Riverview Bancorp, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended March 31, 2023, compared primarily with the year ended March 31, 2022. This is an annual FY2023 filing, not a 2022 Q4 filing; the source also reports the quarter ended March 31, 2023.
Business context
Riverview is a community bank holding company operating mainly in southwest Washington and Oregon. Its core business is gathering deposits and lending, with a loan portfolio concentrated in commercial real estate and commercial business. The company also provides trust and investment services.
Financial performance and condition
| Metric | FY2023 / March 31, 2023 | Prior comparable period |
|---|---|---|
| Total assets | $1.590 billion | $1.740 billion |
| Net loans | $993.5 million | $975.9 million |
| Deposits | $1.265 billion | $1.534 billion |
| Net interest income | $51.6 million | $47.6 million |
| Net interest margin | 3.26% | 3.03% |
| Net income | $18.1 million; diluted EPS $0.83 | $21.8 million; diluted EPS $0.98 |
| Return on average assets / equity | 1.08% / 11.71% | 1.31% / 13.62% |
| Shareholders’ equity | $155.2 million | $157.2 million |
| Cash and cash equivalents | $22.0 million | $241.4 million |
- Interest and dividend income increased to $55.7 million from $49.8 million; interest expense rose to $4.1 million from $2.2 million. Non-interest income declined to $12.2 million from $12.7 million, while non-interest expense increased to $39.4 million from $36.7 million.
- The company recorded a $750,000 loan-loss provision, versus a $4.6 million provision recapture in FY2022. Net income fell 17% year over year despite higher net interest income.
- Operating cash flow was $13.6 million; investing activities used $76.2 million and financing activities used $156.7 million. Cash declined by $219.4 million during the year.
- FHLB advances were $123.8 million at year-end, versus none a year earlier. Junior subordinated debentures were $26.9 million. The Bank was reported as well capitalized: total risk-based capital 16.94%, CET1 15.69%, and leverage ratio 10.47%.
Material changes and notable items
- Deposits fell $268.7 million, attributed to competition, pricing pressure, and reduced market liquidity. Core branch deposits declined $250.1 million. Estimated uninsured deposits were $225.7 million, down from $320.0 million.
- FHLB borrowing rose to offset deposit outflows. Year-end available liquidity from combined funding sources was reported as $702.5 million, subject to collateral and other conditions.
- Nonperforming assets decreased to $1.9 million (0.12% of assets) from $22.1 million (1.27%), primarily as the company resolved most of a servicing-transfer issue involving government-guaranteed SBA and USDA loans. About $1.6 million remained past due pending reconciliation; management said principal and interest were government guaranteed.
- The allowance for loan losses increased to $15.3 million, or 1.52% of loans, from $14.5 million, or 1.47%. Criticized loans increased to $19.1 million from $7.8 million, mainly following a fourth-quarter downgrade of a $15.9 million CRE loan. Classified loans declined to $2.6 million from $6.4 million.
- Available-for-sale securities had $24.1 million of gross unrealized losses at year-end; held-to-maturity securities had $33.6 million. Accumulated other comprehensive loss was $18.3 million. The company reported no other-than-temporary impairment charge and attributed the unrealized losses primarily to higher interest rates.
- Shareholders’ equity was reduced by $8.4 million of after-tax AFS unrealized losses, $6.7 million of share repurchases, and $5.2 million of dividends, partly offset by net income.
Outlook, risks and contingencies
- Management’s strategy is to grow commercial and construction lending and core relationship deposits, expand fee income, manage problem assets and expenses, and consider selective expansion. It planned to continue managing construction lending while originating loans selectively.
- Management expected approximately $3.7 million in FY2024 premises and equipment capital expenditures and said it expected to continue quarterly dividends at $0.06 per share, subject to Board discretion. No earnings or revenue guidance was provided.
- Management expected CECL adoption effective April 1, 2023 to require a one-time retained-earnings adjustment, but did not expect the allowance to change materially; the final adoption impact was not yet determined.
- Key risks include deposit competition and uninsured-deposit outflows, interest-rate and liquidity exposure, concentrated CRE and construction lending, local economic and real-estate weakness, and cybersecurity/vendor disruptions. The company’s interest-rate model estimated net interest income would decline 13.0% over 12 months under an immediate +300 basis-point scenario.
- A lawsuit was ongoing; after mediation in May 2023, proceedings were stayed for settlement efforts. Management said a loss was not probable and could not be reasonably estimated; no accrual was recorded. The filing states no pending proceeding was believed likely to have a material adverse effect, while noting an unfavorable outcome could affect a particular period.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor identified the allowance for loan losses—particularly management’s subjective qualitative-factor estimates—as a critical audit matter. The auditor was not engaged to opine on internal-control effectiveness; management concluded controls were effective.
Investor verification priorities
- Track deposit retention, uninsured balances, deposit pricing, and reliance on FHLB funding as rates and competition evolve.
- Review performance, collateral values, risk grades, and allowance needs for the $15.9 million downgraded CRE exposure and the broader CRE/construction portfolio.
- Confirm completion of the SBA/USDA servicing reconciliation and the collectability and payment status of the remaining $1.6 million.
- Assess the actual CECL adoption adjustment and any resulting effects on reserves, retained earnings, and regulatory capital.
- Monitor realized liquidity needs and the potential effect of securities losses if assets must be sold, as well as the outcome of the pending lawsuit.
- Reconcile reported borrowing capacity and liquidity figures to current collateral availability and facility terms; the filing presents different FHLB capacity figures in different sections.