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Item 7. Management’s Discussion and Analysis

2021-06-21 compared with 2020-06-17 · 479 added, 434 removed, 192 unchanged (83% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding the financial condition and results of operations of the Company.

information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto contained in Item 8 of this Form 10-K and the other sections contained in this Form 10-K.

contains certain financial information determined by methods other than in accordance with GAAP.

The information contained

in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto contained in Item 8 of this Form 10-K and the other sections contained in this Form 10-K.

This section contains certain financial

information determined by methods other than in accordance with GAAP.

These measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis.

Management uses these

non-GAAP measures in its analysis of the Company’s performance.

Management uses these non-GAAP measures in its

analysis of the Company’s performance.

The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets.

Management believes that it is a standard practice in

the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes.

These disclosures should not be viewed as

substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Management believes that it is a standard practice in the banking industry to

present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes.

These disclosures should not be viewed as substitutes for the

results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Recent Developments Related to COVID-19

In response to the current global situation surrounding the novel coronavirus of 2019 (“COVID-19”) pandemic, the Company is offering a variety of relief options designed to support our customers

and the communities we serve.

Paycheck Protection Program ("PPP") Participation – The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was

signed into law on March 27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under the PPP, a new loan program.

The goal of the PPP is to avoid as many layoffs as possible and to encourage small

businesses to maintain payrolls.

As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020.

In response to the current global situation surrounding the novel coronavirus of 2019 (“COVID-19”) pandemic, the Company is offering a variety of relief options designed to support our customers and the communities we

Paycheck Protection Program ("PPP") Participation – The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was signed into law on March

27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under the PPP, a new loan program.

As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the

program in April 2020.

Under terms of the PPP, all PPP loans have:

(a) an interest rate of 1.0%, (b)

a two-year loan term to maturity;

and (c) principal and interest payments deferred for six months from the date of loan funding.

(a) an interest rate of 1.0% and (b) a two-year or five-year loan term to maturity.

The SBA guarantees 100% of the PPP loans made to eligible borrowers.

The entire principal amount of the borrower’s PPP

loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA so long as employee and compensation levels of the borrower’s business are maintained and 75% of the loan proceeds are used for payroll expenses, with the

remaining 25% of the loan proceeds used for other qualifying expenses.

The Company has accepted more than 700 applications for PPP loans, consisting primarily of existing customers who are small to midsize businesses as well as independent

contractors, sole proprietors and partnerships and non-for-profits as allowed under the PPP guidance.

As of May 31, 2020, we have funded 781 PPP loans for a total of $116.2 million, with an average loan amount of $150,000.

Another $12,000 in PPP loans have been approved and are in the application

pipeline process as of May 31, 2020.

In addition to the 1% interest earned on these loans, the SBA pays us fees for processing PPP loans in the following amounts:

The entire principal amount of

the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA provided the borrower meets the SBA loan forgiveness requirements.

In addition to the 1% interest earned on these loans, the SBA pays us fees

for processing PPP loans in the following amounts:

(i) five percent for loans of not more than $350,000;

(ii) three percent for loans of

more than $350,000 and less than $2,000,000;

(ii) three percent for loans of more than $350,000 and less than $2,000,000;

and one percent for loans of at least $2,000,000.

We may not collect any fees from the loan applicants.

We may utilize the FRB's Paycheck Protection Program Liquidity Facility (“PPPLF”), pursuant to which the Company will pledge its PPP loans at face value as collateral to obtain FRB non-recourse

The Company will also assist our customers with accessing other borrowing options as they become available such as other government sponsored lending programs, as appropriate.

Allowance for Loan Losses and Loan Modifications – The Company recorded a provision for loan losses of $1.3 million for the fiscal year

2020, compared to $50,000 in fiscal 2019 due primarily to deterioration in economic conditions related to COVID-19.

As of May 31, 2020, the Bank’s loan portfolio exposures to industries most affected by the COVID-19 pandemic were as follows (dollars in thousands):

Weighted Average Loan-To-Value

Weighted Average Debt-Service-

Coverage Ratio

Retail strip centers

Gas station/auto repair

Restaurant/fast food

We have received, and continue to receive, inquiries and requests from borrowers for some type of payment relief due to the COVID-19 pandemic although the number of new requests have recently

These modifications were not classified as TDRs in accordance with the guidance of the CARES Act and subsequent bank regulatory guidance.

The Company has made available the following short-term relief option to all borrowers affected by

Interest only payments for up to 90 days;

Full payment deferrals for up to 90 days upon request with an extension for another 90 days upon submission of specified documentation and recovery plans;

Loan re-amortization, especially in cases where significant prepayments of principal have occurred and to provide for continuing payment reduction at the end of the 180-day deferment

We may not collect

any fees from the loan applicants.

Through the conclusion of this initial PPP on August 8, 2020, we had funded PPP loans totaling $113.5 million.

The PPP loans that were originated consisted primarily of existing customers who are small to midsize

businesses as well as independent contractors, sole proprietors, partnerships and not-for-profits as allowed under the PPP guidance.

Paycheck Protection Program Part 2 ("PPP2") Participation – The Consolidated Appropriations Act, 2021 (“CAA 2021”) signed into law on December 27, 2020,

reopened the PPP through May 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and non-profits.

In January 2021, the Bank began accepting and processing loan applications under PPP2.

The Bank is also continuing to work

with its customers to assist them with accessing other borrowing options, including SBA and other government sponsored lending programs, as appropriate.

The significant terms of PPP2 are as follows.

The maximum for a first-draw PPP loan is $10 million, the same as the initial PPP;

Revised lender fee structure;

Loans up to $50,000 – lesser of $2,500 or 50% of principal amount;

Loans from $50,000 to $349,999 – 5% of principal amount;

Loans $350,000 or higher – 3% of principal amount;

A second draw is available to original PPP borrowers up to $2.0 million that have:

300 or fewer employees;

sustained a 25% drop in revenue for any 2020 quarter compared to the same quarter in 2019, and

used, or expect to use, 100% of the initial PPP loan.

All PPP2 loans have:

(a) an interest rate of 1.0% and (b) five-year loan term to maturity.

The SBA guarantees 100% of the PPP2 loans made to eligible borrowers.

The entire principal amount of the borrower’s PPP2 loan,

including any accrued interest, is eligible to be forgiven and repaid by the SBA, provided the borrower meets the SBA loan forgiveness guidelines.

As of March 31, 2021, the total outstanding loan balance and unamortized fees related to SBA PPP loans totaled $96.1 million and $2.7 million, respectively.

As of March 31, 2021, we had received SBA PPP loan

forgiveness approvals for 517 SBA PPP loans totaling $69.9 million.

The SBA has recently released a simplified forgiveness process for PPP loans of $150,000 or less.

As of March 31, 2021, the Bank held 540 PPP loans of $150,000 or less with a

combined balance of $25.5 million.

Loan Modifications –

As of March 31, 2021, the Bank’s loan portfolio exposures to the industry most affected by the COVID-19 pandemic was as follows (dollars in thousands):

Average Loan-

Average Debt-

Service-Coverage

The Company is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19.

The Company has made available the following short-term relief option to all borrowers affected by COVID-19:

Interest only payments or full payment deferrals based upon the respective borrowers’ circumstances subject to credit administration review and approval which may include submission of specified documentation

and recovery plans;

Loan re-amortization, especially in cases where significant prepayments of principal have occurred and to provide for continuing payment reduction at the end of the deferment period;

Covenant waivers and resets;

Extension of up to six months on loans maturing prior to December 31, 2020.

All loans modified due to COVID-19 will be separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further

modification should be granted and if a downgrade in risk rating is appropriate.

As of March 31, 2020, the Company had approved payment deferrals for ten commercial loans that were impacted by the COVID-19 pandemic totaling $36.2 million which consisted of deferral of

regularly scheduled principal and interest payments.

As of March 31, 2020, the Bank had not received any requests for payment deferrals for consumer loans.

As of May 31, 2020, the Bank had approved payment deferrals for 91 commercial loans that were

impacted by the COVID-19 pandemic totaling $145.8 million.

In general, the payment deferral period for these loans was 90 days.

Depending on economic conditions, extensions to the initial payment deferral periods may be necessary.

received an additional 13 commercial loan modification requests totaling $25.3 million that are in the process of being completed.

In addition, as of May 31, 2020, 42 consumer and mortgage loans totaling $10.1 million were approved for payment

Furthermore, 20 mortgage loans serviced for FHLMC totaling $3.4 million were approved for payment deferrals.

The primary method of relief granted by the Company has been to allow the borrower to defer their loan payments for up to 90 days.

After the deferral period, normal loan payments will continue,

however, payments will be applied first to interest until the deferred interest is repaid and thereafter applied to both principal and interest with any deficiency in amortized principal payments added to the balloon payment due at maturity.

believe the steps we are taking are necessary to effectively manage our portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.

Branch Operations and Additional Customer Support – We have taken various steps to ensure the safety of our customers and our

Many of our employees are working remotely or have flexible work schedules, and we have established measures within our offices to help ensure the safety of those employees who must work on-site.

The Family First Coronavirus Response Act

also provides additional flexibility to our employees to help navigate their individual challenges.

The COVID-19 pandemic has caused significant disruptions to our branch operations resulting in the implementation of various social distancing measures at the Company to address client and

community needs, including branch lobby closures.

To ensure the safety of our customers and employees, services are offered through drive up facilities, ATMs, online banking, our call center operations and/or by appointment.

Extension of up to six months on maturing loans.

All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be

granted and if a downgrade in risk rating is appropriate.

As of March 31, 2021, the Company had approved payment deferrals for five commercial loans that were impacted by the COVID-19 pandemic totaling $18.1 million which consisted of deferral of regularly scheduled principal

and interest payments which is a decrease compared to eight commercial loans totaling $26.6 million, thirteen commercial loans totaling $49.7 million, and ninety-eight commercial loans totaling $161.6 million at December 31, 2020, September 30, 2020,

and June 30, 2020, respectively.

As of March 31, 2021, there were no consumer and mortgage loans approved for payment deferrals compared to December 31, 2020 and September 30, 2020 when there were two consumer and mortgage loans totaling $462,000 and

four consumer and mortgage loans totaling $471,000, respectively.

Consumer and mortgage loan modifications have significantly decreased compared to June 30, 2020 when the Company had forty-three consumer and mortgage loans totaling $10.1 million.

Further, three mortgage loans serviced for FHLMC totaling $916,000 were approved for payment deferrals as of March 31, 2021.

These modifications were not classified as TDRs in accordance with the guidance of the CARES Act, CAA 2021 and bank

regulatory guidance.

The primary method of relief granted by the Company has been to allow the borrower to defer their loan payments for up to 90 days with a possibility depending on economic conditions to defer their loan payments for an

additional 90 days subject to an evaluation by the Company prior to granting the additional 90 day deferral.

After the deferral period, normal loan payments will continue, however, payments will be applied first to interest until the deferred

interest is repaid and thereafter applied to both principal and interest with any deficiency in amortized principal payments added to the balloon payment due at maturity.

We believe the steps we are taking are necessary to effectively manage our

portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.

Branch Operations and Additional Customer Support – We have taken various steps to ensure the safety of our customers and our personnel.

employees are working remotely or have flexible work schedules, and we have established measures within our offices to help ensure the safety of those employees who must work on-site.

The Family First Coronavirus Response Act (“FFCRA”) also provides

additional flexibility to our employees to help navigate their individual challenges.

The COVID-19 pandemic has caused significant disruptions to our branch operations resulting in the implementation of various social distancing measures at the Company to address client and community needs.

the safety of our customers and employees, we encourage our customers to utilize services that are offered through drive up facilities, ATMs, online banking, and our call center operations.

Critical Accounting Policies

The Company has established various accounting policies that govern the application of GAAP in the preparation of the Company’s Consolidated Financial Statements.

The Company has identified

policies that due to judgments, estimates and assumptions inherent in those policies are critical to an understanding of the Company’s Consolidated Financial Statements.

These policies relate to the methodology for the determination of the allowance

for loan losses, the valuation of investment securities, goodwill valuation and the calculation of income taxes.

These policies and the judgments, estimates and assumptions are described in greater detail in the Notes to the Consolidated Financial

Statements contained in Item 8 of this Form 10-K.

The Company has identified policies that due to

judgments, estimates and assumptions inherent in those policies are critical to an understanding of the Company’s Consolidated Financial Statements.

These policies relate to the methodology for the determination of the allowance for loan losses, the

valuation of investment securities, goodwill valuation and the calculation of income taxes.

These policies and the judgments, estimates and assumptions are described in greater detail in the Notes to Consolidated Financial Statements contained in

Item 8 of this Form 10-K.

In particular, Note 1 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” describes generally the Company’s accounting policies.

Management believes that

the judgments, estimates and assumptions used in the preparation of the Company’s Consolidated Financial Statements are appropriate given the factual circumstances at the time.

However, given the sensitivity of the Company’s Consolidated Financial

Statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition.

Management believes that the judgments, estimates

and assumptions used in the preparation of the Company’s Consolidated Financial Statements are appropriate given the factual circumstances at the time.

However, given the sensitivity of the Company’s Consolidated Financial Statements to these

critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition.

Operating Strategy

Fiscal year 2021 marked the 98 th anniversary since the Bank began operations in 1923.

The primary business strategy of the Company is to provide comprehensive banking and related

financial services within its primary market area.

The primary business strategy of the Company is to provide comprehensive banking and related financial services within

its primary market area.

The historical emphasis had previously been on residential real estate lending.

Since 1998, however, the Company has been diversifying its loan portfolio through the expansion of its commercial and

construction loan portfolios.

Since 1998, however, the Company has been diversifying its loan portfolio through the expansion of its commercial and construction loan

At March 31, 2021, commercial and construction loans represented 93.8% of total loans.

Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter

terms than residential lending which can increase the loan portfolio’s profitability.

The Company’s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit

balances, managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities.

Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter terms than

residential lending which can increase the loan portfolio’s profitability.

The Company’s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit balances,

managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities.

The Company seeks to achieve these results by focusing on the following objectives:

Execution of our Business Plan .

The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction

loans, and its core deposits by expanding its customer base throughout its primary market areas.

By emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer

profitability through cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers.

To build its core deposit base, the Company will continue to utilize additional product offerings,

technology and a focus on customer service in working toward this goal.

The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of individual branches, loan purchases and whole bank

transactions that meet its investment and market objectives.

In this regard, the Company previously announced plans for three new branches located in Clark County, Washington, to complement its existing branch

A new branch in downtown Camas is scheduled to open this summer while our new location in the Cascade Park neighborhood of Vancouver is scheduled to open later this fall.

A construction delay due to COVID-19 has pushed the opening of the

new branch location in Ridgefield to early 2021.

The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction loans, and its core

deposits by expanding its customer base throughout its primary market areas.

By emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer profitability through

cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers.

To build its core deposit base, the Company will continue to utilize additional product offerings, technology and a focus on

customer service in working toward this goal.

The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of individual branches, loan purchases and whole bank transactions that meet its

investment and market objectives.

In this regard, the Company previously announced plans for three new branches located in Clark County, Washington, to complement its existing branch network.

A new branch in both

downtown Camas and in the Cascade Park neighborhood of Vancouver opened in fiscal 2021.

A construction delay due to COVID-19 has pushed the opening of the new branch location in Ridgefield to the fall of 2021.

Maintaining Strong Asset Quality .

The Company believes that strong asset quality is a key to long-term financial success.

The Company has actively

managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts, marketing saleable properties upon foreclosure or repossession, and through work-outs of classified assets and loan charge-offs.

Company’s approach to credit management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2020.

Although the Company intends to prudently increase

the percentage of its assets consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate

fluctuations, the Company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.

The Company has actively managed delinquent loans

and nonperforming assets by aggressively pursuing the collection of consumer debts, marketing saleable properties upon foreclosure or repossession, and through work-outs of classified assets and loan charge-offs.

The Company’s approach to credit

management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2021.

Although the Company intends to prudently increase the percentage of its assets

consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, the Company intends to

manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.

Implementation of a Profit Improvement Plan (“PIP”) .

The Company’s PIP committee is comprised of several members of management and the Board of

Directors to undertake several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the Company’s operations.

The PIP committee’s mission is not only to find

additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement.

As a result, the Company has improved its efficiency ratio over the last several years from 98.0% at March 31, 2014

to 62.42% at March 31, 2020.

The Company’s PIP committee is comprised of several members of management and the Board of Directors to undertake

several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the Company’s operations.

The PIP committee’s mission is not only to find additional cost saving

opportunities but also to search for and implement revenue enhancements and additional areas for improvement.

As a result, the Company has improved its efficiency ratio over the last several years from 98.0% at March 31, 2014 to 64.7% at March 31,

Introduction of New Products and Services .

The Company continuously reviews new products and services to provide its customers more financial

The Company continuously reviews new products and services to provide its customers more financial options.

All new technology and services are generally reviewed for business development and cost saving purposes.

The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of

traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking.

The products are tailored to meet the needs of small to medium size businesses and households

in the markets we serve.

The Company launched a new online mortgage origination platform in June 2019.

The Company intends to selectively add other products to further diversify revenue sources and to capture more of each customer’s banking

relationship by cross selling loan and deposit products and additional services, including services provided through the Trust Company to increase its fee income.

Assets under management by the Trust Company totaled $1.2 billion and $646.0 million at

March 31, 2020 and March 31, 2019, respectively.

The Company also offers a third-party identity theft product to its customers.

The identity theft product assists our customers in monitoring their credit and includes an identity theft restoration

The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional

cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking.

The products are tailored to meet the needs of small to medium size businesses and households in the

markets we serve.

The Company launched a new online mortgage origination platform in June 2019 and MobiMoney™ in January 2021 which allows account holder’s the ability to control their respective Riverview debit card from a smartphone or tablet.

Company intends to selectively add other products to further diversify revenue sources and to capture more of each customer’s banking relationship by cross selling loan and deposit products and additional services, including services provided through

the Trust Company to increase its fee income.

Assets under management by the Trust Company totaled $1.3 billion and $1.2 billion at March 31, 2021 and March 31, 2020, respectively.

The Company also offers a third-party identity theft product to its

The identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service.

Attracting Core Deposits and Other Deposit Products .

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products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes.

Core branch deposits increased $58.7 million at March 31, 2020 compared to March 31, 2019 reflecting the Company’s commitment to

increasing core deposits versus relying on wholesale funding.

However, the Company continues to experience increased competition and pricing pressure for deposits.

Core branch deposits increased $344.7 million at March 31, 2021 compared to March 31, 2020

reflecting the Company’s commitment to increasing core deposits versus relying on wholesale funding.

Recruiting and Retaining Highly Competent Personnel with a Focus on Commercial Lending .

The Company’s ability

to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success.

The Company believes that it enhances its market position and adds profitable growth

opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships.

The Company emphasizes to its employees the

importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers.

The goal is to compete with other financial service providers by relying on the strength of the Company’s customer

service and relationship banking approach.

The Company’s ability to continue to

attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success.

The Company believes that it enhances its market position and adds profitable growth opportunities by

focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships.

The Company emphasizes to its employees the importance of

delivering exemplary customer service and seeking opportunities to build further relationships with its customers.

The goal is to compete with other financial service providers by relying on the strength of the Company’s customer service and

relationship banking approach.

The Company believes that one of its strengths is that its employees are also shareholders through the Company’s employee stock ownership (“ESOP”) and 401(k) plans.

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Cash and cash equivalents, including interest-earning accounts, totaled $265.4 million at March 31, 2021 compared to $42.0 million at March 31, 2020.

The increase in cash balances was primarily the

result of the increase in deposits.

The Company’s cash balances fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on

cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings.

As a part of this strategy, the Company has the ability to invest a portion of its excess cash

in short-term certificates of deposit held for investment.

Deposit growth outpaced the growth in loans receivable providing

significant excess funds invested in these interest-earning accounts.

The Company’s cash balances typically fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn

higher yields than the nominal yield earned on cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings.

As a part of this strategy, the Company also

invests a portion of its excess cash in short-term certificates of deposit held for investment.

All of the certificates of deposit held for investment are fully insured by the FDIC.

At March 31, 2020, certificates of deposits held for investment totaled $249,000 compared to $747,000 at

March 31, 2019.

Certificates of deposits held for investment totaled $249,000 at

both March 31, 2021 and 2020.

Investment securities totaled $255.9 million and $148.3 million at March 31, 2021 and 2020, respectively.

The decrease was due to the utilization of the cash proceeds from regular scheduled

investment securities repayments, pay downs, calls and maturities which were used to fund loan growth.

During the fiscal year ended March 31, 2020, purchases of investment securities totaled $18.1 million which was partially offset by investment

sales totaling $17.8 million.

The Company primarily purchases a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA).

At March 31, 2020, the Company determined that none of its investment securities required an OTTI

For additional information on the Company’s investment securities, see Note 3 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

The increase was due to investment purchases offset by normal pay downs,

calls and maturities.

During the fiscal years ended March 31, 2021 and 2020, purchases of investment securities totaled $160.2 million and $18.1 million, respectively.

The Company primarily purchases a combination of securities backed by government

agencies (FHLMC, FNMA, SBA or GNMA).

At March 31, 2021, the Company determined that none of its investment securities required an OTTI charge.

For additional information on the Company’s investment securities, see Note 3 of the Notes to Consolidated

Financial Statements contained in Item 8 of this Form 10-K.

Loans receivable, net, totaled $924.1 million at March 31, 2021, compared to $898.9 million at March 31, 2020, an increase of $25.2 million.

The Company has had steady loan demand in its market

areas and anticipates continued organic loan growth, in particular through government sponsored lending programs initiated in response to the COVID-19 pandemic.

The increase was mainly concentrated in commercial real estate loans which increased

$46.4 million or 10.1%.

In addition, commercial business loans increased $16.2 million, or 10.0%, and multi-family loans increased $6.8 million, or 13.2%.

Partially offsetting these increases were decreases in real estate construction loans of $26.0

million, or 28.7%, consumer loans of $5.0 million, or 5.5%, and land loans of $3.0 million, or 17.6%.

The increase was mainly due to the origination of SBA PPP loans partially

offset by normal paydowns of principal and loan payoffs.

At March 31, 2021, SBA PPP loans totaled $93.4 million which are included in the commercial business loan category.

In addition, commercial real estate loans increased $35.6 million or 7.0%.

These increases were offset by a decrease in in real estate construction loans of $47.9 million, or 73.8%.

Due to the timing of the completion of these real estate construction projects, balances may fluctuate in these categories.

Once these projects are

completed, these loans will roll to permanent financing and be classified within a category under other real estate mortgage.

The Company also purchases the guaranteed portion of SBA loans as a way to supplement loan originations, further diversify

its loan portfolio and earn a higher yield than earned on its cash or short-term investments.

These SBA loans are originated through another financial institution located outside the Company’s primary market area.

These loans are purchased with

servicing retained by the seller.

At March 31, 2020, the Company’s purchased SBA loan portfolio was $74.8 million compared to $67.9 million at March 31, 2019.

During the year ended March 31, 2020, the Bank purchased $17.3 million of SBA loans,

including premiums.

Goodwill was $27.1 million at March 31, 2020 and 2019.

Once these projects

are completed, these loans will roll to permanent financing and be classified within a category under other real estate mortgage.

In addition, consumer and multifamily loans decreased $28.8 million, or 32.9% and $13.4 million, or 22.9%, respectively.

The Company had also made purchases of the guaranteed portion of SBA loans as a way to supplement loan originations, further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments.

These SBA loans are

originated through another financial institution located outside the Company’s primary market area.

These loans are purchased with servicing retained by the seller.

At March 31, 2021, the Company’s purchased SBA loan portfolio was $47.4 million

compared to $74.8 million at March 31, 2020.

During the year ended March 31, 2021, the Bank purchased $2.5 million of SBA loans, including premiums.

Goodwill was $27.1 million at both March 31, 2021 and 2020.

For additional information on our goodwill impairment testing, see "Goodwill Valuation" included in this Item 7.

Deposits increased $65.4 million to $990.4 million at March 31, 2020 compared to $925.1 million at March 31, 2019.

The increase was due a concentrated effort by the Company to increase deposits.

The Company increased interest rates on certain deposit products to be more competitive in its market area.

Prepaid expenses and other assets increased $5.7 million to $13.2 million at March 31, 2021 compared to $7.5 million at March 31, 2020.

The increase is mainly due to the recording of three operating lease right-of-use

assets totaling $6.1 million with a corresponding increase in operating lease liabilities which are recorded in accrued expenses and other liabilities.

For additional information on the Company’s leases, see Note 18 of the Notes to Consolidated

Financial Statements contained in Item 1 of this Form 10-K.

Deposits increased $355.6 million to $1.3 billion at March 31, 2021 compared to $990.4 million at March 31, 2020.

The increase was mainly due to proceeds from SBA PPP loans deposited directly into customer accounts,

government stimulus checks and an increase in savings trends and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.

The Company had no wholesale-brokered deposits at March 31, 2021 and 2020.

Core branch deposits accounted for 97.6% of total deposits at March

31, 2020 compared to 98.2% at March 31, 2019.

The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets.

The Bank had no FHLB advances at March 31, 2020 compared to $56.6 million at March 31, 2019.

Based upon the increase in deposit balances, the Company was able to pay off its outstanding FHLB

balances during the second fiscal quarter of 2020.

In the prior fiscal year, the outstanding advances were deployed to supplement the funding of loan originations and offset the decrease in deposit balances.

branch deposits accounted for 97.4% of total deposits at March 31, 2021 compared to 97.6% at March 31, 2020.

The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the

wholesale markets.

Shareholders' equity increased $2.8 million to $151.6 million at March 31, 2021 from $148.8 million at March 31, 2020.

The increase was mainly attributable to net income of $15.7 million and an

increase in accumulated other comprehensive income related to unrealized holding loss on securities available for sale, net of tax, of $4.7 million for the fiscal year ended March 31, 2020.

The increase was partially offset by cash dividends declared

of $4.3 million for the fiscal year ended March 31, 2020.

The increase was primarily attributable to net income of $10.5 million for the fiscal year ended

March 31, 2021.

This increase was offset by a decrease in the accumulated other comprehensive income related to the unrealized holding gains and losses on available for sale investment securities, net of tax, of $2.3 million.

Further, the increase

was offset by the payments of cash dividends totaling $4.5 million and the repurchase of 295,900 shares of common stock totaling $1.4 million for the fiscal year ended March 31, 2021.

Goodwill Valuation

Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

Goodwill is presumed

to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level.

Goodwill is presumed to have an indefinite

useful life and is tested, at least annually, for impairment at the reporting unit level.

The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment.

Company’s goodwill has been allocated to the Bank reporting unit.

The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill

If the fair value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary.

If the carrying value of the reporting unit is greater than its fair value, there is

an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any.

The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the

carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination.

Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including

unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill.

If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the

All of the Company’s goodwill has been

allocated to the Bank reporting unit.

The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill is impaired.

value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary.

If the carrying value of the reporting unit is greater than its fair value, there is an indication that

impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any.

The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the

goodwill in the same manner as if the reporting unit was being acquired in a business combination.

Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible

assets, in a hypothetical analysis that would calculate the implied fair value of goodwill.

If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

Such indicators may include, among others:

a significant decline in our expected future cash

a sustained, significant decline in our stock price and market capitalization;

a significant decline in our expected future cash flows;

significant decline in our stock price and market capitalization;

a significant adverse change in legal factors or in the business climate;

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and unanticipated competition.

change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements.

Any adverse change in these

factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements.

The Company performed its annual goodwill impairment test as of October 31, 2020.

The goodwill impairment test involves a two-step process.

Step one of the goodwill impairment test estimates the

fair value of the reporting unit utilizing the allocation of corporate value approach, the income approach and the market approach in order to derive an enterprise value of the Company.

The allocation of corporate value approach applies the aggregate

market value of the Company and divides it among the reporting units.

Step one of the goodwill impairment test estimates the fair value of the

reporting unit utilizing the allocation of corporate value approach, the income approach, the whole bank transaction approach and the market approach in order to derive an enterprise value of the Company.

The allocation of corporate value approach

applies the aggregate market value of the Company and divides it among the reporting units.

A key assumption in this approach is the control premium applied to the aggregate market value.

A control premium is utilized as the value of a company from the perspective of a

controlling interest is generally higher than the widely quoted market price per share.

A control premium is utilized as the value of a company from

the perspective of a controlling interest is generally higher than the widely quoted market price per share.

The Company used an expected control premium of 35%, which was based on comparable transactional history.

The income approach uses a reporting unit’s projection

of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions.

The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates

in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures.

Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue growth rate that approximated

5.3%, a net interest margin that approximated 4.0% and a return on assets that ranged from 1.24% to 1.34% (average of 1.29%).

In addition to utilizing the above projections of estimated operating results, key assumptions used to determine the fair

value estimate under the income approach were the discount rate of 15.54% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit.

The Company used a build-up approach in

developing the discount rate that included:

The income approach uses a

reporting unit’s projection of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions.

The projection uses management’s best estimates of economic and market conditions over the projected

period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures.

Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue

growth rate that approximated 8.1%, a net interest margin that approximated 3.3% and a return on assets that ranged from 0.91% to 1.39% (average of 1.11%).

In addition to utilizing the above projections of estimated operating results, key assumptions

used to determine the fair value estimate under the income approach were the discount rate of 14.86% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit.

The Company used a

build-up approach in developing the discount rate that included:

an assessment of the risk-free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company.

The market approach estimates fair

value by applying tangible book value multiples to the reporting unit’s operating performance.

The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit.

applying the market approach method, the Company selected four publicly traded comparable institutions.

After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the

relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.1 times tangible book value.

The Company calculated a fair value of its reporting unit of $217.0 million using the corporate value

approach, $170.0 million using the income approach and $253.0 million using the market approach, with a final concluded value of $216.0 million, with equal weight given to the corporate value approach and market approach and slightly less weight

given to the income approach.

The whole bank

transaction approach estimates fair value by applying key financial variables in transactions involving acquisitions of similar institutions.

In applying the whole bank transaction approach method, the Company identified transactions that occurred

during the first 10 months of calendar 2020 utilizing a multiple of 1.1 times price to book value.

The market approach estimates fair value by applying tangible book value multiples to the reporting unit’s operating performance.

The multiples are

derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit.

In applying the market approach method, the Company selected four publicly traded comparable institutions.

After selecting

comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 0.8 times

tangible book value.

The Company calculated a fair value of its reporting unit of $143.0 million using the corporate value approach, $179.0 million using the income approach, $184 million using the whole bank transaction approach and $180.0 million

using the market approach, with a final concluded value of $181.0 million, with half the weight given to the income approach and one quarter weight given to the whole bank approach and the market approach.

No weight was given to the corporate value

The results of the Company’s step one test indicated that the reporting unit’s fair value was greater than its carrying value and therefore no impairment of goodwill exists.

Even though the Company determined that there was no goodwill impairment, a sustained decline in the value of its stock price as well as values of other financial institutions, declines in revenue

for the Company beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future

impairment charge.

It is possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and

estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill.

If the Company recorded an impairment charge, its financial position and results of operations would be adversely

however, such an impairment charge would have no impact on our liquidity, operations or regulatory capital.

As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company completed a qualitative assessment of goodwill and concluded that it is more

likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at March 31, 2020.

If adverse economic conditions or the recent decrease in the Company’s common stock price and market capitalization as a result of the

COVID-19 pandemic were sustained in the future rather than temporary, it may significantly affect the fair value of the reporting unit and may trigger future goodwill impairment charges.

Any impairment charge could have a material adverse effect on

our results of operations and financial condition.

However, such an impairment would not impact the Company’s liquidity, operations or regulatory capital.

Even though the Company determined that there was no goodwill impairment, a sustained decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company

beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment

As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company also completed a qualitative assessment of goodwill as of March 31, 2021 and concluded that it is

more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at March 31, 2021.

If adverse economic conditions or decreases in the Company’s common stock price and market capitalization as a result of the

COVID-19 pandemic were deemed sustained in the future rather than temporary, it may significantly affect the fair value of the reporting unit and may trigger future goodwill impairment charges.

It is also possible that changes in circumstances

existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of

a portion or all of our goodwill.

If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected;

however, such an impairment charge would have no impact on our liquidity, operations or

regulatory capital.

Estimated Fair Value of Level 3 Assets

The Company determines the estimated fair value of certain assets that are classified as Level 3 under the fair value hierarchy established under GAAP.

These Level 3 assets are

valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets.

These Level 3 assets are certain loans measured for impairment for which there is

neither an active market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model.

these circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of

fair value requires significant management judgment or estimation.

These Level 3 assets are valued using

significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets.

These Level 3 assets are certain loans measured for impairment for which there is neither an active

market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model.

circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair

value requires significant management judgment or estimation.

Valuations using models or other techniques are dependent upon assumptions used for the significant inputs.

Where market data is available, the inputs used for valuation reflect that information

as of the valuation date.

Where market data is available, the inputs used for valuation reflect that information as of the valuation

In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process.

Judgment is then applied in formulating

those inputs.

Judgment is then applied in formulating those inputs.

Certain loans included in the loan portfolio were deemed impaired at March 31, 2021.

Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is

no active market for these loans.

Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is no active market for

Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates.

Impairment was measured based on a number of factors, including recent independent appraisals

which are further reduced for estimated selling costs or by estimating the present value of expected future cash flows, discounted at the loan’s effective interest rate.

For additional information on our Level 1, 2 and 3 fair value measurements see Note 15 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

Impairment was measured based on a number of factors, including recent independent appraisals which are further

reduced for estimated selling costs or by estimating the present value of expected future cash flows, discounted at the loan’s effective interest rate.

For additional information on our Level 1, 2 and 3 fair value measurements see Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

Comparison of Operating Results for the Years Ended March 31, 2021 and 2020

Net income was $15.7 million, or $0.69 per diluted share, for the fiscal year ended March 31, 2020, compared to $17.3 million, or $0.76 per

diluted share, for the fiscal year ended March 31, 2019.

The Company’s earnings for the year ended March 31, 2020 compared to last year decreased primarily due to the provision for loan losses of $1.3 million.

Increases occurred in both interest and non-interest income and were offset by increases in interest and non-interest expense compared to the respective prior year period.

Additionally, a one-time $355,000 gain on sale of land and building related to

our Longview branch closure that occurred in the fiscal year ended March 31, 2019 and was recorded in non-interest expense, was not present in the current fiscal year ended March 31, 2020.

Net income was $10.5 million, or $0.47 per diluted share, for the fiscal year ended March 31, 2021, compared to $15.7 million, or $0.69 per diluted share, for the

fiscal year ended March 31, 2020.

The Company’s net income decreased primarily as a result of the increased provision for loan losses to $6.3 million for the fiscal year ended March 31, 2021 compared to $1.3

million provision for loan losses for the fiscal year ended March 31, 2020.

Net Interest Income.

The Company’s profitability depends primarily on its net interest income, which is the difference between the income it receives on

interest-earning assets and the interest paid on deposits and borrowings.

When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest

The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies.

Net interest income for fiscal year 2020 decreased $1.3 million, or 2.81%, to $45.7 million compared to $47.1 million in fiscal year 2019.

The net interest margin for the fiscal year ended March

31, 2020 was 4.26% compared to 4.45% for the prior fiscal year.

This decrease in the net interest margin was primarily the result of the increase in the cost of interest- bearing deposits and to a lesser extent the decrease in the average yield on

The Company’s profitability depends primarily on its net interest income, which is the difference between the income it receives on interest-earning assets

and the interest paid on deposits and borrowings.

When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest income.

The Company’s

results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies.

Net interest income for fiscal year 2021 decreased $814,000, or 1.8%, to $44.9 million compared to $45.7 million in fiscal year 2020.

The net interest margin for the fiscal year ended March 31, 2021 was 3.41% compared

to 4.26% for the prior fiscal year.

The decrease in the net interest margin was primarily the result of the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields on the

SBA PPP loan portfolio and lower loan yields on new loan originations causing a decrease in the average yield on interest-earning assets partially offset by the decrease in the average yield on interest-bearing liabilities.

The decrease was also due

to yields earned on interest-earning assets declining at a faster rate than interest rates paid on interest-bearing liabilities as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rate changes.

Interest and Dividend Income.

Interest and dividend income increased slightly to $50.5 million for the fiscal year ended March 31, 2020 from $49.9 million

for the fiscal year ended March 31, 2019 due primarily to increases in interest from loans receivable of $898.9 million.

This increase was due to higher average balances for loans receivable as compared to the prior fiscal year.

The average balance

of net loans increased $40.4 million to $884.5 million for the fiscal year ended March 31, 2020 from $844.1 million for the prior fiscal year.

The average yield on net loans was 5.25% for the fiscal year ended March 31, 2020 compared to 5.32% for the

prior fiscal year, reflecting the decreasing rate environment over the last fiscal year.

Interest and dividend income decreased $2.2 million to $48.3 million for the fiscal year ended March 31, 2021 from $50.5 million for the fiscal year

ended March 31, 2020.

The decrease for the fiscal year ended March 31, 2021 was due primarily to the 103 basis point decrease in the average yield on interest-earning assets to 3.67% compared to 4.70% for the fiscal year ended March 31, 2020.

substantial increase in the average balance of overnight cash balances as a result of the increase in deposit balances related to SBA PPP loans, is negatively impacting the average yield on interest earning assets.

Interest and dividend income

included $4.5 million of interest income and fees earned related to SBA PPP loans for the fiscal year ended March 31, 2021.

There was no interest income and fees related to SBA PPP loans for the fiscal year ended March 31, 2020

The average balance of net loans increased $81.6 million to $966.1 million for fiscal year ended March 31, 2021 compared to $884.5 million for the same period in the prior year due primarily to SBA PPP loans.

the average balance of loans increased, the average yield on net loans decreased and was 4.71% for fiscal year ended March 31, 2021 compared to 5.25% for the same period in the prior year, due primarily to the low interest rate environment resulting

from the emergency 150 basis point reduction in the targeted federal funds rate in March 2020 due to the COVID-19 pandemic and secondarily

due to the impact of SBA PPP loans.

For the fiscal year ended March 31, 2021, the average balance of SBA PPP loans was $96.4 million and the average yield on SBA PPP loans was 4.62% for the fiscal year ended March 31,

2021, which included the recognition of the net deferred fees.

This resulted in a positive impact, primarily due to the accelerated SBA PPP loan fee recognition due to SBA PPP loan forgiveness, to the average loan yield on net loans of one basis

point for the fiscal year ended March 31, 2021.

The impact of SBA PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met.

This decrease in the average yield

on net loans was the primary reason for the overall decrease in interest and dividend income.

Interest Expense.

Interest expense for the fiscal year ended March 31, 2020 totaled $4.8 million, a $1.9 million or 69.2% increase from $2.8 million for the

fiscal year ended March 31, 2019.

The increase in interest expense was primarily the result of a 27 basis points increase in the weighted average interest rate on interest-bearing liabilities for the year ended March 31, 2020 compared to the prior

The weighted average interest rate on interest-bearing deposits increased to 0.43% for the fiscal year ended March 31, 2020 from 0.15% for the prior fiscal year.

Interest expense for the fiscal year ended March 31, 2021 totaled $3.4 million, a $1.3 million or 28.1% decrease from $4.8 million for the fiscal year ended

March 31, 2020.

The decrease in interest expense was primarily the result of a 26 basis points decrease in the weighted average interest rate on interest-bearing liabilities for the year ended March 31, 2021 compared to the prior fiscal year.

weighted average interest rate on interest-bearing deposits decreased to 0.31% for the fiscal year ended March 31, 2021 from 0.43% for the prior fiscal year due primarily to the decrease in the weighted average interest rate on deposits excluding

certificates of deposit.

The weighted average interest rate on certificates of deposit increased due to pricing pressures and competition in our local markets.

The average balance of interest-bearing deposits increased $141.2 million to $817.7

million for the fiscal year ended March 31, 2021 compared to $676.5 million for the fiscal year ended March 31, 2020.

Although the average balance of interest-bearing deposits increased, interest expense on deposits decreased $346,000 due to the

decrease in the average cost of interest-bearing deposits primarily as a result of the Company decreasing the interest rates paid on deposit products due to the overall decreasing rate environment.

The increase in the average balance of

interest-bearing deposits is due primarily to proceeds from SBA PPP loans deposited directly into customer accounts, government stimulus checks and an increase in savings trends and reduced withdrawals from deposit accounts due to a change in

spending habits as a result of COVID-19.

Interest expense on borrowings decreased $991,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year.

The weighted average interest rate on other interest-bearing liabilities

decreased to 2.00% for the fiscal year ended March 31, 2021 compared to 3.78% for the prior fiscal year.

Interest expense on deposits increased $1.9 million due to the increase in the average cost of interest-bearing deposits primarily as a result of

the Company increasing the interest rates paid on certain deposit products due to increased competition and pricing pressures in the Company’s market area.

The average balance of interest-bearing deposits increased $2.3 million to $676.5 million for

the fiscal year ended March 31, 2020 compared to $674.2 million for the fiscal year ended March 31, 2019.

The average balance of other interest-bearing liabilities decreased to $44.1 million for fiscal year ended March 31, 2021 compared to $49.6

million for the same period in the prior year.

Provision for Loan Losses.

The provision for loan losses totaled $1.3 million and $50,000 for the fiscal years ended March 31, 2020 and 2019,

respectively.

The increase in the provision for loan losses for the fiscal year 2020 was primarily due to the weakening economic conditions as a result of the COVID-19 pandemic and to a lesser extent, the overall increase in the loan portfolio.

further decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and

results of operations.

The provision for loan losses totaled $6.3 million and $1.3 million for the fiscal years ended March 31, 2021 and 2020, respectively.

The increase in

the provision for loan losses for the fiscal year 2021 was primarily due to the economic conditions resulting from the COVID-19 pandemic and the continued uncertainty around the COVID-19 pandemic and its adverse economic effect on the respective

industry exposures within our loan portfolio.

Any future decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely

affect the Company’s financial condition and results of operations.

At March 31, 2021, the Company had an allowance for loan losses of $19.2 million, or 2.03% of total loans, compared to $12.6 million, or 1.38% at March 31, 2020.

Net charge-offs for the year ended

March 31, 2020 were $83,000 compared to net recoveries of $641,000 for the year ended March 31, 2019.

Net recoveries for the year ended March 31, 2021 were

$254,000 compared to net charge-offs of $83,000 for the year ended March 31, 2020.

Net recoveries to average net loans for the year ended March 31, 2021 was (0.03%).

Net charge-offs to average net loans for the year ended March 31, 2020 was 0.01%.

Net recoveries to average net loans for the year ended March 31,

2019 were (0.08)%.

Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan.

As of March 31, 2020, the Company had identified $5.2 million of

impaired loans.

Because the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the estimated fair value of the collateral.

Of those impaired loans, $5.1 million have no

specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs.

The remaining $137,000 have specific valuation allowances

As of March 31, 2021, the Company had identified $3.6 million of impaired loans.

the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the estimated fair value of the collateral.

Of those impaired loans, $3.3 million have no specific valuation

allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs.

The remaining $252,000 of impaired loans have specific valuation allowances

totaling $11,000.

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portfolio at March 31, 2021.

See Note 5 of the Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for loan losses.

See Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for loan losses.

Non-Interest Income.

Non-interest income increased $1.3 million to $12.4 million for the year ended March 31, 2020 from $11.1 million for fiscal year 2019.

The increase in non-interest income was primarily due to increases in fees and service charges, asset management fees and bank-owned life insurance of $593,000, $617,000, and $130,000, respectively.

These increases were partially offset by a decrease

in net gains on sales of loans held for sale of $65,000 for the year ended March 31, 2020 compared to the prior fiscal year reflecting the decline in loans originated for sale.

Non-interest income decreased $1.3 million to $11.1 million for the year ended March 31, 2021 from $12.4 million for fiscal year 2020.

The decrease in

non-interest income was due to the decrease in fees and service charges of $159,000 for the fiscal year ended March 31, 2021 compared the same period in the prior year primarily from a decrease in transactions due to a change in customer spending

habits during the COVID-19 pandemic.

Additionally, the decrease in non-interest income was due to the decrease in asset management fees of $762,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year as a result of

the decline in interest rates on fee generating products.

Furthermore, net gains on sales of loans held for sale decreased $224,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year as the Company transitioned to

a model where mortgage loan originations are brokered to various third-party mortgage companies.

Non-Interest Expense.

Non-interest expense increased $564,000 to $36.3 million for the fiscal year ended March 31, 2020 compared to $35.7 million for the

fiscal year ended March 31, 2019.

The increase for the fiscal year ended March 31, 2020 was due to an increase in occupancy and depreciation expense of $242,000, salaries and employee benefits of $485,000 and data processing of $162,000 for the year

ended March 31, 2020 compared to the prior fiscal year, due to additional staffing attributable to the overall growth of the Company and continued investments into enhancing our information technology infrastructure, including investments in our

digital product offerings.

Offsetting these increases was a decrease in professional fees of $306,000 primarily due to and a decrease in FDIC insurance premiums of $245,000.

The decrease in FDIC insurance premium expense is attributable to credits

for previously paid deposit insurance premiums which were a result of the FDIC exceeding its stated Deposit Insurance Fund Reserve Ratio.

The Company has $44,000 in credits on future assessments remaining as of March 31, 2020, which may be recognized

in future periods when allowed for by the FDIC upon insurance fund levels being met.

In addition, other non-interest expense increased $163,000 primarily due to the $355,000 gain on sale of land and building recognized in the last fiscal year with no

similar transaction occurring in the year ended March 31, 2020.

Non-interest expense remained unchanged at $36.3 million for the fiscal years ended March 31, 2021 and 2020.

Although non-interest expense remained

unchanged, there were increases in occupancy and depreciation expense of $204,000 and an increase in data processing of $33,000 for the year ended March 31, 2021 compared to the prior fiscal year due to continued investments into enhancing our

information technology infrastructure and technology expenditures incurred as a result of employees working from home during the COVID-19 pandemic.

In addition, FDIC insurance premium expense increased as FDIC insurance premium assessments returned

to normal levels.

The Bank utilized its remaining FDIC credits for previously paid deposit insurance premiums to partially offset assessments in the prior fiscal year.

Offsetting these increases were decreases in salaries and employee benefits of $235,000 for the year ended March 31, 2021 compared to the prior fiscal year which is attributable to the loan origination cost offset

related to the origination of the SBA PPP loans and the Company’s focus to manage controllable costs.

Advertising and marketing expenses decreased $390,000 for the year ended March 31, 2021 compared to the prior fiscal year primarily due to reduced

opportunities for community sponsorships and cancellations of sponsored events due to COVID-19 restrictions.

Income Taxes.

The provision for income taxes was $4.8 million and $5.1 million for the fiscal years ended March 31, 2020 and 2019, respectively, primarily

reflecting lower pre-tax income.

The provision for income taxes was $3.0 million and $4.8 million for the fiscal years ended March 31, 2021 and 2020, respectively, primarily reflecting lower

pre-tax income.

The effective tax rate was 22.2% for the year ended March 31, 2021 compared to 23.5% for the year ended March 31, 2020.

At March 31, 2020, the Company had a deferred tax asset of

$3.3 million.

As of March 31, 2020, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary.

See Note 11 of the Notes to the Consolidated Financial Statements contained in Item 8

of this Form 10-K for further discussion of the Company’s income taxes.

At March 31, 2021, the Company had a deferred tax asset of $5.4 million.

of March 31, 2021, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary.

See Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for

further discussion of the Company’s income taxes.

Average Balance Sheet .

The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well

as the total dollar amounts of interest income earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities, resultant yields, interest rate spread, ratio of interest-earning assets to interest-bearing

liabilities and net interest margin.

Average balances for a period have been calculated using monthly average balances during such period.

The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income

earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities, resultant yields, interest rate spread, ratio of interest-earning assets to interest-bearing liabilities and net interest margin.

balances for a period have been calculated using monthly average balances during such period.

Non-accruing loans were included in the average loan amounts outstanding.

Loan fees, net, of $1.5 million,

$1.5 million and $1.4 million were included in interest income for the years ended March 31, 2020, 2019 and 2018, respectively.

Loan fees, net, of $4.5 million, $1.5 million and $1.5 million were included in

interest income for the years ended March 31, 2021, 2020 and 2019, respectively.

Years Ended March 31,

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Shareholders’ equity

Total liabilities and shareholders’ equity

Total liabilities and shareholders’

Net interest income

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(2) For purposes of the computation of average yield on investment securities available for sale, historical cost balances were utilized;

therefore, the yield information does not

give effect to changes in fair value that are reflected as a component of shareholders’ equity.

therefore, the yield information does not give effect to

changes in fair value that are reflected as a component of shareholders’ equity.

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

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the fiscal year ended March 31, 2020 compared to the fiscal year ended March 31,

2019, and the fiscal year ended March 31, 2019 compared to the fiscal year ended March 31, 2018.

The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the fiscal year ended March 31, 2021 compared to the fiscal year ended March 31, 2020, and the fiscal

year ended March 31, 2020 compared to the fiscal year ended March 31, 2019.

Information is provided with respect to:

(i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate);

(ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume);

(ii) effects on

interest income attributable to changes in rate (changes in rate multiplied by prior volume);

and (iii) changes in rate/volume (change in rate multiplied by change in volume).

Variances that were insignificant have been allocated

based upon the percentage relationship of changes in volume and changes in rate to the total net change (in thousands).

The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected

on the Company’s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income.

Variances that were insignificant have been allocated based upon the

percentage relationship of changes in volume and changes in rate to the total net change (in thousands).

The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected on the

Company’s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income.

Year Ended March 31,

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The Company's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates.

The Company has sought to reduce the exposure of

its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates.

The principal element in achieving this objective is to increase the interest rate sensitivity of the

Company's interest-earning assets and interest-bearing liabilities.

Interest rate sensitivity increases by retaining portfolio loans with interest rates subject to periodic adjustment to market conditions and selling fixed-rate one-to-four family

mortgage loans with terms to maturity of more than 15 years.

The Company has sought to reduce the exposure of its earnings to

changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates.

The principal element in achieving this objective is to increase the interest rate sensitivity of the Company's

interest-earning assets and interest-bearing liabilities.

Interest rate sensitivity increases by retaining portfolio loans with interest rates subject to periodic adjustment to market conditions and selling fixed-rate one-to-four family mortgage

loans with terms to maturity of more than 15 years.

The Company relies on retail deposits as its primary source of funds.

Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a

stable source of funds.

Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a stable

source of funds.

As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with terms up to ten years.

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The primary elements of this strategy involve:

origination of adjustable rate loans;

increasing commercial loans, consumer loans that are adjustable rate and other short-term loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other

one-to-four family residential mortgage loans;

the origination of

adjustable rate loans;

residential mortgage loans;

matching asset and liability maturities;

1 unchanged sentence

and selling most long term, fixed-rate, one-to-four family mortgage loan originations.

The strategy for liabilities has been

to shorten the maturities for both deposits and borrowings.

The longer-term objective is to increase the proportion of noninterest bearing demand deposits, low interest bearing demand deposits, money market accounts, and savings deposits relative to

certificates of deposit to reduce our overall cost of funds.

The strategy for liabilities has been to shorten the

maturities for both deposits and borrowings.

The longer-term objective is to increase the proportion of noninterest bearing demand deposits, low interest bearing demand deposits, money market accounts, and savings deposits relative to certificates of

deposit to reduce our overall cost of funds.

The Company's mortgage servicing activities provide additional protection from interest rate risk.

The Company retains servicing rights on all mortgage loans sold.

As market interest rates rise,

the fixed-rate loans held in the loan portfolio diminish in value.

However, the value of the servicing loan portfolio tends to rise as market interest rates increase because borrowers tend not to prepay the underlying mortgages, thus providing an

interest rate risk hedge versus the fixed-rate loan portfolio.

As market interest rates rise, the fixed-rate loans

held in the loan portfolio diminish in value.

However, the value of the servicing loan portfolio tends to rise as market interest rates increase because borrowers tend not to prepay the underlying mortgages, thus providing an interest rate risk hedge

versus the fixed-rate loan portfolio.

Business – Lending Activities – Mortgage Loan Servicing."

Consumer loans, such as home equity lines of credit and installment loans, commercial loans and construction loans typically have shorter terms and higher yields than permanent residential

mortgage loans, and accordingly reduce the Company's exposure to fluctuations in interest rates.

Consumer loans, such as home equity lines of credit and installment loans, commercial loans and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans, and

accordingly reduce the Company's exposure to fluctuations in interest rates.

Adjustable interest rate loans totaled $461.1 million or 48.89% of total loans at March 31, 2021 as compared to $491.7 million or 53.95% at March 31, 2020.

Although the Company has sought to originate adjustable rate loans, the ability to originate and purchase such loans depends to a great extent on market interest rates and borrowers' preferences.

Particularly in lower interest rate

environments, borrowers often prefer to obtain fixed-rate loans.

Company has sought to originate adjustable rate loans, the ability to originate and purchase such loans depends to a great extent on market interest rates and borrowers' preferences.

Particularly in lower interest rate environments, borrowers often

prefer to obtain fixed-rate loans.

“Business - Lending Activities – Real Estate Construction " and “- Lending Activities - Consumer Lending."

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Government agencies.

At March 31, 2020, the

combined investment portfolio carried at $148.3 million had an average life of 3.2 years.

At March 31, 2021, the combined investment

portfolio carried at $255.9 million had an average life of 5.2 years.

Adjustable rate mortgage-backed securities totaled $7.6 million at March 31, 2021 compared to $11.6 million at March 31, 2020.

Investment Activities" for additional information.

“Business – Investment Activities" for

additional information.

Liquidity and Capital Resources

Liquidity is essential to our business.

The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs

of loan customers, and to fund ongoing operations.

The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and

to fund ongoing operations.

Core relationship deposits are the primary source of the Bank’s liquidity.

As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts

and services at the Bank.

As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the

Liquidity management is both a short and long-term responsibility of the Company's management.

The Company adjusts its investments in liquid assets based upon management's assessment of (i)

expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives.

Excess liquidity is invested generally in interest-bearing

overnight deposits and other short-term government and agency obligations.

If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other

wholesale facilities.

These sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities.

The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, proceeds from the sale of loans, maturing securities, FHLB advances and FRB

While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates,

economic conditions and competition.

The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii)

projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives.

Excess liquidity is invested generally in interest-bearing overnight deposits and other

short-term government and agency obligations.

If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities.

sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities.

The Company's primary sources of funds are customer deposits, proceeds from principal and interest payments on loans, proceeds from the sale of loans, maturing securities, FHLB advances and FRB borrowings.

maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions and

Management believes that its focus on core relationship deposits coupled with access to borrowing through reliable counterparties provides reasonable and prudent assurance that ample liquidity is available.

However, depositor or counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions.

The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals and continuing operations, satisfy other

financial commitments and take advantage of investment opportunities.

During the year ended March 31, 2020, the Bank used its sources of funds primarily to fund loan commitments.

At March 31, 2020, cash and cash equivalents, certificates of deposit

held for investment and available for sale investment securities totaled $190.5 million, or 16.1% of total assets.

However, depositor or

counterparty behavior could change in response to competition, economic or market situations or other unforeseen circumstances, which could have liquidity implications that may require different strategic or operational actions.

The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals and continuing operations, satisfy other financial commitments and take

advantage of investment opportunities.

During the year ended March 31, 2021, the Bank used its sources of funds primarily to fund loan commitments and investment purchases.

At March 31, 2021, cash and cash equivalents, certificates of deposit held

for investment and available for sale investment securities totaled $482.0 million, or 31.1% of total assets.

The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs;

however, its primary

liquidity practice is to manage short-term borrowings, including FRB borrowings and FHLB advances consistent with its asset/liability objectives.

At March 31, 2020, the Bank had no advances from the FRB and had a borrowing capacity of $67.3 million

from the FRB, subject to sufficient collateral.

At March 31, 2020, the Bank had no advances from the FHLB and had available borrowing capacity of $235.9 million, subject to sufficient collateral and stock investment.

At March 31, 2020, the Bank had

sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB.

Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust

discount rates applied to such collateral at their discretion.

however, its primary liquidity

management practice is to manage short-term borrowings, including FRB borrowings and FHLB advances consistent with its asset/liability objectives.

At March 31, 2021, the Bank had no advances from the FRB and maintains a credit facility with the FRB

with available borrowing capacity of $50.8 million, subject to sufficient collateral.

At March 31, 2021, the Bank had no advances from the FHLB and had an available borrowing capacity of $226.7 million, subject to sufficient collateral and stock

At March 31, 2021, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB.

Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan

collateral and counterparties could adjust discount rates applied to such collateral at their discretion.

Additionally, the Federal Reserve established the PPPLF to bolster the effectiveness of the SBA PPP.

The Bank may utilize the PPPLF pursuant to

approval from the FRB to which the Bank would pledge SBA PPP loans at face value as collateral to obtain FRB non-recourse advances.

As of March 31, 2021, the Bank had not sought approval to utilize PPPLF as it held a substantial cash and cash

equivalent position as a result of SBA PPP disbursed funds remaining unused in borrower deposit accounts and due to deposit customers increasing their balances due to COVID-19.

An additional source of wholesale funding includes brokered certificates of deposit.

While the Company has utilized brokered deposits from time to time, the Company historically has not

extensively relied on brokered deposits to fund its operations.

While the Company has utilized brokered deposits from time to time, the Company historically has not extensively relied on brokered

deposits to fund its operations.

At March 31, 2021 and 2020, the Bank had no wholesale brokered deposits.

The Bank also participates in the CDARS and ICS deposit products, which allow the Company to accept deposits in

excess of the FDIC insurance limit for a depositor and obtain “pass-through” insurance for the total deposit.

The Bank’s CDARS and ICS balances were $5.3 million, or 0.54% of total deposits, and $14.5 million, or 1.6% of total deposits, at March 31,

2020 and 2019, respectively.

The Bank also participates in the CDARS and ICS deposit products, which allow the Company to accept deposits in excess of the FDIC insurance

limit for a depositor and obtain “pass-through” insurance for the total deposit.

The Bank’s CDARS and ICS balances were $37.9

million, or 2.8% of total deposits, and $5.3 million, or 0.54% of total deposits, at March 31, 2021 and 2020, respectively.

In addition, the Bank is enrolled in an internet deposit listing service.

Under this listing service, the Bank may post time deposit rates on an internet site where institutional investors have the ability to deposit

funds with the Bank.

Under this listing

service, the Bank may post time deposit rates on an internet site where institutional investors have the ability to deposit funds with the Bank.

At March 31, 2021 and 2020, the Company had no deposits through this listing service.

Although the Company did not originate any internet based deposits during the year ended March 31, 2020, the Company may do so in the future

consistent with its asset/liability objectives.

The combination of all the Bank’s funding sources gives the Bank available liquidity of $676.0 million, or 57.2% of total assets at March 31, 2020.

At March 31, 2020, the Company had total commitments of $160.7 million, which includes commitments to extend credit of $35.8 million, unused lines of credit totaling $98.9 million, undisbursed

construction loans totaling $24.0 million, and standby letters of credit totaling $2.0 million.

Company did not originate any internet based deposits during the year ended March 31, 2021, the Company may do so in the future consistent with its asset/liability objectives.

The combination of all the Bank’s funding sources gives the Bank available

liquidity of $983.0 million, or 63.5% of total assets at March 31, 2021.

At March 31, 2021, the Company had total commitments of $149.5 million, which includes commitments to extend credit of $12.7 million, unused lines of credit totaling $121.2 million, undisbursed construction loans

totaling $13.6 million, and standby letters of credit totaling $2.0 million.

The Company anticipates that it will have sufficient funds available to meet current loan commitments.

Certificates of deposit that are scheduled to

mature in less than one year from March 31, 2020 totaled $74.1 million.

Certificates of deposit that are scheduled to mature in less than one

year from March 31, 2021 totaled $83.9 million.

Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

Offsetting these cash outflows are scheduled loan maturities of less than one

year totaling $55.1 million at March 31, 2020.

Offsetting these cash outflows are scheduled loan maturities of less than one year totaling $36.6

million at March 31, 2021.

Riverview Bancorp, Inc., as a separate legal entity from the Bank, must provide for its own liquidity.

Sources of capital and liquidity for Riverview Bancorp, Inc.

include distributions from the

Bank and the issuance of debt or equity securities.

include distributions from the Bank and the issuance

of debt or equity securities.

Dividends and other capital distributions from the Bank are subject to regulatory notice.

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Effect of Inflation and Changing Prices

The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating

results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.

The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of

historical dollars without considering the change in the relative purchasing power of money over time due to inflation.

The primary impact of inflation is reflected in the increased cost of the Company's operations.

industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature.

As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of

Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Unlike most industrial companies,

virtually all the assets and liabilities of a financial institution are monetary in nature.

As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation.

rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

New Accounting Pronouncements

For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

The Company is periodically a party to litigation arising in the ordinary course of business.

In the opinion of management, these actions will not have a material adverse

effect, if any, on the Company’s future financial position, results of operations, or liquidity.

In the opinion of management, these actions will not have a material adverse effect, if any, on the

Company’s future financial position, results of operations, or liquidity.

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

1 unchanged sentence

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

These financial instruments generally

include commitments to originate mortgage, commercial and consumer loans.

These financial instruments generally include commitments to

originate mortgage, commercial and consumer loans.

Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s

maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments.

The Company’s maximum exposure to

credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments.

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

Commitments to originate loans are conditional and are honored for up to 45 days subject to the Company’s usual terms and conditions.

Commitments to

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

Collateral is not required to support commitments.

At March 31, 2021, the Company had commercial loan commitments of $3.1 million and undisbursed commercial lines of credit of $97.3 million.

Commercial real estate mortgage loan commitments

totaled $323,000 and the undisbursed balance of commercial real estate mortgage loans was $987,000 at March 31, 2020.

Commercial real estate mortgage loan commitments totaled $6.3 million and the

undisbursed balance of commercial real estate mortgage loans was $755,000 at March 31, 2021.

At March 31, 2021, construction loan commitments totaled $2.8 million and undisbursed construction loans totaled $13.6 million.

Land development loan commitments at March 31, 2020, totaled $550,000 and the unused lines of credit secured by land development loans totaled $1.7 million.

Real estate one-to-four family loan commitments totaled $2.1 million and unused lines of

credit secured by real estate one-to-four family loans totaled $18.6 million at March 31, 2020.

Unused lines of credit on other installment loans totaled $1.1 million and unused lines of credit secured by multi-family real estate totaled $3.1 million

at March 31, 2020.

At March 31, 2020, the Company had standby letters of credit totaling $2.0 million.

For additional information regarding future financial commitments, this discussion and analysis should be read in conjunction with Note 17 of the

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

Unused lines of credit

secured by land development loans totaled $391,000.

Real estate one-to-four family loan commitments totaled $471,000 and unused lines of credit secured by real estate one-to-four family loans totaled $19.8 million at March 31, 2021.

Other installment

loan commitments totaled $13,000.

Unused lines of credit on other installment loans totaled $1.1 million and unused lines of credit secured by multi-family real estate totaled $1.8 million at March 31, 2021.

At March 31, 2021, the Company had standby

letters of credit totaling $2.0 million.

For additional information regarding future financial commitments, this discussion and analysis should be read in conjunction with Note 17 of the Notes to Consolidated Financial Statements contained in Item 8

of this Form 10-K.

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 7. Management’s Discussion and Analysis