RVSB US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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

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

information determined by methods other than in accordance with GAAP. These measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis. Management uses these non-GAAP measures in its

analysis of the Company’s performance. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to

present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the

results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Recent Developments Related to COVID-19

In response to the current global situation surrounding the novel coronavirus of 2019 (“COVID-19”) pandemic, the Company is offering a variety of relief options designed to support our customers and the communities we

serve.

Paycheck Protection Program ("PPP") Participation – The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was signed into law on March

27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under the PPP, a new loan program. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the

program in April 2020. Under terms of the PPP, all PPP loans have: (a) an interest rate of 1.0% and (b) a two-year or five-year loan term to maturity. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of

the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA provided the borrower meets the SBA loan forgiveness requirements. In addition to the 1% interest earned on these loans, the SBA pays us fees

for processing PPP loans in the following amounts: (i) five percent for loans of not more than $350,000; (ii) three percent for loans of more than $350,000 and less than $2,000,000; and one percent for loans of at least $2,000,000. We may not collect

any fees from the loan applicants. Through the conclusion of this initial PPP on August 8, 2020, we had funded PPP loans totaling $113.5 million. The PPP loans that were originated consisted primarily of existing customers who are small to midsize

businesses as well as independent contractors, sole proprietors, partnerships and not-for-profits as allowed under the PPP guidance.

Paycheck Protection Program Part 2 ("PPP2") Participation – The Consolidated Appropriations Act, 2021 (“CAA 2021”) signed into law on December 27, 2020,

reopened the PPP through May 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and non-profits. In January 2021, the Bank began accepting and processing loan applications under PPP2. The Bank is also continuing to work

with its customers to assist them with accessing other borrowing options, including SBA and other government sponsored lending programs, as appropriate. The significant terms of PPP2 are as follows.

• Revised lender fee structure;

o Loans up to $50,000 – lesser of $2,500 or 50% of principal amount;

o Loans $350,000 or higher – 3% of principal amount;

o 300 or fewer employees;

o used, or expect to use, 100% of the initial PPP loan.

All PPP2 loans have: (a) an interest rate of 1.0% and (b) five-year loan term to maturity. The SBA guarantees 100% of the PPP2 loans made to eligible borrowers. The entire principal amount of the borrower’s PPP2 loan,

including any accrued interest, is eligible to be forgiven and repaid by the SBA, provided the borrower meets the SBA loan forgiveness guidelines.

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As of March 31, 2021, the total outstanding loan balance and unamortized fees related to SBA PPP loans totaled $96.1 million and $2.7 million, respectively. As of March 31, 2021, we had received SBA PPP loan

forgiveness approvals for 517 SBA PPP loans totaling $69.9 million. The SBA has recently released a simplified forgiveness process for PPP loans of $150,000 or less. As of March 31, 2021, the Bank held 540 PPP loans of $150,000 or less with a

combined balance of $25.5 million.

Loan Modifications –

As of March 31, 2021, the Bank’s loan portfolio exposures to the industry most affected by the COVID-19 pandemic was as follows (dollars in thousands):

The Company is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. The Company has made available the following short-term relief option to all borrowers affected by COVID-19:

• Covenant waivers and resets; and

• Extension of up to six months on maturing loans.

All loans modified due to COVID-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be

granted and if a downgrade in risk rating is appropriate.

As of March 31, 2021, the Company had approved payment deferrals for five commercial loans that were impacted by the COVID-19 pandemic totaling $18.1 million which consisted of deferral of regularly scheduled principal

and interest payments which is a decrease compared to eight commercial loans totaling $26.6 million, thirteen commercial loans totaling $49.7 million, and ninety-eight commercial loans totaling $161.6 million at December 31, 2020, September 30, 2020,

and June 30, 2020, respectively. As of March 31, 2021, there were no consumer and mortgage loans approved for payment deferrals compared to December 31, 2020 and September 30, 2020 when there were two consumer and mortgage loans totaling $462,000 and

four consumer and mortgage loans totaling $471,000, respectively. Consumer and mortgage loan modifications have significantly decreased compared to June 30, 2020 when the Company had forty-three consumer and mortgage loans totaling $10.1 million.

Further, three mortgage loans serviced for FHLMC totaling $916,000 were approved for payment deferrals as of March 31, 2021. These modifications were not classified as TDRs in accordance with the guidance of the CARES Act, CAA 2021 and bank

regulatory guidance.

The primary method of relief granted by the Company has been to allow the borrower to defer their loan payments for up to 90 days with a possibility depending on economic conditions to defer their loan payments for an

additional 90 days subject to an evaluation by the Company prior to granting the additional 90 day deferral. After the deferral period, normal loan payments will continue, however, payments will be applied first to interest until the deferred

interest is repaid and thereafter applied to both principal and interest with any deficiency in amortized principal payments added to the balloon payment due at maturity. We believe the steps we are taking are necessary to effectively manage our

portfolio and assist our customers through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.

Branch Operations and Additional Customer Support – We have taken various steps to ensure the safety of our customers and our personnel. Many of our

employees are working remotely or have flexible work schedules, and we have established measures within our offices to help ensure the safety of those employees who must work on-site. The Family First Coronavirus Response Act (“FFCRA”) also provides

additional flexibility to our employees to help navigate their individual challenges.

The COVID-19 pandemic has caused significant disruptions to our branch operations resulting in the implementation of various social distancing measures at the Company to address client and community needs. To ensure

the safety of our customers and employees, we encourage our customers to utilize services that are offered through drive up facilities, ATMs, online banking, and our call center operations.

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Critical Accounting Policies

The Company has established various accounting policies that govern the application of GAAP in the preparation of the Company’s Consolidated Financial Statements. The Company has identified policies that due to

judgments, estimates and assumptions inherent in those policies are critical to an understanding of the Company’s Consolidated Financial Statements. These policies relate to the methodology for the determination of the allowance for loan losses, the

valuation of investment securities, goodwill valuation and the calculation of income taxes. These policies and the judgments, estimates and assumptions are described in greater detail in the Notes to Consolidated Financial Statements contained in

Item 8 of this Form 10-K. In particular, Note 1 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” describes generally the Company’s accounting policies. Management believes that the judgments, estimates

and assumptions used in the preparation of the Company’s Consolidated Financial Statements are appropriate given the factual circumstances at the time. However, given the sensitivity of the Company’s Consolidated Financial Statements to these

critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition.

Operating Strategy

Fiscal year 2021 marked the 98th anniversary since the Bank began operations in 1923. The primary business strategy of the Company is to provide comprehensive banking and related financial services within

its primary market area. The historical emphasis had previously been on residential real estate lending. Since 1998, however, the Company has been diversifying its loan portfolio through the expansion of its commercial and construction loan

portfolios. At March 31, 2021, commercial and construction loans represented 93.8% of total loans. Commercial lending, including commercial real estate loans, typically has higher credit risk, greater interest margins and shorter terms than

residential lending which can increase the loan portfolio’s profitability.

The Company’s goal is to deliver returns to shareholders by increasing higher-yielding assets (in particular, commercial real estate and commercial business loans), increasing core deposit balances,

managing problem assets, reducing expenses, hiring experienced employees with a commercial lending focus and exploring expansion opportunities. The Company seeks to achieve these results by focusing on the following objectives:

Execution of our Business Plan. The Company is focused on increasing its loan portfolio, especially higher yielding commercial and construction loans, and its core

deposits by expanding its customer base throughout its primary market areas. By emphasizing total relationship banking, the Company intends to deepen the relationships with its customers and increase individual customer profitability through

cross-marketing programs, which allows the Company to better identify lending opportunities and services for customers. To build its core deposit base, the Company will continue to utilize additional product offerings, technology and a focus on

customer service in working toward this goal. The Company will also continue to seek to expand its franchise through de novo branches, the selective acquisition of individual branches, loan purchases and whole bank transactions that meet its

investment and market objectives.In this regard, the Company previously announced plans for three new branches located in Clark County, Washington, to complement its existing branch network. A new branch in both

downtown Camas and in the Cascade Park neighborhood of Vancouver opened in fiscal 2021. A construction delay due to COVID-19 has pushed the opening of the new branch location in Ridgefield to the fall of 2021.

Maintaining Strong Asset Quality. The Company believes that strong asset quality is a key to long-term financial success. The Company has actively managed delinquent loans

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

management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2021. Although the Company intends to prudently increase the percentage of its assets

consisting of higher-yielding commercial real estate, real estate construction and commercial business loans, which offer higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, the Company intends to

manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending.

Implementation of a Profit Improvement Plan (“PIP”). The Company’s PIP committee is comprised of several members of management and the Board of Directors to undertake

several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the Company’s operations. The PIP committee’s mission is not only to find additional cost saving

opportunities but also to search for and implement revenue enhancements and additional areas for improvement. As a result, the Company has improved its efficiency ratio over the last several years from 98.0% at March 31, 2014 to 64.7% at March 31,

2021.

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Introduction of New Products and Services. The Company continuously reviews new products and services to provide its customers 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 launched a new online mortgage origination platform in June 2019 and MobiMoneyTM in January 2021 which allows account holder’s the ability to control their respective Riverview debit card from a smartphone or tablet. The

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

the Trust Company to increase its fee income. Assets under management by the Trust Company totaled $1.3 billion and $1.2 billion at March 31, 2021 and March 31, 2020, respectively. The Company also offers a third-party identity theft product to its

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

Attracting Core Deposits and Other Deposit Products. The Company offers personal checking, savings and

money-market accounts, which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate. To build its core deposit base, the Company has sought to reduce its dependence on

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

customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit. In addition, the Company intends to increase demand deposits by growing business banking relationships through expanded product

lines tailored to meet its target business customers’ needs. The Company maintains technology-based products to encourage the growth of lower cost deposits, such as personal financial management, business cash management, and business remote deposit

products, that enable it to meet its customers’ cash management needs and compete effectively with banks of all sizes. Core branch deposits increased $344.7 millionat March 31, 2021 compared to March 31, 2020

reflecting the Company’s commitment to increasing core deposits versus relying on wholesale funding.

Recruiting and Retaining Highly Competent Personnel with a Focus on Commercial Lending. The Company’s ability to continue to

attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success. The Company believes that it enhances its market position and adds profitable growth opportunities by

focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending, and the deposit balances that accompany these relationships. The Company emphasizes to its employees the importance of

delivering exemplary customer service and seeking opportunities to build further relationships with its customers. The goal is to compete with other financial service providers by relying on the strength of the Company’s customer service and

relationship banking approach. The Company believes that one of its strengths is that its employees are also shareholders through the Company’s employee stock ownership (“ESOP”) and 401(k) plans.

Comparison of Financial Condition at March 31, 2021 and 2020

Cash and cash equivalents, including interest-earning accounts, totaled $265.4 million at March 31, 2021 compared to $42.0 million at March 31, 2020. Deposit growth outpaced the growth in loans receivable providing

significant excess funds invested in these interest-earning accounts. The Company’s cash balances typically fluctuate based upon funding needs, and the Company will deploy a portion of excess cash balances to purchase investment securities to earn

higher yields than the nominal yield earned on cash held in interest-earning accounts, based on the Company’s asset/liability management program and liquidity objectives in order to maximize earnings. As a part of this strategy, the Company also

invests a portion of its excess cash in short-term certificates of deposit held for investment. All of the certificates of deposit held for investment are fully insured by the FDIC. Certificates of deposits held for investment totaled $249,000 at

both March 31, 2021 and 2020.

Investment securities totaled $255.9million and $148.3 million at March 31, 2021 and 2020, respectively. The increase was due to investment purchases offset by normal pay downs,

calls and maturities. During the fiscal years ended March 31, 2021 and 2020, purchases of investment securities totaled $160.2 million and $18.1 million, respectively. The Company primarily purchases a combination of securities backed by government

agencies (FHLMC, FNMA, SBA or GNMA). At March 31, 2021, the Company determined that none of its investment securities required an OTTI charge. For additional information on the Company’s investment securities, see Note 3 of the Notes to Consolidated

Financial Statements contained in Item 8 of this Form 10-K.

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Loans receivable, net, totaled $924.1 million at March 31, 2021, compared to $898.9 million at March 31, 2020, an increase of $25.2 million. The increase was mainly due to the origination of SBA PPP loans partially

offset by normal paydowns of principal and loan payoffs. At March 31, 2021, SBA PPP loans totaled $93.4 million which are included in the commercial business loan category. In addition, commercial real estate loans increased $35.6 million or 7.0%.

These increases were offset by a decrease in in real estate construction loans of $47.9 million, or 73.8%. Due to the timing of the completion of these real estate construction projects, balances may fluctuate in these categories. Once these projects

are completed, these loans will roll to permanent financing and be classified within a category under other real estate mortgage. In addition, consumer and multifamily loans decreased $28.8 million, or 32.9% and $13.4 million, or 22.9%, respectively.

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

originated through another financial institution located outside the Company’s primary market area. These loans are purchased with servicing retained by the seller. At March 31, 2021, the Company’s purchased SBA loan portfolio was $47.4 million

compared to $74.8 million at March 31, 2020. During the year ended March 31, 2021, the Bank purchased $2.5 million of SBA loans, including premiums.

Goodwill was $27.1 million at both March 31, 2021 and 2020. For additional information on our goodwill impairment testing, see "Goodwill Valuation" included in this Item 7.

Prepaid expenses and other assets increased $5.7 million to $13.2 million at March 31, 2021 compared to $7.5 million at March 31, 2020. The increase is mainly due to the recording of three operating lease right-of-use

assets totaling $6.1 million with a corresponding increase in operating lease liabilities which are recorded in accrued expenses and other liabilities. For additional information on the Company’s leases, see Note 18 of the Notes to Consolidated

Financial Statements contained in Item 1 of this Form 10-K.

Deposits increased $355.6 million to $1.3 billion at March 31, 2021 compared to $990.4 million at March 31, 2020. The increase was mainly due to proceeds from SBA PPP loans deposited directly into customer accounts,

government stimulus checks and an increase in savings trends and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19. The Company had no wholesale-brokered deposits at March 31, 2021 and 2020. Core

branch deposits accounted for 97.4% of total deposits at March 31, 2021 compared to 97.6% at March 31, 2020. The Company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the

wholesale markets.

Shareholders' equity increased $2.8 million to $151.6 million at March 31, 2021 from $148.8 million at March 31, 2020. The increase was primarily attributable to net income of $10.5 million for the fiscal year ended

March 31, 2021. This increase was offset by a decrease in the accumulated other comprehensive income related to the unrealized holding gains and losses on available for sale investment securities, net of tax, of $2.3 million. Further, the increase

was offset by the payments of cash dividends totaling $4.5 million and the repurchase of 295,900 shares of common stock totaling $1.4 million for the fiscal year ended March 31, 2021.

Goodwill Valuation

Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is presumed to have an indefinite

useful life and is tested, at least annually, for impairment at the reporting unit level. The Company has two reporting units, the Bank and the Trust Company, for purposes of evaluating goodwill for impairment. All of the Company’s goodwill has been

allocated to the Bank reporting unit. The Company performs an annual review in the third quarter of each fiscal year, or more frequently if indications of potential impairment exist, to determine if the recorded goodwill is impaired. If the fair

value exceeds the carrying value, goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting unit is greater than its fair value, there is an indication that

impairment may exist and additional analysis must be performed to measure the amount of impairment loss, if any. The amount of impairment is determined by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the

goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, the Company would allocate the fair value to all of the assets and liabilities of the reporting unit, including unrecognized intangible

assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference.

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A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained,

significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; adverse action or assessment by a regulator; and unanticipated competition. Any adverse change in these

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

The Company performed its annual goodwill impairment test as of October 31, 2020. The goodwill impairment test involves a two-step process. Step one of the goodwill impairment test estimates the fair value of the

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

applies the aggregate market value of the Company and divides it among the reporting units. A key assumption in this approach is the control premium applied to the aggregate market value. A control premium is utilized as the value of a company from

the perspective of a controlling interest is generally higher than the widely quoted market price per share. The Company used an expected control premium of 35%, which was based on comparable transactional history. The income approach uses a

reporting unit’s projection of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions. The projection uses management’s best estimates of economic and market conditions over the projected

period including growth rates in loans and deposits, estimates of future expected changes in net interest margins and cash expenditures. Assumptions used by the Company in its discounted cash flow model (income approach) included an annual revenue

growth rate that approximated 8.1%, a net interest margin that approximated 3.3% and a return on assets that ranged from 0.91% to 1.39% (average of 1.11%). In addition to utilizing the above projections of estimated operating results, key assumptions

used to determine the fair value estimate under the income approach were the discount rate of 14.86% utilized for our cash flow estimates and a terminal value estimated at 1.43 times the ending book value of the reporting unit. The Company used a

build-up approach in developing the discount rate that included: an assessment of the risk-free interest rate, the rate of return expected from publicly traded stocks, the industry the Company operates in and the size of the Company. The whole bank

transaction approach estimates fair value by applying key financial variables in transactions involving acquisitions of similar institutions. In applying the whole bank transaction approach method, the Company identified transactions that occurred

during the first 10 months of calendar 2020 utilizing a multiple of 1.1 times price to book value. The market approach estimates fair value by applying tangible book value multiples to the reporting unit’s operating performance. The multiples are

derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit. In applying the market approach method, the Company selected four publicly traded comparable institutions. After selecting

comparable institutions, the Company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 0.8 times

tangible book value. The Company calculated a fair value of its reporting unit of $143.0 million using the corporate value approach, $179.0 million using the income approach, $184 million using the whole bank transaction approach and $180.0 million

using the market approach, with a final concluded value of $181.0 million, with half the weight given to the income approach and one quarter weight given to the whole bank approach and the market approach. No weight was given to the corporate value

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

Even though the Company determined that there was no goodwill impairment, a sustained decline in the value of its stock price as well as values of other financial institutions, declines in revenue for the Company

beyond our current forecasts, significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment

charge.

As a result of the effects of the COVID-19 pandemic and its impacts on the financial markets and economy, the Company also completed a qualitative assessment of goodwill as of March 31, 2021 and concluded that it is

more likely than not that the fair value of the Bank (the reporting unit), exceeds its carrying value at March 31, 2021. If adverse economic conditions or decreases in the Company’s common stock price and market capitalization as a result of the

COVID-19 pandemic were deemed sustained in the future rather than temporary, it may significantly affect the fair value of the reporting unit and may trigger future goodwill impairment charges. It is also possible that changes in circumstances

existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of

a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected; however, such an impairment charge would have no impact on our liquidity, operations or

regulatory capital.

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Estimated Fair Value of Level 3 Assets

The Company determines the estimated fair value of certain assets that are classified as Level 3 under the fair value hierarchy established under GAAP. These Level 3 assets are valued using

significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets. These Level 3 assets are certain loans measured for impairment for which there is neither an active

market for identical assets from which to determine fair value, nor is there sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs in a valuation model. Under these

circumstances, the estimated fair values of these assets are determined using pricing models, discounted cash flow methodologies, appraisals, and other valuation methods in accordance with accounting standards, for which the determination of fair

value requires significant management judgment or estimation.

Valuations using models or other techniques are dependent upon assumptions used for the significant inputs. Where market data is available, the inputs used for valuation reflect that information as of the valuation

date. In periods of extreme volatility, lessened liquidity or in illiquid markets, there may be more variability in market pricing or a lack of market data to use in the valuation process. Judgment is then applied in formulating those inputs.

Certain loans included in the loan portfolio were deemed impaired at March 31, 2021. Accordingly, loans measured for impairment were classified as Level 3 in the fair value hierarchy as there is no active market for

these loans. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment was measured based on a number of factors, including recent independent appraisals which are further

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

For additional information on our Level 1, 2 and 3 fair value measurements see Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

Comparison of Operating Results for the Years Ended March 31, 2021 and 2020

Net Income. Net income was $10.5 million, or $0.47 per diluted share, for the fiscal year ended March 31, 2021, compared to $15.7 million, or $0.69 per diluted share, for the

fiscal year ended March 31, 2020.The Company’s net income decreased primarily as a result of the increased provision for loan losses to $6.3 million for the fiscal year ended March 31, 2021 compared to $1.3

million provision for loan losses for the fiscal year ended March 31, 2020.

Net Interest Income. The Company’s profitability depends primarily on its net interest income, which is the difference between the income it receives on interest-earning assets

and the interest paid on deposits and borrowings. When the rate earned on interest-earning assets equals or exceeds the rate paid on interest-bearing liabilities, this positive interest rate spread will generate net interest income. The Company’s

results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies.

Net interest income for fiscal year 2021 decreased $814,000, or 1.8%, to $44.9 million compared to $45.7 million in fiscal year 2020. The net interest margin for the fiscal year ended March 31, 2021 was 3.41% compared

to 4.26% for the prior fiscal year. The decrease in the net interest margin was primarily the result of the low interest rate environment putting downward pressure on adjustable rate instruments combined with the impact of the low loan yields on the

SBA PPP loan portfolio and lower loan yields on new loan originations causing a decrease in the average yield on interest-earning assets partially offset by the decrease in the average yield on interest-bearing liabilities. The decrease was also due

to yields earned on interest-earning assets declining at a faster rate than interest rates paid on interest-bearing liabilities as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rate changes.

Interest and Dividend Income. Interest and dividend income decreased $2.2 million to $48.3 million for the fiscal year ended March 31, 2021 from $50.5 million for the fiscal year

ended March 31, 2020. The decrease for the fiscal year ended March 31, 2021 was due primarily to the 103 basis point decrease in the average yield on interest-earning assets to 3.67% compared to 4.70% for the fiscal year ended March 31, 2020. The

substantial increase in the average balance of overnight cash balances as a result of the increase in deposit balances related to SBA PPP loans, is negatively impacting the average yield on interest earning assets. Interest and dividend income

included $4.5 million of interest income and fees earned related to SBA PPP loans for the fiscal year ended March 31, 2021. There was no interest income and fees related to SBA PPP loans for the fiscal year ended March 31, 2020

The average balance of net loans increased $81.6 million to $966.1 million for fiscal year ended March 31, 2021 compared to $884.5 million for the same period in the prior year due primarily to SBA PPP loans. Although

the average balance of loans increased, the average yield on net loans decreased and was 4.71% for fiscal year ended March 31, 2021 compared to 5.25% for the same period in the prior year, due primarily to the low interest rate environment resulting

from the emergency 150 basis point reduction in the targeted federal funds rate in March 2020 due to the COVID-19 pandemic and secondarily

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due to the impact of SBA PPP loans. For the fiscal year ended March 31, 2021, the average balance of SBA PPP loans was $96.4 million and the average yield on SBA PPP loans was 4.62% for the fiscal year ended March 31,

2021, which included the recognition of the net deferred fees. This resulted in a positive impact, primarily due to the accelerated SBA PPP loan fee recognition due to SBA PPP loan forgiveness, to the average loan yield on net loans of one basis

point for the fiscal year ended March 31, 2021. The impact of SBA PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met. This decrease in the average yield

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

Interest Expense. Interest expense for the fiscal year ended March 31, 2021 totaled $3.4 million, a $1.3 million or 28.1% decrease from $4.8 million for the fiscal year ended

March 31, 2020. The decrease in interest expense was primarily the result of a 26 basis points decrease in the weighted average interest rate on interest-bearing liabilities for the year ended March 31, 2021 compared to the prior fiscal year. The

weighted average interest rate on interest-bearing deposits decreased to 0.31% for the fiscal year ended March 31, 2021 from 0.43% for the prior fiscal year due primarily to the decrease in the weighted average interest rate on deposits excluding

certificates of deposit. The weighted average interest rate on certificates of deposit increased due to pricing pressures and competition in our local markets. The average balance of interest-bearing deposits increased $141.2 million to $817.7

million for the fiscal year ended March 31, 2021 compared to $676.5 million for the fiscal year ended March 31, 2020. Although the average balance of interest-bearing deposits increased, interest expense on deposits decreased $346,000 due to the

decrease in the average cost of interest-bearing deposits primarily as a result of the Company decreasing the interest rates paid on deposit products due to the overall decreasing rate environment. The increase in the average balance of

interest-bearing deposits is due primarily to proceeds from SBA PPP loans deposited directly into customer accounts, government stimulus checks and an increase in savings trends and reduced withdrawals from deposit accounts due to a change in

spending habits as a result of COVID-19.

Interest expense on borrowings decreased $991,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year. The weighted average interest rate on other interest-bearing liabilities

decreased to 2.00% for the fiscal year ended March 31, 2021 compared to 3.78% for the prior fiscal year. The average balance of other interest-bearing liabilities decreased to $44.1 million for fiscal year ended March 31, 2021 compared to $49.6

million for the same period in the prior year.

Provision for Loan Losses. The provision for loan losses totaled $6.3 million and $1.3 million for the fiscal years ended March 31, 2021 and 2020, respectively. The increase in

the provision for loan losses for the fiscal year 2021 was primarily due to the economic conditions resulting from the COVID-19 pandemic and the continued uncertainty around the COVID-19 pandemic and its adverse economic effect on the respective

industry exposures within our loan portfolio. Any future decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely

affect the Company’s financial condition and results of operations.

At March 31, 2021, the Company had an allowance for loan losses of $19.2 million, or 2.03% of total loans, compared to $12.6 million, or 1.38% at March 31, 2020. Net recoveries for the year ended March 31, 2021 were

$254,000 compared to net charge-offs of $83,000 for the year ended March 31, 2020. Net recoveries to average net loans for the year ended March 31, 2021 was (0.03%). Net charge-offs to average net loans for the year ended March 31, 2020 was 0.01%.

Impaired loans are subjected to an impairment analysis to determine an appropriate reserve amount to be held against each loan. As of March 31, 2021, the Company had identified $3.6 million of impaired loans. Because

the significant majority of the impaired loans are collateral dependent, nearly all of the specific allowances are calculated based on the estimated fair value of the collateral. Of those impaired loans, $3.3 million have no specific valuation

allowance as their estimated net collateral value is equal to or exceeds the carrying amount of the loan, which in some cases is the result of previous loan charge-offs. The remaining $252,000 of impaired loans have specific valuation allowances

totaling $11,000. Charge-offs on these impaired loans totaled $83,000 from their original loan balances. Based on a comprehensive analysis, management deemed the allowance for loan losses adequate to cover probable losses inherent in the loan

portfolio at March 31, 2021. See Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the allowance for loan losses.

56

Non-Interest Income. Non-interest income decreased $1.3 million to $11.1 million for the year ended March 31, 2021 from $12.4 million for fiscal year 2020. The decrease in

non-interest income was due to the decrease in fees and service charges of $159,000 for the fiscal year ended March 31, 2021 compared the same period in the prior year primarily from a decrease in transactions due to a change in customer spending

habits during the COVID-19 pandemic. Additionally, the decrease in non-interest income was due to the decrease in asset management fees of $762,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year as a result of

the decline in interest rates on fee generating products. Furthermore, net gains on sales of loans held for sale decreased $224,000 for the fiscal year ended March 31, 2021 compared to the same period in the prior year as the Company transitioned to

a model where mortgage loan originations are brokered to various third-party mortgage companies.

Non-Interest Expense. Non-interest expense remained unchanged at $36.3 million for the fiscal years ended March 31, 2021 and 2020. Although non-interest expense remained

unchanged, there were increases in occupancy and depreciation expense of $204,000 and an increase in data processing of $33,000 for the year ended March 31, 2021 compared to the prior fiscal year due to continued investments into enhancing our

information technology infrastructure and technology expenditures incurred as a result of employees working from home during the COVID-19 pandemic. In addition, FDIC insurance premium expense increased as FDIC insurance premium assessments returned

to normal levels. The Bank utilized its remaining FDIC credits for previously paid deposit insurance premiums to partially offset assessments in the prior fiscal year.

Offsetting these increases were decreases in salaries and employee benefits of $235,000 for the year ended March 31, 2021 compared to the prior fiscal year which is attributable to the loan origination cost offset

related to the origination of the SBA PPP loans and the Company’s focus to manage controllable costs. Advertising and marketing expenses decreased $390,000 for the year ended March 31, 2021 compared to the prior fiscal year primarily due to reduced

opportunities for community sponsorships and cancellations of sponsored events due to COVID-19 restrictions.

Income Taxes. The provision for income taxes was $3.0 million and $4.8 million for the fiscal years ended March 31, 2021 and 2020, respectively, primarily reflecting lower

pre-tax income.The effective tax rate was 22.2% for the year ended March 31, 2021 compared to 23.5% for the year ended March 31, 2020. At March 31, 2021, the Company had a deferred tax asset of $5.4 million. As

of March 31, 2021, management deemed that a deferred tax asset valuation allowance related to the Company’s deferred tax asset was not necessary. See Note 11 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for

further discussion of the Company’s income taxes.

57

Average Balance Sheet. The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income

earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities, resultant yields, interest rate spread, ratio of interest-earning assets to interest-bearing liabilities and net interest margin. Average

balances for a period have been calculated using monthly average balances during such period. Non-accruing loans were included in the average loan amounts outstanding. Loan fees, net, of $4.5 million, $1.5 million and $1.5 million were included in

interest income for the years ended March 31, 2021, 2020 and 2019, respectively.

Years Ended March 31,

(Dollars in thousands)

Interest-earning assets:

Non-interest-earning assets:

Interest-bearing liabilities:

Non-interest-bearing liabilities:

Tax-Equivalent Adjustment (3) $ 41 $ 37 $ 45

(1) Includes non-accrual loans.

58

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on net interest income of the Company for the fiscal year ended March 31, 2021 compared to the fiscal year ended March 31, 2020, and the fiscal

year ended March 31, 2020 compared to the fiscal year ended March 31, 2019. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on

interest income attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume). Variances that were insignificant have been allocated based upon the

percentage relationship of changes in volume and changes in rate to the total net change (in thousands). The changes noted in the table below include tax equivalent adjustments, and as a result, will not agree to the amounts reflected on the

Company’s consolidated statements of income for the categories that have been adjusted to reflect tax equivalent income.

Year Ended March 31,

Increase (Decrease) Due to Increase (Decrease) Due to

Total

Interest Income:

Daily interest-earning 1 (2 ) (1 ) - - -

Interest Expense:

Interest checking accounts 24 (39 ) (15 ) (1 ) - (1 )

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

Asset and Liability Management

The Company's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to

changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest rate sensitivity of the Company's

interest-earning assets and interest-bearing liabilities. Interest rate sensitivity increases by retaining portfolio loans with interest rates subject to periodic adjustment to market conditions and selling fixed-rate one-to-four family mortgage

loans with terms to maturity of more than 15 years. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a stable

source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with terms up to ten years.

The Company has adopted a strategy that is designed to maintain or improve the interest rate sensitivity of assets relative to its liabilities. The primary elements of this strategy involve: the origination of

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

residential mortgage loans; matching asset and liability maturities; investing in short-term securities; and selling most long term, fixed-rate, one-to-four family mortgage loan originations. The strategy for liabilities has been to shorten the

maturities for both deposits and borrowings. The longer-term objective is to increase the proportion of noninterest bearing demand deposits, low interest bearing demand deposits, money market accounts, and savings deposits relative to certificates of

deposit to reduce our overall cost of funds.

The Company's mortgage servicing activities provide additional protection from interest rate risk. The Company retains servicing rights on all mortgage loans sold. As market interest rates rise, the fixed-rate loans

held in the loan portfolio diminish in value. However, the value of the servicing loan portfolio tends to rise as market interest rates increase because borrowers tend not to prepay the underlying mortgages, thus providing an interest rate risk hedge

versus the fixed-rate loan portfolio. See "Item 1. Business – Lending Activities – Mortgage Loan Servicing."

59

Consumer loans, such as home equity lines of credit and installment loans, commercial loans and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans, and

accordingly reduce the Company's exposure to fluctuations in interest rates. Adjustable interest rate loans totaled $461.1 million or 48.89% of total loans at March 31, 2021 as compared to $491.7 million or 53.95% at March 31, 2020. Although the

Company has sought to originate adjustable rate loans, the ability to originate and purchase such loans depends to a great extent on market interest rates and borrowers' preferences. Particularly in lower interest rate environments, borrowers often

prefer to obtain fixed-rate loans. See Item 1. “Business - Lending Activities – Real Estate Construction " and “- Lending Activities - Consumer Lending."

The Company may also invest in short-term to medium-term U.S. Government securities as well as mortgage-backed securities issued or guaranteed by U.S. Government agencies. At March 31, 2021, the combined investment

portfolio carried at $255.9 million had an average life of 5.2 years. Adjustable rate mortgage-backed securities totaled $7.6 million at March 31, 2021 compared to $11.6 million at March 31, 2020. See Item 1. “Business – Investment Activities" for

additional information.

Liquidity and Capital Resources

Liquidity is essential to our business. The objective of the Bank’s liquidity management is to maintain ample cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and

to fund ongoing operations. Core relationship deposits are the primary source of the Bank’s liquidity. As such, the Bank focuses on deposit relationships with local consumer and business clients who maintain multiple accounts and services at the

Bank.

Liquidity management is both a short and long-term responsibility of the Company's management. The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii)

projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) its asset/liability management program objectives. Excess liquidity is invested generally in interest-bearing overnight deposits and other

short-term government and agency obligations. 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.

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

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

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

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

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

advantage of investment opportunities. During the year ended March 31, 2021, the Bank used its sources of funds primarily to fund loan commitments and investment purchases. At March 31, 2021, cash and cash equivalents, certificates of deposit held

for investment and available for sale investment securities totaled $482.0 million, or 31.1% of total assets. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs; however, its primary liquidity

management practice is to manage short-term borrowings, including FRB borrowings and FHLB advances consistent with its asset/liability objectives. At March 31, 2021, the Bank had no advances from the FRB and maintains a credit facility with the FRB

with available borrowing capacity of $50.8 million, subject to sufficient collateral. At March 31, 2021, the Bank had no advances from the FHLB and had an available borrowing capacity of $226.7 million, subject to sufficient collateral and stock

investment. At March 31, 2021, the Bank had sufficient unpledged collateral to allow it to utilize its available borrowing capacity from the FRB and the FHLB. Borrowing capacity may, however, fluctuate based on acceptability and risk rating of loan

collateral and counterparties could adjust discount rates applied to such collateral at their discretion. Additionally, the Federal Reserve established the PPPLF to bolster the effectiveness of the SBA PPP. The Bank may utilize the PPPLF pursuant to

approval from the FRB to which the Bank would pledge SBA PPP loans at face value as collateral to obtain FRB non-recourse advances. As of March 31, 2021, the Bank had not sought approval to utilize PPPLF as it held a substantial cash and cash

equivalent position as a result of SBA PPP disbursed funds remaining unused in borrower deposit accounts and due to deposit customers increasing their balances due to COVID-19.

An additional source of wholesale funding includes brokered certificates of deposit. While the Company has utilized brokered deposits from time to time, the Company historically has not extensively relied on brokered

deposits to fund its operations. At March 31, 2021 and 2020, the Bank had no wholesale brokered deposits. The Bank also participates in the CDARS and ICS deposit products, which allow the Company to accept deposits in excess of the FDIC insurance

limit for a depositor and obtain “pass-through” insurance for the total deposit. The Bank’s CDARS and ICS balances were $37.9

60

million, or 2.8% of total deposits, and $5.3 million, or 0.54% of total deposits, at March 31, 2021 and 2020, respectively. In addition, the Bank is enrolled in an internet deposit listing service. Under this listing

service, the Bank may post time deposit rates on an internet site where institutional investors have the ability to deposit funds with the Bank. At March 31, 2021 and 2020, the Company had no deposits through this listing service. Although the

Company did not originate any internet based deposits during the year ended March 31, 2021, the Company may do so in the future consistent with its asset/liability objectives. The combination of all the Bank’s funding sources gives the Bank available

liquidity of $983.0 million, or 63.5% of total assets at March 31, 2021.

At March 31, 2021, the Company had total commitments of $149.5 million, which includes commitments to extend credit of $12.7 million, unused lines of credit totaling $121.2 million, undisbursed construction loans

totaling $13.6 million, and standby letters of credit totaling $2.0 million. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Certificates of deposit that are scheduled to mature in less than one

year from March 31, 2021 totaled $83.9 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. Offsetting these cash outflows are scheduled loan maturities of less than one year totaling $36.6

million at March 31, 2021.

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. At March 31, 2021, Riverview Bancorp, Inc. had $10.0 million in cash to meet its liquidity needs.

Effect of Inflation and Changing Prices

The Consolidated Financial Statements and related financial data presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of

historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies,

virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest

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

New Accounting Pronouncements

For a discussion of new accounting pronouncements and their impact on the Company, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

Litigation

The Company is periodically a party to litigation arising in the ordinary course of business. In the opinion of management, these actions will not have a material adverse effect, if any, on the

Company’s future financial position, results of operations, or liquidity. The Bank has entered into employment contracts with certain key employees, which provide for contingent payment subject to future events.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to

originate mortgage, commercial and consumer loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s maximum exposure to

credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to

originate loans are conditional and are honored for up to 45 days subject to the Company’s usual terms and conditions. Collateral is not required to support commitments.

At March 31, 2021, the Company had commercial loan commitments of $3.1 million and undisbursed commercial lines of credit of $97.3 million. Commercial real estate mortgage loan commitments totaled $6.3 million and the

undisbursed balance of commercial real estate mortgage loans was $755,000 at March 31, 2021. At March 31, 2021, construction loan commitments totaled $2.8 million and undisbursed construction loans totaled $13.6 million. Unused lines of credit

secured by land development loans totaled $391,000. Real estate one-to-four family loan commitments totaled $471,000 and unused lines of credit secured by real estate one-to-four family loans totaled $19.8 million at March 31, 2021. Other installment

loan commitments totaled $13,000. Unused lines of credit on other installment loans totaled $1.1 million and unused lines of credit secured by multi-family real estate totaled $1.8 million at March 31, 2021. At March 31, 2021, the Company had standby

letters of credit totaling $2.0 million. For additional information regarding future financial commitments, this discussion and analysis should be read in conjunction with Note 17 of the Notes to Consolidated Financial Statements contained in Item 8

of this Form 10-K.

61

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve.

Our profitability is dependent to a large extent on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities.Our activities, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the

institution’s earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution’s assets, liabilities and off-balance-sheet contracts. Interest rate risk is measured by the

variability of financial performance and economic value resulting from changes in interest rates. Interest rate risk is the primary market risk affecting our financial performance.

Our Asset/Liability Management Committee (“ALCO”) is responsible for monitoring and reviewing asset/liability processes and interest rate risk exposure to determine the level of risk appropriate given our operating

environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the

Board of Directors. Through such management, we seek to reduce the vulnerability of our earnings and capital position to changes in the level of interest rates. Our actions in this regard are taken under the guidance of the ALCO, which is comprised

of members of our senior management. The ALCO closely monitors our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan

and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances.

The Company does not maintain a trading account for any class of financial instrument nor does it engage in hedging activities or purchase high-risk derivative instruments. Furthermore, the Company is not subject to

foreign currency exchange rate risk or commodity price risk. For information regarding the sensitivity to interest rate risk of the Company's interest-earning assets and interest-bearing liabilities, see the tables under Item 1. “Business – Lending

Activities,” “– Investment Activities” and “– Deposit Activities and Other Sources of Funds”.

The Company's principal financial objective is to achieve long-term profitability while limiting its exposure to fluctuating market interest rates. The Company intends to reduce risk where appropriate but accepts a

degree of risk when warranted by economic circumstances. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates.

The principal element in achieving this objective is to increase the interest rate sensitivity of the Company's interest-earning assets by retaining in its loan portfolio, short–term loans and loans with interest rates subject to periodic

adjustments.

Consumer and commercial loans are originated and held in the loan portfolio as the short-term nature of these portfolio loans match durations more closely with the short-term nature of retail deposits such as interest

checking, money market accounts and savings accounts. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits reduce the effects of interest rate fluctuations because they generally represent a more

stable source of funds. As part of its interest rate risk management strategy, the Company promotes transaction accounts and certificates of deposit with longer terms to maturity. Except for immediate short-term cash needs, and depending on the

current interest rate environment, FHLB advances will have short or long-term maturities. FRB borrowings have short-term maturities. For additional information, see Item 7. “Management's Discussion and Analysis of Financial Condition and Results of

Operations" contained herein.

A number of measures are utilized to monitor and manage interest rate risk, including simulation modeling and traditional interest rate gap analysis. While both methods provide an indication of risk for a given change

in interest rates, the simulation model is primarily used to assess the impact on earnings that changes in interest rates may produce. Key assumptions in the model include cash flows and maturities of financial instruments, changes in market

conditions, loan volumes and pricing, deposit sensitivity, consumer preferences and management’s capital leverage plans. These assumptions are inherently uncertain; therefore, the model cannot precisely estimate net interest income or precisely

predict the impact of higher or lower interest rates on net interest income. Actual results may significantly differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and specific

strategies among other factors.

62

The following table shows the approximate percentage change in net interest income as of March 31, 2021 over a 12 and 24-month period under several rate scenarios:

Base case - (8.7)%

Our consolidated balance sheet continues to be slightly asset sensitive, meaning that interest-earning assets reprice faster than interest-bearing liabilities in a given period. However, due to a number of loans in our

loan portfolio with interest rate floors, our net interest income will be negatively impacted in a rising interest rate environment until such time as the current rate exceeds these interest rate floors. Net interest income will increase in year one

as our interest-earning assets are expected to continue to reprice faster than interest-bearing liabilities. In a falling interest rate environment, our net interest income will be negatively impacted as our deposit costs are currently relatively low

and interest rates paid cannot decrease significantly. We attempt to limit our interest rate risk through managing the repricing characteristics of our assets and liabilities.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar

maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while

interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Furthermore, in the

event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

The following table shows the Company's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at March 31, 2021. Market risk sensitive

instruments are generally defined as on- and off-balance sheet derivatives and other financial instruments (dollars in thousands).

Interest-Sensitive Assets:

Investment securities and other

Interest-Sensitive Liabilities:

FHLB advances - - - - - - -

Off-Balance Sheet Items:

Commitments to extend credit $ 12,678 $ - $ - $ - $ - $ 12,678

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64

Item 8. Financial Statements and Supplementary Data

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

Consolidated Financial Statements for the Years Ended March 31, 2021, 2020 and 2019

Report of Independent Registered Public Accounting Firm

TABLE OF CONTENTS

Page

Report of Independent Registered Public Accounting Firm 66

Notes to Consolidated Financial Statements 73

65

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Riverview Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Riverview Bancorp, Inc. and Subsidiary (collectively, "the Company") as of March 31, 2021 and 2020, and the related consolidated statements of income,

comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2021, and the related notes (collectively referred to as "the financial statements"). In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2021, in conformity

with accounting principles generally accepted in the United States of America (U.S.).

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm

registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the

Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of

material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of

internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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. 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 they relate.

66

Allowance for Loan Losses

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 $19,178,000 as of March 31, 2021, which consists of specific and general components in the amounts of $11,000 and $19,167,000,

respectively.

The specific component relates to loans that are classified as impaired. The Company measures impairment and the related asset specific allowance for impaired loans based on the difference between the recorded

investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. If the loan is collateral dependent, the Company measures impairment based upon the fair value of the

underlying collateral, which the Company determines based on the current fair value of the collateral less estimated selling costs, instead of discounted cash flows. Loans are identified as collateral dependent if the Company believes that collateral

is the sole source of repayment.

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: (i) lending policies and

procedures, including underwriting standards and collection, charge-off, and recovery practices; (ii) national and local economic trends and conditions; (iii) nature and volume of the portfolio and terms of loans; (iv) experience, ability, and depth

of lending management and staff; (v) volume and severity of past due, classified and nonaccrual loans as well as other loan modifications; (vi) quality of the Company's loan review system; (vii) existence and effect of any concentrations of credit

and changes in the level of such concentrations; (viii) changes in the value of underlying collateral, and (ix) 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 as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management rely on analysis that is highly subjective and

includes significant estimation uncertainty.

How the Critical Audit Matter Was Addressed in the Audit

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

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

Lake Oswego, Oregon

June 18, 2021

67

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND 2020

(In thousands, except share and per share data) 2021 2020

ASSETS

Certificates of deposit held for investment 249 249

Loans held for sale - 275

Investment securities:

Prepaid expenses and other assets 13,189 7,452

Federal Home Loan Bank (“FHLB”) stock, at cost 1,722 1,420

Financing lease right-of-use assets (“ROU”) 1,432 1,508

Mortgage servicing rights, net 81 191

Core deposit intangible (“CDI”), net 619 759

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES:

Accrued expenses and other liabilities 21,906 11,783

Advance payments by borrowers for taxes and insurance 521 703

COMMITMENTS AND CONTINGENCIES (See Note 17)

SHAREHOLDERS’ EQUITY:

Common stock, $.01 par value; 50,000,000 shares authorized

Accumulated other comprehensive income (loss) (160 ) 2,099

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019

(In thousands, except share and per share data) 2021 2020 2019

INTEREST AND DIVIDEND INCOME:

Interest on investment securities – taxable 2,422 3,440 4,456

Interest on investment securities – nontaxable 129 117 146

INTEREST EXPENSE:

NON-INTEREST INCOME:

Net gains on sales of loans held for sale 28 252 317

NON-INTEREST EXPENSE:

Earnings per common share:

Weighted average number of common shares outstanding:

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019

Other comprehensive income (loss):

Total other comprehensive income (loss), net (2,259 ) 4,725 2,122

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019

Shares Amount Capital Earnings Income (Loss)

Cash dividend on common stock ($0.15 per share) - - - (3,390 ) - (3,390 )

Stock-based compensation expense - - 44 - - 44

Other comprehensive income, net - - - - 2,122 2,122

Cash dividend on common stock ($0.19 per share) - - - (4,306 ) - (4,306 )

Restricted stock grants 82,673 - - - - -

Stock-based compensation expense - - 346 - - 346

Other comprehensive income, net - - - - 4,725 4,725

Cash dividend on common stock ($0.20 per share) - - - (4,461 ) - (4,461 )

Restricted stock grants 90,763 - - - - -

Restricted stock cancelled (7,913 ) - - - - -

Stock-based compensation expense - - 396 - - 396

Other comprehensive income, net - - - - (2,259 ) (2,259 )

See accompanyingnotes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31, 2021, 2020 AND 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to cash provided by operating activities:

Purchased loans amortization (accretion), net 274 53 (147 )

Provision for deferred income taxes (1,429 ) (574 ) (11 )

Stock-based compensation expense 396 346 44

Increase in deferred loan origination fees, net of amortization 2,477 138 498

Changes in assets and liabilities:

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of investment securities available for sale (120,371 ) (18,125 ) -

Principal repayments on investment securities held to maturity 248 7 7

Purchases of investment securities held to maturity (39,871 ) - -

Redemption of certificates of deposits held for investment - 498 5,220

Redemption (purchase) of Federal Home Loan Bank stock, net (302 ) 2,224 (2,291 )

Proceeds from sales of REO and premises and equipment - 81 976

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on finance lease liability (40 ) (34 ) (28 )

Proceeds from exercise of stock options 50 227 179

Repurchase of common stock (1,447 ) (1,019 ) -

SUPPLEMENTAL DISCLOSURES:

Cash paid during the period for:

NONCASH INVESTING AND FINANCING ACTIVITIES:

Dividends declared and accrued in other liabilities $ 1,118 $ 1,135 $ 904

See accompanying notes to consolidated financial statements.

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RIVERVIEW BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2021, 2020 and 2019

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Reserve System ("Federal Reserve") is the primary federal regulator for Riverview Bancorp, Inc. 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 October 2020, the Trust Company issued an additional 500 shares of Trust Company stock with the exercise of options

for 500 shares of Trust Company common stock by the Trust Company’s President and Chief Executive Officer. As a result of these transactions, the Bank’s ownership in the Trust Company decreased from 100% to 97.8%, resulting in a noncontrolling

interest. The noncontrolling interest was $154,000 and $107,000 as of March 31, 2021 and 2020, respectively, and net income attributable to the noncontrolling interest was $10,000 and $5,000 for the years ended March 31, 2021 and 2020, respectively.

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

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

generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”), the accounts and transactions of the trusts are not included in the accompanying consolidated financial statements.

Nature of Operations – The Bank is a community-oriented financial institution which operates 17 branches in rural and suburban

communities in southwest Washington State and Multnomah, Washington and Marion counties of Oregon. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds, together with other borrowings, to

make various commercial business, commercial real estate, land, multi-family real estate, real estate construction and consumer loans. Additionally, the Trust Company offers trust and investment services and Riverview Services, Inc. acts as a trustee

for deeds of trust on mortgage loans granted by the Bank and receives a reconveyance fee for each deed of trust.

Business segments – The Company's operations are managed along two operating segments, consisting of banking operations performed by the

Bank and trust and investment services performed by the Trust Company. While the chief operating decision maker uses financial information related to these segments to analyze business performance and allocate resources, the trust and investment

services segment does not meet the quantitative threshold under GAAP to be considered a reportable segment. As such, these operating segments are aggregated into a single reportable operating segment in the consolidated financial statements. No

revenues are derived from foreign countries.

Use of Estimates in the Preparation of Consolidated Financial Statements – The preparation of consolidated financial statements in

conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and

the reported amounts of related revenue and expense during the reporting period. Actual results could differ from those estimates. The estimates utilized to determine the appropriate allowance for loan losses at March 31, 2021 may be materially

different from actual results due to the novel coronavirus of 2019 (“COVID-19”) pandemic.

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

banks. Cash and cash equivalents have a maturity of 90 days or less at the time of purchase.

Certificates of Deposit Held for Investment – Certificates of deposit held for investment include amounts invested with financial

institutions at a stated interest rate and maturity date. Early withdrawal penalties apply; however, the Company plans to hold these investments to maturity.

Loans Held for Sale – The Company identifies loans held for sale at the time of origination and such loans are carried at the lower of

aggregate cost or estimated fair value. Estimated fair values are derived from available market quotations for comparable pools of mortgage loans. Adjustments for unrealized losses, if any, are charged to income.

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Gains or losses on sales of loans held for sale are recognized at the time of sale and are determined by the difference between the net sales proceeds and the allocated basis of these loans sold.

The Company capitalizes mortgage servicing rights (“MSRs”) acquired through the sale of originated mortgage loans or the securitization of mortgage loans with servicing rights retained. Upon the sale of mortgage loans held for sale, the total cost of

the loans designated for sale is allocated to mortgage loans with and without MSRs based on their relative fair values. The MSRs are included as a component of net gains on sales of loans held for sale. The MSRs are amortized in proportion to and

over the estimated period of the net servicing income and such amortization is reflected as a component of loan servicing income and is included in the consolidated statements of income in other non-interest income.

Investment Securities – Investments in debt securities are classified as held to maturity when the Company has the ability and positive

intent to hold such securities to maturity. 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. Investments in debt

securities that the Company intends to hold for an indefinite period, but not necessarily to maturity, are classified as available for sale. Such debt securities may be sold to implement the Company’s asset/liability management strategies and in

response to changes in interest rates and similar factors. Investments in debt securities available for sale are reported at estimated fair value. Unrealized gains and losses on investment securities available for sale, net of the related deferred

tax effect, are included in total comprehensive income and are reported as a net amount in a separate component of shareholders’ equity entitled “accumulated other comprehensive income (loss).” Realized gains and losses on sales of investments in

debt securities available for sale, determined using the specific identification method, are included in earnings on the trade date. Amortization of premiums and accretion of discounts are recognized in interest income over the period to contractual

maturity or expected call, if sooner. 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. Credit

component losses are reported in non-interest income when the present value of expected future cash flows is less than the amortized cost. Noncredit component losses are recorded in other comprehensive income (loss) when the Company (1) does not

intend to sell the security or (2) is not more likely than not to have to sell the security prior to the security’s anticipated recovery. 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. Interest on loans is accrued daily based on the principal amount outstanding.

Loans are reviewed regularly and it is the Company’s general policy that a loan is past due when it is 30 days to 89 days delinquent. In general, when a loan is 90 days delinquent or when

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