RIVERVIEW BANCORP INC

Previous wording

As a progressive, community-oriented financial services business, the Company emphasizes local, personal service to residents of its primary market area. The Company considers Clark, Klickitat and Skamania counties of Washington, and Multnomah, Washington and Marion counties of Oregon as its primary market area. The Company is engaged predominantly in the business of attracting deposits from the general public and using such funds in its primary market area to originate commercial business, commercial real estate, multi-family real estate, land, real estate construction, residential real estate and other consumer loans. Additionally, the Company, from time to time, will purchase commercial business loans as a way to supplement loan originations and diversify the commercial loan portfolio. These loans are originated by a third-party located outside the Company’s primary market area. The Company also purchases the guaranteed portion of SBA loans to help loan portfolio diversification, supplement loan originations and generate a higher yield than overnight cash investments or short-term investments. These SBA loans are originated through another financial institution located outside the Company’s primary market area and are purchased with servicing retained by the seller. The Company’s loans receivable, net, totaled $1.03 billion at June 30, 2024 compared to $1.01 billion at March 31, 2024.

Current wording

As a progressive, community-oriented financial services business, the Company emphasizes local, personal service to residents of its primary market area. The Company considers Clark, Klickitat and Skamania counties of Washington, and Multnomah, Washington and Marion counties of Oregon as its primary market area. The Company is engaged predominantly in the business of attracting deposits from the general public and using such funds in its primary market area to originate commercial business, commercial real estate, multi-family real estate, land, real estate construction, residential real estate and other consumer loans. Additionally, the Company, from time to time, will purchase commercial business loans as a way to supplement loan originations and diversify the commercial loan portfolio. These loans are originated by a third-party located outside the Company’s primary market area. The Company also purchases the guaranteed portion of SBA loans to help loan portfolio diversification, supplement loan originations and generate a higher yield than overnight cash investments or short-term investments. These SBA loans are originated through another financial institution located outside the Company’s primary market area and are purchased with servicing retained by the seller. The Company’s loans receivable, net, totaled $1.05 billion at September 30, 2024 compared to $1.01 billion at March 31, 2024.

Previous wording

The strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management services through the Trust Company and deposit service charges. The strategic plan is designed to enhance earnings, reduce interest rate risk and provide a more complete range of financial services to customers and the local communities the Company serves. We believe we are well positioned to attract new customers and to increase our market share through

Current wording

The strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management services through the Trust Company and deposit service charges. The strategic plan is designed to enhance earnings, reduce interest rate risk and provide a more complete range of financial services to customers and the local communities the Company serves. We believe we are well positioned to attract new customers and to increase our market share through our 17 branches, including, among others, ten in Clark County, three in the Portland metropolitan area and three lending centers.

Previous wording

Fiscal year 2025 marks the 101 th anniversary since the Bank began operations in 1923. The primary business strategy of the Company is to provide comprehensive banking and related financial services within its primary market area. Since 1998, the Company has been focusing on the expansion of its commercial and real estate construction loan portfolios. At June 30, 2024, commercial and real estate construction loans represented 90.2% of total loans compared to 90.4% at March 31, 2024. Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter terms than residential lending which can increase the loan portfolio's profitability.

Current wording

Fiscal year 2025 marks the 101 st anniversary since the Bank began operations in 1923. The primary business strategy of the Company is to provide comprehensive banking and related financial services within its primary market area focusing on commercial and real estate construction lending. At September 30, 2024, commercial and real estate construction loans represented 89.3% of total loans compared to 90.4% at March 31, 2024. Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter terms than residential lending which can increase the loan portfolio's profitability.

Previous wording

Introduction of New Products and Services. The Company continuously reviews new products and services to provide its customers with more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking. The products are tailored to meet the needs of small to medium size businesses and households in the markets we serve. The Company 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

Current wording

Introduction of New Products and Services. The Company continuously reviews new products and services to provide its customers with more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. The Company continues to experience growth in customer use of its online banking services, where the Bank provides a full array of traditional cash management products as well as online banking products including mobile banking, mobile deposit, bill pay, e-statements, and text banking. The products are tailored to meet the needs of small to medium size businesses and households in the markets we serve. The Company 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 $871.6 million and $961.8 million at September 30, 2024 and March 31, 2024, respectively.

Previous wording

Cash and cash equivalents, including interest-earning deposits in other banks, totaled $27.8 million at June 30, 2024 compared to $23.6 million at March 31, 2024. The Company’s cash balances typically fluctuate based upon funding needs, deposit activity and investment securities activity. Based on the Company’s asset/liability management program and liquidity objectives, the Company may deploy excess cash to purchase investment securities depending on the rate environment and other considerations. As a part of this strategy, the Company may choose to invest in short-term certificates of deposit held for investment, all of which are fully insured by the Federal Deposit Insurance Corporation (the “FDIC”).

Current wording

Cash and cash equivalents, including interest-earning deposits in other banks, totaled $31.0 million at September 30, 2024 compared to $23.6 million at March 31, 2024. The Company’s cash balances typically fluctuate based upon funding needs, deposit activity and investment securities activity. Based on the Company’s asset/liability management program and liquidity objectives, the Company may deploy excess cash to purchase investment securities depending on the rate environment and other considerations. As a part of this strategy, the Company may choose to invest in short-term certificates of deposit held for investment, all of which are fully insured by the Federal Deposit Insurance Corporation (the “FDIC”).

Previous wording

Investment securities totaled $363.2 million and $372.7 million at June 30, 2024 and March 31, 2024, respectively. The decrease was due to normal pay downs, calls and maturities. The Company had no sales of investment securities during the three months ended June 30, 2024. The Company’s investment securities primarily consist of a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA). At June 30, 2024, the Company determined that none of its investment securities required an allowance for credit losses (“ACL”). For additional information on the Company’s investment securities, see Note 5 of the Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Current wording

Investment securities totaled $354.9 million and $372.7 million at September 30, 2024 and March 31, 2024, respectively. The decrease was due to normal pay downs, calls and maturities of investment securities. The Company had no sales of investment securities during the six months ended September 30, 2024. The Company’s investment securities primarily consist of a combination of securities backed by government agencies (FHLMC, FNMA, SBA or GNMA). At September 30, 2024, the Company determined that none of its investment securities required an allowance for credit losses (“ACL”). For additional information on the Company’s investment securities, see Note 5 of the Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Previous wording

Loans receivable, net, totaled $1.03 billion at June 30, 2024, compared to $1.01 billion at March 31, 2024, an increase of $21.1 million. The increase was primarily attributable to increases in commercial business loans of $9.1 million, multi-family loans of $8.5 million, other installment loans of $5.1 million, and real estate construction loans of $3.4 million. These increases were partially offset by a decrease in commercial real estate loans of $5.4 million.

Current wording

Loans receivable, net, totaled $1.05 billion at September 30, 2024, compared to $1.01 billion at March 31, 2024, an increase of $36.9 million. The increase was primarily attributable to increases in real estate construction loans of $15.0 million, other installment loans of $14.5 million, multi-family loans of $7.9 million and commercial business loans of $7.5 million. These increases were partially offset by a decrease in commercial real estate loans of $10.0 million.

Previous wording

The Company no longer originates one-to-four family mortgage loans; however, will from time to time purchase these loans consistent with its asset/liability objectives. Additionally, the Company will purchase commercial business loans and consumer loans to supplement loan originations and diversify the loan portfolio. Purchased loans are originated by a third-party located outside the Company’s primary market area. Commercial business loans purchased at June 30, 2024 totaled $26.2 million compared to $27.2 million at March 31, 2024. Consumer loans purchased at June 30, 2024 totaled $5.0 million compared to none at March 31, 2024. The Company also purchases the guaranteed portion of SBA loans to help loan portfolio diversification, supplement loan originations and generate a higher yield than overnight cash investments or short-term investments. These SBA loans are originated through another financial institution located outside the Company’s primary market area and are purchased with servicing retained by the seller. At June 30, 2024, the Company’s purchased SBA loan portfolio was $50.4 million compared to $51.0 million at March 31, 2024.

Current wording

The Company no longer originates one-to-four family mortgage loans; however, will from time to time purchase these loans consistent with its asset/liability objectives. Additionally, the Company will purchase commercial business loans and consumer loans to supplement loan originations and diversify the loan portfolio. Purchased loans are originated by a third-party located outside the Company’s primary market area. Commercial business loans purchased at September 30, 2024 totaled $24.7 million compared to $27.2 million at March 31, 2024. Consumer loans purchased at September 30, 2024 totaled $14.6 million compared to none at March 31, 2024. The Company also purchases the guaranteed portion of SBA loans to help loan portfolio diversification, supplement loan originations and generate a higher yield than overnight cash investments or short-term investments. These SBA loans are originated through another financial institution located outside the Company’s primary market area and are purchased with servicing retained by the seller. At September 30, 2024, the Company’s purchased SBA loan portfolio was $50.0 million compared to $51.0 million at March 31, 2024.

Previous wording

Deposits decreased $12.0 million to $1.22 billion at June 30, 2024, compared to $1.23 billion at March 31, 2024 due to increased competition, pricing and an overall decrease in market liquidity. Regular savings accounts decreased $13.0 million, non-interest bearing accounts decreased $9.8 million, and interest bearing accounts decreased $8.3 million. These decreases were partially offset by increases of $13.5 million in certificates of deposit and $5.7 million in money market accounts. The Company had no wholesale-brokered deposits at June 30, 2024 and March 31, 2024. Core branch deposits accounted for 98.0% of total deposits at both June 30, 2024 and March 31, 2024. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets.

Current wording

Deposits increased $5.8 million to $1.24 billion at September 30, 2024, compared to $1.23 billion at March 31, 2024 due to a concentrated effort by the Company to retain and increase deposits in light of the strong competition for deposits in its market area. Certificates of deposit and money market accounts increased $38.2 and $18.3 million, respectively. These increases were partially offset by decreases of $22.6 million in interest bearing accounts, $20.2 million in regular savings accounts and $8.0 million in non-interest-bearing accounts. The Company had no wholesale-brokered deposits at September 30, 2024 and March 31, 2024. Core branch deposits accounted for 98.4% of total deposits at September 30, 2024 compared to 98.0% at March 31, 2024. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets.

Previous wording

Accrued expenses and other liabilities increased $3.2 million to $19.4 million at June 30, 2024 compared to $16.2 million at March 31, 2024. The increase was primarily due to an outstanding balance in Trust sweep funds of $4.8 million at June 30, 2024 that were subsequently disbursed the following business day.

Current wording

Accrued expenses and other liabilities increased $1.6 million to $17.8 million at September 30, 2024 compared to $16.2 million at March 31, 2024. The increase was primarily due to an outstanding balance in Trust sweep funds of $4.7 million at September 30, 2024 that were subsequently disbursed the following business day. This increase was partially offset by decreases of $1.5 million in other accrued expenses and $845,000 in dividends payable.

Previous wording

FHLB advances increased $25.2 million to $113.5 million at June 30, 2024 compared to $88.3 million at March 31, 2024. FHLB advances at June 30, 2024 and March 31, 2024 were comprised of overnight advances. FHLB advances were utilized to fund new loan originations and to partially offset the decrease in deposit balances.

Current wording

FHLB advances increased $14.0 million to $102.3 million at September 30, 2024 compared to $88.3 million at March 31, 2024. FHLB advances at September 30, 2024 were comprised of overnight advances and short-term borrowings of $77.3 million and $25.0 million, respectively. FHLB advances at March 31, 2024 were comprised of overnight advances. FHLB advances were utilized to fund new loan originations.

Previous wording

Shareholders' equity increased $320,000 to $155.9 million at June 30, 2024 compared to $155.6 million at March 31, 2024. The increase was mainly attributable to current period net income of $966,000, partly offset by an increase in the accumulated other comprehensive loss related to the change in unrealized holding losses on securities available for sale, net of tax, of $250,000 and the payment of cash dividends totaling $422,000.

Current wording

Shareholders' equity increased $5.2 million to $160.8 million at September 30, 2024 compared to $155.6 million at March 31, 2024. The increase was mainly attributable to net income of $2.5 million and a decrease in the accumulated other comprehensive loss related to the change in unrealized holding losses on securities available for sale, net of tax, of $3.5 million for the six months ended September 30, 2024. These increases were partially offset by the payment of cash dividends totaling $843,000.

Previous wording

program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities. These sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities.

Current wording

Liquidity management is both a short and long-term responsibility of the Company's management. The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. If the Company requires funds beyond its ability to generate them internally, it has additional diversified and reliable sources of funds with the FHLB, the FRB and other wholesale facilities. These sources of funds may be used on a long or short-term basis to compensate for a reduction in other sources of funds or on a long-term basis to support lending activities.

Previous wording

The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals, continuing operations, satisfaction other financial commitments, and to take advantage of investment opportunities. During the three months ended June 30, 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 June 30, 2024, cash and cash equivalents and available for sale investment securities totaled $165.2 million, or 10.7% of total assets. Management believes that the Company’s security portfolio is of high quality and its securities would therefore be marketable. The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity management practice is to manage short-term borrowings, consistent with its asset/liability objectives. In addition to these primary sources of funds, the Bank has several secondary borrowing sources available to meet potential funding requirements, including FRB borrowings and FHLB advances. At June 30, 2024, the Bank had no advances from the FRB and maintains a credit facility with the FRB with an available borrowing capacity of $291.9 million, subject to sufficient collateral. At June 30, 2024, the Bank had advances totaling $113.5 million from the FHLB and had an additional borrowing capacity of $164.4 million with the FHLB, subject to sufficient collateral and stock investment. At June 30, 2024, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at their discretion.

Current wording

The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds for loan originations, deposit withdrawals, continuing operations, satisfaction other financial commitments, and to take advantage of investment opportunities. During the six months ended September 30, 2024, the Bank used its sources of funds primarily to fund loan commitments. At September 30, 2024, cash and cash equivalents and available for sale investment securities totaled $164.0 million, or 10.6% of total assets. Management believes that the Company’s security portfolio is of high quality and its securities would therefore be marketable. The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given period. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity management practice is to manage short-term borrowings, consistent with its asset/liability objectives. In addition to these primary sources of funds, the Bank has several secondary borrowing sources available to meet potential funding requirements, including FRB borrowings and FHLB advances. At September 30, 2024, the Bank had no advances from the FRB and maintains a credit facility with the FRB with an available borrowing capacity of $299.5 million, subject to sufficient collateral. At September 30, 2024, the Bank had advances totaling $102.3 million from the FHLB and had an additional borrowing capacity of $167.5 million with the FHLB, subject to sufficient collateral and stock investment. At September 30, 2024, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan collateral and counterparties could adjust discount rates applied to such collateral at their discretion.

Previous wording

An additional source of wholesale funding includes brokered certificates of deposit. While the Company has utilized brokered deposits from time to time, historically it has not extensively relied on brokered deposits to fund its operations. At June 30, 2024 and March 31, 2024, the Bank had no wholesale brokered deposits. The Bank also participates in the Certificate of Deposit Account Registry Services (“CDARS”) and Insured Cash Sweep (“ICS”) deposit products, which allow the Company to accept deposits in excess of the FDIC insurance limit for depositors while obtaining “pass-through” insurance for total deposits. The Bank’s CDARS and ICS balances were $39.8 million, or 3.3% of total deposits, and $39.6 million, or 3.2% of total deposits, at June 30, 2024 and March 31, 2024, respectively. The combination of all the Bank’s funding sources gives the Bank available liquidity of $810.3 million, or 52.7% of total assets at June 30, 2024.

Current wording

An additional source of wholesale funding includes brokered certificates of deposit. While the Company has utilized brokered deposits from time to time, historically it has not extensively relied on brokered deposits to fund its operations. At September 30, 2024 and March 31, 2024, the Bank had no wholesale brokered deposits. The Bank also participates in the Certificate of Deposit Account Registry Services (“CDARS”) and Insured Cash Sweep (“ICS”) deposit products, which allow the Company to accept deposits in excess of the FDIC insurance limit for depositors while obtaining “pass-through” insurance for total deposits. The Bank’s CDARS and ICS balances were $37.4 million, or 3.0% of total deposits, and $39.6 million, or 3.2% of total deposits, at September 30, 2024 and March 31, 2024, respectively. The combination of all the Bank’s funding sources gives the Bank available liquidity of $820.8 million, or 53.0% of total assets at September 30, 2024.

Previous wording

At June 30, 2024, the Company had total commitments of $131.3 million, which includes commitments to extend credit of $3.1 million, unused lines of credit totaling $80.3 million, undisbursed real estate construction loans totaling $46.3 million, and standby letters of credit totaling $1.6 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2024 totaled $193.5 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Offsetting these cash outflows are scheduled loan and investment securities maturities of less than one year totaling $35.7 million and $28.0 million, respectively, at June 30, 2024.

Current wording

At September 30, 2024, the Company had total commitments of $128.8 million, which includes commitments to extend credit of $14.9 million, unused lines of credit totaling $82.1 million, undisbursed real estate construction loans totaling $30.3 million, and standby letters of credit totaling $1.6 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2024 totaled $220.1 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Offsetting these cash outflows are scheduled loan and investment securities maturities of less than one year totaling $41.4 million and $24.4 million, respectively, at September 30, 2024.

Previous wording

The Company incurs capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected

Current wording

The Company incurs capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations. Based on our current capital allocation objectives, during the remainder of fiscal 2025 we expect cash expenditures of approximately $339,000 for capital investment in premises and equipment.

Previous wording

Riverview Bancorp, Inc., as a separate legal entity from the Bank, must provide for its own liquidity. Sources of capital and liquidity for Riverview Bancorp, Inc. include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. Management currently expects to continue the Company’s current practice of paying quarterly cash dividends on its common stock subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. The current quarterly common stock dividend rate is $0.02 per share, as approved by the Board of Directors, which management believes is a dividend rate per share that will enable the Company to balance multiple objectives of managing and investing in the Bank, and returning a substantial portion of the Company’s cash to its shareholders. Assuming continued payment during fiscal 2025 at this rate of $0.02 per share, average total dividend paid each quarter would be approximately $422,000 based on the number of the Company’s outstanding shares as of June 30, 2024. At June 30, 2024, Riverview Bancorp, Inc. had $8.8 million in cash to meet its liquidity needs.

Current wording

Riverview Bancorp, Inc., as a separate legal entity from the Bank, must provide for its own liquidity. Sources of capital and liquidity for Riverview Bancorp, Inc. include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. Management currently expects to continue the Company’s current practice of paying quarterly cash dividends on its common stock subject to the Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. The current quarterly common stock dividend rate is $0.02 per share, as approved by the Board of Directors, which management believes is a dividend rate per share that will enable the Company to balance multiple objectives of managing and investing in the Bank, and returning a substantial portion of the Company’s cash to its shareholders. Assuming continued payment during fiscal 2025 at this rate of $0.02 per share, average total dividends paid each quarter would be approximately $422,000 based on the number of the Company’s outstanding shares as of September 30, 2024. At September 30, 2024, Riverview Bancorp, Inc. had $8.1 million in cash to meet its liquidity needs.

Previous wording

Nonperforming assets were $461,000 or 0.03% of total assets at June 30, 2024, compared to $178,000 or 0.01% of total assets at March 31, 2024. At June 30, 2024, SBA and United States Department of Agriculture (“USDA”) government guaranteed loans that were 90 days or more past due and still accruing interest included in nonperforming assets totaled $301,000 compared to $5,000 at March 31, 2024. The Company expects to receive all principal and interest since the Company purchased the guaranteed portion of these loans which is backed by government guaranteed interest certificates.

Current wording

Nonperforming assets were $450,000 or 0.03% of total assets at September 30, 2024, compared to $178,000 or 0.01% of total assets at March 31, 2024. At September 30, 2024, SBA and United States Department of Agriculture (“USDA”) government guaranteed loans that were 90 days or more past due and still accruing interest included in nonperforming assets totaled $301,000 compared to $5,000 at March 31, 2024. The Company expects to receive all principal and interest since the Company purchased the guaranteed portion of these loans which is backed by government guaranteed interest certificates. The Company had no other real estate owned or foreclosed assets at September 30, 2024 or March 31, 2024.

Previous wording

The ACL for loans was $15.4 million or 1.47% of total loans at June 30, 2024 and $15.4 million or 1.50% of total loans at March 31, 2024. For the three months ended June 30, 2024 and 2023, the Company did not record a provision for credit losses. The coverage ratio of the ACL for loans to nonperforming loans was 3332.75% at June 30, 2024 compared to 8631.46% at March 31, 2024. The Company’s general valuation allowance to pooled or “collectively evaluated” loans was 1.47% at June 30, 2024 and 1.50% at March 31, 2024.

Current wording

The ACL for loans was $15.5 million or 1.46% of total loans at September 30, 2024 and $15.4 million or 1.50% of total loans at March 31, 2024. For the six months ended September 30, 2024, the Company recorded a provision for credit losses of $100,000 compared to none for the same period in the prior fiscal year. The coverage ratio of the ACL for loans to nonperforming loans was 3436.89% at September 30, 2024 compared to 8631.46% at March 31, 2024. The Company’s general valuation allowance to pooled or “collectively evaluated” loans was 1.46% at September 30, 2024 and 1.50% at March 31, 2024.

Previous wording

Management considers the ACL for loans and unfunded loan commitments to be adequate at June 30, 2024 based on the assessment of various factors affecting the loan portfolio, and the Company believes it has established its existing ACL in accordance with GAAP. However, a decline in national and local economic conditions (including declines as a result of inflation or recession), results of examinations by the Company’s banking regulators, or other factors could result in a material increase in the ACL for loans and unfunded loan commitments and may adversely affect the Company’s future financial condition and results of operations. In addition, because future events affecting borrowers and collateral cannot

Current wording

Management considers the ACL for loans and unfunded loan commitments to be adequate at September 30, 2024 based on an evaluation of various factors affecting the loan portfolio. The Company believes it has established its current ACL in accordance with GAAP, however, a material increase in the ACL may be required if there is a deterioration in national or local economic conditions (including those driven by inflation or recession), results of regulatory examinations, or other relevant factors. Such an increase could negatively impact the Company’s future financial condition and results of operations. In addition, since future events affecting borrowers and collateral values cannot be predicted with certainty, there is no guarantee that the current ACL will remain adequate. Significant increases in the ACL may be necessary if the quality of loans decline or if collateral values decrease, as discussed elsewhere in this document. For further information regarding the Company’s individually evaluated loans and ACL for loans and unfunded loan commitments, see Note 6 of the Notes to Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Previous wording

At June 30, 2024, loans delinquent 30-89 days totaled $10.2 million or 0.98% of total loans, up from $1.8 million or 0.17% at March 31, 2024. The increase in loans delinquent 30-89 days was primarily attributable to two commercial real estate loans totaling $8.2 million. One of these delinquent 30-89 days loans was related to a circumstance in which the loan is in the probate process. There is a plan in place to bring the loan current after the probate process has been finalized and no

Current wording

At September 30, 2024, loans delinquent 30-89 days totaled $6.8 million or 0.65% of total loans, up from $1.8 million or 0.17% of total loans at March 31, 2024. The increase in loans delinquent 30-89 days was primarily attributable to one commercial real estate loan totaling $3.6 million which is due to a circumstance where the loan is in the probate process. A plan is in place to bring the loan current once the probate process is completed, and no loss is expected. At September 30, 2024, CRE loans represented the largest portion of the loan portfolio at 54.05% of total loans and commercial business represented 22.33% of total loans.

Previous wording

Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023

Current wording

Comparison of Operating Results for the Three and Six Months Ended September 30, 2024 and 2023

Previous wording

Net interest income for the three months ended June 30, 2024 decreased $1.5 million to $8.8 million compared to $10.4 million for the same period in the prior year. The decrease was primarily due to increased interest expense on deposits. Net interest margin for the three months ended June 30, 2024 was 2.47% compared to 2.79% for the three months ended June 30, 2023. The decrease in the net interest margin was attributable to the increase in interest expense and the decrease in total average interest earning assets.

Current wording

Net interest income for the three and six months ended September 30, 2024 was $8.9 million and $17.8 million, representing a decrease of $909,000 and $2.4 million, respectively, compared to the three and six months ended September 30, 2023. The decrease during both the three and six month periods was primarily due to increased interest expense on deposits. Net interest margin for both the three and six months ended September 30, 2024 was 2.46%, compared to 2.63% and 2.71% for the three and six months ended September 30, 2023, respectively. The decrease in the net interest margin was primarily attributed to the increase in interest expense and the decrease in total average interest earning assets.

Previous wording

Interest and Dividend Income. Interest and dividend income for the three months ended June 30, 2024 increased $442,000 to $14.4 million compared to $14.0 million for the same period in the prior year. The increase was primarily due to an increase in interest income on loans receivable of $842,000, partially offset by a decrease in interest income on investment securities of $363,000.

Current wording

Interest and Dividend Income. Interest and dividend income for the three and six months ended September 30, 2024 was $14.9 million and $29.3 million, respectively, compared to $14.0 million and $28.0 million for the same periods in the prior year, respectively. The increase for the three and six months ended September 30, 2024 was primarily due to the increase in interest income on loans receivable of $1.3 million and $2.1 million, respectively, when compared to the three and six months ended September 30, 2023, which resulted from an increase in the average yield earned on loans and, to a lesser extent, the overall increase in the average balance of net loans.

Previous wording

Interest and fees earned on net loans increased by $842,000 for the three months ended June 30, 2024, compared to the same period in the prior year, due to increases in the yield earned on and the average outstanding balance of net loans, specifically mortgage loans. The average yield on loans increased 20 basis points to 4.70% for the three months ended June 30, 2024 compared to 4.50% for the comparable period in 2023. The average yield on mortgage related loans increased 23 basis points to 4.72% and non-mortgage related loans increased 11 basis points to 4.65% for the three months ended June 30, 2024. The average balance of net loans increased $26.7 million to $1.03 billion for the three months ended June 30, 2024 from $1.00 billion for the same period in the prior year, with the average balance of mortgage related loans increasing $21.2 million and the non-mortgage related loans increasing $5.5 million.

Current wording

Interest and fees earned on net loans increased by $1.3 million and $2.1 million for the three and six months ended September 30, 2024, compared to the same periods in the prior year primarily due to the overall increases in the average balance and yield earned on mortgage loans. The average yield on loans increased to 4.80% and 4.75% for the three and six months ended September 30, 2024, compared to 4.51% for both the three and six months ended September 30, 2023. The average yield on mortgage related loans increased to 4.78% and 4.75% for the three and six months ended September 30, 2024, respectively, compared to 4.47% and 4.48% for the same periods in the prior year, respectively. The average balance of net loans increased to $1.05 billion and $1.04 billion for the three and six months ended September 30, 2024, respectively, from $1.01 billion and $1.00 billion for the comparable periods in the prior year, respectively. The average balance of mortgage loans increased $34.2 million and $27.7 million to $783.8 million and $778.4 million for the three and six months ended September 30, 2024, respectively, from $749.6 million and $750.7 million for the same periods in the prior year.

Previous wording

Interest earned on investment securities decreased $363,000 for the three months ended June 30, 2024, compared to the same period in the prior year. The decrease was primarily the result of a decrease in the average balance of investment securities of $84.8 million to $391.3 million for the three months ended June 30, 2024, compared to $476.1 million for the same period in the prior year. During the last quarter of fiscal year 2024, the Company restructured a portion of its balance sheet by selling approximately $46.2 million of its lower-yielding available for sale investment securities. The remaining difference is attributable to normal paydown activities. The average yield on investment securities was 2.11% for the three months ended June 30, 2024 compared to 2.05% for the same period in the prior year. The increase in yield is related to the sales of lower-yielding securities as previously discussed.

Current wording

Interest earned on investment securities decreased $387,000 and $750,000 for the three and six months ended September 30, 2024, compared to the same periods in the prior year. The decrease was primarily the result of a decrease in the average balance of investment securities of $87.6 million and $86.2 million to $378.4 million and $384.8 million for the three and six months ended September 30, 2024, respectively, compared to $466.0 million and $471.0 million for the same periods in the prior year. During the last quarter of fiscal year 2024, the Company restructured a portion of its balance sheet by selling approximately $46.2 million of its lower-yielding available for sale investment securities. The remaining decrease is attributable to normal paydown activities. The average yield on investment securities was 2.05% and 2.08% for the three and six months ended September 30, 2024, respectively, compared to 2.00% and 2.02 % for the same periods in the prior year. The increase in yield is related to the sales of lower-yielding securities as previously discussed.

Previous wording

Interest Expense. Interest expense totaled $5.6 million for the three months ended June 30, 2024, compared to $3.6 million for the three months ended June 30, 2023. Interest expense on deposits increased $2.1 million for the three months ended June 30, 2024 compared to the same period the prior year, primarily due to an increase in the average rates paid on certificates of deposit, interest checking accounts and money market accounts, and to a lesser extent, the average balance of certificates of deposit. The average rate paid on certificates of deposits increased 131 basis points and the average balance increased $62.3 million for the three months ended June 30, 2024, compared to the same period in the prior year. The average rates paid on interest checking accounts and money market accounts increased 105 basis points and 78 basis points, respectively, for the three months ended June 30, 2024, compared to the same period in the prior year. The average balance of total interest-bearing deposits increased $4.8 million to $859.3 million for the three months ended June 30, 2024 compared to $854.5 million for the same period in the prior year, and the average rate increased 96 basis points to 1.61% during that same period.

Current wording

Interest Expense. Interest expense totaled $6.0 million and $11.6 million for the three and six months ended September 30, 2024, compared to $4.2 million and $7.8 million for the three and six months ended September 30, 2023, respectively. Interest expense on deposits increased $2.0 million and $4.1 million for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year primarily due to the increase in the average rates paid on certificates of deposits, interest checking accounts and money market accounts, and to a lesser extent, the average balance of certificates of deposit and interest checking accounts. The average rate paid on certificates of deposit increased 120 basis points and 126 basis points to 3.89% and 3.78% for the three and six months ended September 30, 2024, respectively, compared to the same periods for the prior year. The average balance of certificates of deposit increased $64.4 million and $63.3 million for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year. The average rate paid on interest checking accounts increased 107 basis points and 106 basis points for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year. The average balance of interest checking accounts increased $23.9 million and $23.0 million for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year. The average rate paid on money market accounts increased 62 basis points and 69 basis points for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year. These increases were partially offset by a $31.7 million and $27.2 million decrease in the average balance of money market accounts for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year.

Previous wording

Interest expense on borrowings decreased $94,000 for the three months ended June 30, 2024 compared to the same period in the prior year due to the decrease in the average balance of FHLB advances. The average balance of FHLB advances was $111.7 million for the three months ended June 30, 2024, compared to $130.0 million for the same period in the prior year.

Current wording

Interest expense on borrowings decreased $207,000 and $301,000 for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year primarily due to a decrease in the average balance of FHLB advances. The average balance of FHLB advances was $114.5 million and $113.1 million for the three and six months ended September 30, 2024, respectively, compared to $131.1 million and $130.5 million for the same periods in the prior year. The average rate paid on FHLB advances was 5.44% and 5.52% for the three and six months ended September 30, 2024, respectively, compared to 5.39% and 5.31% for the same periods in the prior year.

Previous wording

The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Variances that were insignificant have been allocated based upon the percentage relationship of changes in volume and changes in rate to the total net change (in thousands).

Current wording

The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the three and six months ended September 30, 2024 compared to the three and six months ended September 30, 2023. Variances that were insignificant have been allocated based upon the percentage relationship of changes in volume and changes in rate to the total net change (in thousands).

Previous wording

**Provision for Credit Losses.**The Company recorded no provision for credit losses for both the three months ended June 30, 2024 and 2023. The lack of provision for credit losses for the three months ended June 30, 2024 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. For the three months ended June 30, 2024, net charge-offs were insignificant compared to net charge-offs of $8,000 for the three months ended June 30, 2023.

Current wording

**Provision for Credit Losses.**The Company recorded a provision for credit losses of $100,000 for the three and six months ended September 30, 2024, compared to no provision for credit losses for the three and six months ended September 30, 2023.The increase in the provision for credit losses was primarily due to the overall increase in the loan portfolio. The lack of provision for credit losses for the three and six months ended September 30, 2023 reflects assumptions related to our forecast concerning the economic environment as a result of local, national and global events. 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. Net recoveries totaled $2,000 for the three and six months ended September 30, 2024, respectively. This compares to net recoveries of $3,000 and net charge-offs of $5,000 for the three and six months ended September 30, 2023, respectively. Annualized net charge-offs/recoveries were insignificant for both the three and six months ended September 30, 2024 and 2023.

Previous wording

Nonperforming loans were $461,000 at June 30, 2024, compared to $178,000 at March 31, 2024. Included in the $461,000 of nonperforming loans at June 30, 2024, were $301,000 of SBA and USDA government guaranteed loans. The Company expects to receive all principal and interest on these SBA and USDA loans since the Company purchased the guaranteed portion of the loans which is backed by government guaranteed interest certificates.

Current wording

Nonperforming loans were $450,000 at September 30, 2024, compared to $178,000 at March 31, 2024. Included in the $450,000 of nonperforming loans at September 30, 2024, were $301,000 of SBA and USDA government guaranteed loans. The Company expects to receive all principal and interest on these SBA and USDA loans since the Company purchased the guaranteed portion of the loans which is backed by government guaranteed interest certificates.

Previous wording

The ratio of the ACL for loans to nonperforming loans was 3332.75% at June 30, 2024 compared to 8631.46% at March 31, 2024. See “Asset Quality” above for additional information related to asset quality that management considers in determining the appropriate level of the ACL.

Current wording

The ratio of the ACL for loans to nonperforming loans was 3436.89% at September 30, 2024 compared to 8631.46% at March 31, 2024. See “Asset Quality” above for additional information related to asset quality that management considers in determining the appropriate level of the ACL.

Previous wording

Non-Interest Expense. Non-interest expense increased $991,000 to $11.0 million for the three months ended June 30, 2024, compared to $10.0 million for the same period in the prior year. Salaries and employee benefits increased $345,000 due to increases in compensation expense and personnel expense. Occupancy and depreciation expense increased by $312,000 due to increases in computer software, depreciation and repair and maintenance expenses as the Company continues to update and modernize branch locations. Professional fees increased by $147,000 which was primarily due to increases in legal and consulting fees. The increase in legal expenses was primarily related to the settlement of a litigation matter. For further information regarding the pending litigation, see “Note 13. Commitments and Contingencies”. Other non-interest expense also increased by $117,000 which was primarily related to additional accruals for business and occupation taxes.

Current wording

Non-Interest Expense. Non-interest expense increased $612,000 and $1.6 million to $10.7 million and $21.7 million for the three and six months ended September 30, 2024, respectively, compared to $10.1 million and $20.1 million for the same periods in the prior year, respectively. Salaries and employee benefits increased $632,000 and $977,000 for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year due to increases in compensation expense and bonus expense. Occupancy and depreciation expense increased by $272,000 and $584,000 for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year due to increases in computer software, depreciation, repair and maintenance expenses as the Company continues to update and modernize branch locations, and a one-time lease termination fee incurred in September 2024 as a result of the Company purchasing the Orchards location. Other changes in non-interest expense was an increase of $186,000 in professional fees for the six months ended September 30, 2024 compared to the same period in the prior year due to increases in consulting expense. Offsetting these fluctuations was a decrease in other non-interest expense of $318,000 and $201,000 for the three and six months ended September 30, 2024, respectively, compared to the same periods in the prior year due to excess accrued expenses related to litigation that was recognized in the prior year and an increase in fraud recoveries, partially offset by additional accruals for business and occupation taxes. For further information regarding the litigation, see “Note 13. Commitments and Contingencies”.

Previous wording

Income Taxes. The provision for income taxes was $253,000 for the three months ended June 30, 2024, compared to $823,000 for the same period in the prior year. The decrease in the provision for income taxes was due to lower pre-tax income for the three months ended June 30, 2024, compared to the same period in the prior year. The Company’s effective tax rate for the three months ended June 30, 2024, was 20.8%, compared to 22.4% for the three months ended June 30, 2023. The lower effective tax rate for the three months ended June 30, 2024 is due to lower pretax income. At June 30, 2024, management deemed that a valuation allowance related to the Company’s deferred tax asset was not necessary. At June 30, 2024, the Company had a net deferred tax asset of $9.9 million compared to $9.8 million at March 31, 2024.

Current wording

Income Taxes. The provision for income taxes was $425,000 and $678,000 for the three and six months ended September 30, 2024, respectively, compared to $697,000 and $1.5 million for the same periods in the prior year. The decrease in the provision for income taxes was due to lower pre-tax income for the three and six months ended September 30, 2024, compared to the same periods in the prior year. The Company’s effective tax rate for the three and six months ended September 30, 2024, was 21.4% and 21.2%, respectively, compared to 22.0% and 22.2% for the three and six months ended September 30, 2023, respectively. The lower effective tax rate for the three and six months ended September 30, 2024 is due to lower pretax income. At September 30, 2024, management deemed that a valuation allowance related to the Company’s deferred tax asset was not necessary. At September 30, 2024, the Company had a net deferred tax asset of $8.7 million compared to $9.8 million at March 31, 2024.