HARRISBURG – Riverview Financial Corp. has reported unaudited financial results at and for the three and nine months ended Sept. 30, 2018.
Riverview, which completed a merger with CBT Financial Corp. (“CBT”) on Oct. 1, 2017, reported net income of $2.8 million, or $0.30 per basic and diluted weighted average common share, for the third quarter of 2018, compared to net income of $401,000, or $0.08 per basic and diluted weighted average common share, for the comparable period of 2017.
For the nine months ended Sept. 30, 2018, Riverview reported net income of $8.4 million, or $0.92 per basic and diluted weighted average common share, compared to net income of $13,000, or $0.03 per basic and diluted weighted average common share, for the same period last year.
The results for the first nine months ended Sept. 30, 2018 include pre-tax merger related costs of $504,000. The earnings increase was primarily a result of the inclusion of the results of operations for both Riverview and CBT for the nine months ended Sept. 30, 2018, compared to Riverview on a standalone basis for the same period last year.
The year over year improvement was also a function of the recognition of higher loan interest income from achieving significant organic loan growth in 2017, excluding acquired loans from the merger and the recognition of net accretion income on acquired assets and assumed liabilities.
In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America, Riverview routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible book value per share and return on average tangible stockholders’ equity.
Riverview believes these non-GAAP financial measures provide information useful to investors in understanding its operating performance and trends. Non-GAAP disclosures are used in this press release, however.
The non-GAAP financial measures Riverview uses may differ from the non-GAAP financial measures other financial institutions use to measure their results of operations.
Highlights
- Riverview’s common stock began actively trading on the Global Market of the Nasdaq Stock Market LLC on Aug. 14, 2018.
- Market capitalization amounted to $123.9 million at Sept. 30, 2018.
- Annualized return on average assets, return on average stockholders’ equity and return on average tangible stockholders’ equity were 0.96 percent, 9.89 percent and 13.29 percent, respectively, for the third quarter of 2018.
- Tangible book value per share improved $0.67 or 7.9 percent to $9.17 at the end of the third quarter of 2018 compared to $8.50 at year-end 2017.
- Tax-equivalent net interest margin improved to 4.15 percent in the third quarter of 2018 compared to 3.57 percent for the same period last year.
- For the quarter ended Sept. 30, noninterest income totaled $2,054 thousand in 2018, an increase of $1,219 thousand from $835,000 in 2017. For the nine months ended Sept. 30, noninterest income increased to $6,540 thousand in 2018 compared to $2,416 thousand in 2017.
- Continued strength in asset quality as nonperforming assets as a percentage of loans, net and other real estate owned was 0.91 percent in the third quarter of 2018, which remained relatively unchanged over the past four quarters.
- Riverview incurred a non-recurring expense of $375,000 in the third quarter of 2018 associated with a separation agreement of a contract employee.
“We are pleased to report continued stability in linked quarter earning results during the third quarter. On Aug. 14, 2018, our company’s common stock began trading on the Nasdaq Stock Market LLC. We are excited to be afforded the opportunity to list on the Nasdaq Global Market, as it will provide many advantages including increased liquidity for existing shareholders, potential broadening of our shareholder base by attracting new retail investors and increasing the appeal of our Company stock to institutional investors. As a result of the significant inorganic and organic growth achieved from the beginning of the first quarter of 2017, we felt the need to provide a higher level of exposure for our common stock by listing on the exchange with the most companies representing the highest daily trading volume of all stock exchanges worldwide.” said Kirk D. Fox, chief executive officer.
Income Statement Review
Tax-equivalent net interest income for the three and nine months ended Sept. 30 were $11.0 million and $32.9 million in 2018 compared to $5.5 million and $15.0 million in 2017.
The increase in tax-equivalent net interest income was primarily attributable to the growth in average earning assets from the merger and organic loan growth coupled with an improvement in the tax equivalent net interest margin.
For the three months ended Sept. 30, the tax-equivalent net interest margin increased to 4.15 percent in 2018 from 3.57 percent in 2017.
The loan portfolio yield on a tax-equivalent basis improved to 5.24 percent in the third quarter of 2018 compared to 4.38 percent for the same period last year. The cost of funds increased 20 basis points comparing the third quarter of 2018 and 2017.
Average earning asset growth outpaced that of average interest-bearing liabilities by $100.6 million comparing the three months ended Sept. 30, 2018 and 2017.
For the nine months ended Sept. 30, the tax-equivalent net interest margin was 4.16 percent in 2018 compared to 3.58 percent in 2017.
The tax-equivalent net interest margin excluding purchase accounting adjustments would have been 3.64 percent in the nine months ended Sept. 30, 2018.
The tax-equivalent yield on earnings assets was 4.88 percent and the cost of funds was 0.88 percent in 2018. The tax-equivalent yield on the loan portfolio increased to 5.19 percent in 2018 compared to 4.35 percent in 2017.
The tax-equivalent yield on the loan portfolio would have been 4.65 percent in the nine months of 2018 excluding loan accretion of $3.8 million included in loan interest income related to acquired loans.
For the nine months ended Sept. 30, investments yielded 2.79 percent on a tax-equivalent basis in 2018 compared to 3.42 percent for the same period last year.
The cost of deposits increased 19 basis points to 0.80 percent in 2018 from 0.61 percent in 2017. The cost of interest-bearing liabilities increased to 0.88 percent in 2018 from 0.69 percent in 2017.
The growth in average earning assets outpaced that of average interest-bearing liabilities by $93.4 million comparing the nine months of 2018 and 2017.
Loans net averaged $935.3 million in 2018 and $478.0 million in 2017. Average investments totaled $92.2 million in 2018 and $71.3 million in 2017. Average interest-bearing liabilities increased to $875.6 million in 2018 from $472.8 million in 2017.
For the quarter ended Sept. 30, the provision for loan losses was $225,000 in 2018 compared to $610,000 for the same period in 2017. The provision for loan losses totaled $615,000 for the nine months ended Sept. 30, 2018, compared to $1,734 thousand in 2017.
The decrease in the provision for loan losses in 2018 was primarily influenced by a decrease in the net volume of loans originated in the first nine months of 2018 versus 2017, coupled with continuing solid results and positive trends in asset quality.
For the quarter ended Sept. 30, noninterest income totaled $2,054 thousand in 2018, an increase of $1,219 thousand from $835,000 in 2017.
The increase in noninterest income for the quarter was due primarily to increases in services charges, fees and commissions of $997,000, trust income of $195,000, and bank owned life insurance investment income of $87,000.
For the nine months ended Sept. 30, noninterest income increased to $6,540 thousand in 2018 compared to $2,416 thousand in 2017.
Wealth management income decreased $59,000 comparing the first nine months of 2018 and 2017 due to the dissolution of a business acquired in 2016.
Service charges and fees and commissions and trust income improved $3,247 thousand and $579,000, respectively, comparing the nine months of 2018 and 2017.
Mortgage banking income in the three quarters of 2018 improved to $527,000 compared to $434,000 in 2017.
Income from bank-owned life insurance increased to $584,000 in the nine months of 2018 compared to $254,000 for the comparable period in 2017.
Noninterest expense increased $4,174 thousand to $9,341 thousand for the three months ended Sept. 30, 2018, from $5,167 thousand for the same period last year.
The increase in noninterest expense for the quarter was due primarily to increases in salaries and employee benefits expense of $2,104 thousand and other expenses of $1,491 thousand.
The increases were primarily attributable to the merger with CBT due to increased operating costs of the larger company. For the nine months ended Sept. 30, noninterest expense increased to $28,285 in 2018 compared to $15,371 in 2017.
The majority of this increase relates to salaries and employee benefit expense, which was a result of the merger with CBT and related costs.
Additions to facilities as a result of the CBT merger along with offices to support the lending teams were primarily responsible for the $1,247 thousand increase in occupancy and equipment costs.
The majority of the $4,394 thousand increase in other expenses comparing the nine months of 2018 and 2017 was a result of the business combination with CBT.
Balance Sheet Review
Total assets, loans, net and deposits totaled $1.2 billion, $915.5 million and $1.0 billion, respectively, at Sept. 30, 2018.
For the three months ended Sept. 30, 2018, total assets and deposits increased $4.9 million and $3.1 million, respectively, while loans, net decreased $24.4 million.
Year to date, loans, net decreased $40.5 million comparing the end of the third quarter of 2018 to year end 2017. All major categories of loans declined in 2018.
Business lending, including commercial and commercial real estate loans decreased $25.2 million while retail lending, including residential mortgages and consumer loans decreased $15.3 million during the nine months ended Sept. 30, 2018.
Loan originations in the first nine months of 2018 represented a more moderate pace as compared to the same period of 2017.
The reduction in loan growth was a result of management’s decision to focus on improving margins on loan originations and maintaining strong underwriting standards.
Total investments were $97.1 million at Sept. 30, 2018, compared to $93.2 million at Dec. 31, 2017. Total deposits decreased $5.7 million in the nine months of 2018.
Noninterest-bearing deposits increased $6.5 million, while interest-bearing deposits decreased $12.2 million. As a percentage of total deposits, noninterest-bearing deposits amounted to 15.9 percent at Sept. 30, 2018 and 15.2 percent at Dec. 31, 2017.
Stockholders’ equity totaled $112.0 million or $12.30 per share at Sept. 30, 2018, $110.5 million or $12.15 per share at June 30, 2018, and $106.3 million or $11.72 per common share at Dec. 31, 2017.
The increase in equity in the nine months ended Sept. 30, 2018 was a result primarily of net income of $8.4 million offset partially by an increase of $1.2 million in the accumulated other comprehensive loss and dividends declared of $1.8 million.
Tangible stockholders’ equity per common share increased to $9.17 at Sept. 30, 2018, compared to $8.99 at June 30, 2018 and $8.50 at Dec. 31, 2017.
Dividends declared for the third quarter of 2018 amounted to $0.10 per share representing a dividend payout ratio of 32.6 percent.
Asset Quality Review
Nonperforming assets were $8.3 million, or 0.91 percent of loans, net and foreclosed assets at Sept. 30, 2018 compared to $8.4 million or 0.89 percent at June 30, 2018 and $8.2 million, or 0.85 percent at Dec. 31, 2017.
This asset quality ratio remains significantly improved from 1.26 percent, at Sept. 30, 2017. Adjusting for accruing restructured loans, nonperforming assets were $3.7 million, or 0.40 percent of loans, net and foreclosed assets at Sept. 30, 2018, $3.7 million or 0.39 percent at June 30, 2018 and $2.7 million or 0.28 percent, at Dec. 31, 2017.
The allowance for loan losses equaled $6.5 million, or 0.71 percent of loans, net at Sept. 30, 2018, compared to $6.4 million or 0.68 percent at June 30 2018 and $6.3 million, or 0.66 percent at Dec. 31, 2017.
Adding purchase accounting adjustments for credit deterioration on acquired loans to the allowance for loan losses would result in a ratio of 1.71 percent as a percentage of loans, net at Sept. 30, 2018.
The coverage ratio, allowance for loan losses as a percentage of nonperforming assets, was 77.5 percent at Sept. 30, 2018.
Excluding accruing restructured loans, the coverage ratio would be 175.7 percent at Sept. 30, 2018. Loans charged-off, net of recoveries, for the three and nine months ended Sept. 30, 2018, equaled $154,000 and $449,000, compared to $40,000 and $62,000 for the same period last year.
Riverview Financial Corp. is the parent company of Riverview Bank and its operating divisions Citizens Neighborhood Bank, CBT Bank, Riverview Wealth Management and CBT Financial and Trust Management.
An independent community bank, Riverview Bank serves the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset counties through 30 community banking offices and three limited purpose offices.
Each office, interdependent with the community, offers a comprehensive array of financial products and services to individuals, businesses, not-for-profit organizations and government entities.
The Wealth Management and Trust divisions, with assets under management exceeding $350 million, provide trust and investment advisory services to the general public, businesses and not-for-profit organizations.
Riverview’s business philosophy includes offering direct access to senior management and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently applied credit policies.
The company’s common stock trades on the Nasdaq Global Market under the symbol “RIVE”. The Investor Relations site can be accessed at https://www.riverviewbankpa.com/.
