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Item 8. Financial Statements and Supplementary Data

2024-06-14 compared with 2023-06-14 · 293 added, 295 removed, 1063 unchanged (36% of the section changed)

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AND SUBSIDIARY

Consolidated Financial Statements for the Years Ended March 31, 2023, 2022 and 2021

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( Delap LLP , Lake Oswego, Oregon , PCAOB ID:

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The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to an account or disclosures that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

Allowance for Credit Losses for Loans

Critical Audit Matter Description

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 $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.

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

The general component is based on historical losses, general economic conditions, and other qualitative risk factors both internal and external to the Company.

The historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events.

The qualitative risk factors are generally determined by evaluating, among other things:

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

(2) national and local economic trends and conditions;

(3) nature and volume of the portfolio and terms of loans;

(4) experience, ability, and depth of lending management and staff;

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

(6) quality of the Company’s loan review system;

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

(8) changes in the value of underlying collateral, and (9) other external factors.

The evaluation of the qualitative factor adjustments requires a significant amount of judgment by management and involves a high degree of subjectivity.

We identified the ALL as a critical audit matter because auditing the underlying qualitative factors required significant auditor judgment since amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.

As described in Notes 1 and 4 to the financial statements, the Company’s allowance for credit losses for loans as of March 31, 2024 was $15,364,000 on a total loan portfolio, net of deferred fees, of $1.02 billion.

The allowance for credit losses for loans reflects an estimate of lifetime expected credit losses in the loan portfolio.

The measurement of expected credit losses is based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the Company’s loan portfolio.

We identified the Company’s estimate of the allowance for credit losses for loans as a critical audit matter.

The principal considerations for our determination of the allowance for credit losses for loans as a critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors, model assumptions, forecasts and forecasting periods.

Auditing these complex judgments and assumptions by the Company involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

How the Critical Audit Matter Was Addressed in the Audit

The primary audit procedures we performed to address this critical audit matter included the following, among others:

● We obtained an understanding of the relevant controls related to management’s establishment, assessment, review and approval of the qualitative factors, and the data used in determining the qualitative factors.

● We obtained an understanding of how management developed the estimates and related assumptions, including:

o Testing completeness and accuracy of key data inputs used in forming assumptions or calculations and testing the reliability of the underlying data on which these factors are based by comparing information to source documents and external information sources as well as evaluating the estimated correlation to potential loss.

o Evaluating the reasonableness of the qualitative factors established by management as compared to the underlying internal or external information sources.

● We obtained an understanding of the loans excluded from the general component calculation for propriety of classification as acquired or impaired loans.

● We obtained an understanding of the relevant controls related to management’s establishment of the qualitative factors, assessment, review and approval of the qualitative factors, and the data used in determining the qualitative factors.

● We evaluated the relevance and the reasonableness of assumptions related to evaluation of the loan portfolio, current and forecasted economic conditions, and other risk factors used in development of the qualitative factors.

● We tested the completeness and accuracy of the significant inputs into the model including the underlying data used to develop the qualitative factors and forecasts.

● We validated the mathematical accuracy of the calculation.

● We evaluated the reasonableness of assumptions and data used by the Company in developing the qualitative factors by comparing these data points to internally developed and third-party sources, as well as other audit evidence gathered.

● We performed analytical procedures to evaluate the directional consistency of changes that occurred in the allowance for credit losses for loans.

We have served as the Company’s auditor since 2015.

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(In thousands, except share and per share data)

Cash and cash equivalents (including interest-earning accounts of $ 10,397 and $ 224,589 )

Cash and cash equivalents (including interest earning deposits in other banks of $ 12,164 and $ 10,397 )

Certificates of deposit held for investment

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Held to maturity, at amortized cost (estimated fair value of $ 195,519 and $ 210,214 )

Loans receivable (net of allowance for loan losses of $ 15,309 and $ 14,523 )

Loans receivable (net of allowance for credit losses of $ 15,364 and $ 15,309 )

Prepaid expenses and other assets

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Premises and equipment, net

Financing lease right-of-use ("ROU") assets

Deferred income taxes, net

Mortgage servicing rights, net

Core deposit intangible ("CDI"), net

Bank owned life insurance ("BOLI")

Core deposit intangible ("CDI"), net

Bank owned life insurance ("BOLI")

LIABILITIES AND SHAREHOLDERS' EQUITY

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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 losses

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

NON-INTEREST INCOME:

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Asset management fees

Loss on sales of available for sale investment securities

Income from BOLI

BOLI death benefit in excess of cash surrender value

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Professional fees

(Gain) loss on sale of premises and equipment, net

Gain on sale of premises and equipment, net

Total non-interest expense

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(In thousands)

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

Other comprehensive income (loss):

Net unrealized holding gain (losses) from available for sale investment securities arising during the period, net of tax (expense) benefit of ($ 34 ), $ 2,641 , and $ 3,091 , respectively

Reclassification adjustment of net loss from sales of available for sale investment securities included in net income, net of tax benefit of ($ 655 ), $ 0 , and $ 0 , respectively

Total other comprehensive income (loss), net

Total comprehensive income, net

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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

Balance March 31, 2023

Adjustment to retained earnings, net of tax;

adoption of ASU 2016-13

Cash dividend on common stock ($ 0.24 per share)

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Stock-based compensation expense

Purchase of subsidiary shares from non-controlling interest

Other comprehensive loss, net

Other comprehensive income, net

Balance March 31, 2024

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Purchased loans amortization (accretion), net

Provision for (recapture of) loan losses

Provision (benefit) for deferred income taxes

Provision for (recapture of) credit losses

(Benefit) provision for deferred income taxes

Stock-based compensation expense

Increase (decrease) in deferred loan origination fees, net of amortization

Origination of loans held for sale

Proceeds from sales of loans held for sale

Net gains on loans held for sale and sales of premises and equipment

Net loss on sales of investment securities available for sale

Net gain on sales of premises and equipment

Income from BOLI

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CASH FLOWS FROM INVESTING ACTIVITIES:

Loan repayments (originations), net

Loan (originations) repayments, net

Purchases of loans receivable

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Purchases of investment securities available for sale

Proceeds from calls of investment securities available for sale

Proceeds from calls and maturities of investment securities available for sale

Proceeds from sales of investment securities available for sale

Principal repayments on investment securities held to maturity

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Purchases of premises and equipment and capitalized software

Purchase of FHLB stock, net

Redemption of certificates of deposit held for investment

Redemption (purchase) of FHLB stock, net

Proceeds from death benefit on BOLI

Proceeds from sales of real estate owned ("REO") and premises and equipment

Net cash used in investing activities

Proceeds from sales of real estate owned ("REO") and premises and equipment

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in deposits

Net (decrease) increase in deposits

Dividends paid

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Repayment of borrowings

Net increase in advance payments by borrowers for taxes and insurance

Net (decrease) increase in advance payments by borrowers for taxes and insurance

Principal payments on finance lease liability

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Dividends declared and accrued in other liabilities

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

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

Income tax effect related to other comprehensive income (loss)

Reclassification adjustment related to loss on sale of available for sale investment securities

Income tax effect related to loss on sale of available for sale investment securities

ROU assets obtained in exchange for operating lease liabilities

Adjustment to retained earnings, net of deferred tax;

- adoption of ASU 2016-13

See accompanying notes to consolidated financial statements.

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All inter-company transactions and balances have been eliminated in consolidation.

For the period from April 1, 2017 through December 2019, the Trust Company was a wholly-owned subsidiary of the Bank.

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 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 9).

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Actual results could differ from those estimates.

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.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses (“ACL”), 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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Investments in debt securities held to maturity are carried at amortized cost.

Unrealized losses on investments in debt securities held to maturity due to fluctuations in fair value are recognized when it is determined that a credit-related other than temporary decline in value has occurred.

Investments in debt securities bought and held principally for the purpose of sale in the near-term are classified as trading securities.

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The Company’s investment portfolio consists of debt securities and does not include any equity securities.

The Company analyzes investments in debt securities for other than temporary impairment (“OTTI”) on a quarterly basis.

OTTI is separated into a credit component and a noncredit component.

The Company analyzes investments in debt securities to determine whether there have been any events or economic circumstances to indicate that a security has incurred a credit-related loss.

The Company considers many factors including recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades.

Credit component losses are reported in non-interest income when the present value of expected future cash flows is less than the amortized cost.

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If the Company is likely to sell an investment in a debt security, any noncredit component losses are recognized and are reported in non-interest income.

Loans Receivable – Loans are stated at the amount of unpaid principal, reduced by net deferred loan origination fees and an allowance for loan losses.

Loans Receivable – Loans are stated at the amount of unpaid principal, reduced by net deferred loan origination fees and an ACL.

Interest on loans is accrued daily based on the principal amount outstanding.

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Credit discounts are included in the determination of fair value;

therefore, an allowance for loan losses is not recorded at the acquisition date.

therefore, an ACL is not recorded at the acquisition date.

Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired (“PCI”) or purchased non-credit-impaired.

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Subsequent to the acquisition date, any increases in expected cash flows over those expected at the purchase date in excess of fair value are adjusted through a change to the accretable yield on a prospective basis.

Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording an allowance for loan losses.

Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording an ACL.

The Company had no PCI loans as of March 31, 2024 and 2023.

For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the lives of the related loans.

Any subsequent deterioration in credit quality is recognized by recording an allowance for loan losses.

Allowance for Loan Losses – The allowance for loan losses is maintained at a level sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio.

The allowance is provided based upon management’s ongoing quarterly assessment of the pertinent factors underlying the quality of the loan portfolio.

These factors include changes in the size and composition of the loan portfolio, delinquency levels, actual loan loss experience, current economic conditions and a detailed analysis of individual loans for which full collectability may not be assured.

The detailed analysis includes techniques to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment.

The allowance consists of specific, general and unallocated components.

The specific component relates to loans that are considered impaired.

For loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value (less estimated selling costs, if applicable) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-impaired loans based on the Company’s risk rating system and historical loss experience adjusted for qualitative factors.

The Company calculates its historical loss rates using the average of the last four quarterly 24-month periods.

The Company calculates and applies its historical loss rates by individual loan types in its loan portfolio.

These historical loss rates are adjusted for qualitative and environmental factors.

An unallocated component is maintained to cover uncertainties that the Company believes have resulted in incurred losses that have not yet been allocated to specific elements of the general and specific components of the allowance for loan losses.

Such factors include uncertainties in economic conditions, uncertainties in identifying triggering events that directly correlate to subsequent loss rates, changes in appraised value of underlying collateral, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current loan portfolio or economic conditions.

The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the loan portfolio.

The appropriate allowance level is estimated based upon factors and trends identified by the Company as of the date of the filing of the consolidated financial statements.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for loan losses.

Any subsequent deterioration in credit quality is recognized by recording an ACL.

ACL on Available for Sale Debt Securities - Each reporting period, the Company assesses each available for sale debt security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors.

The Company did not record an ACL on available for sale debt securities at March 31, 2024 or upon adoption of ASU 2016-13 on April 1, 2023.

As of both dates, the Company considered the unrealized losses across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings.

If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, Management considers the extent to which fair value is less than amortized costs, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

Projected cash flows are discounted by the current effective interest rate.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to accumulated other comprehensive income (loss) (“AOCI”).

ACL on Held to Maturity Debt Securities – The Company separately evaluates its held to maturity debt securities for any credit losses based on probability of default and loss given default utilizing historical industry data based on investment category.

The probability of default and loss given default are incorporated into the present value of expected cash flows and compared against amortized cost.

The Company did not record an ACL on held to maturity debt securities at March 31, 2024 or upon adoption of ASU 2016-13 on April 1, 2023 as the impact was insignificant.

ACL on Loans – The Company adopted the new accounting standard for the ACL (ASU 2016-13), commonly referred to as the current expected credit losses or CECL methodology, as of April 1, 2023.

All disclosures as of and for the year ended March 31, 2024 are presented in accordance with ASU 2016-13.

The comparative financial periods prior to the adoption of this new accounting standard are presented and disclosed under previously applicable GAAP’s incurred loss methodology, which is not directly comparable to the recently adopted CECL methodology.

For further information regarding the ACL, see Note 4 to the Consolidated Financial Statements.

As a result of implementing ASU 2016-13, there was a one-time adjustment to the fiscal year 2024 opening ACL balance of $ 42,000 .

The Company elected not to measure an ACL for accrued interest receivable on loans and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal of uncollectible interest.

The ACL for loans is an estimate of the expected credit losses on financial assets measured at amortized cost.

The ACL for loans is evaluated based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

Historical loss experience is generally the starting point for estimating expected credit losses.

The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period that historical experience was based for each loan type.

Finally, the Company consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable.

The Company estimates the expected credit losses over the loans’ contractual terms, adjusted for expected prepayments.

The ACL for loans is calculated for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions.

The methodology for estimating the amount of expected credit losses has two basic components:

a general component for estimated expected credit losses for pools of loans that share similar risk characteristics and an individual component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans.

The Company's ACL model methodology is to build a reserve rate using historical life of loan default rates combined with assessments of current loan portfolio information and current and forecasted economic environment and business cycle information.

The model uses statistical analysis to determine the life of loan default rates for the quantitative component and analyzes qualitative factors (Q-Factors) that assess the current loan portfolio conditions and forecasted economic environment and collateral values.

For loans that are individually evaluated, an allowance is established

when the discounted cash flows or collateral value (less estimated selling costs, if applicable) of the impaired loan is lower than the carrying value of that loan.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the ACL.

The existence of some or all of the following criteria will generally confirm that a loss has been incurred:

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and/or the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement.

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts when due (principal and interest) according to the contractual terms of the loan agreement.

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

When a loan is considered collateral dependent, impairment is measured using the estimated value of the underlying collateral, less any prior liens, and when applicable, less estimated selling costs.

For impaired loans that are not collateral dependent, impairment is measured using the present value of expected future cash flows, discounted at the loan’s original effective interest rate.

When the estimated net realizable value of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized by adjusting an allocation of the allowance for loan losses.

Subsequent to the initial allocation of allowance to the individual loan, the Company may conclude that it is appropriate to record a charge-off of the impaired portion of the loan.

When a charge-off is recorded, the loan balance is reduced and the specific allowance is eliminated.

Generally, when a collateral dependent loan is initially measured for impairment and has not had an appraisal of the collateral in the last six months, the Company obtains an updated market valuation.

Subsequently, the Company generally obtains an updated market valuation of the collateral on an annual basis.

The collateral valuation may occur more frequently if the Company determines that there is an indication that the market value may have declined.

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

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

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

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

The outstanding balance of a secured loan that is in excess of the net realizable value of the underlying collateral is generally charged-off if no payments are received for four to five consecutive months.

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

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

Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is charged-off.

A provision for loan losses is charged against income and is added to the allowance for loan losses based on regular assessments of the loan portfolio.

The allowance for loan losses is allocated to certain loan categories based on the relative risk characteristics, asset classifications and actual loss experience of the loan portfolio.

While management has allocated the allowance for loan losses to various loan portfolio segments, the allowance is general in nature and is available for the loan portfolio in its entirety.

Management’s evaluation of the allowance for loan losses is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio.

Loss factors are based on the Company’s historical loss experience with additional consideration and adjustments made for changes in economic conditions, changes in the amount and composition of the loan portfolio, delinquency rates, changes in collateral values, seasoning of the loan portfolio, duration of the current business cycle, a detailed analysis of impaired loans and other factors as deemed appropriate.

These factors are evaluated on a quarterly basis.

Loss rates used by the Company are affected as changes in these factors increase or decrease from quarter to quarter.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

Allowance for Unfunded Loan Commitments – The allowance for unfunded loan commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities.

Management’s evaluation of the ACL for loans is based on ongoing, quarterly assessments of the known and inherent risks in the loan portfolio.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL for loans and may require the Company to make additions to the ACL for loans based on their judgment about information available to them at the time of their examinations.

ACL for Unfunded Loan Commitments – The allowance for unfunded loan commitments is maintained at a level believed by management to be sufficient to absorb estimated expected losses related to these unfunded credit facilities.

The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities.

The allowance for unfunded loan commitments is included in accrued expenses and other liabilities in the consolidated balance sheets, with changes to the balance charged against non-interest expense.

Changes in the allowance for credit losses – unfunded loan commitments are recognized as provision for (or recapture of) credit loss expense and added to the allowance for credit losses – unfunded loan commitments, which is included in accrued expenses and other liabilities in the consolidated balance sheets.

REO – REO consists of properties acquired through foreclosure and is initially recorded at the estimated fair value of the properties, less estimated costs of disposal.

At the time of foreclosure, specific charge-offs are taken against the allowance for loan losses based upon a detailed analysis of the fair value of collateral on the underlying loans on which the Company is in the process of foreclosing.

At the time of foreclosure, specific charge-offs are taken against the ACL based upon a detailed analysis of the fair value of collateral on the underlying loans on which the Company is in the process of foreclosing.

Subsequently, the Company performs an evaluation of the properties and records a valuation allowance with an offsetting charge to REO expenses for any declines in value.

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(1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount of the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB.

The Company evaluated its investment in FHLB stock for OTTI, consistent with its accounting policy.

Based on the Company’s evaluation, the Company determined there is not any OTTI on its FHLB stock at March 31, 2023.

The Company has determined there is no impairment on the FHLB stock investment at March 31, 2024 and 2023.

Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization.

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

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

MSRs were fully amortized at March 31, 2023.

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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At both March 31, 2024 and 2023, gross CDI was $ 1.4 million.

At March 31, 2023 and 2022, accumulated amortization was $ 984,000 and $ 868,000 , respectively.

At March 31, 2024 and 2023, accumulated amortization was $ 1.1 million and $ 984,000 , respectively.

The amortization expense for CDI in future years is estimated to be $ 100,000 , $ 93,000 , and $ 78,000 , for the years ending March 31, 2025, 2026, and 2027, respectively.

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

Assets totaling $ 961.8 million were held in trust as of March 31, 2024 compared to $ 890.6 million as of March 31, 2023.

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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Nonvested shares of restricted stock are included in the computation of basic earnings per share because the holder has voting rights and shares in non-forfeitable dividends during the vesting period.

The Company’s diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and has been computed after giving consideration to the weighted average diluted effect of the Company’s stock options.

The Company’s diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and has been computed after considering to the weighted average diluted effect of the Company’s stock options.

Stock-Based Compensation – The Company measures compensation cost for all stock-based awards based on the grant-date fair value of the awards and recognizes compensation cost over the service period of stock-based awards.

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Accounting Pronouncements Recently Issued or Adopted –

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11.

ASU 2016-13 replaces the existing incurred losses methodology for estimating allowances with a current expected credit losses (“CECL”) methodology with respect to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held to maturity investment securities and off-balance sheet commitments.

In addition, ASU 2016-13 requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction of carrying amount.

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.

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

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 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"

("ASU 2022-02").

ASU 2022-02 eliminates the accounting guidance for TDRs in Accounting Standards Codification (“ASC”) 310-40, "Receivables - Troubled Debt Restructurings by Creditors"

for entities that have adopted the CECL model introduced by ASU 2016-13.

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".

Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326) as amended by ASU 2018-19, ASU 2019-04 and ASU 2019-05, was originally issued by the Financial Accounting Standards Board (“FASB”) in June 2016.

This ASU replaces the incurred loss methodology that delays recognition until it is probable a loss has been incurred with an expected loss methodology that is referred to as the CECL methodology.

The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected.

The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period.

The measurement of expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount.

Available-for-sale securities will bifurcate the fair value mark and establish an ACL for available-for-sale securities through the income statement for the credit portion of that mark.

The adoption of CECL had an insignificant impact on the Company’s held to maturity and available for sale securities portfolios.

The interest portion will continue to be recognized through accumulated other comprehensive income or loss.

The change in the ACL recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted.

This ASU is effective for smaller reporting companies, such as the Company, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

ASU 2019-05 issued in April 2019 further provides that entities that have certain financial instruments measured at amortized cost that has credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of ASU 2016-13.

The fair value option applies to available-for-sale debt securities.

This ASU is effective upon adoption of ASU 2016-13, and should be applied on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition as of the adoption date.

On April 1, 2023, the Company adopted

ASU 2016-13, which resulted in a net of tax charge of $ 53,000 to retained earnings, a $ 42,000 increase to ACL for loans, and a $ 28,000 increase to ACL on unfunded commitments for the cumulative effect of adopting this guidance.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) :

Troubled Debt Restructurings and Vintage Disclosures.

This ASU eliminates the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Additionally, the ASU requires public business entities to disclose current-period gross write offs by year of origination for financial receivables and net investments in leases.

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:

Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).

ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test.

In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Under ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2022.

Early application of ASU 2017-04 is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The adoption of ASU 2017-04 is not expected to have a material impact on the Company's future consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

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

("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.

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, as amended, is not expected to have a material impact on the Company's future consolidated financial statements.

On April 1, 2023, the Company adopted this ASU at the same time ASU 2016-13 was adopted.

The Company had no loans modified to borrowers experiencing financial difficulty during the year ended March 31, 2024.

The Company had $ 13,000 in write offs and $ 26,000 in recoveries from other installment loans for the year ended March 31, 2024.

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

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

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.

The Company does not believe that the unrealized losses at March 31, 2024 and 2023, were related to credit quality.

The Company expects the fair value of these securities to recover as the securities approach their maturity dates or sooner if market yields for such securities decline.

The Company does not believe that these securities are other than temporarily impaired because of their credit quality or related to any issuer or industry specific event.

The declines in fair market values of these securities were mainly attributable to changes in market interest rates, credit spreads, market volatility and liquidity conditions.

As such, the Company determined that no ACL was required.

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

The Company received proceeds from the sales of available for sale investment securities totaling $ 43.5 million for the year ended March 31, 2024.

Gross realized losses on sales of available for sale investment securities totaled $ 2.7 million for the year ended March 31, 2024 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 and 2022.

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Investment securities held to maturity with an amortized cost of $ 11.2 million and $ 12.3 million and a fair value of $ 9.3 million and $ 10.4 million at March 31, 2024 and 2023, respectively, were pledged as collateral for government public funds held by the Bank.

LOANS RECEIVABLE

Investment securities held to maturity with an amortized cost of $ 151.2 million and a fair value of $ 126.1 million at March 31, 2024, were pledged as collateral to the FRB.

LOANS AND ACL

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

At March 31, 2024, deferred loan fees totaled $ 4.7 million compared to $ 4.4 million at March 31, 2023.

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):

Loans receivable discounts and premiums totaled $ 1.3 million and $ 1.9 million, respectively, as of March 31, 2024, compared to $ 1.4 million and $ 2.1 million, respectively, as of March 31, 2023.

Loans receivable consisted of the following at the dates indicated (in thousands):

Commercial and construction

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Total consumer

Allowance for loan losses

ACL for loans (1)

Loans receivable, net

(1) 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 current expected credit losses (“CECL”) methodology.

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 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.

Commercial business – Commercial business 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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The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the credit-worthiness of the borrower.

ALLOWANCE FOR LOAN LOSSES

The following tables present a reconciliation of the allowance for loan losses for the periods indicated (in thousands):

March 31, 2023

Beginning balance

Provision for (recapture of) loan losses

Ending balance

March 31, 2022

Beginning balance

Provision for (recapture of) loan losses

Ending balance

March 31, 2021

Beginning balance

Provision for (recapture of) loan losses

Ending balance

The following tables present an analysis of loans receivable and the allowance for loan losses, based on impairment methodology, at the dates indicated (in thousands):

Allowance for Loan Losses

Recorded Investment in Loans

March 31, 2023

Commercial business

Commercial real estate

Real estate construction

March 31, 2022

Commercial business

Commercial real estate

Real estate construction

Changes in the allowance for unfunded loan commitments were as follows for the years indicated (in thousands):

Year Ended March 31,

Beginning balance

Net change in allowance for unfunded loan commitments

Ending balance

The following tables present an analysis of loans by aging category at the dates indicated (in thousands):

March 31, 2023

Troubled Loan Modifications (“TLM”) – Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these.

When principal forgiveness is provided, the amount of the forgiveness is charged-off against the ACL for loans.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL for loans is adjusted by the same amount.

The ACL on modified loans is measured using the same credit loss estimation methods used to determine the ACL for all other loans held for investment.

These methods incorporate the post-modification loan terms, as well as defaults and charge-offs associated with historical modified loans.

At March 31, 2023, all TDR loans were paying as agreed.

There were no new TDRs for the year ended March 31, 2023.

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

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

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

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

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

Regardless of whether a loan is unsecured or collateralized, once an amount is determined to be a confirmed loan loss it is promptly charged off.

The following table presents the amortized cost basis and financial effect of loans at March 31, 2024, that were both experiencing financial difficulty and modified during the fiscal year ended March 31, 2024 (in thousands):

Term Extension

Commercial business

Commercial real estate

Real estate construction

March 31, 2022

The following table presents the financial effect of the loan modifications presented above for borrowers experiencing financial difficulty for the fiscal year ended March 31, 2024:

Weighted Average

Term Extension

Commercial business

Commercial real estate

Real estate construction

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.

Interest income foregone on non-accrual loans was $ 14,000 , $ 24,000 and $ 49,000 for the years ended March 31, 2023, 2022 and 2021, respectively.

Credit quality indicators – The Company monitors credit risk in its loan portfolio using a risk rating system (on a scale of one to nine) for all commercial (non-consumer) loans.

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This historical loss experience is adjusted for qualitative factors that are likely to cause the estimated credit losses to differ from the Company’s historical loss experience.

The Company uses these loss factors to estimate the general component of its allowance for loan losses.

The Company uses these loss factors to estimate the general component of its ACL.

Pass – These loans have a risk rating between 1 and 4 and are to borrowers that meet normal credit standards.

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“Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

The following tables present an analysis of loans by credit quality indicators at the dates indicated (in thousands):

March 31, 2023

The following table sets forth the Company’s loan portfolio at March 31, 2024 by risk attribute and year of origination as well as current period gross charge-offs (in thousands):

Term Loans Amortized Cost Basis by Origination Fiscal Year

Commercial business

Special Mention

Total commercial business

Current YTD gross write-offs

Commercial real estate

Special Mention

Total commercial real estate

Current YTD gross write-offs

Special Mention

Current YTD gross write-offs

Special Mention

Total multi-family

Current YTD gross write-offs

Term Loans Amortized Cost Basis by Origination Fiscal Year

Real estate construction

Special Mention

Total real estate construction

Current YTD gross write-offs

Real estate one-to-four family

Total real estate one-to-four family

Current YTD gross write-offs

Other installment

Total other installment

Current YTD gross write-offs

Total loans receivable, gross

Special Mention

Total loans receivable, gross

Total current YTD gross write-offs

ACL on Loans –

The following tables detail activity in the ACL for loans for the fiscal year ended March 31, 2024 under the CECL methodology, and in the allowance for loan losses under the incurred loss methodology for the fiscal years ended March 31, 2023 and March 31, 2022, by loan category (in thousands):

March 31, 2024

Beginning balance

Impact of adopting CECL (ASU 2016-13)

Provision for (recapture of) credit losses

Ending balance

March 31, 2023

Beginning balance

Provision for (recapture of) loan losses

Ending balance

March 31, 2022

Beginning balance

Provision for (recapture of) loan losses

Ending balance

The following tables present an analysis of loans receivable and the allowance for loan losses, based on impairment methodology, as of March 31, 2023 (in thousands):

Allowance for Loan Losses

Recorded Investment in Loans

March 31, 2023

Commercial business

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Real estate construction

Impaired loans – The following tables present information regarding impaired loans at the dates and for the years indicated (in thousands):

Changes in the ACL for unfunded loan commitments were as follows for the years indicated (in thousands):

Year Ended March 31,

Beginning balance

Impact of adopting CECL (ASU 2016-13)

Balance at beginning of period, as adjusted

Net change in ACL - unfunded loan commitments

Ending balance

Non-accrual loans – Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 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.

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

Also, as a general practice, a loan is not removed from non-accrual status until all delinquent principal, interest and late fees have been brought current and the borrower has demonstrated a history of performance based upon the contractual terms of the note.

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

Interest income foregone on non-accrual loans was $ 10,000 , $ 14,000 , and $ 24,000 for the years ended March 31, 2024, 2023 and 2022, respectively.

The following tables present an analysis of loans by aging category at the dates indicated (in thousands):

March 31, 2024

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Commercial real estate

Real estate construction

March 31, 2023

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Commercial real estate

March 31, 2023

Real estate construction

A substantial portion of the 30-89 days past due and 90 days and greater past due loans at March 31, 2024 and 2023 are comprised of government guaranteed loans.

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.

The following tables present an analysis of loans by credit quality indicators as of March 31, 2023 (in thousands):

March 31, 2023

Commercial business

Commercial real estate

Real estate construction

Impaired loans – Prior to the implementation of ASU 2016-13 on April 1, 2023, a loan was considered impaired when based on current information and circumstances, the Company determines it was probable that it would be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments.

Factors considered in determining impairment included, but were not limited to, the financial condition of the borrower, the value of the underlying collateral and the status of the economy.

Prior to the implementation of ASU 2016-13, impaired loans were comprised of TDR loans that were performing under their restructured terms.

Two of the impaired loans were on non-accrual status as of March 31, 2024.

At March 31, 2024, the Company had $ 137,000 of non-accrual loans with no ACL and $ 36,000 of non-accrual loans with an ACL of $ 1,000 .

The amortized cost of collateral dependent loans as of March 31, 2024, were $ 58,000 and $ 79,000 for commercial business and commercial real estate loans, respectively.

The following tables present information regarding impaired loans at the dates and for the years indicated (in thousands):

March 31, 2023

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Commercial real estate

The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above tables.

TDRs and other loan modifications – TDRs are loans for which the Company, for economic or legal reasons related to the borrower’s financial condition, has granted a concession to the borrower that it would otherwise not consider.

A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, and/or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk.

TDRs are considered impaired loans and as such, impairment is measured as described for impaired loans in Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses.

The following table presents TDRs by interest accrual status at the dates indicated (in thousands):

March 31, 2023

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Commercial real estate

At March 31, 2023, the Company had no commitments to lend additional funds on these loans.

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

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

The cash basis interest income on impaired loans was not materially different than the interest recognized on impaired loans as shown in the above tables.

PREMISES AND EQUIPMENT

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

The trusts used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”) of the Company.

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

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

The Debentures are the sole assets of the trusts.

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Total Debentures

(1) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.36 % .

(2) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 1.35 % .

(3) The trust preferred securities reprice quarterly based on the three-month LIBOR plus 3.10 % .

(1) The trust preferred securities reprice quarterly based on the three-month Chicago Mercantile Exchange (“CME”) Term Secured Overnight Financing Rate (“SOFR ”) plus 1.36 % .

(2) The trust preferred securities reprice quarterly based on the three-month CME Term SOFR plus 1.35 % .

(3) The trust preferred securities reprice quarterly based on the three-month CME Term SOFR plus 3.10 % .

(4) Amount, net of accretion, attributable to a prior year’s business combination.

Provision for income taxes consisted of the following for the periods indicated (in thousands):

Provision for income taxes consisted of the following for the years indicated (in thousands):

Year Ended March 31

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Deferred compensation

Allowance for loan losses

Accrued expenses

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State and local income tax rate

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

Effective federal income tax rate

For the fiscal years ended March 31, 2024 and 2023, the Company utilized a federal corporate income tax rate of 21.0 % .

The Bank’s retained earnings at March 31, 2023 and 2022 include a base year allowance for loan losses, which amounted to $ 2.2 million, for which no federal income tax liability has been recognized.

The Bank’s retained earnings at March 31, 2024 and 2023 include a base year ACL, which amounted to $ 2.2 million, for which no federal income tax liability has been recognized.

The related unrecognized deferred tax liability at March 31, 2024 and 2023 was $ 528,000 .

This represents the balance of the allowance for loan losses created for tax purposes as of December 31, 1987.

This represents the balance of the ACL created for tax purposes as of December 31, 1987.

This amount is subject to recapture in the unlikely event that the Company’s banking subsidiaries (1) make distributions in excess of current and accumulated earnings and profits, as calculated for federal tax purposes, (2) redeem their stock, or (3) liquidate.

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In addition, the Company had no accrued interest or penalties related to income tax matters as of March 31, 2024 and 2023.

It is the Company’s policy to recognize potential accrued interest and penalties related to income tax matters as a component of the provision for income taxes.

It is the Company’s

policy to recognize potential accrued interest and penalties related to income tax matters as a component of the provision for income taxes.

The Company is subject to U.S federal and State of Oregon income taxes.

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Directors may elect to defer their monthly directors’ fees until retirement with no income tax payable by the director until retirement benefits are received.

The Chairman, President, and Executive and Senior Vice Presidents of the Company may also defer salary into the Deferred Compensation Plan.

The President, and Executive and Senior Vice Presidents of the Company may also defer salary into the Deferred Compensation Plan.

The Company accrues annual interest on the unfunded liability under the Deferred Compensation Plan based upon a formula relating to gross revenues, which was 3.33 % , 2.98 % and 2.97 % for the years ended March 31, 2024, 2023 and 2022, respectively.

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Balance, end of period

Additional information regarding stock options outstanding as of March 31, 2023 is as follows:

Options Outstanding

Options Exercisable

Exercise Price

$ 1.00 - $ 3.00

The following table presents information on stock options outstanding, less estimated forfeitures, as of March 31, 2023 and 2022:

March 31, 2023

There were no stock options outstanding as of March 31, 2024.

The following table presents information on stock options outstanding, less estimated forfeitures, as of March 31, 2023:

March 31, 2023

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The total intrinsic value of stock options exercised was $ 28,000 , $ 7,000 and $ 25,000 for the years ended March 31, 2024, 2023 and 2022, respectively.

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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Stock-based compensation related to restricted stock was $ 34,000 , $ 390,000 , and $ 319,000 for the years ended March 31, 2024, 2023, and 2022, respectively.

The unrecognized stock-based compensation related to restricted stock was $ 440,000 and $ 401,000 at March 31, 2023 and 2022.

The unrecognized stock-based compensation related to restricted stock was $ 245,000 and $ 440,000 at March 31, 2024 and 2023, respectively.

The weighted average vesting period for the restricted stock was 1.31 years and 1.12 years at March 31, 2024 and 2023, respectively.

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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.

For the years ended March 31, 2023, 2022 and 2021, the Bank purchased 25,000 , 25,000 and 5,354 shares of common stock, respectively, on the open market and contributed such shares to the ESOP as a discretionary employer contribution.

For each of the years ended March 31, 2024, 2023 and 2022, the Bank purchased 25,000 shares of common stock, on the open market and contributed such shares to the ESOP as a discretionary employer contribution.

As of March 31, 2024, 2023 and 2022, all shares of common stock purchased for the ESOP have been allocated to participant accounts.

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Shares held by the ESOP at March 31, 2024 and 2023 totaled 380,955 and 368,194 , respectively.

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.

SHAREHOLDERS’ EQUITY AND REGULATORY CAPITAL REQUIREMENTS

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The Bank’s actual and required minimum capital amounts and ratios were as follows at the dates indicated (dollars in thousands):

"Well Capitalized"

Adequacy Purposes

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(To Average Tangible Assets)

"Well Capitalized"

Adequacy Purposes

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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.

The Company completed the November 2022 repurchase program on May 5, 2023, repurchasing 394,334 shares at an average price of $ 6.34 per share and at a total cost of $ 2.5 million.

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

FAIR VALUE MEASUREMENTS

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As necessary, management compares prices received from the pricing service to discounted cash flow models or by performing independent valuations of inputs and assumptions similar to those used by the pricing service in order to help ensure prices represent a reasonable estimate of fair value.

The following tables present assets that are measured at estimated fair value on a nonrecurring basis at the dates indicated (in thousands):

There were no assets that are measured at estimated fair value on a nonrecurring basis at March 31, 2024.

The following table presents assets that are measured at estimated fair value on a nonrecurring basis at the date indicated (in thousands):

Estimated Fair Value

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Impaired loans

March 31, 2022

Impaired loans

The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a nonrecurring basis at March 31, 2024 and 2023:

Significant Unobservable

March 31, 2023

Impaired loans

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Discount rate

5.375 % - 8.000 %

(1) There were no adjustments to appraised values of impaired loans as of March 31, 2023 and 2022.

For information regarding the Company’s method for estimating the fair value of impaired loans, see Note 1 – Summary of Significant Accounting Policies – Allowance for Loan Losses.

(1) There were no adjustments to appraised values of impaired loans as of March 31, 2023.

For information regarding the Company’s method for estimating the fair value of individually evaluated loans, see Note 1 – Summary of Significant Accounting Policies – ACL on Loans.

In determining the estimated net realizable value of the underlying collateral, the Company primarily uses third-party appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

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Additionally, the appraisals are periodically further adjusted by the Company in consideration of charges that may be incurred in the event of foreclosure and are based on management’s historical knowledge, changes in business factors and changes in market conditions.

Impaired loans are reviewed and evaluated quarterly for additional impairment and adjusted accordingly based on the same factors identified above.

Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of impaired loans to be highly sensitive to changes in market conditions.

Individually evaluated loans are reviewed and evaluated quarterly for additional reserve and adjusted accordingly based on the same factors identified above.

Because of the high degree of judgment required in estimating the fair value of collateral underlying individually evaluated loans and because of the relationship between fair value and general economic conditions, the Company considers the fair value of individually evaluated loans to be highly sensitive to changes in market conditions.

The following disclosure of the estimated fair value of financial instruments is made in accordance with GAAP.

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However, considerable judgment is necessary to interpret market data in the development of the estimates of fair value.

Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could

realize in the future.

Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in the future.

The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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Cash and cash equivalents

Certificates of deposit held for investment

Investment securities available for sale

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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.

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, 2024, 2023 and 2022, substantially all of the Company’s revenues within the scope of ASC 606 were for performance obligations satisfied at a point in time.

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Loan related fees

Income from BOLI (1)

Net gains on sales of loans held for sale (1)

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BOLI death benefit in excess of cash surrender value (1)

Loss on sale of investment securities (1)

Total non-interest income, net

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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.

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 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.

At March 31, 2024, based on the most recent information available, management has concluded that a loss was probable and could be reasonably estimated.

Accordingly, the Company determined that as of March 31, 2024, there was a potential liability resulting from pending litigation involving a former Riverview business client related to their real estate investments offered by a business owned by that client.

Given the recent development of a proposed global settlement of the litigation, the Company recorded a $ 2.3 million expense in other non-interest expense during the quarter ended March 31, 2024.

This expense reflects Riverview’s estimate of litigation costs that exceed the Company’s insurance coverage.

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

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, $ 1.4 million and $ 1.5 million for the years ended March 31, 2024, 2023 and 2022, 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.

During the years ended March 31, 2024 and 2023, the Company did not record any ROU assets that were exchanged for operating lease liabilities.

During the year ended March 31, 2022, the Company recorded operating lease ROU assets that were exchanged for operating lease liabilities of $ 441,000 .

The following table reconciles the undiscounted cash flows for the periods presented related to the Company’s lease liabilities as of March 31, 2024 (in thousands):

Year Ending March 31:

Fiscal Year Ending March 31:

Total minimum lease payments

amount of lease payment representing interest

amount of lease payments representing interest

Lease liabilities

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Net interest income

Provision for loan losses

Provision for credit losses

Non-interest income, net

Non-interest expense

Income before income taxes

Provision for income taxes

Basic earnings per common share (1)

Diluted earnings per common share (1)

Income (loss) before income taxes

Provision (benefit) for income taxes

Net income (loss)

Basic earnings (loss) per common share (1)

Diluted earnings (loss) per common share (1)

Interest and dividend income

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Net interest income

Recapture of loan losses

Provision for 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