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Item 7. Management’s Discussion and Analysis

2022-06-15 compared with 2021-06-21 · 322 added, 506 removed, 165 unchanged (83% of the section changed)

1 unchanged sentence

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

The information contained

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

This section 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.

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

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% 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 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;

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

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 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.

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

These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Critical Accounting Policies

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 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.

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.

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.

Further, subsequent changes in economic or market conditions could have a material impact on these estimates and our financial condition and operating results in future periods.

There have been no significant changes in our application of accounting policies since March 31, 2021.

For additional information concerning critical accounting policies, see Note 1 of the Notes to Consolidated Financial Statements contained in "Item 8.

Financial Statements and Supplementary Data."

and the following:

Provision and Allowance for Loan Losses

The allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

The provision for loan losses reflects the amount required to maintain the allowance for loan losses at an appropriate level based upon management’s evaluation of the adequacy of general and specific loss reserves.

Determining the amount of the allowance for loan losses involves a high degree of judgment.

Among the material estimates required to establish the allowance for loan losses are:

overall economic conditions;

value of collateral;

strength of guarantors;

loss exposure at default;

the amount and timing of future cash flows on impaired loans;

and determination of loss factors to be applied to the various elements of the portfolio.

All of these estimates are susceptible to significant change.

Based on the analysis of the allowance for loan losses, the amount of the allowance for loan losses is increased by the provision for loan losses and decreased by a recapture of loan losses and are charged against current period earnings.

The allowance for loan losses is maintained at a level sufficient to provide for probable losses based on evaluating known and inherent risks in the loan portfolio and upon our continuing analysis of the factors underlying the quality of the loan portfolio.

The allowance for loan losses is comprised of a general component, a specific component and an unallocated component.

The general component is based on historical loss experience applied to loan segments adjusted by qualitative factors.

These qualitative factors include:

lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices;

national and local economic trends and conditions;

nature and volume of the portfolio and terms of loans;

experience, ability, and depth of lending management and staff;

volume and severity of past due, classified and nonaccrual loans as well as other loan modifications;

quality of the Company’s loan review system;

existence and effect of any concentrations of credit and changes in the level of such concentrations;

changes in the value of underlying collateral;

and other external factors.

The specific component relates to loans that been evaluated for impairment because all contractual amounts of principal and interest will not be paid as scheduled.

Based on this impairment analysis, a specific reserve may be established.

An unallocated portion is established for

uncertainties that may not be identified in either the general or specific component of the allowance for loan losses.

The allowance for loan losses is based upon factors and trends identified by us at the time financial statements are prepared.

Although we use the best information available, future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond our control.

While we believe the estimates and assumptions used in our determination of the adequacy of the allowance for loan losses are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations.

Operating Strategy

Fiscal year 2022 marked the 99th 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

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

At March 31, 2022, commercial and construction loans represented 91.6% 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.

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.

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.

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

The third new branch location in Ridgefield opened in the fourth quarter of fiscal 2022.

Maintaining Strong Asset Quality .

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

The Company has actively managed delinquent loans

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

The Company’s approach to credit

management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 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 64.7% at March 31,

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 2022.

Although the Company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, the Company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.

Introduction of New Products and Services .

1 unchanged sentence

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 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 Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking.

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

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

Assets under management by the Trust Company totaled $1.3 billion at both March 31, 2022 and March 31, 2021.

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

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

Attracting Core Deposits and Other Deposit Products .

The Company offers personal checking, savings and

money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate.

To build its core deposit base, the Company has sought to reduce its dependence on

traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including FHLB and FRB advances.

The Company believes that its continued focus on building

customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit.

In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product

lines tailored to meet its target business customers’ needs.

The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit

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

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.

The Company offers personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate.

To build its core deposit base, the Company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources, including FHLB and FRB advances.

The Company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit.

In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers’ needs.

The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes.

Core branch deposits increased $172.5 million at March 31, 2022 compared to March 31, 2021 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.

COVID-19 Related Information

The Company maintains its commitment to supporting its community and customers during the COVID-19 pandemic and remains focused on keeping its employees safe and the Bank running effectively to serve its customers.

As of March 31, 2022, all Bank branches were open with normal hours and most employees continued in their current working environments (e.g.

remote, hybrid or on-site) but the Company plans to transition employees back to on-site or on a case-by-case basis, a hybrid model.

The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

Selected Financial Data:

The following financial condition data as of March 31, 2022 and 2021 and operating data and key financial ratios for the fiscal years ended March 31, 2022, 2021, and 2020 have been derived from the Company’s audited consolidated financial statements.

The information below is qualified in its entirety by the detailed information included elsewhere herein and should be read along with this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8.

“Financial Statements and Supplementary Data” included in this Form 10-K.

(In thousands)

FINANCIAL CONDITION DATA:

Loans receivable, net

Investment securities available for sale

Investment securities held to maturity

Cash and cash equivalents

Shareholders’ equity

Year Ended March 31,

(Dollars in thousands, except per share data)

OPERATING DATA:

Interest and dividend income

Interest expense

Net interest income

Provision for (recapture of) loan losses

Net interest income after provision for (recapture of) loan losses

Other non-interest income

Non-interest expense

Income before income taxes

Provision for income taxes

Earnings per share:

Dividends per share

At or For the Years Ended March 31,

KEY FINANCIAL RATIOS:

Performance Ratios:

Return on average assets

Return on average equity

Dividend payout ratio (1)

Interest rate spread

Net interest margin

Non-interest expense to average assets

Efficiency ratio (2)

Average equity to average assets

Asset Quality Ratios:

Allowance for loan losses to total loans at end of period

Allowance for loan losses to nonperforming loans

Net charge-offs (recoveries) to average outstanding loans during the period

Ratio of nonperforming assets to total assets

Ratio of nonperforming loans to total loans

Capital Ratios:

Total capital to risk-weighted assets

Tier 1 capital to risk-weighted assets

Common equity tier 1 capital to risk-weighted assets

Leverage ratio

(1) Dividends per share divided by diluted earnings per share.

(2) Non-interest expense divided by the sum of net interest income and non-interest income.

Comparison of Financial Condition at March 31, 2022 and 2021

Cash and cash equivalents, including interest-earning accounts, totaled $241.4 million at March 31, 2022 compared to $265.4 million at March 31, 2021.

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.

Deposit growth outpaced the growth in loans receivable providing an opportunity to invest excess cash into interest-earning accounts and into higher yielding investment securities.

The Company’s cash balances typically fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings.

As a part of this strategy, the Company also invests a portion of its excess cash in short-term certificates of deposit held for investment.

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

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

both March 31, 2021 and 2020.

Certificates of deposits held for investment totaled $249,000 at both March 31, 2022 and 2021.

Investment securities totaled $418.9 million and $255.9 million at March 31, 2022 and 2021, respectively.

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

calls and maturities.

The increase was due to investment purchases offset by normal pay downs, calls and maturities.

During the fiscal years ended March 31, 2022 and 2021, purchases of investment securities totaled $224.6 million and $160.2 million, respectively.

The Company primarily purchases a combination of securities backed by government

agencies (FHLMC, FNMA, SBA or GNMA).

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

At March 31, 2022, 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.

In the third quarter of fiscal 2022, the Company reassessed and transferred $85.8 million of U.S.

government and agency securities from the available for sale classification to the held to maturity classification.

The net unrealized after tax gain of $18,000 was deemed insignificant and the book balance of investment securities were transferred.

No gains or losses were recognized at the time of the transfer.

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 $975.9 million at March 31, 2022, compared to $924.1 million at March 31, 2021, an increase of $51.8 million.

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.

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.

The increase is attributed to originations of commercial real estate and multi-family loans and purchases of other commercial business loans and real estate one-to-four family loans.

The increases were offset by a decrease of SBA PPP loans related to forgiveness repayments and a decrease in land loans.

At March 31, 2022, SBA PPP loans, net of deferred fees which are included in the commercial business loan category, totaled $3.1 million compared to $93.4 million at March 31, 2021.

Commercial real estate and multi-family loans increased $39.4 million and $15.2 million, respectively since March 31, 2021.

Consumer loans increased $25.0 million for the fiscal year ended March 31, 2022 due to the purchases of one-to-four-family loans totaling $43.4 million.

The Company no longer originates one-to-four family mortgage loans and used this purchase as a way to supplement loan originations in this category.

Additionally, the Company began purchasing commercial business loans as a way to supplement loan originations and diversity in the commercial loan portfolio.

These loans were originated by a third-party located outside of the Company’s primary market area and totaled $14.7 million at March 31, 2022.

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

These SBA loans are originated through another financial institution located outside of the Company’s primary market area and are purchased with servicing retained by the seller.

At March 31, 2022, the Company’s purchased SBA loan portfolio was $59.4 million compared to $47.4 million at March 31, 2021.

Goodwill was $27.1 million at both March 31, 2022 and 2021.

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

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.

Prepaid expenses and other assets decreased $793,000 to $12.4 million at March 31, 2022 compared to $13.2 million at March 31, 2021.

The net decrease is primarily due to right-of-use operating lease amortization of $875,000 and the receipt of approximately $680,000 from the SBA for loan origination fees on PPP loans that were outstanding at the end of fiscal year 2021, and received early in fiscal year 2022.

These decreases were partially offset by an increase in other assets primarily comprised of funds due the Bank related to its debit card network conversion and a tenant improvement allowance receivable related to our new Ridgefield branch location.

Deposits increased $187.8 million to $1.5 billion at March 31, 2022 compared to $1.3 billion at March 31, 2021.

The increase was mainly due to proceeds from SBA PPP loans deposited directly into customer accounts, government stimulus checks, 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, 2022 and 2021.

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.

Core branch deposits accounted for 96.8% of total deposits at March 31, 2022 compared to 97.4% at March 31, 2021.

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 $5.7 million to $157.2 million at March 31, 2022 from $151.6 million at March 31, 2021.

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.

The increase was primarily attributable to net income of $21.8 million for the fiscal year ended March 31, 2022.

This increase was offset by an increase in accumulated other comprehensive loss related to the unrealized holding gains and losses on available for sale investment securities, net of tax, of $9.8 million, due primarily to an increase in market interest rates during the last fiscal quarter of 2022, cash dividend payments totaling $4.8 million and the repurchase of 278,148 shares of common stock totaling $1.9 million for the fiscal year ended March 31, 2022.

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.

All of the Company’s goodwill has been

allocated to the Bank reporting unit.

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

If the carrying value of the reporting unit is greater than its fair value, there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any.

The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination.

Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill.

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

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a significant decline in our expected future cash flows;

significant decline in our stock price and market capitalization;

a sustained, 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.

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.

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

The Company performed its annual goodwill impairment test as of October 31, 2021.

The goodwill impairment test involves a two-step process.

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

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

The allocation of corporate value approach

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

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 30%, which was based on comparable transactional history.

The income approach uses a

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

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

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

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

growth rate that approximated 8.1%, a net interest margin that approximated 3.3% 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:

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

The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures.

Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue growth rate that approximated 8.1%, a net interest margin that approximated 3.0% and a return on assets that ranged from 1.06% to 1.37% (average of 1.20%).

In addition to utilizing the above projections of estimated operating results, key assumptions used to determine the fair value estimate under the income approach were the discount rate of 15.71% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit.

The Company used a build-up approach in developing the discount rate that included:

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

The whole bank

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

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

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

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

In applying the whole bank transaction approach method, the Company identified transactions that occurred during the first 10 months of calendar 2021 utilizing a multiple of 1.4 times price to book value.

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

The multiples are

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

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

After selecting comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.0 times book value, a market multiple of 1.1 times tangible book value and an earnings multiple of 10 times.

The Company calculated a fair value of its reporting unit of $213.0 million using the corporate value approach, $204.0 million using the income approach, $249.0

million using the whole bank transaction approach and $230.0 million using the market approach, with a final concluded value of $224.0 million, with equal weight given to the income approach, the whole bank approach, the market approach and the corporate value approach.

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

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

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.

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.

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, 2022 and concluded that it is more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at March 31, 2022.

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.

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.

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.

Under these circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair value requires significant management judgment or estimation.

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

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

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

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

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Certain loans included in the loan portfolio were deemed impaired at March 31, 2022.

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

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

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

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

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

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 14 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, 2022 and 2021

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 income was $21.8 million, or $0.98 per diluted share, for the fiscal year ended March 31, 2022, compared to $10.5 million, or $0.47 per diluted share, for the fiscal year ended March 31, 2021.

The Company’s net income increased primarily as a result of increased net interest income and the recapture of loan losses of $4.6 million for the fiscal year ended March 31, 2022 compared to a $6.3 million provision for loan losses for the fiscal year ended March 31, 2021.

Non-interest expense remained relatively unchanged at $36.7 million for the fiscal year ended March 31, 2022, compared to $36.3 million for the prior fiscal year as the Company recognized in other non-interest expense a $1.0 million gain on sale of premises and equipment during the fiscal year ended March 31, 2022.

In addition, non-interest income increased $1.7 million as both fees and service charges and asset management fees increased and the Company recognized a $500,000 BOLI death benefit during the fiscal year ended March 31, 2022.

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.

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 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.

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 2022 increased $2.7 million, or 6.03%, to $47.6 million compared to $44.9 million in fiscal year 2021.

The net interest margin for the fiscal year ended March 31, 2022 was 3.03% compared to 3.41% for the prior fiscal year.

The decrease in the net interest margin was primarily the result of the continued low interest rate environment putting downward pressure on adjustable rate instruments and lower yields on new loan originations and investment purchases as compared to the yields on the legacy loan and investment securities portfolios.

The increase in low yielding overnight cash balances and the impact of low yielding SBA PPP loans also caused a decrease in the average yield on interest-earning assets partially offset by the decrease in the average cost of interest-bearing liabilities.

Finally, the decrease in net interest margin was 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.

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.

Interest and dividend income increased $1.5 million to $49.8 million for the fiscal year ended March 31, 2022 from $48.3 million for the fiscal year ended March 31, 2021.

The increase for the fiscal year ended March 31, 2022 was primarily related to the increase in interest income on the investment securities portfolio due to the overall increase in average balance of investment securities.

Interest income on investment securities increased $2.7 million to $5.2 million at March 31, 2022 compared to $2.5 million at March 31, 2021.

This increase was partially offset by a decrease of $1.4 million on interest and fees earned on loans receivable for the year ended March 31, 2022 compared to the prior fiscal year.

The average yield on non-mortgage related loans increased 49 basis points to 4.54% for the year ended March 31, 2022, predominantly from higher deferred SBA PPP loan fees recognized from SBA PPP loans that were forgiven.

SBA PPP loans have a favorable impact on our non-mortgage loan yields when SBA PPP loans are forgiven and the remaining deferred fees are recognized.

The average yield on mortgage related loans decreased 20 basis points to 4.78% for the year ended March 31, 2022 as the low interest rate environment during fiscal year 2022 resulted in downward pressure on adjustable rate loans and lower yields on new loan originations compared to the yields on the legacy loan portfolio.

Loan interest income was also impacted by the decline in the average balance of net loans between fiscal years, as discussed below.

The substantial increase in the average balance of overnight cash balances as a result of the increase in deposit balances, also negatively impacted the average yield on interest earning assets, which decreased 50 basis points for fiscal year 2022 to 3.17% compared to 3.67% for fiscal year 2021.

Interest and dividend income included $3.0 million and $4.5 million of interest and fees related to SBA PPP loans for the fiscal years ended March 31, 2022 and 2021, respectively.

The average balance of net loans decreased $31.3 million to $934.7 million for fiscal year ended March 31, 2022 compared to $966.1 million for the same period in the prior year.

The average yield on net loans remained relatively unchanged at 4.72% for the fiscal year ended March 31, 2022 compared to 4.71% for the fiscal year ended March 31, 2021.

For the fiscal year ended March 31, 2022, the average balance of SBA PPP loans was $39.3 million and the average yield on SBA PPP loans was 7.73% for the fiscal year ended March 31, 2022, which included the recognition of the net deferred fees.

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

This decrease in the average yield

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

This increase in the average yield of net loans and the average balance of investment securities between the periods, was the primary reason for overall increase in interest and dividend income.

Interest Expense.

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.

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.

Interest expense for the fiscal year ended March 31, 2022 totaled $2.2 million, a $1.2 million or 35.8% decrease from $3.4 million for the fiscal year ended March 31, 2021.

The decrease in interest expense was primarily the result of a 17 basis point decrease in the weighted average interest rate on interest-bearing liabilities for the year ended March 31, 2022 compared to the prior fiscal year.

The weighted average interest rate on interest-bearing deposits decreased to 0.14% for the fiscal year ended March 31, 2022 from 0.31% for the prior fiscal year.

The average balance of interest-bearing deposits increased $169.8 million to $987.5 million for the fiscal year ended March 31, 2022 compared to $817.7 million for the fiscal year ended March 31, 2021.

Although the average balance of interest-bearing deposits increased, interest expense on deposits decreased $1.1 million 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 $107,000 for the fiscal year ended March 31, 2022 compared to the prior fiscal year due to a decline in the average balance.

The average balance of other interest-bearing liabilities decreased to $29.1 million for fiscal year ended March 31, 2022 compared to $44.1 million for the same period in the prior year.

The weighted average interest rate on other interest-bearing liabilities increased to 2.67% for the fiscal year ended March 31, 2022 compared to 2.00% for the prior fiscal year due to the higher rate paid on the outstanding junior subordinated debentures as compared to the outstanding FHLB borrowings.

Provision for Loan Losses.

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.

The Company recorded a recapture of loan losses of $4.6 million and a provision for loan losses of $6.3 million for the fiscal years ended March 31, 2022 and 2021, respectively.

The recapture of loan losses for the fiscal year 2022 was based upon the improving economic conditions associated with the COVID-19 pandemic since March 31, 2021.

The provision for loan losses for fiscal year 2021 was primarily due to the uncertain economic conditions resulting from the COVID-19 pandemic and its expected adverse economic effect on the respective industry exposures within the loan portfolio at that time.

At March 31, 2022, the Company had an allowance for loan losses of $14.5 million, or 1.47% of total loans, compared to $19.2 million, or 2.03% at March 31, 2021.

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 charge-offs were $30,000 for the year ended March 31, 2022 compared to net recoveries of $254,000 for the year ended March 31, 2021.

Net charge-offs to average net loans were insignificant for the year ended March 31, 2022 compared to net recoveries of (0.03%) for the year ended March 31, 2021.

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

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.

As of March 31, 2022, the Company had identified $717,000 of impaired loans.

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

Of those impaired loans, $481,000 have no specific valuation allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs.

The remaining $236,000 of impaired loans have specific valuation allowances totaling $8,000.

Charge-offs on these impaired loans totaled $85,000 from their original loan balances.

Based on a comprehensive analysis, management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan

portfolio at March 31, 2021.

Based on a comprehensive analysis, management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan portfolio at March 31, 2022.

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 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 income increased $1.6 million to $12.7 million for the year ended March 31, 2022 from $11.1 million for fiscal year 2021.

This increase was primarily related to the growth in transaction fees and service charges collected of $727,000 for the fiscal year ended March 31, 2022 compared to prior fiscal year.

Asset management fees increased $461,000 for the fiscal year ended March 31, 2022 compared to the prior year due to an increase in irrevocable trust fees of $296,000 for the fiscal year ended March 31, 2022 as compared to the prior year.

Additionally, non-interest income also included a BOLI death benefit on a former employee of $500,000 during the fiscal year ended March 31, 2022.

Non-Interest Expense.

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.

Non-interest expense increased $464,000 to $36.7 million for the year ended March 31, 2022 from $36.3 million for fiscal year 2021.

The increase was primarily due to an increase in salaries and employee benefits of $1.1 million for the fiscal year ended March 31, 2022 compared to the prior year and was mainly due to annual salary increases and fiscal year-end incentive payments and $1.0 million in capitalized loan origination costs related to SBA PPP loans incurred during fiscal year 2021 that were not present in fiscal year 2022 which were deferred and amortized over the life of the loan.

Wage pressures, and the competitive landscape for attracting and retaining employees in the Company’s primary markets, continues to put pressure on salary and employee benefits.

Data processing expense increased $278,000 for fiscal year 2022 compared to the prior year due to increased cost associated with the increase in the volume of customer transactions being processed related to our core banking platform and the continuing investment into enhancing our information technology infrastructure and other technology

expenditures.

Advertising and marketing expense increased $148,000 due to additional sponsorships and events as our local economy began to reopen when compared to the prior fiscal year.

FDIC insurance premium expense increased $120,000 compared to the prior fiscal year due to the overall increase in total assets.

These increases were offset by the recognition of a $1.0 million gain on sale of premises and equipment related to a former branch building and a decrease in occupancy and depreciation expense of $156,000 compared to the prior fiscal year due to the cost savings as a result of several branch consolidations.

Income Taxes.

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 provision for income taxes was $6.5 million and $3.0 million for the fiscal years ended March 31, 2022 and 2021, respectively.

The effective tax rate was 22.8% for the year ended March 31, 2022 compared to 22.2% for the year ended March 31, 2021.

At March 31, 2022, the Company had a deferred tax asset of $7.5 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.

As of March 31, 2022, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary.

See Note 10 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.

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.

Average 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 $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.

Loan fees, net, of $5.5 million, $4.5 million and $1.5 million were included in interest income for the years ended March 31, 2022, 2021 and 2020, respectively.

Years Ended March 31,

5 unchanged sentences

Investment securities (2)

Daily interest-earning assets

Interest-bearing deposits in other banks

Other earning assets

9 unchanged sentences

Total interest-bearing deposits

Junior subordinated debentures

Other interest-bearing liabilities

5 unchanged sentences

Shareholders’ equity

Total liabilities and shareholders’

Total liabilities and shareholders’ equity

Net interest income

1 unchanged sentence

Net interest margin

Ratio of average interest-earning assets

to average interest-bearing liabilities

Ratio of average interest-earning assets to average interest-bearing liabilities

Tax-Equivalent Adjustment (3)

1 unchanged sentence

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

therefore, the yield information does not give effect to

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

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

therefore, the yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.

(3) Tax-equivalent adjustment relates to non-taxable investment interest income calculated based on a combined federal and state tax rate of 24% for all three years.

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, 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.

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, 2022 compared to the fiscal year ended March 31, 2021, and the fiscal year ended March 31, 2021 compared to the fiscal year ended March 31, 2020.

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,

1 unchanged sentence

Increase (Decrease) Due to

(Dollars in thousands)

Interest Income:

2 unchanged sentences

Investment securities (1)

Daily interest-earning

Interest-bearing deposits in other banks

Other earning assets

1 unchanged sentence

Interest Expense:

Savings accounts

Regular savings accounts

Interest checking accounts

1 unchanged sentence

Certificates of deposit

Junior subordinated debentures

Other interest-bearing liabilities

4 unchanged sentences

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 originating and purchasing portfolio loans with interest rates subject to periodic adjustment to market conditions and fixed rate loans with shorter terms to maturity.

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.

1 unchanged sentence

The primary elements of this strategy involve:

the origination of

adjustable rate loans;

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

residential mortgage loans;

the origination of adjustable rate loans;

matching asset and liability maturities;

investing in short-term securities;

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 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.

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.

and investing in short-term securities.

The strategy for liabilities has been to shorten the maturities for both deposits and borrowings.

Adjustable interest rate loans totaled $438.1 million or 44.23% of total loans at March 31, 2022 as compared to $461.1 million or 48.89% at March 31, 2021.

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.

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.

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

2 unchanged sentences

Government agencies.

At March 31, 2021, the combined investment

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

At March 31, 2022, the combined investment portfolio carried at $418.9 million had an average life of 6.7 years.

Adjustable rate mortgage-backed securities totaled $5.5 million at March 31, 2022 compared to $7.6 million at March 31, 2021.

“Business – 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

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

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

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

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

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

short-term government and agency obligations.

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.

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

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

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

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

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

However, depositor or

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

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

advantage of investment opportunities.

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.

During the year ended March 31, 2022, 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.

At March 31, 2022, cash and cash equivalents, certificates of deposit held for investment and available for sale investment securities totaled $407.5 million, or 23.4% of total assets.

Management believes that the Company’s security portfolio is of high quality and its securities would therefore be marketable.

The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period.

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

however, its primary liquidity

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

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

however, its primary liquidity management practice is to manage short-term borrowings, consistent with its asset/liability objectives.

In addition to these primary sources of funds, the Bank has several secondary borrowing sources available to meet potential funding requirements, including FRB borrowings and FHLB advances.

At March 31, 2022, the Bank had no advances from the FRB and maintains a credit facility with the FRB with available borrowing capacity of $59.9 million, subject to sufficient collateral.

At March 31, 2022, the Bank had no advances from the FHLB and had an available borrowing capacity of $294.1 million, subject to sufficient collateral and stock investment.

At March 31, 2022, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB.

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

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

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.

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.

The Bank’s liquidity has been positively impacted by increases in deposit levels.

During the years ended March 31, 2022 and 2021 deposits increased by $187.8 million, and $355.6 million, respectively.

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, 2022 and 2021, 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 $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.

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

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 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 $66.3 million, or 4.3% of total deposits, and $37.9 million, or 2.8% of total deposits, at March 31, 2022 and 2021, respectively.

The combination of all the Bank’s funding sources gives the Bank available liquidity of $986.5 million, or 56.7% of total assets at March 31, 2022.

At March 31, 2022, the Company had total commitments of $159.3 million, which includes commitments to extend credit of $20.0 million, unused lines of credit totaling $98.5 million, undisbursed construction loans totaling $39.0 million, and standby letters of credit totaling $1.8 million.

For additional information regarding future financial commitments, see Note 16 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

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

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

year from March 31, 2021 totaled $83.9 million.

Certificates of deposit that are scheduled to mature in less than one year from March 31, 2022 totaled $77.2 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 $36.6

million at March 31, 2021.

Offsetting these cash outflows are scheduled loan maturities of less than one year totaling $44.2 million at March 31, 2022.

The Company incurs capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets.

We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.

The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations.

Based on our current capital allocation objectives, during fiscal 2023 we expect cash expenditures of approximately $2.1 million for capital investment in premises and equipment.

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.

Management currently expects to continue the Company’s current practice of paying quarterly cash dividends on its common stock subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice.

The current quarterly common stock dividend rate is $0.055 per share, as approved by the Board of Directors, which management believes is a dividend rate per share which enables the Company to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of the Company’s cash to its shareholders.

Assuming continued payment during 2022 at this rate of $0.055 per share, average total dividend paid each quarter would be approximately $1.2 million based on the number of the Company’s current outstanding shares.

At March 31, 2022, Riverview Bancorp, Inc.

had $10.9 million in cash to meet its liquidity needs.

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

Unlike most industrial companies,

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

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

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

Bank holding companies and federally-insured state-chartered banks are required to maintain minimum levels of regulatory capital.

At March 31, 2022, Riverview Bancorp, Inc.

and the Bank were in compliance with all applicable capital requirements.

For additional information, see Note 12 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K and Item 1.

Business - Regulation and Supervision of the Bank.

New Accounting Pronouncements

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.

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

Off-Balance Sheet Arrangements

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.

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

The Company’s maximum exposure to

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

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

Commitments to

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

Collateral is not required to support commitments.

At March 31, 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 $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.

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