice President and Controller of the Bank since 2006. Prior to joining Riverview, Mr. Lycklama spent five years with a local public accounting firm advancing to the level of audit manager. He holds a Bachelor of Arts degree from Washington State University, is a graduate of the Pacific Coast Banking School and is a certified public accountant (CPA). Mr. Lycklama is a member of the Washington State University Vancouver Advisory Council.Riverviewthe Bank in August 2002 and spent five years as a commercial lender and progressed through the credit administration function, most recently serving as Senior Vice President of Credit Administration. He holds a Bachelor of Arts degree from Washington State University and was an Honor Roll graduate of the Pacific Coast Banking School. Mr. Cox is an active mentor in the local schools and was the Past Treasurer and Endowment Chair for the Washougal Schools Foundation and Past Board Member of Camas-Washougal Chamber of Commerce.Kim J. Capeloto Officer. Mr. Capeloto has been employed by the Bank since September 2010. Mr. Capeloto has over 30 years of banking experience serving as regional manager for Union Bank of California and Wells Fargo Bank directing small business and personal banking activities. Prior to joining the Bank, Mr. Capeloto held the position of President and Chief Executive Officer of the Greater Vancouver ChamberBank, a position she has held since June 2022. Mrs. Jellison is responsible for the oversight of Commerce. Mr. Capelotothe bank’s retail branches. Prior to June 2022, Mrs. Jellison served as Senior Vice President and Commercial Lending Team Leader of the Portland Commercial Lending Team. Mrs. Jellison has spent her entire professional career working in banking and is active in numerous professionalpassionate about delivering high level service to all clients. Mrs. Jellison attended The University of San Diego, studying music, and civic organizations. 1, 2018. Mr. Plambeck is responsible for all loan production including commercial, consumer, mortgage and builder/developer construction loans. Mr. Plambeck joined Riverviewthe Bank in January 2011 as Director of Medical Banking. For the past two years Mr. Plambeck served as Senior Vice President and Team Leader for the Portland Commercial Team. Mr. Plambeck holds a Bachelor of Science degree in Accounting from the University of Wyoming and is also a graduate of the Pacific Coast Banking School. Mr. Plambeck is a board member for the Providence St. Vincent Council of Trustees, Providence Heart and Vascular Institute and the Providence Brain and Spine Institute. Mr. Plambeck is also a member of the Medical and Dental Advisory Team.Christopher P. ClineClineSowers joined the Trust Company in 2016,2022, after having spent eighttwenty-two years working in trusts and investments. Mr. Sowers was managing director of private banking and wealth management and led the region for a large trust department of Wells Fargo’s Private Bankcompany in Oregonthe Midwest. Mr. Sowers holds an MBA in Finance, Accounting and Southwest Washington. Prior to that, Mr. Cline wasInvestment Banking from Washington University and an estate planning attorney for 17 years, most recently as a partner at Holland & Knight. Mr. Cline manages all aspects of the trust business, is a Fellow of the American College of Trust and Estate Counsel and is a nationally recognized speaker and author, having written books on estate planning and trust administration. Mr. Cline holds a Bachelor of Artsundergraduate degree from San Francisco Statethe University and a Juris Doctor degree from Hastings College of the Law in San Francisco.Missouri.22OCC,WDFI, the FDIC, the Federal Reserve Board or the SEC, as appropriate. Any such legislation or regulatory changes in the future could have an adverse effect on our operations and financial condition. We cannot predict whether any such changes may occur.Generalfederally chartered savingsstate-chartered commercial bank, the Bank is subject to extensive regulation, examinationapplicable provisions of Washington state law and supervision by the OCC, as its primary federal regulator, and the FDIC, as the insurer of its deposits. As used herein, the terms “savings institution” and “savings association” refer to federally chartered savings banks. Additionally, the Company is subject to extensive regulation, examination and supervision by the Federal Reserve as its primary federal regulator. The Bank is a memberregulations of the FHLB System and its deposits are insured up to applicable limits by the DIF, which is administered by the FDIC. The Bank must file reports with the OCC concerning its activities and financial conditionWDFI in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinationsfederal law and regulations of the Bank by the OCC and of the Company by the Federal ReserveFDIC applicable to evaluate safety and soundness and compliance with various regulatory requirements. This regulatory structure establishes a comprehensive framework of activities in which the Bank may engage and is intended primarily for the protection of the DIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the OCC, the Federal Reserve, the FDIC or Congress, could have a material adverse impact on the Company and the Bank and their operations.In connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the laws and regulations affecting depository institutions and their holding companies have changed particularly affecting the bank regulatory structure and the lending, investment, trading and operating activities of depository institutions and their holding companies. Among other changes, the Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”) as an independent bureaustate banks that are not members of the Federal Reserve Board. The CFPB assumed responsibility forSystem. State law and regulations govern the implementationBank’s ability to take deposits and pay interest, to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various banking services to its customers and to establish branch offices. Under state law, commercial banks in Washington also generally have all of the powers that national banks have under federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements.regulations. The Bank is subject to regulations issuedperiodic examination by the CFPB, but as a smaller financial institution, the Bank is generally subject to supervision and enforcement by the OCC with respect to its compliance with consumer financial protection laws and CFPB regulations.On May 23, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress (the “Act”). The Act contains a number of provisions extending regulatory relief to banks and savings institutions and their holding companies. Some of these provisions may benefit the Company and the Bank, such as (1) a simplified capital ratio, called the Community Bank Leverage Ratio, computed as the ratio of tangible equity capital to average consolidated total assets to be set by the federal banking regulators at not less than 8% and not more than 10%, which for most institutions with less than $10 billion in consolidated assets will replace the leverage and risk-based capital ratios under current regulations; (2) an option for federal savings institutions to operate as national banks with respect to limits on lending, investments, and subsidiaries, without changing their charters to national bank charters; and (3) a lower risk weight on certain loans classified as high volatility commercial real estate exposures. Effective January 1, 2020, the Community Bank Leverage Ratio is 9.0%. 23Federal Regulation of Savings InstitutionsOfficereporting requirements of the Comptroller of the Currency. The OCC has extensive authority over the operations of federal savings institutions. As part of this authority, the Bank is required to file periodic reports with the OCCWDFI and is subject to periodic examinations by the OCC. The OCC also has extensive enforcement authority over federal savings institutions, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease-and-desist or removal orders and initiate prompt corrective action orders. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC. Except under certain circumstances, public disclosure of final enforcement actions by the OCC is required by law.All federal savings institutions are required to pay assessments to the OCC to fund the agency's operations. The general assessments, paid on a semi-annual basis, are determined based on the savings institution's total assets, including consolidated subsidiaries. The Bank's OCC assessment for the fiscal year ended March 31, 2020 was $244,000.The Bank's general permissible lending limit for loans to one borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At March 31, 2020, the Bank's lending limit under this restriction was $22.2 million and, at that date, the Bank’s largest lending relationship with one borrower was $16.9 million, which consisted of one commercial real estate loan of $14.4 million and one commercial construction loan with a contractual amount of $2.5 million. The commercial construction loan has an outstanding balance of $1.6 million and undisbursed funds of $900,000 at March 31, 2020. Both loans are performing in accordance to their original terms.The OCC’s oversight of the Bank includes reviewing its compliance with the customer privacy requirements imposed by the Gramm-Leach-Bliley Act of 1999 (“GLBA”) and the anti-money laundering provisions of the USA Patriot Act. The GLBA privacy requirements place limitations on the sharing of consumer financial information with unaffiliated third parties. They also require each financial institution offering financial products or services to retail customers to provide such customers with its privacy policy and with the opportunity to opt out of the sharing of their personal information with unaffiliated third parties. The USA Patriot Act imposes significant responsibilities on financial institutions to prevent the use of the U.S. financial system to fund terrorist activities. Its anti-money laundering provisions require financial institutions operating in the U.S. to develop anti-money laundering compliance programs and due diligence policies and controls to ensure the detection and reporting of money laundering. These compliance programs are intended to supplement requirements under the Bank Secrecy Act and the regulations of the Office of Foreign Assets Control.The OCC, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must submit a compliance plan.savingsfinancial institutions, such as the Bank and their holding companies, are required to maintain a minimum level of regulatory capital. The Bank is subject to capital regulations adopted by the OCC to maintainFDIC, which establish minimum levels of regulatory capital, includingrequired ratios for a common equity Tier 1 (“CET1”) capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets ratio and a Tier 1 capital to total assets leverage ratio. The capital standards require the maintenance of the following minimum capital ratios: (i) a CET1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Consolidated regulatory capital requirements identical to those applicable to subsidiary banks generally apply to bank holding companies. However, the Federal Reserve has provided a “Small Bank Holding Company” exception to its consolidated capital requirements, and bank holding companies with less than $3.0 billion of consolidated assets are not subject to the consolidated holding company capital requirements unless otherwise directed by the Federal Reserve.phasing-outphasing out of certain instruments as qualifying capital, are subject to transition periods, most of which have expired. The Bank does not have any such instruments. Because of the Bank’s asset size, the Bank elected to take a one-time option to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in its capital calculations.any of certain mandates by the OCC requiringan individualized order, directive or agreement under which its primary federal banking regulator requires it as an individual institution to meet any specifiedmaintain a specific capital level. Effective January 1, 2020, a bank or savings institution that elects to use the Community Bank Leverage Ratio will generally be considered well-capitalized and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than 9.0%. In order to qualify for the Community24Bank Leverage Ratio framework, in addition to maintaining a leverage ratio greater than 9%, the bank or institution also must have total consolidated assets of less than $10 billion, off-balance sheet exposures of 25% or less of its total consolidated assets, and trading assets and trading liabilities of 5.0% or less of its total consolidated assets, all as of the end of the most recent quarter.2020, the most recent notification from the OCC categorized2023, the Bank asmet the requirements to be “well capitalized” underand met the regulatory framework for prompt corrective action.fully phased-in capital conservation buffer requirement. For additional information,a complete description of the Bank’s required and actual capital levels on March 31, 2023, see Note 13 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. An institution is considered Federal statutes establish a supervisory framework for FDIC-insured institutions based on five capital categories: well capitalized, adequately capitalized, if it meets the minimum capital ratios described above. The OCC is required to take certain supervisory actions against undercapitalized, savings institutions, the severity of whichsignificantly undercapitalized and critically undercapitalized. An institution’s category generally depends upon the institution's degree of undercapitalization. Subjectwhere its capital levels are in relation to relevant capital measures, which include risk-based capital measures, a narrow exception, the OCC is required to appoint a receiver or conservator for a savingsleverage ratio capital measure, and certain other factors. An institution that is critically undercapitalized. OCC regulations also requirenot well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally. Any institution which is neither well capitalized nor adequately capitalized is considered under- capitalized. The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital restoration planexceeds the CBLR and opts to use that framework will be filedconsidered “well capitalized” for purposes of prompt corrective action.the OCC within 45 days of the date a savings institution receives notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. In addition, numerous mandatory supervisoryapplicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. Significantly undercapitalized and critically undercapitalized institutions are subject to more extensive mandatory regulatory actions. The OCC also can take a number of discretionary supervisory actions, including the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the replacementappointment of senior executive officers and directors. An institutionthe FDIC as receiver or conservator. Banking regulators will take prompt corrective action with respect to depository institutions that isdo not well-capitalized is subject to certain restrictionsmeet minimum capital requirements. Additionally, approval of any regulatory application filed for their review may be dependent on deposit rates and brokered deposits.2020,2023, the Bank held $1.4$6.9 millionwasis comprised of $1.9 million of membership stock and $5.0 million of activity stock from borrowing activities. At March 31, 2023, the Bank is in compliance with this requirement.FHLB stock requirements. During the fiscal year ended March 31, 2020,2023, the Bank purchased $40,000redeemed $102,000 of FHLB membership stock at par and redeemed $2.3 million of FHLB activity stockdue to the decrease in the Bank’s consolidated assets at par with the payoff of borrowed funds.Bank'sBank’s FHLB stock may result in a decrease in net income and possibly capital.Federal Deposit Corporation.of Accounts and Regulation by the FDIC. The DIF of the FDIC insuresBank’s deposits in the Bankare insured up to $250,000 per separately insured depositordeposit ownership rightsright or category.category by the Deposit Insurance Fund (“DIF”) of the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. The Bank’sFDIC assesses deposit insurance premiums for the fiscal year ended March 31, 2020 were $81,000. The Bank received full credit for the premiums for the first three quarters of fiscal year 2020 from the FDIC since the DIF reserve ratio exceeded 1.35% for these quarters. The Bank has $44,000 of remaining small bank assessment credits as of March 31, 2020.Underquarterly on each FDIC-insured institution applied to its regulations, the FDIC sets assessment rates for established small institutions (generally, those withdeposit base, which is their average consolidated total assets of less than $10 billion) basedminus its Tier 1 capital. No institution may pay a dividend if it is in default on an institution’s weighted average CAMELS component ratings and certain financial ratios.its federal deposit insurance assessment. Total base assessment rates currently range from 3 to 30 basis points subject to certain adjustments. Assessment rates are expecteddecrease indecline below the futurestatutory minimum of 1.35 percent as of June 30, 2020. In September 2020, the FDIC Board of Directors adopted a Restoration Plan to restore the reserve ratio increasesto at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act. The Restoration Plan maintained the assessment rate schedules in specified increments. Theplace at the time and required the FDIC mayto update its analysis and projections for the deposit insurance fund balance and reserve ratio at least semiannually. In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio. Based on this update, the FDIC Board approved an Amended Restoration Plan, and concurrently proposed an increase or decrease its rates up toin initial base deposit insurance assessment rate schedules uniformly by two basis points, without further rule-making.applicable to all insured depository institutions. In an emergency,October 2022, the FDIC may also imposeBoard finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023. The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum level of 1.35 percent by September 30, 2028. Revised assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds two percent, absent further action by the FDIC Board. A significant increase in insurance premiums or a special assessment.The Dodd-Frank Act increasedassessment levied by the minimumFDIC could likely have an adverse effect on the operating expenses and results of operations of the Bank. There can be no prediction as to what changes in insurance assessment rates may be made in the future. For the fiscal year ended March 31, 2023, the Bank’s FDIC deposit insurance reserve ratio from 1.15 percent to 1.35 percent. premiums totaled $534,000.surpassed the 1.35% as of September 30, 2018. The Dodd-Frank Act directed the FDIC to offset the effects of higher assessments due to the increase in the reserve ratio on established small institutions by charging higher assessments to large institutions. To implement this mandate, large and highly complex institutions paid a surcharge on their base since25established small institutions automatically receive credits from the FDIC for the portion of their assessments that contribute to the increase.The FDICalso may prohibit any insured institution from engaging in any activity determinedthe FDIC determines by regulation or order to pose a serious risk to the DIF. The FDIC may terminatealso has the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound conditionauthority to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC.take enforcement actions against banks and savings associations. Management is not aware of any existing circumstances which would result in termination of the Bank’s deposit insuranceinsurance.Bank.bank’s total assets, (3) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions and (4) acquiring or retaining the voting shares of a depository institution owned by another FDIC-insured institution if certain requirements are met.Qualified Thrift Lender Test. All federal savings institutions, includingrequired to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. This test requires a savings institution to have at least 65%separate and distinct legal entities. The Bank is an affiliate of its total assets, as defined by regulation, in qualified thrift investments on a monthly average for nine outRiverview and any non-bank subsidiary of every 12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in those assets specified in Section 7701(a) (19) of the Internal Revenue Code ("Code"). Under either test, such assets primarily consist of residential housing related loans and investments.Any institution that fails to meet the QTL test is subject to certain operating restrictions and may be required to convert to a national bank charter, and a savings and loan holding company of such an institution may become regulated as a bank holding company. As of March 31, 2020, the Bank maintained 89.83% of its portfolio assets in qualified thrift investments and therefore met the QTL test.Limitations on Capital Distributions. OCC regulations impose various restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Generally, savings institutions, such as the Bank, that before and after the proposed distribution are well-capitalized, may make capital distributions during any calendar year equal to up to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the OCC may have its dividend authority restricted by the OCC. If the Bank, however, proposes to make a capital distribution when it does not meet its capital requirements (or will not following the proposed capital distribution) or that will exceed these net income-based limitations, it must obtain the OCC's approval prior to making such distribution. In addition, the Bank must file a prior written notice of a dividend with the Federal Reserve. The Federal Reserve or the OCC may object to a capital distribution based on safety and soundness concerns. Additional restrictions on Bank dividends may apply if the Bank fails the QTL test. In addition, as noted above, if the Bank does not have the required capital conservation buffer, its ability to pay dividends to the Company will be limited, which mayRiverview, federal laws strictly limit the ability of the Company to pay dividends to its stockholders.Activities of Savings Associations and their Subsidiaries. When a savings institution establishes or acquires a subsidiary or elects to conduct any new activity through a subsidiary that the savings institution controls, the savings institution must file a notice or application with the OCC and, in certain circumstances with the FDIC, and receive regulatory approval or non-objection. Savings institutions also must conduct the activities of subsidiaries in accordance with existing regulations and orders. With respect to subsidiaries generally, the OCC may determine that investment by a savings institution in, or the activities of, a subsidiary must be restricted or eliminated based on safety and soundness or legal reasons.Transactions with Affiliates. The Bank’s authoritybanks to engage in certain transactions with their affiliates. Transactions deemed to be a “covered transaction” under Section 23A of the Federal Reserve Act between a bank and an affiliate are limited to 10% of a bank’s capital and surplus and, with respect to all affiliates, is limitedto an aggregate of 20% of a bank’s capital and surplus. Further, covered transactions that are loans and extensions of credit generally are required to be secured by Sections 23Aeligible collateral in specified amounts. Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act as implemented by the Federal Reserve’s Regulation W. The term affiliates for these purposes generally mean any company that controls or is under common control with an institution except subsidiaries of the institution. The Companybetween a bank and its non-savings institution subsidiaries are affiliates of the Bank. In general, transactions with affiliates must be on terms that are as favorable to the institutiona bank as comparable transactions with non-affiliates. In addition, certain types of transactions are restricted to an aggregate percentage of the institution’s capital. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary. FDIC-insured institutions are subject, with certain exceptions, to certain restrictions on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. Collateral in specified amounts must be provided by affiliates in order to receive loans from an institution. In addition, these institutions are prohibited from engaging in certain tying arrangements in connection with any extension of credit or the providing of any property or service.26The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) generally prohibits a company that makes filings with the SEC from making loans to its executive officers and directors. That act, however, contains a specific exception for loans by a depository institution to its executive officers and directors, if the lending is in compliance with federal banking laws. Under such laws, the Bank’s authority to extend credit to executive officers, directors and 10% stockholders (“insiders”), as well as entities which such persons control, is limited. The law restricts both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain Board approval procedures to be followed. Such loans must be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. There are additional restrictions applicable to loans to executive officers.Act and Consumer Protection Laws. UnderAct. The Bank is subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”), every FDIC-insured institution haswhich require the appropriate federal bank regulatory agency to assess a continuing and affirmative obligation consistent with safe and sound banking practices to help meetbank’s performance under the CRA in meeting the credit needs of its entirethe community serviced by the Bank, including low and moderate income neighborhoods. The regulatory agency’s assessment of the Bank’s record is made available to the public. Further, a bank’s CRA does notperformance must be considered in connection with a bank’s application, to among other things, establish specific lending requirementsa new branch office that will accept deposits, relocate an existing office or programsmerge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. An unsatisfactory rating may be the basis for financial institutions nor does it limit an institution's discretiondenial of certain applications. The Bank received a “satisfactory” rating during its most recent CRA examination.develop the types of productsstrengthen and services that it believes are best suited to its particular community, consistent withmodernize regulations implementing the CRA. The proposed regulations included major changes from the current regulation and will be effective on the first day of the first calendar quarter that begins at least 60 days after the publication date of the final rules. The new rules as proposed are intended to, (1) provide expanded access to credit, investment, and basic banking services in low- and moderate-income communities, (2) address changes in the banking industry, including internet and mobile banking, (3) yield greater clarity, consistency, and transparency, (4) tailor CRA requiresevaluations and data collection to bank size and type, and (5) maintain a unified approach amongst the OCC,regulating agencies.connection withdefault in payment of any assessments due to the examinationFDIC. Dividends on the Bank’s capital stock may not be paid in an aggregate amount greater than the aggregate retained earnings of the Bank, to assesswithout the institution’s recordapproval of meeting the credit needsDirector of its community and to take such record into account in its evaluationthe WDFI.certain applications, such as a merger or the establishment of a branch,dividends actually paid during any one period is affected by the Bank. The OCCBank’s policy of maintaining a strong capital position. Federal law further restricts dividends payable by an institution that does not meet the capital conservation buffer requirement and provides that no insured depository institution may use an unsatisfactory ratingpay a cash dividend if it would cause the institution to be “undercapitalized,” as the basis for the denial of an application. Similarly, the Federal Reserve is required to take into account the performance of an insured institution under the CRA when considering whether to approve an acquisition by the institution’s holding company. Due to the heightened attention being given to the CRAdefined in the past few years,prompt corrective action regulations. Moreover, the Bank may be requiredfederal bank regulatory agencies also have the general authority to devote additional funds for investment and lending in its local community.In connection with its deposit-taking, lending and other activities, the Bank is subject to a number of federal laws designed to protect consumers and promote lending to various sectors of the economy and population. Some state laws can apply to these activities as well. The CFPB issues regulations and standards under these federal laws, which include, among others, the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act and the Real Estate Settlement Procedures Act. Through its rulemaking authority, the CFPB has promulgated a number of regulations under these laws that affect our consumer businesses. Among these are regulations setting ���ability to repay” and “qualified mortgage” standards for residential mortgage loans and establishing new mortgage loan servicing and loan originator compensation standards. The Bank devotes substantial compliance, legal and operational business resources to ensure compliance with applicable consumer protection standards. In addition, the OCC has enacted customer privacy regulations that limit the ability of the Bankdividends paid by insured banks if such payments are deemed to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policiesconstitute an unsafe and allow consumers to prevent certain personal information from being shared with non-affiliated parties.Enforcement. The OCC has primary enforcement responsibility over federally-chartered savings institutions and has the authority to bring action against all "institution-affiliated parties," including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in a wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers or directors, receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations. The FDIC has the authority to recommend to the OCC that enforcement action be taken with respect to a particular savings institution. If action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations. As required by statute, the Each federal banking agencies haveagency, including the FDIC, has adopted interagency guidelines prescribingestablishing general standards for safetyrelating to internal controls, information and soundness. Theinternal audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. In general, the guidelines set forth the safetyrequire, among other things, appropriate systems and soundness standards that the federal banking agencies usepractices to identify and address problems at insured depository institutions before capital becomes impaired.manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder. If the OCCFDIC determines that a savingsan institution fails to meet any standard prescribed by theof these guidelines, the OCCit may require thean institution to submit to the FDIC an acceptable plan to achieve compliance withcompliance. Management of the standard.that all depository institutions to maintain reserves onat specified levels against their transaction accounts, or non-personal time deposits. These reserves may be inprimarily checking accounts. In response to the form of cash or non-interest-bearing deposits withCOVID-19 pandemic, the regional Federal Reserve Bank. Interest-bearing checking accountsreducedother types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to Regulation D reserve requirements, as are any non-personal time deposits at a bank.businesses. At March 31, 2020,2023, the Bank was in compliance with these27requirements. balances.balances maintainedBank is authorized to meet the reserve requirements imposed byborrow from the Federal Reserve Board may be usedBank of San Francisco’s “discount window.” An eligible institution need not exhaust other sources of funds before going to satisfy any liquidity requirements that may be imposed by the OCC.OCCFDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk. A federal savings bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:● Total reported loans for construction, land development and other land represent 100% or more of the bank’s capital; or ● Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total capital or the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months. Total reported loans for construction, land development and other land represent 100% or more of the bank’s capital; orTotal commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total capital or the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months."owners“owners and operators"operators” of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term “owner and operator” excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potentialpotentially hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which could substantially exceed the value of the collateral property.Bank Secrecy Act/Laws.Bank is subjectUniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”) was signed into law on October 26, 2001. The USA PATRIOT Act and the Bank Secrecy Act requires financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts, and, effective in 2018, the beneficial owners of accounts. Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering when ruling on Bank Holding Company Act and Bank Merger Act applications.anti-money laundering laws and regulations,financial service providers. Federal banking agencies, including the USA Patriot ActFDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of 2001.the board of directors. These lawsguidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. These regulations require the Bank to implement policies, procedures,disclose its privacy policy, including informing consumers of its information sharing practices and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identityinforming consumers of their customers. Violationsrights to opt out of these requirements cancertain practices. In addition, Washington State and other federal and state cybersecurity and data privacy laws and regulations may expose the Bank to risk and result in substantial civil and criminal sanctions.certain risk management costs. In addition, provisionson November 18, 2021, the federal banking agencies announced the adoption of a final rule providing for newUSA Patriot Act requirefinancial sector. Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours. Compliance with the new rule was required by May 1, 2022. Non-compliance with federal financial institutionor similar state privacy and cybersecurity laws and regulations could lead to substantial regulatory agencies to consider the effectivenessimposed fines and penalties, damages from private causes of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions.CFPBConsumer Financial Protection Bureau (“CFPB”) and empowered it to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10 billion, the Bank is generally subject to supervision and enforcement by the OCCFDIC with respect to its compliance with federal consumer financial protection laws and CFPB regulations.the following list is not exhaustive, these laws and regulations include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund TransfersTransfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages and the loss of certain contractual rights.28SavingsLoan Holding Company Regulation The Company is a unitary savings and loan holding company subject to regulatory oversight Riverview as sole shareholder of the Federal Reserve. Accordingly, the CompanyBank, is required to register and file reports with the Federal Reserve and is subject to regulation and examination by the Federal Reserve. In addition, the Federal Reserve has enforcement authority over the Company and its non-savings institution subsidiaries, which also permits the Federal Reserve to restrict or prohibit activities that are determined to present a serious risk to the subsidiary savings institution. In accordance with the Dodd-Frank Act, the Federal Reserve must require any company that controls an FDIC-insured depository institution to serve as a source of financial strength for the institution. These and other Federal Reserve policies, as well as the capital conservatism buffer requirement, may restrict the Company’s ability to pay dividends.Capital Requirements. For a savings and loan holding company that qualifies as a small bank holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, such as the Company, the capital regulations apply to its savings institution subsidiaries, but not the Company. The Federal Reserve expects the holding company’s savings institution subsidiaries to be well capitalized under the prompt corrective action regulations. At March 31, 2020, the Company exceeded all regulatory capital requirements. See “Federal Regulation of Savings Institutions- Capital Requirements” above.Activities Restrictions. The GLBA provides that no company may acquire control of a savings association after May 4, 1999 unless it engages only in the financial activities permitted for financial holding companies under the law or for multiple savings and loan holding companies. Further, the GLBA specifies that, subject to a grandfather provision, existing savings and loan holding companies may only engage in such activities. The Company qualifies for grandfathering and is therefore not restricted in terms of its activities. Upon any non-supervisory acquisition by the Company of another savings association as a separate subsidiary, the Company would become a multiple savings and loan holding company and would be limited to activities permitted by Federal Reserve regulation.Mergers and Acquisitions. The Company must obtain approval from the Federal Reserve before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets. In evaluating an application for the Company to acquire control of a savings institution, the Federal Reserve would consider the financial and managerial resources and future prospects of the Company and the target institution, the effect of the acquisition on the risk to the DIF, the convenience and the needs of the community, including performance under the CRA and competitive factors.The Federal Reserve may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions; (i) supervisory acquisitions and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.Acquisition of the Company. Any company, except a bank holding company that acquires control of a savings association or savings and loanregistered with the Federal Reserve. Bank holding company becomes a “savings and loan holding company”companies are subject to registration, examination andcomprehensive regulation by the Federal Reserve and must obtain the prior approval of the Federal Reserve under the Savings and Loan Holding Company Act before obtaining control of a savings association or savings and loan holding company. A bank holding company must obtain the prior approval of the Federal Reserve under the Bank Holding Company Act before obtaining control of 1956, as amended (“BHCA”), and the regulations of the Federal Reserve. Accordingly, Riverview is required to file semi-annual reports with the Federal Reserve and provide additional information as the Federal Reserve may require. The Federal Reserve may examine Riverview, and any of its subsidiaries, and charge Riverview for the cost of the examination. The Federal Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or more than 5% ofremoval orders and to require that a class of voting stock of, a savings association or savings and loan holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and remains subjectregulations and unsafe or unsound practices. Riverview, as a public company, is also required to regulation underfile certain reports and otherwise comply with the rules and regulations of the SEC. See “Federal Securities Laws” below.term “company” includes corporations, partnerships, associations, and certain trusts and other entities. “Control” ofFederal Reserve has a savings association or savings and loanpolicy that a bank holding company is deemedrequired to exist ifserve as a source of financial and managerial strength to its subsidiary bank and may not conduct its operations in an unsafe or unsound manner. In addition, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank holding company has voting control, directlyshould serve as a source of strength to its subsidiary bank by having the ability to provide financial assistance to its subsidiary bank during periods of financial distress to the bank. A bank holding company’s failure to meet its obligation to serve as a source of strength to its subsidiary bank will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or indirectly, of more than 25% of any classa violation of the savings association’s voting stockFederal Reserve’s regulations or controls inboth. No regulations have yet been proposed by the Federal Reserve to implement the source of strength provisions required by the Dodd-Frank Act. Riverview and any mannersubsidiaries that it may control are considered “affiliates” within the election of a majoritymeaning of the directorsFederal Reserve Act, and transactions between the Bank and affiliates are subject to numerous restrictions. With some exceptions, Riverview and itssavings associationprovision of various services, such as extensions of credit, to other services offered by Riverview or savings and loanby its affiliates.and may be presumed under other circumstances, including, but not limited to, holding inwith certain cases 10%exceptions, from acquiring ownership or more of a class of voting securities. In addition, a savings and loan holding company must obtain Federal Reserve approval prior to acquiring voting control of more than 5% of the voting shares of any classcompany that is not a bank or bank holding company and from engaging in activities other than those of voting stockbanking, managing or controlling banks, or providing services for its subsidiaries. Under the BHCA, the Federal Reserve may approve the ownership of another savings association or another savings association holding company. A similar provision limiting the acquisitionshares by a bank holding company of 5% or more of a class of voting stock ofin any company, is included in the Bank Holding Company Act.29Accordingly, the prior approvalactivities of which the Federal Reserve wouldhas determined to be required:before anyso closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. These activities include: operating a savings and loan holdinginstitution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers’ checks and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers. The Federal Reserve must approve the acquisition (or acquisition of control) of a bank or other FDIC-insured depository institution by a bank holding company, couldand the appropriate federal banking regulator must approve a bank’s acquisition (or acquisition of control) of another bank or other FDIC-insured institution.5%“control” of a bank holding company. An acquisition of control can occur upon the acquisition of 10% or more of the commonvoting stock of a bank holding company or as otherwise defined by federal regulations. In considering such a notice or application, the Company;Federal Reserve takes into consideration certain factors, including the financial andbefore any other company could acquire 25% or more managerial resources of the common stockacquirer and the anti-trust effects of the Companyacquisition. Any company that acquires control becomes subject to regulation as a bank holding company. Depending on circumstances, a notice or application may be required to be filed with appropriate state banking regulators and may be required for an acquisition of as little as 10% of such stock.In addition, persons that are notsubject to their approval or non-objection.arewith less than $3 billion in consolidated assets were generally no longer subject to the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. At the time of this change, Riverview was considered “well capitalized” as defined for a bank holding company with a total risk-based capital ratio of 10.0% or similar definitionsmore and a Tier 1 risk-based capital ratio of control with respect8.0% or more, and was not subject to savings and loan holding companies and savings associations and requirements for prior regulatory approval byan individualized order, directive or agreement under which the Federal Reserve in the case of control ofrequires it to maintain a savings and loan holding company or by the OCC in the case of control of a savings association not obtained through control of a holding company of such savings association.Dividends and Stock Repurchases.specific capital level.Reserve’sReservehas issued a policy statement on the payment of cash dividends applicable to savings and loanby bank holding companies which expresses its view that a savings and loanbank holding company must maintain an adequate capital position and generally should not pay cash dividends unless the company’s net income for the past year is sufficient to fully fund the cash dividends and that the prospective rate of earnings appears consistent with the company’s capital needs, asset quality, and overall financial condition. The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. In addition, a savingsUnder Washington corporate law, Riverview generally may not pay dividends if after that payment it would not be able to pay its liabilities as they become due in the usual course of business, or its total assets would be less than its total liabilities. The capital conservation buffer requirement may also limit or preclude dividends payable by the Company. For additional information, see Item 1.A. “Risk Factors – Risks Related to Regulatory and loanCompliance Matters – Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions” in this report. The capital conservation buffer requirement may also limit or preclude dividends payable by the Company.Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act was enacted in 2002 in response to public concerns regarding corporate accountability in connection with accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reportsincluding the Company.Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules, and requires the SEC and securities exchangesCompany is subject to adopt extensive additional disclosures, corporate governance and related rules. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank-Act imposed newinformation, proxy solicitation, insider trading restrictions and an expanded framework of regulatory oversight for financial institutions, including capital regulations of depository institutions discussed above under “- Regulation and Supervision of the Bank - Capital Requirements.” In addition, among other requirements under the Dodd-Frank Act requires public companies, such as the Company, to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a “say on pay” vote every one, two or three years; (ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments; (iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer; and (iv) amend Item 402 of Regulation S-K to require companies to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees.
Exchange Act.30The COVID-19 pandemic has adversely affected our abilityconduct business and is expected to adversely impact our future financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the COVID-19 pandemic.The COVID-19 pandemic has significantly adversely affected our operations and the way we provide banking and financial services to businesses and individuals, most of whom are currently under varying levels of government issued stay-at-home orders. As an essential business, we continue to provide banking and financial services to our customers with drive-thru access available at the majority of our branch locations and in-person services available by appointment. In addition, we continue to provide access to banking and financial services through online banking, ATMs and by telephone. If the COVID-19 pandemic worsens, it could limit or disrupt our ability to provide banking and financial services to our customers.In response to the stay-at-home orders, approximately forty percent of our employees are currently working remotely to enable us to continue to provide banking services to our customers. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic. We also rely upon our third-party vendors to conduct business and to process, record and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. We have business continuity plans and other safeguards in place; however, there is no assurance that such plans and safeguards will be effective.There is uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the COVID-19 pandemic on credit quality, revenues and asset values. To date, the COVID-19 pandemic has resulted in declines in loan demand and loan originations (other than through government sponsored programs such as the PPP), deposit availability, and market interest rates and has negatively impacted many of our business and consumer borrowers’ ability to make their loan payments. Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences (including recent reductions in the targeted federal funds rate) are unknown, until the COVID-19 pandemic subsides, we expect our net interest income and net interest margin will be adversely affected. Many of our borrowers have become unemployed or may face unemployment, and certain businesses are at risk of insolvency as their revenues decline precipitously, especially in businesses related to travel, hospitality, leisure and physical personal services. Businesses may ultimately not reopen as there is a significant level of uncertainty regarding the level of economic activity that will return to our markets over time, the impact of governmental assistance, the speed of economic recovery, the resurgence of COVID-19 in subsequent seasons and changes to demographic and social norms that will take place.The impact of the COVID-19 pandemic is expected to continue to adversely affect us during 2020 and possibly longer as the ability of many of our customers to make loan payments has been significantly affected. Although the Company makes estimates of loan losses related to the COVID-19 pandemic as part of its evaluation of the allowance for loan losses, such estimates involve significant judgment and are made in the context of significant uncertainty as to the impact the COVID-19 pandemic will have on the credit quality of our loan portfolio. It is likely that loan delinquencies, adversely classified loans and loan charge-offs will increase in the future as a result of the COVID-19 pandemic. Consistent with guidance provided by banking regulators through an interagency statement and guidance under the CARES Act, we have modified loans by providing various loan payment deferral options to our borrowers affected by the COVID-19 pandemic. Notwithstanding these modifications, these borrowers may not be able to resume making full payments on their loans once the COVID-19 pandemic subsides. Any increases in the allowance for loan losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.31The PPP loans made by the Bank are guaranteed by the SBA and, if the loan funds are used by the borrower for specific purposes as provided under the PPP, may be fully or partially forgiven by the SBA at which time, the Bank will receive funds related to the PPP loan forgiveness directly from the SBA. However, in the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from the Bank. In addition, since the commencement of the PPP, several banks have been subject to litigation regarding their processing of PPP loan applications. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank seeking PPP loans. PPP lenders, including the Bank, may also be subject to the risk of litigation in connection with other aspects of the PPP, including but not limited to borrowers seeking forgiveness of their loans. If any such litigation is filed against the Bank, it may result in significant financial or reputational harm to us.Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the length of which is unknown and during which time the U.S. may experience a recession. As a result, we anticipate our business may be materially and adversely affected during this recovery. To the extent the effects of the COVID-19 pandemic adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described below and in any subsequently filed Quarterly Reports on Form 10-Q.materialmaterially adverse effect on our business, financial condition, results of operations and prospects. Weakness in the global economy hasand global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade and it is not known how changes in tariffs being imposed on international trade may also affect these businesses.trade. Changes in agreements or relationships between the U.S. and other countries may also affect these businesses. The COVID-19 pandemic has adversely impacted most of the Company's customers directly or indirectly. Their businesses have been adversely affected by quarantines and travel restrictions due to the COVID-19 pandemic. See “-The COVID-19 pandemic has adversely impacted our ability to conduct business and is expected to adversely impact our financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the COVID-19 pandemic.”Deterioration as a result of COVID-19 or other factors could result in the following consequences, any of which could have a materially adverse impact on our business, financial condition, liquidity and results of operations:loan delinquencies, problem assets and foreclosures may increase;we may increase our allowance for loan losses;the slowing of sales of foreclosed assets;● loan delinquencies, problem assets and foreclosures may increase; ● we may increase our allowance for loan losses; ● demand for our products and services may decline possibly resulting in a decrease in our total loans or assets; ● collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans; ● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and ● the amount of our low-cost or non-interest bearing deposits may decrease. total loans or assets;collateral for loans made may decline further in value, exposing us to increased risk loans, reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans;the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; andthe amount of our low-cost or non-interest bearing deposits may decrease. Many of the loans in our portfolio are secured by real estate. Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as earthquakes and tornadoes. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.32Adverse changes in the regionalgeneral economy could reducerising prices may affect our growth rate, impair our ability to collect loans and generally have a negative effect on our financial condition and results of operations.acquisition and development loans expose usmay be more difficult to risk. acquisition and development loans primarily to builders to finance the construction of single and multifamily homes, subdivisions, as well as commercial properties. We originate these loansproperties, a portion of which are originated whether or not the collateral property underlying2020,2023, real estate construction and land loans totaled $64.8$54.2 million, or 7.1%5.37% of our total loan portfolio, and was comprised of which $12.2$18.2 million were for residential real estate projects. Undisbursed funds forof speculative and presold construction projects totaled $24.0loans, $6.4 million at March 31, 2020. Land acquisitionof land loans and development loans, which are loans made with land as security, totaled $14.0$29.6 million or 1.5% of our total loan portfolio at March 31, 2020.involvesinvolve additional risks when compared with other lending because of the inherent difficulty in estimating a property'sproperty’s value both before and at completion of the project, as well as the estimated cost of the project and the time needed to sell the property at completion. Construction costs may exceed original estimates as a result of increased materials, labor or other costs. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. Changes in the demand, such as for new housing and higher than anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us and also have residential mortgage loans for rental properties with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.In addition,As a result, construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness, rather than the ability of the borrower or guarantor to repay principal and interest. If theour appraisal of the value of thea completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor.end-purchasers'end-purchasers’ borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction. Further,Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project, and thus pose a greater potential risk than construction loans to individuals on their personal residences. project.also be significantly impacted by supply and demand conditions.At March 31, 2020, As a result, this type of lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to develop, sell or lease the property, rather than the ability of the borrower or guarantor to independently repay principal and interest. There were no non-performing real estate construction and land acquisitionloans at March 31, 2023. A material increase in non-performing real estate construction and developmentland loans totaled $78.9 million comprised mainlycould have a material adverse effect on our financial condition and results of $12.0 million of speculative construction loans, $14.0 million of land acquisitionoperation.development loans, $52.6 million of commercial/multi-family construction loans and $207,000 of custom/presold construction loans.Our emphasis on commercial real estate lending may exposeinvolves higher risks than real estate one-to-four family and other consumer lending, which exposes us to increased lending risks.Our current business strategy is focused on the expansion oflending. This type of lending activity, while potentiallyis typically more profitable than single-family residentialreal estate one-to-four family lending, it is generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. Collateral evaluation and financial statement analysis in these types of loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis. Many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.332020,2023, we had $566.2$620.3 million of commercial and multi-family real estate mortgage loans, representing 61.12%61.49% of our total loan portfolio. TheseThe level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Based on these criteria, the Bank has a concentration in commercial real estate lending as total loans for multifamily, non-farm/non-residential, construction, land development and other land represented 358% of total risk-based capital at March 31, 2020. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.property.2020, $83.22023, $99.7 million, or 9.1%9.88% of our total loan portfolio, was secured byconsisted of real estate one-to-four family mortgage loans and home equity loans. Our first-lien real estate one-to-four family loans are primarily made based on the repayment ability of the borrower and the collateral securing these loans. Home equity lines of credit generally entail greater risk than do real estate one-to-four family loans where we are in the first-lien position. For those home equity lines secured by a second mortgage, it is less likely that we will be successful in recovering all of our loan proceeds in the event of default. Our foreclosure on these loans requires that the value of the property be sufficient to cover the repayment of the first mortgage loan, as well as the costs associated with foreclosure.decline in residential real estate values resulting from a downturn in the Washington and Oregoneconomy or the housing marketsmarket in which we operateour market areas or a rapid increase in interest rates may reduce the value of the real estate collateral securing these types of loans and increase ourthe risk of lossthat we would incur losses if borrowers default on their loans. Recessionary conditions or declines in the volume of real estate sales and/or the sales prices coupled with elevated unemployment rates may result in higher than expected loan delinquencies or problem assets, and a decline in demand for our products and services. These potential negative events may cause us to incur losses, adversely affect our capital and liquidity and damage our financial condition and business operations.Many of our one-to-four family loans and home equity lines of credit are secured by liens on mortgage properties. Residential loans with high combined loan-to-value ratios generally will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, theythe borrowers may be unable to repay their loans in full from the sale. Further, the majoritysale proceeds. As a result, these loans may experience higher rates of delinquencies, defaults and losses, which will in turn adversely affect our home equity linesfinancial condition and results of credit consist of second mortgage loans. For those home equity lines secured by a second34mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property.2020, we had $179.02023, commercial business loans totaled $232.9 million, or 19.6%23.08% of total loans, inloans. Our commercial business loans. Commercial lending involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. Our commercial loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The borrowers'borrowers’ cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. This collateral may consist of equipment, inventory, accounts receivable, or other business assets. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Other collateral securing loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the specific type of business and equipment. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which, in turn, is often dependent in part upon general economic conditions and secondarily on the underlying collateral provided by the borrower.● the cash flow of the borrower and/or the project being financed; ● in the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral; ● the duration of the loan; in the case of a collateralized loan, the changes and uncertainties as to the future value of the collateral;the duration of the loan;the credit history of a particular borrower; andchanges in economic and industry conditions.● the credit history of a particular borrower; and ● changes in economic and industry conditions. our general reserve, based on our historical default and loss experience and certain macroeconomic factors based on management’s expectations of future events;our specific reserve, based on our evaluation of impaired loans and their underlying collateral or discounted cash flow; andan unallocated reserve to provide for other credit losses inherent in our loan portfolio that may not have been contemplated in the other loss factors.● our general reserve, based on our historical default and loss experience and certain macroeconomic factors based on management’s expectations of future events; ● our specific reserve, based on our evaluation of impaired loans and their underlying collateral or discounted cash flow; and ● an unallocated reserve to provide for other credit losses inherent in our loan portfolio that may not have been contemplated in the other loss factors. 35The Financial Accounting Standards Board Further, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs based on their judgment about information available to them at the time of their examination.a newan accounting standard update (“ASU”) that will be effective for our first fiscal year beginning after December 15, 2022. This standard referred to as “CurrentCurrent Expected Credit Loss”,Loss, or “CECL”, will requireCECL, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses at inception of the loan.losses. This will change the current method of providing allowances for credit losses thatonly when they have been incurred and are probable, of having been incurred, which mayis expected to require us to increaseadjust our allowance for loan losses and may greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses. For moreThis accounting pronouncement is applicable to us effective April 1, 2023. As of the adoption and day one measurement date of April 1, 2023, the Company expects to record a one-time cumulative-effect adjustment to retained earnings, net of income taxes, on this ASU, seethe consolidated balance sheet. Also, as required by CECL, the Company reviewed the held-to-maturity debt securities portfolio and determined the expected losses were immaterial. The magnitude of the change in the Company’s allowance for credit losses at the adoption date will depend upon the nature and characteristics of the portfolio at the adoption date, as well as macroeconomic conditions and forecasts at that time, other management judgements, and continued refinement and validation of the model and methodologies. See also, Note 1 of the Notes to Consolidated Financial Statements - Recently Issued Accounting Pronouncements contained in Item 8 of this report. In addition,The federal banking regulators, including the Federal Reserve and the FDIC, have adopted a further declinerule that gives a banking organization the option to phase in national and local economic conditions, including asover a resultthree- year period the day-one adverse effects of the COVID-19 pandemic, results of the bankCECL on its regulatory agencies’ periodic review of our allowance for loan losses or other factors may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs. If charge-offs in future periods exceed the allowance for loan losses, we may need additional provisions to replenish the allowance for loan losses. capital.allowanceprovision for loan losses will result in a decrease in net income and most likely, capital, and may have a material negative effect on our financial condition and results of operations.Uncertainty relating to the London Interbank Offered Rate ("LIBOR") calculation process and potential phasing out of LIBOR may adversely affect our results of operations.On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally. The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, selected a new index (the Secured Overnight Financing Rate or "SOFR") to replace LIBOR. SOFR is calculated as a volume-weighted median of transaction level data from the Bank of New York Mellon, Global Collateral Finance Repo and bilateral Treasury repo transactions cleared through the Fixed Income Clearing Corporation. SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question, although some transactions using SOFR have been completed including by Fannie Mae. Both Fannie Mae and Freddie Mac have recently announced that they will cease accepting adjustable rate mortgages tied to LIBOR by the end of 2020 and will soon begin accepting mortgages based on SOFR. Continued uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures and trust preferred securities. If LIBOR rates are no longer available, and we are required to implement substitute indices for the calculation of interest rates under our loan agreements with our borrowers or our existing borrowings, we may incur significant expenses in effecting the transition, and may be subject to disputes or litigation with customers and creditors over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.If our investments in real estate are not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property is taken in as REO and at certain other times during the assets’ holding periods. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value. If our valuation process is incorrect, or if property values decline, the fair value of the investments in real estate may not be sufficient to recover our carrying value in such assets, resulting in the need for additional write-downs. Significant write-downs to our investments in real estate could have a material adverse effect on our financial condition, liquidity and results of operations.36In addition, bank regulators periodically review our REO and may require us to recognize further write-downs. Any increase in our write-downs, as required by the bank regulators, may have a material adverse effect on our financial condition, results of operations, liquidity and results of operations.Our securities portfolio may be negatively impacted by fluctuations in market valuecapital.interest rates.Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income (loss) and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Our securities portfolio is evaluated for OTTI. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur.Interest Rate Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value and therefore are impacted by fluctuations in interest rates. We increase or decrease our shareholders' equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes. There can be no assurance that declines in market value, including as a result of the COVID-19 pandemic, will not result in OTTI of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.domestic and internationalgeneral economic conditions and policies of various governmental and regulatory agencies, and, in particular, the Federal Reserve. After steadily increasingSince March 2022, in response to inflation, the target federal funds rate in 2018 and 2017,Federal Open Market Committee (“FOMC”) of the Federal Reserve in 2019 decreasedhas increased the target range for the federal funds rate by 75475 basis points, and in responseincluding 50 basis points during the first quarter of 2023, to a range of 4.75% to 5.00% as of March 31, 2023. In May 2023, the COVID-19 pandemic in March 2020, decreasedFOMC increased the target range for the federal funds rate by an additional 150another 25 basis0.0%5.00% to 0.25% as of March 31, 2020. The Federal Reserve could make additional changes in interest rates during 2020 subject to economic conditions.5.25%. If the Federal ReserveFOMC further increases the targettargeted federal funds rate,rates, overall interest rates will likely continue to rise, which will positively impact our net interest income but may negatively impact the housing marketsmarket by reducing refinancing activity, new home purchases and the U.S. economic recovery.economy. In addition, deflationaryas previously discussed, inflationary pressures while possibly loweringwill increase our operatingoperational costs and could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans which could negatively affect our financial performance.Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but also can affect: (1) our ability to originate and/or sell loans; (2) the fair value of our financial assets and liabilities, which could negatively impact shareholders’ equity, and our ability to realize gains from the sale of such assets; (3) our ability to obtain and retain deposits in competition with other available investment alternatives; (4) the ability of our borrowers to repay adjustable or variable rate loans; and (5) the average duration of our investment securities portfolio and other interest-earning assets.37resultingresulted in our having a significant amount of these deposits which have a shorter duration than our assets. At March 31, 2020,2023, we had $271.0$404.9 million in non-interest bearing demand deposits and $74.1$84.6 million in certificates of deposit that mature within one year. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans. In addition, a substantial amount of our home equity lines of credit have adjustable interest rates. As a result, these loans may experience a higher rate of default in a rising interest rate environment. our interest-earning assets and in particular our securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported as a separate component of stockholders’ equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.In this regard, because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including the recent 150 basis point reductions in the targeted federal funds rate, until the COVID-19 pandemic subsides, the Company expects its net interest income and net interest margin will be adversely affected in fiscal 2021 and possibly longer. See Item 7A., “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-K.Ineffective liquidity management could adversely affect our financial results and condition.Effective liquidity management is essential to our business. require sufficient liquidity to meet customer loan requests, customer deposit maturities and withdrawals, paymentsmay incur losses on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress. An inability to raise funds through deposits, borrowings, the sale of loans or investment securities or other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activityportfolio as a result of a downturnchanges in interest rates.Washington capital markets. Any of these factors, among others, could cause other-than-temporary impairments and realized and/or Oregon marketsunrealized losses in which our loans are concentrated, negative operating results, or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruptionfuture periods and declines in the financial markets or negative views and expectations about the prospects for the financial services industry and the continued uncertainty in credit markets. In particular, our liquidity position could be significantly constrained if we are unable to access funds from the FHLB, the Federal Reserve Bank of San Francisco or other wholesale funding sources, or if adequate financing is not available at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources, our revenues may not increase proportionately to cover our costs. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any ofcomprehensive income, which could in turn, have a material adverse effect on our business, financial condition and results of operations.Additionally, collateralized public funds are bank deposits The process for determining whether impairment of statea security is other-than-temporary usually requires complex, subjective judgments about the future financial performance and local municipalities. These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral. Although these funds historically have been a relatively stable sourceissuer and any collateral underlying the security to assess the probability of funds for us, availability dependsreceiving all contractual principal and interest payments on the individual municipality'ssecurity. There can be no assurance that the declines in market value will not result in other-than-temporary impairments of these assets, and would lead to accounting charges that could have a material adverse effect on our net income and capital levels. For the fiscal policies and cash flow needs.38mortgage banking operationsbroker loan fees is sensitive to changes in economic conditions, decreased economic activity, a slowdown in the housing market, higher interest rates or new legislation which may adversely impact our financial condition and results of operationsbankingbrokerage operations provide a significant portion of ouradditional non-interest income. We generate mortgage revenues primarily from gains on the sales of single-familyThe Company employs commissioned brokers who originate mortgage loans pursuant(including construction loans) for various mortgage companies. The loans brokered to programs currently offeredmortgage companies are closed in the name of, and funded by, FNMA, FHLMC, GNMAthe purchasing mortgage company and non-government sponsored entities. These entities account for a substantial portionare not originated as an asset of the secondary market in residential mortgage loans. Any future changes in these programs, our eligibilityCompany. In return, the Company receives a fee ranging from 1.5% to participate in such programs,2.0% of the criteria for loans to be accepted or lawsloan amount that significantly affectit shares with the activity of such entities could, in turn, materially adversely affect our results of operations. Mortgage banking is generally considered a volatile source of income because it depends largely on the level of loan volume which, in turn, depends largely oncommissioned broker. The prevailing market interest rates. In a rising or higher interest rate environment has a strong influence on the loan volume and amount of fees generated from our originationsmortgage brokerage activity. In general, during periods of mortgagerising interest rates, the volume of loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues and a corresponding decrease in non-interest income. In addition, our results of operations are affected by the amount of brokered loan fees included in non-interest expense associated withincome generally decrease as a result of slower mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. Duringloan demand. Conversely, during periods of reduced loan demand, our resultsfalling interest rates, the volume of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. In addition, although we sell loans into the secondary market without recourse, we are required to give customary representations and warranties about the loans to the buyers. If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incurthe amount of brokered loan fees generally increase as a loss on the repurchase.The required accounting treatment of loans we acquire through acquisitions could result in higher net interest margins and interest income in current periods and lower net interest margins and interest income in future periods.Under GAAP, we are required to record loans acquired through acquisitions, including purchase credit-impaired loans, at fair value. Estimating the fair value of such loans requires management to make estimates based on available information and facts and circumstances on the acquisition date. Actual performance could differ from management’s initial estimates. If these loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of the increased mortgage loan (the “discount”) is accreted into net interest income. Thus, our net interest margins may initially increase due to the discount accretion. We expect the yields on our loans to decline as our acquired loan portfolio pays down or matures and the discount decreases, and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income in current periods and lower net interest margins and lower interest income in future periods.Our branching strategycause our expensessubject us to increase faster than revenues.Company previously announced plansFDIC, the Federal Reserve and the OCC have promulgated joint guidance on sound risk management practices for three new branches locatedfinancial institutions with concentrations in Clark County, Washington,commercial real estate lending. Under this guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to complement its existing branch network.identify concentrations. A new branchfinancial institution may have a concentration in downtown Camascommercial real estate lending if, among other factors (i) total reported loans for construction, land development, and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Based on these criteria, the Bank determined that it did not have a concentration in commercial real estate lending as total loans for multifamily, non-farm/non-residential, construction, land development and other land represented 285% of total risk-based capital at March 31, 2023. The particular focus of the guidance is scheduledon exposure to open this summer while our new locationcommercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the Cascade Park neighborhoodcommercial real estate market (as opposed to real estate collateral held as a secondary source of Vancouver is scheduled to open later this fall. A construction delay due to COVID-19 pandemic has pushed the openingrepayment or as an abundance of caution). The purpose of the new branch locationguidance is to guide banks in Ridgefielddeveloping risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.While we believe we have implemented policies and procedures with respect to early 2021. The success of our expansion strategy is contingent upon numerous factors, such as our ability to secure managerial resources, hire and retain qualified personnel and implement effective marketing strategies. The opening of new branches may not increase the volume of our loans and deposits as quickly or to the degree that we hope and opening new branches will increase our operating expenses. On average, de novo branches do not become profitable until three to four years after opening. Further, the projected timeline and the estimated dollar amounts involved in opening de novo branchescommercial real estate loan portfolio consistent with this guidance, bank regulators could differ significantly from actual results. We may not successfully manage the costs and implementation risks associated with our branching strategy. Accordingly, any new branch may negatively impact our earnings for some period of time until the branch reaches certain economies of scale. Finally, there is a risk that our new branches will not be successful even after they have been established.39Our growth or future losses may require us to raiseimplement additional capital inpolicies and procedures consistent with their interpretation of the future, butguidance that capital may not be available when it is needed or the cost of that capital may be very high.We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we cannot make assurances that we will be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, any additional capital we obtain may result in the dilutionadditional costs to us.We may experience future goodwill impairment, which could reduce our earnings.In accordance with GAAP, we record assets acquired and liabilities assumed in a business combination at their fair values with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill. As a result, business combinations typically result in recording goodwill. We perform a goodwill evaluation at least annually to test for goodwill impairment. We performed our annual goodwill impairment test as of October 31, 2019, and no impairment was identified. Our assessment of the fair value of goodwill is based on an evaluation of current purchase transactions, discounted cash flows from forecasted earnings, our current market capitalization, and a valuation of our assets. Our evaluation of the fair value of goodwill involves a substantial amount of judgment. If our judgment was incorrect and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill resulting in a charge to earnings, which could adversely affect our results of operations, perhaps materially; however, it would have no impact on our liquidity, operations or regulatory capital. As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company completed a qualitative assessment of goodwill as of March 31, 2020 and concluded that it is more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at March 31, 2020. If adverse economic conditions or the recent decrease in the Company’s common stock price and market capitalization as a result of the COVID-19 pandemic were sustained in the future rather than temporary, it may significantly affect the fair value of the reporting unit and may trigger future goodwill impairment charges. Any such impairment charge could have a material adverse effect on our operating results and financial condition.institution'sinstitution’s allowance for loan losses. These bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions. The significant federal and state banking regulations that affect us are described under the heading “Item 1. Business-Regulation” in Item I of this Form 10-K. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time. Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator’s interpretation of a law or regulation, may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations. Additionally, actions by regulatory agencies or significant litigation against us may lead to penalties that materially affect us. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent registered public accounting firm. These accounting changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.40 If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions and limit our ability to get regulatory approval of acquisitions. Recently, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a materialmaterially adverse effect on our business, financial condition, results of operations and growth prospects.Competitionfinancial institutions could adversely affectrelated controls, will effectively mitigate risk under all circumstances, or that it will adequately mitigate any risk or loss to us. However, as with any risk management framework, there are inherent limitations to our profitability.Although we consider ourselves competitive in our market areas, we face intense competition in both making loans and attracting deposits. Price competition for loans and deposits might result in our earning less on our loans and paying more on our deposits, which reduces net interest income. Some of the institutions with which we compete have substantially greater resources than we have andrisk management strategies as they may offer services that we do not provide. We expect competition to increaseexist, or develop in the future, asincluding risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially adversely affected. We may also be subject to potentially adverse regulatory consequences.of legislative, regulatorythe global business community has increased its political and technological changessocial awareness surrounding the issue, and the continuing trendUnited States has entered into international agreements in an attempt to reduce global temperatures, such as reentering the Paris Agreement. Further,services industry. Our profitability will depend uponrisks posed by climate change render it difficult, or even impossible, to predict how specifically climate change may impact our continued ability to compete successfullyfinancial condition and results of operations; however, the physical effects of climate change may also directly impact us. Specifically, unpredictable and more frequent weather disasters may adversely impact the real property, and/or the value of the real property, securing the loans in our market areas.customers'customers’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. We could also suffer significant reputational damage.41materialmaterially adverse effect on our financial condition and results of operations.42We rely on other companies to provide key components of our business infrastructure.We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations. We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us. Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate to third parties. Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject. These risks include, among others, liquidity, credit, market, interest rate, operational, legal and compliance, and reputational risk. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. We also maintain a compliance program to identify, measure, assess, and report on our adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate risk under all circumstances, or that it will adequately mitigate any risk or loss to us. However, as with any risk management framework, there are inherent limitations to our risk management strategies as they may exist, or develop in the future, including risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially adversely affected. We may also be subject to potentially adverse regulatory consequences.43Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Nationally, reported incidents of fraud and other financial crimes have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.We are anseparatefrom its subsidiaries and distinct from our principal subsidiary,does not have significant operations of its own. The long-term ability of Riverview to pay dividends to its stockholders and debt payments is based primarily upon the ability of the Bank to make capital distributions to Riverview, and derive substantially allalso on the availability of our revenuecash at the holding company level in the formlevel. The availability of dividends from that subsidiary. Accordingly, we are, and will be, dependent upon dividends from the Bank to payis limited by the principal ofBank’s earnings and interest on our indebtedness, to satisfy our other cash needscapital, as well as various statutes and to pay dividends on our common stock. The Bank's ability to pay dividends is subject to its ability to earn net income and to meet certain regulatory requirements.regulations. In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock.stock or make payments on our outstanding debt. Consequently, the inability to receive dividends from the Bank could adversely affect our financial condition, results of operations, and future prospects. Also, our right to participate in a distribution of assets upon a subsidiary'ssubsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary'ssubsidiary’s creditors.442020,2023, the Bank had 10ten offices located in Clark County, Washington (five(four of which are leased), two offices in Klickitat County, Washington and one office in Skamania County, Washington. The Bank also has threetwo offices in Multnomah County, Oregon, one leased office in Washington County, Oregon and one office in Marion County, Oregon. In addition, at March 31, 2020,2023, the Trust Company had one office as part of the executive offices leased and one leased office in Clackamas County, Oregon. In the opinion of management, all properties are adequately covered by insurance, are in a good state of repair and are appropriately designed for their present and future use.45Company'sCompany’s common stock is traded on the Nasdaq Global Market under the symbol “RVSB.” At March 31, 2020, the number of shares of Company common stock issued and outstandingJune 14, 2023, there were 22,748,385 and 22,544,285, respectively, 565554 stockholders of record and an estimated 2,9132,999 holders in nominee or “street name”.Stock RepurchaseThe Company may repurchase shares through various brokerage firms.its common stock from time-to-time in open market transactions. The timing, volumeEquity Securities by the Issuer and price of purchases are made at our discretion and are also contingent upon our overall financial condition, as well as general market conditions.February 27, 2020,November 17, 2022, the Company announced that its Board of Directors adoptedauthorized a stock repurchase program.program (the “November 2022 repurchase program”). Under the November 2022 repurchase program, the Company maywas authorized to repurchase up to 500,000 shares$2.5 million of the Company’s outstanding shares of common stock, in the open market based on prevailing market prices, or in privateprivately negotiated transactions, over a period beginning March 12, 2020on November 28, 2022 and continuing until the earlier of the completion of the repurchaseauthorized level of repurchases or the next six months,May 28, 2023, depending onupon market conditions. As of March 31, 2020,2023, the Company had repurchased 204,100285,172 shares, underor $1.9 million, of the stock repurchase program at an average price of $4.94 per share. As of April 17, 2020, the Company had repurchased the remaining 295,900Company’s outstanding shares at an average price of $4.85$6.74 per share. Shares repurchased under the November 2022 repurchase program are retired as settled.Company didactual timing, number and value of shares repurchased under the November 2022 repurchase program will depend on a number of factors, including constraints specified in any Rule 10b5-1 plan, price, general business and market conditions, and alternative investment opportunities. The share repurchase program does not repurchaseobligate us to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued by our Board of its common stock during the years ended March 31, 2019 or 2018.fourth quarter of the yearthree months ended March 31, 2020:Period March 12, 2020 500,000 March 12, 2020 – March 31, 2020 204,100 $ 4.94 204,100 295,900 Total 204,100 4.94 204,100 Securities for 2023:PlansPlease refer toPlan Informationinof this Form 10-K for a listing of securities authorized for issuance under equity compensation plans.Five-Year Stock Performance GraphThe following graph compares the cumulative total shareholder return on our common stock with the cumulative total return on the Standard & Poor's 500 Stock Index and The NASDAQ Bank Index. The graph assumes that total return includes the reinvestment of all dividends and that the value of the investment in Riverview’s common stock and each index was $100 on March 31, 2015, and is the base amount used in the graph. The closing price of Riverview’s common stock on March 31, 2020 was $5.01.46 3/31/15* 3/31/16 3/31/17 3/31/18 3/31/19 3/31/20 Riverview Bancorp, Inc. 100.00 94.47 163.25 215.79 171.74 120.47 S & P 500 100.00 101.78 119.26 135.95 148.86 138.47 NASDAQ Bank 100.00 100.81 143.18 159.22 140.44 99.82 *$100 invested on 3/31/15 in stock or index-including reinvestment of dividends.Copyright © 2020, Standard & Poor's, a division of S&P Global. All rights reserved.www.researchdatagroup.com/S&P.htm47The following condensed consolidated statements of operations and financial condition and selected performance ratios as of March 31, 2020, 2019, 2018, 2017 and 2016 and for the years then ended have been derived from the Company’s audited Consolidated Financial Statements. The information below is qualified in its entirety by the detailed information included elsewhere herein and should be read along with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial Statements and Supplementary Data” included in this Form 10-K. At March 31, 2020 2019 2018 2017 2016 (In thousands) FINANCIAL CONDITION DATA: Total assets $ 1,180,808 $ 1,156,921 $ 1,151,535 $ 1,133,939 $ 921,229 Loans receivable, net 898,885 864,659 800,610 768,904 614,934 Loans held for sale 275 909 210 478 503 Investment securities available for sale 148,291 178,226 213,221 200,214 150,690 Investment securities held to maturity 28 35 42 64 75 Cash and cash equivalents 41,968 22,950 44,767 64,613 55,400 Deposits 990,448 925,068 995,691 980,058 779,803 Shareholders’ equity 148,843 133,122 116,901 111,264 108,273 Years Ended March 31, 2020 2019 2018 2017 2016 (Dollars in thousands, except per share data) OPERATING DATA: Interest and dividend income $ 50,495 $ 49,869 $ 45,314 $ 36,054 $ 31,374 Interest expense 4,764 2,815 2,349 1,869 1,742 Net interest income 45,731 47,054 42,965 34,185 29,632 Provision for (recapture of) loan losses 1,250 50 - - (1,150 ) Net interest income after provision for (recapture of) loan losses 44,481 47,004 42,965 34,185 30,782 Gains from sales of loans, securities and real estate owned 282 326 722 493 338 Other non-interest income 12,078 10,781 9,928 9,094 8,611 Non-interest expense 36,263 35,699 35,618 32,981 29,947 Income before income taxes 20,578 22,412 17,997 10,791 9,784 Provision for income taxes 4,830 5,146 7,755 3,387 3,426 Net income $ 15,748 $ 17,266 $ 10,242 $ 7,404 $ 6,358 Earnings per share: Basic $ 0.70 $ 0.76 $ 0.45 $ 0.33 $ 0.28 Diluted 0.69 0.76 0.45 0.33 0.28 Dividends per share 0.19000 0.15000 0.10500 0.08000 0.06500 48 At or For the Years Ended March 31, 2020 2019 2018 2017 2016 KEY FINANCIAL RATIOS: Performance Ratios: Return on average assets 1.35 % 1.51 % 0.90 % 0.76 % 0.72 % Return on average equity 10.96 13.86 8.78 6.66 5.93 27.54 19.74 23.33 24.24 23.21 Interest rate spread 4.04 4.32 4.02 3.76 3.65 Net interest margin 4.26 4.45 4.12 3.83 3.72 Non-interest expense to average assets 3.11 3.13 3.15 3.38 3.39 62.42 61.38 66.43 75.35 77.62 Average equity to average assets 12.32 10.92 10.30 11.39 12.14 Asset Quality Ratios: 1.38 1.31 1.33 1.35 1.58 904.95 754.25 445.24 382.98 364.22 0.01 (0.08 ) (0.03 ) (0.10 ) (0.05 ) 0.12 0.13 0.24 0.27 0.36 0.15 0.17 0.30 0.35 0.43 Total capital to risk-weighted assets 17.01 16.88 15.41 14.06 16.07 Tier 1 capital to risk-weighted assets 15.76 15.63 14.16 12.81 14.81 Common equity tier 1 capital to risk-weighted assets 15.76 15.63 14.16 12.81 14.81 Leverage ratio 11.79 11.56 10.26 10.21 11.18 (1)Dividends per share divided by diluted earnings per share.(2)Non-interest expense divided by the sum of net interest income and non-interest income.49 This section contains certaininformation determined by methods other thanstatements in accordance with GAAP. These measures include net interest income onIn doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a fully tax equivalent basissignificant level of uncertainty at the time the estimate was made, and net interest margin on a fully tax equivalent basis. Management uses these non-GAAP measures in its analysis of the Company’s performance. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes that it is a standard practicechanges in the banking industryestimate that are reasonably likely to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believesoccur from period to period, or use of different estimates that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to bewe reasonably could have used in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.Recent Developments Related to COVID-19In response to the current global situation surrounding the novel coronavirusperiod, would have a material impact on our financial condition or results of 2019 (“COVID-19”) pandemic, the Company is offering a variety of relief options designed to supportoperations. Accordingly, actual results could differ materially from our customersestimates. We base our estimates on past experience and the communitiesother assumptions that we serve.Paycheck Protection Program ("PPP") Participation – The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was signed into law on March 27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loansbelieve are reasonable under the PPP, a new loan program. The goal of the PPP is to avoid as many layoffs as possiblecircumstances, and to encourage small businesses to maintain payrolls. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020. Under terms of the PPP, all PPP loans have: (a)we evaluate these estimates on an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of loan funding. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA so long as employee and compensation levels of the borrower’s business are maintained and 75% of the loan proceeds are used for payroll expenses,ongoing basis. We have reviewed our critical accounting estimates with the remaining 25% of the loan proceeds used for other qualifying expenses. The Company has accepted more than 700 applications for PPP loans, consisting primarily of existing customers who are small to midsize businesses as well as independent contractors, sole proprietors and partnerships and non-for-profits as allowed under the PPP guidance.As of May 31, 2020, we have funded 781 PPP loans for a total of $116.2 million, with an average loan amount of $150,000. Another $12,000 in PPP loans have been approved and are in the application pipeline process as of May 31, 2020. In addition to the 1% interest earned on these loans, the SBA pays us fees for processing PPP loans in the following amounts: (i) five percent for loans of not more than $350,000; (ii) three percent for loans of more than $350,000 and less than $2,000,000; and one percent for loans of at least $2,000,000. We may not collect any fees from the loan applicants.We may utilize the FRB's Paycheck Protection Program Liquidity Facility (“PPPLF”), pursuant to which the Company will pledge its PPP loans at face value as collateral to obtain FRB non-recourse borrowings. The Company will also assist our customers with accessing other borrowing options as they become available such as other government sponsored lending programs, as appropriate.Allowance for Loan Losses and Loan Modifications – The Company recorded a provision for loan losses of $1.3 million for the fiscal year 2020, compared to $50,000 in fiscal 2019 due primarily to deterioration in economic conditions related to COVID-19.As of May 31, 2020, the Bank’s loan portfolio exposures to industries most affected by the COVID-19 pandemic were as follows (dollars in thousands): Balance Hotel/Motel $ 108,055 10.7 % 53.2 % 1.94 Retail strip centers 79,925 7.9 51.5 1.66 Gas station/auto repair 41,712 4.1 51.8 2.70 Restaurant/fast food 14,867 1.5 57.3 1.45 50We have received, and continue to receive, inquiries and requests from borrowers for some type of payment relief due to the COVID-19 pandemic although the number of new requests have recently slowed. These modifications were not classified as TDRs in accordance with the guidance of the CARES Act and subsequent bank regulatory guidance. The Company has made available the following short-term relief option to all borrowers affected by COVID-19:Interest only payments for up to 90 days;Full payment deferrals for up to 90 days upon request with an extension for another 90 days upon submission of specified documentation and recovery plans;Loan re-amortization, especially in cases where significant prepayments of principal have occurred and to provide for continuing payment reduction at the end of the 180-day deferment period;Covenant waivers and resets; andExtension of up to six months on loans maturing prior to December 31, 2020.All loans modified due to COVID-19 will be separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.As of March 31, 2020, the Company had approved payment deferrals for ten commercial loans that were impacted by the COVID-19 pandemic totaling $36.2 million which consisted of deferral of regularly scheduled principal and interest payments. As of March 31, 2020, the Bank had not received any requests for payment deferrals for consumer loans. As of May 31, 2020, the Bank had approved payment deferrals for 91 commercial loans that were impacted by the COVID-19 pandemic totaling $145.8 million. In general, the payment deferral period for these loans was 90 days. Depending on economic conditions, extensions to the initial payment deferral periods may be necessary. The Bank has received an additional 13 commercial loan modification requests totaling $25.3 million that are in the process of being completed. In addition, as of May 31, 2020, 42 consumer and mortgage loans totaling $10.1 million were approved for payment deferrals. Furthermore, 20 mortgage loans serviced for FHLMC totaling $3.4 million were approved for payment deferrals.The primary method of relief granted by the Company has been to allow the borrower to defer their loan payments for up to 90 days. After the deferral period, normal loan payments will continue, however, payments will be applied first to interest until the deferred interest is repaid and thereafter applied to both principal and interest with any deficiency in amortized principal payments added to the balloon payment due at maturity. We believe the steps we are taking are necessary to effectively manage our portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.Branch Operations and Additional Customer Support – We have taken various steps to ensure the safetyaudit committee of our customers and our personnel. ManyBoard of our employees are working remotely or have flexible work schedules, and we have established measures within our offices to help ensure the safety of those employees who must work on-site. The Family First Coronavirus Response Act also provides additional flexibility to our employees to help navigate their individual challenges.The COVID-19 pandemic has caused significant disruptions to our branch operations resulting in the implementation of various social distancing measures at the Company to address client and community needs, including branch lobby closures. To ensure the safety of our customers and employees, services are offered through drive up facilities, ATMs, online banking, our call center operations and/or by appointment.Critical Accounting PoliciesThe Company has established various accounting policies that govern the application of GAAP in the preparation of the Company’s Consolidated Financial Statements. Directors.judgments, estimatesthe significant level of judgement, estimation and assumptions inherent in those policies are critical to an understanding of the Company’s Consolidated Financial Statements.consolidated financial statements. These policies relateinclude our accounting policies related to the methodology for the determination of the allowance for loan losses, the valuation of investment securities and goodwill valuationvaluations. The following is a discussion of the critical accounting estimates involved with those accounting policies.calculationpotential for changes in the economic environment that could result in changes to the amount of income taxes.the recorded allowance for loan losses. The provision for loan losses reflects the amount required to maintain the allowance for loan losses at an appropriate level based upon management’s evaluation of the adequacy of general and specific loss reserves. Determining the amount of the allowance for loan losses involves a high degree of judgment. Among the material estimates required to establish the allowance for loan losses are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Based on the analysis of the allowance for loan losses, the amount of the allowance for loan losses is increased by the provision for loan losses and decreased by a recapture of loan losses and are charged against current period earnings.judgments,portfolio and terms of loans; experience, ability, and depth of lending management and staff; volume and severity of past due, classified and non-accrual loans as well as other loan modifications; quality of the Company’s loan review system; existence and effect of any concentrations of credit and changes in the level of such concentrations; changes in the value of underlying collateral; and other external factors. The specific component relates to loans that been evaluated for impairment because all contractual amounts of principal and interest will not be paid as scheduled. Based on this impairment analysis, a specific reserve may be established. An unallocated portion is established for uncertainties that may not be identified in either the general or specific component of the allowance for loan losses. The allowance for loan losses is based upon factors and trends identified by us at the time financial statements are prepared. Although we use the best information available, future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond our control. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance for loan losses are described in greater detailreasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. the Consolidated Financial Statements contained in Item 8 of this Form 10-K. In particular, Note 1 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” describes generally the Company’s accounting policies. Management believes that the judgments, estimates and assumptions used in the preparation of the Company’s Consolidated Financial Statements are appropriate given the factual circumstances at the time. However, given the sensitivity of the Company’s Consolidated Financial Statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition.51Operating StrategyFiscal year 2020 marked the 97th anniversary since the Bank began operations in 1923. The primary business strategy of the Company is to provide comprehensive banking and related financial services within its primary market area. The historical emphasis had previously been on residential real estate lending. Since 1998, however, the Company has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios. At March 31, 2020, commercial and construction loans represented 90.42% of total loans. Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter terms than residential lending which can increase the loan portfolio’s profitability.The Company’s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit balances, managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives:Execution of our Business Plan. The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction loans, and its core deposits by expanding its customer base throughout its primary market areas. By emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers. To build its core deposit base, the Company will continue to utilize additional product offerings, technology and a focus on customer service in working toward this goal. The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of individual branches, loan purchases and whole bank transactions that meet its investment and market objectives. In this regard, the Company previously announced plans for three new branches located in Clark County, Washington, to complement its existing branch network. A new branch in downtown Camas is scheduled to open this summer while our new location in the Cascade Park neighborhood of Vancouver is scheduled to open later this fall. A construction delay due to COVID-19 has pushed the opening of the new branch location in Ridgefield to early 2021.Maintaining Strong Asset Quality. The Company believes that strong asset quality is a key to long-term financial success. The Company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts, marketing saleable properties upon foreclosure or repossession, and through work-outs of classified assets and loan charge-offs. The Company’s approach to credit management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2020. Although the Company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, the Company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.Implementation of a Profit Improvement Plan (“PIP”). The Company’s PIP committee is comprised of several members of management and the Board of Directors to undertake several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the Company’s operations. The PIP committee’s mission is not only to find additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement. As a result, the Company has improved its efficiency ratio over the last several years from 98.0% at March 31, 2014 to 62.42% at March 31, 2020.Introduction of New Products and Services. The Company continuously reviews new products and services to provide its customers more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking. The products are tailored to meet the needs of small to medium size businesses and households in the markets we serve. The Company launched a new online mortgage origination platform in June 2019. The Company intends to selectively add other products to further diversify revenue sources and to capture more of each customer’s banking relationship by cross selling loan and deposit products and additional services, including services provided through the Trust Company to increase its fee income. Assets under management by the Trust Company totaled $1.2 billion and $646.0 million at March 31, 2020 and March 31, 2019, respectively. The Company also offers a third-party identity theft product to its customers. The identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service.52Attracting Core Deposits and Other Deposit Products. The Company offers personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate. To build its core deposit base, the Company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including FHLB and FRB advances. The Company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers’ needs. The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes. Core branch deposits increased $58.7 million at March 31, 2020 compared to March 31, 2019 reflecting the Company’s commitment to increasing core deposits versus relying on wholesale funding. However, the Company continues to experience increased competition and pricing pressure for deposits.Recruiting and Retaining Highly Competent Personnel with a Focus on Commercial Lending. The Company’s ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success. The Company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships. The Company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers. The goal is to compete with other financial service providers by relying on the strength of the Company’s customer service and relationship banking approach. The Company believes that one of its strengths is that its employees are also shareholders through the Company’s employee stock ownership (“ESOP”) and 401(k) plans.53Comparison of Financial Condition at March 31, 2020 and 2019Cash and cash equivalents, including interest-earning accounts, totaled $42.0 million at March 31, 2020 compared to $23.0 million at March 31, 2019. The increase in cash balances was primarily the result of the increase in deposits. The Company’s cash balances fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings. As a part of this strategy, the Company has the ability to invest a portion of its excess cash in short-term certificates of deposit held for investment. All of the certificates of deposit held for investment are fully insured by the FDIC. At March 31, 2020, certificates of deposits held for investment totaled $249,000 compared to $747,000 at March 31, 2019.Investment securities totaled $148.3 million and $178.3 million at March 31, 2020 and 2019, respectively. The decrease was due to the utilization of the cash proceeds from regular scheduled investment securities repayments, pay downs, calls and maturities which were used to fund loan growth. During the fiscal year ended March 31, 2020, purchases of investment securities totaled $18.1 million which was partially offset by investment sales totaling $17.8 million. The Company primarily purchases a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA). At March 31, 2020, the Company determined that none of its investment securities required an OTTI charge. For additional information on the Company’s investment securities, see Note 3 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.Loans receivable, net, totaled $898.9 million at March 31, 2020, compared to $864.7 million at March 31, 2019, an increase of $34.2 million. The Company has had steady loan demand in its market areas and anticipates continued organic loan growth, in particular through government sponsored lending programs initiated in response to the COVID-19 pandemic. The increase was mainly concentrated in commercial real estate loans which increased $46.4 million or 10.1%. In addition, commercial business loans increased $16.2 million, or 10.0%, and multi-family loans increased $6.8 million, or 13.2%. Partially offsetting these increases were decreases in real estate construction loans of $26.0 million, or 28.7%, consumer loans of $5.0 million, or 5.5%, and land loans of $3.0 million, or 17.6%. Due to the timing of the completion of these real estate construction projects, balances may fluctuate in these categories. Once these projects are completed, these loans will roll to permanent financing and be classified within a category under other real estate mortgage. The Company also purchases the guaranteed portion of SBA loans as a way to supplement loan originations, further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments. These SBA loans are originated through another financial institution located outside the Company’s primary market area. These loans are purchased with servicing retained by the seller. At March 31, 2020, the Company’s purchased SBA loan portfolio was $74.8 million compared to $67.9 million at March 31, 2019. During the year ended March 31, 2020, the Bank purchased $17.3 million of SBA loans, including premiums.Goodwill was $27.1 million at March 31, 2020 and 2019. For additional information on our goodwill impairment testing, see "Goodwill Valuation" included in this Item 7.Deposits increased $65.4 million to $990.4 million at March 31, 2020 compared to $925.1 million at March 31, 2019. The increase was due a concentrated effort by the Company to increase deposits. The Company increased interest rates on certain deposit products to be more competitive in its market area. The Company had no wholesale-brokered deposits at March 31, 2020 and 2019. Core branch deposits accounted for 97.6% of total deposits at March 31, 2020 compared to 98.2% at March 31, 2019. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets.The Bank had no FHLB advances at March 31, 2020 compared to $56.6 million at March 31, 2019. Based upon the increase in deposit balances, the Company was able to pay off its outstanding FHLB balances during the second fiscal quarter of 2020. In the prior fiscal year, the outstanding advances were deployed to supplement the funding of loan originations and offset the decrease in deposit balances.Shareholders' equity increased $15.7 million to $148.8 million at March 31, 2020 from $133.1 million at March 31, 2019. The increase was mainly attributable to net income of $15.7 million and an increase in accumulated other comprehensive income related to unrealized holding loss on securities available for sale, net of tax, of $4.7 million for the fiscal year ended March 31, 2020. The increase was partially offset by cash dividends declared of $4.3 million for the fiscal year ended March 31, 2020.542019.2022. The goodwill impairment test involves a two-step process. Step one of the goodwill impairment test estimates the fair value of the reporting unit utilizing the allocation of corporate value approach, the income approach, the whole bank transaction approach and the market approach in order to derive an enterprise value of the Company. The allocation of corporate value approach applies the aggregate market value of the Company and divides it among the reporting units. A key assumption in this approach is the control premium applied to the aggregate market value. A control premium is utilized as the value of a company from the perspective of a controlling interest is generally higher than the widely quoted market price per share. The Company used an expected control premium of 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 are discounted using a rate that reflects current market conditions. The projection uses management’s best estimates of5.3%2.0%, a net interest margin that approximated 4.0%3.7% and a return on assets that ranged from 1.24%1.22% to 1.34%1.30% (average of 1.29%1.26%). In addition to utilizing the above projections of estimated operating results, key assumptions used to determine the fair value estimate under the income approach were the discount rate of 15.54%18.33% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit. The Company used a build-up approach in developing the discount rate that included: an assessment of the risk freerisk-free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company. The whole bank transaction approach estimates fair value by applying key financial variables in transactions involving acquisitions of similar institutions. The market approach estimates fair value by applying tangible book value multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit. In applying the market approach method, the Company selected four publicly traded comparable institutions. After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.0 times book value, a market multiple of 1.1 times tangible book value.value and an earnings multiple of 10 times. The Company calculated a fair value of its reporting unit of $217.0$192.0 million using the corporate value approach, $170.0$169.2 million using the income approach and $253.0$230.0 million using the market approach, with a final concluded value of $216.0$197.0 million, with equal weight given to the corporate valueincome approach, andthe market approach and slightly less weight given to the incomecorporate value approach. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value and therefore no impairment of goodwill exists.55As a resulteffectsNotes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data." and the following:the COVID-19 pandemicour Business Plan. The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction loans, and its impacts on the financial markets and economy,core deposits by expanding its customer base throughout its primary market areas. While the Company completedhistorically emphasized residential real estate lending, since 1998 it has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios. At March 31, 2023, commercial and construction loans represented 89.9% of total loans. Commercial lending, including commercial real estate loans, typically involves more credit risk than residential lending, justifying higher interest margins and fees on loans which can increase the loan portfolio’s profitability. In addition, by emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers. To build its core deposit base, the Company will continue to utilize additional product offerings, technology and a qualitative assessmentfocus on customer service in working toward this goal. The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of goodwillindividual branches, loan purchases and concludedwhole bankitmeet its investment and market objectives. In this regard, the Company recently opened three new branches located in Clark County, Washington, to complement its existing branch network.likely than not thatsensitivity to interest rate fluctuations, the fair valueCompany intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.(the reporting unit), exceedsprovides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking. The products are tailored to meet the needs of small to medium size businesses and households in the markets we serve. The Company intends to selectively add other products to further diversify revenue sources and to capture more of each customer’s banking relationship by cross selling loan and deposit products and additional services, including services provided through the Trust Company to increase its carrying valuefee income. Assets under management by the Trust Company totaled $890.6 million and $1.3 billion at March 31, 2020. If adverse economic conditions or2023 and March 31, 2022, respectively. The Company also offers a third-party identity theft product to its customers. The identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service.recentCompany has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including brokered deposits, FHLB advances and FRB borrowings. The Company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers’ needs. The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes. Core branch deposits decreased $250.1 million at March 31, 2023 compared to March 31, 2022 due to deposit pricing pressures in our markets, resulting in the Company’s common stock price and market capitalization as a resultuse of the COVID-19 pandemic were sustained in the future rather than temporary, it may significantly affect the fair valuehigher costing FHLB advances during fiscal 2023. Core branch deposits accounted for 97.5% of the reporting unit and may trigger future goodwill impairment charges. Any impairment charge could have a material adverse effect on our results of operations and financial condition. However, such an impairment would not impact the Company’s liquidity, operations or regulatory capital.Estimated Fair Value of Level 3 AssetsThe Company determines the estimated fair value of certain assets that are classified as Level 3 under the fair value hierarchy established under GAAP. These Level 3 assets are valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets. These Level 3 assets are certain loans measured for impairment for which there is neither an active market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model. Under these circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair value requires significant management judgment or estimation.Valuations using models or other techniques are dependent upon assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of the valuation date. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. Judgment is then applied in formulating those inputs.Certain loans included in the loan portfolio were deemed impairedtotal deposits at March 31, 2020. Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is no active2023 compared to 96.8% at March 31, 2022.for these loans. Measuring impairment of a loan requires judgmentposition and estimates,adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the eventual outcomesdeposit balances that accompany these relationships. The Company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers. The goal is to compete with other financial service providers by relying on the strength of the Company’s customer service and relationship banking approach. The Company believes that one of its strengths is that its employees are also shareholders through the Company’s ESOP and 401(k) plans.(1) Dividends per share divided by diluted earnings per share. (2) Non-interest expense divided by the sum of net interest income and non-interest income. differ from those estimates. Impairment was measured baseddeploy a portion of excess cash balances to purchase investment securities depending on the rate environment and other considerations. As a numberpart of factors, including recent independent appraisalsthis strategy, the Company also invests a portion of its excess cash in short-term certificates of deposit held for investment, all of which are further reducedfully insured by the FDIC. Certificates of deposits held for estimated selling costsinvestment totaled $249,000 at both March 31, 2023 and 2022.by estimatingGNMA). At March 31, 2023, the present valueCompany determined that none of expected future cash flows, discountedits investment securities required an OTTI charge. In the third quarter of fiscal 2022, the Company reassessed and transferred $85.8 million of U.S. government and agency securities from the available for sale classification to the held to maturity classification. The net unrealized after tax gain of $18,000 was deemed insignificant and the book balance of investment securities were transferred. No gains or losses were recognized at the loan’s effective interest rate.our Level 1, 2 and 3 fair value measurementsthe Company’s investment securities, see Note 153 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.5620202023 and 2019$15.7$18.1 million, or $0.69$0.83 per diluted share, for the fiscal year ended March 31, 2020,2023, compared to $17.3$21.8 million, or $0.76$0.98 per diluted share, for the fiscal year ended March 31, 2019.2022. The Company’s earnings for the year ended March 31, 2020 compared to last yearnet income decreased primarily due to theas a result of a provision for loan losses of $1.3 million. Increases occurred in both interest and non-interest income and were offset by increases in interest and non-interest expense compared to the respective prior year period. Additionally, a one-time $355,000 gain on sale of land and building related to our Longview branch closure that occurred in$750,000 for the fiscal year ended March 31, 2019 and was recorded in non-interest expense, was not present in2023 compared to a $4.6 million recapture of loan losses for the current fiscal year ended March 31, 2020.2020 decreased $1.32023 increased $4.0 million, or 2.81%8.4%, to $45.7$51.6 million compared to $47.1$47.6 million in fiscal year 2019.2022. The net interest margin for the fiscal year ended March 31, 20202023 was 4.26%3.26% compared to 4.45%3.03% for the prior fiscal year. This decreaseThe increase in the net interest margin was primarily attributable to both the resulthigher average balance and yield on investment securities compared to the legacy investment securities portfolios and an increase in the average yield on interest-bearing deposits in other banks balances between the periods reflecting the lagging benefit of variable rate interest-earning assets beginning to reprice higher following recent increases in market interest rates.cost of interest- bearing deposits and to a lesser extentaverage net loans was offset by the decrease in the average yield on net loans.Interest and Dividend Income. Interest and dividend income increased slightlyloans by 28 basis points to $50.5 million4.44% for the fiscal year ended March 31, 20202023, predominantly from $49.9 millionhigher deferred SBA PPP loan fees recognized from SBA PPP loans that were forgiven. SBA PPP loans had a favorable impact on our loan yields when SBA PPP loans are forgiven and the remaining deferred fees are recognized which increase the average net loan yield for the fiscal year ended March 31, 2019 due primarily2022 that were not present for the fiscal year-ended March 31, 2023. Interest and dividend income included $102,000 and $3.0 million of interest and fees related to increases in interest fromSBA PPP loans receivable of $898.9 million. This increase was due to higher average balances for loans receivable as compared to the prior fiscal year.years ended March 31, 2023 and 2022, respectively. The average balance of net loans increased $40.4 millionovernight cash balances positively impacted interest and dividend income due to $884.5 million for the fiscal year ended March 31, 2020 from $844.1 million for the prior fiscal year. The average yield on net loans was 5.25%interest-bearing deposits at other banks which increased 161 basis points for the fiscal year ended March 31, 20202023 to 1.76% compared to 5.32%0.15% for the prior fiscal year reflecting the decreasing rate environment over the last fiscal year.2022.20202023 totaled $4.8$4.1 million, a $1.9 million or 69.2%84.5% increase from $2.8$2.2 million for the fiscal year ended March 31, 2019.2022. The increase in interest expense was primarily the result of a 27an 18 basis pointspoint increase in the weighted average interest rate on interest-bearing liabilities and a $21.0 million increase in the average balance of FHLB advances for the fiscal year ended March 31, 20202023 compared to the prior fiscal year. The weighted average interest rate on interest-bearing deposits increased to 0.43%0.16% for the fiscal year ended March 31, 20202023 from 0.15%0.14% for the prior fiscal year. The weighted average interest rate on other interest-bearing liabilities decreased to 3.78% for the fiscal year ended March 31, 2020 compared to 4.10% for the prior fiscal year. Interest expense on deposits increased $1.9 million due to the increase in the average cost of interest-bearing deposits primarily as a result of the Company increasing the interest rates paid on certain deposit products due to increased competition and pricing pressures in the Company’s market area. The average balance of interest-bearing deposits increased $2.3decreased $21.7 million to $676.5$965.7 million for the fiscal year ended March 31, 20202023 compared to $674.2$987.5 million for the fiscal year ended March 31, 2019.totaled $1.3of $750,000 and a recapture of loan losses of $4.6 million and $50,000 for the fiscal years ended March 31, 20202023 and 2019,2022, respectively. The increase in the provision for loan losses for the fiscal year 20202023 was due to an isolated loan downgrade that affected the allowance for loan losses. The recapture of loan losses for fiscal year 2022 was primarily due to the weakeningimproving economic conditions as a result ofassociated with the COVID-19 pandemic and to a lesser extent, the overall increase in the loan portfolio. A furthersince March 31, 2021. Any future decline in national and local economic conditions as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations.2020,2023, the Company had an allowance for loan losses of $12.6$15.3 million, or 1.38%1.52% of total loans, compared to $11.5$14.5 million, or 1.31%1.47% of total loans at March 31, 2019.2022. Net charge-offsrecoveries were $36,000 for the fiscal year ended March 31, 2020 were $83,0002023 compared to net recoveriescharge-offs of $641,000$30,000 for the fiscal year ended March 31, 2019.2022. Net recoveries and net charge-offs to average net loans were insignificant for the yearyears ended March 31, 2020 was 0.01%. Net recoveries to average net loans for the year ended March 31, 2019 were (0.08)%.572020,2023, the Company had identified $5.2 million$629,000 of impaired loans. Because the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the estimated fair value of the collateral. Of those impaired loans, $5.1 million$534,000 have no specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs. The remaining $137,000 haveimpaired loan of $95,000 has a specific valuation allowances totaling $12,000.allowance of $6,000. Charge-offs on these impaired loans totaled $83,000$85,000 from their original loan balances. Based on a comprehensive analysis, management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at March 31, 2020.2023. See Note 5 of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for loan losses.$1.3$2.7 million to $12.4$39.4 million for the year ended March 31, 20202023 from $11.1$36.7 million for fiscal year 2019.2022. The increase in non-interest income was primarily due to increasesan increase in feessalaries and service charges, asset management feesemployee benefits of $347,000 for the fiscal year ended March 31, 2023 compared to the prior year and bank-owned lifewas mainly due to wage pressures, and the competitive landscape for attracting and retaining employees in the Company’s primary market. Additionally, occupancy and depreciation expense for the fiscal year ended March 31, 2023 increased mainly due to an increase in rent expense, depreciation expense and repair and maintenance expense as the Company continues to update and modernize certain branch locations. In addition, the increase in non-interest expense is due to the recognition of a $1.0 million gain on sale of premises and equipment related to a former branch building during the fiscal year ended March 31, 2022, that was not present in the current fiscal year. Advertising and marketing expense increased $309,000 due to additional sponsorships and events as our local economy began to reopen when compared to the prior fiscal year. FDIC insurance of $593,000, $617,000, and $130,000, respectively.premium expense increased $95,000 compared to the prior fiscal year primarily due to the increased FDIC assessment rate. These increases were partially offset by a decrease in net gains on salesdata processing expense of loans held$218,000 for sale of $65,000 for thefiscal year ended March 31, 20202023 compared to the prior fiscal year reflecting the decline in loans originated for sale.Non-Interest Expense. Non-interest expense increased $564,000 to $36.3 million for the fiscal year ended March 31, 2020 compared to $35.7 million for the fiscal year ended March 31, 2019. The increase for the fiscal year ended March 31, 2020 was due to an increase in occupancy and depreciation expense of $242,000, salaries and employee benefits of $485,000 and data processing of $162,000 for the year ended March 31, 2020 compared to the prior fiscal year due to additional staffing attributable to the overall growth of the Company and continued investments into enhancinga decreased cost associated with our information technology infrastructure, including investments in our digital product offerings. Offsetting these increases was a decrease in professional fees of $306,000 primarily due to and a decrease in FDIC insurance premiums of $245,000. The decrease in FDIC insurance premium expense is attributable to credits for previously paid deposit insurance premiums which were a result of the FDIC exceeding its stated Deposit Insurance Fund Reserve Ratio. The Company has $44,000 in credits on future assessments remaining as of March 31, 2020, which may be recognized in future periods when allowed for by the FDIC upon insurance fund levels being met. In addition, other non-interest expense increased $163,000 primarily due to the $355,000 gain on sale of land and building recognized in the last fiscal year with no similar transaction occurring in the year ended March 31, 2020.$4.8$5.6 million and $5.1$6.5 million for the fiscal years ended March 31, 20202023 and 2019, respectively, primarily reflecting2022, respectively. The decrease in the provision for income taxes was due to lower pre-tax income.income for the fiscal year ended March 31, 2023 compared to the same period in the prior year. The effective tax rate was 23.5%23.7% for the fiscal year ended March 31, 20202023 compared to 23.0%22.8% for the fiscal year ended March 31, 2019.2022. The effective tax rate may be affected by the effects of apportioned income for state and local jurisdictions where we do business. The Company’s effective tax rate for the fiscal year ended March 31, 2022 was lower than its historical effective tax rate due to a non-taxable BOLI death benefit of $500,000 that was not present for the fiscal year ended March 31, 2023. At March 31, 2020,2023, the Company had a deferred tax asset of $3.3$10.3 million. As of March 31, 2020,2023, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary. See Note 11 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion of the Company’s income taxes.58monthlydaily average balances during such period. Non-accruing loans were included in the average loan amounts outstanding. Loan fees, net, of $1.5$2.4 million, $1.5$5.5 million and $1.4$4.5 million were included in interest income for the years ended March 31, 2020, 20192023, 2022 and 2018,2021, respectively.(1) Includes non-accrual loans. (2) For purposes of the computation of average yield on investment securities available for sale, historical cost balances were utilized; therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity. (3) Tax-equivalent adjustment relates to non-taxable investment interest income calculated based on a combined federal and state tax rate of 24% for all three years. Years Ended March 31, 2020 2019 2018 (Dollars in thousands) Interest-earning assets: Mortgage loans $ 695,930 $ 37,721 5.42 % $ 663,225 $ 36,476 5.50 % $ 629,153 $ 32,268 5.13 % Non-mortgage loans 188,568 8,684 4.61 180,917 8,462 4.68 160,051 7,745 4.84 884,498 46,405 5.25 844,142 44,938 5.32 789,204 40,013 5.07 164,028 3,594 2.19 199,463 4,647 2.33 214,723 4,786 2.23 Daily interest-earning assets 95 1 1.05 64 1 1.56 104 - - Other earning assets 26,676 532 1.99 15,394 328 2.13 40,876 558 1.37 Total interest-earning assets 1,075,297 50,532 4.70 1,059,063 49,914 4.71 1,044,907 45,357 4.34 Non-interest-earning assets: Office properties and equipment, net 15,830 15,485 15,888 Other non-interest-earning assets 74,591 66,142 71,648 Total assets $ 1,165,718 $ 1,140,690 $ 1,132,443 Interest-bearing liabilities: Savings accounts $ 189,207 $ 1,054 0.56 % $ 136,720 $ 145 0.11 % $ 132,376 $ 133 0.10 % Interest checking accounts 180,969 100 0.06 180,256 101 0.06 170,124 100 0.06 Money market accounts 194,061 229 0.12 252,202 302 0.12 275,092 335 0.12 Certificates of deposit 112,282 1,507 1.34 105,049 448 0.43 136,370 640 0.47 Total interest-bearing deposits 676,519 2,890 0.43 674,227 996 0.15 713,962 1,208 0.17 Other interest-bearing liabilities 49,573 1,874 3.78 44,368 1,819 4.10 29,668 1,141 3.85 Total interest-bearing liabilities 726,092 4,764 0.66 718,595 2,815 0.39 743,630 2,349 0.32 Non-interest-bearing liabilities: Non-interest-bearing deposits 284,748 289,707 264,128 Other liabilities 11,226 7,846 8,016 Total liabilities 1,022,066 1,016,148 1,015,774 Shareholders’ equity 143,652 124,542 116,669 Total liabilities and shareholders’ equity $ 1,165,718 $ 1,140,690 $ 1,132,443 Net interest income $ 45,768 $ 47,099 $ 43,008 Interest rate spread 4.04 % 4.32 % 4.02 % Net interest margin 4.26 % 4.45 % 4.12 % 148.09 % 147.38 % 140.51 % $ 37 $ 45 $ 43 5920202023 compared to the fiscal year ended March 31, 2019,2022, and the fiscal year ended March 31, 20192022 compared to the fiscal year ended March 31, 2018.2021. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume). Variances that were insignificant have been allocated based upon the percentage relationship of changes in volume and changes in rate to the total net change (in thousands). The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected on the Company’s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income.(1) Interest on municipal securities is presented on a fully tax-equivalent basis. Year Ended March 31, 2020 vs. 2019 2019 vs. 2018 Increase (Decrease) Due to Increase (Decrease) Due to Total (Dollars in thousands) Volume Rate Volume Rate Interest Income: Mortgage loans $ 1,781 $ (536 ) $ 1,245 $ 1,801 $ 2,407 $ 4,208 Non-mortgage loans 351 (129 ) 222 980 (263 ) 717 (787 ) (266 ) (1,053 ) (349 ) 210 (139 ) Daily interest-earning - - - - 1 1 Other earning assets 227 (23 ) 204 (451 ) 221 (230 ) Total interest income 1,572 (954 ) 618 1,981 2,576 4,557 Interest Expense: Savings accounts 78 831 909 3 9 12 Interest checking accounts (1 ) - (1 ) 1 - 1 Money market accounts (73 ) - (73 ) (33 ) - (33 ) Certificates of deposit 33 1,026 1,059 (140 ) (52 ) (192 ) Other interest-bearing liabilities 203 (148 ) 55 600 78 678 Total interest expense 240 1,709 1,949 431 35 466 Net interest income $ 1,332 $ (2,663 ) $ (1,331 ) $ 1,550 $ 2,541 $ 4,091 (1) Interest on municipal securities is presented on a fully tax-equivalent basis.Company'sCompany’s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Company'sCompany’s interest-earning assets and interest-bearing liabilities. Interest rate sensitivity increases by retainingoriginating and purchasing portfolio loans with interest rates subject to periodic adjustment to market conditions and selling fixed-rate one-to-four family mortgagefixed rate loans with shorter terms to maturity of more than 15 years.maturity. The Company relies on retail deposits as its primary source of funds.funds, but also has access to FHLB advances, FRB borrowings, and other wholesale facilities, as needed. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a stable source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with terms up to ten years.otherreal estate one-to-four family residential mortgage loans; matching asset and liability maturities; and investing in short-term securities; and selling most long term, fixed-rate, one-to-four family mortgage loan originations.securities. The strategy for liabilities has been to shorten the maturities for both deposits and borrowings.noninterest bearingnon-interest-bearing demand deposits, low interestinterest- bearing demand deposits, money market accounts, and savings deposits relative to certificates of deposit to reduce our overall cost of funds.60The Company's mortgage servicing activities provide additional protection from interest rate risk. The Company retains servicing rights on all mortgage loans sold. As market interest rates rise, the fixed-rate loans held in the loan portfolio diminish in value. However, the value of the servicing loan portfolio tends to rise as market interest rates increase because borrowers tend not to prepay the underlying mortgages, thus providing an interest rate risk hedge versus the fixed-rate loan portfolio. See "Item 1. Business – Lending Activities – Mortgage Loan Servicing."permanent residential mortgagereal estate one-to-four family loans, and accordingly reduce the Company'sCompany’s exposure to fluctuations in interest rates. Adjustable interest rate loans totaled $491.7$403.6 million or 53.95%40.00% of total loans at March 31, 20202023 as compared to $499.6$438.1 million or 57.02%44.23% at March 31, 2019.2022. Although the Company has sought to originate adjustable rate loans, the ability to originate and purchase such loans depends to a great extent on market interest rates and borrowers'borrowers’ preferences. Particularly in lower interest rate environments, borrowers often prefer to obtain fixed-rate loans. See Item 1. “Business - Lending Activities – Real Estate Construction "“ and “- Lending Activities - Consumer Lending."2020,2023, the combined investment portfolio carried at $148.3$455.3 million had an average life of 3.26.1 years. Adjustable rate mortgage-backed securities totaled $11.6$3.7 million at March 31, 20202023 compared to $14.7$5.5 million at March 31, 2019.2022. See Item 1. “Business – Investment Activities"Activities” for additional information.Company'sCompany’s management. The Company adjusts its investments in liquid assets based upon management'smanagement’s assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities. These sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities.Company'sCompany’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.2020,2023, the Bank used its sources of funds primarily to fund loan commitments.commitments and investment purchases. At March 31, 2020,2023, cash and cash equivalents, certificates of deposit held for investment and available for sale investment securities totaled $190.5$233.8 million, or 16.1%14.7% of total assets. Management believes that the Company’s security portfolio is of high quality and its securities would therefore be marketable. The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity management practice is to manage short-term borrowings, including FRB borrowings and FHLB advances consistent with its asset/liability objectives. In addition to these primary sources of funds, the Bank has several secondary borrowing sources available to meet potential funding requirements, including FRB borrowings and FHLB advances. At March 31, 2020,2023, the Bank had no advances from the FRB and hadmaintains a credit facility with the FRB with available borrowing capacity of $67.3$57.4 million, from the FRB, subject to sufficient collateral. At March 31, 2020,2023, FHLB advances totaled $123.8 million and the Bank had no advances from the FHLB and hadan available borrowing capacity of $235.9$315.4 million, subject to sufficient collateral and stock investment. At March 31, 2020,2023, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at their discretion.6120202023 and 2019,2022, the Bank had no wholesale brokered deposits. The Bank also participates in the CDARS and ICS deposit products, which allow the Company to accept deposits in excess of the FDIC insurance limit for a depositor and obtain “pass-through” insurance for the total deposit. The Bank’s CDARS and ICS balances were $5.3$22.8 million, or 0.54%1.8% of total deposits, and $14.5$66.3 million, or 1.6%4.3% of total deposits, at March 31, 20202023 and 2019,2022, respectively. In addition, the Bank is enrolled in an internet deposit listing service. Under this listing service, the Bank may post time deposit rates on an internet site where institutional investors have the ability to deposit funds with the Bank. At March 31, 2020 and 2019, the Company had no deposits through this listing service. Although the Company did not originate any internet based deposits during the year ended March 31, 2020, the Company may do so in the future consistent with its asset/liability objectives. The combination of all the Bank’s funding sources gives the Bank available liquidity of $676.0$702.5 million, or 57.2%44.2% of total assets at March 31, 2020.2020,2023, the Company had total commitments of $160.7$144.4 million, which includes commitments to extend credit of $35.8$12.5 million, unused lines of credit totaling $98.9$93.7 million, undisbursed construction loans totaling $24.0$36.6 million, and standby letters of credit totaling $2.0$1.6 million. For additional information regarding future financial commitments, see Note 17 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 20202023 totaled $74.1$84.6 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Offsetting these cash outflows are scheduled loan maturities of less than one year totaling $55.1$37.0 million at March 31, 2020. Bancorp, Inc., as a separate legal entity from the Bank, must provide for its own liquidity. Sources of capital and liquidity for Riverview Bancorp, Inc. include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. Management currently expects to continue the Company’s current practice of paying quarterly cash dividends on its common stock subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. The current quarterly common stock dividend rate is $0.06 per share, as approved by the Board of Directors, which management believes is a dividend rate per share which enables the Company to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of the Company’s cash to its shareholders. Assuming continued payment during fiscal year 2024 at this rate of $0.06 per share, average total dividends paid each quarter would be approximately $1.3 million based on the number of the Company’s outstanding shares at March 31, 2023. At March 31, 2020,2023, Riverview Bancorp, Inc. had $10.3$5.5 million in cash to meet its liquidity needs.EffectInflationregulatory capital. At March 31, 2023, Riverview and Changing PricesThethe Bank were in compliance with all applicable capital requirements. For additional information, see Note 13 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K and related financial data presented herein have been prepared in accordance with GAAP, which require the measurement of financial positionItem 1. Business – Regulation and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased costSupervision of the Company's operations. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.the Consolidated Financial Statements included in Item 8 of this Form 10-K.LitigationThe Company is periodically a party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material adverse effect, if any, on the Company’s future financial position, results of operations, or liquidity. The Bank has entered into employment contracts with certain key employees, which provide for contingent payment subject to future events.62Off-Balance Sheet ArrangementsThe Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to 45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments.At March 31, 2020, the Company had commercial loan commitments of $15.9 million and undisbursed commercial lines of credit of $73.3 million. Commercial real estate mortgage loan commitments totaled $323,000 and the undisbursed balance of commercial real estate mortgage loans was $987,000 at March 31, 2020. At March 31, 2020, construction loan commitments totaled $16.9 million and undisbursed construction loans totaled $24.0 million. Land development loan commitments at March 31, 2020, totaled $550,000 and the unused lines of credit secured by land development loans totaled $1.7 million. Real estate one-to-four family loan commitments totaled $2.1 million and unused lines of credit secured by real estate one-to-four family loans totaled $18.6 million at March 31, 2020. Unused lines of credit on other installment loans totaled $1.1 million and unused lines of credit secured by multi-family real estate totaled $3.1 million at March 31, 2020. At March 31, 2020, the Company had standby letters of credit totaling $2.0 million. For additional information regarding future financial commitments, this discussion and analysis should be read in conjunction with Note 17 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.63Company'sCompany’s interest-earning assets and interest-bearing liabilities, see the tables under Item 1. “Business – Lending Activities,” “– Investment Activities” and “– Deposit Activities and Other Sources of Funds”.Company'sCompany’s principal financial objective is to achieve long-term profitability while limiting its exposure to fluctuating market interest rates. The Company intends to reduce risk where appropriate but accepts a degree of risk when warranted by economic circumstances. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Company'sCompany’s interest-earning assets by retaining in its loan portfolio, short–term loans and loans with interest rates subject to periodic adjustments.“Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” contained herein.6420202023 over a 12 and 24-month period under several instantaneous changes in interest rate scenarios: Up 300 basis points (2.4)% 3.3% Up 200 basis points (1.3)% 1.1% Up 100 basis points (0.3)% (1.4)% Base case - (4.6)% Down 100 basis points 0.9% (3.7)% Our consolidated balance sheet continues to be slightly asset sensitive, meaning thatrate floors,rates, our net interest income will be negatively impacted in a rising interest rate environment until such time as the current rate exceeds theseenvironment. In a rising interest rate floors. Netenvironment, net interest income will increasedecrease in year twoone as set forth in the table above as our interest-earning assetsinterest-bearing liabilities are expected to continue to repriceincrease faster than interest-bearing liabilities.interest-earning assets. In a falling interest rate environment, over a shorter duration, these interest rate floors coupled with the ability to be able to decrease deposit costs will assist in maintaining our net interest income. However, in a falling interest rate environment over a longer duration, our net interest income will be negativelypositively impacted in the first 100 basis point movement as our deposit costs are currently relatively low and interest rates paid cannotinterest-bearing liabilities decrease significantly.faster in relation to our interest-earning assets. We attempt to limit our interest rate risk through managing the repricing characteristics of our assets and liabilities.The following table shows the Company's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at March 31, 2020. Market risk sensitive instruments are generally defined as on- and off-balance sheet derivatives and other financial instruments (dollars in thousands). Total Interest-Sensitive Assets: Loans receivable 4.69 % $ 55,068 $ 55,179 $ 72,713 $ 495,061 $ 233,488 $ 911,509 Investment securities and other interest-earning assets 1.83 35,930 2,831 4,647 35,416 97,610 176,434 FHLB stock 5.46 284 568 568 - - 1,420 Total assets $ 91,282 $ 58,578 $ 77,928 $ 530,477 $ 331,098 $ 1,089,363 Interest-Sensitive Liabilities: Interest checking 0.06 $ 37,560 $ 75,119 $ 75,119 $ - $ - $ 187,798 Savings accounts 0.48 45,376 90,752 90,752 - - 226,880 Money market accounts 0.12 33,960 67,919 67,919 - - 169,798 Certificate accounts 1.68 74,078 54,882 4,983 982 16 134,941 FHLB advances - - - - - - - Subordinated debentures 2.43 - - - - 27,836 27,836 Finance lease liability 7.16 40 100 130 481 1,618 2,369 Total liabilities 191,014 288,772 238,903 1,463 29,470 749,622 Interest sensitivity gap (99,732 ) (230,194 ) (160,975 ) 529,014 301,628 $ 339,741 Cumulative interest sensitivity gap $ (99,732 ) $ (329,926 ) $ (490,901 ) $ 38,113 $ 339,741 Off-Balance Sheet Items: Commitments to extend credit $ 35,797 $ - $ - $ - $ - $ 35,797 Unused lines of credit $ 122,840 $ - $ - $ - $ - $ 122,840 652020, 20192023, 2022 and 2018
TABLE OF CONTENTS | |
Page | |
| |
Report of Independent Registered Public Accounting Firm | 64 |
| |
Consolidated Balance Sheets as of March 31, | 66 |
| |
Consolidated Statements of Income for the Years Ended March 31, | 67 |
| |
68 | |
| |
69 | |
| |
70 | |
| |
71 |
63
To the Board of Directors and Shareholders of
Riverview Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Riverview Bancorp, Inc. and Subsidiary (collectively, "the Company"“the Company”) as of March 31, 20202023 and 2019,2022, and the related consolidated statements of income, comprehensive income, shareholders'shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2020,2023, and the related notes (collectively, referred to as "the“the financial statements"statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2020,2023, in conformity with accounting principles generally accepted in the United States of America (U.S.).
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to an account or disclosures that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
64
Allowance for Loan Losses
Critical Audit Matter Description
As described in Notes 1 and 5 to the financial statements, the Company’s allowance for loan losses (ALL) is a valuation account that reflects the estimated loan losses based on known and inherent risks in the loan portfolio to the extent they are both probable and reasonable to estimate. The allowance for loan losses was approximately $15,309,000 as of March 31, 2023, which consists of specific and general components in the amounts of $6,000 and $15,303,000 million, respectively.
The specific component relates to loans that are classified as impaired. The Company measures impairment and the related asset-specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. If the loan is collateral dependent, the Company measures impairment based upon the fair value of the underlying collateral, which the Company determines based on the current fair value of the collateral less estimated selling costs. Loans are identified as collateral dependent if the Company believes that collateral is the sole source of repayment.
The general component is based on historical losses, general economic conditions, and other qualitative risk factors both internal and external to the Company. The historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The qualitative risk factors are generally determined by evaluating, among other things: (1) lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; (2) national and local economic trends and conditions; (3) nature and volume of the portfolio and terms of loans; (4) experience, ability, and depth of lending management and staff; (5) volume and severity of past due, classified and nonaccrual loans as well as other loan modifications; (6) quality of the Company’s loan review system; (7) existence and effect of any concentrations of credit and changes in the level of such concentrations; (8) changes in the value of underlying collateral, and (9) other external factors. The evaluation of the qualitative factor adjustments requires a significant amount of judgment by management and involves a high degree of subjectivity.
We identified the ALL as a critical audit matter because auditing the underlying qualitative factors required significant auditor judgment since amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.
How the Critical Audit Matter Was Addressed in the Audit
The primary audit procedures we performed to address this critical audit matter included the following, among others:
● | We obtained an understanding of the relevant controls related to management’s establishment, assessment, review and approval of the qualitative factors, and the data used in determining the qualitative factors. |
● | We obtained an understanding of how management developed the estimates and related assumptions, including: |
o | Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources as well as evaluating the estimated correlation to potential loss. |
o | Evaluating the reasonableness of the qualitative factors established by management as compared to the underlying internal or external information sources. |
● | We obtained an understanding of the loans excluded from the general component calculation for propriety of classification as acquired or impaired loans. |
We have served as the Company'sCompany’s auditor since 2015.
Lake Oswego, Oregon
June 14, 2023
65
AS OF MARCH 31, 20202023 AND 2019
(In thousands, except share and per share data) | 2020 | 2019 | ||||
ASSETS | ||||||
Cash and cash equivalents (including interest-earning accounts of $27,866 and $5,844) | $ | 41,968 | $ | 22,950 | ||
Certificates of deposit held for investment | 249 | 747 | ||||
Loans held for sale | 275 | 909 | ||||
Investment securities: | ||||||
Available for sale, at estimated fair value | 148,291 | 178,226 | ||||
Held to maturity, at amortized cost (estimated fair value of $28 and $35) | 28 | 35 | ||||
Loans receivable (net of allowance for loan losses of $12,624 and $11,457) | 898,885 | 864,659 | ||||
Prepaid expenses and other assets | 7,452 | 4,596 | ||||
Accrued interest receivable | 3,704 | 3,919 | ||||
Federal Home Loan Bank (“FHLB”) stock, at cost | 1,420 | 3,644 | ||||
Premises and equipment, net | 17,078 | 15,458 | ||||
Deferred income taxes, net | 3,277 | 4,195 | ||||
Mortgage servicing rights, net | 191 | 296 | ||||
Goodwill | 27,076 | 27,076 | ||||
Core deposit intangible (“CDI”), net | 759 | 920 | ||||
Bank owned life insurance (“BOLI”) | 30,155 | 29,291 | ||||
TOTAL ASSETS | $ | 1,180,808 | $ | 1,156,921 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
LIABILITIES: | ||||||
Deposits | $ | 990,448 | $ | 925,068 | ||
Accrued expenses and other liabilities | 11,783 | 12,536 | ||||
Advance payments by borrowers for taxes and insurance | 703 | 631 | ||||
FHLB advances | - | 56,586 | ||||
Junior subordinated debentures | 26,662 | 26,575 | ||||
Finance lease liability | 2,369 | 2,403 | ||||
Total liabilities | 1,031,965 | 1,023,799 | ||||
COMMITMENTS AND CONTINGENCIES (See Note 17) | ||||||
SHAREHOLDERS’ EQUITY: | ||||||
Serial preferred stock, $.01 par value; 250,000 shares authorized; issued and outstanding: none | - | - | ||||
Common stock, $.01 par value; 50,000,000 shares authorized | ||||||
March 31, 2020 – 22,748,385 shares issued and 22,544,285 shares outstanding | 225 | 226 | ||||
March 31, 2019 – 22,607,712 shares issued and outstanding | ||||||
Additional paid-in capital | 64,649 | 65,094 | ||||
Retained earnings | 81,870 | 70,428 | ||||
Accumulated other comprehensive income (loss) | 2,099 | (2,626 | ) | |||
Total shareholders’ equity | 148,843 | 133,122 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,180,808 | $ | 1,156,921 |
| | | | | | | |
| | | | | | ||
(In thousands, except share and per share data) |
| 2023 |
| 2022 |
| ||
ASSETS |
| |
|
| |
|
|
Cash and cash equivalents (including interest-earning accounts of $10,397 and $224,589) | | $ | 22,044 | | $ | 241,424 | |
Certificates of deposit held for investment | | | 249 | |
| 249 | |
Investment securities: | | | | |
| | |
Available for sale, at estimated fair value | | | 211,499 | |
| 165,782 | |
Held to maturity, at amortized cost (estimated fair value of $210,214 and $236,029) | | | 243,843 | |
| 253,100 | |
Loans receivable (net of allowance for loan losses of $15,309 and $14,523) | | | 993,547 | |
| 975,885 | |
Prepaid expenses and other assets | | | 15,950 | |
| 12,396 | |
Accrued interest receivable | | | 4,790 | |
| 4,650 | |
Federal Home Loan Bank (“FHLB”) stock , at cost | | | 6,867 | |
| 2,019 | |
Premises and equipment, net | | | 20,119 | |
| 17,166 | |
Financing lease right-of-use ("ROU") assets | | | 1,278 | | | 1,355 | |
Deferred income taxes, net | | | 10,286 | |
| 7,501 | |
Mortgage servicing rights, net | | | — | |
| 34 | |
Goodwill | | | 27,076 | |
| 27,076 | |
Core deposit intangible ("CDI"), net | | | 379 | |
| 495 | |
Bank owned life insurance ("BOLI") | | | 31,785 | |
| 30,964 | |
TOTAL ASSETS | | $ | 1,589,712 | | $ | 1,740,096 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| | |
| | | | | | | |
LIABILITIES: | | | | |
| | |
Deposits | | $ | 1,265,217 | | $ | 1,533,878 | |
Accrued expenses and other liabilities | | | 15,730 | |
| 19,298 | |
Advance payments by borrowers for taxes and insurance | | | 625 | |
| 555 | |
FHLB advances | | | 123,754 | | | — | |
Junior subordinated debentures | | | 26,918 | |
| 26,833 | |
Finance lease liability | | | 2,229 | |
| 2,283 | |
Total liabilities | | | 1,434,473 | |
| 1,582,847 | |
| | | | | | | |
COMMITMENTS AND CONTINGENCIES (See Note 17) | |
|
| |
|
| |
| | | | | | | |
SHAREHOLDERS' EQUITY: | |
|
| |
|
| |
Serial preferred stock, $.01 par value; 250,000 shares authorized; issued and outstanding: none | | | — | |
| — | |
Common stock, $.01 par value; 50,000,000 shares authorized | | | | |
| | |
March 31, 2023 – 21,221,960 shares issued and outstanding | | | 212 | | | 221 | |
March 31, 2022 – 22,155,636 shares issued and 22,127,396 outstanding | | | | | | | |
Additional paid-in capital | | | 55,511 | |
| 62,048 | |
Retained earnings | | | 117,826 | |
| 104,931 | |
Accumulated other comprehensive loss | | | (18,310) | |
| (9,951) | |
Total shareholders' equity | | | 155,239 | |
| 157,249 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 1,589,712 | | $ | 1,740,096 | |
See accompanying notes to consolidated financial statements
.
66
FOR THE YEARS ENDED MARCH 31, 2020, 20192023, 2022 AND 20182021
| | | | | | | | | |
| | | | | | | |||
| | | | | | | | | |
(In thousands, except share and per share data) |
| 2023 |
| 2022 |
| 2021 | |||
INTEREST AND DIVIDEND INCOME: |
| |
|
| |
|
| |
|
Interest and fees on loans receivable | | $ | 44,744 | | $ | 44,079 | | $ | 45,498 |
Interest on investment securities – taxable | |
| 8,784 | |
| 5,001 | | | 2,422 |
Interest on investment securities – nontaxable | |
| 262 | |
| 237 | | | 129 |
Other interest and dividends | |
| 1,876 | |
| 508 | | | 295 |
Total interest and dividend income | |
| 55,666 | |
| 49,825 | | | 48,344 |
| | | | | | | | | |
INTEREST EXPENSE: | |
| | |
| | | | |
Interest on deposits | |
| 1,502 | |
| 1,424 | | | 2,544 |
Interest on borrowings | |
| 2,558 | |
| 776 | | | 883 |
Total interest expense | |
| 4,060 | |
| 2,200 | | | 3,427 |
Net interest income | |
| 51,606 | |
| 47,625 | | | 44,917 |
Provision for (recapture of) loan losses | |
| 750 | |
| (4,625) | | | 6,300 |
Net interest income after provision for (recapture of) loan losses | |
| 50,856 | |
| 52,250 | | | 38,617 |
| | | | | | | | | |
NON-INTEREST INCOME: | |
| | |
| | | | |
Fees and service charges | |
| 6,362 | |
| 7,109 | | | 6,382 |
Asset management fees | |
| 4,734 | |
| 4,107 | | | 3,646 |
BOLI | |
| 821 | |
| 800 | | | 813 |
BOLI death benefit in excess of cash surrender value | | | — | | | 500 | | | — |
Other, net | |
| 277 | |
| 228 | | | 249 |
Total non-interest income, net | |
| 12,194 | |
| 12,744 | | | 11,090 |
| | | | | | | | | |
NON-INTEREST EXPENSE: | |
| | |
| | | | |
Salaries and employee benefits | |
| 23,982 | |
| 23,635 | | | 22,570 |
Occupancy and depreciation | |
| 6,171 | |
| 5,624 | | | 5,780 |
Data processing | |
| 2,722 | |
| 2,940 | | | 2,662 |
Amortization of CDI | |
| 116 | |
| 124 | | | 140 |
Advertising and marketing | |
| 923 | |
| 614 | | | 466 |
FDIC insurance premium | |
| 534 | |
| 439 | | | 319 |
State and local taxes | |
| 896 | |
| 812 | | | 794 |
Telecommunications | |
| 204 | |
| 197 | | | 295 |
Professional fees | |
| 1,201 | |
| 1,235 | | | 1,231 |
(Gain) loss on sale of premises and equipment, net | |
| — | |
| (993) | |
| 14 |
Other | |
| 2,622 | |
| 2,091 | | | 1,983 |
Total non-interest expense | |
| 39,371 | |
| 36,718 | | | 36,254 |
| | | | | | | | | |
INCOME BEFORE INCOME TAXES | |
| 23,679 | |
| 28,276 | | | 13,453 |
PROVISION FOR INCOME TAXES | |
| 5,610 | |
| 6,456 | | | 2,981 |
NET INCOME | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
| | | | | | | | | |
Earnings per common share: | |
| | |
| | | | |
Basic | | $ | 0.84 | | $ | 0.98 | | $ | 0.47 |
Diluted | |
| 0.83 | |
| 0.98 | | | 0.47 |
Weighted average number of common shares outstanding: | |
| | |
| | | | |
Basic | |
| 21,637,526 | |
| 22,213,029 | | | 22,296,195 |
Diluted | |
| 21,646,101 | |
| 22,224,947 | | | 22,312,831 |
See accompanying notes to consolidated financial statements.
(In thousands, except share and per share data) | 2020 | 2019 | 2018 | ||||||||
INTEREST AND DIVIDEND INCOME: | |||||||||||
Interest and fees on loans receivable | $ | 46,405 | $ | 44,938 | $ | 40,013 | |||||
Interest on investment securities – taxable | 3,440 | 4,456 | 4,648 | ||||||||
Interest on investment securities – nontaxable | 117 | 146 | 95 | ||||||||
Other interest and dividends | 533 | 329 | 558 | ||||||||
Total interest and dividend income | 50,495 | 49,869 | 45,314 | ||||||||
INTEREST EXPENSE: | |||||||||||
Interest on deposits | 2,890 | 996 | 1,208 | ||||||||
Interest on borrowings | 1,874 | 1,819 | 1,141 | ||||||||
Total interest expense | 4,764 | 2,815 | 2,349 | ||||||||
Net interest income | 45,731 | 47,054 | 42,965 | ||||||||
Provision for loan losses | 1,250 | 50 | - | ||||||||
Net interest income after provision for loan losses | 44,481 | 47,004 | 42,965 | ||||||||
NON-INTEREST INCOME: | |||||||||||
Fees and service charges | 6,541 | 5,948 | 5,425 | ||||||||
Asset management fees | 4,408 | 3,791 | 3,448 | ||||||||
Net gains on sales of loans held for sale | 252 | 317 | 641 | ||||||||
BOLI | 864 | 734 | 819 | ||||||||
Other, net | 295 | 317 | 317 | ||||||||
Total non-interest income, net | 12,360 | 11,107 | 10,650 | ||||||||
NON-INTEREST EXPENSE: | |||||||||||
Salaries and employee benefits | 22,805 | 22,320 | 21,743 | ||||||||
Occupancy and depreciation | 5,576 | 5,334 | 5,454 | ||||||||
Data processing | 2,629 | 2,467 | 2,313 | ||||||||
Amortization of CDI | 161 | 183 | 232 | ||||||||
Advertising and marketing | 856 | 769 | 747 | ||||||||
FDIC insurance premium | 81 | 326 | 476 | ||||||||
State and local taxes | 675 | 651 | 605 | ||||||||
Telecommunications | 327 | 353 | 417 | ||||||||
Professional fees | 1,120 | 1,426 | 1,181 | ||||||||
Other | 2,033 | 1,870 | 2,450 | ||||||||
Total non-interest expense | 36,263 | 35,699 | 35,618 | ||||||||
INCOME BEFORE INCOME TAXES | 20,578 | 22,412 | 17,997 | ||||||||
PROVISION FOR INCOME TAXES | 4,830 | 5,146 | 7,755 | ||||||||
NET INCOME | $ | 15,748 | $ | 17,266 | $ | 10,242 | |||||
Earnings per common share: | |||||||||||
Basic | $ | 0.70 | $ | 0.76 | $ | 0.45 | |||||
Diluted | 0.69 | 0.76 | 0.45 | ||||||||
Weighted average number of common shares outstanding: | |||||||||||
Basic | 22,642,795 | 22,588,395 | 22,531,480 | ||||||||
Diluted | 22,698,415 | 22,659,594 | 22,623,455 |
67
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED MARCH 31, 2023, 2022 AND 2021
| | | | | | | | | |
| | | | | | | |||
| | | | | | | | | |
(In thousands) |
| 2023 |
| 2022 |
| 2021 | |||
| | | | | | | | | |
Net income | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
| | | | | | | | | |
Other comprehensive loss: | |
| | | | | | | |
Net unrealized holding losses from available for sale investment securities arising during the period, net of tax of $2,641, $3,091, and $713, respectively | | | (8,359) | | | (9,791) | | | (2,259) |
Total comprehensive income, net | | $ | 9,710 | | $ | 12,029 | | $ | 8,213 |
See accompanying notes to consolidated financial statements.
68
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2023, 2022 AND 2021
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
|
| |
| | |
| Additional |
| | |
| Other |
| | | ||
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | | | ||||||
(In thousands, except share and per share data) | | Shares | | Amount | | Capital | | Earnings | | Income (Loss) | | Total | |||||
| | | | | | | | | | | | | | | | | |
Balance April 1, 2020 |
| 22,544,285 | | $ | 225 | | $ | 64,649 | | $ | 81,870 | | $ | 2,099 | | $ | 148,843 |
| | | | | | | | | | | | | | | | | |
Net income |
| — | | | — | | | — | | | 10,472 | | | — | |
| 10,472 |
Cash dividend on common stock ($0.20 per share) |
| — | | | — | | | — | | | (4,461) | | | — | |
| (4,461) |
Exercise of stock options |
| 20,000 | | | 1 | | | 49 | | | — | | | — | |
| 50 |
Common stock repurchased |
| (295,900) | | | (3) | | | (1,444) | | | — | | | — | | | (1,447) |
Restricted stock grants |
| 90,763 | | | — | | | — | | | — | | | — | | | — |
Restricted stock cancelled | | (7,913) | | | — | | | — | | | — | | | — | |
| — |
Stock-based compensation expense |
| — | | | — | | | 396 | | | — | | | — | |
| 396 |
Other comprehensive loss, net |
| — | | | — | | | — | | | — | | | (2,259) | | | (2,259) |
Balance March 31, 2021 |
| 22,351,235 | | | 223 | | | 63,650 | | | 87,881 | | | (160) | | | 151,594 |
| | | | | | | | | | | | | | | | | |
Net income |
| — | | | — | | | — | | | 21,820 | | | — | | | 21,820 |
Cash dividend on common stock ($0.215 per share) |
| — | | | — | | | — | | | (4,769) | | | — | | | (4,769) |
Exercise of stock options |
| 6,000 | | | — | | | 17 | | | (1) | | | — | | | 16 |
Common stock repurchased | | (278,148) | | | (2) | | | (1,938) | | | — | | | — | | | (1,940) |
Restricted stock grants | | 69,285 | | | — | | | — | | | — | | | — | | | — |
Restricted stock cancelled |
| (20,976) | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation expense |
| — | | | — | | | 319 | | | — | | | — | | | 319 |
Other comprehensive loss, net | | — | | | — | | | — | | | — | | | (9,791) | | | (9,791) |
Balance March 31, 2022 |
| 22,127,396 | | | 221 | | | 62,048 | | | 104,931 | | | (9,951) | | | 157,249 |
| | | | | | | | | | | | | | | | | |
Net income |
| — | | | — | | | — | | | 18,069 | | | — | | | 18,069 |
Cash dividend on common stock ($0.24 per share) |
| — | | | — | | | — | | | (5,174) | | | — | | | (5,174) |
Exercise of stock options |
| 1,511 | | | — | | | 4 | | | — | | | — | | | 4 |
Common stock repurchased | | (975,666) | | | (9) | | | (6,697) | | | — | | | — | | | (6,706) |
Restricted stock grants and forfeited, net |
| 68,719 | | | — | | | — | | | — | | | — | | | — |
Stock-based compensation expense | | — | | | — | | | 390 | | | — | | | — | | | 390 |
Purchase of subsidiary shares from non-controlling interest | | — | | | — | | | (234) | | | — | | | — | | | (234) |
Other comprehensive loss, net |
| — | | | — | | | — | | | — | | | (8,359) | | | (8,359) |
Balance March 31, 2023 |
| 21,221,960 | | $ | 212 | | $ | 55,511 | | $ | 117,826 | | $ | (18,310) | | $ | 155,239 |
See accompanying notes to consolidated financial statements.
69
FOR THE YEARS ENDED MARCH 31, 2020, 20192023, 2022 AND 2018
(In thousands) | 2020 | 2019 | 2018 | ||||||||
Net income | $ | 15,748 | $ | 17,266 | $ | 10,242 | |||||
Other comprehensive income (loss): | |||||||||||
Net unrealized holding gain (loss) from available for sale investment securities arising | |||||||||||
during the period, net of tax of ($1,499), ($629) and $871, respectively | 4,748 | 2,122 | (2,719 | ) | |||||||
Reclassification adjustment of net gain from sale of available for sale investment | |||||||||||
securities included in income, net of tax of $7, $0 and $0, respectively | (23 | ) | - | - | |||||||
Total other comprehensive income (loss), net | 4,725 | 2,122 | (2,719 | ) | |||||||
Total comprehensive income, net | $ | 20,473 | $ | 19,388 | $ | 7,523 | |||||
| | | | | | | | | |
(In thousands) |
| 2023 |
| 2022 |
| 2021 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
| |
|
Net income | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | | | | | |
Depreciation and amortization | |
| 2,693 | | | 3,521 | | | 3,212 |
Purchased loans amortization (accretion), net | |
| 27 | | | (11) | | | 274 |
Provision for (recapture of) loan losses | |
| 750 | | | (4,625) | | | 6,300 |
Provision (benefit) for deferred income taxes | |
| (144) | | | 1,010 | | | (1,429) |
Stock-based compensation expense | |
| 390 | | | 319 | | | 396 |
Increase (decrease) in deferred loan origination fees, net of amortization | |
| (92) | | | (2,125) | | | 2,477 |
Origination of loans held for sale | |
| — | | | — | | | (913) |
Proceeds from sales of loans held for sale | |
| — | | | — | | | 1,214 |
Net gains on loans held for sale and sales of premises and equipment | |
| — | | | (993) | | | (14) |
Income from BOLI | |
| (821) | | | (800) | | | (813) |
BOLI death benefit in excess of cash surrender value | |
| — | |
| (500) | |
| — |
Changes in certain other assets and liabilities: | |
| | |
| | |
| |
Prepaid expenses and other assets | |
| (3,604) | | | 1,336 | | | 391 |
Accrued interest receivable | |
| (140) | | | 586 | | | (1,532) |
Accrued expenses and other liabilities | |
| (3,553) | | | (3,075) | | | 4,132 |
Net cash provided by operating activities | |
| 13,575 | | | 16,463 | | | 24,167 |
| | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | | | | | |
Loan repayments (originations), net | |
| 32,755 | | | 40,833 | | | (30,379) |
Purchases of loans receivable | |
| (51,102) | | | (85,900) | | | (3,844) |
Principal repayments on investment securities available for sale | |
| 14,422 | | | 37,157 | | | 43,824 |
Purchases of investment securities available for sale | |
| (73,303) | | | (86,621) | | | (120,371) |
Proceeds from calls of investment securities available for sale | |
| 2,010 | | | — | | | 4,000 |
Principal repayments on investment securities held to maturity | |
| 17,218 | | | 9,627 | | | 248 |
Purchases of investment securities held to maturity | | | (8,496) | | | (137,936) | | | (39,871) |
Purchases of premises and equipment and capitalized software | |
| (4,964) | | | (3,254) | | | (3,552) |
Purchase of FHLB stock, net | |
| (4,848) | | | (297) | | | (302) |
Proceeds from death benefit on BOLI | |
| — | | | 1,305 | |
| — |
Proceeds from sales of real estate owned ("REO") and premises and equipment | |
| 63 | | | 3,427 | | | — |
Net cash used in investing activities | |
| (76,245) | | | (221,659) | | | (150,247) |
| | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
| |
|
|
Net increase (decrease) in deposits | |
| (268,661) | | | 187,818 | | | 355,617 |
Dividends paid | |
| (5,117) | | | (4,670) | | | (4,478) |
Proceeds from borrowings | |
| 199,779 | | | 2,000 | | | 31,000 |
Repayment of borrowings | |
| (76,025) | | | (2,000) | | | (31,000) |
Net increase in advance payments by borrowers for taxes and insurance | |
| 70 | | | 34 | | | (182) |
Principal payments on finance lease liability | |
| (54) | | | (46) | | | (40) |
Proceeds from exercise of stock options | |
| 4 | | | 16 | | | 50 |
Repurchase of common stock | | | (6,706) | | | (1,940) | | | (1,447) |
Net cash (used in) provided by financing activities | |
| (156,710) | | | 181,212 | | | 349,520 |
| | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| (219,380) | | | (23,984) | | | 223,440 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |
| 241,424 | | | 265,408 | | | 41,968 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 22,044 | | $ | 241,424 | | $ | 265,408 |
| | | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
| | | | | | | |
Cash paid during the period for: | |
| | | | | | | |
Interest | | $ | 3,742 | | $ | 1,947 | | $ | 3,255 |
Income taxes | |
| 6,239 | | | 5,410 | | | 4,738 |
| | | | | | | | | |
NONCASH INVESTING AND FINANCING ACTIVITIES: | |
| | | | | | | |
Dividends declared and accrued in other liabilities | | $ | 1,274 | | $ | 1,217 | | $ | 1,118 |
Net unrealized holding losses from available for sale investment securities | |
| (11,000) | | | (12,882) | | | (2,972) |
Income tax effect related to other comprehensive income | |
| 2,641 | | | 3,091 | | | 713 |
ROU lease assets obtained in exchange for operating lease liabilities | |
| — | |
| 441 | |
| 6,148 |
See accompanying notes to consolidated financial statements.
70
RIVERVIEW BANCORP, INC. AND SUBSIDIARY
(In thousands, except share and per share data) | Common Stock | Unearned Shares Issued to Employee Stock | Accumulated | Total | ||||||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Ownership Plan (“ESOP”) | Other Comprehensive Income (Loss) | |||||||||||||||||
Balance April 1, 2017 | 22,510,890 | $ | 225 | $ | 64,468 | $ | 48,335 | $ | (77 | ) | $ | (1,687) | $ | 111,264 | ||||||||
Net income | - | - | - | 10,242 | - | - | 10,242 | |||||||||||||||
Cash dividend on common stock ($0.105 per share) | - | - | - | (2,367 | ) | - | - | (2,367 | ) | |||||||||||||
Exercise of stock options | 59,289 | 1 | 244 | - | - | - | 245 | |||||||||||||||
Stock-based compensation expense | - | - | 88 | - | - | - | 88 | |||||||||||||||
Reclassification of certain stranded income tax effects as a result of change in federal corporate income tax rate | - | - | - | 342 | - | (342 | ) | - | ||||||||||||||
Earned ESOP shares | - | - | 71 | - | 77 | - | 148 | |||||||||||||||
Other comprehensive loss, net | - | - | - | - | - | (2,719 | ) | (2,719 | ) | |||||||||||||
Balance March 31, 2018 | 22,570,179 | 226 | 64,871 | 56,552 | - | (4,748) | 116,901 | |||||||||||||||
Net income | - | - | - | 17,266 | - | - | 17,266 | |||||||||||||||
Cash dividend on common stock ($0.15 per share) | - | - | - | (3,390 | ) | - | - | (3,390 | ) | |||||||||||||
Exercise of stock options | 37,533 | - | 179 | - | - | - | 179 | |||||||||||||||
Stock-based compensation expense | - | - | 44 | - | - | - | 44 | |||||||||||||||
Other comprehensive income, net | - | - | - | - | - | 2,122 | 2,122 | |||||||||||||||
Balance March 31, 2019 | 22,607,712 | 226 | 65,094 | 70,428 | - | (2,626 | ) | 133,122 | ||||||||||||||
Net income | - | - | - | 15,748 | - | - | 15,748 | |||||||||||||||
Cash dividend on common stock ($0.19 per share) | - | - | - | (4,306 | ) | - | - | (4,306 | ) | |||||||||||||
Exercise of stock options | 58,000 | 1 | 226 | - | - | - | 227 | |||||||||||||||
Restricted stock grants | 82,673 | - | - | - | - | - | - | |||||||||||||||
Stock repurchased | (204,100 | ) | (2 | ) | (1,017 | ) | - | - | - | (1,019 | ) | |||||||||||
Stock-based compensation expense | - | - | 346 | - | - | - | 346 | |||||||||||||||
Other comprehensive income, net | - | - | - | - | - | 4,725 | 4,725 | |||||||||||||||
Balance March 31, 2020 | 22,544,285 | $ | 225 | $ | 64,649 | $ | 81,870 | $ | - | $ | 2,099 | $ | 148,843 | |||||||||
(In thousands) | 2020 | 2019 | 2018 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income | $ | 15,748 | $ | 17,266 | $ | 10,242 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 2,963 | 2,718 | 2,917 | ||||||||
Purchased loans amortization (accretion), net | 53 | (147 | ) | (277 | ) | ||||||
Provision for loan losses | 1,250 | 50 | - | ||||||||
Provision (benefit) for deferred income taxes | (574 | ) | (11 | ) | 3,668 | ||||||
Expense related to ESOP | - | - | 148 | ||||||||
Stock-based compensation expense | 346 | 44 | 88 | ||||||||
Increase in deferred loan origination fees, net of amortization | 138 | 498 | 498 | ||||||||
Origination of loans held for sale | (8,941 | ) | (11,105 | ) | (20,502 | ) | |||||
Proceeds from sales of loans held for sale | 9,743 | 10,579 | 21,204 | ||||||||
Net gains on sales of loans held for sale, sales of investment securities, sales of real estate owned (“REO”) and sales of premises and equipment | (355 | ) | (682 | ) | (725 | ) | |||||
Income from BOLI | (864 | ) | (734 | ) | (819 | ) | |||||
Changes in certain other assets and liabilities: | |||||||||||
Prepaid expenses and other assets | 2,622 | (868 | ) | (212 | ) | ||||||
Accrued interest receivable | 215 | (442 | ) | (536 | ) | ||||||
Accrued expenses and other liabilities | (6,427 | ) | 2,988 | (3,755 | ) | ||||||
Net cash provided by operating activities | 15,917 | 20,154 | 11,939 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Loan repayments (originations), net | (11,786 | ) | (34,427 | ) | 11,156 | ||||||
Purchases of loans receivable | (23,818 | ) | (29,929 | ) | (43,016 | ) | |||||
Principal repayments on investment securities available for sale | 28,371 | 26,519 | 28,569 | ||||||||
Purchases of investment securities available for sale | (18,125 | ) | - | (47,494 | ) | ||||||
Proceeds from calls, maturities, and sales of investment securities available for sale | 24,623 | 10,000 | 950 | ||||||||
Principal repayments on investment securities held to maturity | 7 | 7 | 22 | ||||||||
Purchases of premises and equipment | (2,953 | ) | (1,046 | ) | (753 | ) | |||||
Redemption of certificates of deposit held for investment | 498 | 5,220 | 5,075 | ||||||||
Redemption (purchases) of FHLB stock, net | 2,224 | (2,291 | ) | (172 | ) | ||||||
Proceeds from sales of REO and premises and equipment | 81 | 976 | 81 | ||||||||
Net cash used in investing activities | (878 | ) | (24,971 | ) | (45,582 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Net increase (decrease) in deposits | 65,394 | (70,568 | ) | 15,771 | |||||||
Dividends paid | (4,075 | ) | (3,163 | ) | (2,140 | ) | |||||
Proceeds from borrowings | 224,897 | 326,956 | 55,980 | ||||||||
Repayment of borrowings | (281,483 | ) | (270,370 | ) | (55,980 | ) | |||||
Net increase (decrease) in advance payments by borrowers for taxes and insurance | 72 | (6 | ) | (56 | ) | ||||||
Principal payments on finance lease liability | (34 | ) | (28 | ) | (23 | ) | |||||
Proceeds from exercise of stock options | 227 | 179 | 245 | ||||||||
Repurchase of common stock | (1,019 | ) | - | - | |||||||
Net cash provided by (used in) financing activities | 3,979 | (17,000 | ) | 13,797 | |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 19,018 | (21,817 | ) | (19,846 | ) | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 22,950 | 44,767 | 64,613 | ||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 41,968 | $ | 22,950 | $ | 44,767 | |||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
Cash paid during the year for: | |||||||||||
Interest | $ | 4,576 | $ | 2,686 | $ | 2,176 | |||||
Income taxes | 4,438 | 6,877 | 3,280 | ||||||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
Dividends declared and accrued in other liabilities | $ | 1,135 | $ | 904 | $ | 677 | |||||
Other comprehensive income (loss) | 6,217 | 2,751 | (3,590 | ) | |||||||
Income tax effect related to other comprehensive income (loss) | (1,492 | ) | (629 | ) | 871 | ||||||
Recognition of right-of-use lease assets and operating lease liabilities (See Note 18) | 5,603 | - | - |
YEARS ENDED MARCH 31, 2020, 20192023, 2022 and 2018
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
– The accompanying consolidated financial statements include the accounts of Riverview Bancorp, Inc.; its wholly-owned subsidiary, RiverviewFor the period from April 1, 2017 through December 2019, the Trust Company was a wholly-owned subsidiary of the Bank. In December 2019, the Trust Company issued 1,500 shares of Trust Company stock in conjunction with the exercise of 1,500 Trust Company stock options by the Trust Company’s President and Chief Executive Officer. As a resultIn both October 2020 and May 2021, the Trust Company issued an additional 500 shares of thisTrust Company stock upon the exercise of options for 500 shares of Trust Company common stock by the Trust Company’s President and Chief Executive Officer. In August 2022, the Trust Company repurchased all the outstanding shares held by its noncontrolling interest owner. Upon repurchase, these shares were retired. This transaction resulted in the Bank’s ownership in the Trust Company decreasedincreasing from 100%97.3% to 98%, resulting in a noncontrolling interest.100%. The noncontrolling interest was $107,000 asbook value of March 31, 2020, and net income attributable to the noncontrolling interest was $5,000 for$234,000 prior to the year ended March 31, 2020.share repurchase. These amounts were insignificant and are not presented separately in the accompanying consolidated financial statements due to their insignificance.
The Company has three subsidiary grantor trusts which were established in connection with the issuance of trust preferred securities (see Note 10). In accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”), the accounts and transactions of the trusts are not included in the accompanying consolidated financial statements.
Nature of Operations
– The Bank is a community-oriented financial institution which operatesBusiness segments
– TheUse of Estimates in the Preparation of Consolidated Financial Statements
– The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of related revenue and expense during the reporting period. Actual results could differ from those estimates.Cash and Cash Equivalents
– Cash and cash equivalents include amounts on hand, due from banks and interest-earning deposits in other banks. Cash and cash equivalents have a maturity of 90 days or less at the time of purchase.71
Certificates of Deposit Held for Investment
– Certificates of deposit held for investment include amounts invested with financial institutions at a stated interest rate and maturity date. Early withdrawal penalties apply; however, the Company plans to hold these investments to maturity.Investment Securities
– Investments in debt securities are classified as held to maturity when the Company has the ability and positive intent to hold such securities to maturity. Investments in debt securities held to maturity are carried at amortized cost. Unrealized losses on investments in debt securities held to maturity due to fluctuations in fair value are recognized when it is determined that a credit-related other than temporary decline in value has occurred. Investments in debt securities bought and held principally for the purpose of sale in the near-term are classified as trading securities. Investments in debt securities that the Company intends to hold for an indefinite period, but not necessarily to maturity, are classified as available for sale. Such debt securities may be sold to implement the Company’s asset/liability management strategies and in response to changes in interest rates and similar factors. Investments in debt securities available for sale are reported at estimated fair value. Unrealized gains and losses on investment securities available for sale, net of the related deferred tax effect, are included in total comprehensive income and are reported as a net amount in a separate component of shareholders’ equity entitled “accumulated other comprehensive income (loss).” Realized gains and losses on sales of investments in debt securities available for sale, determined using the specific identification method, are included in earnings on the trade date. Amortization of premiums and accretion of discounts are recognized in interest income over the period to contractual maturity or expected call, if sooner. The Company’s investment portfolio consists of debt securities and does not include any equity securities.The Company analyzes investments in debt securities for other than temporary impairment (“OTTI”) on a quarterly basis. OTTI is separated into a credit component and a noncredit component. Credit component losses are reported in non-interest income when the present value of expected future cash flows is less than the amortized cost. Noncredit component losses are recorded in other comprehensive income (loss) when the Company (1) does not intend to sell the security or (2) is not more likely than not to have to sell the security prior to the security’s anticipated recovery. If the Company is likely to sell an investment in a debt security, any noncredit component losses are recognized and are reported in non-interest income.
Loans Receivable
– Loans are stated at the amount of unpaid principal, reduced by net deferred loan origination fees and an allowance for loan losses. Interest on loans is accrued daily based on the principal amount outstanding.Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 days to 89 days delinquent. In general, when a loan is 90 days or more delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months.
Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment of the yield of the related loan.
Acquired Loans
– Purchased loans, including loans acquired in business combinations, are recorded at their estimated fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired (“PCI”) or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination72
For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the lives of the related loans. Any subsequent deterioration in credit quality is recognized by recording an allowance for loan losses.
Allowance for Loan Losses
– The allowance for loan losses is maintained at a level sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon management’s ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions and a detailed analysis of individual loans for which full collectability may not be assured. The detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance consists of specific, general and unallocated components.The specific component relates to loans that are considered impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value (less estimated selling costs, if applicable) of the impaired loan is lower than the carrying value of that loan.
The general component covers non-impaired loans based on the Company’s risk rating system and historical loss experience adjusted for qualitative factors. The Company calculates its historical loss rates using the average of the last four quarterly 24-month periods. The Company calculates and applies its historical loss rates by individual loan types in its loan portfolio. These historical loss rates are adjusted for qualitative and environmental factors.
An unallocated component is maintained to cover uncertainties that the Company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses. Such factors include uncertainties in economic conditions, uncertainties in identifying triggering events that directly correlate to subsequent loss rates, changes in appraised value of underlying collateral, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current loan portfolio or economic conditions. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company as of the date of the filing of the consolidated financial statements.
When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for loan losses. The existence of some or all of the following criteria will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; the Company has no recourse to the borrower, or if it does, the borrower has insufficient assets to pay the debt; and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.
A loan is considered impaired when it is probable that the Company will be unable to collect all amounts when due (principal and interest) according to the contractual terms of the loan agreement. Typically, factors used in determining if a loan is impaired include, but are not limited to, whether the loan is 90 days or more delinquent, internally designated as substandard or worse, on non-accrual status or represents a troubled debt restructuring (“TDR”). The 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
73
In accordance with the Company’s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. Consumer installment loans delinquent six months or more that have not received at least 75% of their required monthly payments in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy protection with no payments received for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value of the underlying collateral is generally charged-off if no payments are received for four to five consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is charged off.
A provision for loan losses is charged against income and is added to the allowance for loan losses based on regular assessments of the loan portfolio. The allowance for loan losses is allocated to certain loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio. While management has allocated the allowance for loan losses to various loan portfolio segments, the allowance is general in nature and is available for the loan portfolio in its entirety.
Management’s evaluation of the allowance for loan losses is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio. Loss factors are based on the Company’s historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of impaired loans and other factors as deemed appropriate. These factors are evaluated on a quarterly basis. Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.
Allowance for Unfunded Loan Commitments
– The allowance for unfunded loan commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. The allowance for unfunded loan commitments is included in accrued expenses and other liabilities in the consolidated balance sheets, with changes to the balance charged against non-interest expense.REO
– REO consists of properties acquired through foreclosure and is initially recorded at the estimated fair value of the properties, less estimated costs of disposal. At the time of foreclosure, specific charge-offs are taken against the allowance for loan losses based upon a detailed analysis of the fair value of collateral on the underlying loans on which the Company is in the process of foreclosing. Subsequently, the Company performs an evaluation of the properties and records a valuation allowance with an offsetting charge to REO expenses for any declines in value. Management considers third-party appraisals, as well as independent fair market value assessments from realtors or persons involved in selling real estate, in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated periodically, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. The amounts the Company will ultimately recover and record in the accompanying consolidated financial statements from the disposition of REO may differ from the amounts used in arriving at the net carrying value of these assets because of future market factors beyond the Company’s control or because of changes in the Company’s strategy for the sale of the property. Costs relating to development and improvement of the properties or assets are capitalized, while costs relating to holding the properties or assets are expensed. The Company held no REO at March 31, 2023 and 2022. At March 31,74
Federal Home Loan Bank Stock
– The Bank, as a member of the Federal Home Loan Bank of Des Moines (“FHLB”), is required to maintain a minimum investment in capital stock of the FHLB based on specific percentages of its outstanding FHLB advances. The Company’s investment in FHLB stock is carried at cost, which approximates fair value. The Company views its investment in FHLB stock as a long-term investment. Accordingly, when evaluating FHLB stock for impairment, the value is determined based on the ultimate redemption of the par value rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate redemption value is influenced by criteria such as: (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount of the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB. The Company evaluated its investment in FHLB stock for OTTI, consistent with its accounting policy. Based on the Company’s evaluation, the Company determined there is not any OTTI on its FHLB stock at March 31,Premises and Equipment
– Premises and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvements are amortized over the estimated term of the related lease or the estimated useful life of the improvements, whichever is less. Depreciation and amortizationThe assets held under the finance lease are amortized on a straight-line basis over the lease term and the amortization is included in depreciation and amortization expense.
Mortgage Servicing Rights (“MSRs”) –
The Company services certain loans that it has originated and sold to the Federal Home Loan Mortgage Corporation (“FHLMC”). Loan servicing includes collecting payments; remitting funds to investors, insurance companies and tax authorities; collecting delinquent payments; and foreclosing on properties when necessary. Fees earned for servicing loans for the FHLMC are reported as income when the related mortgage loan payments are collected. Loan servicing costs are charged to expense as incurred. In addition, the Company has recorded MSRs, which represent the rights to service loans.The Company records its originated MSRs at fair value in accordance with GAAP, which requires the Company to allocate the total cost of all mortgage loans sold between theloans sold with MSRs retained and the loans (without the MSRs)with MSRs released, based on their relative fair values if it is practicable to estimate those fair values. The Company stratifies its MSRs based on the predominant characteristics of the underlying financial assets including the coupon interest rate and the contractual maturity of the mortgage. The Company is amortizing the MSRs in proportion to and over the period of estimated net servicing income.
Business Combinations, CDI and Goodwill –
GAAP requires the total purchase price in a business combination to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets. Subsequent adjustments to the initial allocation of the purchase price may be made related to fair value estimates for which all relevant information has not been obtained, known, or discovered relating to the acquired entity during the allocation period (which is the period of time required to identify and measure the estimated fair values of the assets acquired and liabilities assumed in a business combination). The allocation period is generally limited to one year following consummation of a business combination.CDI represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of a business combination. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment and recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. At both March 31, 20202023 and 2019,2022, gross CDI was $1.36$1.4 million. At March 31, 20202023 and 2019,2022, accumulated amortization was $604,000$984,000 and $443,000,$868,000, respectively. The amortization expense for CDI in future years is estimated to be $140,000, $125,000, $116,000, $108,000, $100,000, $93,000, and $170,000$78,000 for the years endedending March 31, 2021, 2022, 2023, 2024, 2025, 2026, and thereafter,2027, respectively.
75
Goodwill and certain other intangibles generally arise from business combinations. Goodwill and other intangibles generated from business combinations that are deemed to have indefinite lives are not subject to amortization and are instead tested for impairment not less than annually. The Company performs an annual review in the third quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired (see Note 7).
BOLI
– BOLI policies are recorded at their cash surrender value less applicable surrender charges. Income from BOLI is recognized when earned.Advertising and Marketing
– Costs incurred for advertising, merchandising, market research, community investment and business development are classified as advertising and marketing expense and are expensed as incurred.Income Taxes
– Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some portion of the potential deferred tax asset will not be realized. The Company files a consolidated federal income tax return. The Bank provides for income taxes separately and remits to the Company amounts currently due.
Transfers of financial assets
– Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.Trust Assets
– Assets held by the Trust Company in a fiduciary or agency capacity for trust customers are not included in the consolidated financial statements because such items are not assets of the Company. Assets totalingEarnings Per Share
– GAAP requires all companies whose capital structure includes dilutive potential common shares to make a dual presentation of basic and diluted earnings per share for all periods presented. The Company’s basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period,Stock-Based Compensation
– The Company measures compensation cost for all stock-based awards based on the grant-date fair value of the awards and recognizes compensation cost over the service period of stock-based awards. The fair value of stock options is determined using the Black-Scholes valuation model. The fair value of restricted stock is determined based on the grant date fair value of the Company’s common stock.Accounting Pronouncements Recently Issued or Adopted–
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases”, which created FASB Accounting Standards Codification (“ASC”) Topic 842 ("ASC 842"). The principal change required by ASC 842 relates to lessee accounting, and is that for operating leases, a lessee is required to (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis, and (3) classify all cash payments within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASC 842 also changes disclosure requirements related to leasing activities and requires certain qualitative disclosures along with specific quantitative disclosures. ASC 842 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company adopted ASC 842 effective April 1, 2019 using a modified retrospective method of application to all leases existing on April 1, 2019. Therefore, the comparative prior period information has not been restated and continues to be reported under superseded ASC 840. The adoption of ASC 842 resulted in the Company recognizing operating lease right-of-use assets and operating lease liabilities of $5.6 million in the Company's consolidated balance sheet as of April 1, 2019. As the operating lease right-of-use assets and the operating lease liabilities were the same upon adoption of ASC 842, there was no cumulative effect impact on the Company's total consolidated assets, liabilities and shareholders' equity. The Company elected the package of practical expedients permitted under ASC 842's transition guidance, which allows the Company to carryforward its historical lease classifications and its assessment as to whether a contract is or contains a lease. The Company also elected to not recognize lease assets and lease liabilities for leases with an initial term of 12 months or less. See Note 18 for additional discussion.
76
disclosure requirements. As a Securities Exchange Commission “smaller reporting company” filer with the U.S. Securities and Exchange Commission, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.April 1, 2023. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairmentOTTI of investment securities available for sale will be replaced with an allowance approach. The Company is reviewing the requirements of ASU 2016-13 and has begun developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. At this time, management anticipatesdoes not expect the allowance for loan losses will increaseto materially change as a result of the implementation of ASU 2016-13; however, until management’s evaluation is complete,2016-13 and expects to finalize the magnitudecalculation in the first quarter of the increase willfiscal year ending March 31, 2024.
In March 2022, the FASB issued ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). ASU 2022-02 eliminates the accounting guidance for TDRs in Accounting Standards Codification (“ASC”) 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the CECL model introduced by ASU 2016-13. ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost". This ASU is effective upon adoption of ASU 2016-13. The adoption of ASU 2022-02 is not be known.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductibletax-deductible goodwill on the carrying amount of the reporting unit when measuring
In March 2020, the FASB issued ASU 2020-04, “Reference"Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“Reporting" ("ASU 2020-04”2020-04"). ASU 2020-04 applies to contracts, hedging relationships and other transactions that reference LIBORthe London Interbank Offer Rate (“LIBOR”) or other rate references expected to be discontinued because of reference rate reform. ASU 2020-04 permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. The Company’sCompany's current interest rates on its junior subordinated debentures are based upon the three-month LIBOR plus a spread.
In January 2021, ASU 2021-01 updated amendments in ASU 2020-04 isto clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification. The amendments in ASU 2021-01 have differing effective for all entities as ofdates, beginning with interim periods including and subsequent to March 12, 2020 through December 31, 2022.
In December 2022, ASU 2022-06 extended the period of time financial statement preparers can utilize the reference rate reform relief guidance. In March 2021, the Financial Conduct Authority announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of U.S. Dollar LIBOR would be June 30, 2023, which is beyond the current sunset date of ASU 2021-01. The amendments in ASU 2022-06 defer the sunset date of ASU 2021-01 from December 31, 2022 to December 31, 2024. The Company has not adopted ASU 2020-04 as of March 31, 2020.2023. The adoption of ASU 2020-04, as amended, is not expected to have a material impact on the Company’sCompany's future consolidated financial statements.
Reclassifications
– Certain prior period amounts have been reclassified to conform to the current period presentation; such reclassifications had no effect on previously reported net income or total shareholders’ equity.
77
2. RESTRICTED ASSETS
Regulations of the Board of Governors of the Federal Reserve System require that the Bank maintain minimum reserve balances either on hand or on deposit with the Federal Reserve Bank of San Francisco (“FRB”) based on a percentage of deposits. Effective March 26, 2020, the reserve requirement was reduced to zero and the Bank was not required to maintain any such reserve balances as of March 31, 2020. The minimum reserve balance as of March 31, 2019 was $1.8 million.
3. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities consisted of the following at the dates indicated (in thousands):
| | | | | | | | | | | | |
|
| | |
| Gross |
| Gross |
| Estimated | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
| | Cost | | Gains | | Losses | | Value | ||||
March 31, 2023 |
| |
|
| |
|
| |
|
| |
|
Available for sale: |
| | |
| |
|
| |
|
| |
|
Municipal securities | | $ | 47,857 | | $ | 16 | | $ | (7,612) | | $ | 40,261 |
Agency securities | |
| 91,858 | | | 23 | | | (5,974) | | | 85,907 |
Real estate mortgage investment conduits (1) | |
| 34,247 | | | — | | | (5,370) | | | 28,877 |
Residential mortgage-backed securities (1) | |
| 16,512 | | | — | | | (1,041) | | | 15,471 |
Other mortgage-backed securities (2) | |
| 45,117 | | | 4 | | | (4,138) | | | 40,983 |
Total available for sale | | $ | 235,591 | | $ | 43 | | $ | (24,135) | | $ | 211,499 |
| | | | | | | | | | | | |
Held to maturity: | |
| | | | | | | | | | |
Municipal securities | | $ | 10,344 | | $ | — | | $ | (2,859) | | $ | 7,485 |
Agency securities | | | 53,941 | | | — | | | (5,091) | | | 48,850 |
Real estate mortgage investment conduits (1) | | | 35,186 | | | — | | | (4,769) | | | 30,417 |
Residential mortgage-backed securities (1) | | | 123,773 | | | — | | | (17,542) | | | 106,231 |
Other mortgage-backed securities (3) | | | 20,599 | | | — | | | (3,368) | | | 17,231 |
Total held to maturity | | $ | 243,843 | | $ | — | | $ | (33,629) | | $ | 210,214 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
March 31, 2020 | ||||||||||||||||
Available for sale: | ||||||||||||||||
Municipal securities | $ | 4,740 | $ | 137 | $ | - | $ | 4,877 | ||||||||
Agency securities | 6,009 | 17 | (10 | ) | 6,016 | |||||||||||
Real estate mortgage investment conduits (1) | 42,663 | 1,128 | - | 43,791 | ||||||||||||
Residential mortgage-backed securities (1) | 58,700 | 1,415 | (30 | ) | 60,085 | |||||||||||
Other mortgage-backed securities (2) | 33,417 | 256 | (151 | ) | 33,522 | |||||||||||
Total available for sale | $ | 145,529 | $ | 2,953 | $ | (191 | ) | $ | 148,291 | |||||||
Held to maturity: | ||||||||||||||||
Residential mortgage-backed securities (3) | $ | 28 | $ | - | $ | - | $ | 28 | ||||||||
| | | | | | | | | | | | |
|
| | |
| Gross |
| Gross |
| | | ||
| | Amortized | | Unrealized | | Unrealized | | Estimated | ||||
| | Cost | | Gains | | Losses | | Fair Value | ||||
March 31, 2022 |
| |
|
| |
|
| |
|
| |
|
Available for sale: |
| |
|
| |
|
| |
|
| |
|
Municipal securities | | $ | 44,104 | | $ | 14 | | $ | (4,514) | | $ | 39,604 |
Agency securities | |
| 43,848 | | | 1 | | | (3,144) | | | 40,705 |
Real estate mortgage investment conduits (1) | |
| 35,563 | | | 1 | | | (2,847) | | | 32,717 |
Residential mortgage-backed securities (1) | |
| 17,368 | | | 13 | | | (436) | | | 16,945 |
Other mortgage-backed securities (2) | |
| 37,991 | | | 28 | | | (2,208) | | | 35,811 |
Total available for sale | | $ | 178,874 | | $ | 57 | | $ | (13,149) | | $ | 165,782 |
| | | | | | | | | | | | |
Held to maturity: | |
| | | | | | | | | | |
Municipal securities | | $ | 10,368 | | $ | — | | $ | (1,422) | | $ | 8,946 |
Agency securities | | | 45,277 | | | — | | | (2,450) | | | 42,827 |
Real estate mortgage investment conduits (1) | | | 39,394 | | | — | | | (2,457) | | | 36,937 |
Residential mortgage-backed securities (1) | | | 137,343 | | | — | | | (8,883) | | | 128,460 |
Other mortgage-backed securities (3) | | | 20,718 | | | — | | | (1,859) | | | 18,859 |
Total held to maturity | | $ | 253,100 | | $ | — | | $ | (17,071) | | $ | 236,029 |
(1) Comprised of FHLMC, Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities.
(2) Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by FNMA and FHLMC.
(3) Comprised of FHLMC and FNMA issued securities.
78
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
March 31, 2019 | ||||||||||||||||
Available for sale: | ||||||||||||||||
Municipal securities | $ | 8,885 | $ | 30 | $ | (34 | ) | $ | 8,881 | |||||||
Agency securities | 12,426 | 22 | (107 | ) | 12,341 | |||||||||||
Real estate mortgage investment conduits (1) | 40,835 | - | (673 | ) | 40,162 | |||||||||||
Residential mortgage-backed securities (1) | 77,402 | 7 | (1,588 | ) | 75,821 | |||||||||||
Other mortgage-backed securities (2) | 42,133 | 12 | (1,124 | ) | 41,021 | |||||||||||
Total available for sale | $ | 181,681 | $ | 71 | $ | (3,526 | ) | $ | 178,226 | |||||||
Held to maturity: | ||||||||||||||||
Residential mortgage-backed securities (3) | $ | 35 | $ | - | $ | - | $ | 35 | ||||||||
(1) Comprised of FHLMC, Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities. | ||||||||||||||||
(2) Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by FNMA. | ||||||||||||||||
(3) Comprised of FHLMC and FNMA issued securities. |
During the third fiscal quarter of 2022, the Company reassessed the classification of certain investment securities and transferred $85.8 million of U.S. government and agency securities from the available for sale classification to the held to maturity classification. The net unrealized after tax gain of $18,000 was deemed insignificant and the book balance of investment securities were transferred. No gains or losses were recognized in connection with the transfer.
The contractual maturities of investment securities as of March 31, 20202023 are as follows (in thousands):
| | | | | | | | | | | | |
| | Available for Sale | | Held to Maturity | ||||||||
|
| | |
| Estimated |
| | |
| Estimated | ||
| | Amortized | | Fair | | Amortized | | Fair | ||||
| | Cost | | Value | | Cost | | Value | ||||
Due in one year or less | | $ | 12,442 | | $ | 12,261 | | $ | 4 | | $ | 4 |
Due after one year through five years | |
| 82,028 | |
| 78,204 | |
| 42,211 | |
| 39,339 |
Due after five years through ten years | |
| 54,035 | |
| 47,214 | |
| 29,695 | |
| 24,965 |
Due after ten years | |
| 87,086 | |
| 73,820 | |
| 171,933 | |
| 145,906 |
Total | | $ | 235,591 | | $ | 211,499 | | $ | 243,843 | | $ | 210,214 |
Available for Sale | Held to Maturity | |||||||||||||||
Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||
Due in one year or less | $ | 1,001 | $ | 1,015 | $ | - | $ | - | ||||||||
Due after one year through five years | 4,324 | 4,320 | 25 | 25 | ||||||||||||
Due after five years through ten years | 33,195 | 33,983 | 3 | 3 | ||||||||||||
Due after ten years | 107,009 | 108,973 | - | - | ||||||||||||
Total | $ | 145,529 | $ | 148,291 | $ | 28 | $ | 28 |
Expected maturities of investment securities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
79
The fair value of temporarily impaired investment securities, the amount of unrealized losses and the length of time these unrealized losses existed are as follows at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or longer | | Total | ||||||||||||
|
| Estimated |
| | |
| Estimated |
| | |
| Estimated |
| | | |||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
March 31, 2023 | | Value | | Losses | | Value | | Losses | | Value | | Losses | ||||||
| | | | | | | | | | | | | | | | | | |
Available for sale: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Municipal securities | | $ | 6,277 | | $ | (133) | | $ | 32,797 | | $ | (7,479) | | $ | 39,074 | | $ | (7,612) |
Agency securities | |
| 43,451 | |
| (747) | |
| 36,646 | |
| (5,227) | |
| 80,097 | |
| (5,974) |
Real estate mortgage investment conduits (1) | |
| 2,693 | |
| (97) | |
| 26,184 | |
| (5,273) | |
| 28,877 | |
| (5,370) |
Residential mortgage-backed securities (1) | |
| 3,449 | |
| (147) | |
| 12,022 | |
| (894) | |
| 15,471 | |
| (1,041) |
Other mortgage-backed securities (2) | |
| 13,876 | |
| (376) | |
| 26,619 | |
| (3,762) | |
| 40,495 | |
| (4,138) |
Total available for sale | | $ | 69,746 | | $ | (1,500) | | $ | 134,268 | | $ | (22,635) | | $ | 204,014 | | $ | (24,135) |
| | | | | | | | | | | | | | | | | | |
Held to maturity: | | | | | | | | | | | | | | | | | | |
Municipal securities | | $ | — | | $ | — | | $ | 7,485 | | $ | (2,859) | | $ | 7,485 | | $ | (2,859) |
Agency securities | | | 8,413 | | | (240) | | | 40,437 | | | (4,851) | | | 48,850 | | | (5,091) |
Real estate mortgage investment conduits (1) | | | 2,580 | | | (191) | | | 27,837 | | | (4,578) | | | 30,417 | | | (4,769) |
Residential mortgage-backed securities (1) | | | 2 | | | — | | | 106,229 | | | (17,542) | | | 106,231 | | | (17,542) |
Other mortgage-backed securities (3) | | | — | | | — | | | 17,231 | | | (3,368) | | | 17,231 | | | (3,368) |
Total held to maturity | | $ | 10,995 | | $ | (431) | | $ | 199,219 | | $ | (33,198) | | $ | 210,214 | | $ | (33,629) |
| | | | | | | | | | | | | | | | | | |
March 31, 2022 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | | | | | | | | | |
Available for sale: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Municipal securities | | $ | 32,767 | | $ | (4,293) | | $ | 3,282 | | $ | (221) | | $ | 36,049 | | $ | (4,514) |
Agency securities | | | 22,288 | |
| (1,565) | |
| 16,414 | |
| (1,579) | |
| 38,702 | |
| (3,144) |
Real estate mortgage investment conduits (1) | |
| 17,334 | |
| (1,310) | |
| 15,275 | |
| (1,537) | |
| 32,609 | |
| (2,847) |
Residential mortgage-backed securities (1) | |
| 15,702 | |
| (436) | |
| — | |
| — | |
| 15,702 | |
| (436) |
Other mortgage-backed securities (2) | |
| 32,408 | |
| (2,194) | |
| 769 | |
| (14) | |
| 33,177 | |
| (2,208) |
Total available for sale | | $ | 120,499 | | $ | (9,798) | | $ | 35,740 | | $ | (3,351) | | $ | 156,239 | | $ | (13,149) |
| | | | | | | | | | | | | | | | | | |
Held to maturity: | | | | | | | | | | | | | | | | | | |
Municipal securities | | $ | 5,911 | | $ | (816) | | $ | 3,036 | | $ | (606) | | $ | 8,947 | | $ | (1,422) |
Agency securities | | | 35,930 | | | (1,708) | | | 6,897 | | | (742) | | | 42,827 | | | (2,450) |
Real estate mortgage investment conduits (1) | | | 26,233 | | | (1,715) | | | 7,735 | | | (742) | | | 33,968 | | | (2,457) |
Residential mortgage-backed securities (1) | | | 111,096 | | | (7,160) | | | 17,363 | | | (1,723) | | | 128,459 | | | (8,883) |
Other mortgage-backed securities (3) | | | 13,472 | | | (1,153) | | | 5,386 | | | (706) | | | 18,858 | | | (1,859) |
Total held to maturity | | $ | 192,642 | | $ | (12,552) | | $ | 40,417 | | $ | (4,519) | | $ | 233,059 | | $ | (17,071) |
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||
Agency securities | $ | 1,998 | $ | (10 | ) | $ | - | $ | - | $ | 1,998 | $ | (10 | ) | ||||||||||
Residential mortgage-backed securities (1) | 2,509 | (22 | ) | 409 | (8 | ) | 2,918 | (30 | ) | |||||||||||||||
Other mortgage-backed securities (3) | 11,726 | (58 | ) | 4,911 | (93 | ) | 16,637 | (151 | ) | |||||||||||||||
Total available for sale | $ | 16,233 | $ | (90 | ) | $ | 5,320 | $ | (101 | ) | $ | 21,553 | $ | (191 | ) | |||||||||
March 31, 2019 | ||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||
Municipal securities | $ | - | $ | - | $ | 6,554 | $ | (34 | ) | $ | 6,554 | $ | (34 | ) | ||||||||||
Agency securities | - | - | 6,861 | (107 | ) | 6,861 | (107 | ) | ||||||||||||||||
Real estate mortgage investment conduits (2) | - | - | 40,126 | (673 | ) | 40,126 | (673 | ) | ||||||||||||||||
Residential mortgage-backed securities (2) | - | - | 74,288 | (1,588 | ) | 74,288 | (1,588 | ) | ||||||||||||||||
Other mortgage-backed securities (3) | - | - | 40,409 | (1,124 | ) | 40,409 | (1,124 | ) | ||||||||||||||||
Total available for sale | $ | - | $ | - | $ | 168,238 | $ | (3,526 | ) | $ | 168,238 | $ | (3,526 | ) | ||||||||||
(1) Comprised of FHLMC and FNMA issued securities. | ||||||||||||||||||||||||
(2) Comprised of FHLMC, FNMA and GNMA issued securities. | ||||||||||||||||||||||||
(3) Comprised of SBA and CRE secured securities issued by FNMA. |
(1) Comprised of FHLMC, FNMA and GNMA issued securities.
(2) Comprised of SBA and CRE secured securities issued by FHLMC and FNMA.
(3) Comprised of CRE secured securities issued by FHLMC and FNMA.
The unrealized losses on the Company’s investment securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline. The Company does not believe that these securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event. Based on management’s evaluation and intent, the unrealized losses related to the investment securities in the above tables are considered temporary.
80
The Company had no sales and realized no gains or losses on sales of investment securities for the years ended March 31, 20192023, 2022 and 2018. 2021.
Investment securities available for sale with an amortized cost of $6.6$3.2 million and $5.8$1.3 million and a fair value of $6.8$2.9 million and $5.7$1.2 million at March 31, 20202023 and 2019,2022, respectively, were pledged as collateral for government public funds held by the Bank. There were noInvestment securities held to maturity securitieswith an amortized cost of $12.3 million and $13.7 million and a fair value of $10.4 million and $12.6 million at March 31, 2023 and 2022, respectively, were pledged as collateral for government public funds held by the Bank at March 31, 2020 and 2019.
4. LOANS RECEIVABLE
Loans receivable at March 31, 2020 and 2019 are reported net of deferred loan fees totaling $4.1and discounts, and inclusive of premiums. At March 31, 2023, deferred loan fees totaled $4.4 million and $4.0compared to $4.5 million respectively.at March 31, 2022. Loans receivable are also reported net of discounts and premiums totaling $1.1totaled $1.4 million and $1.5$2.1 million, respectively, as of March 31, 2020,2023, compared to $1.5 million$371,000 and $1.8$2.4 million, respectively, as of March 31, 2019.2022. Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands):
| | | | | | |
|
| March 31, |
| March 31, | ||
| | 2023 | | 2022 | ||
Commercial and construction |
| |
|
| |
|
Commercial business | | $ | 232,868 | | $ | 228,091 |
Commercial real estate | |
| 564,496 | | | 582,837 |
Land | |
| 6,437 | | | 11,556 |
Multi-family | |
| 55,836 | | | 60,211 |
Real estate construction | |
| 47,762 | | | 24,160 |
Total commercial and construction | |
| 907,399 | | | 906,855 |
| | | | | | |
Consumer | |
| | | | |
Real estate one-to-four family | |
| 99,673 | | | 82,006 |
Other installment | |
| 1,784 | | | 1,547 |
Total consumer | |
| 101,457 | | | 83,553 |
| | | | | | |
Total loans | |
| 1,008,856 | | | 990,408 |
| | | | | | |
Less: Allowance for loan losses | |
| 15,309 | | | 14,523 |
Loans receivable, net | | $ | 993,547 | | $ | 975,885 |
March 31, 2020 | March 31, 2019 | ||||
Commercial and construction | |||||
Commercial business | $ | 179,029 | $ | 162,796 | |
Commercial real estate | 507,871 | 461,432 | |||
Land | 14,026 | 17,027 | |||
Multi-family | 58,374 | 51,570 | |||
Real estate construction | 64,843 | 90,882 | |||
Total commercial and construction | 824,143 | 783,707 | |||
Consumer | |||||
Real estate one-to-four family | 83,150 | 84,053 | |||
Other installment | 4,216 | 8,356 | |||
Total consumer | 87,366 | 92,409 | |||
Total loans | 911,509 | 876,116 | |||
Less: Allowance for loan losses | 12,624 | 11,457 | |||
Loans receivable, net | $ | 898,885 | $ | 864,659 | |
The Company’s loan portfolio includes originated and purchased loans. Originated loans and purchased loans for which there was no evidence of credit deterioration at their acquisition date and for which it was probable that the Company would be able to collect all contractually required payments, are referred to collectively as “loans”. The Company originates commercial business, commercial real estate, land, multi-family real estate, real estate construction, residential real estate and other consumer loans. At March 31, 20202023 and 2019,2022, the Company had no loans to foreign domiciled businesses or foreign countries, or loans related to highly leveraged transactions. Substantially all of the mortgage loans in the Company’s loan portfolio are secured by properties located in Washington and Oregon, and accordingly, the ultimate collectibilitycollectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in the local economic conditions in these markets. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulations to 15% of the Bank’s shareholders’ equity, excluding accumulated other comprehensive income (loss) (“AOCI”). The Company considers its loan portfolio to have very little exposure to sub-prime mortgage loans since the Company has not historically engaged in this type of lending. At March 31, 2020,2023, loans carried at $525.6$601.5 million were pledged as collateral to the FHLB and FRB for borrowing arrangements.
81
Aggregate loans to officers and directors, all of which are current, consistconsisted of the following for the periods indicated (in thousands):
Year Ended March 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Beginning balance | $ | 778 | $ | 981 | $ | 859 | ||||||
Originations | 977 | 359 | 526 | |||||||||
Principal repayments | (1,130 | ) | (562 | ) | (404 | ) | ||||||
Ending balance | $ | 625 | $ | 778 | $ | 981 |
| | | | | | | | | |
| | Year Ended March 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Beginning balance | | $ | 3,790 | | $ | 5,308 | | $ | 625 |
Originations | |
| — | |
| 32 | |
| 8,174 |
Principal repayments | |
| (943) | |
| (1,550) | |
| (3,491) |
Ending balance | | $ | 2,847 | | $ | 3,790 | | $ | 5,308 |
Loan segment risk characteristics –
The Company considers its loan classes to be the same as its loan segments. The following are loan segment risk characteristics of the Company’s loan portfolio:Commercial business – Commercial business loans, other than SBA Paycheck Protection Program (“PPP”) loans, are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers may be volatile and the value of the collateral securing these loans may be difficult to measure. Most commercial business loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and generally include a personal guarantee based on a review of personal financial statements. The Company will extend some short-term loans on an unsecured basis to highly qualified borrowers. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment, because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. Accordingly, the repayment of a commercial business loan depends primarily on the credit-worthiness of the borrower (and any guarantors), while the liquidation of collateral is a secondary and potentially insufficient source of repayment. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the management of the business and the credit-worthiness of the borrowers and the guarantors.
Commercial real estate – The Company originates commercial real estate loans within its primary market areas secured by properties such as office buildings, warehouse/industrial, retail, assisted living, single purpose facilities, and other commercial properties. These are cash flow loans that share characteristics of both real estate and commercial business loans. The primary source of repayment is cash flow from the operation of the collateral property and secondarily through liquidation of the collateral. These loans are generally higher risk than other classifications of loans in that they typically involve higher loan amounts, are dependent on the management experience of the owners, and may be adversely affected by conditions in the real estate market or the economy. Owner-occupied commercial real estate loans are generally of lower credit risk than non-owner occupied commercial real estate loans as the borrowers'borrowers’ businesses are likely dependent on the properties. Underwriting for these loans is primarily dependent on the repayment capacity derived from the operation of the occupying business rather than rents paid by third-parties. The Company attempts to mitigate these risks by generally limiting the maximum loan-to-value ratio to 65%-80% depending on the property type and scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan.
Land – The Company has historically originated loans for the acquisition of raw land upon which the purchaser can then build or make improvements necessary to build or sell as improved lots. Currently, the Company is originating new land loans on a limited basis. Loans secured by undeveloped land or improved lots involve greater risks than one-to-four family residential mortgage loans because these loans are more difficult to evaluate. If the estimate of value proves to be inaccurate, in the event of default or foreclosure, the Company may incur a loss. The Company attempts to minimize this risk by generally limiting the maximum loan-to-value ratio on raw land loans to 65% and on improved land loans to 75%.
Multi-family – The Company originates loans secured by multi-family dwelling units (more than four units). These loans involve a greater degree of risk than one-to-four family residential mortgage loans as these loans are usually greater in amount, dependent on the cash flow capacity of the project, and are more difficult to evaluate and monitor. Repayment of loans secured by multi-family properties typically depends on the successful operation and management of the properties. Consequently, repayment of such loans may be affected by adverse conditions in the real estate market or economy. The Company attempts to mitigate these risks by thoroughly evaluating the global financial condition of the borrower, the management experience of the borrower, and the quality of the collateral property securing the loan.
82
Real estate construction-construction – The Company originates construction loans for one-to-four family residential, multi-family, and commercial real estate properties. The one-to-four family residential construction loans include construction of consumer custom homes whereby the home buyer is the borrower as well as speculative and presold loans for home builders. Speculative one-to four-family construction loans are loans for which the home builder does not have, at the time of the loan origination, a signed contract with a home buyer who has a commitment for permanent financing with the Company or another lender for the finished home. The home buyer may be identified either during or after the construction period. Presold construction loans are made to homebuilders who, at the time of construction, have a signed contract with a home buyer who has a commitment for permanent financing for the finished home from the Company or another lender. Multi-family construction loans are originated to construct apartment buildings and condominium projects. Commercial construction loans are originated to construct properties such as office buildings, retail rental space and mini-storage facilities, and assisted living facilities. All construction loans are short-term and generally the rate is variable in nature. Construction lending can involve a higher level of risk than other types of lending because
Real estate one-to-four family – The Company originates both fixed-rate and adjustable-rate loans secured by one- to-four family residences located in its primary market areas. The majority of the fixed-rate one-to-four family loans are sold in the secondary market for asset/liability management purposes and to generate non-interest income. The Company’s lending policies generally limit the maximum loan-to-value on one-to-four family loans to 80% of the lesser of the appraised value or the purchase price. However,In a situation where a loan exceeds 80% loan-to value, the Company usually obtains private mortgage insurance on the portion of the principal amount that exceeds 80% of the appraised value of the property. Terms of maturity typically range from 15 to 30 years. The Company also originates home equity lines of credit and second mortgage loans. Home equity lines of credit and second mortgage loans have a greater credit risk than one-to-four family residential mortgage loans because they are secured by mortgages subordinated to the existing first mortgage on the property, which may or may not be held by the Company. The Company attempts to mitigate residential lending risks by adhering to its underwriting policies in evaluating the collateral and the credit-worthiness of the borrower.
Other installment – The Company originates other consumer loans, which include automobile, boat, motorcycle, recreational vehicle, savings account and unsecured loans. Other consumer loans generally have shorter terms to maturity than mortgage loans. Other consumer loans generally involve a greater degree of risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the credit-worthiness of the borrower.
83
5. ALLOWANCE FOR LOAN LOSSES
The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial |
| Commercial |
| | |
| Multi- |
| Real Estate |
| | |
| | |
| | | ||||
March 31, 2023 | | Business | | Real Estate | | Land | | Family | | Construction | | Consumer | | Unallocated | | Total | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 2,422 | | $ | 9,037 | | $ | 168 | | $ | 845 | | $ | 393 | | $ | 943 | | $ | 715 | | $ | 14,523 |
Provision for (recapture of) loan losses | |
| 701 | | | (143) | | | (75) | | | (47) | | | 371 | | | 148 | | | (205) | | | 750 |
Charge-offs | |
| — | | | — | | | — | | | — | | | — | | | (17) | | | — | | | (17) |
Recoveries | |
| — | | | — | | | — | | | — | | | — | | | 53 | | | — | | | 53 |
Ending balance | | $ | 3,123 | | $ | 8,894 | | $ | 93 | | $ | 798 | | $ | 764 | | $ | 1,127 | | $ | 510 | | $ | 15,309 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 2,416 | | $ | 14,089 | | $ | 233 | | $ | 638 | | $ | 294 | | $ | 852 | | $ | 656 | | $ | 19,178 |
Provision for (recapture of) loan losses | |
| 75 | | | (5,052) | | | (65) | | | 207 | | | 99 | | | 52 | | | 59 | | | (4,625) |
Charge-offs | |
| (69) | | | — | | | — | | | — | | | — | | | (17) | | | — | | | (86) |
Recoveries | |
| — | | | — | | | — | | | — | | | — | | | 56 | | | — | | | 56 |
Ending balance | | $ | 2,422 | | $ | 9,037 | | $ | 168 | | $ | 845 | | $ | 393 | | $ | 943 | | $ | 715 | | $ | 14,523 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2021 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | $ | 2,008 | | $ | 6,421 | | $ | 230 | | $ | 854 | | $ | 1,149 | | $ | 1,363 | | $ | 599 | | $ | 12,624 |
Provision for (recapture of) loan losses | |
| 398 | |
| 7,336 | |
| 3 | |
| (216) | |
| (855) | |
| (423) | |
| 57 | |
| 6,300 |
Charge-offs | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (124) | |
| — | |
| (124) |
Recoveries | |
| 10 | |
| 332 | |
| — | |
| — | |
| — | |
| 36 | |
| — | |
| 378 |
Ending balance | | $ | 2,416 | | $ | 14,089 | | $ | 233 | | $ | 638 | | $ | 294 | | $ | 852 | | $ | 656 | | $ | 19,178 |
March 31, 2020 | Commercial Business | Commercial Real Estate | Land | Multi- Family | Real Estate Construction | Consumer | Unallocated | Total | ||||||||||||||||
Beginning balance | $ | 1,808 | $ | 5,053 | $ | 254 | $ | 728 | $ | 1,457 | $ | 1,447 | $ | 710 | $ | 11,457 | ||||||||
Provision for (recapture of) loan losses | 264 | 1,368 | (24 | ) | 126 | (308 | ) | (65 | ) | (111 | ) | 1,250 | ||||||||||||
Charge-offs | (64 | ) | - | - | - | - | (82 | ) | - | (146 | ) | |||||||||||||
Recoveries | - | - | - | - | - | 63 | - | 63 | ||||||||||||||||
Ending balance | $ | 2,008 | $ | 6,421 | $ | 230 | $ | 854 | $ | 1,149 | $ | 1,363 | $ | 599 | $ | 12,624 |
March 31, 2019 | |||||||||||||||||||||||||
Beginning balance | $ | 1,668 | $ | 4,914 | $ | 220 | $ | 822 | $ | 618 | $ | 1,809 | $ | 715 | $ | 10,766 | |||||||||
Provision for (recapture of) loan losses | 139 | (685 | ) | 34 | (94 | ) | 839 | (178 | ) | (5 | ) | 50 | |||||||||||||
Charge-offs | - | - | - | - | - | (291 | ) | - | (291 | ) | |||||||||||||||
Recoveries | 1 | 824 | - | - | - | 107 | - | 932 | |||||||||||||||||
Ending balance | $ | 1,808 | $ | 5,053 | $ | 254 | $ | 728 | $ | 1,457 | $ | 1,447 | $ | 710 | $ | 11,457 |
March 31, 2018 | |||||||||||||||||||||||||
Beginning balance | $ | 1,418 | $ | 5,084 | $ | 228 | $ | 297 | $ | 714 | $ | 2,099 | $ | 688 | $ | 10,528 | |||||||||
Provision for (recapture of) loan losses | 10 | (156 | ) | (301 | ) | 525 | (96 | ) | (9 | ) | 27 | - | |||||||||||||
Charge-offs | - | (68 | ) | - | - | - | (340 | ) | - | (408 | ) | ||||||||||||||
Recoveries | 240 | 54 | 293 | - | - | 59 | - | 646 | |||||||||||||||||
Ending balance | $ | 1,668 | $ | 4,914 | $ | 220 | $ | 822 | $ | 618 | $ | 1,809 | $ | 715 | $ | 10,766 |
The following tables present an analysis of loans receivable and the allowance for loan losses, based on impairment methodology, at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Allowance for Loan Losses | | Recorded Investment in Loans | ||||||||||||||
|
| Individually |
| Collectively |
| | |
| Individually |
| Collectively |
| | | ||||
| | Evaluated | | Evaluated | | | | | Evaluated | | Evaluated | | | | ||||
| | for | | for | | | | | for | | for | | | | ||||
March 31, 2023 | | Impairment | | Impairment | | Total | | Impairment | | Impairment | | Total | ||||||
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | — | | $ | 3,123 | | $ | 3,123 | | $ | 79 | | $ | 232,789 | | $ | 232,868 |
Commercial real estate | |
| — | |
| 8,894 | | | 8,894 | | | 100 | | | 564,396 | | | 564,496 |
Land | |
| — | |
| 93 | | | 93 | | | — | | | 6,437 | | | 6,437 |
Multi-family | |
| — | |
| 798 | | | 798 | | | — | | | 55,836 | | | 55,836 |
Real estate construction | |
| — | |
| 764 | | | 764 | | | — | | | 47,762 | | | 47,762 |
Consumer | |
| 6 | |
| 1,121 | | | 1,127 | | | 450 | | | 101,007 | | | 101,457 |
Unallocated | |
| — | |
| 510 | | | 510 | | | — | | | — | | | — |
Total | | $ | 6 | | $ | 15,303 | | $ | 15,309 | | $ | 629 | | $ | 1,008,227 | | $ | 1,008,856 |
| | | | | | | | | | | | | | | | | | |
March 31, 2022 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | — | | $ | 2,422 | | $ | 2,422 | | $ | 100 | | $ | 227,991 | | $ | 228,091 |
Commercial real estate | |
| — | |
| 9,037 | | | 9,037 | | | 122 | | | 582,715 | | | 582,837 |
Land | |
| — | |
| 168 | | | 168 | | | — | | | 11,556 | | | 11,556 |
Multi-family | |
| — | |
| 845 | | | 845 | | | — | | | 60,211 | | | 60,211 |
Real estate construction | |
| — | |
| 393 | | | 393 | | | — | | | 24,160 | | | 24,160 |
Consumer | |
| 8 | |
| 935 | | | 943 | | | 495 | | | 83,058 | | | 83,553 |
Unallocated | |
| — | |
| 715 | | | 715 | | | — | | | — | | | — |
Total | | $ | 8 | | $ | 14,515 | | $ | 14,523 | | $ | 717 | | $ | 989,691 | | $ | 990,408 |
84
Allowance for Loan Losses | Recorded Investment in Loans | |||||||||||||||||||||||
March 31, 2020 | Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total | Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total | ||||||||||||||||||
Commercial business | $ | - | $ | 2,008 | $ | 2,008 | $ | 139 | $ | 178,890 | $ | 179,029 | ||||||||||||
Commercial real estate | - | 6,421 | 6,421 | 2,378 | 505,493 | 507,871 | ||||||||||||||||||
Land | - | 230 | 230 | 714 | 13,312 | 14,026 | ||||||||||||||||||
Multi-family | - | 854 | 854 | 1,549 | 56,825 | 58,374 | ||||||||||||||||||
Real estate construction | - | 1,149 | 1,149 | - | 64,843 | 64,843 | ||||||||||||||||||
Consumer | 12 | 1,351 | 1,363 | 432 | 86,934 | 87,366 | ||||||||||||||||||
Unallocated | - | 599 | 599 | - | - | - | ||||||||||||||||||
Total | $ | 12 | $ | 12,612 | $ | 12,624 | $ | 5,212 | $ | 906,297 | $ | 911,509 |
March 31, 2019 | ||||||||||||||||||||||||
Commercial business | $ | - | $ | 1,808 | $ | 1,808 | $ | 160 | $ | 162,636 | $ | 162,796 | ||||||||||||
Commercial real estate | - | 5,053 | 5,053 | 2,482 | 458,950 | 461,432 | ||||||||||||||||||
Land | - | 254 | 254 | 728 | 16,299 | 17,027 | ||||||||||||||||||
Multi-family | - | 728 | 728 | 1,598 | 49,972 | 51,570 | ||||||||||||||||||
Real estate construction | - | 1,457 | 1,457 | - | 90,882 | 90,882 | ||||||||||||||||||
Consumer | 22 | 1,425 | 1,447 | 697 | 91,712 | 92,409 | ||||||||||||||||||
Unallocated | - | 710 | 710 | - | - | - | ||||||||||||||||||
Total | $ | 22 | $ | 11,435 | $ | 11,457 | $ | 5,665 | $ | 870,451 | $ | 876,116 |
Changes in the allowance for unfunded loan commitments were as follows for the years indicated (in thousands):
Year Ended March 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Beginning balance | $ | 469 | $ | 480 | $ | 388 | ||||||
Net change in allowance for unfunded loan commitments | 5 | (11 | ) | 92 | ||||||||
Ending balance | $ | 474 | $ | 469 | $ | 480 |
| | | | | | | | | |
| | Year Ended March 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Beginning balance | | $ | 424 | | $ | 509 | | $ | 474 |
Net change in allowance for unfunded loan commitments | |
| (17) | |
| (85) | |
| 35 |
Ending balance | | $ | 407 | | $ | 424 | | $ | 509 |
The following tables present an analysis of loans by aging category at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Total |
| | |
| | | |
| | | | | 90 Days | | | | | Past | | | | | | | ||
| | | | | and | | | | | Due and | | | | | Total | |||
| | 30-89 Days | | Greater | | | | | Non- | | | | | Loans | ||||
March 31, 2023 | | Past Due | | Past Due | | Non-accrual | | accrual | | Current | | Receivable | ||||||
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | 1,967 | | $ | 1,569 | | $ | 97 | | $ | 3,633 | | $ | 229,235 | | $ | 232,868 |
Commercial real estate | |
| — | |
| — | |
| 100 | | | 100 | | | 564,396 | | | 564,496 |
Land | |
| — | |
| — | |
| — | | | — | | | 6,437 | | | 6,437 |
Multi-family | |
| — | |
| — | |
| — | | | — | | | 55,836 | | | 55,836 |
Real estate construction | |
| — | |
| — | |
| — | | | — | | | 47,762 | | | 47,762 |
Consumer | |
| 11 | |
| — | |
| 86 | | | 97 | | | 101,360 | | | 101,457 |
Total | | $ | 1,978 | | $ | 1,569 | | $ | 283 | | $ | 3,830 | | $ | 1,005,026 | | $ | 1,008,856 |
| | | | | | | | | | | | | | | | | | |
March 31, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | 7,753 | | $ | 21,808 | | $ | 118 | | $ | 29,679 | | $ | 198,412 | | $ | 228,091 |
Commercial real estate | |
| — | |
| — | |
| 122 | | | 122 | | | 582,715 | | | 582,837 |
Land | |
| — | |
| — | |
| — | | | — | | | 11,556 | | | 11,556 |
Multi-family | |
| — | |
| — | |
| — | | | — | | | 60,211 | | | 60,211 |
Real estate construction | |
| 291 | |
| — | |
| — | | | 291 | | | 23,869 | | | 24,160 |
Consumer | |
| 9 | |
| — | |
| 51 | | | 60 | | | 83,493 | | | 83,553 |
Total | | $ | 8,053 | | $ | 21,808 | | $ | 291 | | $ | 30,152 | | $ | 960,256 | | $ | 990,408 |
March 31, 2020 | 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 | $ | - | $ | - | $ | 201 | $ | 201 | $ | 178,828 | $ | 179,029 | ||||||||||||
Commercial real estate | - | - | 1,014 | 1,014 | 506,857 | 507,871 | ||||||||||||||||||
Land | - | - | - | - | 14,026 | 14,026 | ||||||||||||||||||
Multi-family | - | - | - | - | 58,374 | 58,374 | ||||||||||||||||||
Real estate construction | - | - | - | - | 64,843 | 64,843 | ||||||||||||||||||
Consumer | 271 | - | 180 | 451 | 86,915 | 87,366 | ||||||||||||||||||
Total | $ | 271 | $ | - | $ | 1,395 | $ | 1,666 | $ | 909,843 | $ | 911,509 |
March 31, 2019 | ||||||||||||||||||||||||
Commercial business | $ | - | $ | - | $ | 225 | $ | 225 | $ | 162,571 | $ | 162,796 | ||||||||||||
Commercial real estate | - | - | 1,081 | 1,081 | 460,351 | 461,432 | ||||||||||||||||||
Land | - | - | - | - | 17,027 | 17,027 | ||||||||||||||||||
Multi-family | - | - | - | - | 51,570 | 51,570 | ||||||||||||||||||
Real estate construction | - | - | - | - | 90,882 | 90,882 | ||||||||||||||||||
Consumer | 345 | 3 | 210 | 558 | 91,851 | 92,409 | ||||||||||||||||||
Total | $ | 345 | $ | 3 | $ | 1,516 | $ | 1,864 | $ | 874,252 | $ | 876,116 |
A substantial portion of the 30-89 days past due and 90 days and greater past due loans at March 31, 2023 and 2022 are comprised of government guaranteed loans. These government guaranteed loans are pass rated loans and are not considered to be non-accrual loans given the Company expects to receive all principal and interest and not considered to be classified loans because there are no well-defined weaknesses or risk of loss. Given these government guaranteed loans are neither non-accrual loans nor classified loans, these loans are not considered to be impaired loans based on the Company’s policy. Given these loans are not considered to be impaired loans and are fully guaranteed by the SBA or USDA, these loans are omitted from the required allowance calculation. Interest income foregone on non-accrual loans was $75,000, $94,000$14,000, $24,000 and $102,000$49,000 for the years ended March 31, 2020, 20192023, 2022 and 2018,2021, respectively.
Credit quality indicators –
The Company monitors credit risk in its loan portfolio using a risk rating system (on a scale of one to nine) for all commercial (non-consumer) loans. The risk rating system is a measure of the credit risk of the borrower based on their historical, current and anticipated future financial characteristics. The Company assigns a risk rating to each commercial loan at origination and subsequently updates these ratings, as necessary, so that the risk rating continues to reflect the appropriate risk characteristics of the loan. Application of appropriate risk ratings is key to management of loan portfolio risk. In determining the appropriate risk rating, the Company considers the following factors: delinquency, payment history, quality of management, liquidity, leverage, earnings trends, alternative funding sources, geographic risk, industry risk, cash flow adequacy, account practices, asset protection and extraordinary risks. Consumer loans, including custom construction loans, are not assigned a risk rating but rather are grouped into homogeneous pools with similar risk characteristics. When a consumer loan is delinquent 90 days, it is placed on non-accrual status and assigned a substandard risk rating. Loss factors are assigned to each risk rating and homogeneous pool based on historical loss experience for similar loans. This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience. The Company uses these loss factors to estimate the general component of its allowance for loan losses.85
Pass – These loans have a risk rating between 1 and 4 and are to borrowers that meet normal credit standards. Any deficiencies in satisfactory asset quality, liquidity, debt servicing capacity and coverage are offset by strengths in other areas. The borrower currently has the capacity to perform according to the loan terms. Any concerns about risk factors such as stability of margins, stability of cash flows, liquidity, dependence on a single product/supplier/customer, depth of management, etc. are offset by strengths in other areas. Typically, these loans are secured by the operating assets of the borrower and/or real estate. The borrower’s management is considered competent. The borrower has the ability to repay the debt in the normal course of business.
Watch – These loans have a risk rating of 5 and are included in the “pass” rating. However, there would typically be some reason for additional management oversight, such as the borrower’s recent financial setbacks and/or deteriorating financial position, industry concerns and failure to perform on other borrowing obligations. Loans with this rating are monitored closely in an effort to correct deficiencies.
Special mention – These loans have a risk rating of 6 and are rated in accordance with regulatory guidelines. These loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the credit position at some future date. These loans pose elevated risk but their weakness does not yet justify a “substandard” classification.
Substandard – These loans have a risk rating of 7 and are rated in accordance with regulatory guidelines, for which the accrual of interest may or may not be discontinued. By definition under regulatory guidelines, a “substandard” loan has defined weaknesses which make payment default or principal exposure likely but not yet certain. Repayment of such loans is likely to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.
Doubtful – These loans have a risk rating of 8 and are rated in accordance with regulatory guidelines. Such loans are placed on non-accrual status and repayment may be dependent upon collateral which has value that is difficult to determine or upon some near-term event which lacks certainty.
Loss – These loans have a risk rating of 9 and are rated in accordance with regulatory guidelines. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.
The following tables present an analysis of loans by credit quality indicators at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| Total | |
| | | | | Special | | | | | | | | | | | Loans | ||
March 31, 2023 | | Pass | | Mention | | Substandard | | Doubtful | | Loss | | Receivable | ||||||
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | 231,384 | | $ | 1,367 | | $ | 117 | | $ | — | | $ | — | | $ | 232,868 |
Commercial real estate | |
| 544,426 | | | 17,626 | | | 2,444 | |
| — | |
| — | |
| 564,496 |
Land | |
| 6,437 | | | — | | | — | |
| — | |
| — | |
| 6,437 |
Multi-family | |
| 55,694 | | | 142 | | | — | |
| — | |
| — | |
| 55,836 |
Real estate construction | |
| 47,762 | | | — | | | — | |
| — | |
| — | |
| 47,762 |
Consumer | |
| 101,371 | | | — | | | 86 | |
| — | |
| — | |
| 101,457 |
Total | | $ | 987,074 | | $ | 19,135 | | $ | 2,647 | | $ | — | | $ | — | | $ | 1,008,856 |
| | | | | | | | | | | | | | | | | | |
March 31, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | 227,435 | | $ | 511 | | $ | 145 | | $ | — | | $ | — | | $ | 228,091 |
Commercial real estate | |
| 569,417 | | | 7,211 | | | 6,209 | |
| — | |
| — | |
| 582,837 |
Land | |
| 11,556 | | | — | | | — | |
| — | |
| — | |
| 11,556 |
Multi-family | |
| 60,138 | | | 73 | | | — | |
| — | |
| — | |
| 60,211 |
Real estate construction | |
| 24,160 | | | — | | | — | |
| — | |
| — | |
| 24,160 |
Consumer | |
| 83,502 | | | — | | | 51 | |
| — | |
| — | |
| 83,553 |
Total | | $ | 976,208 | | $ | 7,795 | | $ | 6,405 | | $ | — | | $ | — | | $ | 990,408 |
86
March 31, 2020 | Pass | Special Mention | Substandard | Doubtful | Loss | Total Loans Receivable | ||||||||||||||||||
Commercial business | $ | 177,399 | $ | 1,282 | $ | 348 | $ | - | $ | - | $ | 179,029 | ||||||||||||
Commercial real estate | 506,794 | 63 | 1,014 | - | - | 507,871 | ||||||||||||||||||
Land | 14,026 | - | - | - | - | 14,026 | ||||||||||||||||||
Multi-family | 58,295 | 45 | 34 | - | - | 58,374 | ||||||||||||||||||
Real estate construction | 64,843 | - | - | - | - | 64,843 | ||||||||||||||||||
Consumer | 87,186 | - | 180 | - | - | 87,366 | ||||||||||||||||||
Total | $ | 908,543 | $ | 1,390 | $ | 1,576 | $ | - | $ | - | $ | 911,509 |
March 31, 2019 | ||||||||||||||||||||||||
Commercial business | $ | 159,997 | $ | 840 | $ | 1,959 | $ | - | $ | - | $ | 162,796 | ||||||||||||
Commercial real estate | 454,013 | 4,030 | 3,389 | - | - | 461,432 | ||||||||||||||||||
Land | 16,299 | - | 728 | - | - | 17,027 | ||||||||||||||||||
Multi-family | 51,093 | 457 | 20 | - | - | 51,570 | ||||||||||||||||||
Real estate construction | 90,882 | - | - | - | - | 90,882 | ||||||||||||||||||
Consumer | 92,199 | - | 210 | - | - | 92,409 | ||||||||||||||||||
Total | $ | 864,483 | $ | 5,327 | $ | 6,306 | $ | - | $ | - | $ | 876,116 |
Impaired loans – The following tables present information regarding impaired loans at the dates and for the years indicated (in thousands):
| | | | | | | | | | | | | | | |
|
| Recorded |
| Recorded |
| | |
| | |
| | | ||
| | Investment | | Investment | | | | | | | | | | ||
| | with | | with | | | | | | | | Related | |||
| | No Specific | | Specific | | Total | | Unpaid | | Specific | |||||
| | Valuation | | Valuation | | Recorded | | Principal | | Valuation | |||||
March 31, 2023 | | Allowance | | Allowance | | Investment | | Balance | | Allowance | |||||
| | | | | | | | | | | | | | | |
Commercial business | | $ | 79 | | $ | — | | $ | 79 | | $ | 127 | | $ | — |
Commercial real estate | |
| 100 | | | — | | | 100 | | | 162 | |
| — |
Consumer | |
| 355 | | | 95 | | | 450 | | | 442 | |
| 6 |
Total | | $ | 534 | | $ | 95 | | $ | 629 | | $ | 731 | | $ | 6 |
| | | | | | | | | | | | | | | |
March 31, 2022 | |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | |
Commercial business | | $ | 100 | | $ | — | | $ | 100 | | $ | 143 | | $ | — |
Commercial real estate | |
| 122 | | | — | | | 122 | | | 178 | |
| — |
Consumer | |
| 259 | | | 236 | | | 495 | | | 603 | |
| 8 |
Total | | $ | 481 | | $ | 236 | | $ | 717 | | $ | 924 | | $ | 8 |
| | | | | | | | | | | | | | | | | | |
| | Year ended | | Year ended | | Year ended | ||||||||||||
| | March 31, 2023 | | March 31, 2022 | | March 31, 2021 | ||||||||||||
|
| | |
| Interest |
| | |
| Interest |
| | |
| Interest | |||
| | | | | Recognized | | | | | Recognized | | | | | Recognized | |||
| | Average | | on | | Average | | on | | Average | | on | ||||||
| | Recorded | | Impaired | | Recorded | | Impaired | | Recorded | | Impaired | ||||||
| | Investment |
| Loans | | Investment |
| Loans | | Investment |
| Loans | ||||||
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | 90 | | $ | — | | $ | 110 | | $ | — | | $ | 130 | | $ | — |
Commercial real estate | |
| 111 | | | — | | | 660 | | | 16 | | | 2,008 | | | 61 |
Land | |
| — | | | — | | | — | | | — | | | 713 | | | 40 |
Multi-family | |
| — | | | — | | | — | | | — | | | 1,313 | | | 77 |
Consumer | |
| 475 | | | 24 | | | 514 | | | 24 | | | 494 | | | 29 |
Total | | $ | 676 | | $ | 24 | | $ | 1,284 | | $ | 40 | | $ | 4,658 | | $ | 207 |
March 31, 2020 | 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 | $ | 139 | $ | - | $ | 139 | $ | 170 | $ | - | ||||||||||
Commercial real estate | 2,378 | - | 2,378 | 3,405 | - | |||||||||||||||
Land | 714 | - | 714 | 748 | - | |||||||||||||||
Multi-family | 1,549 | - | 1,549 | 1,662 | - | |||||||||||||||
Consumer | 295 | 137 | 432 | 543 | 12 | |||||||||||||||
Total | $ | 5,075 | $ | 137 | $ | 5,212 | $ | 6,528 | $ | 12 | ||||||||||
March 31, 2019 | ||||||||||||||||||||
Commercial business | $ | 160 | $ | - | $ | 160 | $ | 182 | $ | - | ||||||||||
Commercial real estate | 2,482 | - | 2,482 | 3,424 | - | |||||||||||||||
Land | 728 | - | 728 | 766 | - | |||||||||||||||
Multi-family | 1,598 | - | 1,598 | 1,709 | - | |||||||||||||||
Consumer | 281 | 416 | 697 | 807 | 22 | |||||||||||||||
Total | $ | 5,249 | $ | 416 | $ | 5,665 | $ | 6,888 | $ | 22 |
Year ended March 31, 2020 | Year ended March 31, 2019 | Year ended March 31, 2018 | ||||||||||||||||||||||
Average Recorded Investment | Interest Recognized on Impaired Loans | Average Recorded Investment | Interest Recognized on Impaired Loans | Average Recorded Investment | Interest Recognized on Impaired Loans | |||||||||||||||||||
Commercial business | $ | 150 | $ | 62 | $ | 334 | $ | - | $ | 930 | $ | 41 | ||||||||||||
Commercial real estate | 2,420 | 40 | 2,607 | 64 | 4,185 | 101 | ||||||||||||||||||
Land | 720 | 90 | 742 | 7 | 781 | - | ||||||||||||||||||
Multi-family | 1,573 | - | 1,620 | 88 | 1,668 | 90 | ||||||||||||||||||
Consumer | 494 | 29 | 992 | 45 | 1,452 | 62 | ||||||||||||||||||
Total | $ | 5,357 | $ | 221 | $ | 6,295 | $ | 204 | $ | 9,016 | $ | 294 |
The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above tables.88
TDRs and other loan modifications –
TDRs are loans for which the Company, for economic or legal reasons related to the
87
The following table presents TDRs by interest accrual status at the dates indicated (in thousands):
| | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | March 31, 2022 | ||||||||||||||
|
| Accrual |
| Non-accrual |
| Total |
| Accrual |
| Non-accrual |
| Total | ||||||
| | | | | | | | | | | | | | | | | | |
Commercial business | | $ | — | | $ | 79 | | $ | 79 | | $ | — | | $ | 100 | | $ | 100 |
Commercial real estate | |
| — | | | 100 | | | 100 | |
| — | | | 122 | | | 122 |
Land | |
| — | | | — | | | — | |
| — | | | — | | | — |
Multi-family | |
| — | | | — | | | — | |
| — | | | — | | | — |
Consumer | |
| 450 | | | — | | | 450 | |
| 495 | | | — | | | 495 |
Total | | $ | 450 | | $ | 179 | | $ | 629 | | $ | 495 | | $ | 222 | | $ | 717 |
March 31, 2020 | March 31, 2019 | |||||||||||||||||||||||
Accrual | Nonaccrual | Total | Accrual | Nonaccrual | Total | |||||||||||||||||||
Commercial business | $ | - | $ | 139 | $ | 139 | $ | - | $ | 160 | $ | 160 | ||||||||||||
Commercial real estate | 1,364 | 1,014 | 2,378 | 1,401 | 1,081 | 2,482 | ||||||||||||||||||
Land | 714 | - | 714 | 728 | - | 728 | ||||||||||||||||||
Multi-family | 1,549 | - | 1,549 | 1,598 | - | 1,598 | ||||||||||||||||||
Consumer | 432 | - | 432 | 697 | - | 697 | ||||||||||||||||||
Total | $ | 4,059 | $ | 1,153 | $ | 5,212 | $ | 4,424 | $ | 1,241 | $ | 5,665 |
At March 31, 2020,2023, the Company had no commitments to lend additional funds on these loans. At March 31, 2020,2023, all of the Company’s TDRs were paying as agreed except for one commercial real estate loan with a recorded investment of $851,000 which is classified as nonaccrual.
There were no new TDRs for the yearfiscal years ended March 31, 20192023 and 2018.
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at the dates indicated (in thousands):
March 31, | ||||||||
2020 | 2019 | |||||||
Land | $ | 4,531 | $ | 4,531 | ||||
Buildings and improvements | 15,356 | 15,349 | ||||||
Leasehold improvements | 1,666 | 1,666 | ||||||
Furniture and equipment | 10,819 | 10,694 | ||||||
Building under finance lease | 2,956 | 2,956 | ||||||
Construction in progress | 3,245 | 733 | ||||||
Total | 38,573 | 35,929 | ||||||
Less accumulated depreciation and amortization | (21,495 | ) | (20,471 | ) | ||||
Premises and equipment, net | $ | 17,078 | $ | 15,458 |
| | | | | | |
| | March 31, | ||||
| | 2023 | | 2022 | ||
| | | | | | |
Land |
| $ | 5,715 |
| $ | 4,714 |
Buildings and improvements | |
| 18,494 | |
| 17,030 |
Leasehold improvements | |
| 3,965 | |
| 3,998 |
Furniture and equipment | |
| 11,578 | |
| 10,765 |
Construction in progress | |
| 33 | |
| — |
Total | |
| 39,785 | |
| 36,507 |
Less accumulated depreciation and amortization | |
| (19,666) | |
| (19,341) |
Premises and equipment, net | | $ | 20,119 | | $ | 17,166 |
Depreciation and amortization expense was $1.3$1.7 million, $1.1$1.5 million and $1.2$1.4 million for the years ended March 31, 2020, 20192023, 2022 and 2018, respectively.
7.GOODWILL
Goodwill and certain other intangibles generally arise from business combinations accounted for under the purchase method of accounting. Goodwill and other intangibles deemed to have indefinite lives generated from business combinations are not subject to amortization and are instead tested for impairment not less than annually. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been allocated to the Bank reporting unit.
88
The Company performed its annual impairment assessment as of October 31, 20192022 and determined that no impairment of goodwill exists. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to progress to the second step. In the second step, the Company calculates the implied fair value of goodwill and compares the implied fair value of goodwill to the carrying amount of goodwill in the Company’s consolidated balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value, and, therefore, a step two analysis was not required; however, no assurance can be given that the Company’s goodwill will not be written down in future periods.
Account Type | March 31, 2020 | March 31, 2019 | ||||||
Non-interest-bearing | $ | 271,031 | $ | 284,854 | ||||
Interest-bearing checking | 187,798 | 183,388 | ||||||
Money market | 169,798 | 233,317 | ||||||
Savings accounts | 226,880 | 137,503 | ||||||
Certificates of deposit | 134,941 | 86,006 | ||||||
Total | $ | 990,448 | $ | 925,068 |
| | | | | | |
|
| March 31, |
| March 31, | ||
Account Type | | 2023 | | 2022 | ||
Non-interest-bearing | | $ | 404,937 | | $ | 494,831 |
Interest-bearing checking | |
| 254,522 | |
| 287,861 |
Money market | |
| 221,778 | |
| 299,738 |
Savings accounts | |
| 255,147 | |
| 340,076 |
Certificates of deposit | |
| 128,833 | |
| 111,372 |
Total | | $ | 1,265,217 | | $ | 1,533,878 |
Individual certificates of deposit in amounts ofgreater than $250,000 or more totaled $35.9$40.3 million and $10.5$32.7 million at March 31, 20202023 and 2019,2022, respectively.
Scheduled maturities of certificates of deposit for future years ending March 31 are as follows (in thousands):
| | | |
Year Ending March 31, : |
|
| |
2024 | | $ | 84,603 |
2025 | |
| 37,569 |
2026 | |
| 4,143 |
2027 | |
| 1,193 |
2028 | |
| 531 |
Thereafter | |
| 794 |
Total | | $ | 128,833 |
Year Ending March 31: | ||||
2021 | $ | 74,078 | ||
2022 | 40,579 | |||
2023 | 14,303 | |||
2024 | 2,360 | |||
2025 | 2,623 | |||
Thereafter | 998 | |||
Total | $ | 134,941 |
Interest expense by deposit type was as follows for the years indicated (in thousands):
| | | | | | | | | |
| | Year Ended March 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Interest-bearing checking | | $ | 89 | | $ | 87 | | $ | 85 |
Money market | |
| 415 | |
| 150 | |
| 153 |
Savings accounts | |
| 219 | |
| 247 | |
| 418 |
Certificates of deposit | |
| 779 | |
| 940 | |
| 1,888 |
Total | | $ | 1,502 | | $ | 1,424 | | $ | 2,544 |
89
Year Ended March 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Interest-bearing checking | $ | 100 | $ | 101 | $ | 100 | ||||||
Money market | 229 | 302 | 335 | |||||||||
Savings accounts | 1,054 | 145 | 133 | |||||||||
Certificates of deposit | 1,507 | 448 | 640 | |||||||||
Total | $ | 2,890 | $ | 996 | $ | 1,208 |
9. FEDERAL HOME LOAN BANK ADVANCES
FHLB advances – which consist of overnight borrowings – are summarized as follows at the dates indicated (dollars in thousands):
March 31, 2020 | March 31, 2019 | |||||||
FHLB advances | $ | - | $ | 56,586 | ||||
Weighted average interest rate on FHLB advances (1) | 2.54 | % | 2.58 | % | ||||
(1) Computed based on the borrowing activity for the years ending March 31, 2020 and 2019, respectively. |
| | | | | | | |
|
| March 31, 2023 |
| March 31, 2022 |
| ||
FHLB advances | | $ | 123,754 | | $ | — | |
Weighted average interest rate on FHLB advances (1) | |
| 4.88 | % |
| 0.31 | % |
(1) Computed based on the borrowing activity for the fiscal years ended March 31, 2023 and 2022, respectively.
The Bank has a credit line with the FHLB equal to 45% of total assets, limited by available collateral. At March 31, 2020,2023, based on collateral values, the Bank had additional borrowing capacity of $235.9$191.6 million from the FHLB.
10.JUNIOR SUBORDINATED DEBENTURES
The Company has wholly-owned subsidiary grantor trusts that were established for the purpose of issuing trust preferred securities and common securities. The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement. The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts. The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock.
The Debentures issued by the Company to the grantor trusts, totaling $26.7$26.9 million and $26.6$26.8 million at March 31, 20202023 and 2019,2022, respectively, are reported as “junior subordinated debentures” in the consolidated balance sheets. The common securities issued by the grantor trusts were purchased by the Company, and the Company’s investment in the common securities of $836,000 at both March 31, 20202023 and 2019,2022, is included in prepaid expenses and other assets in the consolidated balance sheets. The Company records interest expense on the Debentures in the consolidated statements of income.
The following table is a summary of the terms and the amounts outstanding of the Debentures at March 31, 20202023 (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 | % | 6.23 | % | 3/2036 |
Riverview Bancorp Statutory Trust II |
| 06/2007 | |
| 15,464 |
| Variable | (2) | 7.03 | % | 6.22 | % | 9/2037 |
Merchants Bancorp Statutory Trust I (4) |
| 06/2003 | |
| 5,155 |
| Variable | (3) | 4.16 | % | 8.23 | % | 6/2033 |
|
| | | | 27,836 | | | | | | | | |
Fair value adjustment (4) |
| | | | (918) |
|
|
|
|
|
|
|
|
Total Debentures | | | | $ | 26,918 |
|
|
|
|
|
|
|
|
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 | % | 2.10 | % | 3/2036 | |||||
Riverview Bancorp Statutory Trust II | 06/2007 | 15,464 | Variable (2) | 7.03 | % | 2.09 | % | 9/2037 | ||||||
Merchants Bancorp Statutory Trust I (4) | 06/2003 | 5,155 | Variable (3) | 4.16 | % | 4.33 | % | 6/2033 | ||||||
27,836 | ||||||||||||||
Fair value adjustment (4) | (1,174 | ) | ||||||||||||
Total Debentures | $ | 26,662 | ||||||||||||
(1) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.36%. | ||||||||||||||
(2) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.35%. | ||||||||||||||
(3) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 3.10%. | ||||||||||||||
(4) Amount, net of accretion, attributable to a prior year’s business combination. |
(1)The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.36%.
(2) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.35%.
(3) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 3.10 %.
(4) Amount, net of accretion, attributable to a prior year’s business combination.
90
11.INCOME TAXES
Provision for income taxes consisted of the following for the periods indicated (in thousands):
Year Ended March 31 | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Current | $ | 5,404 | $ | 5,157 | $ | 4,087 | ||||||
Deferred | (574 | ) | (11 | ) | 3,668 | |||||||
Total | $ | 4,830 | $ | 5,146 | $ | 7,755 |
| | | | | | | | | |
|
| Year Ended March 31 | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Current | | $ | 5,754 | | $ | 5,446 | | $ | 4,410 |
Deferred | |
| (144) | |
| 1,010 | |
| (1,429) |
Total | | $ | 5,610 | | $ | 6,456 | | $ | 2,981 |
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows at the dates indicated (in thousands):
March 31, 2020 | March 31, 2019 | |||||||
Deferred tax assets: | ||||||||
Deferred compensation | $ | 63 | $ | 45 | ||||
Allowance for loan losses | 3,143 | 2,862 | ||||||
Accrued expenses | 137 | 131 | ||||||
Accumulated depreciation and amortization | 935 | 797 | ||||||
Deferred gain on sale | 129 | 167 | ||||||
Purchase accounting | 123 | 141 | ||||||
Net unrealized loss on investment securities available for sale | - | 829 | ||||||
Operating lease liabilities | 971 | - | ||||||
Other | 352 | 242 | ||||||
Total deferred tax assets | 5,853 | 5,214 |
Deferred tax liabilities: | ||||||||
FHLB stock dividend | (38 | ) | (97 | ) | ||||
Prepaid expenses | (84 | ) | (148 | ) | ||||
Operating lease right-of-use assets | (947 | ) | - | |||||
Net unrealized gain on investment securities available for sale | (663 | ) | - | |||||
Loan fees/costs | (844 | ) | (774 | ) | ||||
Total deferred tax liabilities | (2,576 | ) | (1,019 | ) | ||||
Deferred tax assets, net | $ | 3,277 | $ | 4,195 |
| | | | | | |
|
| March 31, |
| March 31, | ||
|
| 2023 |
| 2022 | ||
Deferred tax assets: | | | | | | |
Deferred compensation | | $ | 78 | | $ | 57 |
Allowance for loan losses | |
| 3,772 | |
| 3,588 |
Accrued expenses | |
| 160 | |
| 170 |
Accumulated depreciation and amortization | |
| 918 | |
| 881 |
Deferred gain on sale | |
| 34 | |
| 52 |
Deferred income | | | 57 | | | 107 |
Purchase accounting | |
| 46 | |
| 74 |
Net unrealized loss on investment securities available for sale | |
| 5,782 | |
| 3,141 |
Operating lease liabilities | | | 1,695 | | | 1,993 |
Other | |
| 429 | |
| 420 |
Total deferred tax assets | |
| 12,971 | |
| 10,483 |
Deferred tax liabilities: | |
|
| |
|
|
FHLB stock dividends | |
| (38) | |
| (38) |
Prepaid expenses | |
| (241) | |
| (171) |
Operating lease ROU assets | | | (1,609) | | | (1,898) |
Loan fees/costs | |
| (797) | |
| (875) |
Total deferred tax liabilities | |
| (2,685) | |
| (2,982) |
Deferred tax assets, net | | $ | 10,286 | | $ | 7,501 |
A reconciliation of the Company’s effective income tax rate with the federal statutory tax rate is as follows for the years indicated:
Year Ended March 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Statutory federal income tax rate | 21.0 | % | 21.0 | % | 30.8 | % | ||||||
State and local income tax rate | 3.0 | 3.0 | 2.5 | |||||||||
Revaluation of net deferred tax assets due to Tax Act | - | - | 11.4 | |||||||||
ESOP market value adjustment | (0.1 | ) | (0.1 | ) | - | |||||||
BOLI | (1.0 | ) | (0.8 | ) | (1.5 | ) | ||||||
Other, net | 0.6 | (0.1 | ) | (0.1 | ) | |||||||
Effective federal income tax rate | 23.5 | % | 23.0 | % | 43.1 | % |
| | | | | | | |
| | Year Ended March 31, | | ||||
|
| 2023 |
| 2022 |
| 2021 | |
Statutory federal income tax rate |
| 21.0 | % | 21.0 | % | 21.0 | % |
State and local income tax rate |
| 3.0 |
| 3.0 |
| 3.0 | |
Employee Stock Ownership Plan ("ESOP") market value adjustment |
| (0.1) |
| (0.1) |
| (0.1) | |
BOLI |
| (0.8) |
| (0.7) |
| (1.5) | |
Other, net |
| 0.6 |
| (0.4) |
| (0.3) | |
Effective federal income tax rate |
| 23.7 | % | 22.8 | % | 22.1 | % |
For the fiscal years ended 2020March 31, 2023 and 2019,2022, the Company utilized a federal corporate income tax rate of 21.0%. On December 22, 2017, the federal government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made significant changes to the U.S. tax law including, among other things: a reduction in the federal corporate income tax rate from a maximum of 35.0% to 21.0% effective January 1, 2018; changes to the tax treatment of net operating loss carryforwards and carrybacks; and a repeal of the corporate alternative minimum tax. The Tax Act reduced the Company’s federal corporate income tax rate from 34.0% to a blended federal corporate income tax rate of 30.8% for the fiscal year ended March 31, 2018. As a result of using a blended tax rate, the Company recognized a $422,000 benefit for income taxes during the year ended March 31, 2018. Also as a result of the Tax Act, the reduction of the corporate tax rate required the Company to remeasure its deferred tax assets and liabilities based upon the lower federal tax rate. Accordingly, during the year ended March 31, 2018, the Company recorded a one-time $2.1 million charge to the provision for income taxes in conjunction with remeasuring its net deferred tax assets to account for the future impact of the decrease in the federal corporate income tax rate. In addition, during the year ended March 31, 2018, the Company made an adjustment between retained earnings and AOCI related to the stranded tax effects due to the change in the federal corporate tax rate applied to the net unrealized losses on available for sale investment securities.
91
At March 31, 20202023 and 2019,2022, the Company had no unrecognized tax benefits or uncertain tax positions. In addition, the Company had no accrued interest or penalties related to income tax matters as of March 31, 2020 or 2019.2023 and 2022. It is the Company’s policy to recognize potential accrued interest and penalties related to income tax matters as a component of the provision for income taxes. The Company is subject to U.S.U.S federal and State of Oregon income taxes. The years 20172019 to 20192022 remain open to examination for federal income taxes, and the years 20162019 to 20192022 remain open to State of Oregon examination.
12.EMPLOYEE BENEFIT PLANS
Retirement Plan –
The Riverview Bancorp, Inc. Employees’ Savings and Profit Sharing Plan (the “Plan”) is a defined contribution profit-sharing plan incorporating the provisions of Section 401(k) of the Internal Revenue Code. Company expenses related to the Plan for the years ended March 31,Directors’ and Executive Officers’ Deferred Compensation Plan
(“Deferred Compensation Plan”) – The Deferred Compensation Plan is a nonqualified deferred compensation plan. Directors may elect to defer their monthly directors’ fees until retirement with no income tax payable by the director until retirement benefits are received. The Chairman, President, and Executive and Senior Vice Presidents of the Company may also defer salary into the Deferred Compensation Plan. The Company accrues annual interest on the unfunded liability under the Deferred Compensation Plan based upon a formula relating to gross revenues, which wasStock Option Plans–
In July 2003, shareholders of the Company approved the adoption of the 2003 Stock Option Plan (“2003 Plan”). The 2003 Plan was effective in July 2003 and expired in July 2013. Accordingly, no further option awards may be granted under the 2003 Plan; however, any awards granted prior to their respective expiration dates remain outstanding subject to their terms. Each option granted under the 2003 Plan has an exercise price equal to the fair market value of the Company’s common stock on the date of the grant, a maximum term of ten years and a vesting period from zero to five years.In July 2017, the shareholders of the Company approved the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (“2017 Plan”). The 2017 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock and restricted stock units. The Company has reserved 1,800,000 shares of its common stock for issuance under the 2017 Plan. The 2003 Plan and the 2017 Plan are collectively referred to as “the Stock Option Plans.”
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes stock option valuation model. The fair value of all awards is amortized on a straight-line basis over the requisite service periods, which are generally the vesting periods. The expected life of options granted represents the period of time that they are expected to be outstanding. The expected life is determined based on historical experience with similar options, giving consideration to the contractual terms and vesting schedules. Expected volatility is estimated at the date of grant based on the historical volatility of the Company’s common stock. Expected dividends are based on dividend trends and the market value of the Company’s common stock at the time of grant. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. There were no stock options granted during the years ended March 31, 2020, 20192023, 2022 and 20182021 under the Stock Option Plans.
As of March 31, 2020,2023, all outstanding stock options were fully vested and there was no remaining unrecognized compensation expense related to stock options granted under the Stock Option Plans. There was no stock-based compensation expense related to stock options for the years ended March 31, 2020, 20192023, 2022 and 20182021 under the Stock Option Plans.
92
The following table presents the activity related to stock options under the Stock Option Plans for the years indicated:
| | | | | | | | | | | | | | | |
| | Year Ended March 31, | |||||||||||||
|
| 2023 | | 2022 | | 2021 | |||||||||
|
| |
| Weighted |
| |
| Weighted |
| |
| Weighted | |||
| | | | Average | | | | Average | | | | Average | |||
| | Number of | | Exercise | | Number of | | Exercise | | Number of | | Exercise | |||
|
| Shares |
| Price |
| Shares |
| Price |
| Shares |
| Price | |||
Balance, beginning of period |
| 17,332 | | $ | 2.78 |
| 23,332 | | $ | 2.78 |
| 43,332 | | $ | 2.69 |
Options exercised |
| (1,511) | |
| 2.78 |
| (6,000) | |
| 2.78 |
| (20,000) | |
| 2.58 |
Options expired |
| (1,511) | |
| 2.78 |
| — | |
| — |
| — | |
| — |
Balance, end of period |
| 14,310 | | $ | 2.78 |
| 17,332 | | $ | 2.78 |
| 23,332 | | $ | 2.78 |
Year Ended March 31, | ||||||||||||||||||||||||
2020 | 2019 | 2018 | ||||||||||||||||||||||
Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price | |||||||||||||||||||
Balance, beginning of year | 101,332 | $ | 3.26 | 141,365 | $ | 3.77 | 220,654 | $ | 4.74 | |||||||||||||||
Options exercised | (58,000 | ) | 3.69 | (37,533 | ) | 4.84 | (59,289 | ) | 4.13 | |||||||||||||||
Options expired | - | - | (2,500 | ) | 8.12 | (20,000 | ) | 13.42 | ||||||||||||||||
Balance, end of year | 43,332 | $ | 2.69 | 101,332 | $ | 3.26 | 141,365 | $ | 3.77 |
Additional information regarding stock options outstanding as of March 31, 20202023 is as follows:
| | | | | | | | | | | | |
| | | | Options Outstanding | | Options Exercisable | ||||||
|
| Weighted Avg |
| |
| Weighted |
| |
| Weighted | ||
| | Remaining | | | | Average | | | | Average | ||
Range of | | Contractual | | | | Exercise | | | | Exercise | ||
Exercise Price | | Life (years) | | Number | | Price | | Number | | Price | ||
| | | | | | | | | | | | |
$1.00 - $3.00 |
| 0.29 |
| 14,310 | | $ | 2.78 |
| 14,310 | | $ | 2.78 |
Options Outstanding | Options Exercisable | |||||||||
Weighted Avg | Weighted | Weighted | ||||||||
Remaining | Average | Average | ||||||||
Range of | Contractual | Exercise | Exercise | |||||||
Exercise Price | Life (years) | Number | Price | Number | Price | |||||
$1.00 - $3.00 | 2.80 | 43,332 | $2.69 | 43,332 | $2.69 |
The following table presents information on stock options outstanding, less estimated forfeitures, as of March 31, 20202023 and 2019:2022:
| | | | | | |
| | March 31, 2023 | | March 31, 2022 | ||
Stock options fully vested and expected to vest: | | |
|
| |
|
Number | | | 14,310 |
| | 17,332 |
Weighted average exercise price | | $ | 2.78 | | $ | 2.78 |
Aggregate intrinsic value (1) | | $ | 37,000 | | $ | 83,000 |
Weighted average contractual term of options (years) | |
| 0.29 | |
| 1.29 |
Stock options fully vested and currently exercisable: | |
| | |
| |
Number | |
| 14,310 | |
| 17,332 |
Weighted average exercise price | | $ | 2.78 | | $ | 2.78 |
Aggregate intrinsic value (1) | | $ | 37,000 | | $ | 83,000 |
Weighted average contractual term of options (years) | |
| 0.29 | |
| 1.29 |
March 31, 2020 | March 31, 2019 | |||||||
Stock options fully vested and expected to vest: | ||||||||
Number | 43,332 | 101,332 | ||||||
Weighted average exercise price | $ | 2.69 | $ | 3.26 | ||||
Aggregate intrinsic value (1) | $ | 101,000 | $ | 410,000 | ||||
Weighted average contractual term of options (years) | 2.80 | 2.20 | ||||||
Stock options fully vested and currently exercisable: | ||||||||
Number | 43,332 | 101,332 | ||||||
Weighted average exercise price | $ | 2.69 | $ | 3.26 | ||||
Aggregate intrinsic value (1) | $ | 101,000 | $ | 410,000 | ||||
Weighted average contractual term of options (years) | 2.80 | 2.20 | ||||||
(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. |
(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price) that would have been received by the option holders had all option holders exercised. This amount changes based on changes in the market value of the Company’s stock.
The total intrinsic value of stock options exercised was $238,000, $153,000$7,000, $25,000 and $257,000$68,000 for the years ended March 31, 2020, 20192023, 2022 and 2018,2021, respectively.
During the fiscal year ended March 31, 2020,2023, the Company granted a total of 82,67371,696 shares of restricted stock pursuant to the 2017 Plan of which vesting for 49,29815,571 shares were time based and 56,125 shares were performance. During the fiscal year ended March 31, 2022, the Company granted a total of 69,285 shares of restricted stock pursuant to the 2017 Plan of which vesting for 15,274 shares were time based and vesting for 33,375 shares of restricted stock54,011 were performance basedbased. Performance-based shares are subject to attaining certain pre-established performance metrics.
The fair value of restricted stock awards is equal to the fair value of the Company’s stock on the date of grant. The related stock-based compensation expense is recorded over the requisite service period. Stock-based compensation related to restricted stock grants was $302,000 for the year ended March 31, 2020. There was no stock-based compensation related to restricted stock$390,000, $319,000, and $352,000 for the years ended March 31, 20192023, 2022, and 2018.2021, respectively. The unrecognized stock-based compensation related to restricted stock was $323,000$440,000 and $401,000 at March 31, 2020.2023 and 2022. The weighted average vesting period for the restricted stock was 1.681.12 years and 1.53 years at March 31, 2020.2023 and 2022, respectively.
93
The following table presents the activity related to restricted stock for the yearyears ended March 31, 2020 :2023 and 2022:
| | | | | | | | | | | | | | | |
|
| Time Based |
| Performance Based |
| Total | |||||||||
| | Number | | Weighted | | Number | | Weighted | | Number | | Weighted | |||
| | of | | Average | | of | | Average | | of | | Average | |||
| | Unvested | | Grant Date | | Unvested | | Grant Date | | Unvested | | Grant Date | |||
Year Ended March 31, 2023 |
| Shares |
| Fair Value |
| Shares |
| Fair Value |
| Shares |
| Fair Value | |||
Balance, beginning of period |
| 26,855 | | $ | 6.02 |
| 121,492 | | $ | 5.70 |
| 148,347 | | $ | 5.76 |
Granted |
| 15,571 | |
| 6.30 |
| 56,125 | |
| 6.30 |
| 71,696 | |
| 6.30 |
Forfeited |
| — | |
| — |
| (2,977) | |
| 7.56 |
| (2,977) | |
| 7.56 |
Vested |
| (12,449) | |
| 6.07 |
| (41,995) | |
| 5.26 |
| (54,444) | |
| 5.45 |
Balance, end of period |
| 29,977 | | $ | 6.14 |
| 132,645 | | $ | 6.05 |
| 162,622 | | $ | 6.07 |
| | | | | | | | | | | | | | | |
|
| Time Based |
| Performance Based |
| Total | |||||||||
| | Number | | Weighted | | Number | | Weighted | | Number | | Weighted | |||
| | of | | Average | | of | | Average | | of | | Average | |||
| | Unvested | | Grant Date | | Unvested | | Grant Date | | Unvested | | Grant Date | |||
Year Ended March 31, 2022 |
| Shares |
| Fair Value |
| Shares |
| Fair Value |
| Shares |
| Fair Value | |||
Balance, beginning of period |
| 45,616 | | $ | 6.57 |
| 96,772 | | $ | 5.27 |
| 142,388 | | $ | 5.69 |
Granted |
| 15,274 | |
| 7.08 |
| 54,011 | |
| 7.06 |
| 69,285 | |
| 7.06 |
Forfeited |
| (4,417) | |
| 5.82 |
| (16,559) | |
| 5.55 |
| (20,976) | |
| 5.61 |
Vested |
| (29,618) | |
| 7.43 |
| (12,732) | |
| 8.35 |
| (42,350) | |
| 7.71 |
Balance, end of period |
| 26,855 | | $ | 6.02 |
| 121,492 | | $ | 5.70 |
| 148,347 | | $ | 5.76 |
Time-Based | Performance-Based | Total | ||||||||||||||||||||||
Number of Unvested Shares | Weighted Average Market Price | Number of Unvested Shares | Weighted Average Market Price | Number of Unvested Shares | Weighted Average Market Price | |||||||||||||||||||
Balance, beginning of period | - | $ | - | - | $ | - | - | $ | - | |||||||||||||||
Granted | 49,298 | 8.35 | 33,375 | 8.35 | 82,673 | 8.35 | ||||||||||||||||||
Forfeited | - | - | - | - | - | - | ||||||||||||||||||
Vested | - | - | - | - | - | - | ||||||||||||||||||
Cancelled | - | - | - | - | - | - | ||||||||||||||||||
Balance, end of period | 49,298 | $ | 8.35 | 33,375 | $ | 8.35 | 82,673 | $ | 8.35 |
Employee Stock Ownership Plan
-The Company sponsors an ESOP that covers all employees with at least one year and 1,000 hours of service who are over the age of 21.Trust Company Stock Options –
At March 31,
13. SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL REQUIREMENTS
The Bank is a state-chartered, federally insured institution subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency (“OCC”)FDIC. Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and tier I capital to risk-weighted assets, core capital to total assets and tangible capital to tangible assets (set forth in the table below). Management believes the Bank met all capital adequacy requirements to which it was subject as of March 31, 2020.2023.
94
As of March 31, 2020,2023, the most recent notification from the OCCBank was categorized the Bank as “well capitalized” under the FDIC’s regulatory framework for prompt corrective action. The Bank’s actual and required minimum capital amounts and ratios were as follows at the dates indicated (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | "Well Capitalized" | | |||
| | | | | | | For Capital | | Under Prompt | | ||||||
| | Actual |
| Adequacy Purposes |
| Corrective Action |
| |||||||||
March 31, 2023 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
| | | | | | | | | | | | | | | | |
Total Capital: | | | | | | | | | | | | | | | | |
(To Risk-Weighted Assets) | | $ | 180,001 | | 16.94 | % | $ | 85,013 | | 8.0 | % | $ | 106,266 | | 10.0 | % |
Tier 1 Capital: | |
| | | | | | | | | | | | | | |
(To Risk-Weighted Assets) | | | 166,688 | | 15.69 | |
| 63,760 | | 6.0 | |
| 85,013 | | 8.0 | |
Common equity tier 1 Capital: | |
| | | | | | | | | | | | | | |
(To Risk-Weighted Assets) | | | 166,688 | | 15.69 | |
| 47,820 | | 4.5 | |
| 69,073 | | 6.5 | |
Tier 1 Capital (Leverage): | |
| | | | | | | | | | | | | | |
(To Average Tangible Assets) | | | 166,688 | | 10.47 | |
| 63,679 | | 4.0 | |
| 79,599 | | 5.0 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | "Well Capitalized" | | |||
| | | | | | | For Capital | | Under Prompt | | ||||||
| | Actual |
| Adequacy Purposes |
| Corrective Action |
| |||||||||
March 31, 2022 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
| | | | | | | | | | | | | | | | |
Total Capital: | | | | | | | | | | | | | | | | |
(To Risk-Weighted Assets) | | $ | 168,486 | | 16.38 | % | $ | 82,305 | | 8.0 | % | $ | 102,881 | | 10.0 | % |
Tier 1 Capital: | |
| | | | | | | | | | | | | | |
(To Risk-Weighted Assets) | | | 155,601 | | 15.12 | |
| 61,728 | | 6.0 | |
| 82,305 | | 8.0 | |
Common equity tier 1 Capital: | |
| | | | | | | | | | | | | | |
(To Risk-Weighted Assets) | | | 155,601 | | 15.12 | |
| 46,296 | | 4.5 | |
| 66,872 | | 6.5 | |
Tier 1 Capital (Leverage): | |
| | | | | | | | | | | | | | |
(To Average Tangible Assets) | | | 155,601 | | 9.19 | |
| 67,763 | | 4.0 | |
| 84,704 | | 5.0 | |
Actual | For Capital Adequacy Purposes | “Well Capitalized” Under Prompt Corrective Action | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||
Total Capital: | ||||||||||||||||||||||||
(To Risk-Weighted Assets) | $ | 145,949 | 17.01 | % | $ | 68,630 | 8.0 | % | $ | 85,787 | 10.0 | % | ||||||||||||
Tier 1 Capital: | ||||||||||||||||||||||||
(To Risk-Weighted Assets) | 135,196 | 15.76 | 51,472 | 6.0 | 68,630 | 8.0 | ||||||||||||||||||
Common equity tier 1 Capital: | ||||||||||||||||||||||||
(To Risk-Weighted Assets) | 135,196 | 15.76 | 38,604 | 4.5 | 55,762 | 6.5 | ||||||||||||||||||
Tier 1 Capital (Leverage): | ||||||||||||||||||||||||
(To Average Tangible Assets) | 135,196 | 11.79 | 45,851 | 4.0 | 57,313 | 5.0 |
Actual | For Capital Adequacy Purposes | “Well Capitalized” Under Prompt Corrective Action | ||||||||||||||||||||||
March 31, 2019 | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total Capital: | ||||||||||||||||||||||||
(To Risk-Weighted Assets) | $ | 140,062 | 16.88 | % | $ | 66,379 | 8.0 | % | $ | 82,974 | 10.0 | % | ||||||||||||
Tier 1 Capital: | ||||||||||||||||||||||||
(To Risk-Weighted Assets) | 129,671 | 15.63 | 49,784 | 6.0 | 66,379 | 8.0 | ||||||||||||||||||
Common equity tier 1 Capital: | ||||||||||||||||||||||||
(To Risk-Weighted Assets) | 129,671 | 15.63 | 37,338 | 4.5 | 53,933 | 6.5 | ||||||||||||||||||
Tier 1 Capital (Leverage): | ||||||||||||||||||||||||
(To Average Tangible Assets) | 129,671 | 11.56 | 44,874 | 4.0 | 56,092 | 5.0 |
In addition to the minimum common equity tier 1 (“CET1”), Tier 1 and total capital ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. The capital conservation buffer is required to be an amount greater than 2.5% of risk-weighted assets. As of March 31, 2020,2023, the Bank’s CET1 capital exceeded the required capital conservation buffer at an amount greater than 2.5%.
For a savings and loanbank holding company, such as the Company,Riverview Bancorp, Inc., the capital guidelines apply on a bank only basis. The Federal Reserve expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If the CompanyRiverview Bancorp, Inc. was subject to regulatory guidelines for bank holding companies at March 31, 2020, the Company2023, it would have exceeded all regulatory capital requirements.
At periodic intervals, the OCC and the FDICCompany’s banking regulators routinely examine the Bank’sCompany’s financial condition and risk management processes as part of their legally prescribed oversight. Based on their examinations, these regulators can direct that the Company’s consolidated financial statements be adjusted in accordance with their findings. A future examination by the OCC or the FDIC could include a review of certain transactions or other amounts reported in the Company’s 20202023 consolidated financial statements.
14.EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Nonvested shares of restricted stock are included in the computation of basic EPS because the holder has voting rights and shares in non-forfeitable dividends during the vesting period. Diluted EPS is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common
95
stock during the period. Common stock equivalents arise from the assumed exercise of outstanding stock options and assumed vesting of restricted stock.options. For the years ended March 31, 20202023, 2022 and 2019,2021, there were no stock options excluded in computing diluted EPS. For
The following table presents a reconciliation of the year ended March 31, 2018, stock options for 8,000 shares of common stock were excluded in computingcomponents used to compute basic and diluted EPS because they were antidilutive.
| | | | | | | | | |
|
| Year Ended March 31, | |||||||
(Dollars and share data in thousands, except per share data) |
| 2023 |
| 2022 |
| 2021 | |||
Basic EPS computation: |
| |
|
| |
|
| |
|
Numerator-net income | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
Denominator-weighted average common shares outstanding | |
| 21,638 | |
| 22,213 | |
| 22,296 |
Basic EPS | | $ | 0.84 | | $ | 0.98 | | $ | 0.47 |
Diluted EPS computation: | |
|
| |
|
| |
|
|
Numerator-net income | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
Denominator-weighted average common shares outstanding | |
| 21,638 | |
| 22,213 | |
| 22,296 |
Effect of dilutive stock options | |
| 8 | |
| 12 | |
| 17 |
Weighted average common shares and common stock equivalents | |
| 21,646 | |
| 22,225 | |
| 22,313 |
Diluted EPS | | $ | 0.83 | | $ | 0.98 | | $ | 0.47 |
On March 9, 2022, the Company announced that its Board of Directors adoptedauthorized a stock repurchase program (the “repurchase“March 2022 repurchase program”). Under the March 2022 repurchase program, the Company maywas authorized to repurchase up to 500,000 shares$5.0 million of the Company’s outstanding shares of common stock, in the open market, based on prevailing market prices, or in private negotiated transactions, during theover a period frombeginning on March 12, 202021, 2022 and continuing until the earlier of the completion of the stock repurchase program or September 9, 2022. The Company completed the March 2022 repurchase program on September 8, 2022, repurchasing 718,734 shares at an average price of 500,000$6.96 per share and at a total cost of $5.0 million. All shares repurchased under the March 2022 program were retired as of September 30, 2022.
On November 17, 2022, the Company announced that its Board of Directors authorized a stock repurchase programs (the “November 2022 repurchase program”). Under the November 2022 repurchase program, the Company was authorized to repurchase up to $2.5 million of the Company’s outstanding shares of common stock, in the open market or in privately negotiated transactions, over a period beginning on November 28, 2022 and continuing until the next six months,earlier of the completion of the authorized level of repurchases or May 28, 2023, depending onupon market conditions. As of March 31, 2020,2023, the Company had repurchased 204,100 shares under the repurchase program at an average price of $4.94 per share. As of April 17, 2020, the Company had repurchased the remaining 295,900285,172 shares at an average price of $4.85$6.74 per share. The Company did notshare and at a total cost of $1.9 million. Shares repurchased under the November 2022 repurchase any shares of its common stock during the years ended March 31, 2019 or 2018.
Year Ended March 31, | ||||||||||||||
(Dollars and share data in thousands, except per share data) | 2020 | 2019 | 2018 | |||||||||||
P | ||||||||||||||
Basic EPS computation: | ||||||||||||||
Numerator-net income | $ | 15,748 | $ | 17,266 | $ | 10,242 | ||||||||
Denominator-weighted average common shares outstanding | 22,643 | 22,588 | 22,531 | |||||||||||
Basic EPS | $ | 0.70 | $ | 0.76 | $ | 0.45 | ||||||||
Diluted EPS computation: | ||||||||||||||
Numerator-net income | $ | 15,748 | $ | 17,266 | $ | 10,242 | ||||||||
Denominator-weighted average common shares outstanding | 22,643 | 22,588 | 22,531 | |||||||||||
Effect of dilutive stock options and restricted stock | 55 | 72 | 92 | |||||||||||
Weighted average common shares and common stock | ||||||||||||||
equivalents | 22,698 | 22,660 | 22,623 | |||||||||||
Diluted EPS | $ | 0.69 | $ | 0.76 | $ | 0.45 |
15. FAIR VALUE MEASUREMENTS
Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are:
96
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'sentity’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.
The following tables present assets that are measured at estimated fair value on a recurring basis at the dates indicated (in thousands):
| | | | | | | | | | | | |
| | Total Estimated | | Estimated Fair Value Measurements Using | ||||||||
March 31, 2023 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
| | | | | | | | | | | | |
Investment securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Municipal securities | | $ | 40,261 | | $ | — | | $ | 40,261 | | $ | — |
Agency securities | |
| 85,907 | |
| — | |
| 85,907 | |
| — |
Real estate mortgage investment conduits | |
| 28,877 | |
| — | |
| 28,877 | |
| — |
Residential mortgage-backed securities | |
| 15,471 | |
| — | |
| 15,471 | |
| — |
Other mortgage-backed securities | |
| 40,983 | |
| — | |
| 40,983 | |
| — |
Total assets measured at fair value on a recurring basis | | $ | 211,499 | | $ | — | | $ | 211,499 | | $ | — |
| | | | | | | | | | | | |
|
| Total Estimated |
| Estimated Fair Value Measurements Using | ||||||||
March 31, 2022 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
| | | | | | | | | | | | |
Investment securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Municipal securities | | $ | 39,604 | | $ | — | | $ | 39,604 | | $ | — |
Agency securities | |
| 40,705 | |
| — | |
| 40,705 | |
| — |
Real estate mortgage investment conduits | |
| 32,717 | |
| — | |
| 32,717 | |
| — |
Residential mortgage-backed securities | |
| 16,945 | |
| — | |
| 16,945 | |
| — |
Other mortgage-backed securities | |
| 35,811 | |
| — | |
| 35,811 | |
| — |
Total assets measured at fair value on a recurring basis | | $ | 165,782 | | $ | — | | $ | 165,782 | | $ | — |
Estimated Fair Value Measurements Using | ||||||||||||||||
March 31, 2020 | Total Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available for sale: | ||||||||||||||||
Municipal securities | $ | 4,877 | $ | - | $ | 4,877 | $ | - | ||||||||
Agency securities | 6,016 | - | 6,016 | - | ||||||||||||
Real estate mortgage investment conduits | 43,791 | - | 43,791 | - | ||||||||||||
Residential mortgage-backed securities | 60,085 | - | 60,085 | - | ||||||||||||
Other mortgage-backed securities | 33,522 | - | 33,522 | - | ||||||||||||
Total assets measured at fair value on a recurring basis | $ | 148,291 | $ | - | $ | 148,291 | $ | - |
Estimated Fair Value Measurements Using | ||||||||||||||||
March 31, 2019 | Total Estimated Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Investment securities available for sale: | ||||||||||||||||
Municipal securities | $ | 8,881 | $ | - | $ | 8,881 | $ | - | ||||||||
Agency securities | 12,341 | - | 12,341 | - | ||||||||||||
Real estate mortgage investment conduits | 40,162 | - | 40,162 | - | ||||||||||||
Residential mortgage-backed securities | 75,821 | - | 75,821 | - | ||||||||||||
Other mortgage-backed securities | 41,021 | - | 41,021 | - | ||||||||||||
Total assets measured at fair value on a recurring basis | $ | 178,226 | $ | - | $ | 178,226 | $ | - |
There were no transfers of assets into or out of Levels 1, 2 or 3 during the years ended March 31, 20202023 and 2019.
The following methods were used to estimate the fair value of investment securities in the above table:
Investment securities are included within Level 1 of the hierarchy when quoted prices in an active market for identical assets are available. The Company uses a third-party pricing service to assist the Company in determining the fair value of its Level 2 securities, which incorporates pricing models and/or quoted prices of investment securities with similar characteristics. Investment securities are included within Level 3 of the hierarchy when there are significant unobservable inputs.
For Level 2 securities, the independent pricing service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data from market research publications.
97
The Company’s third-party pricing service has established processes for the Company to submit inquiries regarding the estimated fair value. In such cases, the Company’s third-party pricing service will review the inputs to the evaluation in light of any new market data presented by the Company. The Company’s third-party pricing service may then affirm the original estimated fair value or may update the evaluation on a go-forward basis.
Management reviews the pricing information received from the third-party pricing service through a combination of procedures that include an evaluation of methodologies used by the pricing service, analytical reviews and performance analysis of the prices against statistics and trends. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. As necessary, management compares prices received from the pricing service to discounted cash flow models or by performing independent valuations of inputs and assumptions similar to those used by the pricing service in order to help ensure prices represent a reasonable estimate of fair value.
The following tables present assets that are measured at estimated fair value on a nonrecurring basis at the dates indicated (in thousands):
| | | | | | | | | | | | |
|
| Total | | Estimated Fair Value | ||||||||
| | Estimated | | Measurements Using | ||||||||
March 31, 2023 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
| |
| | |
| | |
| | |
| |
Impaired loans | | $ | 89 | | $ | — | | $ | — | | $ | 89 |
| | | | | | | | | | | | |
March 31, 2022 | | | |
| | |
| | |
| | |
| | | | | | | | | | | | |
Impaired loans | | $ | 228 | | $ | — | | $ | — | | $ | 228 |
Estimated fair value measurements using | ||||||||||||||||
March 31, 2020 | Total estimated fair value | Level 1 | Level 2 | Level 3 | ||||||||||||
Impaired loans | $ | 125 | $ | - | $ | - | $ | 125 |
March 31, 2019 | ||||||||||||||||
Impaired loans | $ | 394 | $ | - | $ | - | $ | 394 |
The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at March 31, 20202023 and 2019:
| | | | | | |
| Valuation | Significant Unobservable | | |||
| | Technique | | Inputs | | Range |
| | | | | | |
Impaired loans | Appraisedvalue | Adjustment for market conditions | N/A(1) | |||
| | Discounted cash flows | | Discount rate | | 5.375 % - 8.000% |
(1) | There were no adjustments to appraised values of impaired loans as of March 31, |
For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses.
In determining the estimated net realizable value of the underlying collateral, the Company primarily uses third-party appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and include consideration of variations in location, size, and income production capacity of the property. Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.
Impaired loans are reviewed and evaluated quarterly for additional impairment and adjusted accordingly based on the same factors identified above. Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.
The following disclosure of the estimated fair value of financial instruments is made in accordance with GAAP. The Company, using available market information and appropriate valuation methodologies, has determined the estimated fair value amounts. However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could
98
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.
The carrying amounts and estimated fair values of financial instruments are as follows at the dates indicated (in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Carrying | | | | | | | | | | | Estimated | ||
March 31, 2023 | | Amount |
| Level 1 | | Level 2 | | Level 3 |
| Fair Value | |||||
| | | | | | | | | | | | | | | |
Assets: |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents | | $ | 22,044 | | $ | 22,044 | | $ | — | | $ | — | | $ | 22,044 |
Certificates of deposit held for investment | |
| 249 | |
| — | |
| 248 | |
| — | |
| 248 |
Investment securities available for sale | |
| 211,499 | |
| — | |
| 211,499 | |
| — | |
| 211,499 |
Investment securities held to maturity | |
| 243,843 | |
| — | |
| 210,214 | |
| — | |
| 210,214 |
Loans receivable, net | |
| 993,547 | |
| — | |
| — | |
| 931,784 | |
| 931,784 |
FHLB stock | |
| 6,867 | |
| — | |
| 6,867 | |
| — | |
| 6,867 |
| | | | | | | | | | | | | | | |
Liabilities: | |
| | |
| | |
| | |
| | |
| |
Certificates of deposit | |
| 128,833 | |
| — | |
| 126,072 | |
| — | |
| 126,072 |
FHLB advances | |
| 123,754 | |
| — | |
| 123,679 | |
| — | |
| 123,679 |
Junior subordinated debentures | |
| 26,918 | |
| — | |
| — | |
| 17,698 | |
| 17,698 |
| | | | | | | | | | | | | | | |
| | Carrying | | | | | | | | | | | Estimated | ||
March 31, 2022 | | Amount | | Level 1 | | Level 2 | | Level 3 | | Fair Value | |||||
|
| | |
| | |
| | |
| | |
| | |
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 241,424 | | $ | 241,424 | | $ | — | | $ | — | | $ | 241,424 |
Certificates of deposit held for investment | |
| 249 | |
| — | |
| 253 | |
| — | |
| 253 |
Investment securities available for sale | |
| 165,782 | |
| — | |
| 165,782 | |
| — | |
| 165,782 |
Investment securities held to maturity | |
| 253,100 | |
| — | |
| 236,029 | |
| — | |
| 236,029 |
Loans receivable, net | |
| 975,885 | |
| — | |
| — | |
| 962,893 | |
| 962,893 |
FHLB stock | |
| 2,019 | |
| — | |
| 2,019 | |
| — | |
| 2,019 |
| | | | | | | | | | | | | | | |
Liabilities: | |
| | |
| | |
| | |
| | |
| |
Certificates of deposit | |
| 111,372 | |
| — | |
| 109,860 | |
| — | |
| 109,860 |
Junior subordinated debentures | |
| 26,833 | |
| — | |
| — | |
| 16,046 | |
| 16,046 |
March 31, 2020 | Carrying Amount | Level 1 | Level 2 | Level 3 | Estimated Fair Value | |||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 41,968 | $ | 41,968 | $ | - | $ | - | $ | 41,968 | ||||||||||
Certificates of deposit held for investment | 249 | - | 258 | - | 258 | |||||||||||||||
Loans held for sale | 275 | - | 275 | - | 275 | |||||||||||||||
Investment securities available for sale | 148,291 | - | 148,291 | - | 148,291 | |||||||||||||||
Investment securities held to maturity | 28 | - | 28 | - | 28 | |||||||||||||||
Loans receivable, net | 898,885 | - | - | 889,398 | 889,398 | |||||||||||||||
FHLB stock | 1,420 | - | 1,420 | - | 1,420 | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Certificates of deposit | 134,941 | - | 136,997 | - | 136,997 | |||||||||||||||
Junior subordinated debentures | 26,662 | - | - | 12,127 | 12,127 | |||||||||||||||
March 31, 2019 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 22,950 | $ | 22,950 | $ | - | $ | - | $ | 22,950 | ||||||||||
Certificates of deposit held for investment | 747 | - | 746 | - | 746 | |||||||||||||||
Loans held for sale | 909 | - | 909 | - | 909 | |||||||||||||||
Investment securities available for sale | 178,226 | - | 178,226 | - | 178,226 | |||||||||||||||
Investment securities held to maturity | 35 | - | 35 | - | 35 | |||||||||||||||
Loans receivable, net | 864,659 | - | - | 862,429 | 862,429 | |||||||||||||||
FHLB stock | 3,644 | - | 3,644 | - | 3,644 | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Certificates of deposit | 86,006 | - | 84,455 | - | 84,455 | |||||||||||||||
FHLB advances | 56,586 | - | 56,586 | - | 56,586 | |||||||||||||||
Junior subordinated debentures | 26,575 | - | - | 15,468 | 15,468 |
Fair value estimates were based on existing financial instruments without attempting to estimate the value of anticipated future business. The fair value was not estimated for assets and liabilities that were not considered financial instruments.
16. REVENUE FROM CONTRACTS WITH CUSTOMERS
In accordance with ASC Topic 606 “Revenues from Contracts with Customers” (“ASC 606”), revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Company expects to be entitled to receive. The largest portion of the Company’s revenue is from interest income, which is not within the scope of ASC 606. All of the Company'sCompany’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of REO and premises and equipment, which are included in non-interest expense.
If a contract is determined to be within the scope of ASC 606, the Company recognizes revenue as it satisfies a performance obligation. Payments from customers are generally collected at the time services are rendered, monthly, or quarterly. For contracts with customers within the scope of ASC 606, revenue is either earned at a point in time or revenue is earned over time. Examples of revenue earned at a point in time are automated teller machine (“ATM”) transaction fees, wire transfer fees, overdraft fees and interchange fees. Revenue earned at a point in time is primarily based on the number and type of transactions that are generally derived from transactional information accumulated by the Company’s systems and is recognized immediately as the transactions occur or upon providing the service to complete the customer’s transaction. The Company is generally the principal in these contracts, with the exception of interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal. Examples of revenue earned over time, which generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust
99
and investment management fees and safe deposit box fees. Revenue is generally derived from transactional information accumulated by the Company’s systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer.
Disaggregation of Revenue
The following table includes the Company’s non-interest income disaggregated by type of service (in thousands):
Year Ended March 31 | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Asset management fees | $ | 4,408 | $ | 3,791 | $ | 3,448 | ||||||
Debit card and ATM fees | 3,102 | 3,104 | 2,961 | |||||||||
Deposit related fees | 2,212 | 1,721 | 1,628 | |||||||||
Loan related fees | 605 | 507 | 317 | |||||||||
BOLI (1) | 864 | 734 | 819 | |||||||||
Net gains on sales of loans held for sale (1) | 252 | 317 | 641 | |||||||||
FHLMC loan servicing fees (1) | 147 | 141 | 122 | |||||||||
Other, net | 770 | 792 | 714 | |||||||||
Total non-interest income | $ | 12,360 | $ | 11,107 | $ | 10,650 | ||||||
(1) Not within the scope of ASC 606 |
| | | | | | | | | |
| | Year Ended March 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
| | | | | | | | | |
Asset management fees | | $ | 4,734 | | $ | 4,107 | | $ | 3,646 |
Debit card and ATM fees | |
| 3,341 | |
| 3,499 | |
| 3,103 |
Deposit related fees | |
| 1,737 | |
| 1,634 | |
| 1,514 |
Loan related fees | |
| 539 | |
| 1,247 | |
| 1,229 |
BOLI (1) | |
| 821 | |
| 800 | |
| 813 |
Net gains on sales of loans held for sale (1) | |
| — | |
| — | |
| 28 |
FHLMC loan servicing fees (1) | |
| 66 | |
| 85 | |
| 94 |
BOLI death benefit in excess of cash surrender value (1) | | | — | | | 500 | | | — |
Other, net | |
| 956 | |
| 872 | |
| 663 |
Total non-interest income, net | | $ | 12,194 | | $ | 12,744 | | $ | 11,090 |
(1)Not within the scope of ASC 606 are for performance obligations satisfied at a point in time.
Revenues recognized within the scope of ASC 606
Asset management fees
: Asset management fees are variable, since they are based on the customer’s underlying portfolio value, which is subject to market conditions and amounts invested by clients through the Trust Company. Asset management fees are recognized over the period that services are provided, and when the portfolio values are known or can be estimated at the end of each quarter.Debit card and ATM fees
: Debit card and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the MasterCard® payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income.Deposit related fees
: Fees are earned on the Bank’s deposit accounts for various products offered to or services performed for the Bank’s customers. Fees include business account fees, non-sufficient fund fees, stop payment fees, wire services, safe deposit box and others. These fees are recognized on a daily, monthly or quarterly basis, depending on the type of service.Loan related fees
: Non-interest loan fee income is earned on loans that the Bank services, excluding loans serviced for the FHLMC which are not within the scope of ASC 606. Loan related fees include prepayment fees, late charges, brokered loan fees, maintenance fees and others. These fees are recognized on a daily, monthly, quarterly or annual basis, depending on the type of service.Other
: Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle.Contract Balances
As of March 31, 20202023 and 2019,2022, the Company had no significant contract liabilities where the Company had an obligation to transfer goods or services for which the Company had already received consideration. In addition, the Company had no material unsatisfied performance obligations as of March 31, 20202023 and 2019.2022.
100
17.COMMITMENTS AND CONTINGENCIES
Off-balance sheet arrangements
– In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to originate loans are conditional and are honored for up to 45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments.Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies and is required in instances where the Company deems it necessary.
Significant off-balance sheet commitments are listed below at the dates indicated (in thousands):
| | | | | | |
| | | | | | |
| | Contract or Notional | ||||
| | Amount | ||||
| | March 31, | | March 31, | ||
|
| 2023 |
| 2022 | ||
Commitments to extend credit: | |
|
| |
|
|
Adjustable-rate | | $ | 12,489 | | $ | 17,125 |
Fixed-rate | |
| 18 | |
| 2,895 |
Standby letters of credit | |
| 1,600 | |
| 1,780 |
Undisbursed loan funds and unused lines of credit | |
| 130,269 | |
| 137,460 |
Total | | $ | 144,376 | | $ | 159,260 |
Contract or Notional Amount | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
Commitments to originate loans: | ||||||||
Adjustable-rate | $ | 18,712 | $ | 30,579 | ||||
Fixed-rate | 17,085 | 10,158 | ||||||
Standby letters of credit | 2,045 | 2,410 | ||||||
Undisbursed loan funds and unused lines of credit | 122,840 | 139,842 | ||||||
Total | $ | 160,682 | $ | 182,989 |
At March 31, 2020,2023, the Company had firmno commitments to sell $1.1 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 March 31,The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof, and municipal corporations. In accordance with applicable state law, in the event of default of a participating bank, all other participating banks in the state collectively assure that no loss of funds are suffered by any public depositor. Generally, in the event of default by a public depository, the assessment attributable to all public depositories is allocated on a pro rata basis in proportion to the maximum liability of each depository as it existed on the date of loss. The Company has not incurred any losses related to public depository funds for the years ended March 31, 2020, 20192023, 2022 and 2018.
The Bank has entered into employment contracts with certain key employees, which provide for contingent payments subject to future events.
Litigation
–The Company is periodically101
adjusted as appropriate to reflect any subsequent developments in the specific legal matter. It is inherently difficult to estimate the amount of loss and there may be matters for which a loss is probable or reasonably possible but not havecurrently estimable. Actual losses may be in excess of any established accrual or the range of reasonably possible loss. Management's estimate will change from time to time.
The Company is currently involved in a material adverse effect, if any,lawsuit for which certain parties participated in a mediation in May 2023 and a stay of proceedings is in place to allow for continued settlement efforts. Based on the Company’smost recent information available, management has concluded that a loss is not probable at this time and the amount of any potential loss cannot be reasonably estimated. Accordingly, no accrual has been established.
Any estimate or determination relating to the future consolidated financial position,resolution of legal matters is uncertain and involves significant judgment. We usually are unable to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the process. Although there can be no assurance as to the ultimate outcome of a specific legal matter, we believe we have meritorious defenses to the claims asserted against us in the current outstanding legal matter, and we intend to continue to vigorously defend ourselves. It is possible that the ultimate resolution of a matter, if unfavorable, may be material to the Company's results of operations and cash flows.
18. LEASES
The Company has a finance lease for the shell of the building constructed as the Company'sCompany’s operations center which expires in November 2039. The Company is also obligated under various noncancelable operating lease agreements for land, buildings and equipment that require future minimum rental payments. For each operating each lease with an initial term of more than 12 months, the Company records an operating lease right-of-useROU asset (representing the right to use the underlying asset for the lease term) and an operating lease liability (representing the obligation to make lease payments required under the terms of the lease). Right-of-useROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate – derived from information available at the lease commencement date – as the discount rate when determining the present value of lease payments. The Company does not have any operating leases with an initial term of 12 months or less. Certain operating leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Certain operating leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term. Lease extensions are not reasonably certain and the Company generally does not include payments occurring during option periods in the calculation of its operating lease right-of-useROU assets and operating lease liabilities. The Company adopted the requirements of ASC 842 effective April 1, 2019, which required the Company to record in the consolidated balance sheet operating lease right-of-use assets and operating lease liabilities for leases with an initial term of more than 12 months for leases that existed as of April 1, 2019. The periods prior to the date of adoption are accounted for under superseded ASC 840; therefore, the following disclosures include only the period for which ASC 842 was effective.
The table below presents the lease right-of-useROU assets and lease liabilities recorded in the consolidated balance sheet at March 31, 2020 (inthe dates indicated (dollars in thousands):
| | | | | | | | |
|
| March 31, | | March 31, |
| Classification in the | ||
Leases |
| 2023 |
| 2022 |
| consolidated balance sheets | ||
Finance lease ROU assets | | $ | 1,278 |
| $ | 1,355 |
| Financing lease ROU assets |
Finance lease liability | | $ | 2,229 |
| $ | 2,283 |
| Finance lease liability |
Finance lease remaining lease term | |
| 16.68 | years |
| 17.68 | years | |
Finance lease discount rate | |
| 7.16 | % |
| 7.16 | % |
|
| | | | | | | | |
Operating lease ROU assets | | $ | 6,705 |
| $ | 7,907 |
| Prepaid expenses and other assets |
Operating lease liabilities | | $ | 7,064 |
| $ | 8,306 |
| Accrued expenses and other liabilities |
Operating lease weighted-average remaining lease term | |
| 6.15 | years |
| 7.02 | years | |
Operating lease weighted-average discount rate | |
| 1.78 | % |
| 1.81 | % |
|
102
Leases | Classification in the consolidated balance sheets | ||||
Finance lease right-of-use asset | $ | 1,508 | Premises and equipment, net | ||
Finance lease liability | $ | 2,369 | Finance lease liability | ||
Finance lease remaining lease term | 19.68 | years | |||
Finance lease discount rate | 7.16 | % | |||
Operating lease right-of-use assets | $ | 3,949 | Prepaid expenses and other assets | ||
Operating lease liabilities | $ | 4,046 | Accrued expenses and other liabilities | ||
Operating lease weighted-average remaining lease term | 3.92 | years | |||
Operating lease weighted-average discount rate | 2.77 | % |
The table below presents certain information related to the lease costs for operating leases, which are recorded in occupancy and depreciation in the accompanying consolidated statements of income forat the year ended March 31, 2020dates indicated (in thousands):
| | | | | | | | | |
| | Year ended | | Year ended | | Year ended | |||
Lease Costs |
| March 31, 2023 |
| March 31, 2022 | | March 31, 2021 | |||
Finance lease amortization of ROU asset | | $ | 77 | | $ | 77 | | $ | 77 |
Finance lease interest on lease liability | |
| 162 | |
| 165 | |
| 168 |
Operating lease costs | |
| 1,133 | |
| 1,266 | |
| 1,312 |
Variable lease costs | |
| 209 | |
| 209 | |
| 209 |
Total lease cost (1) | | $ | 1,581 | | $ | 1,717 | | $ | 1,766 |
Lease Costs | |||
Finance lease amortization of right-of-use asset | $ | 77 | |
Finance lease interest on lease liability | 171 | ||
Operating lease costs | 1,508 | ||
Variable lease costs | 209 | ||
Total lease cost (1) | $ | 1,965 | |
(1) income related to sub-lease activity is not significant and is not presented herein. |
(1)Income related to sub-lease activity is not significant and $2.1 million for the years ended March 31, 2019 and 2018, respectively.
Supplemental cash flow information
The following table reconciles the undiscounted cash flows for the periods presented related to the Company’s lease liabilities as of March 31, 20202023 (in thousands):
| | | | | | |
Year Ending March 31: |
| Operating |
| Finance | ||
| | Leases | | Lease | ||
2024 | | $ | 1,370 | | $ | 219 |
2025 | |
| 1,375 | |
| 222 |
2026 | |
| 1,125 | |
| 226 |
2027 | |
| 1,116 | |
| 230 |
2028 | |
| 899 | |
| 232 |
Thereafter | |
| 1,632 | |
| 2,712 |
Total minimum lease payments | |
| 7,517 | |
| 3,841 |
Less: amount of lease payment representing interest | |
| (453) | |
| (1,612) |
Lease liabilities | | $ | 7,064 | | $ | 2,229 |
103
Years Ending March 31: | Operating Leases | Finance Lease | ||||||
2021 | $ | 1,011 | $ | 208 | ||||
2022 | 747 | 212 | ||||||
2023 | 573 | 215 | ||||||
2024 | 583 | 219 | ||||||
2025 | 577 | 222 | ||||||
Thereafter | 929 | 3,400 | ||||||
Total minimum lease payments | 4,420 | 4,476 | ||||||
Less: amount of lease payment representing interest | (374 | ) | (2,107 | ) | ||||
Lease liabilities | $ | 4,046 | $ | 2,369 |
BALANCE SHEETS | ||||||||
AS OF MARCH 31, 2020 AND 2019 | ||||||||
(In thousands) | 2020 | 2019 | ||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 10,269 | $ | 4,178 | ||||
Investment in the Bank | 165,130 | 155,041 | ||||||
Other assets | 1,440 | 1,445 | ||||||
TOTAL ASSETS | $ | 176,839 | $ | 160,664 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Accrued expenses and other liabilities | $ | 199 | $ | 63 | ||||
Dividend payable | 1,135 | 904 | ||||||
Borrowings | 26,662 | 26,575 | ||||||
Shareholders' equity | 148,843 | 133,122 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 176,839 | $ | 160,664 |
STATEMENTS OF INCOME | ||||||||||||
FOR THE YEARS ENDED MARCH 31, 2020, 2019 AND 2018 | ||||||||||||
(In thousands) | 2020 | 2019 | 2018 | |||||||||
INCOME: | ||||||||||||
Interest on investment securities and other short-term investments | $ | 33 | $ | 35 | $ | 26 | ||||||
Interest on loan receivable from the Bank | - | - | 6 | |||||||||
Total income | 33 | 35 | 32 | |||||||||
EXPENSE: | ||||||||||||
Management service fees paid to the Bank | 143 | 143 | 143 | |||||||||
Other expenses | 1,233 | 1,298 | 1,020 | |||||||||
Total expense | 1,376 | 1,441 | 1,163 | |||||||||
LOSS BEFORE INCOME TAXES AND EQUITY | ||||||||||||
IN UNDISTRIBUTED INCOME OF THE BANK | (1,343 | ) | (1,406 | ) | (1,131 | ) | ||||||
BENEFIT FOR INCOME TAXES | (282 | ) | (294 | ) | (513 | ) | ||||||
LOSS OF PARENT COMPANY | (1,061 | ) | (1,112 | ) | (618 | ) | ||||||
EQUITY IN UNDISTRIBUTED INCOME OF THE BANK | 16,809 | 18,378 | 10,860 | |||||||||
NET INCOME | $ | 15,748 | $ | 17,266 | $ | 10,242 |
19.RIVERVIEW BANCORP, INC. (PARENT COMPANY ONLY)
BALANCE SHEETS
AS OF MARCH 31, 2023 AND 2022
| | | | | | |
(In thousands) |
| 2023 |
| 2022 | ||
ASSETS |
| |
|
| |
|
Cash and cash equivalents | | $ | 5,480 | | $ | 10,867 |
Investment in the Bank | |
| 175,833 | |
| 173,223 |
Other assets | |
| 2,342 | |
| 1,321 |
TOTAL ASSETS | | $ | 183,655 | | $ | 185,411 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
Accrued expenses and other liabilities | | $ | 224 | | $ | 112 |
Dividend payable | |
| 1,274 | |
| 1,217 |
Borrowings | |
| 26,918 | |
| 26,833 |
Shareholders' equity | |
| 155,239 | |
| 157,249 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 183,655 | | $ | 185,411 |
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2023, 2022 AND 2021
| | | | | | | | | |
(In thousands) |
| 2023 |
| 2022 |
| 2021 | |||
| | | | | | | | | |
INCOME: |
| |
|
| |
|
| |
|
Interest on investment securities and other short-term investments | | $ | 129 | | $ | 16 | | $ | 17 |
Total income | |
| 129 | |
| 16 | |
| 17 |
| | | | | | | | | |
EXPENSE: | |
| | |
| | |
| |
Management service fees paid to the Bank | |
| 143 | |
| 143 | |
| 143 |
Other expenses | |
| 1,424 | |
| 670 | |
| 731 |
Total expense | |
| 1,567 | |
| 813 | |
| 874 |
LOSS BEFORE INCOME TAXES AND EQUITY | |
| | |
| | |
| |
IN UNDISTRIBUTED INCOME OF THE BANK | |
| (1,438) | |
| (797) | |
| (857) |
BENEFIT FOR INCOME TAXES | |
| (303) | |
| (167) | |
| (180) |
LOSS OF PARENT COMPANY | |
| (1,135) | |
| (630) | |
| (677) |
EQUITY IN UNDISTRIBUTED INCOME OF THE BANK | |
| 19,204 | |
| 22,450 | |
| 11,149 |
NET INCOME | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
There were no items of other comprehensive income that were solely attributable to the parent company.
104
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2020, 20192023, 2022 AND 20182021
| | | | | | | | | |
(In thousands) |
| 2023 |
| 2022 |
| 2021 | |||
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
| |
|
Net income | | $ | 18,069 | | $ | 21,820 | | $ | 10,472 |
Adjustments to reconcile net income to net cash used in operating activities: | |
| | |
| | |
| |
Equity in undistributed income of the Bank | |
| (19,204) | |
| (22,450) | |
| (11,149) |
Amortization expense | |
| 85 | |
| 85 | |
| 86 |
Provision (benefit) for deferred income taxes | |
| (1) | |
| 2 | |
| — |
Stock-based compensation expense | | | 390 | | | 319 | | | 396 |
Changes in assets and liabilities: | |
| | |
| | |
| |
Other assets | |
| (1,019) | |
| 131 | |
| 224 |
Accrued expenses and other liabilities | |
| 112 | |
| 48 | |
| (417) |
Net cash used in operating activities | |
| (1,568) | |
| (45) | |
| (388) |
| |
|
| |
|
| |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
| |
|
|
Dividend from the Bank | |
| 8,000 | |
| 7,500 | |
| 6,000 |
Net cash provided by investing activities | |
| 8,000 | |
| 7,500 | |
| 6,000 |
| |
| | |
| | |
| |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| | |
| |
Dividends paid | |
| (5,117) | |
| (4,670) | |
| (4,478) |
Proceeds from exercise of stock options | |
| 4 | |
| 16 | |
| 50 |
Repurchase of common stock | | | (6,706) | | | (1,940) | | | (1,447) |
Net cash used in financing activities | |
| (11,819) | |
| (6,594) | |
| (5,875) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| (5,387) | |
| 861 | |
| (263) |
| |
| | |
| | |
| |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | |
| 10,867 | |
| 10,006 | |
| 10,269 |
| |
| | |
| | |
| |
CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | 5,480 | | $ | 10,867 | | $ | 10,006 |
105
(In thousands) | 2020 | 2019 | 2018 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 15,748 | $ | 17,266 | $ | 10,242 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Equity in undistributed income of the Bank | (16,809 | ) | (18,378 | ) | (10,860 | ) | ||||||
Amortization | 87 | 91 | 94 | |||||||||
Provision for deferred income taxes | - | 10 | 174 | |||||||||
Earned ESOP shares | - | - | 148 | |||||||||
Stock based compensation | 346 | 44 | 88 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Other assets | (278 | ) | (447 | ) | 1,770 | |||||||
Accrued expenses and other liabilities | 364 | 97 | (220 | ) | ||||||||
Net cash provided by (used in) operating activities | (542 | ) | (1,317 | ) | 1,436 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Dividend from the Bank | 11,500 | 2,000 | 1,750 | |||||||||
Net cash provided by investing activities | 11,500 | 2,000 | 1,750 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (4,075 | ) | (3,163 | ) | (2,140 | ) | ||||||
Proceeds from exercise of stock options | 227 | 179 | 245 | |||||||||
Repurchase of common stock | (1,019 | ) | - | - | ||||||||
Net cash used in financing activities | (4,867 | ) | (2,984 | ) | (1,895 | ) | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 6,091 | (2,301 | ) | 1,291 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 4,178 | 6,479 | 5,188 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 10,269 | $ | 4,178 | $ | 6,479 | ||||||
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
| | | | | | | | | | | | |
(Dollars in thousands, except per share data) | | Three Months Ended | ||||||||||
Fiscal 2023: |
| March 31 |
| December 31 |
| September 30 |
| June 30 | ||||
| | | | | | | | | | | | |
Interest and dividend income | | $ | 13,941 | | $ | 14,443 | | $ | 14,088 | | $ | 13,194 |
Interest expense | |
| 2,127 | |
| 743 | |
| 657 | |
| 533 |
Net interest income | |
| 11,814 | |
| 13,700 | |
| 13,431 | |
| 12,661 |
Provision for loan losses | |
| 750 | | | — | | | — | | | — |
Non-interest income, net | |
| 2,971 | |
| 2,963 | |
| 3,134 | |
| 3,126 |
Non-interest expense | |
| 9,950 | |
| 9,848 | |
| 9,804 | |
| 9,769 |
Income before income taxes | |
| 4,085 | |
| 6,815 | |
| 6,761 | |
| 6,018 |
Provision for income taxes | |
| 1,102 | |
| 1,575 | |
| 1,567 | |
| 1,366 |
| |
|
| |
|
| |
|
| |
|
|
Net income | | $ | 2,983 | | $ | 5,240 | | $ | 5,194 | | $ | 4,652 |
| |
|
| |
|
| |
|
| |
|
|
Basic earnings per common share (1) | | $ | 0.14 | | $ | 0.24 | | $ | 0.24 | | $ | 0.21 |
| |
| | |
| | |
| | |
| |
Diluted earnings per common share (1) | | $ | 0.14 | | $ | 0.24 | | $ | 0.24 | | $ | 0.21 |
| | | | | | | | | | | | |
Fiscal 2022: | |
|
| |
|
| |
|
| |
|
|
Interest and dividend income | | $ | 12,389 | | $ | 12,551 | | $ | 12,965 | | $ | 11,920 |
Interest expense | |
| 483 | |
| 492 | |
| 589 | |
| 636 |
Net interest income | |
| 11,906 | |
| 12,059 | |
| 12,376 | |
| 11,284 |
Recapture of loan losses | |
| (650) | |
| (1,275) | |
| (1,100) | |
| (1,600) |
Non-interest income, net | |
| 2,966 | |
| 3,116 | |
| 3,074 | |
| 3,588 |
Non-interest expense | |
| 10,115 | |
| 9,279 | |
| 8,187 | |
| 9,137 |
Income before income taxes | |
| 5,407 | |
| 7,171 | |
| 8,363 | |
| 7,335 |
Provision for income taxes | |
| 1,282 | |
| 1,661 | |
| 1,933 | |
| 1,580 |
| |
|
| |
|
| |
|
| |
|
|
Net income | | $ | 4,125 | | $ | 5,510 | | $ | 6,430 | | $ | 5,755 |
| |
|
| |
|
| |
|
| |
|
|
Basic earnings per common share (1) | | $ | 0.19 | | $ | 0.25 | | $ | 0.29 | | $ | 0.26 |
| |
|
| |
|
| |
|
| |
|
|
Diluted earnings per common share (1) | | $ | 0.19 | | $ | 0.25 | | $ | 0.29 | | $ | 0.26 |
(1) | Quarterly earnings per common share may vary from annual earnings per common share due to rounding. |
106
(Dollars in thousands, except per share data) | Three Months Ended | |||||||||||||||
March 31 | December 31 | September 30 | June 30 | |||||||||||||
Fiscal 2020: | ||||||||||||||||
Interest and dividend income | $ | 12,291 | $ | 12,766 | $ | 12,882 | $ | 12,556 | ||||||||
Interest expense | 1,241 | 1,274 | 1,163 | 1,086 | ||||||||||||
Net interest income | 11,050 | 11,492 | 11,719 | 11,470 | ||||||||||||
Provision for loan losses | 1,250 | - | - | - | ||||||||||||
Non-interest income, net | 2,892 | 3,163 | 3,169 | 3,136 | ||||||||||||
Non-interest expense | 8,818 | 9,248 | 9,003 | 9,194 | ||||||||||||
Income before income taxes | 3,874 | 5,407 | 5,885 | 5,412 | ||||||||||||
Provision for income taxes | 980 | 1,279 | 1,351 | 1,220 | ||||||||||||
Net income | $ | 2,894 | $ | 4,128 | $ | 4,534 | $ | 4,192 | ||||||||
Basic earnings per common share (1) | $ | 0.13 | $ | 0.18 | $ | 0.20 | $ | 0.19 | ||||||||
Diluted earnings per common share (1) | $ | 0.13 | $ | 0.18 | $ | 0.20 | $ | 0.18 | ||||||||
Fiscal 2019: | ||||||||||||||||
Interest and dividend income | $ | 12,802 | $ | 12,390 | $ | 12,389 | $ | 12,288 | ||||||||
Interest expense | 930 | 656 | 611 | 618 | ||||||||||||
Net interest income | 11,872 | 11,734 | 11,778 | 11,670 | ||||||||||||
Provision for loan losses | - | �� | - | 250 | (200 | ) | ||||||||||
Non-interest income, net | 2,670 | 2,728 | 2,840 | 2,869 | ||||||||||||
Non-interest expense | 8,962 | 8,803 | 8,915 | 9,019 | ||||||||||||
Income before income taxes | 5,580 | 5,659 | 5,453 | 5,720 | ||||||||||||
Provision for income taxes | 1,373 | 1,271 | 1,224 | 1,278 | ||||||||||||
Net income | $ | 4,207 | $ | 4,388 | $ | 4,229 | $ | 4,442 | ||||||||
Basic earnings per common share (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | $ | 0.20 | ||||||||
Diluted earnings per common share (1) | $ | 0.19 | $ | 0.19 | $ | 0.19 | $ | 0.20 |
Not applicable.
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 errors 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
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The management of Riverview Bancorp, Inc. has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2020.2023. To make the assessment, we used the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we have concluded that, as of March 31, 2020,2023, the Company’s internal control over financial reporting was effective based on those criteria.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
107
Directors and Executive Officers
The information concerning our directors contained under the section captioned "Proposal“Proposal I ‑- Election of Directors"Directors” contained in the Company'sCompany’s Proxy Statement for the 20202023 Annual Meeting of Stockholders, and "Partinformation concerning our executive officer contained in “Part I - Business -- Executive Officers"Officers” of this Form 10-K, is incorporated herein by reference.
Code of Ethics
The Board of Directors has adopted the Officer and Directora Code of Ethics.Conduct, Conflict of Interest and Whistleblower Policy. The Code of EthicsConduct, Conflict of Interest and Whistleblower Policy is applicable to each of the Company’s officers, including the principal executive officer and senior financial officers, and requires individuals to maintain the highest standards of professional conduct. A copy of the Code of EthicsConduct, Conflict of Interest and Whistleblower Policy is available on the Company’s website at www.riverviewbank.com.
Audit Committee Matters and Audit Committee Financial Expert
The Company has a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act, composed of Directors Patricia W. Eby, Bess.Bess R. Wills, and Jerry C. Olson.Larry A. Hoff. Each member of the Audit Committee is “independent,” as defined in the Nasdaq Stock Market Listing Standards. The Company’s Board of Directors has designated Mr. Olson, Audit Committee Chairman, as itsdetermined that Mrs. Eby, is an “audit committee financial expert,expert”, as defined in SEC’sItem 407(e) of Regulation S-K.
Nomination Procedures
There have been no material changes to the procedures by which shareholders may recommend nominees to the Company’s Board of Directors.
The information set forth under the sections captioned "Executive Compensation"“Executive Compensation” and "Directors' Compensation"“Directors’ Compensation” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders (excluding the information contained under the heading “Personnel/Compensation Committee Report,”) is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Security“Security Ownership of Certain Beneficial Owners and Management"Management” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders is incorporated herein by reference.
Change in Control
The Company is not aware of any arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
108
Equity Compensation Plan Information. The following table summarizes share and exercise price information about the Company’s equity compensation plan as of March 31, 2020:
Plan category | Number of securities to be issued upon exercise of outstanding options | Weighted- average price of outstanding options | Number of securities to be issued upon vesting of restricted stock awards | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (A) | |||||||
Equity compensation plans approved by security holders: | (A) | (B) | (C) | (D) | |||||||
2017 Equity Incentive Plan | - | - | 82,673 | 1,717,327 | |||||||
2003 Stock Option Plan | 43,332 | $ | 2.69 | - | - | ||||||
Equity compensation plans not approved by security holders: | - | - | - | ||||||||
Total | 43,332 | $ | 2.69 | 82,673 | 1,717,327 |
| | | | | | | | |
|
|
|
|
| |
| Number of |
|
| | | | | | | securities |
|
| | | | | | | remaining |
|
| | | | | | | available for future |
|
| | Number of | | | | | issuance under |
|
| | securities to be | | Weighted- | | equity |
| |
| | issued upon | | average | | compensation |
| |
| | exercise of | | price of | | plans excluding |
| |
| | outstanding | | outstanding | | securities reflected |
| |
Plan category |
| options |
| options |
| in column (A) |
| |
| | | | | | | | |
Equity compensation plans approved by security holders: |
| (A) |
| | (B) |
| (C) | |
| | | | | | | | |
2017 Equity Incentive Plan |
| — |
| | — |
| 1,517,449 | |
2003 Stock Option Plan |
| 14,310 | | $ | 2.78 |
| — | |
| | | | | | | | |
Equity compensation plans not approved by security holders: |
| — | |
| — |
| — | |
| | | | | | | | |
Total |
| 14,310 | | $ | 2.78 |
| 1,517,449 | (1) |
(1). All of the remaining securities are available for future issuance as restricted stock, restricted stock units or stock options.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information set forth under the headings “Related Party Transactions” and “Director Independence”Independence and Tenure” under the heading “Meetings and Committees of the Board of Directors and Corporate Governance Matters – Corporate Governance” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders is incorporated herein by reference.
The information set forth under the section captioned “Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 20202023 Annual Meeting of Stockholders (excluding the information contained under the heading of “Report of the Audit Committee”) is incorporated herein by reference.
109
(a) 1. Financial Statements
See “Part II –Item 8. Financial Statements and Supplementary Data.”
2. Financial Statement Schedules
All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.
(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 Current Report on Form 8-K filed with the SEC on |
(3) |
Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, and incorporated herein by reference. |
(4) | Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019, and incorporated herein by reference. |
(5) | Filed as an exhibit to the |
(6) | 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. |
(7) | Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference. |
(8) | Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and incorporated herein by reference. |
(9) | Filed as Appendix A to the Registrant’s Definitive Annual Meeting Proxy Statement (000-22957), filed with the Commission on June 16, 2017, and incorporated herein by reference. |
(10) | Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-228099), and incorporated herein by reference. |
(11) | Registrant elects to satisfy Regulation S-K §229.406(c) by posting its Code of Ethics on its website at www.riverviewbank.com in the section titled About: Code of Conduct. |
* | Filed |
110
Pursuant to the requirements of Section 13 or 15(d) 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. | |
| | | |
Date: | June | By: | /s/ Kevin J. Lycklama |
| | | Kevin J. Lycklama |
| | | President and Chief Executive Officer Director (Duly Authorized Representative) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Gerald L. Nies | By: | /s/ Kevin J. Lycklama | |||
| Gerald L. Nies | | | Kevin J. Lycklama | ||
| Chairman of the Board | | | President and Chief Executive Officer Director (Principal Executive Officer) | ||
| | | | | ||
Date: | June | | Date: | June | ||
| | | | | ||
| | | | | ||
By: | /s/ David Lam | | By: | /s/ | ||
| David Lam | | | Bradley J. Carlson | ||
| Executive Vice President and | | | Director | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | | | |||
| | | | | ||
Date: | June | | Date: | June | ||
| | | | | ||
| | | | | ||
By: | /s/ | | By: | /s/ | ||
| Patrick Sheaffer | | | Bess R. Wills | ||
| Director | | | Director | ||
| | | | | ||
Date: | June | | Date: | June | ||
| | | | | ||
| | | | | ||
By: | /s/ | | By: | /s/ | ||
| Larry A. | | | Stacey A. Graham | ||
| Director | | Director | |||
| | | | | ||
Date: | June | | Date: | June | ||
| | | | | ||
| | | | | ||
By: | /s/ Patricia W. Eby | | By: | /s/ Valerie Moreno | ||
| Patricia W. Eby | | | Valerie Moreno | ||
| Director | | | Director | ||
| | | | | ||
Date: | June | | Date: | June | ||
| | | | | ||
| | | | | ||
| | | | | ||
| | | | | ||
| | | | |
111