What changed in this filing

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Item 1. Business

2021-06-21 compared with 2020-06-17 · 107 added, 1174 removed, 50 unchanged (96% of the section changed)

Riverview Bancorp, Inc., a Washington corporation, is the savings and loan holding company of Riverview Community Bank (the “Bank”).

At March 31, 2020, the Company had total assets of $1.2

billion, total deposits of $990.4 million and shareholders' equity of $148.8 million.

At March 31, 2021, the Company had total assets of $1.5 billion, total deposits of

$1.3 billion and total shareholders' equity of $151.6 million.

The Company’s executive offices are located in Vancouver, Washington.

The Bank's subsidiary, Riverview Trust Company (the “Trust Company”), is a trust and financial

services company located in downtown Vancouver, Washington, and provides full-service brokerage activities, trust and asset management services.

The Company is subject to regulation by the Board of Governors of the Federal Reserve Systems (“Federal Reserve”).

Substantially all of the Company’s business is conducted through the Bank which

is regulated by the Office of the Comptroller of the Currency ("OCC"), its primary regulator, and by the Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits.

The Bank's deposits are insured by the FDIC up to applicable legal

limits under the Deposit Insurance Fund ("DIF").

The Bank is a member of the Federal Home Loan Bank of Des Moines ("FHLB") which is one of the 11 regional banks in the Federal Home Loan Bank System (“FHLB System”).

The Bank's subsidiary, Riverview Trust Company (the “Trust Company”), is a trust and financial services company

located in downtown Vancouver, Washington, and provides full-service brokerage activities, trust and asset management services.

Substantially all of the Company’s business is conducted through the Bank, which until April 28, 2021, was a federal savings bank subject to extensive regulation by the Office of the Comptroller of the Currency

The Bank converted from a federally chartered savings bank to a Washington state-chartered commercial bank on April 28, 2021.

As a Washington state-chartered commercial bank, the Bank’s regulators are the Washington State Department of

Financial Institutions (“WDFI”) and the Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits.

The Bank's deposits are insured up to applicable limits by the FDIC.

The Board of Governors of the Federal Reserve System (“Federal

Reserve”) remains the primary federal regulator for the Company.

In connection with the Bank’s charter conversion, the Company converted from a Savings and Loan Holding Company to a Bank Holding Company.

The Bank is also a member of the Federal Home

Loan Bank of Des Moines ("FHLB") which is one of the 11 regional banks in the Federal Home Loan Bank System (“FHLB System”).

As a progressive, community-oriented financial services company, the Company emphasizes local, personal service to residents of its primary market area.

The Company considers Clark, Klickitat and

Skamania counties of Washington, and Multnomah, Washington and Marion counties of Oregon as its primary market area.

The Company is engaged predominantly in the business of attracting deposits from the general public and using such funds in its

primary market area to originate commercial business, commercial real estate, multi-family real estate, land, real estate construction, residential real estate and other consumer loans.

The Company’s loans receivable, net, totaled $898.9 million at

March 31, 2020 compared to $864.7 million at March 31, 2019.

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 our new loan originations – which are mainly concentrated in commercial business and commercial real estate loans

– 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 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 $924.1 million at March 31, 2021 compared

to $898.9 million at March 31, 2020.

Since COVID-19 was declared a pandemic in March 2020, COVID-19 has significantly affected our communities, customers, and operations.

Efforts to limit the spread of COVID-19 led to shelter-in-place orders, the

temporary closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate.

Although many of these restrictions have been lifted and society has begun to re-open, the COVID-19 pandemic is ongoing and additional uncertainties exist which may continue to impact our customers, employees and vendors;

the financial services and

banking industry;

and the economy as a whole.

These uncertainties include, among other things, the extent and severity of the spread of COVID-19 including COVID-19 variants, the length of the outbreak, the extent of distribution and efficacy of

vaccines, the lifting of pandemic-related restrictions including social distancing and the use of facemasks, and future actions taken by governmental authorities to contain the outbreak or to mitigate its impact.

In light of the uncertainties and

continuing developments related the COVID-19 pandemic, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.

For our customers, the Company is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19.

We continue to work with our customers to originate and renew commercial business loans

and through its conclusion in May 2021, originated loans through the Paycheck Protection Program (“PPP”), a lending program administered by the U.S.

Small Business Administration (“SBA”) and established as part of the CARES Act.

As of March 31, 2021,

the Company held SBA PPP loans with a total outstanding balance of $93.4 million.

For additional discussion of impacts to our business from the COVID-19 pandemic, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of

Operations – Recent Developments Related to COVID-19."

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 our 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.

Our strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management through the Trust Company and deposit service charges.

The strategic plan

is designed to enhance earnings, reduce interest rate risk and provide a more complete range of financial services to customers and the local communities the Company serves.

We believe we are well positioned to attract new customers and to increase

our market share through our 18 branches, including, among others, ten in Clark County, four in the Portland metropolitan area and three lending centers.

The Company conducts operations from its home office in Vancouver, Washington and 18 branch offices located in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale, and Vancouver,

Washington (seven branch offices) and Portland (two branch offices), Gresham, Tualatin and Aumsville, Oregon.

The Trust Company has two locations, one in downtown Vancouver, Washington and one in Lake Oswego, Oregon, and provides full-service

brokerage activities, trust and asset management services.

Riverview Mortgage, a mortgage broker division of the Bank, originates mortgage loans for various mortgage companies predominantly in the Vancouver/Portland metropolitan areas, as well as for

The Bank’s Business and Professional Banking Division, with two lending offices located in Vancouver and one in Portland, offers commercial and business banking services.

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, nine in Clark County, four in the Portland metropolitan area and three lending centers.

The Company conducts operations from its home office in Vancouver, Washington and 17 branch offices located in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale, and Vancouver, Washington (six branch

offices) and Portland (two branch offices), Gresham, Tualatin and Aumsville, Oregon.

The Trust Company has two locations, one in downtown Vancouver, Washington and one in Lake Oswego, Oregon, and provides full-service brokerage activities, trust and

asset management services.

Riverview Mortgage, a mortgage broker division of the Bank, originates mortgage loans for various mortgage companies predominantly in the Vancouver/Portland metropolitan areas, as well as for the Bank.

The Bank’s Business

and Professional Banking Division, with two lending offices located in Vancouver and one in Portland, offers commercial and business banking services.

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.

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.

Economic conditions in the Company’s market areas have generally been positive until the recent COVID-19 pandemic.

According to the Washington State Employment Security Department, unemployment in

Clark County decreased to 4.3% at March 31, 2020 compared to 5.3% at March 31, 2019.

According to the Oregon Employment Department, unemployment in Portland decreased to 3.4% at March 31, 2020 compared to 3.9% at March 31, 2019.

Unemployment levels

have increased since March 31, 2020 due to the COVID-19 pandemic, as the governors of both Washington and Oregon have instituted stay-at-home orders and closed non-essential businesses and schools.

Once these stay-at-home orders are modified,

unemployment levels may begin to reverse the upward trend resulting from COVID-19.

According to the Regional Multiple Listing Services (“RMLS”), residential home inventory levels in Portland, Oregon have decreased to 1.8 months at March 31, 2020

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.

Economic conditions in the Company’s market areas were generally positive until the recent COVID-19 pandemic.

According to the Washington State Employment Security Department, unemployment in Clark County increased to

6.2% at March 31, 2021 compared to 4.3% at March 31, 2020.

According to the Oregon Employment Department, unemployment in Portland increased to 7.0% at March 31, 2021 compared to 3.4% at March 31, 2020.

According to the Regional Multiple Listing

Services (“RMLS”), residential home inventory levels in Portland, Oregon have decreased to 0.8 months at March 31, 2021 compared to 1.8 months at March 31, 2020.

Residential home inventory levels in Clark County have decreased to 0.5 months at March

31, 2021 compared to 2.1 months at March 31, 2020.

Residential home inventory levels in Clark County have decreased to 2.1 months at March 31, 2020 compared to 2.4 months March 31, 2019.

According to the RMLS, closed home sales in March 2020 in Clark County

decreased 3.0% compared to March 2019.

According to the RMLS, closed home sales in March 2021 in Clark County increased 21.8% compared to March 2020.

Closed home sales during March 2021 in Portland increased 8.5% compared to March 2020.

1 unchanged sentence

At March 31, 2021, the Company's net loans receivable totaled $924.1 million, or 59.6% of total assets at that date.

The principal lending

activity of the Company is the origination of loans collateralized by commercial properties and commercial business loans.

A substantial portion of the Company's loan portfolio is secured by real estate, either as primary or secondary collateral,

located in its primary market area.

The principal lending activity

of the Company is the origination of loans collateralized by commercial properties and commercial business loans.

A substantial portion of the Company's loan portfolio is secured by real estate, either as primary or secondary collateral, located in

its primary market area.

The Company’s lending activities are subject to the written, non-discriminatory, underwriting standards and loan origination procedures established by the Bank’s Board of Directors (“Board”) and management.

customary sources of loan originations are realtors, walk-in customers, referrals and existing customers.

The customary

sources of loan originations are realtors, walk-in customers, referrals and existing customers.

The Bank also uses commissioned loan brokers and print advertising to market its products and services.

are approved at various levels of management, depending upon the amount of the loan.

Loans are approved at various levels of

management, depending upon the amount of the loan.

Our current loan policy generally limits the maximum amount of loans we can make to one borrower to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by

certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus).

The regulatory limit of loans we can make to one borrower is 20% of total risk-based capital, or $30.3 million, at March 31, 2021.

At this date, the Bank’s largest lending relationship with one borrower was $16.5 million, which consisted of two commercial real estate loans of $14.1 million and $2.4 million.

Both loans were performing in accordance with their original payment

terms at March 31, 2021.

Loan Portfolio Analysis .

The following table sets forth the composition of the Company's loan portfolio, excluding loans held for sale, by type of loan at the dates indicated

(dollars in thousands):

The following table sets forth the composition of the Company's loan portfolio, excluding loans held for sale, by type of loan at the dates indicated (dollars in thousands):

Commercial and construction:

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Loan Portfolio Composition.

The following tables set forth the composition of the Company's commercial and construction loan portfolio based on loan purpose

at the dates indicated (in thousands):

The following tables set forth the composition of the Company's commercial and construction loan portfolio based on loan purpose at the dates

indicated (in thousands):

Real Estate Mortgage

Real Estate Construction

Commercial & Construction Total

March 31, 2021

20 unchanged sentences

At March 31, 2021, the commercial business loan portfolio totaled $265.1 million, or 28.1% of total loans.

Commercial business

loans are typically secured by business equipment, accounts receivable, inventory or other property.

Commercial business loans are typically

secured by business equipment, accounts receivable, inventory or other property.

The Company’s commercial business loans may be structured as term loans or as lines of credit.

Commercial term loans are generally made to finance

the purchase of assets and usually have maturities of five years or less.

Commercial term loans are generally made to finance the purchase of assets

and usually have maturities of five years or less.

Commercial lines of credit are typically made for the purpose of providing working capital and usually have a term of one year or less.

Lines of credit are made at variable

rates of interest equal to a negotiated margin above an index rate and term loans are at either a variable or fixed rate.

The Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial

Commercial business lending involves risks that are different from those associated with residential and commercial real estate lending.

Although commercial business loans are often collateralized

by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete

or of limited use, among other things.

Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit-worthiness of the borrower and secondarily on the underlying collateral provided by the borrower.

Additionally, the borrower’s cash flow may be unpredictable and collateral securing these loans may fluctuate in value.

Other Real Estate Mortgage Lending.

At March 31, 2020, the other real estate mortgage loan portfolio totaled $580.3 million, or 63.7% of total loans.

Company originates other real estate mortgage loans secured by office buildings, warehouse/industrial, retail, assisted living facilities and single-purpose facilities (collectively “commercial real estate loans” or “CRE”);

as well as land and

multi-family loans primarily located in its market area.

At March 31, 2020, owner occupied properties accounted for 29.9% and non-owner occupied properties accounted for 70.1% of the Company’s commercial real estate loan portfolio.

Commercial real estate and multi-family loans typically have higher loan balances, are more difficult to evaluate and monitor, and involve a higher degree of risk than one-to-four family

residential loans.

As a result, commercial real estate and multi-family loans are generally priced at a higher rate of interest than residential one-to-four family loans.

Often payments on loans secured by commercial properties are dependent on the

successful operation and management of the property securing the loan or business conducted on the property securing the loan;

therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy.

estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the

event of borrower default.

The Company seeks to minimize these risks by generally limiting the maximum loan-to-value ratio to 80% and strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of

the property securing the loan.

Loans are secured by first mortgages and often require specified debt service coverage (“DSC”) ratios depending on the characteristics of the collateral.

The Company generally imposes a minimum DSC ratio of 1.20 for

loans secured by income producing properties.

Rates and other terms on such loans generally depend on our assessment of credit risk after considering such factors as the borrower’s financial condition and credit history, loan-to-value ratio, DSC

ratio and other factors.

The Company actively pursues commercial real estate loans.

Loan demand within the Company’s market area was competitive in fiscal year 2020 as economic conditions and competition for strong

credit-worthy borrowers remained high.

At March 31, 2020 and 2019, the Company had the same two commercial real estate loans totaling $1.0 million and $1.1 million, respectively, on non-accrual status.

For more information concerning risks related to

commercial real estate loans, see Item 1A.

“Risk Factors – Our emphasis on commercial real estate lending may expose us to increased lending risks.”

Land acquisition and development loans are included in the other real estate mortgage loan portfolio balance and represent loans made to developers for the purpose of acquiring raw land and/or for

the subsequent development and sale of residential lots.

Such loans typically finance land purchases and infrastructure development of properties (e.g.

roads, utilities, etc.) with the aim of making improved lots ready for subsequent sales to

consumers or builders for ultimate construction of residential units.

The primary source of repayment is generally the cash flow from developer sale of lots or improved parcels of land, secondary sources and personal guarantees, which may provide an

additional measure of security for such loans.

At March 31, 2020, land acquisition and development loans totaled $14.0 million, or 1.54% of total loans compared to $17.0 million, or 1.94% of total loans at March 31, 2019.

The largest land acquisition

and development loan had an outstanding balance at March 31, 2020 of $2.0 million and was performing according to its original payment terms.

At March 31, 2020, all of the land acquisition and development loans were secured by properties located in

Washington and Oregon.

At March 31, 2020 and 2019, the Company had no land acquisition and development loans on non-accrual status.

Real Estate Construction.

The Company originates three types of residential construction loans:

(i) speculative construction loans, (ii) custom/presold

construction loans and (iii) construction/permanent loans.

The Company also originates construction loans for the development of business properties and multi-family dwellings.

All of the Company’s real estate construction loans were made on

properties located in Washington and Oregon.

The composition of the Company’s construction loan portfolio, including undisbursed funds, was as follows at the dates indicated (dollars in thousands):

Speculative construction

Commercial/multi-family construction

Custom/presold construction

Construction/permanent

(1) Includes undisbursed funds of $24.0 million and $62.8 million at March 31, 2020 and 2019, respectively.

At March 31, 2020, the balance of the Company’s construction loan portfolio, including undisbursed funds, was $88.8 million compared to $153.7 million at March 31, 2019.

The $64.9 million decrease

was primarily due to a $53.9 million decrease in commercial/multi-family construction loans along with a decrease of $7.3 million in speculative construction loans.

The Company plans to continue to proactively manage and control the growth in its

construction loan portfolio in fiscal year 2021 while continuing to originate new construction loans to selected customers.

Speculative construction loans are made to home builders and are termed “speculative” because the home builder does not have, at the time of loan origination, a signed contract with a home buyer

who has a commitment for permanent financing with either the Company or another lender for the finished home.

The home buyer may be identified either during or after the construction period, with the risk that the builder will have to service the

speculative construction loan and finance real estate taxes and other carrying costs of the completed home for a significant period of time after the completion of construction until a home buyer is identified.

The largest speculative construction

loan at March 31, 2020 was a loan to finance the construction of a single family home totaling $458,000.

This loan is to a single borrower that is secured by a property located in the Company’s market area.

The average balance of loans in the

speculative construction loan portfolio at March 31, 2020 was $260,000.

At March 31, 2020 and 2019, the Company had no speculative construction loans on non-accrual status.

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

Southwest Washington

March 31, 2020

Land acquisition and development

Speculative construction

March 31, 2019

Land acquisition and development

Speculative construction

Unlike speculative construction loans, presold construction loans are made for homes that have buyers.

Presold construction loans are made to homebuilders who, at the time of construction, have a

signed contract with a home buyer who has a commitment for permanent financing for the finished home from the Company or another lender.

Presold construction loans are generally originated for a term of 12 months.

At March 31, 2020 and 2019, presold

construction loans totaled $8.4 million and $8.5 million, respectively and are included in the speculative construction loan category.

Unlike speculative and presold construction loans, custom construction loans are made directly to the homeowner.

At March 31, 2020 and 2019, the Company had no custom construction loans.

Construction/permanent loans are originated to the homeowner rather than the homebuilder along with a commitment by the Company to originate a permanent loan to the homeowner to repay the construction loan at the completion of construction.

construction phase of a construction/permanent loan generally lasts six to nine months.

At the completion of construction, the Company may either originate a fixed-rate mortgage loan or an adjustable rate mortgage (“ARM”) loan or use its mortgage

brokerage capabilities to obtain permanent financing for the customer with another lender.

For adjustable rate loans, the interest rates adjust on their first adjustment date.

See “Mortgage Brokerage” and “Mortgage Loan Servicing” below for more

At March 31, 2020, construction/permanent loans totaled $207,000, had a total commitment balance of $1.8 million and all were performing according to their original repayment terms.

The average balance of loans in the

construction/permanent loan portfolio excluding undisbursed funds at March 31, 2020 was $69,000.

The Company provides construction financing for non-residential business properties and multi-family dwellings.

At March 31, 2020 commercial construction loans totaled $52.6 million, or 81.1% of

total real estate construction loans and 5.8% of total loans.

Borrowers may be the business owner/occupier of the building who intends to operate their business from the property upon construction, or non-owner developers.

The expected source of

repayment of these loans is typically the sale or refinancing of the project upon completion of the construction phase.

In certain circumstances, the Company may provide or commit to take-out financing upon construction.

Take-out financing is subject

to the project meeting specific underwriting guidelines.

No assurance can be given that such take-out financing will be available upon project completion.

These loans are secured by office buildings, retail rental space, mini storage facilities,

assisted living facilities and multi-family dwellings located in the Company’s market area.

At March 31, 2020, the largest commercial construction loan had a balance of $9.5 million and was performing according to its original repayment terms.

average balance of loans in the commercial construction loan portfolio at March 31, 2020 was $3.8 million.

At March 31, 2020 and 2019, the Company had no commercial construction loans on non-accrual status.

The Company has originated construction and land acquisition and development loans where a component of the cost of the project was the interest required to service the debt during the

construction period of the loan, sometimes known as interest reserves.

The Company allows disbursements of this interest component as long as the project is progressing as originally projected and if there has been no deterioration in the financial

standing of the borrower or the underlying project.

If the Company makes a determination that there is such deterioration, or if the loan becomes nonperforming, the Company halts any disbursement of those funds identified for use in paying interest.

In some cases, additional interest reserves may be taken by use of deposited funds or through credit lines secured by separate and additional collateral.

For additional information concerning the risks related to construction lending, see Item 1A.

"Risk Factors – Our real estate construction and land acquisition and development loans expose us to risk."

Consumer Lending.

Consumer loans totaled $87.4 million at March 31, 2020 and were comprised of $65.9 million of one-to-four family mortgage loans, $15.5

million of home equity lines of credit, $1.8 million of land loans to consumers for the future construction of one-to-four family homes and $4.2 million of other secured and unsecured consumer loans, which included $1.8 million of purchased

automobile loans.

One-to-four family residences located in the Company’s primary market area secure the majority of the residential loans.

Underwriting standards require that one-to-four family portfolio loans

generally be owner occupied and that loan amounts not exceed 80% (95% with private mortgage insurance) of the lesser of current appraised value or cost of the underlying collateral.

Terms typically range from 15 to 30 years.

The Company also offers

balloon mortgage loans with terms of either five or seven years and originates both fixed-rate mortgages and ARMs with repricing based on the one-year constant maturity U.S.

Treasury index or other index.

At March 31, 2020, the Company had three

residential real estate loans totaling $152,000 on non-accrual status compared to three residential real estate loans totaling $169,000 at March 31, 2019.

All of these loans were secured by properties located in Oregon and Washington.

The Company had previously purchased pools of automobile loans from another financial institution as a way to further diversify its loan portfolio and to earn a higher yield than on its cash or

short-term investments.

These indirect automobile loans are originated through a single dealership group located outside the Company’s primary market area.

Unlike a direct loan where the borrower makes an application directly to the lender, in these

loans the dealer, who has a direct financial interest in the loan transaction, assists the borrower in preparing the loan application.

Indirect automobile loans we purchased are underwritten by us using substantially similar guidelines to our

internal guidelines.

However, because these loans are originated through a third-party and not directly by us, we do not have direct contact with the borrower and therefore these loans may be more susceptible to a material misstatement on the loan

application and present greater risks than other types of lending activities.

The collateral for these loans is comprised of a mix of used automobiles.

These loans are purchased with servicing retained by the seller.

The Company did not purchase any

automobile loans during fiscal years 2020 and 2019 and does not have plans to purchase any additional automobile loan pools.

At March 31, 2020, six of the purchased automobile loans were on non-accrual status totaling $28,000.

At March 31, 2019,

twelve of the purchased automobile loans were on non-accrual status totaling $41,000.

The Company originates a variety of installment loans, including loans for debt consolidation and other purposes, automobile loans, boat loans and savings account

At March 31, 2020 and 2019, excluding the purchased automobile loans noted above, the Company had no installment loans on non-accrual status.

Installment consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate

rapidly, such as mobile homes, automobiles, boats and recreational vehicles.

In these cases, we face the risk that any collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance.

Thus, the recovery

and sale of such property could be insufficient to compensate us for the principal outstanding on these loans as a result of the greater likelihood of damage, loss or depreciation.

The remaining deficiency often does not warrant further collection

efforts against the borrower beyond obtaining a deficiency judgment.

In addition, consumer loan collections are dependent on the borrower’s continuing financial stability and are more likely to be adversely affected by job loss (especially now as a

result of the COVID-19 pandemic), divorce, illness or personal bankruptcy.

Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit our ability to recover on such loans.

Loan Maturity.

The following table sets forth certain information at March 31, 2020 regarding the dollar amount of loans maturing in the Company’s total

loan portfolio based on their contractual terms to maturity but does not include potential prepayments.

Demand loans, loans having no stated schedule of repayments or stated maturity and overdrafts are reported as due in one year or less.

balances are reported net of deferred fees (in thousands):

Commercial and construction:

Commercial business

Other real estate mortgage

Real estate construction

Total commercial and construction

Real estate one-to-four family

Other installment

Total consumer

The following table sets forth the dollar amount of loans due after one year from March 31, 2020, which have fixed and adjustable interest rates (in thousands):

Commercial and construction:

Commercial business

Other real estate mortgage

Real estate construction

Total commercial and construction

Real estate one-to-four family

Other installment

Total consumer

Loan Commitments .

The Company issues commitments to originate commercial loans, other real estate mortgage loans, construction loans, residential mortgage

loans and other installment loans conditioned upon the occurrence of certain events.

The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

Commitments to originate loans are conditional and are

honored for up to 45 days subject to the Company’s usual terms and conditions.

Collateral is not required to support commitments.

At March 31, 2020, the Company had outstanding commitments to originate loans of $35.8 million compared to $40.7 million

at March 31, 2019.

Mortgage Brokerage.

The Company employs commissioned brokers who originate mortgage loans (including construction loans) for various mortgage companies, as

well as for the Company.

The loans brokered to mortgage companies are closed in the name of, and funded by, the purchasing mortgage company and are not originated as an asset of the Company.

In return, the Company receives a fee ranging from 1.5% to

2.0% of the loan amount that it shares with the commissioned broker.

Loans brokered to the Company are closed on the Company's books and the commissioned broker receives a portion of the origination fee.

During the year ended March 31, 2020, brokered

loans totaled $45.5 million (including $11.1 million brokered to the Company) compared to $35.0 million (including $10.4 million brokered to the Company) of brokered loans in fiscal year 2019.

Beginning in fiscal year 2022, the Company is planning to

transition to a model where all future mortgage loan originations will be brokered to various third-party mortgage companies.

Gross fees of $666,000 and $504,000, which includes brokered loan fees and fees for loans sold to the Federal Home Loan

Mortgage Company (“FHLMC”), were earned for the years ended March 31, 2020 and 2019, respectively.

The interest rate environment has a strong influence on the loan volume and amount of fees generated from the mortgage broker activity.

during periods of rising interest rates, the volume of loans and the amount of loan fees generally decrease as a result of slower mortgage loan demand.

Conversely, during periods of falling interest rates, the volume of loans and the amount of loan

fees generally increase as a result of the increased mortgage loan demand.

Mortgage Loan Servicing.

The Company is a qualified servicer for the FHLMC.

The Company generally sells fixed-rate residential one-to-four family mortgage

loans that it originates with maturities of 15 years or more and balloon mortgages to the FHLMC as part of its asset/liability strategy.

Mortgage loans are sold to the FHLMC on a non-recourse basis whereby foreclosure losses are the responsibility of

the FHLMC and not the Company.

The Company's general policy is to close its residential loans on FHLMC modified loan documents to facilitate future sales to the FHLMC.

Upon sale, the Company continues to collect payments on the loans, supervise

foreclosure proceedings, and otherwise service the loans.

At March 31, 2020, total loans serviced for others were $146.8 million, of which $99.5 million were serviced for the FHLMC.

Beginning in fiscal year 2021, the Company does not intend to

originate and sell mortgages loans to FHLMC;

however, the Company will continue to service its existing FHLMC portfolio.

Nonperforming Assets.

Nonperforming assets were $1.4 million or 0.12% of total assets at March 31, 2020 compared with $1.5 million or 0.13% of total assets

at March 31, 2019.

The Company had net loan charge-offs totaling $83,000 during fiscal 2020 compared to net recoveries of $641,000 during fiscal 2019.

Credit quality metrics continued to improve in the past fiscal year and the real estate market in

our primary market area has improved steadily.

Economic conditions have been stable and even continued to improve throughout a majority of the fiscal year;

however, the current economic downturn in our market area related to the COVID-19 pandemic

could result in future increases in nonperforming assets, in the provision for loan losses and in loan charge-offs that may materially adversely affect our results of operations and financial condition.

Loans are reviewed regularly and it is the Company’s general policy that when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual

status, at which time the accrual of interest ceases and a reserve for any unrecoverable accrued interest is established and charged against operations.

In general, payments received on non-accrual loans are applied to reduce the outstanding

principal balance on a cash-basis method.

The Company continues to proactively manage its residential construction and land acquisition and development loan portfolios.

At March 31, 2020, the Company’s residential construction and land

acquisition and development loan portfolios were $12.2 million and $14.0 million, respectively, as compared to $20.3 million and $17.0 million, respectively, at March 31, 2019.

At March 31, 2020 and 2019, there were no nonperforming loans in the

residential construction loan portfolio or the land acquisition and development portfolio.

For the years ended March 31, 2020 and 2019, there were no charge-offs or recoveries in the residential construction and land acquisition and development loan

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

March 31, 2020

March 31, 2019

Commercial business

Commercial real estate

Nonperforming loans decreased compared to the prior fiscal year as the Company continues its efforts to work out problem loans, seek full repayment or pursue foreclosure proceedings.

loans are to borrowers with properties located in Oregon and Washington, with the exception of six automobile loans totaling $28,000.

At March 31, 2020, 82.67% of the Company’s nonperforming loans, totaling $1.2 million, were measured for impairment.

These loans have been charged down to the estimated fair market value of the collateral less selling costs or carry a specific reserve to reduce the net carrying value.

There were no reserves associated with these nonperforming loans that were

measured for impairment at March 31, 2020.

At March 31, 2020, the largest single nonperforming loan was a commercial real estate loan totaling $851,000.

This loan was measured for impairment during fiscal year 2020 and management determined that a

specific reserve was not required.

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

Loans accounted for on a non-accrual basis:

Commercial business

Other real estate mortgage

Accruing loans which are contractually

past due 90 days or more

Total nonperforming loans

Real estate owned (“REO”)

Total nonperforming assets

Foregone interest on non-accrual loans

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

March 31, 2020

Commercial business

Commercial real estate

Total nonperforming assets

March 31, 2019

Commercial business

Commercial real estate

Total nonperforming assets

Other loans of concern, which are classified as substandard loans and are not presently included in the non-accrual category, consist of loans where the borrowers have cash flow problems, or the

collateral securing the respective loans may be inadequate.

In either or both of these situations, the borrowers may be unable to comply with the present loan repayment terms, and the loans may subsequently be included in the non-accrual category.

Management considers the allowance for loan losses to be adequate at March 31, 2020, 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):

March 31, 2020

March 31, 2019

Commercial business

Commercial real estate

At March 31, 2020, loans delinquent 30 – 89 days were 0.03% of total loans compared to 0.04% at March 31, 2019 and were comprised of consumer loans.

There were no loans 30-89 days past due in our

commercial real estate (“CRE”) or commercial business portfolio at March 31, 2020 or March 31, 2019.

CRE loans represent the largest portion of our loan portfolio at 55.72% of total loans and commercial business loans represent 19.64% of total loans.

Troubled debt restructurings (“TDRs”) are loans for which the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it

would otherwise not consider.

A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated

interest rate lower than the current market rate for a new loan with similar risk.

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

the loan is collateral dependent.

In these cases, the estimated fair value of the collateral (less any selling costs, if applicable) is used.

Impairment is recognized as a specific component within the allowance for loan losses if the estimated value

of the impaired loan is less than the recorded investment in the loan.

When the amount of the impairment represents a confirmed loss, it is charged off against the allowance for loan losses.

At March 31, 2020, the Company had TDRs totaling $5.2

million, of which $4.0 million were on accrual status.

The $1.2 million of TDRs accounted for on a non-accrual basis at March 31, 2020 are included as nonperforming loans in the nonperforming asset table above.

All of the Company’s TDRs were paying

as agreed at March 31, 2020 except for one commercial real estate loan totaling $851,000.

The related amount of interest income recognized on these TDR loans was $221,000 for the year ended March 31, 2020.

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.

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

The CARES Act, signed into law on March 27, 2020, amended accounting principles generally accepted in the United States of America (“GAAP”) with respect to the modification of loans to borrowers

affected by the COVID-19 pandemic.

Among other criteria, this guidance provided that short-term loan modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs.

includes short-term (e.g.

six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

To qualify as an eligible loan under the CARES Act, a loan modification must

be 1) related to COVID-19;

2) executed on a loan that was not more than 30 days past due as of December 31, 2019;

and 3) executed between March 1, 2020, and the earlier of A) 60 days after the date of termination of the national emergency by the

President or B) December 31, 2020.

As of March 31, 2020 the Company had approved ten loan modifications related to the COVID-19 pandemic totaling $36.2 million which consisted of deferral of regularly scheduled principal and interest payments for

three months.

Loan modifications in accordance with the CARES Act are still subject to an evaluation in regards to determining whether or not a loan is deemed to be impaired.

For additional information related to loan modifications as a result of

the COVID-19 pandemic, see “Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments Related to COVID-19.

The accrual status of a loan may change after it has been classified as a TDR.

The Company’s general policy related to TDRs is to perform a credit evaluation of the borrower’s financial condition

and prospects for repayment under the revised terms.

This evaluation includes consideration of the borrower’s sustained historical repayment performance for a reasonable period of time.

A sustained period of repayment performance generally would be a

minimum of six months and may include repayments made prior to the restructuring date.

If repayment of principal and interest appears doubtful, it is placed on non-accrual status.

In accordance with the Company’s policy guidelines, unsecured loans are generally charged-off when no payments have been received for three consecutive months unless an alternative action plan is

Consumer installment loans delinquent six months or more that have not received at least 75% of their required monthly payment in the last 90 days are charged-off.

In addition, loans discharged in bankruptcy proceedings are charged-off.

Loans under bankruptcy protection with no payments received for four consecutive months are charged-off.

The outstanding balance of a secured loan that is in excess of the net realizable value is generally charged-off if no payments are received for

four to five consecutive months.

However, charge-offs are postponed if alternative proposals to restructure, obtain additional guarantors, obtain additional assets as collateral or a potential sale of the underlying collateral would result in full

repayment of the outstanding loan balance.

Once any other potential sources of repayment are exhausted, the impaired portion of the loan is charged-off.

Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a

confirmed loan loss it is promptly charged off.

Asset Classification.

The OCC has adopted various regulations regarding problem assets of savings institutions.

The regulations require that each insured

institution review and classify its assets on a regular basis.

In addition, in connection with examinations of insured institutions, OCC examiners have authority to identify problem assets and, if appropriate, require them to be classified as such.

There are three classifications for problem assets:

substandard, doubtful and loss (collectively “classified loans”).

Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured

institution will sustain some loss if the deficiencies are not corrected.

Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of

currently existing facts, conditions and values questionable, and there is a high possibility of loss.

An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.

When the Company classifies problem assets as either substandard or doubtful, we may determine that the loan is impaired and establish a specific allowance in an amount we deem prudent to address

the risk specifically or we may allow the loss to be addressed in the general allowance.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike

specific allowances, have not been specifically allocated to particular problem assets.

When a problem asset is classified by us as a loss, we are required to charge off the asset in the period in which it is deemed uncollectible.

The aggregate amount of the Company's classified loans (comprised entirely of substandard loans), general loss allowances, specific loss allowances and net recoveries were as follows at the dates

indicated (in thousands):

At or For the Year

Ended March 31,

Classified loans

General loss allowances

Specific loss allowances

Net charge-offs (recoveries)

All of the loans on non-accrual status as of March 31, 2020 were categorized as classified loans.

Classified loans at March 31, 2020 were comprised of five commercial business loans totaling

$348,000, two commercial real estate loans totaling $1.0 million (the largest of which was $851,000), three multi-family loans totaling $34,000, three one-to-four family real estate loans totaling $152,000 and six purchased automobile loans totaling

Allowance for Loan Losses.

The Company maintains an allowance for loan losses to provide for probable losses inherent in the loan portfolio consistent with

GAAP guidelines.

The adequacy of the allowance is evaluated monthly to maintain the allowance at levels sufficient to provide for inherent losses existing at the balance sheet date.

The key components to the evaluation are the Company’s internal loan

review function by its credit administration, which reviews and monitors the risk and quality of the loan portfolio;

as well as the Company’s external loan reviews and its loan classification systems.

Credit officers are expected to monitor their

loan portfolios and make recommendations to change loan grades whenever changes are warranted.

Credit administration approves any changes to loan grades and monitors loan grades.

For additional discussion of the Company’s methodology for assessing

the appropriate level of the allowance for loan losses see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies."

In accordance with GAAP, loans acquired from MBank during the fiscal year ended March 31, 2017 were recorded at their estimated fair value, which resulted in a net discount to the loans’

contractual amounts, of which a portion reflects a discount for possible credit losses.

Credit discounts are included in the determination of fair value, and, as a result, no allowance for loan losses is recorded for acquired loans at the acquisition

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 $1.1 million and $1.5 million at March 31, 2020 and 2019, respectively.

The Company recorded a provision for loan losses of $1.3 million and $50,000 for the years ended March 31, 2020 and 2019, respectively.

At March 31, 2020, the Company had an allowance for loan

losses of $12.6 million, or 1.38% of total loans, compared to $11.5 million, or 1.31% at March 31, 2019.

The increase in the balance of the allowance for loan losses at March 31, 2020 reflects the consideration of the weakening economic conditions as

a result of the COVID-19 pandemic and to a lesser extent, the $35.4 million increase in loan balances from March 31, 2019 compared to March 31, 2020.

During fiscal year 2020, the Company experienced improvement in the level of delinquent,

nonperforming and classified loans.

charge-offs totaled $83,000 for the fiscal year ended March 31, 2020 compared to net recoveries of $641,000 in the prior fiscal year.

Nonperforming loans decreased $124,000 and 30-89 day

delinquent loans decreased $74,000 during the fiscal year ended March 31, 2020.

Classified loans were $1.6 million at March 31, 2020 compared to $6.3 million at March 31, 2019.

The $4.7 million decrease is primarily attributed to the payoff of six

commercial business loans with an unpaid principal balance of $1.1 million during fiscal year 2020 along with risk rating upgrades totaling $3.3 million, including two commercial real estate loans totaling $2.2 million.

The coverage ratio of

allowance for loan losses to nonperforming loans was 904.95% at March 31, 2020 compared to 754.25% at March 31, 2019.

The Company’s general valuation allowance to non-impaired loans was 1.39% and 1.31% at March 31, 2020 and 2019, respectively.

Management considers the allowance for loan losses to be adequate at March 31, 2020 to cover probable losses inherent in the loan portfolio based on the assessment of various factors affecting the

loan portfolio, and the Company believes it has established its existing allowance for loan losses in accordance with GAAP.

However, a further decline in national and local economic conditions (including declines as a result of the COVID-19

pandemic), results of examinations by the Company’s banking regulators, or other factors could result in a material increase in the allowance for loan losses and may adversely affect the Company’s future financial condition and results of operations.

In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses will be adequate or that substantial increases will not be necessary

should the quality of any loans deteriorate or should collateral values decline as a result of the factors discussed elsewhere in this document.

The following table sets forth an analysis of the Company's allowance for loan losses for the periods indicated (dollars in thousands):

Year Ended March 31,

Balance at beginning of year

Provision for (recapture of) loan losses

Commercial and construction

Commercial business

Other real estate mortgage

Real estate construction

Total commercial and construction

Real estate one-to-four family

Other installment

Total consumer

Total recoveries

Commercial and construction

Commercial business

Other real estate mortgage

Real estate construction

Total commercial and construction

Real estate one-to-four family

Other installment

Total consumer

Total charge-offs

Net charge-offs (recoveries)

Balance at end of year

Ratio of allowance to total loans

outstanding at end of year

Ratio of net (recoveries) charge-offs to average net

loans outstanding during year

Ratio of allowance to total nonperforming loans

The following table sets forth the breakdown of the allowance for loan losses by loan category as of the dates indicated (dollars in thousands):

Loan Category

of Total Loans

Loan Category

of Total Loans

Loan Category

of Total Loans

Loan Category

of Total Loans

Loan Category

of Total Loans

Commercial and construction:

Commercial business

Other real estate mortgage

Real estate construction

Real estate one-to-four family

Other installment

Total allowance for loan losses

Investment Activities

The Board sets the investment policy of the Company.

The Company's investment objectives are:

to provide and maintain liquidity within regulatory guidelines;

to maintain a balance of high quality,

diversified investments to minimize risk;

to provide collateral for pledging requirements;

to serve as a balance to earnings;

and to optimize returns.

The policy permits investment in various types of liquid assets (generally debt and asset-backed

securities) permissible under OCC regulation, which includes U.S.

Treasury obligations, securities of various federal agencies, "bank qualified" municipal bonds, certain certificates of deposit of insured banks, repurchase agreements, federal funds,

real estate mortgage investment conduits (“REMICS”) and mortgage-backed securities (“MBS”), but does not permit investment in non-investment grade bonds.

The policy also dictates the criteria for classifying investment securities into one of three

held to maturity, available for sale or trading.

At March 31, 2020, no investment securities were held for trading purposes.

At March 31, 2020, the Company’s investment portfolio consists of debt securities and does not include any

equity securities.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies."

The Company primarily purchases agency securities with maturities of five years or less and purchases a combination of MBS backed by government agencies (FHLMC, Fannie Mae (“FNMA”), U.S.

Business Administration (“SBA”) or Ginnie Mae (“GNMA”)).

FHLMC and FNMA securities are not backed by the full faith and credit of the U.S.

government, while SBA and GNMA securities are backed by the full faith and credit of the U.S.

March 31, 2020, the Company owned no privately issued MBS.

Our REMICS are MBS issued by FHLMC, FNMA and GNMA and our CRE MBS are issued by FNMA.

The Company does not believe that it has any exposure to sub-prime lending in its investment securities

See Note 3 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional information.

The following table sets forth the investment securities portfolio and carrying values at the dates indicated (dollars in thousands):

Available for sale (at estimated fair value):

Municipal securities

Agency securities

Residential MBS

Held to maturity (at amortized cost):

Residential MBS

Total investment securities

The following table sets forth the maturities and weighted average yields in the securities portfolio at March 31, 2020 (dollars in thousands):

Less Than One Year

One to Five Years

More Than Five to

Municipal securities

Agency securities

Residential MBS

(1) For available for sale securities carried at estimated fair value, the weighted average yield is computed using amortized cost without a tax equivalent

adjustment for tax-exempt obligations.

Management reviews investment securities quarterly for the presence of other than temporary impairment (“OTTI”), taking into consideration current market conditions, the extent and nature of

changes in estimated fair value, issuer rating changes and trends, financial condition of the underlying issuers, current analysts’ evaluations, the Company’s ability and intent to hold investments until a recovery of estimated fair value, which may

be maturity, as well as other factors.

There was no OTTI charge for investment securities for the years ended March 31, 2020, 2019 or 2018.

However, additional deterioration in market and economic conditions related to the COVID-19 pandemic may have

an adverse impact on credit quality in the future and result in OTTI charges.

Deposit Activities and Other Sources of Funds

Deposits, loan repayments and loan sales are the major sources of the Company's funds for lending and other investment purposes.

Loan repayments

are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Borrowings may be used on a short-term basis to compensate for

reductions in the availability of funds from other sources.

They may also be used on a longer-term basis for general business purposes.

Deposit Accounts.

The Company attracts deposits from within its primary market area by offering a broad selection of deposit instruments, including demand

deposits, negotiable order of withdrawal ("NOW") accounts, money market accounts, savings accounts, certificates of deposit and retirement savings plans.

The Company has focused on building customer relationship deposits which include both business

and consumer depositors.

Deposit account terms vary according to, among other factors, the minimum balance required, the time periods the funds must remain on deposit and the interest rate.

In determining the terms of its deposit accounts, the

Company considers the rates offered by its competition, profitability to the Company, matching deposit and loan products and customer preferences and concerns.

The following table sets forth the average balances of deposit accounts held by the Company at the dates indicated (dollars in thousands):

Year Ended March 31,

Non-interest-bearing demand

Interest-bearing checking

Savings accounts

Money market accounts

Certificates of deposit

Deposit accounts totaled $990.4 million at March 31, 2020 compared to $925.1 million at March 31, 2019.

The Company did not have any wholesale-brokered deposits at March 31, 2020 and 2019.

Company continues to focus on core deposits and growth generated by customer relationships as opposed to obtaining deposits through the wholesale markets, although the Company continued to experience increased competition for customer deposits within

its market area during fiscal year 2020.

Core branch deposits (comprised of all demand, savings, interest checking accounts and all time deposits excluding wholesale-brokered deposits, trust account deposits, Interest on Lawyer Trust Accounts

(“IOLTA”), public funds, and internet based deposits) increased $58.7 million since March 31, 2019.

At March 31, 2020, the Company had $5.3 million, or 0.01% of total deposits, in Certificate of Deposit Account Registry Service (“CDARS”) and Insured

Cash Sweep (“ICS”) deposits, which were gathered from customers within the Company’s primary market-area.

CDARS and ICS deposits allow customers access to FDIC insurance on deposits exceeding the $250,000 FDIC insurance limit.

At March 31, 2020 and 2019, the Company also had $12.2 million and $3.2 million, respectively, in deposits from public entities located in the States of Washington and Oregon, all of which were

fully covered by FDIC insurance or secured by pledged collateral.

The Company is enrolled in an internet deposit listing service.

Under this listing service, the Company may post certificates of deposit rates on an internet site where institutional investors

have the ability to deposit funds with the Company.

At March 31, 2020 and 2019, the Company did not have any deposits through this listing service as the Company chose not to utilize these internet based deposits.

Although the Company did not

originate any internet based deposits during the year ended March 31, 2020, the Company may do so in the future consistent with its asset/liability objectives.

Deposit growth remains a key strategic focus for the Company and our ability to achieve deposit growth, particularly growth in core deposits, is subject to many risk factors including the effects

of competitive pricing pressures, changing customer deposit behavior, and increasing or decreasing interest rate environments.

Adverse developments with respect to any of these risk factors could limit the Company’s ability to attract and retain

deposits and could have a material negative impact on the Company’s future financial condition, results of operations and cash flows.

The following table presents the maturity period, amount and weighted average rate of certificates of deposit equal to or greater than $100,000 at March 31, 2020 (dollars in thousands):

Maturity Period

Three months or less

Over three through six months

Over six through 12 months

Over 12 months

The Company relies upon advances from the FHLB and borrowings from the Federal Reserve Bank of San Francisco (“FRB”) to supplement its supply of

lendable funds and to meet deposit withdrawal requirements.

Advances from the FHLB and borrowings from the FRB are typically secured by the Bank's commercial business loans, commercial real estate loans and first mortgage residential loans.

31, 2020, the Bank did not have any FHLB advances or FRB borrowings.

At March 31, 2019, the Bank had FHLB advances totaling $56.6 million and no FRB borrowings.

The FHLB functions as a central reserve bank providing credit for member financial institutions.

As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for

advances on the security of such stock and certain of its mortgage loans and other assets (primarily securities which are obligations of, or guaranteed by, the U.S.) provided certain standards related to credit-worthiness have been met.

determines specific lines of credit for each member institution and the Bank has a line of credit with the FHLB equal to 45% of its total assets to the extent the Bank provides qualifying collateral and holds sufficient FHLB stock.

At March 31, 2020,

the Bank had an available credit capacity of $532.5 million, subject to sufficient collateral and stock investment.

The Bank also has a borrowing arrangement with the FRB with an available credit facility of $67.3 million, subject to pledged collateral, as of March 31, 2020.

The following table sets forth

certain information concerning the Company's borrowings for the periods indicated (dollars in thousands):

Year Ended March 31,

Maximum amounts of FHLB advances outstanding at any month end

Average FHLB advances outstanding

Weighted average rate on FHLB advances

Maximum amounts of FRB borrowings outstanding at any month end

Average FRB borrowings outstanding

Weighted average rate on FRB borrowings

The CARES Act authorized the SBA to temporarily guarantee loans under a new federal loan program called the Paycheck Protection Program (“PPP”) pursuant to which we have originated COVID-19

related loans.

We may utilize the FRB's Paycheck Protection Program Liquidity Facility pursuant to which the Company will pledge its PPP loans as collateral at face value to obtain FRB non-recourse borrowings.

For additional information, see “Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments Related to COVID-19.”

At March 31, 2020, the Company had three wholly-owned subsidiary grantor trusts totaling $26.7 million that were established for the purpose of issuing trust preferred securities and common

The trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement.

The trusts used the net proceeds from each of the offerings to purchase a like amount of junior

subordinated debentures (the “Debentures”) of the Company.

The Debentures are the sole assets of the trusts.

The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the

Company of the obligations of the trusts.

The trust preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures.

The Company has the right to redeem the Debentures in whole

or in part on or after specific dates, at a redemption price specified in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date.

The Company also has the right to defer the payment of interest on each of

the Debentures for a period not to exceed 20 consecutive quarters, provided that the deferral period does not extend beyond the stated maturity.

During such deferral period, distributions on the corresponding trust preferred securities will also be

deferred and the Company may not pay cash dividends to the holders of shares of the Company’s common stock.

The common securities issued by the grantor trusts are held by the Company, and the Company’s investment in the common securities of $836,000

at both March 31, 2020 and 2019 is included in prepaid expenses and other assets in the Consolidated Balance Sheets included in the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

For more information, see also Note 10 of the

Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

For details regarding the Company’s taxes, see Note 11 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

As of March 31, 2020, the Company had 252 full‑time equivalent employees, none of whom are represented by a collective bargaining unit.

The Company believes its relationship with its employees is

Corporate Information

The Company’s principal executive offices are located at 900 Washington Street, Vancouver, Washington 98660.

Its telephone number is (360) 693-6650.

The Company maintains a website with the

address www.riverviewbank.com.

The information contained on the Company’s website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K.

Other than an investor’s own internet access charges, the Company

makes available free of charge through its website the Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after it has electronically filed

such material with, or furnished such material to, the Securities and Exchange Commission (“SEC”).

Subsidiary Activities

Under OCC regulations, the Bank is authorized to invest up to 3% of its assets in subsidiary corporations classified as service corporations, with amounts in excess of 2% only if primarily for

community purposes, and unlimited amounts in operating subsidiaries.

At March 31, 2020, the Bank’s investments in its wholly-owned subsidiary of $1.3 million in Riverview Services, Inc.

(“Riverview Services”) and majority-owned subsidiary of $6.4

million in the Trust Company were within these limitations.

Riverview Services acts as a trustee for deeds of trust on mortgage loans granted by the Bank and receives a reconveyance fee for each deed of trust.

Riverview Services had net income of $23,000

for the fiscal year ended March 31, 2020 and total assets of $1.3 million at March 31, 2020.

Riverview Services’ operations are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.

The Trust Company is an asset management company providing trust, estate planning and investment management services.

The Trust Company had net income of $991,000 for the fiscal year ended March

31, 2020 and total assets of $6.9 million at that date.

The Trust Company earns fees on the management of assets held in fiduciary or agency capacity.

At March 31, 2020, total assets under management were $1.2 billion.

The Trust Company’s operations

are included in the Consolidated Financial Statements of the Company contained in Item 8 of this Form 10-K.

Information about our Executive Officers .

The following table sets forth certain information regarding the executive officers of the Company and its subsidiaries:

President and Chief Executive Officer

Executive Vice President and Chief Financial Officer

Executive Vice President and Chief Credit Officer

Executive Vice President and Chief Banking Officer

Executive Vice President and Chief Lending Officer

Christopher P.

President and Chief Executive Officer of Riverview Trust Company

(1) At March 31, 2020

Lycklama is President and Chief Executive Officer of the Company, positions he has held since April 2, 2018.

Prior to assuming the role of

President and Chief Executive Officer, Mr.

Lycklama served as Executive Vice President and Chief Operating Officer of the Company, positions he had held since July 2017.

Prior to July 2017, Mr.

Lycklama served as Executive Vice President and Chief

Financial Officer of the Company since 2008 and Vice President and Controller of the Bank since 2006.

Prior to joining Riverview, Mr.

Lycklama spent five years with a local public accounting firm advancing to the level of audit manager.

Bachelor of Arts degree from Washington State University, is a graduate of the Pacific Coast Banking School and is a certified public accountant (CPA).

Lycklama is a member of the Washington State University Vancouver Advisory Council.

David Lam is Executive Vice President and Chief Financial Officer of the Company, positions he has held since July 2017.

Prior to July 2017, Mr.

as Senior Vice President and Controller of the Bank since 2008.

He is responsible for accounting, SEC reporting and treasury functions for the Bank and the Company.

Prior to joining Riverview, Mr.

Lam spent ten years working in the public accounting

sector advancing to the level of audit manager.

Lam holds a Bachelor of Arts degree in business administration with an emphasis in accounting from Oregon State University.

Lam is a CPA, holds a chartered global management accountant

designation and is a member of both the American Institute of CPAs and Oregon Society of CPAs.

Cox is Executive Vice President and Chief Credit Officer and is responsible for credit administration related to the Bank’s commercial, mortgage

and consumer loan activities.

Cox joined Riverview in August 2002 and spent five years as a commercial lender and progressed through the credit administration function, most recently serving as Senior Vice President of Credit Administration.

holds a Bachelor of Arts degree from Washington State University and was an Honor Roll graduate of the Pacific Coast Banking School.

Cox is an active mentor in the local schools and was the Past Treasurer and Endowment Chair for the Washougal

Schools Foundation and Past Board Member of Camas-Washougal Chamber of Commerce.

Capeloto is Executive Vice President and Chief Banking Officer.

Capeloto has been employed by the Bank since September 2010.

over 30 years of banking experience serving as regional manager for Union Bank of California and Wells Fargo Bank directing small business and personal banking activities.

Prior to joining the Bank, Mr.

Capeloto held the position of President and

Chief Executive Officer of the Greater Vancouver Chamber of Commerce.

Capeloto is active in numerous professional and civic organizations.

Plambeck is Executive Vice President and Chief Lending Officer, a position he has held since March 1, 2018.

Plambeck is responsible for all loan production including commercial, consumer, mortgage and builder/developer construction loans.

Plambeck joined Riverview in January 2011 as Director of Medical Banking.

For the past two years Mr.

served as Senior Vice President and Team Leader for the Portland Commercial Team.

Plambeck holds a Bachelor of Science degree in Accounting from the University of Wyoming and is also a graduate of the Pacific Coast Banking School.

a board member for the Providence St.

Vincent Council of Trustees, Providence Heart and Vascular Institute and the Providence Brain and Spine Institute.

Plambeck is also a member of the Medical and Dental Advisory Team.

Christopher P.

Cline is President and Chief Executive Officer of the Trust Company, a wholly-owned subsidiary of the Bank.

Cline joined the Trust

Company in 2016, after having spent eight years managing the trust department of Wells Fargo’s Private Bank in Oregon and Southwest Washington.

Prior to that, Mr.

Cline was an estate planning attorney for 17 years, most recently as a partner at

Holland & Knight.

Cline manages all aspects of the trust business, is a Fellow of the American College of Trust and Estate Counsel and is a nationally recognized speaker and author, having written books on estate planning and trust

administration.

Cline holds a Bachelor of Arts degree from San Francisco State University and a Juris Doctor degree from Hastings College of the Law in San Francisco.

The following is a brief description of certain laws and regulations which are applicable to the Company and the Bank.

The description of these laws and regulations, as well as descriptions of

laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

Legislation is introduced from time to time in the United States Congress (“Congress”) that may affect the Company’s and Bank’s operations.

In addition, the regulations governing the Company and

the Bank may be amended from time to time by the OCC, the FDIC, the Federal Reserve Board or the SEC, as appropriate.

Any such legislation or regulatory changes in the future could have an adverse effect on our

operations and financial condition.

We cannot predict whether any such changes may occur.

As a federally chartered savings bank, the Bank is subject to extensive regulation, examination and supervision by the OCC, as its primary federal regulator, and the FDIC, as the insurer of its

As used herein, the terms “savings institution” and “savings association” refer to federally chartered savings banks.

Additionally, the Company is subject to extensive regulation, examination and

supervision by the Federal Reserve as its primary federal regulator.

The Bank is a member of the FHLB System and its deposits are insured up to applicable limits by the DIF, which is administered by the FDIC.

The Bank must file reports with the OCC

concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions.

There are periodic examinations of the

Bank by the OCC and of the Company by the Federal Reserve to evaluate safety and soundness and compliance with various regulatory requirements.

This regulatory structure establishes a comprehensive framework of activities in which the Bank may engage

and is intended primarily for the protection of the DIF and depositors.

The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies,

including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

Any change in such policies, whether by the OCC, the Federal Reserve, the FDIC or Congress, could have a

material adverse impact on the Company and the Bank and their operations.

In connection with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the laws and regulations affecting depository institutions and

their holding companies have changed particularly affecting the bank regulatory structure and the lending, investment, trading and operating activities of depository institutions and their holding companies.

Among other changes, the Dodd-Frank Act

established the Consumer Financial Protection Bureau (“CFPB”) as an independent bureau of the Federal Reserve Board.

The CFPB assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and

regulations and has authority to impose new requirements.

The Bank is subject to regulations issued by the CFPB, but as a smaller financial institution, the Bank is generally subject to supervision and enforcement by the OCC with respect to its

compliance with consumer financial protection laws and CFPB regulations.

On May 23, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress (the “Act”).

The Act contains a number of provisions extending

regulatory relief to banks and savings institutions and their holding companies.

Some of these provisions may benefit the Company and the Bank, such as (1) a simplified capital ratio, called the Community Bank Leverage Ratio, computed as the ratio of

tangible equity capital to average consolidated total assets to be set by the federal banking regulators at not less than 8% and not more than 10%, which for most institutions with less than $10 billion in consolidated assets will replace the

leverage and risk-based capital ratios under current regulations;

(2) an option for federal savings institutions to operate as national banks with respect to limits on lending, investments, and subsidiaries, without changing their charters to

national bank charters;

and (3) a lower risk weight on certain loans classified as high volatility commercial real estate exposures.

Effective January 1, 2020, the Community Bank Leverage Ratio is 9.0%.

Federal Regulation of Savings Institutions

Office of the Comptroller of the Currency.

The OCC has extensive authority over the operations of federal savings institutions.

As part of this authority,

the Bank is required to file periodic reports with the OCC and is subject to periodic examinations by the OCC.

The OCC also has extensive enforcement authority over federal savings institutions, including the Bank.

This enforcement authority

includes, among other things, the ability to assess civil money penalties, issue cease-and-desist or removal orders and initiate prompt corrective action orders.

In general, these enforcement actions may be initiated for violations of laws and

regulations and unsafe or unsound practices.

Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OCC.

Except under certain circumstances, public disclosure of final

enforcement actions by the OCC is required by law.

All federal savings institutions are required to pay assessments to the OCC to fund the agency's operations.

The general assessments, paid on a semi-annual basis, are determined based on the

savings institution's total assets, including consolidated subsidiaries.

The Bank's OCC assessment for the fiscal year ended March 31, 2020 was $244,000.

The Bank's general permissible lending limit for loans to one borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain

readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus).

At March 31, 2020, the Bank's lending limit under this restriction was $22.2 million and, at that date, the Bank’s largest lending

relationship with one borrower was $16.9 million, which consisted of one commercial real estate loan of $14.4 million and one commercial construction loan with a contractual amount of $2.5 million.

The commercial construction loan has an outstanding

balance of $1.6 million and undisbursed funds of $900,000 at March 31, 2020.

Both loans are performing in accordance to their original terms.

The OCC’s oversight of the Bank includes reviewing its compliance with the customer privacy requirements imposed by the Gramm-Leach-Bliley Act of 1999 (“GLBA”) and the anti-money laundering

provisions of the USA Patriot Act.

The GLBA privacy requirements place limitations on the sharing of consumer financial information with unaffiliated third parties.

They also require each financial institution offering financial products or services

to retail customers to provide such customers with its privacy policy and with the opportunity to opt out of the sharing of their personal information with unaffiliated third parties.

The USA Patriot Act imposes significant responsibilities on

financial institutions to prevent the use of the U.S.

financial system to fund terrorist activities.

Its anti-money laundering provisions require financial institutions operating in the U.S.

to develop anti-money laundering compliance programs and

due diligence policies and controls to ensure the detection and reporting of money laundering.

These compliance programs are intended to supplement requirements under the Bank Secrecy Act and the regulations of the Office of Foreign Assets Control.

The OCC, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality,

earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits.

Any institution that fails to comply with these standards must submit a compliance plan.

Capital Requirements.

Federally insured savings institutions, such as the Bank, are required by the OCC to maintain minimum levels of regulatory capital,

including a common equity Tier 1 (“CET1”) capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets ratio and a Tier 1 capital to total assets leverage ratio.

The capital standards require

the maintenance of the following minimum capital ratios:

(i) a CET1 capital ratio of 4.5%;

(ii) a Tier 1 capital ratio of 6%;

(iii) a total capital ratio of 8%;

and (iv) a Tier 1 leverage ratio of 4%.

Certain changes in what constitutes regulatory capital, including the phasing-out of certain instruments as qualifying capital, are subject to transition periods, most of which have expired.

Bank does not have any such instruments.

Because of the Bank’s asset size, the Bank elected to take a one-time option to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in its

capital calculations.

The Bank also must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in

order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses.

In order to be considered well-capitalized under the prompt corrective action regulations, the Bank must maintain a CET1 risk-based ratio of 6.5%, a Tier 1 risk-based ratio of 8%, a total

risk-based capital ratio of 10% and a leverage ratio of 5%, and the Bank must not be subject to any of certain mandates by the OCC requiring it as an individual institution to meet any specified capital level.

Effective January 1, 2020, a bank or

savings institution that elects to use the Community Bank Leverage Ratio will generally be considered well-capitalized and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than

In order to qualify for the Community

Bank Leverage Ratio framework, in addition to maintaining a leverage ratio greater than 9%, the bank or institution also must have total consolidated assets of less than $10 billion, off-balance

sheet exposures of 25% or less of its total consolidated assets, and trading assets and trading liabilities of 5.0% or less of its total consolidated assets, all as of the end of the most recent quarter.

As of March 31, 2020, the most recent notification from the OCC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action.

For additional information,

see Note 13 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

Prompt Corrective Action.

An institution is considered adequately capitalized if it meets the minimum capital ratios described above.

The OCC is required

to take certain supervisory actions against undercapitalized savings institutions, the severity of which depends upon the institution's degree of undercapitalization.

Subject to a narrow exception, the OCC is required to appoint a receiver or

conservator for a savings institution that is critically undercapitalized.

OCC regulations also require that a capital restoration plan be filed with the OCC within 45 days of the date a savings institution receives notice that it is

undercapitalized, significantly undercapitalized or critically undercapitalized.

In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring

by regulators and restrictions on growth, capital distributions and expansion.

Significantly undercapitalized and critically undercapitalized institutions are subject to more extensive mandatory regulatory actions.

The OCC also can take a number of

discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

An institution that is not well-capitalized is subject to certain restrictions on deposit rates and

brokered deposits.

Federal Home Loan Bank System.

The Bank is a member of the FHLB, which is one of 11 regional Federal Home Loan Banks that administer the home financing

credit function of savings institutions, each of which serves as a reserve or central bank for its members within its assigned region.

It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.

loans or advances to members in accordance with policies and procedures established by the Board of Directors of the FHLB, which are subject to the oversight of the Federal Housing Finance Agency.

All advances from the FHLB are required to be fully

secured by sufficient collateral as determined by the FHLB.

In addition, all long-term advances are required to provide funds for residential home financing.

See Business – “Deposit Activities and Other Sources of Funds – Borrowings.” As a member,

the Bank is required to purchase and maintain stock in the FHLB.

At March 31, 2020, the Bank held $1.4 million in FHLB stock, which was in compliance with this requirement.

During the year ended March 31, 2020, the Bank purchased $40,000 of FHLB

membership stock at par and redeemed $2.3 million of FHLB activity stock at par with the payoff of borrowed funds.

The FHLB continues to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and

moderate-income housing projects.

These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future.

These contributions could also have an adverse effect on the value of FHLB stock in the future.

A reduction in value of the Bank's FHLB stock may result in a decrease in net income and possibly capital.

Federal Deposit Insurance Corporation .

The DIF of the FDIC insures deposits in the Bank up to $250,000 per separately insured depositor ownership rights or

As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions.

The Bank’s deposit insurance premiums for the fiscal year ended March 31, 2020 were

The Bank received full credit for the premiums for the first three quarters of fiscal year 2020 from the FDIC since the DIF reserve ratio exceeded 1.35% for these quarters.

The Bank has $44,000 of remaining small bank assessment credits as

of March 31, 2020.

Under its regulations, the FDIC sets assessment rates for established small institutions (generally, those with total assets of less than $10 billion) based on an institution’s weighted average

CAMELS component ratings and certain financial ratios.

Total base assessment rates currently range from 3 to 30 basis points subject to certain adjustments.

Assessment rates are expected to decrease in the future as the reserve ratio increases in

specified increments.

The FDIC may increase or decrease its rates up to two basis points without further rule-making.

In an emergency, the FDIC may also impose a special assessment.

The Dodd-Frank Act increased the minimum FDIC deposit insurance reserve ratio from 1.15 percent to 1.35 percent.

The FDIC surpassed the 1.35% as of September 30, 2018.

The Dodd-Frank Act directed

the FDIC to offset the effects of higher assessments due to the increase in the reserve ratio on established small institutions by charging higher assessments to large institutions.

To implement this mandate, large and highly complex institutions

paid a surcharge on their base since

established small institutions automatically receive credits from the FDIC for the portion of their assessments that contribute to the increase.

The FDIC may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious risk to the DIF.

The FDIC may terminate the deposit insurance of any

insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any

applicable law, regulation, order or any condition imposed by an agreement with the FDIC.

It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible

If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC.

is not aware of any existing circumstances which would result in termination of the deposit insurance of the Bank.

Qualified Thrift Lender Test.

All federal savings institutions, including the Bank, are required to meet a qualified thrift lender ("QTL") test to avoid

certain restrictions on their operations.

This test requires a savings institution to have at least 65% of its total assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling

As an alternative, the savings institution may maintain 60% of its assets in those assets specified in Section 7701(a) (19) of the Internal Revenue Code ("Code").

Under either test, such assets primarily consist of residential housing related

loans and investments.

Any institution that fails to meet the QTL test is subject to certain operating restrictions and may be required to convert to a national bank charter, and a savings and loan holding company of

such an institution may become regulated as a bank holding company.

As of March 31, 2020, the Bank maintained 89.83% of its portfolio assets in qualified thrift investments and therefore met the QTL test.

Limitations on Capital Distributions.

OCC regulations impose various restrictions on savings institutions with respect to their ability to make

distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.

Generally, savings institutions, such as the Bank, that before and after the proposed

distribution are well-capitalized, may make capital distributions during any calendar year equal to up to 100% of net income for the year-to-date plus retained net income for the two preceding years.

However, an institution deemed to be in need of

more than normal supervision by the OCC may have its dividend authority restricted by the OCC.

If the Bank, however, proposes to make a capital distribution when it does not meet its capital requirements (or will not following the proposed capital

distribution) or that will exceed these net income-based limitations, it must obtain the OCC's approval prior to making such distribution.

In addition, the Bank must file a prior written notice of a dividend with the Federal Reserve.

Reserve or the OCC may object to a capital distribution based on safety and soundness concerns.

Additional restrictions on Bank dividends may apply if the Bank fails the QTL test.

In addition, as noted above, if the Bank does not have the required

capital conservation buffer, its ability to pay dividends to the Company will be limited, which may limit the ability of the Company to pay dividends to its stockholders.

Activities of Savings Associations and their Subsidiaries.

When a savings institution establishes or acquires a subsidiary or elects to conduct any new

activity through a subsidiary that the savings institution controls, the savings institution must file a notice or application with the OCC and, in certain circumstances with the FDIC, and receive regulatory approval or non-objection.

institutions also must conduct the activities of subsidiaries in accordance with existing regulations and orders.

With respect to subsidiaries generally, the OCC may determine that investment by a savings institution in, or the activities of, a

subsidiary must be restricted or eliminated based on safety and soundness or legal reasons.

Transactions with Affiliates.

The Bank’s authority to engage in transactions with affiliates is limited by Sections 23A and 23B of the Federal Reserve Act

as implemented by the Federal Reserve’s Regulation W.

The term affiliates for these purposes generally mean any company that controls or is under common control with an institution except subsidiaries of the institution.

The Company and its

non-savings institution subsidiaries are affiliates of the Bank.

In general, transactions with affiliates must be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

In addition, certain types of

transactions are restricted to an aggregate percentage of the institution’s capital.

In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and

no savings institution may purchase the securities of any affiliate other than a subsidiary.

FDIC-insured institutions are subject, with certain exceptions, to certain restrictions on extensions of credit to their parent holding companies or other

affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower.

Collateral in specified amounts must be provided by affiliates in order to receive loans from an

In addition, these institutions are prohibited from engaging in certain tying arrangements in connection with any extension of credit or the providing of any property or service.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) generally prohibits a company that makes filings with the SEC from making loans to its executive officers and directors.

That act, however,

contains a specific exception for loans by a depository institution to its executive officers and directors, if the lending is in compliance with federal banking laws.

Under such laws, the Bank’s authority to extend credit to executive officers,

directors and 10% stockholders (“insiders”), as well as entities which such persons control, is limited.

The law restricts both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position

and requires certain Board approval procedures to be followed.

Such loans must be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment.

There is an exception for

loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees.

There are additional restrictions applicable to loans to executive

Community Reinvestment Act and Consumer Protection Laws.

Under the Community Reinvestment Act of 1977 (“CRA”), every FDIC-insured institution has a

continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods.

The CRA does not establish specific lending requirements or

programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.

The CRA requires the OCC, in

connection with the examination of the Bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a

branch, by the Bank.

The OCC may use an unsatisfactory rating as the basis for the denial of an application.

Similarly, the Federal Reserve is required to take into account the performance of an insured institution under the CRA when considering

whether to approve an acquisition by the institution’s holding company.

Due to the heightened attention being given to the CRA in the past few years, the Bank may be required to devote additional funds for investment and lending in its local

In connection with its deposit-taking, lending and other activities, the Bank is subject to a number of federal laws designed to protect consumers and promote lending to various sectors of the

economy and population.

Some state laws can apply to these activities as well.

The CFPB issues regulations and standards under these federal laws, which include, among others, the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home

Mortgage Disclosure Act and the Real Estate Settlement Procedures Act.

Through its rulemaking authority, the CFPB has promulgated a number of regulations under these laws that affect our consumer businesses.

Among these are regulations setting

“ability to repay” and “qualified mortgage” standards for residential mortgage loans and establishing new mortgage loan servicing and loan originator compensation standards.

The Bank devotes substantial compliance, legal and operational business

resources to ensure compliance with applicable consumer protection standards.

In addition, the OCC has enacted customer privacy regulations that limit the ability of the Bank to disclose nonpublic consumer information to non-affiliated third parties.

The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.

The OCC has primary enforcement responsibility over federally-chartered savings institutions and has the authority to bring action against all

"institution-affiliated parties," including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in a wrongful action likely to have an adverse effect on an insured institution.

Formal enforcement action

may range from the issuance of a capital directive or cease and desist order to removal of officers or directors, receivership, conservatorship or termination of deposit insurance.

Civil penalties cover a wide range of violations.

The FDIC has the

authority to recommend to the OCC that enforcement action be taken with respect to a particular savings institution.

If action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances.

Federal law also

establishes criminal penalties for certain violations.

Standards for Safety and Soundness.

As required by statute, the federal banking agencies have adopted interagency guidelines prescribing standards for

safety and soundness.

The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.

If the OCC determines that a

savings institution fails to meet any standard prescribed by the guidelines, the OCC may require the institution to submit an acceptable plan to achieve compliance with the standard.

Federal Reserve System.

The Federal Reserve requires that all depository institutions maintain reserves on transaction accounts or non-personal time

These reserves may be in the form of cash or non-interest-bearing deposits with the regional Federal Reserve Bank.

Interest-bearing checking accounts and other types of accounts that permit payments or transfers to third parties fall within

the definition of transaction accounts and are subject to Regulation D reserve requirements, as are any non-personal time deposits at a bank.

At March 31, 2020, the Bank was in compliance with these

reserve requirements.

The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy any liquidity requirements that may be imposed by the

Commercial Real Estate Lending Concentrations .

The federal banking agencies have issued guidance on sound risk management practices for concentrations in

commercial real estate lending.

The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real

estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution).

The purpose of the guidance is not to limit a bank’s commercial real estate lending but to guide banks in developing risk

management practices and capital levels commensurate with the level and nature of real estate concentrations.

The guidance directs the OCC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have

significant commercial real estate loan concentration risk.

A federal savings bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or

exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:

Total reported loans for construction, land development and other land represent 100% or more of the bank’s capital;

Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total capital or the outstanding balance of the bank’s commercial real estate loan

portfolio has increased 50% or more during the prior 36 months.

The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on

evaluation of capital adequacy.

Environmental Issues Associated with Real Estate Lending.

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), is a federal

statute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste.

However, Congress acted to protect secured creditors by providing that the term “owner and operator” excludes a

person whose ownership is limited to protecting its security interest in the site.

Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders

could be liable for cleanup costs on contaminated property that they hold as collateral for a loan.

To the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties with potential

hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which could substantially exceed the value of the collateral property.

Bank Secrecy Act/Anti-Money Laundering Laws.

The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the

USA Patriot Act of 2001.

These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers.

Violations of

these requirements can result in substantial civil and criminal sanctions.

In addition, provisions of the USA Patriot Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's

anti-money laundering activities when reviewing mergers and acquisitions.

Other Consumer Protection Laws and Regulations.

The Dodd-Frank Act established the CFPB and empowered it to exercise broad regulatory, supervisory and

enforcement authority with respect to both new and existing consumer financial protection laws.

The Bank is subject to consumer protection regulations issued by the CFPB, but as a financial institution with assets of less than $10 billion, the Bank

is generally subject to supervision and enforcement by the OCC with respect to compliance with consumer financial protection laws and CFPB regulations.

The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers.

While the following

list is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfers Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement

Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the

21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement some or

all of the foregoing.

These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other

Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of

certain contractual rights.

Savings and Loan Holding Company Regulation

The Company is a unitary savings and loan holding company subject to regulatory oversight of the Federal Reserve.

Accordingly, the Company is

required to register and file reports with the Federal Reserve and is subject to regulation and examination by the Federal Reserve.

In addition, the Federal Reserve has enforcement authority over the Company and its non-savings institution

subsidiaries, which also permits the Federal Reserve to restrict or prohibit activities that are determined to present a serious risk to the subsidiary savings institution.

In accordance with the Dodd-Frank Act, the Federal Reserve must require any

company that controls an FDIC-insured depository institution to serve as a source of financial strength for the institution.

These and other Federal Reserve policies, as well as the capital conservatism buffer requirement, may restrict the Company’s

ability to pay dividends.

Capital Requirements.

For a savings and loan holding company that qualifies as a small bank

holding company under the Federal Reserve’s Small Bank Holding Company Policy Statement, such as the Company, the capital regulations apply to its savings institution subsidiaries, but not the Company.

The Federal Reserve expects the holding

company’s savings institution subsidiaries to be well capitalized under the prompt corrective action regulations.

At March 31, 2020, the Company exceeded all regulatory capital requirements.

See “Federal Regulation of Savings Institutions- Capital

Requirements” above.

Activities Restrictions.

The GLBA provides that no company may acquire control of a savings association after May 4, 1999 unless it engages only in the

financial activities permitted for financial holding companies under the law or for multiple savings and loan holding companies.

Further, the GLBA specifies that, subject to a grandfather provision, existing savings and loan holding companies may

only engage in such activities.

The Company qualifies for grandfathering and is therefore not restricted in terms of its activities.

Upon any non-supervisory acquisition by the Company of another savings association as a separate subsidiary, the

Company would become a multiple savings and loan holding company and would be limited to activities permitted by Federal Reserve regulation.

Mergers and Acquisitions.

The Company must obtain approval from the Federal Reserve before acquiring more than 5% of the voting stock of another savings

institution or savings and loan holding company or acquiring such an institution or holding company by merger, consolidation or purchase of its assets.

In evaluating an application for the Company to acquire control of a savings institution, the

Federal Reserve would consider the financial and managerial resources and future prospects of the Company and the target institution, the effect of the acquisition on the risk to the DIF, the convenience and the needs of the community, including

performance under the CRA and competitive factors.

The Federal Reserve may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state,

subject to two exceptions;

(i) supervisory acquisitions and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions.

The states vary in the extent

to which they permit interstate savings and loan holding company acquisitions.

Acquisition of the Company.

Any company, except a bank holding company, that acquires control of

a savings association or savings and loan holding company becomes a “savings and loan holding company” subject to registration, examination and regulation by the Federal Reserve and must obtain the prior approval of the Federal Reserve under the

Savings and Loan Holding Company Act before obtaining control of a savings association or savings and loan holding company.

A bank holding company must obtain the prior approval of the Federal Reserve under the Bank Holding Company Act before

obtaining control of, or more than 5% of a class of voting stock of, a savings association or savings and loan holding company and remains subject to regulation under the Bank Holding Company Act.

The term “company” includes corporations,

partnerships, associations, and certain trusts and other entities.

“Control” of a savings association or savings and loan holding company is deemed to exist if a company has voting control, directly or indirectly, of more than 25% of any class of the

savings association’s voting stock or controls in any manner the election of a majority of the directors of the savings association or savings and loan holding company, and may be presumed under other circumstances, including, but not limited to,

holding in certain cases 10% or more of a class of voting securities.

In addition, a savings and loan holding company must obtain Federal Reserve approval prior to acquiring voting control of more than 5% of any class of voting stock of another

savings association or another savings association holding company.

A similar provision limiting the acquisition by a bank holding company of 5% or more of a class of voting stock of any company is included in the Bank Holding Company Act.

Accordingly, the prior approval of the Federal Reserve would be required:

before any savings and loan holding company or bank holding company could acquire 5% or more of the common stock of the Company;

before any other company could acquire 25% or more of the common stock of the Company and may be required for an acquisition of as little as 10% of such stock.

In addition, persons that are not companies are subject to the same or similar definitions of control with respect to savings and loan holding companies and savings associations and requirements

for prior regulatory approval by the Federal Reserve in the case of control of a savings and loan holding company or by the OCC in the case of control of a savings association not obtained through control of a holding company of such savings

Dividends and Stock Repurchases.

The Federal Reserve’s policy statement on the payment of cash dividends applicable to savings and loan holding companies

expresses its view that a savings and loan holding company must maintain an adequate capital position and generally should not pay cash dividends unless the company’s net income for the past year is sufficient to fully fund the cash dividends and

that the prospective rate of earnings appears consistent with the company’s capital needs, asset quality, and overall financial condition.

The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing

serious financial problems to borrow funds to pay dividends.

In addition, a savings and loan holding company is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross

consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of its consolidated net worth.

The Federal Reserve may

disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal

The capital conservation buffer requirement may also limit or preclude dividends payable by the Company.

Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act was enacted in 2002 in response to public concerns regarding corporate accountability in connection with

accounting scandals.

The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving

the accuracy and reliability of corporate disclosures pursuant to the securities laws.

The Sarbanes-Oxley Act generally applies to all companies, both U.S.

and non-U.S., that file or are required to file periodic reports with the SEC under the

Securities Exchange Act of 1934, including the Company.

The Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules, and requires the SEC and securities exchanges to adopt extensive additional

disclosures, corporate governance and related rules.

The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state

corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The Dodd-Frank-Act imposed new restrictions and an expanded framework of regulatory

oversight for financial institutions, including capital regulations of depository institutions discussed above under “- Regulation and Supervision of the Bank - Capital Requirements.” In addition, among other requirements, the Dodd-Frank Act requires

public companies, such as the Company, to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a

“say on pay” vote every one, two or three years;

(ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other

transactions that would trigger the parachute payments;

(iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation paid and the financial performance of the issuer;

and (iv) amend Item 402 of

Regulation S-K to require companies to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees.

Lines of credit are made at variable rates of interest equal to

a negotiated margin above an index rate and term loans are at either a variable or fixed rate.

The Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements.

Beginning in the first quarter of fiscal year 2021, the Company began to offer PPP loans which are fully guaranteed by the SBA, to existing and new customers as a result of the COVID-19 pandemic.

These PPP loans are

subject to the provisions of the CARES Act as well as complex and evolving rules and guidance issued by the SBA and the U.S.

Department of the Treasury.

The entire principal amount of the borrower's PPP loan, including any accrued interest, is

eligible to be forgiven and repaid by the SBA if the borrower meets the PPP conditions.

The CAA 2021 renewed and extended the PPP until May 31, 2021 by authorizing an additional $284.5 billion for the program.

As of March 31, 2021, the Company held

SBA PPP loans with a total outstanding balance of $93.4 million.

The Company expects that the great majority of its PPP borrowers will seek full or partial forgiveness of their loan obligations.

For additional information regarding these loans, see

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business