Riverview Bancorp's Stock Buyback Strategy: A Glimmer of Confidence Amid Financial Headwinds?

Riverview Bancorp (NASDAQ: RVSB) has positioned itself as an active capital manager in recent quarters, announcing two stock repurchase programs in 2024 totaling $17 million. While the buybacks signal confidence in the bank’s long-term value, the timing raises questions given its recent financial struggles, including an 11% year-over-year revenue decline and a 66% drop in net income. This analysis explores whether Riverview’s capital allocation strategy aligns with its financial health and market dynamics.

The Buyback Programs: A Strategic Move or Defensive Maneuver?

Riverview’s first repurchase program in April 2024 authorized $15 million, extending through April 2025. By September 2024, it introduced a second $2 million program, set to expire in September 2025. The smaller scale of the second buyback—representing just 2% of its $97.9 million market cap as of September 2024—hints at a cautious approach. As of December 2024, the bank had repurchased 200,073 shares at an average price of $5.43, leaving $11.5 million remaining under the original program and $2 million under the second.

The buybacks may aim to counteract downward pressure on the stock. Since mid-2023, Riverview’s share price has fluctuated between $4.50 and $6.50, reflecting broader banking sector volatility.

Financial Health: Revenue Declines and Rising Costs

Riverview’s Q1 2025 results reveal underlying challenges:
- Revenue: Fell to $12.2 million, a 11% year-over-year drop, driven by a $1.6 million decline in net interest income amid rising deposit costs.
- Profitability: Net income plummeted to $966,000 (7.9% margin), down from $2.8 million (21% margin) in Q1 2024. The efficiency ratio surged to 90%, signaling operational strain.
- Debt: Federal Home Loan Bank borrowings rose to $113.5 million, up 28% from the prior quarter, as deposits shrank by $12 million.

Despite these headwinds, liquidity remains robust, with $456 million in available borrowing capacity, and capital ratios exceed regulatory “well-capitalized” thresholds (Total Risk-Based Capital: 16.18%).

Risks and Opportunities

Loan Growth vs. Deposit Declines: While total loans rose to $1.05 billion, deposit erosion forced Riverview to rely more on costlier borrowings. This dynamic could further compress margins unless rates stabilize.
Interest Rate Sensitivity: The 32-basis-point drop in net interest margin (NIM) to 2.47% since 2024 highlights vulnerability in a high-rate environment.
Undervaluation Potential: At $5.43 per share, the buyback price is below Riverview’s tangible book value of $6.09, suggesting the stock may be undervalued.

Conclusion: A Prudent but Risky Gamble

Riverview’s buybacks reflect a dual strategy: signaling confidence in its long-term prospects while deploying excess capital in a low-share-price environment. However, the decision carries risks:
- Profitability Concerns: A 90% efficiency ratio and declining revenue underscore operational inefficiencies. Sustaining the buyback pace may prove challenging if margins do not recover.
- Liquidity Cushion: Strong capital ratios and borrowing capacity provide a buffer, but rising debt costs could strain future earnings.

The bank’s focus on loan growth (up $21.1 million in Q1 2025) and cost controls offers hope for stabilization. If Riverview can navigate the high-rate environment and improve its efficiency ratio toward historical averages (e.g., 73% in 2024), the buybacks could enhance shareholder value.

Investors should monitor two key metrics:
1. Net Interest Income: A rebound to pre-2024 levels ($10.4 million) would alleviate margin pressures.
2. Deposit Stability: Reversing the $12 million quarterly decline would reduce reliance on costly borrowings.

For now, Riverview’s buybacks appear more defensive than offensive—a bid to support its stock in turbulent conditions. Success hinges on whether management can balance capital allocation with the urgent need to restore profitability.