RIVERVIEW BANCORP INC - Quarter Report: 2022 June (Form 10-Q)

Valuation

Significant Unobservable

Technique

Inputs

Impaired loans

Appraised value

Adjustment for market conditions

Discounted cash flows

Discount rate

5.375% - 8.000%

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

	For the quarterly period ended June 30, 2022

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission File Number: 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

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 ☒ No ☐

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 ☒ No ☐

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 Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒
Smaller reporting company ☒	Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $.01 par value per share, 22,943,160 shares outstanding, as of August 12, 2022.

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Form 10-Q

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

INDEX


		Page
Part I.	Financial Information	4

Item 1:	Financial Statements (Unaudited)	4

	Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022	4

	Consolidated Statements of Income for the Three Months Ended June 30, 2022 and 2021	5

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2022 and 2021	6

	Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2022 and 2021	7

	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2022 and 2021	8

	Notes to Consolidated Financial Statements	9

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4:	Controls and Procedures	48

Part II.	Other Information	49

Item 1:	Legal Proceedings	49

Item 1A:	Risk Factors	49

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3:	Defaults Upon Senior Securities	49

Item 4:	Mine Safety Disclosures	49

Item 5:	Other Information	49

Item 6:	Exhibits	50

SIGNATURES		51

Certifications
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

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Forward-Looking Statements

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

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: When used in this Form 10-Q, the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions, 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 Company has lending relationships, or other aspects of the Company's business operations or financial markets, generally, resulting from the ongoing novel coronavirus of 2019 (“COVID-19”) and 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; including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by increasing oil prices and supply chain disruptions; 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 future of the London Interbank Offered Rate ("LIBOR"), and the transition away from 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 Community Bank, by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks (“WDFI”) and of the Company by the Board of Governors of the Federal Reserve System, or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require the Company to increase its allowance for loan losses, write-down assets, reclassify its assets, change Riverview Community Bank’s regulatory capital position or affect the Company’s ability to borrow funds or maintain or increase deposits, which could adversely affect its liquidity and earnings; legislative or regulatory changes that adversely affect the Company’s business including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules, and including changes as a result of COVID-19; the Company’s ability to attract and retain deposits; 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; future goodwill 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; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting standards; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services, and the other risks described from time to time in our filings with the U.S. Securities and Exchange Commission (“SEC”).

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 2023 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. Further, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the COVID-19 pandemic.

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Part I. Financial Information

Item 1. Financial Statements (Unaudited)

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2022 AND MARCH 31, 2022


	June 30,		March 31,
(In thousands, except share and per share data) (Unaudited)	2022		2022
ASSETS
Cash and cash equivalents (including interest-earning accounts of $127,859 and $224,589)	$	141,836	$	241,424
Certificates of deposit held for investment		249		249
Investment securities:
Available for sale, at estimated fair value		181,697		165,782
Held to maturity, at amortized cost (estimated fair value of $229,589 and $236,029)		256,002		253,100
Loans receivable (net of allowance for loan losses of $14,559 and $14,523)		997,906		975,885
Prepaid expenses and other assets		26,897		12,396
Accrued interest receivable		5,012		4,650
Federal Home Loan Bank (“FHLB”) stock , at cost		2,019		2,019
Premises and equipment, net		16,973		17,166
Financing lease right-of-use ("ROU") assets		1,336		1,355
Deferred income taxes, net		9,060		7,501
Mortgage servicing rights, net		28		34
Goodwill		27,076		27,076
Core deposit intangible ("CDI"), net		466		495
Bank owned life insurance ("BOLI")		31,154		30,964
TOTAL ASSETS	$	1,697,711	$	1,740,096

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
Deposits	$	1,495,605	$	1,533,878
Accrued expenses and other liabilities		18,026		19,298
Advance payments by borrowers for taxes and insurance		523		555
Junior subordinated debentures		26,854		26,833
Finance lease liability		2,270		2,283
Total liabilities		1,543,278		1,582,847

COMMITMENTS AND CONTINGENCIES (See Note 13)

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
June 30, 2022 – 22,154,170 shares issued and 21,943,160 outstanding		219		221
March 31, 2022 – 22,155,636 shares issued and 22,127,396 outstanding
Additional paid-in capital		60,838		62,048
Retained earnings		108,266		104,931
Accumulated other comprehensive loss		(14,890)		(9,951)
Total shareholders' equity		154,433		157,249
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,697,711	$	1,740,096

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021


	Three Months Ended
	June 30,
(In thousands, except share and per share data) (Unaudited)	2022		2021
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans receivable	$	10,897	$	10,776
Interest on investment securities – taxable		1,834		999
Interest on investment securities – nontaxable		66		50
Other interest and dividends		397		95
Total interest and dividend income		13,194		11,920

INTEREST EXPENSE:
Interest on deposits		281		442
Interest on borrowings		252		194
Total interest expense		533		636
Net interest income		12,661		11,284
Provision for (recapture of) loan losses		—		(1,600)
Net interest income after provision for (recapture of) loan losses		12,661		12,884

NON-INTEREST INCOME:
Fees and service charges		1,721		1,855
Asset management fees		1,160		976
BOLI		190		190
BOLI death benefit in excess of cash surrender value		—		479
Other, net		55		88
Total non-interest income, net		3,126		3,588

NON-INTEREST EXPENSE:
Salaries and employee benefits		5,952		5,754
Occupancy and depreciation		1,514		1,409
Data processing		778		765
Amortization of CDI		29		31
Advertising and marketing		197		152
FDIC insurance premium		116		95
State and local taxes		191		198
Telecommunications		50		46
Professional fees		301		317
Other		641		370
Total non-interest expense		9,769		9,137

INCOME BEFORE INCOME TAXES		6,018		7,335
PROVISION FOR INCOME TAXES		1,366		1,580
NET INCOME	$	4,652	$	5,755

Earnings per common share:
Basic	$	0.21	$	0.26
Diluted		0.21		0.26
Weighted average number of common shares outstanding:
Basic		22,027,874		22,344,785
Diluted		22,037,320		22,358,764

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021


	Three Months Ended
	June 30,
(In thousands) (Unaudited)	2022		2021

Net income	$	4,652	$	5,755

Other comprehensive income (loss):
Net unrealized holding gains (losses) from available for sale investment securities arising during the period, net of tax of $1,562 and ($372), respectively		(4,939)		1,179

Total comprehensive income (loss), net	$	(287)	$	6,934

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021


								Accumulated
				Additional				Other
				Paid-In		Retained		Comprehensive
(In thousands, except share and per share data) (Unaudited)	Common Stock			Capital		Earnings		Income (Loss)		Total
	Shares	Amount

For the three months ended June 30, 2021

Balance April 1, 2021	22,351,235	$	223	$	63,650	$	87,881	$	(160)	$	151,594

Net income	—		—		—		5,755		—		5,755
Cash dividends on common stock ($0.05 per share)	—		—		—		(1,114)		—		(1,114)
Stock repurchased	(73,367)		(1)		(492)		—		—		(493)
Stock-based compensation expense	—		—		55		—		—		55
Other comprehensive income, net	—		—		—		—		1,179		1,179
Balance June 30, 2021	22,277,868	$	222	$	63,213	$	92,522	$	1,019	$	156,976


For the three months ended June 30, 2022

Balance April 1, 2022	22,127,396	$	221	$	62,048	$	104,931	$	(9,951)	$	157,249

Net income	—		—		—		4,652		—		4,652
Cash dividends on common stock ($0.06 per share)	—		—		—		(1,317)		—		(1,317)
Exercise of stock options	1,511		—		4		—		—		4
Stock repurchased	(182,770)		(2)		(1,277)		—		—		(1,279)
Restricted stock forfeited	(2,977)		—		—		—		—		—
Stock-based compensation expense	—		—		63		—		—		63
Other comprehensive loss, net	—		—		—		—		(4,939)		(4,939)
Balance June 30, 2022	21,943,160	$	219	$	60,838	$	108,266	$	(14,890)	$	154,433

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021


(In thousands) (Unaudited)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,652	$	5,755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		785		864
Purchased loans amortization, net		12		32
Provision for (recapture of) loan losses		—		(1,600)
Stock-based compensation expense		63		55
Increase (decrease) in deferred loan origination fees, net of amortization		84		(684)
Net loss on disposal of premises and equipment		3		8
Income from BOLI		(190)		(190)
BOLI death benefit in excess of cash surrender value		—		(479)
Changes in certain other assets and liabilities:
Prepaid expenses and other assets		125		1,557
Accrued interest receivable		(362)		296
Accrued expenses and other liabilities		(1,407)		(4,430)
Net cash provided by operating activities		3,765		1,184

CASH FLOWS FROM INVESTING ACTIVITIES:
Loan repayments, net		79		54,480
Purchases of loans receivable		(36,727)		(60)
Principal repayments on investment securities available for sale		3,878		13,842
Purchases of investment securities available for sale		(26,443)		(65,246)
Principal repayments on investment securities held to maturity		5,431		295
Purchases of investment securities held to maturity		(8,496)		—
Purchases of premises and equipment and capitalized software		(264)		(480)
Net cash (used in) provided by investing activities		(62,542)		2,831

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits		(38,273)		66,906
Dividends paid		(1,218)		(1,118)
Net increase (decrease) in advance payments by borrowers for taxes and insurance		(32)		34
Principal payments on finance lease liability		(13)		(11)
Proceeds from exercise of stock options		4		—
Repurchase of common stock		(1,279)		(493)
Net cash provided by (used in) financing activities		(40,811)		65,318

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(99,588)		69,333
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		241,424		265,408
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	141,836	$	334,741

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	461	$	575

NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared and accrued in other liabilities	$	1,317	$	1,114
Net unrealized holding (losses) gains from available for sale investment securities		(6,501)		1,551
Income tax effect related to other comprehensive income (loss)		1,562		(372)
Reclassification of loans receivable to prepaid expenses and other assets		14,531		—

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

1. BASIS OF PRESENTATION

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

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Riverview Bancorp, Inc. Annual Report on Form 10-K for the year ended March 31, 2022 (“2022 Form 10-K”). The unaudited consolidated results of operations for the three months ended June 30, 2022 are not necessarily indicative of the results which may be expected for the entire fiscal year ending March 31, 2023.

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

Certain prior period amounts have been reclassified to conform to the current period presentation; such reclassifications had no effect on previously reported net income or total shareholders’ equity.

2. PRINCIPLES OF CONSOLIDATION

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

For the period from April 1, 2017 through December 2019, the Trust Company was a wholly-owned subsidiary of the Bank. In December 2019, the Trust Company issued 1,500 shares of Trust Company stock in conjunction with the exercise of 1,500 Trust Company stock options by the Trust Company’s President and Chief Executive Officer. In both October 2020 and May 2021, the Trust Company issued an additional 500 shares of Trust 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. As a result of these transactions, the Bank's ownership in the Trust Company decreased from 100% to 97.3%, resulting in a 2.7% noncontrolling interest held by the Trust Company’s President and Chief Executive Officer. The noncontrolling interest was $213,000 and $212,000 as of June 30, 2022 and March 31, 2022, respectively. Net income attributable to the noncontrolling interest was $2,000 for both the three months ended June 30, 2022 and 2021. These amounts are not presented separately in the accompanying consolidated financial statements due to their insignificance.

3. STOCK PLANS AND STOCK-BASED COMPENSATION

Stock Option Plans - In July 2003, shareholders of the Company approved the adoption of the 2003 Stock Option Plan (“2003 Plan”). The 2003 Plan was effective in July 2003 and expired in July 2013. Accordingly, no further option awards may be granted under the 2003 Plan; however, any awards granted prior to their respective expiration dates remain outstanding subject to their terms. Each option granted under the 2003 Plan has an exercise price equal to the fair 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

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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 under the 2017 Stock Option Plan during the three months ended June 30, 2022 and 2021.

As of June 30, 2022, 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 three months ended June 30, 2022 and 2021 under the Stock Option Plans.

The following table presents the activity related to stock options under the Stock Option Plans for the periods shown:


	Three Months Ended June 30,			Three Months Ended June 30,
	2022			2021
		Weighted			Weighted
		Average			Average
	Number of	Exercise		Number of	Exercise
	Shares	Price		Shares	Price
Balance, beginning of period	17,332	$	2.78	23,332	$	2.78
Options exercised	(1,511)		2.78	—		—
Balance, end of period	15,821	$	2.78	23,332	$	2.78

The following table presents information on stock options outstanding, less estimated forfeitures, as of June 30, 2022 and 2021:


	2022		2021
Stock options fully vested and expected to vest:
Number		15,821		23,332
Weighted average exercise price	$	2.78	$	2.78
Aggregate intrinsic value ⁽¹⁾	$	60,000	$	101,000
Weighted average contractual term of options (years)		1.04		2.04
Stock options fully vested and currently exercisable:
Number		15,821		23,332
Weighted average exercise price	$	2.78	$	2.78
Aggregate intrinsic value ⁽¹⁾	$	60,000	$	101,000
Weighted average contractual term of options (years)		1.04		2.04

(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 $7,000 for the three months ended June 30, 2022 under the Stock Option Plans. There were no stock options exercised for the three months ended June 30, 2021 under the Stock Option Plans.

The Company may grant restricted stock pursuant to the 2017 Plan of which vesting can either be time based or performance based. Performance based awards are subject to attaining certain performance metrics and all, or a portion of, the performance based awards can subsequently be cancelled for not attaining the predetermined 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 $63,000 and $55,000 for the three months ended June 30, 2022 and 2021, respectively. The

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unrecognized stock-based compensation related to restricted stock was $316,000 and $293,000 at June 30, 2022 and 2021, respectively. The weighted average vesting period for the restricted stock was 1.27 years and 1.38 years at June 30, 2022 and 2021, respectively.

The following tables presents the activity related to restricted stock for the periods shown:
	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
Three Months Ended June 30, 2022	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
Forfeited	—		—	(2,977)		7.56	(2,977)		7.56
Vested	(2,517)		8.35	(10,968)		8.35	(13,485)		8.35
Balance, end of period	24,338	$	5.78	107,547	$	5.38	131,885	$	5.45


	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
Three Months Ended June 30, 2021	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
Vested	(23,133)		8.35	(12,732)		8.35	(35,865)		8.35
Balance, end of period	22,483	$	4.74	84,040	$	4.80	106,523	$	4.79

Trust Company Stock Options – At both June 30, 2022 and 2021, there were no Trust Company stock options outstanding. There were no Trust Company stock options exercised during the three months ended June 30, 2022. During the three months ended June 30, 2021, 500 Trust Company stock options were exercised. There were no Trust Company stock options granted during the three months ended June 30, 2022 and 2021.

4. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income or loss applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. 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 applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method at the average share price for the Company’s common stock during the period. Common stock equivalents arise from the assumed exercise of outstanding stock options. For the three months ended June 30, 2022 and 2021, there were no stock options excluded in computing diluted EPS.

In March 2022, the Company’s Board of Directors adopted a stock repurchase program (the “March 2022 repurchase program”). Under the March 2022 repurchase program, the Company was authorized to repurchase up to $5.0 million of the Company’s outstanding shares of common stock, in the open market, based on prevailing market prices, or in privately negotiated transactions, over a period beginning on March 21, 2022 and continuing until the earlier of the completion of the authorized level of repurchases or September 9, 2022, depending upon market conditions. As of June 30, 2022, the Company had repurchased 211,010 shares at a total cost of $1.5 million under the March 2022 repurchase program at an average price of $7.08 per share.

In June 2021, the Company’s Board of Directors adopted a stock repurchase program (the “June 2021 repurchase program”). Under the June 2021 repurchase program, the Company could repurchase up to $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 the period from June 21, 2021 until December 21, 2021. Under the June 2021 repurchase program, a total of 249,908 shares were repurchased at a total cost of $1.7 million and an average price per share of $6.89.

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The following table presents a reconciliation of the components used to compute basic and diluted EPS for the periods indicated:


	Three Months Ended June 30,
	2022		2021
Basic EPS computation:
Numerator-net income	$	4,652,000	$	5,755,000
Denominator-weighted average common shares outstanding		22,027,874		22,344,785
Basic EPS	$	0.21	$	0.26
Diluted EPS computation:
Numerator-net income	$	4,652,000	$	5,755,000
Denominator-weighted average common shares outstanding		22,027,874		22,344,785
Effect of dilutive stock options		9,446		13,979
Weighted average common shares and common stock equivalents		22,037,320		22,358,764
Diluted EPS	$	0.21	$	0.26

5. 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
June 30, 2022
Available for sale:
Municipal securities	$	48,008	$	5	$	(7,417)	$	40,596
Agency securities		55,533		20		(4,339)		51,214
Real estate mortgage investment conduits⁽¹⁾		37,198		—		(4,055)		33,143
Residential mortgage-backed securities ⁽¹⁾		16,214		1		(619)		15,596
Other mortgage-backed securities ⁽²⁾		44,337		31		(3,220)		41,148
Total available for sale	$	201,290	$	57	$	(19,650)	$	181,697

Held to maturity:
Municipal securities	$	10,362	$	—	$	(2,522)	$	7,840
Agency securities		53,807		—		(3,552)		50,255
Real estate mortgage investment conduits ⁽¹⁾		37,980		—		(3,482)		34,498
Residential mortgage-backed securities ⁽¹⁾		133,158		—		(14,165)		118,993
Other mortgage-backed securities ⁽³⁾		20,695		—		(2,692)		18,003
Total held to maturity	$	256,002	$	—	$	(26,413)	$	229,589

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			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 Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Ginnie Mae (“GNMA”) issued securities.

(2)	Comprised of U.S. Small Business Administration (“SBA”) issued securities and commercial real estate (“CRE”) secured securities issued by FNMA and FHLMC.

(3)	Comprised of FHLMC and FNMA issued securities.

The contractual maturities of investment securities as of June 30, 2022 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	$	2,002	$	2,002	$	—	$	—
Due after one year through five years		40,207		38,933		38,881		37,281
Due after five years through ten years		65,709		59,191		33,277		29,272
Due after ten years		93,372		81,571		183,844		163,036
Total	$	201,290	$	181,697	$	256,002	$	229,589

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

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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
June 30, 2022	Value		Losses		Value		Losses		Value		Losses

Available for sale:
Municipal securities	$	35,265	$	(6,967)	$	3,033	$	(450)	$	38,298	$	(7,417)
Agency securities		27,417		(2,300)		15,955		(2,039)		43,372		(4,339)
Real estate mortgage investment conduits ⁽¹⁾		11,794		(853)		21,345		(3,202)		33,139		(4,055)
Residential mortgage-backed securities ⁽¹⁾		15,327		(619)		—		—		15,327		(619)
Other mortgage-backed securities ⁽²⁾		38,159		(3,210)		708		(10)		38,867		(3,220)
Total available for sale	$	127,962	$	(13,949)	$	41,041	$	(5,701)	$	169,003	$	(19,650)

Held to maturity:
Municipal securities	$	5,167	$	(1,557)	$	2,672	$	(965)	$	7,839	$	(2,522)
Agency securities		43,628		(2,551)		6,627		(1,001)		50,255		(3,552)
Real estate mortgage investment conduits ⁽¹⁾		25,178		(2,117)		9,321		(1,365)		34,499		(3,482)
Residential mortgage-backed securities ⁽¹⁾		100,666		(11,220)		18,325		(2,945)		118,991		(14,165)
Other mortgage-backed securities ⁽³⁾		12,885		(1,722)		5,118		(970)		18,003		(2,692)
Total held to maturity	$	187,524	$	(19,167)	$	42,063	$	(7,246)	$	229,587	$	(26,413)

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)

(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. The Company has the ability and intent to hold the investments until the fair value recovers. Based on management’s evaluation and intent, the unrealized losses related to the investment securities in the above tables are considered temporary.

The Company had no sales and realized no gains or losses on sales of investment securities for the three months ended June 30, 2022 and 2021. Investment securities available for sale with an amortized cost of $3.7 million and $1.3 million and an estimated fair value of $3.5 million and $1.2 million at June 30, 2022 and March 31, 2022, respectively, were pledged as collateral for government public funds held by the Bank. Investment securities held to maturity with an amortized cost of $13.3 million and $13.7 million and a fair value of $11.6 million and $12.6 million at June 30, 2022 and March 31, 2022, respectively, were pledged as collateral for government public funds held by the Bank.

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6. LOANS RECEIVABLE

Loans receivable are reported net of deferred loan fees and discounts, and inclusive of premiums. At June 30, 2022, deferred loan fees totaled $4.6 million. At June 30, 2022, deferred loan fees related to the SBA Paycheck Protection Program (“PPP”) loans were minimal. At March 31, 2022, deferred loan fees totaled $4.5 million of which $99,000 were related to the SBA PPP loans. Loans receivable discounts and premiums totaled $1.6 million and $2.4 million, respectively, as of June 30, 2022, compared to $371,000 and $2.4 million, respectively, as of March 31, 2022. Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands):


	June 30,		March 31,
	2022		2022
Commercial and construction
Commercial business ⁽¹⁾	$	227,023	$	228,091
Commercial real estate		578,557		582,837
Land		9,863		11,556
Multi-family		58,943		60,211
Real estate construction		30,754		24,160
Total commercial and construction		905,140		906,855

Consumer
Real estate one-to-four family		105,775		82,006
Other installment		1,550		1,547
Total consumer		107,325		83,553

Total loans		1,012,465		990,408

Less: Allowance for loan losses		14,559		14,523
Loans receivable, net	$	997,906	$	975,885

(1)SBA PPP loans totaled $11,000 and $3.1 million at June 30, 2022 and March 31, 2022, respectively.

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 June 30, 2022, loans carried at $558.0 million were pledged as collateral to the Federal Home Loan Bank of Des Moines (“FHLB”) and Federal Reserve Bank of San Francisco (“FRB”) pursuant to borrowing agreements.

Substantially all of the Bank’s business activity is with customers located in the states of Washington and Oregon. Loans and extensions of credit outstanding at one time to one borrower are generally limited by federal regulation to 15% of the Bank’s shareholders’ equity, excluding accumulated other comprehensive income (loss). As of June 30, 2022 and March 31, 2022, the Bank had no loans to any one borrower in excess of the regulatory limit.

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7. ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level sufficient to provide for estimated probable 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.

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.

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The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):


Three months ended	Commercial		Commercial				Multi-		Real Estate
June 30, 2022	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		73		(495)		(19)		17		125		257		42		—
Charge-offs		—		—		—		—		—		(6)		—		(6)
Recoveries		—		—		—		—		—		42		—		42
Ending balance	$	2,495	$	8,542	$	149	$	862	$	518	$	1,236	$	757	$	14,559


Three months ended
June 30, 2021

Beginning balance	$	2,416	$	14,089	$	233	$	638	$	294	$	852	$	656	$	19,178
Provision for (recapture of) loan losses		(214)		(1,147)		4		(31)		(97)		(152)		37		(1,600)
Charge-offs		—		—		—		—		—		(9)		—		(9)
Recoveries		—		—		—		—		—		21		—		21
Ending balance	$	2,202	$	12,942	$	237	$	607	$	197	$	712	$	693	$	17,590

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
June 30, 2022	Impairment		Impairment		Total		Impairment		Impairment		Total

Commercial business	$	—	$	2,495	$	2,495	$	95	$	226,928	$	227,023
Commercial real estate		—		8,542		8,542		117		578,440		578,557
Land		—		149		149		—		9,863		9,863
Multi-family		—		862		862		—		58,943		58,943
Real estate construction		—		518		518		—		30,754		30,754
Consumer		7		1,229		1,236		486		106,839		107,325
Unallocated		—		757		757		—		—		—
Total	$	7	$	14,552	$	14,559	$	698	$	1,011,767	$	1,012,465

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

Non-accrual loans: Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 to 89 days delinquent. In general, when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations. As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method. Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note. A history of repayment performance generally would be a minimum of six months. Interest income foregone on non-accrual loans was $3,000 and $7,000 for the three months ended June 30, 2022 and 2021, respectively.

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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
June 30, 2022	Past Due		Past Due		Non-accrual		accrual		Current		Receivable

Commercial business	$	1,446	$	27,254	$	113	$	28,813	$	198,210	$	227,023
Commercial real estate		—		—		117		117		578,440		578,557
Land		—		—		—		—		9,863		9,863
Multi-family		—		—		—		—		58,943		58,943
Real estate construction		—		—		—		—		30,754		30,754
Consumer		14		—		50		64		107,261		107,325
Total	$	1,460	$	27,254	$	280	$	28,994	$	983,471	$	1,012,465

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

A substantial portion of the 30-89 days past due and 90 days and greater past due loans at June 30, 2022 are comprised of government guaranteed loans. These government guaranteed loans are pass rated loans and are not considered to be nonaccrual 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 nonaccrual 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 $3,000 and $24,000 for the three months ended June 30, 2022 and the year ended March 31, 2022, 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.

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

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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
June 30, 2022	Pass		Mention		Substandard		Doubtful		Loss		Receivable

Commercial business	$	226,379	$	506	$	138	$	—	$	—	$	227,023
Commercial real estate		571,709		681		6,167		—		—		578,557
Land		9,863		—		—		—		—		9,863
Multi-family		58,811		132		—		—		—		58,943
Real estate construction		30,754		—		—		—		—		30,754
Consumer		107,274		—		51		—		—		107,325
Total	$	1,004,790	$	1,319	$	6,356	$	—	$	—	$	1,012,465

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

Impaired loans and troubled debt restructurings (“TDRs”): A loan is considered impaired when it is probable that the Company will be unable to collect all amounts 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 TDR. The majority of the Company’s impaired loans are considered collateral dependent. When a loan is considered

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collateral dependent, impairment is measured using the estimated value of the underlying collateral, less any prior liens, and when applicable, less estimated selling costs. For impaired loans that are not collateral dependent, impairment is measured using the present value of expected future cash flows, discounted at the loan’s original effective interest rate. When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized by adjusting an allocation of the allowance for loan losses. Subsequent to the initial allocation of allowance to the individual loan, the Company may conclude that it is appropriate to record a charge-off of the impaired portion of the loan. When a charge-off is recorded, the loan balance is reduced and the specific allowance is eliminated. Generally, when a collateral dependent loan is initially measured for impairment and has not had an appraisal of the collateral in the last six months, the Company obtains an updated market valuation. Subsequently, the Company generally obtains an updated market valuation of the collateral on an annual basis. The collateral valuation may occur more frequently if the Company determines that there is an indication that the market value may have declined.

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


	Recorded		Recorded
	Investment		Investment
	with		with						Related
	No Specific		Specific		Total		Unpaid		Specific
	Valuation		Valuation		Recorded		Principal		Valuation
June 30, 2022	Allowance		Allowance		Investment		Balance		Allowance

Commercial business	$	95	$	—	$	95	$	139	$	—
Commercial real estate		117		—		117		174		—
Consumer		380		106		486		595		7
Total	$	592	$	106	$	698	$	908	$	7

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


	Three months ended				Three months ended
	June 30, 2022				June 30, 2021
			Interest				Interest
			Recognized				Recognized
	Average		on		Average		on
	Recorded		Impaired		Recorded		Impaired
	Investment		Loans		Investment		Loans

Commercial business	$	98	$	—	$	117	$	—
Commercial real estate		119		—		1,461		16
Consumer		491		6		526		6
Total	$	708	$	6	$	2,104	$	22

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.

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

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The following table presents TDRs by interest accrual status at the dates indicated (in thousands):


	June 30, 2022						March 31, 2022
	Accrual		Nonaccrual		Total		Accrual		Nonaccrual		Total

Commercial business	$	—	$	95	$	95	$	—	$	100	$	100
Commercial real estate		—		117		117		—		122		122
Consumer		486		—		486		495		—		495
Total	$	486	$	212	$	698	$	495	$	222	$	717

At June 30, 2022, the Company had no commitments to lend additional funds on TDR loans. At June 30, 2022, all of the Company’s TDRs were paying as agreed. There were no new TDRs during both the three months ended June 30, 2022 and 2021.

In accordance with the Company’s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is in effect. Consumer installment loans delinquent six months or more that have not received at least 75% of their required monthly payment in the last 90 days are charged-off. In addition, loans discharged in bankruptcy proceedings are charged-off. Loans under bankruptcy protection with no payments received for four consecutive months are charged-off. The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for four to five consecutive months. However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full repayment of the outstanding loan balance. Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off. Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly charged off.

8. GOODWILL

Goodwill and certain other intangibles generally arise from business combinations accounted for under the purchase method of accounting. Goodwill and other intangibles deemed to have indefinite lives generated from business combinations are not subject to amortization and are instead tested for impairment not less than annually. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been allocated to the Bank reporting unit.

The Company performed an impairment assessment as of October 31, 2021 and determined that no impairment of goodwill exists. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the reporting unit’s fair value is less than its carrying value, the Company would be required to progress to the second step. In the second step, the Company calculates the implied fair value of goodwill and compares the implied fair value of goodwill to the carrying amount of goodwill in the Company’s consolidated balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value, and, therefore, a step two analysis was not required; however, no assurance can be given that the Company’s goodwill will not be written down in future periods. As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company completed a qualitative assessment of goodwill as of June 30, 2022, 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. If adverse economic conditions or decreases in the Company’s common stock price and market capitalization as a result of the COVID-19 pandemic were sustained in the future rather than temporary, it may significantly affect the fair value of the reporting unit and may trigger future goodwill impairment charges. Any impairment charge could have a material adverse effect on our results of operations and financial condition.

9. 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

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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 $26.9 million and $26.8 million at June 30, 2022 and March 31, 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 June 30, 2022 and March 31, 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 June 30, 2022 (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	%	3.19	%	3/2036
Riverview Bancorp Statutory Trust II	06/2007		15,464	Variable	⁽²⁾	7.03	%	3.18	%	9/2037
Merchants Bancorp Statutory Trust I ⁽⁴⁾	06/2003		5,155	Variable	⁽³⁾	4.16	%	5.30	%	6/2033
			27,836
Fair value adjustment ⁽⁴⁾			(982)
Total Debentures		$	26,854

(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.

10. FAIR VALUE MEASUREMENTS

Fair value is defined under GAAP as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of three levels. These levels are:

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

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

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

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

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
June 30, 2022	Fair Value		Level 1		Level 2		Level 3

Investment securities available for sale:
Municipal securities	$	40,596	$	—	$	40,596	$	—
Agency securities		51,214		—		51,214		—
Real estate mortgage investment conduits		33,143		—		33,143		—
Residential mortgage-backed securities		15,596		—		15,596		—
Other mortgage-backed securities		41,148		—		41,148		—
Total assets measured at fair value on a recurring basis	$	181,697	$	—	$	181,697	$	—


	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	$	—

There were no transfers of assets into or out of Levels 1, 2 or 3 for both the three months ended June 30, 2022 and the year ended March 31, 2022.

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

Investment securities are included within Level 1 of the hierarchy when quoted prices in an active market for identical assets are available. The Company uses a third-party pricing service to assist the Company in determining the fair value of its Level 2 securities, which incorporates pricing models and/or quoted prices of investment securities with similar characteristics. Investment securities are included within Level 3 of the hierarchy when there are significant unobservable inputs.

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

Management reviews the pricing information received from the third-party pricing service through a combination of procedures that include an evaluation of methodologies used by the pricing service, analytical reviews and performance

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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
June 30, 2022	Fair Value		Level 1		Level 2		Level 3

Impaired loans	$	99	$	—	$	—	$	99

March 31, 2022

Impaired loans	$	228	$	—	$	—	$	228

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at June 30, 2022 and March 31, 2022:

(1)	There were no adjustments to appraised values of impaired loans as of June 30, 2022 and March 31, 2022.

For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 7 – Allowance for Loan Losses.

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

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

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

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



	Carrying								Estimated
June 30, 2022	Amount		Level 1		Level 2		Level 3		Fair Value

Assets:
Cash and cash equivalents	$	141,836	$	141,836	$	—	$	—	$	141,836
Certificates of deposit held for investment		249		—		249		—		249
Investment securities available for sale		181,697		—		181,697		—		181,697
Investment securities held to maturity		256,002		—		229,589		—		229,589
Loans receivable, net		997,906		—		—		984,634		984,634
FHLB stock		2,019		—		2,019		—		2,019

Liabilities:
Certificates of deposit		110,303		—		107,945		—		107,945
Junior subordinated debentures		26,854		—		—		16,533		16,533


	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

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.

11. NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11. ASU 2016-13 replaces the existing incurred losses methodology for estimating allowances with a current expected credit losses methodology with respect to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held to maturity investment securities and off-balance sheet commitments. In addition, ASU 2016-13 requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction of carrying amount. ASU 2016-13 also changes the accounting for purchased credit impaired debt securities and loans. ASU 2016-13 retains many of the current disclosure requirements in GAAP and expands certain disclosure requirements. As a “smaller reporting company” filer with the U.S. Securities and Exchange Commission, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for other-than-temporary impairment of investment securities available for sale will be replaced with an allowance approach. The Company is reviewing the requirements of ASU 2016-13 and has begun developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. At this time, management anticipates the allowance for loan losses will change as a result of the implementation of ASU 2016-13; however, until management's evaluation is complete, the magnitude of the change will not be known.

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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".

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2022. Early application of ASU 2017-04 is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on the Company's future consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). ASU 2020-04 applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. ASU 2020-04 permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. The Company's current interest rates on its junior subordinated debentures are based upon the three-month LIBOR plus a spread. In January 2021, ASU 2021-01 updated amendments in ASU 2020-04 to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification. The amendments in ASU 2021-01 have differing effective dates, beginning with interim periods including and subsequent to March 12, 2020 through December 31, 2022. The Company has not adopted ASU 2020-04 as of June 30, 2022. The adoption of ASU 2020-04 is not expected to have a material impact on the Company's future consolidated financial statements.

12. REVENUE FROM CONTRACTS WITH CUSTOMERS

In accordance with ASC Topic 606 “Revenues from Contracts with Customers” (“ASC 606”), revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Company expects to be entitled to receive. The largest portion of the Company’s revenue is from interest income, which is not within the scope of ASC 606. All of the Company's revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income with the exception of gains on sales of REO 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

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over time, which generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust and investment management fees and safe deposit box fees. Revenue is generally derived from transactional information accumulated by the Company’s systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer. For the three months ended June 30, 2022 and 2021, substantially all of the Company’s revenues within the scope of ASC 606 are for performance obligations satisfied at a point in time.

Disaggregation of Revenue

The following table includes the Company’s non-interest income, net disaggregated by type of service for the periods shown (in thousands):


	Three Months Ended
	2022		2021

Asset management fees	$	1,160	$	976
Debit card and ATM fees		903		906
Deposit related fees		438		400
Loan related fees		201		372
BOLI ⁽¹⁾		190		190
FHLMC loan servicing fees ⁽¹⁾		21		22
BOLI death benefit in excess of cash surrender value ⁽¹⁾		—		479
Other, net		213		243
Total non-interest income, net	$	3,126	$	3,588

(1)	Not within scope of ASC 606

Revenues recognized within scope of ASC 606

Asset management fees: Asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and amounts invested by clients through the Trust Company. Asset management fees are recognized over the period that services are provided, and when the portfolio values are known or can be estimated at the end of each quarter.

Debit card and ATM fees: Debit and ATM interchange income represents fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the MasterCard® payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card. Certain expenses directly associated with the debit cards are recorded on a net basis with the interchange income.

Deposit related fees: Fees are earned on the Bank’s deposit accounts for various products offered to or services performed for the Bank’s customers. Fees include business account fees, non-sufficient fund fees, stop payment fees, wire services, safe deposit box and others. These fees are recognized on a daily, monthly or quarterly basis, depending on the type of service.

Loan related fees: Non-interest loan fee income is earned on loans that the Bank services, excluding loans serviced for the FHLMC which are not within the scope of ASC 606. Loan related fees include prepayment fees, late charges, brokered loan fees, maintenance fees and others. These fees are recognized on a daily, monthly, quarterly or annual basis, depending on the type of service.

Other: Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle.

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Contract Balances

As of June 30, 2022 and 2021, 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 June 30, 2022 and 2021.

13. 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, and 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 at June 30, 2022 are listed below (in thousands):



	Contract or Notional
	Amount
	June 30,
	2022
Commitments to extend credit:
Adjustable-rate	$	11,363
Fixed-rate		5,575
Standby letters of credit		2,203
Undisbursed loan funds and unused lines of credit		150,472
Total	$	169,613

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 June 30, 2022, loans under warranty totaled $40.9 million, which substantially represents the unpaid principal balance of the Company’s loans serviced for the FHLMC. The Company believes that the potential for loss under these arrangements is remote. At June 30, 2022, the Company had an allowance for FHLMC loans of $12,000.

The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof, and municipal corporations. In accordance with applicable state law, in the event of default of a participating bank, all other participating banks in the state collectively assure that no loss of funds are suffered by any public depositor. Generally, in the event of default by a public depository, the assessment attributable to all public depositories is allocated on a pro rata basis in proportion to the maximum liability of each depository as it existed on the date of loss. The Company did not incur any losses related to public depository funds for the three months ended June 30, 2022 and 2021.

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

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

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14. LEASES

The Company has a finance lease for the shell of the building constructed as the Company's operations center which expires in November 2039. The Company is also obligated under various noncancelable operating lease agreements for land, buildings and equipment that require future minimum rental payments. For operating each lease, the Company records an operating lease right-of-use asset (representing the right to use the underlying asset for the lease term) and an operating lease liability (representing the obligation to make lease payments required under the terms of the lease). Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate – derived from information available at the lease commencement date – as the discount rate when determining the present value of lease payments. The Company does not have any operating leases with an initial term of 12 months or less. Certain operating leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Certain operating leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term. Lease extensions are not reasonably certain and the Company generally does not include payments occurring during option periods in the calculation of its operating lease right-of-use assets and operating lease liabilities. In accordance with ASC 842, the Company records in the consolidated balance sheet operating lease right-of-use (“ROU”) assets and operating lease liabilities for leases with an initial term of more than 12 months.

The table below presents the ROU assets and lease liabilities recorded in the consolidated balance sheets at the dates indicated (in thousands):


	June 30,			March 31,			Classification in the
Leases	2022			2022			consolidated balance sheets
Finance lease ROU assets	$	1,336		$	1,355		Financing lease ROU assets
Finance lease liability	$	2,270		$	2,283		Finance lease liability
Finance lease remaining lease term		17.43	years		17.68	years
Finance lease discount rate		7.16	%		7.16	%

Operating lease ROU assets	$	7,609		$	7,907		Prepaid expenses and other assets
Operating lease liabilities	$	7,999		$	8,306		Accrued expenses and other liabilities
Operating lease weighted-average remaining lease term		6.80	years		7.02	years
Operating lease weighted-average discount rate		1.80	%		1.81	%

The table below presents certain information related to the lease costs for operating leases, which are recorded in occupancy and depreciation in the accompanying consolidated statements of income at the dates indicated (in thousands):


	Three months ended		Three months ended		Three months ended
Lease Costs	June 30, 2022		June 30, 2021		June 30, 2020
Finance lease amortization of right-of-use asset	$	19	$	19	$	19
Finance lease interest on lease liability		41		42		42
Operating lease costs		283		315		349
Variable lease costs		52		52		52
Total lease cost ⁽¹⁾	$	395	$	428	$	462

(1)	Income related to sub-lease activity is not significant and not presented herein.

Supplemental cash flow information - Operating cash flows paid for operating lease amounts included in the measurement of lease liabilities was $337,000 and $365,000 for the three months ended June 30, 2022 and 2021, respectively. During the three months ended June 30, 2022 and 2021, the Company did not record any ROU assets that were exchanged for operating lease liabilities.

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The following table reconciles the undiscounted cash flows for the periods presented related to the Company’s lease liabilities as of June 30, 2022 (in thousands):


Year Ending March 31:	Operating		Finance
	Leases		Lease
Remaining of 2023	$	1,016	$	162
2024		1,370		219
2025		1,375		222
2026		1,125		226
2027		1,116		230
Thereafter		2,530		2,944
Total minimum lease payments		8,532		4,003
Less: amount of lease payment representing interest		(533)		(1,733)
Lease liabilities	$	7,999	$	2,270

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

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

Critical Accounting Policies

Critical accounting policies and estimates are discussed in our 2022 Form 10-K under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.” That discussion highlights estimates that the Company makes that involve uncertainty or potential for substantial change. There have not been any material changes in the Company’s critical accounting policies and estimates as compared to the disclosures contained in the Company’s 2022 Form 10-K.

Executive Overview

As a progressive, community-oriented financial services business, 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 $997.9 million at June 30, 2022 compared to $975.9 million at March 31, 2022.

The Bank's subsidiary, Riverview Trust Company (the “Trust Company”), is a trust and financial services company with one office located in downtown Vancouver, Washington and one office in Lake Oswego, Oregon. The Trust Company provides full-service brokerage activities, trust and asset management services. The Bank’s Business and Professional Banking Division, with two lending offices in Vancouver and one in Portland, offers commercial and business banking services.

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 portfolio. Significant portions of recent loan originations, other than SBA PPP loans, are mainly concentrated in commercial business and commercial real estate loans which carry adjustable rates, higher yields or shorter terms and higher credit risk than traditional fixed-rate consumer real estate one-to-four family mortgages.

The strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management services 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 17 branches, including, among others, ten in Clark County, three in the Portland metropolitan area and three lending centers.

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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 tourism, which has helped to transform the area from its past dependence on the timber industry.

Operating Strategy

Fiscal year 2023 marks the 100^th anniversary since the Bank began operations in 1923. The primary business strategy of the Company is to provide comprehensive banking and related financial services within its primary market area. The historical emphasis had been on residential real estate lending. Since 1998, however, the Company has been diversifying its loan portfolio through the expansion of its commercial and real estate construction loan portfolios. At June 30, 2022, commercial and real estate construction loans represented 89.4% of total loans compared to 91.6% at March 31, 2022. 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 real estate 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

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. 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.

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 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 $1.3 billion at June 30, 2022 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.

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Attracting Core Deposits and Other Deposit Products. The Company offers personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate. To build its core deposit base, the Company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including FHLB and FRB advances. The Company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers’ needs. The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes.

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.

COVID-19 Related Information

The Company maintains its commitment to supporting its community and customers during the COVID-19 pandemic and remains focused on keeping its employees safe and the Bank running effectively to serve its customers. As of June 30, 2022, all Bank branches were open with normal hours and most employees continued in their current working environments (e.g. remote, hybrid or on-site) but the Company has transitioned certain employees back to on-site or a hybrid model. The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

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Commercial and Construction Loan Composition

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


			Other				Commercial and
	Commercial		Real Estate		Real Estate		Construction
	Business		Mortgage		Construction		Total
June 30, 2022

Commercial business	$	227,012	$	—	$	—	$	227,012
SBA PPP		11		—		—		11
Commercial construction		—		—		15,958		15,958
Office buildings		—		121,055		—		121,055
Warehouse/industrial		—		98,513		—		98,513
Retail/shopping centers/strip malls		—		86,699		—		86,699
Assisted living facilities		—		613		—		613
Single purpose facilities		—		271,677		—		271,677
Land		—		9,863		—		9,863
Multi-family		—		58,943		—		58,943
One-to-four family construction		—		—		14,796		14,796
Total	$	227,023	$	647,363	$	30,754	$	905,140


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

Comparison of Financial Condition at June 30, 2022 and March 31, 2022

Cash and cash equivalents, including interest-earning accounts, totaled $141.8 million at June 30, 2022 compared to $241.4 million at March 31, 2022. The Company’s cash balances typically fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings. As a part of this strategy, the Company also invests a portion of its excess cash in short-term certificates of deposit held for investment. All of the certificates of deposit held for investment are fully insured by the FDIC. Certificates of deposits held for investment totaled $249,000 at both June 30, 2022 and March 31, 2022.

Investment securities totaled $437.7 million and $418.9 million at June 30, 2022 and March 31, 2022, respectively. The increase is due to investment purchases partially offset by normal pay downs, calls and maturities. During the three months ended June 30, 2022 and 2021, purchases of investment securities totaled $34.9 million and $65.2 million, respectively. The Company primarily purchases a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA). At June 30, 2022, the Company determined that none of its investment securities required an other than temporary impairment (“OTTI”) charge. For additional information on the Company’s investment securities, see Note 5 of the Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

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Loans receivable, net, totaled $997.9 million at June 30, 2022 compared to $975.9 million at March 31, 2022, an increase of $22.0 million. The increase is attributed to originations of real estate construction loans of $6.6 million and purchases of real estate one-to-four family loans totaling $26.8 million. The increases were offset by a decrease in SBA PPP loans related to forgiveness repayments. At June 30, 2022, SBA PPP loans, net of deferred fees which are included in the commercial business loan category, totaled $11,000 as compared to $3.1 million at March 31, 2022. Commercial real estate and multi-family loans decreased $4.3 million and $1.3 million, respectively, since March 31, 2022. The Company no longer originates one-to-four family mortgage loans and will from time to time purchase these loans consistent with its asset/liability objectives. Additionally, the Company has purchased commercial business loans as a way to supplement loan originations and diversity in the commercial loan portfolio. These loans were originated by a third-party located outside the Company’s primary market area and totaled $14.9 million at June 30, 2022. The Company also purchases the guaranteed portion of SBA loans as a way to supplement loan originations, further diversifying 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 and are purchased with servicing retained by the seller. At June 30, 2022, the Company’s purchased SBA loan portfolio was $60.0 million compared to $59.4 million at March 31, 2022.

Prepaid expenses and other assets increased $14.5 million to $26.9 million at June 30, 2022 from $12.4 million at March 31, 2022. The increase is due to a non-cash reclassification of three loans from loans receivable that were scheduled to payoff as part of a loan originations transaction on June 30, 2022. However, processing of the loan payoffs were delayed since funds were not received from the title company by the close of business on June 30, 2022. The loan originations were recorded in loans receivable and the loan payoffs were reclassified to prepaid expenses and other assets. The loan payoffs were processed once funds were received the following business day.

Deposits decreased $38.3 million to $1.49 billion at June 30, 2022 from $1.53 billion at March 31, 2022. The Company had no wholesale-brokered deposits at June 30, 2022 and March 31, 2022. Core branch deposits accounted for 96.7% of total deposits at June 30, 2022 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.

Shareholders' equity decreased $2.8 million to $154.4 million at June 30, 2022 from $157.2 million at March 31, 2022. The decrease is mainly attributable to the accumulated other comprehensive loss related to the unrealized holding loss on securities available for sale, net of tax, of $4.9 million, the repurchase of 182,770 shares of common stock totaling $1.3 million, and the payment of cash dividends totaling $1.3 million. These decreases were offset by current period net income of $4.7 million.

Capital Resources

The Bank is a state-chartered, federally insured institution subject to various regulatory capital requirements administered by the FDIC and WDFI. 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 June 30, 2022.

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As of June 30, 2022, the Bank was categorized as “well capitalized” under the FDIC’s regulatory framework for prompt corrective action. The Bank’s actual and required minimum capital amounts and ratios were as follows at the dates indicated (dollars in thousands):


									“Well Capitalized”
					For Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2022
Total Capital:
(To Risk-Weighted Assets)	$	171,655	16.31	%	$	84,173	8.0	%	$	105,216	10.0	%
Tier 1 Capital:
(To Risk-Weighted Assets)		158,480	15.06			63,130	6.0			84,173	8.0
Common equity tier 1 Capital:
(To Risk-Weighted Assets)		158,480	15.06			47,347	4.5			68,391	6.5
Tier 1 Capital (Leverage):
(To Average Tangible Assets)		158,480	9.29			68,255	4.0			85,318	5.0

March 31, 2022
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

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 June 30, 2022, the Bank’s CET1 capital exceeded the required capital conservation buffer at an amount greater than 2.5%.

For a bank holding company, such as the Company, the capital guidelines apply on a bank only basis. The Federal Reserve expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If the Company was subject to regulatory guidelines for bank holding companies at June 30, 2022, the Company would have exceeded all regulatory capital requirements.

At periodic intervals, the Company’s banking regulators routinely examine the Company’s financial condition and risk management processes as part of their legally prescribed oversight. Based on their examinations, these regulators can direct that the Company’s consolidated financial statements be adjusted in accordance with their findings. A future examination could include a review of certain transactions or other amounts reported in the Company’s 2023 consolidated financial statements.

Liquidity

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

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

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

The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals and continuing operations, satisfy other financial commitments and take advantage of investment opportunities. During the three months ended June 30, 2022, the Bank used its sources of funds primarily to fund loan commitments and to purchase investment securities. At June 30, 2022, cash and cash equivalents, certificates of deposit held for investment and available for sale investment securities totaled $323.8 million, or 19.1% 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, 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 June 30, 2022, the Bank had no advances from the FRB and maintains a credit facility with the FRB with an available borrowing capacity of $59.4 million, subject to sufficient collateral. At June 30, 2022, the Bank had no advances from the FHLB and had an available borrowing capacity of $302.2 million with the FHLB, subject to sufficient collateral and stock investment. At June 30, 2022, 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.

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 June 30, 2022 and March 31, 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 depositors while obtaining “pass-through” insurance for total deposits. The Bank’s CDARS and ICS balances were $65.4 million, or 4.4% of total deposits, and $66.3 million, or 4.3% of total deposits, at June 30, 2022 and March 31, 2022, respectively. The combination of all the Bank’s funding sources gives the Bank available liquidity of $907.1 million, or 53.4% of total assets at June 30, 2022.

At June 30, 2022, the Company had total commitments of $169.6 million, which includes commitments to extend credit of $16.9 million, unused lines of credit totaling $103.2 million, undisbursed real estate construction loans totaling $47.3 million, and standby letters of credit totaling $2.2 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2022 totaled $79.4 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 $38.7 million at June 30, 2022.

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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 the remainder of fiscal 2023 we expect cash expenditures of approximately $2.3 million for capital investment in premises and equipment.

For further information regarding the Company’s off-balance sheet arrangements and other contractual obligations, see Notes 13 and 14 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Riverview Bancorp, Inc., as a separate legal entity from the Bank, must provide for its own liquidity. Sources of capital and liquidity for Riverview Bancorp, Inc. include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. 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 2022 at this rate of $0.06 per share, average total dividend paid each quarter would be approximately $1.3 million based on the number of the Company’s current outstanding shares. At June 30, 2022, Riverview Bancorp, Inc. had $10.3 million in cash to meet its liquidity needs.

Asset Quality

Nonperforming assets, consisting of nonperforming loans were $27.5 million or 1.62% of total assets at June 30, 2022 compared with $22.1 million or 1.27% of total assets at March 31, 2022.

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


	June 30, 2022			March 31, 2022
	Number of			Number of
	Loans	Balance		Loans	Balance

Commercial business	1	$	95	1	$	100
Commercial real estate	1		117	1		122
Consumer	3		50	2		51
Subtotal	5		262	4		273

SBA Government Guaranteed	88		27,272	66		21,826

Total	93	$	27,534	70	$	22,099

The increase of $5.4 million in nonperforming assets is attributed to an increase in nonperforming SBA and United States Department of Agriculture (“USDA”) government guaranteed loans totaling $27.2 million from $21.8 million at March 31, 2022, where payments have been delayed due to the servicing transfer of these loans between two third-party servicers. The Company continues its efforts to work out problem loans, seek full repayment or pursue foreclosure proceedings and is making progress in regards to the SBA and USDA government guaranteed loan servicing transfer. The Bank holds approximately $27.2 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”). 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

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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 Bank continues to work with Colson on the reconciliation and transfer of these loans. The Bank expects the reconciliation and unwinding process to continue and until these processes are completed for all loans being transferred, all of these loans will be reflected as past due. These nonperforming government guaranteed loans are not considered to be nonaccrual loans and are still accruing interest because the Company expects to receive all principal and interest since the Company purchased the guaranteed portion of these loans which is backed by government guaranteed interest certificates. At June 30, 2022, all of the Company’s nonperforming loans exclusive of the SBA and USDA government guaranteed loans are to borrowers located in Southwest Washington with the exception of one purchased automobile loan for $1,000. At June 30, 2022, 0.77% of the Company’s nonperforming loans, totaling $211,000 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 June 30, 2022. At June 30, 2022, the largest single nonperforming loan was a USDA government guaranteed loan for $1.9 million. The largest single non-performing loan exclusive of the SBA and USDA government guaranteed loans was a commercial real estate loan for $117,000 at June 30, 2022.

The allowance for loan losses was $14.6 million or 1.44% of total loans at June 30, 2022 compared to $14.5 million or 1.47% of total loans at March 31, 2022. The Company recorded no provision for loan losses for the three months ended June 30, 2022. For the three months ended June 30, 2021, the Company recorded a recapture of loan losses of $1.6 million.

The coverage ratio of allowance for loan losses to nonperforming loans was 52.88% at June 30, 2022 compared to 65.72% at March 31, 2022. The Company’s general valuation allowance to non-impaired loans was 1.44% and 1.47% at June 30, 2022 and March 31, 2022, respectively. The level of delinquent and non-performing loans at June 30, 2022 has increased significantly compared to June 30, 2021. However, a substantial amount of the increases in both categories are purchased commercial business loans that are fully guaranteed by the SBA or USDA. Since these loans are fully guaranteed by the SBA or USDA, these government guaranteed loans are not considered to be nonaccrual 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 nonaccrual loans nor classified loans, these loans are not considered to be impaired loans based on the Company’s policy. As 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.

Management considers the allowance for loan losses to be adequate at June 30, 2022 to cover probable losses inherent in the loan portfolio based on the assessment of various factors affecting the loan portfolio, and the Company believes it has established its existing allowance for loan losses in accordance with GAAP. However, a decline in national and local economic conditions (including declines as a result of the COVID-19 pandemic), results of examinations by the Company’s banking regulators, or other factors could result in a material increase in the allowance for loan losses and may adversely affect the Company’s future financial condition and results of operations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses will be adequate or that substantial increases will not be necessary should the quality of any loans deteriorate or should collateral values decline as a result of the factors discussed elsewhere in this document. For further information regarding the Company’s impaired loans and allowance for loan losses, see Note 7 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

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

TDRs are considered impaired loans and as such, when a loan is deemed to be impaired, the amount of the impairment is measured using discounted cash flows and the original note rate, except when the loan is collateral dependent. In these

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cases, the estimated fair value of the collateral (less any selling costs, if applicable) is used. Impairment is recognized as a specific component within the allowance for loan losses if the estimated value of the impaired loan is less than the recorded investment in the loan. When the amount of the impairment represents a confirmed loss, it is charged off against the allowance for loan losses. All of the Company’s TDRs were paying as agreed at June 30, 2022.

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.

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



	June 30, 2022		March 31, 2022

Loans accounted for on a non-accrual basis:
Commercial business	$	113	$	118
Commercial real estate		117		122
Consumer		50		51
Total		280		291
Accruing loans which are contractually past due 90 days or more		27,254		21,808
Total nonperforming loans		27,534		22,099
Real estate owned (“REO”)		—		—
Total nonperforming assets	$	27,534	$	22,099

Foregone interest on non-accrual loans ⁽¹⁾	$	3	$	24

(1)	Three months ended June 30, 2022 and year ended March 31, 2022.

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
June 30, 2022

Commercial business	$	95	$	—	$	95
Commercial real estate		117		—		117
Consumer		49		1		50
Subtotal		261		1		262

SBA Government Guaranteed		—		27,272		27,272

Total nonperforming assets	$	261	$	27,273	$	27,534

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March 31, 2022

Commercial business	$	100	$	—	$	100
Commercial real estate		122		—		122
Consumer		51		—		51
Subtotal		273		—		273

SBA Government Guaranteed		—		21,826		21,826

Total nonperforming assets	$	273	$	21,826	$	22,099

The composition of land acquisition and development and speculative and custom/presold construction loans by geographical area is as follows at the dates indicated (in thousands):


	Northwest		Southwest		Other
	Oregon		Washington		Washington		Total
June 30, 2022

Land acquisition and development	$	2,084	$	7,779	$	—	$	9,863
Speculative and presold construction		—		14,597		199		14,796
Total	$	2,084	$	22,376	$	199	$	24,659


March 31, 2022

Land acquisition and development	$	2,111	$	9,445	$	—	$	11,556
Speculative and presold construction		—		10,989		430		11,419
Total	$	2,111	$	20,434	$	430	$	22,975

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 to cover the probable losses inherent in these and other loans.

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


	June 30, 2022			March 31, 2022
	Number of			Number of
	Loans	Balance		Loans	Balance

Commercial business	1	$	43	1	$	45
Commercial real estate	3		6,051	3		6,087
Total	4	$	6,094	4	$	6,132

At June 30, 2022, loans delinquent 30 - 89 days were 0.14% of total loans compared to 0.81% at March 31, 2022 and were comprised mainly of SBA government guaranteed loans (which are included in commercial business) and consumer loans. There were no loans 30 - 89 days delinquent in the commercial real estate (“CRE”) portfolio at both June 30, 2022 and March 31, 2022. At June 30, 2022, CRE loans represented the largest portion of the loan portfolio at 57.14% of total loans and commercial business represented 22.42% of total loans.

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

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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, 2021. 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 of economic and market conditions over the projected period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures. Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue growth rate that approximated 8.1%, a net interest margin that approximated 3.0% and a return on assets that ranged from 1.06% to 1.37% (average of 1.20%). 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 15.71% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit. The Company used a build-up approach in developing the discount rate that included: an assessment of the risk-free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company. The whole bank transaction approach estimates fair value by applying key financial variables in transactions involving acquisitions of similar institutions. In applying the whole bank transaction approach method, the Company identified transactions that occurred during the first 10 months of calendar 2021 utilizing a multiple of 1.4 times price to book value. The market approach estimates fair value by applying tangible book value multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit. In applying the market approach method, the Company selected four publicly traded comparable institutions. After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.0 times book value, a market multiple of 1.1 times tangible book value and an earnings multiple of 10 times. The Company calculated a fair value of its reporting unit of $213.0 million using the corporate value approach, $204.0 million using the income approach, $249.0 million using the whole bank transaction approach and $230.0 million using the market approach, with a final concluded value of $224.0 million, with equal weight given to the income approach, the whole bank approach, the market approach and the corporate value approach. The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value and therefore no impairment of goodwill exists.

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As a result of the effects of the COVID-19 pandemic and its impacts to the financial markets and economy, the Company also completed a qualitative assessment of goodwill as of June 30, 2022 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.

Comparison of Operating Results for the Three Months Ended June 30, 2022 and 2021

Net Income. Net income was $4.7 million, or $0.21 per diluted share for the three months ended June 30, 2022, compared to $5.8 million, or $0.26 per diluted share for same prior year period. The Company’s net income decreased primarily as a result of the recapture of loan losses of $1.6 million and a $479,000 BOLI death benefit recognized in other non-interest income during the three months ended June 30, 2021 that was not present during the three months ended June 30, 2022. In addition, a $1.4 million increase in net interest income was partially offset by a $462,000 decline in non-interest income and a $632,000 increase in non-interest expense.

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

Net interest income for the three months ended June 30, 2022 was $12.7 million, representing an increase of $1.4 million, compared to the three months ended June 30, 2021. The net interest margin for the three months ended June 30, 2022 was 3.11%, compared to 3.07% for the three months ended June 30, 2021. The increase in the net interest margin was primarily attributable to both the higher average balance and yield on investment securities compared to the legacy investment securities portfolios and an increase in the average yield on overnight cash balances reflecting the lagging benefit of variable rate interest-earning assets beginning to reprice higher following recent increases in market interest rates. Additionally, the cost of interest-bearing deposits decreased for the three months ended June 30, 2022, as compared to the same period in the prior year which also contributed to the net interest margin expansion.

Interest and Dividend Income. Interest and dividend income for the three months ended June 30, 2022 increased $1.3 million to $13.2 million compared to $11.9 million for the same period in the prior year. The increase for the three months ended June 30, 2022 was primarily due to the increase in interest income on investment securities and overnight cash balances of $851,000 and $289,000, respectively, when compared to the three months ended June 30, 2021 due primarily to the overall increase in average balance of investment securities and increased rates for overnight cash balances held at the Federal Reserve. In addition, interest and fees earned on loans receivable slightly increased by $121,000 as the increase in the average balance of net loans was mostly offset by the decrease in the average yield of 28 basis points to 4.39% for the three months ended June 30, 2022 compared to 4.67% for the three months ended June 30, 2021. The average yield on non-mortgage related loans decreased 13 basis points to 4.00% for the three months ended June 30, 2022, predominantly from lower deferred SBA PPP loan fees recognized from SBA PPP loans that were forgiven. Interest and dividend income included $101,000 and $892,000 of interest income and fees earned related to SBA PPP loans for the three months ended June 30, 2022 and 2021, respectively. The average yield on mortgage related loans decreased 36 basis points to 4.52% for the three months ended June 30, 2022 as the continued low interest rate environment resulted in downward pressure on adjustable rate loans and lower yields on new loan originations compared to the yields on the legacy loan portfolio.

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The average balance of net loans increased $69.9 million to $995.1 million for the three months ended June 30, 2022, respectively, from $925.2 million for the same periods in the prior year. The average yield on net loans decreased to 4.39% for the three months ended June 30, 2022 compared to 4.67% for the same period in the prior year due primarily to lower rates on loan originations. For the three months ended June 30, 2022, the average balance of SBA PPP loans was $1.5 million and the average yield on SBA PPP loans was 26.27%, which included the recognition of the net deferred fees. The impact of SBA PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met.

Interest Expense. Interest expense totaled $533,000 and $636,000 for the three months ended June 30, 2022 and 2021, respectively. Interest expense on deposits decreased $161,000 to $281,000 for the three months ended June 30, 2022, compared to the same period in the prior year due to the overall decrease in the weighted average interest rate on interest-bearing deposits. The weighted average interest rate on total interest-bearing deposits decreased to 0.11% for the three months ended June 30, 2022 compared to 0.19% for the same period in the prior year. The decrease in the weighted average interest rate on certificates of deposits contributed primarily to the overall decrease. The average balance of interest-bearing deposits increased $97.7 million for the three months ended June 30, 2022, compared to the same period in the prior year. The increase in the average balance of interest-bearing deposits is due primarily to an increase in savings trends and a change in spending habits.

Interest expense on borrowings increased $58,000 to $252,000 for the three months ended June 30, 2022, compared to $194,000 for the same period in the prior year due to the higher rates paid on the outstanding junior subordinated debentures. The average balance of junior subordinated debentures remained unchanged at $26.8 million for the three months ended June 30, 2022 and 2021. Overall, total interest expense is lower due to the decrease in the weighted average interest rate on total interest-bearing liabilities for the three months ended June 30, 2022 compared to the same period in the prior year.

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


	Three Months Ended June 30,
	2022						2021
			Interest						Interest
	Average		and				Average		and
	Balance		Dividends		Yield/Cost		Balance		Dividends		Yield/Cost

Interest-earning assets:
Mortgage loans	$	753,499	$	8,485	4.52	%	$	665,004	$	8,094	4.88	%
Non-mortgage loans		241,567		2,412	4.00			260,157		2,682	4.13
Total net loans ⁽¹⁾		995,066		10,897	4.39			925,161		10,776	4.67

Investment securities ⁽²⁾		441,564		1,921	1.74			279,042		1,065	1.53
Interest-bearing deposits in other banks		195,563		377	0.77			271,954		80	0.12
Other earning assets		2,855		20	2.81			2,558		15	2.35
Total interest-earning assets		1,635,048		13,215	3.24			1,478,715		11,936	3.24

Non-interest-earning assets:
Office properties and equipment, net		18,439						19,298
Other non-interest-earning assets		68,423						78,039
Total assets	$	1,721,910					$	1,576,052

Interest-bearing liabilities:
Regular savings accounts	$	327,578		60	0.07		$	295,663		57	0.08
Interest checking accounts		295,580		23	0.03			266,793		21	0.03
Money market accounts		293,154		47	0.06			244,335		34	0.06
Certificates of deposit		111,376		151	0.54			123,160		330	1.07
Total interest-bearing deposits		1,027,688		281	0.11			929,951		442	0.19

Junior subordinated debentures		26,842		210	3.14			26,758		152	2.28
Other interest-bearing liabilities		2,277		42	7.40			2,324		42	7.25
Total interest-bearing liabilities		1,056,807		533	0.20			959,033		636	0.27

Non-interest-bearing liabilities:
Non-interest-bearing deposits		491,273						443,135
Other liabilities		17,194						18,903
Total liabilities		1,565,274						1,421,071
Shareholders’ equity		156,636						154,981
Total liabilities and shareholders’ equity	$	1,721,910					$	1,576,052
Net interest income			$	12,682					$	11,300
Interest rate spread					3.04	%					2.97	%
Net interest margin					3.11	%					3.07	%

Ratio of average interest-earning assets to average interest-bearing liabilities					154.72	%					154.19	%

Tax equivalent adjustment ⁽³⁾			$	21					$	16

(1)	Includes non-accrual loans.

(2)	For purposes of the computation of average yield on investment securities available for sale, historical cost balances were utilized; therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.

(3)	Tax-equivalent adjustment relates to non-taxable investment interest income and preferred equity securities dividend income.

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The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the periods ended June 30, 2022 compared to the periods ended June 30, 2021. 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).


	Three Months Ended June 30,
	2022 vs 2021
	Increase (Decrease) Due to
					Total
					Increase
	Volume		Rate		(Decrease)
Interest Income:
Mortgage loans	$	1,020	$	(629)	$	391
Non-mortgage loans		(188)		(82)		(270)
Investment securities ⁽¹⁾		693		163		856
Interest-bearing deposits in other banks		(29)		326		297
Other earning assets		2		3		5
Total interest income		1,498		(219)		1,279

Interest Expense:
Regular savings accounts		8		(5)		3
Interest checking accounts		2		—		2
Money market accounts		13		—		13
Certificates of deposit		(29)		(150)		(179)
Junior subordinated debentures		—		58		58
Other interest-bearing liabilities		(1)		1		—
Total interest expense		(7)		(96)		(103)
Net interest income	$	1,505	$	(123)	$	1,382

(1)	Interest is presented on a fully tax-equivalent basis.

Provision for Loan Losses. The Company maintains an allowance for loan losses to provide for probable losses inherent in the loan portfolio consistent with GAAP guidelines. The adequacy of the allowance is evaluated monthly to maintain the allowance at levels sufficient to provide for inherent losses existing at the balance sheet date. The key components to the evaluation are the Company’s internal loan review function by its credit administration, which reviews and monitors the risk and quality of the loan portfolio; as well as the Company’s external loan reviews and its loan classification systems. Credit officers are expected to monitor their portfolios and make recommendations to change loan grades whenever changes are warranted. Credit administration approves any changes to loan grades and monitors loan grades.

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 $334,000 and $371,000 at June 30, 2022 and March 31, 2022, respectively.

There was no provision for loan losses for the three months ended June 30, 2022, compared to a recapture of loan losses of $1.6 million for the three months ended June 30, 2021. The provision for (recapture of) loan losses for the three months ended June 30, 2021 was based primarily upon the improving local and national economic conditions associated with the COVID-19 pandemic during that period. 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.

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Net recoveries totaled $36,000 and $12,000 for the three months ended June 30, 2022 and 2021, respectively. Annualized net recoveries were (0.01)% for the three months ended June 30, 2022 and 2021. Nonperforming loans were $27.5 million at June 30, 2022, compared to $22.1 million at March 31, 2022. The ratio of allowance for loan losses to nonperforming loans was 52.88% at June 30, 2022 compared to 65.72% at March 31, 2022. See “Asset Quality” above for additional information related to asset quality that management considers in determining the provision for loan losses.

Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan. As of June 30, 2022, the Company had identified $698,000 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, $592,000 have no specific valuation allowance as their estimated collateral value is equal to or exceeds the carrying costs, which in some cases is the result of previous loan charge-offs. At June 30, 2022, charge-offs on these impaired loans totaled $85,000 from their original loan balances. The remaining $106,000 of impaired loans has specific valuation allowances totaling $7,000 at June 30, 2022.

Non-Interest Income. Non-interest income decreased $462,000 to $3.1 million for the three months ended June 30, 2022, compared to $3.6 million in the same period in the prior year. The decrease is primarily due to a BOLI death benefit on a former employee of $479,000 recognized during the three months ended June 30, 2021 that was not present during the three months ended June 30, 2022. Further, fees and service charges decreased to $1.7 million for the three months ended June 30, 2022 compared to $1.9 million in the same period in the prior year primarily due to a decrease in brokered loan fees of $187,000. These decreases are partially offset by an increase in asset management fees of $184,000 due to an increase in custody fees of $83,000 and trust tax preparation fees of $48,000 during the three months ended June 30, 2022 compared to the same prior year period.

Non-Interest Expense. Non-interest expense increased $632,000 to $9.8 million for the three months ended June 30, 2022, compared to $9.1 million in the same period in the prior year. Non-interest expenses increased $198,000 due to an increase in salaries and employee benefits related to wage pressures and the competitive landscape for attracting and retaining employees in the Company’s primary markets. Additionally, an increase in occupancy and depreciation expense mainly due to an increase in rent expense and depreciation expense which also contributed to the increase in non-interest expense. Other non-interest expense increased $271,000 compared to the same period in the prior year due to the change in provision for off-balance sheet commitments which fluctuate monthly based upon unfunded commitments.

Income Taxes. The provision for income taxes was $1.4 million for the three months ended June 30, 2022, compared to $1.6 million for the same period in the prior year. The decrease in the provision for income taxes was due to lower pre-tax income for the three months ended June 30, 2022 compared to the same period in the prior year. Income before income taxes was $6.0 million for the three months ended June 30, 2022, compared to $7.3 million for the same period in the prior year. The Company’s effective tax rate for the three months ended June 30, 2022 was 22.7%, compared to 21.5% for the three months ended June 30, 2021. The Company’s effective tax rate for the three months ended June 30, 2021 was lower than its historical effective tax rate due to a non-taxable BOLI death benefit of $479,000 recognized during the three months ended June 30, 2021. At June 30, 2022, management deemed that a valuation allowance related to the Company’s deferred tax asset was not necessary. At June 30, 2022, the Company had a net deferred tax asset of $9.1 million compared to $7.5 million at March 31, 2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has not been any material change in the market risk disclosures contained in the 2022 Form 10-K.

Item 4. Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13(a) - 15(e) of the Securities Exchange Act of 1934) as of June 30, 2022 was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as in effect on June 30, 2022 were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Securities and Exchange Act of 1934 is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In the quarter ended June 30, 2022, the Company did not make any changes in its internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, these controls.

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

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company’s Form 10-K for the year ended March 31, 2022.

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

(a) Not applicable.

(b) Not applicable.

(c) The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2022:



				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
April 1, 2022						$	4,784,448
April 1, 2022 - April 30, 2022	74,067	$	7.40	$	547,984		4,236,464
May 1, 2022 - May 31, 2022	62,893		6.78		426,712		3,809,752
June 1, 2022 - June 30, 2022	45,810		6.65		304,446		3,505,306
Total	182,770	$	7.00	$	1,279,142	$	3,505,306

On March 9, 2022, the Company announced that its Board of Directors authorized a stock repurchase program. Under the repurchase program, the Company could repurchase up to $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, over a period beginning on March 21, 2022 continuing until the earlier of the completion of the stock repurchase program or September 9, 2022. As of June 30, 2022, the Company had repurchased $1.5 million of the Company’s outstanding shares at an average price of $7.08 per share under this stock repurchase program.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

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Item 6. Exhibits

(a) Exhibits:


3.1		Articles of Incorporation of the Registrant (1)
3.2		Amended and Restate Bylaws of the Registrant (2)
4.1		Form of Certificate of Common Stock of the Registrant (1)
10.1		Form of Employment Agreement between the Company and the Bank and each of Kevin J. Lycklama, David Lam, Daniel D. Cox and Steven P. Plambeck (3)
10.2		Form of Change in Control Agreement between the Company and the Bank and each of Kevin J. Lycklama, David Lam, Daniel D. Cox and Steven P. Plambeck (3)
10.3		Form of Employment Agreement between the Company and Chris P. Cline (4)
10.4		Form of Change in Control Agreement between the Company and Chris P. Cline (4)
10.5		Employee Stock Ownership Plan (5)
10.6		2003 Stock Option Plan (6)
10.7		Form of Incentive Stock Option Award Pursuant to 2003 Stock Option Plan (7)
10.8		Form of Non-qualified Stock Option Award Pursuant to 2003 Stock Option Plan (7)
10.9		Deferred Compensation Plan (8)
10.10		2017 Equity Incentive Plan (9)
10.11		Form of Incentive Stock Option Award Agreement under the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (10)
10.12		Form of Non-Qualified Stock Option Award Agreement under the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (10)
10.13		Form of Restricted Stock Award Agreement under the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (10)
10.14		Form of Restricted Stock Unit Award Agreement under the Riverview Bancorp, Inc. 2017 Equity Incentive Plan (10)
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act *
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act *
32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
101		The following materials from Riverview Bancorp Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline Extensible Business Reporting Language (XBRL) (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Shareholders’ Equity (e) Consolidated Statements of Cash Flows; and (f) Notes to Consolidated Financial Statements *
104		The cover page from Riverview Bancorp Inc’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL and contained in Exhibit 101

(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 December 15, 2021 and incorporated herein by reference.

(3)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended March 31, 2019, and incorporated herein by reference.

(4)	Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended March 31, 2017 and incorporated herein by reference.

(5)	Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended March 31, 1998, and incorporated herein by reference.

(6)	Filed as an exhibit to the Registrant’s 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 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.

*	Filed herewith

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SIGNATURES

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


		RIVERVIEW BANCORP, INC.


By:	/S/ Kevin J. Lycklama	By:	/S/ David Lam
	Kevin J. Lycklama		David Lam
	President and Chief Executive Officer		Executive Vice President and
	Director		Chief Financial Officer
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)


Date:	August 12, 2022	Date:	August 12, 2022