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Item 8. Financial Statements and Supplementary Data

2023-06-14 compared with 2022-06-15 · 126 added, 108 removed, 1232 unchanged (16% of the section changed)

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We have audited the accompanying consolidated balance sheets of Riverview Bancorp, Inc.

and Subsidiary (collectively, “the Company”) as of March 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2022, and the related notes (collectively referred to as “the financial statements”).

and Subsidiary (collectively, “the Company”) as of March 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2023, and the related notes (collectively, “the financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America (U.S.).

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As described in Notes 1 and 5 to the financial statements, the Company’s allowance for loan losses (ALL) is a valuation account that reflects the estimated loan losses based on known and inherent risks in the loan portfolio to the extent they are both probable and reasonable to estimate.

The allowance for loan losses was approximately $14,523,000 as of March 31, 2022, which consists of specific and general components in the amounts of $8,000 and $14,515,000, respectively.

The allowance for loan losses was approximately $15,309,000 as of March 31, 2023, which consists of specific and general components in the amounts of $6,000 and $15,303,000 million, respectively.

The specific component relates to loans that are classified as impaired.

The Company measures impairment and the related asset-specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan.

If the loan is collateral dependent, the Company measures impairment based upon the fair value of the underlying collateral, which the Company determines based on the current fair value of the collateral less estimated selling costs, instead of discounted cash flows.

Loans are identified as collateral dependent if the Company believes that collateral is the sole source of repayment.

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Advance payments by borrowers for taxes and insurance

FHLB advances

Junior subordinated debentures

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(In thousands)

Other comprehensive income (loss):

Net unrealized holding gains (losses) from available for sale investment securities arising during the period, net of tax of $ 3,091 , $ 713 , and ($ 1,499 ), respectively

Reclassification adjustment of net gain from sale of available for sale investment securities included in income, net of tax of $ 0 , $ 0 , and $ 7 , respectively

Total other comprehensive income (loss), net

Other comprehensive loss:

Net unrealized holding losses from available for sale investment securities arising during the period, net of tax of $ 2,641 , $ 3,091 , and $ 713 , respectively

Total comprehensive income, net

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Exercise of stock options

Restricted stock grants

Common stock repurchased

Restricted stock grants

Restricted stock cancelled

Stock-based compensation expense

Other comprehensive income, net

Other comprehensive loss, net

Balance March 31, 2021

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Common stock repurchased

Restricted stock grants

Restricted stock cancelled

Restricted stock grants and forfeited, net

Stock-based compensation expense

Purchase of subsidiary shares from non-controlling interest

Other comprehensive loss, net

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Purchases of premises and equipment and capitalized software

Redemption of certificates of deposits held for investment

Redemption (purchase) of FHLB stock, net

Purchase of FHLB stock, net

Proceeds from death benefit on BOLI

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CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in deposits

Net increase (decrease) in deposits

Dividends paid

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Repurchase of common stock

Net cash provided by financing activities

Net cash (used in) provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

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Dividends declared and accrued in other liabilities

Net unrealized holding gains (losses) from available for sale investment securities

Income tax effect related to other comprehensive income (loss)

Net unrealized holding losses from available for sale investment securities

Income tax effect related to other comprehensive income

ROU lease assets obtained in exchange for operating lease liabilities

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Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Riverview Bancorp, Inc.;

its wholly-owned subsidiary, Riverview Community Bank (the “Bank”);

the Bank’s wholly-owned subsidiary, Riverview Services, Inc., and the Bank’s majority-owned subsidiary, Riverview Trust Company (the “Trust Company”) (collectively referred to as the “Company”).

its wholly-owned subsidiary, Riverview Bank (the “Bank”);

the Bank’s wholly-owned subsidiaries, Riverview Services, Inc.

and Riverview Trust Company (the “Trust Company”) (collectively referred to as the “Company”).

As a Washington state-chartered commercial bank, the Bank’s regulators are the Washington State Department of Financial Institutions (“WDFI”) and the Federal Deposit Insurance Corporation (“FDIC”).

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In December 2019, the Trust Company issued 1,500 shares of Trust Company stock in conjunction with the exercise of 1,500 Trust Company stock options by the Trust Company’s President and Chief Executive Officer.

In both October 2020 and May 2021, the Trust Company issued an additional 500 shares of Trust Company stock with the exercise of options for 500 shares of Trust Company common stock by the Trust Company’s President and Chief Executive Officer.

As a result of these transactions, the Bank’s ownership in the Trust Company decreased from 100 % to 97.3 % , resulting in a 2.7 % noncontrolling interest held by the Trust Company’s President and Chief Executive Officer.

The noncontrolling interest was $ 212,000 and $ 154,000 as of March 31, 2022 and 2021, respectively, and net income attributable to the noncontrolling interest was $ 19,000 , $ 10,000 and $ 5,000 for the years ended March 31, 2022, 2021 and 2020, respectively.

These amounts are not presented separately in the accompanying consolidated financial statements due to their insignificance.

In both October 2020 and May 2021, the Trust Company issued an additional 500 shares of Trust Company stock upon the exercise of options for 500 shares of Trust Company common stock by the Trust Company’s President and Chief Executive Officer.

In August 2022, the Trust Company repurchased all the outstanding shares held by its noncontrolling interest owner.

Upon repurchase, these shares were retired.

This transaction resulted in the Bank’s ownership increasing from 97.3 % to 100 % .

The book value of the noncontrolling interest was $ 234,000 prior to the share repurchase.

These amounts were insignificant and are not presented separately in the accompanying consolidated financial statements.

The Company has three subsidiary grantor trusts which were established in connection with the issuance of trust preferred securities (see Note 10).

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Actual results could differ from those estimates.

The estimates utilized to determine the appropriate allowance for loan losses at March 31, 2022 may be materially different from actual results due to the novel coronavirus of 2019 (“COVID-19”) pandemic.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of investment securities, and the valuation of goodwill for potential impairment.

Cash and Cash Equivalents – Cash and cash equivalents include amounts on hand, due from banks and interest-earning deposits in other banks.

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Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 days to 89 days delinquent.

In general, when a loan is 90 days delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations.

In general, when a loan is 90 days or more delinquent or when collection of principal or interest appears doubtful, it is placed on non-accrual status, at which time the accrual of interest ceases and a reserve for unrecoverable accrued interest is established and charged against operations.

As a general practice, payments received on non-accrual loans are applied to reduce the outstanding principal balance on a cost recovery method.

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A history of repayment performance generally would be a minimum of six months.

In accordance with provisions of The Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) and the Consolidated Appropriations Act, 2021 (the “CAA 2021”) and related regulatory guidance, the Company did not designate loans with payment deferrals granted due to the COVID-19 pandemic as delinquent.

Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment of the yield of the related loan.

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Typically, factors used in determining if a loan is impaired include, but are not limited to, whether the loan is 90 days or more delinquent, internally designated as substandard or worse, on non-accrual status or represents a troubled debt restructuring (“TDR”).

The Company elected to apply the temporary relief under the CARES Act as extended by the CAA 2021 and related regulatory guidance to certain eligible short-term modifications, past due loans, and other modifications.

Qualifying loan modifications entered into prior to January 1, 2022, were not classified as a TDR for accounting or disclosure purposes.

Loans subject to forbearance under this COVID-19 loan modification program are not reported as past due or placed on non-accrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans.

As of March 31, 2022, the Company had no remaining qualifying loan modifications related to the COVID-19 pandemic.

The majority of the Company’s impaired loans are considered collateral dependent.

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Leasehold improvements are amortized over the estimated term of the related lease or the estimated useful life of the improvements, whichever is less.

Depreciation and amortization is generally computed on the straight-line method over the following estimated useful lives:

Depreciation and amortization are generally computed on the straight-line method over the following estimated useful lives:

buildings and improvements – up to 45 years ;

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In addition, the Company has recorded MSRs, which represent the rights to service loans.

The Company records its originated MSRs at fair value in accordance with GAAP, which requires the Company to allocate the total cost of all mortgage loans sold between the MSRs and the loans (without the MSRs) based on their relative fair values if it is practicable to estimate those fair values.

The Company records its originated MSRs at fair value in accordance with GAAP, which requires the Company to allocate the total cost of all mortgage loans sold between loans sold with MSRs retained and loans with MSRs released, based on their relative fair values if it is practicable to estimate those fair values.

The Company stratifies its MSRs based on the predominant characteristics of the underlying financial assets including the coupon interest rate and the contractual maturity of the mortgage.

The Company is amortizing the MSRs in proportion to and over the period of estimated net servicing income.

MSRs were not significant at both March 31, 2022 and 2021.

MSRs were fully amortized at March 31, 2023 compared to an insignificant balance at March 31, 2022.

Business Combinations, CDI and Goodwill – GAAP requires the total purchase price in a business combination to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets.

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Trust Assets – Assets held by the Trust Company in a fiduciary or agency capacity for trust customers are not included in the consolidated financial statements because such items are not assets of the Company.

Assets totaling $ 1.3 billion were held in trust as of both March 31, 2022 and 2021.

Assets totaling $ 890.6 million were held in trust as of March 31, 2023 compared to $ 1.3 billion as of March 31, 2022.

Earnings Per Share – GAAP requires all companies whose capital structure includes dilutive potential common shares to make a dual presentation of basic and diluted earnings per share for all periods presented.

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ASU 2016-13 also changes the accounting for purchased credit impaired debt securities and loans.

ASU 2016-13 retains many of the current disclosure requirements in GAAP and expands certain disclosure requirements.

ASU 2016-13 retains many of the current disclosure requirements in GAAP and expands certain

disclosure requirements.

As a “smaller reporting company” filer with the U.S.

Securities and Exchange Commission, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Securities and Exchange Commission, ASU 2016-13 is effective for the Company beginning April 1, 2023.

Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model.

In addition, the current accounting policy and procedures for OTTI of investment securities available for sale will be replaced with an allowance approach.

The Company is reviewing the requirements of ASU 2016-13 and has begun developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date.

At this time, management anticipates the allowance for loan losses will change as a result of the implementation of ASU 2016-13;

however, until management's evaluation is complete, the magnitude of the change will not be known.

The Company is implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date.

At this time, management does not expect the allowance for loan losses to materially change as a result of the implementation of ASU 2016-13 and expects to finalize the calculation in the first quarter of the fiscal year ending March 31, 2024.

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures"

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ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost".

This ASU is effective upon adoption of ASU 2016-13.

The adoption of ASU 2022-02 is not expected to have a material impact on the Company’s future consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other:

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting"

("ASU 2020-04"), as amended by ASU 2021-01.

ASU 2020-04 applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform.

("ASU 2020-04").

ASU 2020-04 applies to contracts, hedging relationships and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or other rate references expected to be discontinued because of reference rate reform.

ASU 2020-04 permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination.

The Company's current interest rates on its junior subordinated debentures are based upon the three-month LIBOR plus a spread.

ASU 2020-04 also provides certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

In January 2021, ASU 2021-01 updated amendments in ASU 2020-04 to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification.

The amendments in ASU 2021-01 have differing effective dates, beginning with interim periods including and subsequent to March 12, 2020 through December 31, 2022.

In December 2022, ASU 2022-06 extended the period of time financial statement preparers can utilize the reference rate reform relief guidance.

In March 2021, the Financial Conduct Authority announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of U.S.

Dollar LIBOR would be June 30, 2023, which is beyond the current sunset date of ASU 2021-01.

The amendments in ASU 2022-06 defer the sunset date of ASU 2021-01 from December 31, 2022 to December 31, 2024.

The Company has not adopted ASU 2020-04 as of March 31, 2023.

The adoption of ASU 2020-04 is not expected to have a material impact on the Company's future consolidated financial statements.

The adoption of ASU 2020-04, as amended, is not expected to have a material impact on the Company's future consolidated financial statements.

Reclassifications – Certain prior period amounts have been reclassified to conform to the current period presentation;

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(1) Comprised of FHLMC, FNMA and GNMA issued securities.

(2) Comprised of SBA and CRE secured securities iss ued by FHLMC and FNMA.

(2) Comprised of SBA and CRE secured securities issued by FHLMC and FNMA.

(3) Comprised of CRE secured securities issued by FHLMC and FNMA.

(4) Comprised of FNMA issued securities.

(5) Comprised of FHLMC and FNMA issued securities.

(6) Comprised of SBA issued securities.

The unrealized losses on the Company’s investment securities were primarily attributable to increases in market interest rates subsequent to their purchase by the Company.

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Based on management’s evaluation and intent, the unrealized losses related to the investment securities in the above tables are considered temporary.

The Company had no sales and realized no gains or losses on sales of investment securities for both the year ended March 31, 2022 and 2021.

Proceeds from the sale of investment securities totaled $ 17.8 million for the year ended March 31, 2020.

Gross realized gains on sales of investment securities totaled $ 30,000 for the year ended March 31, 2020 and are included in other non-interest income in the accompanying consolidated statements of income.

The Company had no sales and realized no gains or losses on sales of investment securities for the years ended March 31, 2023, 2022 and 2021.

Investment securities available for sale with an amortized cost of $ 3.2 million and $ 1.3 million and a fair value of $ 2.9 million and $ 1.2 million at March 31, 2023 and 2022, respectively, were pledged as collateral for government public funds held by the Bank.

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Loans receivable are reported net of deferred loan fees and discounts, and inclusive of premiums.

At March 31, 2022, deferred loan fees totaled $ 4.5 million of which $ 99,000 were related to the SBA’s Paycheck Protection Program (“PPP”) loans.

At March 31, 2021, deferred loan fees totaled $ 6.6 million of which $ 2.7 million were related to SBA PPP loans.

Loans receivable discounts and premiums totaled $ 371,000 and $ 2.4 million respectively, as of March 31, 2022, compared to $ 722,000 and $ 956,000 , respectively, as of March 31, 2021.

At March 31, 2023, deferred loan fees totaled $ 4.4 million compared to $ 4.5 million at March 31, 2022.

Loans receivable discounts and premiums totaled $ 1.4 million and $ 2.1 million, respectively, as of March 31, 2023, compared to $ 371,000 and $ 2.4 million, respectively, as of March 31, 2022.

Loans receivable, excluding loans held for sale, consisted of the following at the dates indicated (in thousands):

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Loans receivable, net

(1) SBA PPP loans totaled $ 3.1 million at March 31, 2022 and $ 93.4 million at March 31, 2021.

The Company’s loan portfolio includes originated and purchased loans.

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The following are loan segment risk characteristics of the Company’s loan portfolio:

Commercial business – Commercial business loans, other than SBA PPP loans, are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower.

Commercial business – Commercial business loans, other than SBA Paycheck Protection Program (“PPP”) loans, are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower.

The cash flows of borrowers may be volatile and the value of the collateral securing these loans may be difficult to measure.

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Real estate construction – The Company originates construction loans for one-to-four family residential, multi-family, and commercial real estate properties.

The one-to-four family residential construction loans include construction of

consumer custom homes whereby the home buyer is the borrower as well as speculative and presold loans for home builders.

The one-to-four family residential construction loans include construction of consumer custom homes whereby the home buyer is the borrower as well as speculative and presold loans for home builders.

Speculative one-to four-family construction loans are loans for which the home builder does not have, at the time of the loan origination, a signed contract with a home buyer who has a commitment for permanent financing with the Company or another lender for the finished home.

The home buyer may be identified either during or after the construction period.

Presold construction loans are made to homebuilders who, at the time of construction, have a signed contract with a home buyer who has a commitment for permanent financing for the finished home from the Company or another lender.

Multi-family construction loans are originated to construct apartment buildings and condominium projects.

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Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors.

Loans to construct homes for which no purchaser has been identified carry more risk because the payoff for the loan depends on the builder’s ability to sell the property prior to the time that the construction loan is due.

A speculative home construction loan carries more risk because the payoff for the loan depends on the builder’s ability to sell the property prior to the time that the construction loan is due.

Although the nature of real estate construction loans is such that they are generally more difficult to evaluate and monitor, the Company attempts to closely monitor the construction project by on-site inspections.

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The Company’s lending policies generally limit the maximum loan-to-value on one-to-four family loans to 80 % of the lesser of the appraised value or the purchase price.

However, the Company usually obtains private mortgage insurance on the portion of the principal amount that exceeds 80 % of the appraised value of the property.

In a situation where a loan exceeds 80 % loan-to value, the Company usually obtains private mortgage insurance on the portion of the principal amount that exceeds 80 % of the appraised value of the property.

Terms of maturity typically range from 15 to 30 years .

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Real estate construction

A substantial portion of the 30-89 days past due and 90 days and greater past due loans at March 31, 2022 are comprised of government guaranteed loans.

These government guaranteed loans are pass rated loans and are not considered to be nonaccrual loans given the Company expects to receive all principal and interest and not considered to be classified loans because there are no well-defined weaknesses or risk of loss.

Given these government guaranteed loans are neither nonaccrual loans nor classified loans, these loans are not considered to be impaired loans based on the Company’s policy.

A substantial portion of the 30-89 days past due and 90 days and greater past due loans at March 31, 2023 and 2022 are comprised of government guaranteed loans.

These government guaranteed loans are pass rated loans and are not considered to be non-accrual loans given the Company expects to receive all principal and interest and not considered to be classified loans because there are no well-defined weaknesses or risk of loss.

Given these government guaranteed loans are neither non-accrual loans nor classified loans, these loans are not considered to be impaired loans based on the Company’s policy.

Given these loans are not considered to be impaired loans and are fully guaranteed by the SBA or USDA, these loans are omitted from the required allowance calculation.

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At March 31, 2023, all of the Company’s TDRs were paying as agreed.

There were no new TDRs for the year ended March 31, 2022.

There was one new TDR for the year ended March 31, 2021.

This TDR is a consumer real estate loan secured by a one-to-four family property located in Northwest Oregon where the Company granted a deferral of principal, interest, and escrow payments.

The recorded investment in the loan prior to modification and at March 31, 2021 was $ 129,000 .

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic.

The CARES Act along with a joint agency statement issued by banking regulatory agencies provides that a short-term modification made in response to COVID-19 and which meets certain criteria does not need to be accounted for as a TDR.

Accordingly, the Company does not account for such loan modifications as TDRs.

Loan modifications in accordance with the CARES Act are still subject to an impairment evaluation.

See Note 1 - Summary of Significant Accounting Policies for more information .

There were no new TDRs for the fiscal years ended March 31, 2023 and 2022.

PREMISES AND EQUIPMENT

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however, no assurance can be given that the Company’s goodwill will not be written down in future periods.

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

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.

The Company completed a qualitative assessment of goodwill as of March 31, 2023, and concluded that it is more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value.

If adverse economic conditions or decreases in the Company’s common stock price and market capitalization 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.

Any impairment charge could have a material adverse effect on our results of operations and financial condition.

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Certificates of deposit

Individual certificates of deposit in amounts of $250,000 or more totaled $ 32.7 million and $ 31.7 million at March 31, 2022 and 2021, respectively.

Individual certificates of deposit greater than $250,000 totaled $ 40.3 million and $ 32.7 million at March 31, 2023 and 2022, respectively.

Scheduled maturities of certificates of deposit for future years ending March 31 are as follows (in thousands):

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Certificates of deposit

FEDERAL HOME LOAN BANK ADVANCES

FHLB advances are summarized at the dates indicated (dollars in thousands):

March 31, 2023

March 31, 2022

FHLB advances

Weighted average interest rate on FHLB advances (1)

(1) Computed based on the borrowing activity for the fiscal years ended March 31, 2023 and 2022, respectively.

The Bank has a credit line with the FHLB equal to 45 % of total assets, limited by available collateral.

At March 31, 2023, based on collateral values, the Bank had additional borrowing capacity of $ 191.6 million from the FHLB.

FHLB advances are collateralized with loans secured by real estate.

At March 31, 2023, loans carried at $ 511.3 million were pledged as collateral to the FHLB.

JUNIOR SUBORDINATED DEBENTURES

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Deferred tax liabilities:

FHLB stock dividend

FHLB stock dividends

Prepaid expenses

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State and local income tax rate

ESOP market value adjustment

Employee Stock Ownership Plan ("ESOP") market value adjustment

Effective federal income tax rate

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Options exercised

Options expired

Balance, end of period

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The total intrinsic value of stock options exercised was $ 7,000 , $ 25,000 and $ 68,000 for the years ended March 31, 2023, 2022 and 2021, respectively.

During the year ended March 31, 2022, the Company granted a total of 69,285 shares of restricted stock pursuant to the 2017 Plan of which vesting for 15,274 shares of restricted stock were time based and vesting for 54,011 shares of restricted stock were performance based subject to attaining certain performance metrics.

During the year ended March 31, 2021, the Company granted a total of 90,763 shares of restricted stock pursuant to the 2017 Plan of which vesting for 19,453 shares of restricted stock were time based and vesting for 71,310 shares of restricted stock were performance based subject to attaining certain performance metrics.

During the fiscal year ended March 31, 2023, the Company granted a total of 71,696 shares of restricted stock pursuant to the 2017 Plan of which vesting for 15,571 shares were time based and 56,125 shares were performance.

During the fiscal year ended March 31, 2022, the Company granted a total of 69,285 shares of restricted stock pursuant to the 2017 Plan of which vesting for 15,274 shares were time based and 54,011 were performance based.

Performance-based shares are subject to attaining certain pre-established performance metrics.

The fair value of restricted stock awards is equal to the fair value of the Company’s stock on the date of grant.

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The weighted average vesting period for the restricted stock was 1.12 years and 1.53 years at March 31, 2023 and 2022, respectively.

The following table presents the activity related to restricted stock for the year ended March 31, 2022:

The following table presents the activity related to restricted stock for the years ended March 31, 2023 and 2022:

Performance Based

Year Ended March 31, 2023

Balance, beginning of period

Balance, end of period

Performance Based

Year Ended March 31, 2022

Balance, beginning of period

Balance, end of period

Employee Stock Ownership Plan - The Company sponsors an ESOP that covers all employees with at least one year and 1,000 hours of service who are over the age of 21.

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As of March 31, 2023, 2022 and 2021, all shares of common stock purchased for the ESOP have been allocated to participant accounts.

As of March 31, 2020, there were approximately 19,000 shares, which had not been allocated to participant accounts under the Company’s ESOP.

The Company recorded employee benefits expense of $ 187,000 , $ 192,000 and $ 96,000 for these contributions for the years ended March 31, 2023, 2022 and 2021, respectively, which represented the fair value of the related common stock on the date it was acquired.

Shares held by the ESOP at March 31, 2023 and 2022 totaled 368,194 and 387,588 , respectively.

Trust Company Stock Options – At March 31, 2022, there were no Trust Company stock options outstanding.

At March 31, 2021, there were 500 Trust Company stock options outstanding, which had been granted to the President and Chief Executive Officer of the Trust Company.

During the year ended March 31, 2022, the Trust Company did not incur any stock-based compensation expense related to these options.

During the year ended March 31, 2021, the Trust Company incurred stock-based compensation expense related to these options of $ 44,000 .

Trust Company Stock Options – At March 31, 2023 and 2022, there were no Trust Company stock options outstanding.

During the year ended March 31, 2023, no Trust Company stock options were exercised.

During each of the years ended March 31, 2022 and 2021, 500 Trust Company stock options were exercised.

During the year ended March 31, 2021, the Trust Company incurred stock-based compensation expense related to these options of $ 44,000 .

There were no Trust Company stock options granted during the years ended March 31, 2023, 2022 and 2021.

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Weighted average common shares and common stock equivalents

In March 2022, the Company’s Board of Directors adopted a stock repurchase program (the “March 2022 repurchase program”).

Under the March 2022 repurchase program, the Company was authorized to repurchase up to $ 5.0 million of the Company’s outstanding shares of common stock, in the open market, based on prevailing market prices, or in privately negotiated transactions, over a period beginning on March 21, 2022 and continuing until the earlier of the completion of the authorized level of repurchases or September 9, 2022, depending upon market conditions.

As of March 31, 2022, the Company had repurchased $ 216,000 of shares under the March 2022 repurchase program at an average price of $ 7.63 per share.

In June 2021, the Company’s Board of Directors adopted a stock repurchase program (the “June 2021 repurchase program”).

Under the June 2021 repurchase program, the Company was authorized to repurchase up to $ 5.0 million of the Company’s outstanding shares of common stock, in the open market based on prevailing market prices, or in privately negotiated transactions.

The June 2021 repurchase plan was in effect from June 21, 2021 until the completion of the authorization or six months, whichever was earlier.

At the conclusion of six months ending December 20, 2021, the Company had repurchased $ 1.7 million of shares under the June 2021 repurchase program at an average price of $ 6.89 per share.

In February 2020, the Company’s Board of Directors adopted a stock repurchase program (the “repurchase program”).

Under the repurchase program, the Company was authorized to repurchase up to 500,000 shares of the Company’s outstanding shares of common stock, in the open market based on prevailing market prices, or in privately negotiated transactions, during the period from March 12, 2020 until the earlier of the completion of the repurchase of 500,000 shares of the Company’s common stock or six months, depending on market conditions.

As of March 31, 2020, the Company had repurchased 204,100 shares under the repurchase program at an average price of $ 4.94 per share.

As of April 17, 2020, the Company had repurchased the remaining 295,900 shares at an average price of $ 4.85 per share.

On March 9, 2022, the Company announced that its Board of Directors authorized a stock repurchase program (the “March 2022 repurchase program”).

Under the March 2022 repurchase program, the Company was authorized to repurchase up to $ 5.0 million of the Company’s outstanding shares of common stock, in the open market, based on prevailing market prices, or in private negotiated transactions, over a period beginning on March 21, 2022 and continuing until the earlier of the completion of the stock repurchase program or September 9, 2022.

The Company completed the March 2022 repurchase program on September 8, 2022, repurchasing 718,734 shares at an average price of $ 6.96 per share and at a total cost of $ 5.0 million.

All shares repurchased under the March 2022 program were retired as of September 30, 2022.

On November 17, 2022, the Company announced that its Board of Directors authorized a stock repurchase programs (the “November 2022 repurchase program”).

Under the November 2022 repurchase program, the Company was authorized to repurchase up to $ 2.5 million of the Company’s outstanding shares of common stock, in the open market or in privately negotiated transactions, over a period beginning on November 28, 2022 and continuing until the earlier of the completion of the authorized level of repurchases or May 28, 2023, depending upon market conditions.

As of March 31, 2023, the Company had repurchased 285,172 shares at an average price of $ 6.74 per share and at a total cost of $ 1.9 million.

Shares repurchased under the November 2022 repurchase program are retired as settled.

FAIR VALUE MEASUREMENTS

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Certificates of deposit

FHLB advances

Junior subordinated debentures

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The Company is generally the principal in these contracts, with the exception of interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal.

Examples of revenue earned over time, which generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust and investment management fees and safe deposit box fees.

Revenue is generally derived from transactional information

accumulated by the Company’s systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer.

For the years ended March 31, 2022, 2021 and 2020, substantially all of the Company’s revenues within the scope of ASC 606 are for performance obligations satisfied at a point in time.

Examples of revenue earned over time, which generally occur on a monthly basis, are deposit account maintenance fees, investment advisory fees, merchant revenue, trust

and investment management fees and safe deposit box fees.

Revenue is generally derived from transactional information accumulated by the Company’s systems or those of third-parties and is recognized as the related transactions occur or services are rendered to the customer.

For the years ended March 31, 2023, 2022 and 2021, substantially all of the Company’s revenues within the scope of ASC 606 were for performance obligations satisfied at a point in time.

Disaggregation of Revenue

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If the underlying assets do not conform to the specifications, the Company may have an obligation to repurchase the assets or indemnify the purchaser against loss.

At March 31, 2022, loans under warranty totaled $ 44.1 million, which substantially represents the unpaid principal balance of the Company’s loans serviced for the FHLMC.

At March 31, 2023, loans under warranty totaled $ 36.5 million, which substantially represented the unpaid principal balance of the Company’s loans serviced for the FHLMC.

The Company believes that the potential for loss under these arrangements is remote.

At March 31, 2022, the Company had an allowance for FHLMC loans of $ 12,000 .

At March 31, 2023, the Company had an allowance for FHLMC-serviced loans of $ 12,000 .

The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof, and municipal corporations.

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

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

In the opinion of management, these actions will not have a material adverse effect, if any, on the Company’s future consolidated financial position, results of operations and cash flows.

Litigation –The Company is periodically party to litigation arising in the ordinary course of business, some of which involve claims for substantial or uncertain amounts.

At least quarterly, we assess liabilities and contingencies in connection with all outstanding or new legal matters, utilizing the most recent information available.

For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established.

If we determine that a loss from a matter is probable and the amount of the loss can be reasonably estimated, we will establish an accrual for the loss.

Once established, an accrual is

adjusted as appropriate to reflect any subsequent developments in the specific legal matter.

It is inherently difficult to estimate the amount of loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable.

Actual losses may be in excess of any established accrual or the range of reasonably possible loss.

Management's estimate will change from time to time.

The Company is currently involved in a lawsuit for which certain parties participated in a mediation in May 2023 and a stay of proceedings is in place to allow for continued settlement efforts.

Based on the most recent information available, management has concluded that a loss is not probable at this time and the amount of any potential loss cannot be reasonably estimated.

Accordingly, no accrual has been established.

Any estimate or determination relating to the future resolution of legal matters is uncertain and involves significant judgment.

We usually are unable to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the process.

Although there can be no assurance as to the ultimate outcome of a specific legal matter, we believe we have meritorious defenses to the claims asserted against us in the current outstanding legal matter, and we intend to continue to vigorously defend ourselves.

It is possible that the ultimate resolution of a matter, if unfavorable, may be material to the Company's results of operations for any particular period.

The Company has a finance lease for the shell of the building constructed as the Company’s operations center which expires in November 2039.

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Supplemental cash flow information – Operating cash flows paid for operating lease amounts included in the measurement of lease liabilities was $ 1.4 million, $ 1.5 million and $ 1.5 million for the years ended March 31, 2023, 2022 and 2021, respectively.

During the years ended March 31, 2022, 2021 and 2020, the Company recorded operating lease ROU assets that were exchanged for operating lease liabilities of $ 441,000 , $ 6.1 million and $ 5.6 million, respectively.

During the fiscal year ended March 31, 2023, the Company did not record any ROU assets that were exchanged for operating lease liabilities.

During the years ended March 31, 2022 and 2021, the Company recorded operating lease ROU assets that were exchanged for operating lease liabilities of $ 441,000 and $ 6.1 million, respectively.

The following table reconciles the undiscounted cash flows for the periods presented related to the Company’s lease liabilities as of March 31, 2023 (in thousands):

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Equity in undistributed income of the Bank

Provision for deferred income taxes

Stock-based compensation

Amortization expense

Provision (benefit) for deferred income taxes

Stock-based compensation expense

Changes in assets and liabilities:

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Net interest income

Recapture of loan losses

Provision for loan losses

Non-interest income, net

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Net interest income

Provision for loan losses

Recapture of loan losses

Non-interest income, net

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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 8. Financial Statements and Supplementary Data