Riverview Bancorp: Depleting Deposits And Low Growth Overshadow Dividends

CalypsoArt

Thesis & Introduction

Riverview Bancorp, Inc. (NASDAQ:RVSB) has witnessed a commendable uptick successful its nett liking income (NII) for 2 consecutive quarters, Q2 2022 and Q3 2022. During Q2 2022, nan NII stood astatine 3.3% and accrued to 3.5% successful Q3 2022. This improvement coincides pinch nan anticipation of nan slope achieving its highest gross and nett income successful nan past decade. As of December 2022, its full gross amounted to $64.5M, intimately trailing its highest gross of $65.5M a twelvemonth earlier. With 3 much months near successful its financial twelvemonth (April to March), nan bank's nett income stands astatine $19.2M, pinch nan imaginable to surpass nan $21.8M nett income achieved successful 2022. Also, nan slope has been capable to support accordant maturation successful dividends pinch regular repurchase programs to reward its shareholders.

Despite its all-time precocious revenue, the latest 4th has brought troubling news for Riverview Bancorp, Inc. arsenic its deposits knowledgeable a significant diminution of almost $124M. This driblet is simply a origin for interest for nan location bank, particularly considering nan ongoing ostentation and expanding impatience among depositors successful managing their finances. To simplify further, nan customers whitethorn make withdrawals successful hunt of amended output aliases usage their savings to meet their accrued regular expenses.

Riverview Bancorp, Inc. is simply a slope holding institution that oversees Riverview Community Bank. It caters to mini and medium-sized businesses, professionals, and individuals looking to build wealth. The institution offers a assortment of deposit products and lending services, including commercialized business, existent estate, and user loans. It besides provides owe brokerage and indebtedness servicing activities, arsenic good arsenic plus guidance services specified arsenic trust, property planning, and finance management.

Disappointing maturation rates

RVSB is performing exceptionally erstwhile evaluated successful isolation, but amongst its peers, it has seen nan lowest gross maturation astatine nan 3Y and 5Y mark. Compared to nan manufacture mean of 11.6%, its 3Y gross maturation stands astatine only 3.26%. The aforesaid tin beryllium said for its nett income maturation arsenic good which is nan lowest astatine 4.04%, good beneath nan manufacture maturation complaint of 15.69%.

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Such a stark quality tin beryllium attributed to its incapability to get caller loans contempt having grounds rate and deposit levels and resorting to investing them successful mortgage-backed securities and different investments. From 2020 to 2022, erstwhile its deposits accrued by 35%, its gross loans accrued by only 11.5%. This became much concerning erstwhile it added only $5M successful Q3 2022 and observed a alteration of $1.5M successful nan 4th earlier that.

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Growing dividends, repurchases, and improving plus quality

RVSB halted nan dividends aft nan events that unfolded successful 2008. That halt was yet lifted aft 7 years successful 2015, and since then, nan slope has been capable to raise dividends consistently. In this period, its dividend has achieved compounded yearly maturation complaint (CAGR) of 19.2% and a dividend output trailing 12 months (TTM) of 3.3%. This inclination mightiness proceed arsenic nan slope has a dependable travel of income and nary description plans for now.

To adhd to nan dividends, RVSB launches stock repurchase programs frequently. In November 2022, it announced a repurchase programme for six months, and arsenic per its Q3 2022 report, it repurchased 10,797 shares astatine a full costs of $81,000 nether nan November 2022 repurchase programme astatine an mean value of $7.51 per share.

Bank has besides done exceptionally good successful taking its nonperforming loans to full assets ratio arsenic debased arsenic 0.8% per nan latest 10-Q. Almost 100% of these loans are guaranteed by nan Small Business Administration (SBA) and nan United States Department of Agriculture (USDA). During nan financial years 2022 and 2023, Riverview has overturned provisions for indebtedness losses by much than $5M of which $0.7M belongs to nan existent fiscal. The slope has besides maintained a comfortable risk-based superior ratio (tier 2 ratio) of 16.7% and a tier 1 ratio of 10.1%. This exemplifies its financial strength.

Depleting deposits successful nan past 2 quarters

In Q3 2022, Riverview Bancorp, Inc. knowledgeable a important 8.3% driblet successful deposits, bringing it backmost to 2021 levels of $1.4 billion. Management attributes nan alteration to deposit pricing pressures and customers seeking higher-yielding finance alternatives, specified arsenic money marketplace accounts offered by Riverview Trust Company. This is nan 2nd consecutive driblet successful deposits, nan erstwhile being only astir $6 million, causing interest for management.

Most of nan deposits received by nan slope successful nan past 2 years were allocated much toward investments and little towards loans. Further, nan slope presently only has $24.3 cardinal successful rate and equivalents, and if withdrawals continue, it whitethorn beryllium forced to liquidate its investments, which could effect its income connection arsenic good arsenic its equilibrium sheet.

Valuation

Small banking and security firms thin to person adjacent values wrong positive aliases minus 25% of their book values owed to constricted maturation prospects aliases challenging description opportunities. Also, nan mostly of their assets and liabilities are reflected astatine adjacent value. But, valuing RVSB utilizing book worth could beryllium misleading because of nan beingness of intangible assets, which create a quality of almost 20% betwixt nan book worth per stock and nan tangible book worth per share.

Hence, I worth it based connected nan price-to-earnings (P/E) ratio. The median P/E (TTM) of nan manufacture stands astatine 10x while nan normalized nett income (TTM) for Riverview is $15.6M. Currently, it has 21.5M outstanding shares. Hence, nan intrinsic worth is arsenic follows:

The intrinsic worth of $7.3 is simply a tad supra nan existent value of $7.18 making it almost correctly weighted by nan market.

Conclusion

Stock Tracking Opinion

Riverview accrued its deposits successful 2021 and 2022, but it looks for illustration they were nan 2 objection years successful its slow maturation of deposits, loans, and revenues. The slope hasn’t been capable to deploy its resources astatine afloat imaginable and nan measurement nan past 2 quarters person unfolded and nan macroeconomic outlook becoming bleaker pinch each time passing nan roadworthy to precocious gross and nett income maturation is only going to get tougher. Considering these, I will support RVSB connected my watchlist and hold to spot changes successful nan deposits and gross growth.

Investment Opinion

In statement pinch Quant standing connected Seeking Alpha, my existent standing connected nan banal is simply a Hold.

I americium presently an Investment Research Intern astatine Sungarden Investment Publishing and pursuing an MS successful Finance from nan Stevens Institute of Technology. With an acquisition of much than 3 and half years successful nan section of Finance & Audit, I person developed a knack and liking successful Qualitative and Quantitative Analyses of Companies to publication beyond nan numbers and find untold stories of those companies.Closely associated pinch writer Modern Income Investor.