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Item 7. Management’s Discussion and Analysis

2024-06-14 compared with 2023-06-14 · 136 added, 147 removed, 325 unchanged (47% of the section changed)

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The Company has identified policies that due to the significant level of judgement, estimation and assumptions inherent in those policies are critical to an understanding of the Company’s consolidated financial statements.

These policies include our accounting policies related to the methodology for the determination of the allowance for loan losses, the valuation of investment securities and goodwill valuations.

These policies include our accounting policies related to the methodology for the determination of the ACL, the valuation of investment securities and goodwill valuations.

The following is a discussion of the critical accounting estimates involved with those accounting policies.

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:

Allowance for Credit Losses.

The ACL 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 ACL.

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

Determining the amount of the ACL involves a high degree of judgment.

Among the material estimates required to establish the ACL are:

overall economic conditions;

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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.

the amount and timing of future cash flows for loans that are individually evaluated;

determination of loss factors to be applied to the various elements of the portfolio;

and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

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 non-accrual 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.

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

The ACL is maintained at a level sufficient to provide for expected credit 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 ACL is comprised of a general component and a specific component.

The general component establishes a reserve rate using historical life-of-loan default rates, current loan portfolio information, economic forecasts, and business cycle data.

Statistical analysis determines life-of-loan default and loss rates for the quantitative component, while qualitative factors adjust expected loss rates for current and forecasted conditions.

The qualitative factor methodology involves a blend of quantitative analysis and management judgment, reviewed quarterly.

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

Based on the individual analysis, a specific reserve may be established.

The ACL 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 ACL 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 ACL 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.

For additional information see Item 1A.

“Risk Factors – Risk Related to Our Lending Activities - Our ACL may prove to be insufficient to absorb losses in our loan portfolio.

Future additions to our ACL, as well as charge-offs in excess of reserves, will reduce our earnings,” in this Form 10-K.

Valuation of Investment Securities.

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Judgment is then applied in formulating those inputs.

Certain loans included in the loan portfolio were deemed impaired at March 31, 2023.

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.

Certain loans included in the loan portfolio were evaluated individually for a loss reserve at March 31, 2024.

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

Loans that are individually evaluated require judgment and estimates, and the eventual outcomes may differ from those estimates.

A reserve for such loans is determined 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.

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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.

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 9.4%, a net interest margin that approximated 3.2% and a return on assets that ranged from 0.56% to 1.23% (average of 0.89%).

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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 calendar 2022 and other relevant published data utilizing a multiple of 1.25 times price to book value.

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

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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 0.87 times book value, a market multiple of 0.93 times tangible book value and an earnings multiple of 9.3 times.

The Company calculated a fair value of its reporting unit of $192.0 million using the corporate value approach, $169.2 million using the income approach and $230.0 million using the market approach, with a final concluded value of $197.0 million, with equal weight given to the income approach, the market approach and the corporate value approach.

The Company calculated a fair value of its reporting unit of $150.0 million using the corporate value approach, $180.0 million using the income approach, $181.0 million using the whole bank transaction approach and $171.0 million using the market approach, with a final concluded value of $177.0 million, with ten percent weight given to the corporate value approach and market approach and forty percent weight given to the whole bank transaction and income approach.

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

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

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:

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:

Operating Strategy and Selected Financial Information

Fiscal year 2024 marks the 100th anniversary for Riverview Bank, which opened for business in 1923.

Fiscal year 2024 marked the 100th anniversary for Riverview Bank, which opened for business in 1923.

Our primary business strategy is to provide comprehensive banking and related financial services within our primary market area.

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While the Company historically emphasized residential real estate lending, since 1998 it has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios.

Moreover, in fiscal year 2021, the Company ceased originating residential real estate loans;

however, it will from time to time purchase these loans consistent with asset/liability objectives.

At March 31, 2024, commercial and construction loans represented 90.4% of total loans.

Commercial lending, including commercial real estate loans, typically involves more credit risk than residential lending, justifying higher interest margins and fees on loans which can increase the loan portfolio’s profitability.

In addition, 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.

In addition, 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 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 recently opened three new branches located in Clark County, Washington, to complement its existing branch network.

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

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

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

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

Assets under management by the Trust Company totaled $890.6 million and $1.3 billion at March 31, 2023 and March 31, 2022, respectively.

Assets under management by the Trust Company totaled $961.8 million and $890.6 million at March 31, 2024 and March 31, 2023, respectively.

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

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The following financial condition data as of March 31, 2024 and 2023 and operating data and key financial ratios for the fiscal years ended March 31, 2024, 2023, and 2022 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.

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.

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Net interest income

Provision for (recapture of) loan losses

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

Provision for (recapture of) credit/loan losses

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

Other non-interest income

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Asset Quality Ratios:

Allowance for loan losses to total loans at end of period

Allowance for loan losses to nonperforming loans

Allowance for credit losses to total loans at end of period

Allowance for credit losses to nonperforming loans

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

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Comparison of Financial Condition at March 31, 2024 and 2023

Cash and cash equivalents, including interest-earning accounts, totaled $22.0 million at March 31, 2023 compared to $241.4 million at March 31, 2022.

The Company’s cash balances typically fluctuate based upon funding needs, deposit activity and investment securities purchases.

Based on the Company’s asset/liability management program and liquidity objectives, the Company may deploy a portion of excess cash balances to purchase investment securities depending on the rate environment and other considerations.

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 which are fully insured by the FDIC.

Certificates of deposits held for investment totaled $249,000 at both March 31, 2023 and 2022.

Cash and cash equivalents, including interest-earning deposits in other banks, totaled $23.6 million at March 31, 2024 compared to $22.0 million at March 31, 2023.

Fluctuations in cash balances are typical due to funding requirements, deposit activity and investments in securities .

In accordance with the Company’s asset/liability management program and liquidity objectives, surplus cash may be used to acquire investment securities, contingent on prevailing interest rates and other factors.

Additionally, a portion of excess cash is invested in short-term certificates of deposit for investment purposes, all of which are fully insured by the FDIC.

There were no certificates of deposits held for investment at March 31, 2024 compared to $249,000 at March 31, 2023.

Investment securities totaled $372.7 million and $455.3 million at March 31, 2024 and 2023, respectively.

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

During the fiscal years ended March 31, 2023 and 2022, purchases of investment securities totaled $81.8 million and $224.6 million, respectively.

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

At March 31, 2023, the Company determined that none of its investment securities required an OTTI charge.

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.

The decrease was primarily due to investment sales of $46.2 million in the fourth quarter of fiscal year 2024 in addition to normal pay downs, calls and maturities.

There were no sales of investment securities for fiscal year 2023.

There were no investment securities purchased during fiscal year 2024 compared to $81.8 million for 2023.

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 $993.5 million at March 31, 2023, compared to $975.9 million at March 31, 2022, an increase of $17.6 million.

The increase was primarily attributed to increases in real estate construction loans of $23.6 million, commercial business loans of $4.8 million and real estate one-to-four family loans of $17.7 million.

The increases in commercial business loans and real estate one-to-four family loans were attributable to the purchase of $28.7 million and $26.8 million of such loans, respectively.

These increases were partially offset by decreases in commercial real estate, multi-family and land loans of $18.3 million, $4.4 million and $5.1 million, respectively, since March 31, 2022.

In addition, these increases were offset by a decrease in SBA PPP loans related to forgiveness repayments.

At March 31, 2023, SBA PPP loans, net of deferred fees which are included in the commercial business loan category were insignificant compared to $3.1 million at March 31, 2022.

Loans receivable, net, totaled $1.01 billion at March 31, 2024, compared to $993.5 million at March 31, 2023, an increase of $15.1 million.

The increase was primarily attributed to increases in commercial real estate loans of $19.0 million and multi-family loans of $14.9 million.

These increases were partially offset by decreases in real estate construction, commercial business, and real estate one-to-four family loans of $11.2 million, $3.5 million, and $3.3 million, respectively, since March 31, 2023.

The Company no longer originates real estate one-to-four family loans and will from time to time purchase these loans consistent with its asset/liability objectives.

Additionally, the Company will purchase commercial business loans to supplement loan originations and diversify the commercial loan portfolio.

These loans were originated by a third-party located outside of the Company’s primary market area and totaled $26.2 million and $14.7 million at March 31, 2023 and 2022, respectively.

Purchased loans are originated by a third-party located outside of the Company’s primary market area and totaled $27.2 million and $26.2 million at March 31, 2024 and 2023, respectively.

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

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

Prepaid expenses and other assets increased $3.6 million to $16.0 million at March 31, 2023 compared to $12.4 million at March 31, 2022.

The increase was primarily due to a computer software contract for a new loan origination system that was executed in the fourth quarter of fiscal year 2023.

Deposits decreased $33.5 million to $1.2 billion at March 31, 2024 compared to $1.3 billion at March 31, 2023 due to increased competition, pricing and an overall decrease in market liquidity.

The decrease in deposits was attributable to reductions in non-interest-bearing accounts of $89.9 million, regular savings accounts of $84.9 million, money market accounts of $78.0 million and interest checking of $33.3 million.

These decreases were partially offset by an increase of $17.5 million in certificates of deposit.

The decrease in deposits was attributable to reductions in regular savings accounts of $62.5 million, non-interest checking accounts of $55.9 million and money market accounts of $12.6 million.

These decreases were partially offset by increases of $62.1 million in certificates of deposit accounts and $35.3 million in interest checking accounts.

The Company had no wholesale-brokered deposits at March 31, 2024 and 2023.

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

FHLB advances increased to $123.8 million at March 31, 2023 and were comprised of overnight advances and a short-term borrowing of $73.8 million and $50.0 million, respectively.

There were no outstanding FHLB advances at March 31, 2022.

These FHLB advances were utilized to offset the decrease in deposit balances.

Shareholders’ equity decreased $2.0 million to $155.2 million at March 31, 2023 from $157.2 million at March 31, 2022.

The decrease was mainly attributable to the increase in the accumulated other comprehensive loss related to the change in unrealized holding losses on securities available for sale, net of tax, of $8.4 million, the repurchase of 975,666 shares of common stock totaling $6.7 million, and the payment of cash dividends totaling $5.2 million.

These decreases were partially offset by net income of $18.1 million.

FHLB advances decreased $35.5 million to $88.3 million at March 31, 2024 compared to $123.8 million at March 31, 2023, and was comprised of overnight advances.

FHLB advances were $123.8 million at March 31, 2023 and were comprised of overnight advances and a short-term borrowing of $73.8 million and $50.0 million, respectively.

Shareholders’ equity increased $349,000 to $155.6 million at March 31, 2024 from $155.2 million at March 31, 2023.

The increase was mainly attributable to the increase in the accumulated other comprehensive income related to the change in unrealized holding losses on securities available for sale, net of tax, of $2.2 million and net income of $3.8 million during fiscal year 2024.

These increases were partially offset by cash dividend payments totaling $5.1 million and the repurchase of 109,162 shares of common stock totaling $577,000.

Comparison of Operating Results for the Years Ended March 31, 2024 and 2023

Net income was $18.1 million, or $0.83 per diluted share, for the fiscal year ended March 31, 2023, compared to $21.8 million, or $0.98 per diluted share, for the fiscal year ended March 31, 2022.

The Company’s net income decreased primarily as a result of a provision for loan losses of $750,000 for the fiscal year ended March 31, 2023 compared to a $4.6 million recapture of loan losses for the fiscal year ended March 31, 2022.

Non-interest expense increased to $39.4 million for the fiscal year ended March 31, 2023, compared to $36.7 million for the prior fiscal year as the Company recognized a $1.0 million gain on sale of premises and equipment during the fiscal year ended March 31, 2022, that was not present during the fiscal year ended March 31, 2023, as well as year over year increases in salary and employee benefits, occupancy and depreciation, and advertising and marketing expense.

In addition, non-interest income decreased $550,000 as a result of a decrease in fees and service charges and a $500,000 BOLI death benefit received during the fiscal year ended March 31, 2022 that was not present during the fiscal year ended March 31, 2023, partially offset by an increase in asset management fees.

Net income decreased $14.3 million or 79.0% to $3.8 million, or $0.18 per diluted share, for the fiscal year ended March 31, 2024, compared to $18.1 million, or $0.83 per diluted share, for the fiscal year ended March 31, 2023.

The decrease was primarily due to a $13.5 million decrease in net interest income before provision for credit losses resulting from higher funding costs and a $4.4 million increase in non-interest expense, partially offset by a $750,000 decrease in the provision for credit losses.

Additionally, during the fourth quarter of fiscal 2024, the Company restructured a portion of the balance sheet by selling approximately $46.2 million of its lower-yielding available for sale investment securities and utilizing the proceeds totaling $43.5 million to repay higher-cost FHLB advances.

The total pre-tax loss of this transaction was $2.7 million, with a tax benefit of $655,000, resulting in an after-tax impact of $2.1 million.

Net Interest Income.

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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 2023 increased $4.0 million, or 8.4%, to $51.6 million compared to $47.6 million in fiscal year 2022.

Net interest income for fiscal year 2024 decreased $13.5 million, or 26.2%, to $38.1 million compared to $51.6 million in fiscal year 2023.

The decrease was primarily due to increased interest expense on deposits and borrowings.

The net interest margin for the fiscal year ended March 31, 2024 was 2.56% compared to 3.26% for the prior fiscal year.

The increase in the net interest margin was primarily attributable to both the higher average balance and yield on investment securities compared to the legacy investment securities portfolios and an increase in the average yield on interest-bearing deposits in other banks balances between the periods reflecting the lagging benefit of variable rate interest-earning assets beginning to reprice higher following recent increases in market interest rates.

The decrease in the net interest margin was primarily attributable the increase in interest expense, partially offset by a decrease in total average interest earning assets.

Interest and Dividend Income.

Interest and dividend income increased $5.8 million to $55.7 million for the fiscal year ended March 31, 2023 from $49.8 million for the fiscal year ended March 31, 2022.

The increase was primarily related to the increase in interest income on the investment securities portfolio due to the overall increase in average balance of and yield on investment securities.

Interest income on investment securities increased $3.8 million to $9.0 million at March 31, 2023 compared to $5.2 million at March 31, 2022.

This increase was also attributable to the increase of $665,000 on interest and fees earned on loans receivable for the fiscal year ended March 31, 2023 compared to the prior fiscal year due to the increase in the average balance of average net loans.

The impact of the increase in the average net loans was offset by the decrease in the average yield on net loans by 28 basis points to 4.44% for the fiscal year ended March 31, 2023, predominantly from higher deferred SBA PPP loan fees recognized from SBA PPP loans that were forgiven.

SBA PPP loans had a favorable impact on our loan yields when SBA PPP loans are forgiven and the remaining deferred fees are recognized which increase the average net loan yield for fiscal year ended March 31, 2022 that were not present for the fiscal year-ended March 31, 2023.

Interest and dividend income included $102,000 and $3.0 million of interest and fees related to SBA PPP loans for the fiscal years ended March 31, 2023 and 2022, respectively.

The average balance of overnight cash balances positively impacted interest and dividend income due to the average yield on interest-bearing deposits at other banks which increased 161 basis points for fiscal year 2023 to 1.76% compared to 0.15% for fiscal year 2022.

Interest and dividend income increased $889,000 to $56.6 million for the fiscal year ended March 31, 2024 from $55.7 million for the fiscal year ended March 31, 2023.

The increase was primarily related to the increase in interest and fees on loans receivable due to the overall increase in the yield earned on loans and, to a lesser extent, an increase in the average balance of net loans.

Interest and fees on loans receivable increased $1.3 million to $46.0 million during the year ended March 31, 2024 compared to $44.7 million during the year ended March 31, 2023.

The average yield on non-mortgage loans increased 48 basis points to 4.56% while the average yield on mortgage loans decreased one basis point to 4.55% for the fiscal year ended March 31, 2024 compared to the fiscal year ended March 31, 2023.

The average balance of loans receivable increased $4.4 million to $1.01 billion for the fiscal year ended March 31, 2024 compared to the prior fiscal year, with the average balance of non-mortgage loans increasing $6.4 million to $252.6 million and the average balance of mortgage loans decreasing $2.0 million to $758.8 million.

Interest income earned on investment securities increased $186,000, or 2.0%, to $9.3 million for the fiscal year ended March 31, 2024 from $9.1 million for the fiscal year ended March 31, 2023 due to a nine basis point increase in the yield to 2.02%.

As previously mentioned, the Company restructured a portion of its balance sheet during the fourth quarter of fiscal 2024 by selling approximately $46.2 million of its lower-yielding available for sale investment securities and utilizing the proceeds from the sale to repay higher-cost FHLB advances.

The average balance of investment securities was $461.1 million during fiscal 2024 compared to $472.4 million during fiscal 2023.

Interest earned on other earning assets increased $623,000 due to the increase in the average yield earned on other earning assets, which increased 568 basis points to 8.47% for the year ended March 31, 2024 compared to 2.79% for the prior fiscal year.

Additionally, the average balance of other earning assets increased to $8.6 million for the year ended March 31, 2024 compared to $3.7 million for the year ended March 31, 2023.

The increase in the average balance of other assets was primarily due to the increase in the average balance of FHLB stock due to the required purchase of activity stock in connection with increases in average outstanding FHLB advances, resulting in higher dividends received from the FHLB.

Interest earned on interest-bearing deposits in other banks decreased $1.2 million to $566,000 for the year ended March 31, 2024 compared to $1.8 million during the prior fiscal year.

The decrease was due to a decrease in the average balance to $11.0 million during fiscal 2024 compared to $100.7 during fiscal 2023, partially offset by a 340 basis point increase in the yield earned on such deposits to 5.16% for fiscal 2024 compared to 1.76% for fiscal 2023.

The decrease in the average balance was primarily due to the decrease in excess cash held at the FRB due to the decrease in deposits, while the increase in the yield on interest-bearing deposits in other banks was due to the increases in the federal funds target rate by the Federal Reserve that have occurred since March 2022.

Interest Expense.

Interest expense for the fiscal year ended March 31, 2024 totaled $18.5 million, a $14.4 million or 354.9% increase from $4.1 million for the fiscal year ended March 31, 2023.

The increase was primarily the result of an 18 basis point increase in the weighted average interest rate on interest-bearing liabilities and a $21.0 million increase in the average balance of FHLB advances for the fiscal year ended March 31, 2023 compared to the prior fiscal year.

The weighted average interest rate on interest-bearing deposits increased to 0.16% for the fiscal year ended March 31, 2023 from 0.14% for the prior fiscal year.

The average balance of interest-bearing deposits decreased $21.7 million to $965.7 million for the fiscal year ended March 31, 2023 compared to $987.5 million for the fiscal year ended March 31, 2022.

Although the weighted average interest rate increased on interest-bearing deposits due to the overall increase in the interest rate environment, this increase was partially offset by the decrease in the average balance of interest-bearing deposits.

Interest expense on borrowings increased $1.8 million for the fiscal year ended March 31, 2023 compared to the prior fiscal year due to an increase in the average balance of FHLB advances.

The average balance of FHLB advances increased to $21.0 million for fiscal year ended March 31, 2023 compared to $3,000 for the same period in the prior year.

The increase was primarily the result of a 140 basis point increase in the weighted average interest rate on interest-bearing liabilities and a $125.5 million increase in the average balance of FHLB advances for the fiscal year ended March 31, 2024 compared to the prior fiscal year.

The weighted average interest rate on interest-bearing deposits increased 81 basis points to 0.97% for the fiscal year ended March 31, 2024 from 0.16% for the prior fiscal year.

In addition, while the overall average balance of interest-bearing deposits decreased $113.4 million, or 11.7% to $852.3 million for the fiscal year ended March 31, 2024 compared to $965.7 million for the fiscal year ended March 31, 2023,the average balance of higher costing certificates of deposit increased $53.6 million or 51.9% to $157.1 million for the fiscal year ended March 31, 2024 compared to $103.5 million for the fiscal year ended March 31, 2023.

Interest expense on borrowings increased $7.6 million for the fiscal year ended March 31, 2024 compared to the prior fiscal year due primarily to an increase in the average balance of FHLB advances.

The average balance of FHLB advances increased to $146.6 million for the fiscal year ended March 31, 2024 compared to $21.0 million for the same period in the prior year.

The weighted average interest rate on FHLB advances increased to 5.40% for the fiscal year ended March 31, 2024 compared to 4.88% for the prior fiscal year.

The weighted average interest rate on the junior subordinated debentures increased 281 basis points to 5.09% for the fiscal year ended March 31, 2023 compared to 2.28% for the prior fiscal year.

Provision for Loan Losses.

The Company recorded a provision for loan losses of $750,000 and a recapture of loan losses of $4.6 million for the fiscal years ended March 31, 2023 and 2022, respectively.

Similarly, the weighted average interest rate on the junior subordinated debentures increased 273 basis points to 7.82% for the fiscal year ended March 31, 2024 compared to 5.09% for the prior fiscal year.

Provision for credit losses.

The Company recorded no provision or recapture of credit losses for the fiscal year ended March 31, 2024 compared to a provision for loan losses of $750,000 under the prior incurred loss method for the fiscal year ended March 31, 2023.

The provision for loan losses for the fiscal year 2023 was due to an isolated loan downgrade that affected the allowance for loan losses.

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

Any future decline in national and local economic conditions could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations.

At March 31, 2023, the Company had an allowance for loan losses of $15.3 million, or 1.52% of total loans, compared to $14.5 million, or 1.47% of total loans at March 31, 2022.

Net recoveries were $36,000 for the fiscal year ended March 31, 2023 compared to net charge-offs of $30,000 for the fiscal year ended March 31, 2022.

Net recoveries and net charge-offs to average net loans were insignificant for the years ended March 31, 2023 and 2022, respectively.

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

As of March 31, 2023, the Company had identified $629,000 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, $534,000 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 impaired loan of $95,000 has a specific valuation allowance of $6,000.

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, 2023.

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.

The Company adopted the CECL methodology as of April 1, 2023, which resulted in a one-time upward adjustment to the ACL of $42,000, and an after-tax decrease to opening retained earnings of $53,000.

All amounts prior to April 1, 2023 were calculated using the previous incurred loss methodology to compute our allowance for loan losses, which is not directly comparable to the new CECL methodology.

The lack of provision for credit losses for the fiscal year ended March 31, 2024 also reflects assumptions related to our forecast concerning the economic environment as a result of local, national and global events, including recent bank failures.

In addition, expected loss estimates consider various factors, including customer-specific information, changes in risk ratings, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay.

At March 31, 2024, the Company had an ACL of $15.4 million, or 1.50% of total loans, compared to $15.3 million, or 1.52% of total loans at March 31, 2023.

Net recoveries totaled $13,000 for the fiscal year ended March 31, 2024, compared to $36,000 for the prior fiscal year.

Net recoveries to average net loans were insignificant for the fiscal years ended March 31, 2024 and 2023, respectively.

Nonperforming loans were $178,000 at March 31, 2024, compared to $1.9 million at March 31, 2023.

The ratio of the ACL for loans to nonperforming loans was 8,631.46% at March 31, 2024 compared to 826.62% at March 31, 2023.

Based on a comprehensive analysis, management believes the ACL to be adequate to cover expected credit losses inherent in the loan portfolio at March 31, 2024.

See Note 4 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for credit losses.

Non-Interest Income.

Non-interest income decreased $550,000 to $12.2 million for the fiscal year ended March 31, 2023 from $12.7 million for fiscal year 2022.

The decrease is primarily due to a decrease in fees and service charges related to a decrease in brokered loan fees of $723,000.

These decreases are partially offset by an increase in asset management fees of $627,000 due to an increase in custody fees of $930,000 and trust tax preparation fees of $76,000 partially offset by a decrease in irrevocable trust fees of $342,000 and agency fees of $126,000 during the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022.

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 that was not present for the fiscal year ended March 31, 2023.

Non-interest income decreased $2.0 million or 16.4% to $10.2 million for the fiscal year ended March 31, 2024 from $12.2 million for fiscal year 2023.

The decrease is primarily due to the $2.7 million loss on sale of available for sale investment securities resulting from the Company’s balance sheet restructuring in the fourth quarter of fiscal 2024.

Other changes in non-interest income during the fiscal year ended March 31, 2024 compared to the same prior year period include a decrease in fees and service charges of $93,000 due to a decrease in fintech referral partnership income offset by an increase in asset management fees of $594,000 due to an increase in custody fees of $277,000, irrevocable trust fees of $185,000 and living trust fees of $126,000 partially offset by a decrease in estate guardianship fee and trust tax prep fees of $49,000 and $37,000, respectively.

In addition, income from BOLI increased $70,000 and other non-interest income increased $206,000 compared to the prior year.

Non-Interest Expense.

Non-interest expense increased $2.7 million to $39.4 million for the year ended March 31, 2023 from $36.7 million for fiscal year 2022.

The increase was primarily due to an increase in salaries and employee benefits of $347,000 for the fiscal year ended March 31, 2023 compared to the prior year and was mainly due to wage pressures, and the competitive landscape for attracting and retaining employees in the Company’s primary market.

Additionally, occupancy and depreciation expense for the fiscal year ended March 31, 2023 increased mainly due to an increase in rent expense, depreciation expense and repair and maintenance expense as the Company continues to update and modernize certain branch locations.

In addition, the increase in non-interest expense is due to the recognition of a $1.0 million gain on sale of premises and equipment related to a former branch building during the fiscal year ended March 31, 2022, that was not present in the current fiscal year.

Advertising and marketing expense increased $309,000 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 $95,000 compared to the prior fiscal year primarily due to the increased FDIC assessment rate.

These increases were partially offset by a decrease in data processing expense of $218,000 for fiscal year 2023 compared to the prior year due to a decreased cost associated with our core banking platform.

Non-interest expense increased $4.4 million or 11.2% to $43.7 million for the year ended March 31, 2024 from $39.4 million for fiscal year 2023.

The increase was primarily due to an increase in other expenses of $2.6 million, which included litigation expenses of $2.3 million.

In connection with a proposed global settlement of some ongoing litigation, the Company recorded a $2.3 million expense in other non-interest expense for the fourth fiscal quarter of 2024, reflecting an estimate of litigation costs that exceed the Company’s insurance coverage.

The settlement of the litigation remains subject to the approval of the court.

Additionally, occupancy and depreciation expense for the fiscal year ended March 31, 2024 increased $701,000 mainly due to increases in depreciation and repair and maintenance expenses as the Company continues to update and modernize certain branch locations.

Advertising and marketing expense increased $353,000 due to expenses related to implementing a high-performance growth deposit strategy and additional sponsorships and events when compared to the prior fiscal year.

Additionally, salaries and employee benefits increased $222,000 over the prior fiscal year due to increases in compensation expenses, group insurance and personnel expense, offset by a decrease in bonus expense and retail incentives.

Income Taxes.

The provision for income taxes was $5.6 million and $6.5 million for the fiscal years ended March 31, 2023 and 2022, respectively.

The decrease in the provision for income taxes was due to lower pre-tax income for the fiscal year ended March 31, 2023 compared to the same period in the prior year.

The provision for income taxes was $802,000 and $5.6 million for the fiscal years ended March 31, 2024 and 2023, respectively.

The effective tax rate was 17.4% for the fiscal year ended March 31, 2024 compared to 23.7% for the fiscal year ended March 31, 2023.

The decrease in the provision for income taxes and effective tax rate is attributable to lower pre-tax income for the fiscal year ended March 31, 2024 compared to the same period in the prior year.

The effective tax rate may be affected by the effects of apportioned income for state and local jurisdictions where we do business.

The Company’s effective tax rate for the fiscal year ended March 31, 2022 was lower than its historical effective tax rate due to a non-taxable BOLI death benefit of $500,000 that was not present for the fiscal year ended March 31, 2023.

At March 31, 2024, the Company had a deferred tax asset of $9.8 million.

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Investment securities (1)

Interest-bearing deposits in other banks

Interest-earning deposits in other banks

Other earning assets

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

Comparison of Operating Results for the Years Ended March 31, 2023 and 2022

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, previously filed with the SEC.

Asset and Liability Management

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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 real estate one-to-four family loans;

matching asset and liability maturities;

and investing in short-term securities.

(i) originating adjustable rate loans;

(ii) 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 real estate one-to-four family loans;

(iii) matching asset and liability maturities;

and (iv) investing in short-term securities.

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

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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 real estate one-to-four family loans, and accordingly reduce the Company’s exposure to fluctuations in interest rates.

Adjustable interest rate loans totaled $403.6 million or 40.00% of total loans at March 31, 2023 as compared to $438.1 million or 44.23% at March 31, 2022.

Adjustable interest rate loans totaled $435.7 million or 42.55% of total loans at March 31, 2024, as compared to $403.6 million or 40.00% of total loans at March 31, 2023.

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.

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

The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives.

Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations.

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

During the fiscal year ended March 31, 2023, the Bank used its sources of funds primarily to fund loan commitments and investment purchases.

At March 31, 2023, cash and cash equivalents, certificates of deposit held for investment and available for sale investment securities totaled $233.8 million, or 14.7% of total assets.

During the fiscal year ended March 31, 2024, the Bank used its sources of funds primarily to fund deposit withdrawals resulting from increased competition and pricing pressure and to fund loan commitments.

At March 31, 2024, cash and cash equivalents and available for sale investment securities totaled $166.8 million, or 11.0% of total assets.

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

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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.

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, 2024, the Bank had no advances from the FRB and maintains a credit facility with the FRB with available borrowing capacity of $284.5 million, subject to sufficient collateral.

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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 Term Funding Program (BTFP) was created by the Federal Reserve to support and make additional funding available to eligible depository institutions to help banks meet the needs of their depositors.

Riverview has registered and is eligible to utilize the BTFP.

Riverview does not intend to utilize the BTFP, but could do so should the need arise.

During the fiscal year ended March 31, 2023, deposits decreased $268.7 million.

During the fiscal year ended March 31, 2022, deposits increased $187.8 million.

During the fiscal years ended March 31, 2024 and 2023, deposits decreased $33.5 million and $268.7 million, respectively.

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

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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 $37.0 million at March 31, 2023.

Partially offsetting these cash outflows are scheduled loan maturities of less than one year totaling $32.7 million at March 31, 2024.

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.

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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 2024 we expect cash expenditures of approximately $3.7 million for capital investment in premises and equipment.

Based on our current capital allocation objectives, during fiscal 2025 we expect cash expenditures of approximately $838,000 for capital investment in premises and equipment.

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

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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 7. Management’s Discussion and Analysis