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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Sep. 30, 2024

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

13. COMMITMENTS AND CONTINGENCIES

Off-balance sheet arrangements – In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts 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.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies and is required in instances where the Company deems it necessary.

Significant off-balance sheet commitments at September 30, 2024 are listed below (in thousands):



		Contract or Notional
		Amount
		September 30,
		2024
Commitments to extend credit:
Adjustable-rate		$	14,818
Fixed-rate			—
Standby letters of credit			1,600
Undisbursed loan funds and unused lines of credit			112,389
Total		$	128,807

Other contractual obligations – In connection with certain asset sales, the Company typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Company may have an obligation to repurchase the assets or indemnify the purchaser against loss. At September 30, 2024, loans under warranty totaled $29.9 million, which substantially represents the unpaid principal balance of the Company’s loans serviced for the FHLMC. The Company believes that the potential for loss under these arrangements is remote. At September 30, 2024, the Company had an ACL for FHLMC loans of $12,000.

The Bank is a public depository and, accordingly, accepts deposit and other public funds belonging to, or held for the benefit of, Washington and Oregon states, political subdivisions thereof, and municipal corporations. In accordance with applicable state law, in the event of default of a participating bank, all other participating banks in the state collectively assure that no loss of funds are suffered by any public depositor. Generally, in the event of default by a public depository, the assessment attributable to all public depositories is allocated on a pro rata basis in proportion to the maximum liability of each depository as it existed on the date of loss. The Company did not incur any losses related to public depository funds for the six months ended September 30, 2024 and 2023.

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

Litigation – The Company is periodically involved in litigation arising from the ordinary course of business, some of which may involve claims for substantial or uncertain amounts. At least quarterly, we assess liabilities and contingencies related to all outstanding or new legal matters based on the most recent information available. If a loss is not probable, or the amount cannot be estimated, no accrual is established. When a loss is determined to be probable and can be reasonably estimated, an accrual for the loss is established and adjusted as necessary to reflect any subsequent developments. Estimating the amount of loss is inherently difficult and there may be cases where a loss is probable or reasonably possible but not currently estimable. Actual losses may exceed any established accrual or the range of reasonably possible loss and management’s estimates may change over time. Determining the future resolution of legal matters involves significant judgment and uncertainty, and it is usually difficult to determine whether a favorable or unfavorable outcome is remote, reasonably likely, or probable, or to estimate the amount or range of a probable or reasonably likely loss, until relatively late in the process.

The Company was involved in litigation with a former business client concerning real estate investments offered by a business owned by that client. In May 2023, the parties participated in mediation, after which a stay of proceedings was issued to facilitate continued settlement discussions. As of March 31, 2024, based on available information, including the likelihood of a proposed global settlement, management determined that a loss was probable and could be reasonably estimated. Consequently, the Company recorded a $2.3 million expense in other non-interest expense for the three months ended March 31, 2024. This amount reflected the Company’s estimate of litigation costs exceeding its insurance coverage. The settlement was subsequently approved by all relevant courts in July 2024 and the final settlement payment of $2.3 million was made in August 2024, fully releasing the Company from all claims related to the litigation. In September 2024, the Company received approximately $600,000 in legal expense recovery related to the settled litigation matter of which approximately $500,000 was recorded in non-interest income and $100,000 was recorded as a recovery of legal expenses through the line item of professional fees in non-interest expense.