RIVERVIEW BANCORP INC (RVSB) stock intrinsic value fair value estimate & owner earnings analysis

Riverview Bancorp is the holding company for Riverview Community Bank, a community bank headquartered in Vancouver, Washington with 17 branches across southwest Washington (Clark, Cowlitz, Klickitat and Skamania counties) and the Portland, Oregon metro area, plus a trust company. It gathers about $1.25 billion of local deposits and lends them out, mainly as commercial real estate, multifamily, construction and business loans (about $1.08 billion of loans). Its profit is the spread between what it earns on loans and securities and what it pays depositors, less a heavy operating cost base. Because borrowing is the raw material of a bank, we value its earnings after interest and do not subtract deposits or borrowings as if they were corporate debt. The only true holding-company debt is $27.2 million of junior subordinated debentures (floating-rate, tied to three-month SOFR, about 5.3% today, maturing from 2036); its interest is already charged in the earnings we value, so it is not subtracted a second time. Leverage is instead reflected in the bear case through credit losses. Each case's value is therefore the value of the earnings stream to shareholders directly: bear about $96 million, base about $150 million, bull about $212 million on roughly 20.3 million diluted shares. Owner earnings (operating cash flow, removing working-capital swings, stock compensation and the capital spending needed to maintain branches and systems) ran $0.56-$0.78 per share from fiscal 2017 to fiscal 2023, collapsed to $0.14 in fiscal 2024 and $0.24 in fiscal 2025 as deposit costs rose, and recovered to $0.40 in fiscal 2026 (year ended March 2026). Two accounting judgements matter. First, the fiscal 2026 net loss of $4.3 million came from an $11.35 million loss on selling $149.3 million of low-yielding securities in the March 2026 quarter; that loss is a one-time, non-cash item and is excluded from earning power. Second, bank operating cash flow adds back the provision for loan losses, so cash-flow figures do not charge for bad loans; in every case we deliberately charge a normal credit cost (about 0.1% of loans a year in the base case), and fiscal 2026 capital spending of only $0.8 million is below its long-run average of about $2.6 million, so the $0.40 figure somewhat flatters the true run rate. This is the main reason our estimate is lower than our previous one. We previously anchored on the ten-year median of about $0.67 per share and assumed a recovery toward it followed by permanent modest growth. Those older years were earned when deposits cost almost nothing and non-interest expense was $36-39 million a year; expenses are now $47.7 million (fiscal 2026) and running at about $51.5 million a year in the June 2026 quarter after the build-out of business-banking teams, and deposit costs are structurally higher (interest-bearing deposits cost 1.82% in fiscal 2026 and non-interest checking balances fell $22 million). We now measure normal earning power from the current funding and cost regime, fiscal 2024-2026, whose median is $0.24 per share, and credit only improvements that are already secured. Growth-path check: owner earnings grew 67% in fiscal 2026 (from $0.24 to $0.40). Our base case assumes $0.34 for the first year, a 42% rise from the $0.24 normal level and below the most recent actual growth rate (and 15% below the $0.40 reported figure once credit costs and normal capital spending are charged). The driver is dated and already done: the March 2026 securities sale, which management estimates earns back its loss in about 3.5 years (roughly $3.2 million of added pre-tax income a year). The June 2026 quarter confirms it: net interest income was $11.4 million versus $9.8 million a year earlier (+16%), and net income was $1.7 million ($0.08 per share) with no loan-loss provision. Base case ($7.40 per share): owner earnings of $0.34 next year rise about $0.03 a year to $0.46 by year five, then hold flat. The growth credited is mechanical repricing of the existing balance sheet at today's rates: the remaining $155 million securities portfolio (much of it bought when yields were low) rolls off and is reinvested at current yields, and loans yielding 5.13% on average reprice as they mature, partly offset by deposits migrating to higher-cost accounts and expenses rising about 3-4% a year (they rose 10% year over year in the June 2026 quarter). We give no credit for loan growth, market-share gains from the new business-banking hires, or lower interest rates, because none of these is secured. After year ten, earnings hold flat: the bank's deposit franchise, which has served this market for many decades, is the named reason earnings persist, but nothing evidences growth beyond it. At $0.46, the bank earns about 8% on its $118 million of tangible equity, so this value is about 1.3 times tangible book value of $5.86 per share. Bear case ($4.74 per share): commercial real estate credit deteriorates further. Non-accrual commercial real estate loans rose about $7.1 million in the March 2026 quarter to bring nonperforming loans to 0.71% of loans, and criticized loans increased. In this case loan losses run about three times normal for two years, expense growth absorbs the repricing benefit, and earnings fall to about $0.20 before settling at $0.30 a year, a return on tangible equity near 5%. The holding-company debentures remain easily serviceable (about $1.4 million of interest a year against pre-tax earnings several times that), so the case carries its own debt. Bull case ($10.43 per share): the full balance-sheet repricing comes through, with loan yields moving toward current market rates of roughly 6.5% over the next seven years, deposit costs stable and expense growth moderating now that the hiring build-out is complete. Earnings rise from $0.36 to about $0.69 by year eight, close to the level the bank earned before 2023, and hold there. What would make this estimate wrong: on the downside, a concentrated commercial real estate loss in the Portland/Vancouver market or continued double-digit expense growth; on the upside, falling short-term rates would cut deposit costs faster than we assume, which we do not credit because it is not something the bank controls. The company has continued to buy back shares (514,009 shares in fiscal 2026 and about $1.7 million more in the June 2026 quarter); we give no separate credit for this. Given thin current profitability, credit migration in commercial real estate and a small, high-cost operation, the margin of safety is wide: the margin-of-safety price is around $4.60 per share, a price at which the bear case roughly holds its value and a return toward the base case implies a strong annual return.