HARRISBURG – Riverview Financial Corp. has reported unaudited financial results at and for the three months and year ended Dec. 31, 2018.
The reported annual net income of $10.9 million, or $1.19 per basic and diluted weighted average common share, is the highest level of earnings achieved in the company’s history.
Return on average assets, return on average stockholders’ equity and return on average tangible equity were 0.94 percent, 9.81 percent and 13.23 percent for the 12 months ended Dec. 31, 2018.
For the fourth quarter of 2018, net income amounted to $2.5 million, or $0.27 per basic and diluted weighted average common share.
In comparison, Riverview, which completed an acquisition of CBT Financial Corp. (“CBT”) on Oct. 1, 2017, reported a net loss of $4.9 million, or $(0.91) per basic and diluted weighted average common share, for the year ended Dec. 31, 2017.
For the fourth quarter of 2017, the company reported a net loss of $4.9 million, or $(0.55) per basic and diluted weighted average common share.
The losses reported for the three months and year ended Dec. 31, 2017 were primarily a result of recognizing costs associated with the merger along with the earnings impact of changes in federal tax legislation in the fourth quarter of 2017. Pre-tax merger related expenses amounted to $3.7 million in 2017.
In addition, a $3.9 million, or $(0.43) per share, charge to income tax expense was recorded related to the re-measurement of net deferred tax assets resulting from the newly enacted Tax Cuts and Jobs Act passed on Dec. 22, 2017.
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.
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.
- Tangible book value per share improved $0.89, or 10.5 percent, to $9.39 at year-end 2018 compared to $8.50 at year-end 2017.
- Tax-equivalent net interest margin improved to 4.30 percent and 4.19 percent for the three and 12 month ended Dec. 31, 2018 compared to 4.05 percent and 3.76 percent for the same period last year.
- For the quarter ended Dec. 31, noninterest income totaled $2,340 thousand in 2018, an increase of $345 thousand from $1,995 thousand in 2017. For years ended Dec. 31, noninterest income increased to $8,880 thousand in 2018 compared to $4,411 thousand in 2017.
- Continued improvement in asset quality as nonperforming assets as a percentage of loans, net and other real estate owned was 0.81 percent in the fourth quarter of 2018, the lowest level over the past four quarters.
- Riverview’s common stock began actively trading on the Global Market of the Nasdaq Stock Market LLC on Aug. 14, 2018.
- Riverview incurred non-recurring expenses of $281 thousand in the fourth quarter of 2018 associated with severance agreements of two employees.
“I am extremely pleased with our company’s performance in 2018, as we achieved the highest level of earnings ever reported despite focusing our efforts on integrating systems, policies and procedures associated with the acquisition of CBT Financial Corp.
In addition to this financial accomplishment, we took a significant step in enhancing shareholder value as on Aug. 14, 2018, our company’s common stock began trading on the Nasdaq Stock Market LLC.
“This action of listing on the Nasdaq Global Market provides 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,” said Brett D. Fulk, president and chief executive officer.
“With respect to current and future strategic initiatives, we recently instituted a treasury management function to better serve our commercial customers and introduced mobile banking and a social media platform for our retail customer base.
“As part of the strategic plan for 2019, major areas of focus will be on improving our delivery system through conducting and acting on a distribution network repositioning study, performing a comprehensive cost savings analysis aimed at improving operating efficiency, designing and implementing low-cost deposit products and building out existing sources of noninterest revenue while developing new and alternative revenue sources.”
“As we reflect on the accomplishments of the past year, we look forward to 2019 and the many possibilities it presents. We are continually looking for new organic and inorganic opportunities that will offer strong profitability growth potential and enhance shareholder value in the near term and beyond,” concluded Fulk.
INCOME STATEMENT REVIEW
Tax-equivalent net interest income for the three and 12 months ended Dec. 31 was $11.4 million and $44.2 million in 2018 compared to $10.9 million and $25.9 million in 2017.
The increase in tax-equivalent net interest income was primarily attributable to the net growth in average earning assets over that of average interest-bearing liabilities primarily due to the merger coupled with an improvement in the tax equivalent net interest margin.
For the three months ended Dec.31, the tax-equivalent net interest margin increased to 4.30 percent in 2018 from 4.05 percent in 2017.
The loan portfolio yield on a tax-equivalent basis improved to 5.51 percent in the fourth quarter of 2018 compared to 4.94 percent for the same period last year.
The cost of funds increased 28 basis points comparing the fourth quarter of 2018 and 2017 as a result of increased market rates and heightened competition.
The net volume of average earning assets over average interest-bearing liabilities was $17.9 million greater comparing the three months ended Dec. 31, 2018 and 2017.
For the 12 months ended Dec. 31, the tax-equivalent net interest margin was 4.19 percent in 2018 compared to 3.76 percent in 2017.
The tax-equivalent net interest margin excluding purchase accounting adjustments would have been 3.70 percent for the 12 months ended Dec. 31, 2018.
The tax-equivalent yield on earnings assets was 4.95 percent and the cost of funds was 0.91 percent in 2018. The tax-equivalent yield on the loan portfolio increased to 5.27 percent in 2018 compared to 4.59 percent in 2017.
The tax-equivalent yield on the loan portfolio would have been 4.71 percent for the 12 months of 2018 excluding loan accretion of $5.2 million included in loan interest income related to acquired loans.
For the year ended Dec. 31, investments yielded 2.84 percent on a tax-equivalent basis in 2018 compared to 3.19 percent for the same period last year.
The cost of interest-bearing deposits increased 21 basis points to 0.84 percent in 2018 from 0.63 percent in 2017. The cost of interest-bearing liabilities increased to 0.91 percent in 2018 from 0.71 percent in 2017.
The growth in average earning assets outpaced that of average interest-bearing liabilities by $74.4 million comparing the 12 months of 2018 and 2017. Loans, net averaged $928.5 million in 2018 and $597.1 million in 2017.
Average investments totaled $94.3 million in 2018 and $78.4 million in 2017. Average interest-bearing liabilities increased to $871.7 million in 2018 from $579.5 million in 2017.
For the quarter ended Dec. 31, the company recognized no provision for loan losses in 2018 compared to $1.0 million for the same period in 2017.
The provision for loan losses totaled $615 thousand for the 12 months ended Dec. 31, 2018, compared to $2,734 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 2018 versus 2017, coupled with continuing solid results and positive trends in asset quality.
For the quarter ended Dec. 31, noninterest income totaled $2,340 thousand in 2018, an increase of $345 thousand from $1,995 thousand in 2017.
The increase in noninterest income for the quarter was due primarily to increases in services charges, fees and commissions of $413 thousand and wealth management income of $38 thousand offset by decreases in mortgage banking income.
For the 12 months ended Dec. 31, noninterest income increased to $8,880 thousand in 2018 compared to $4,411 thousand in 2017.
Service charges and fees, and commissions and trust income improved $3,660 thousand and $571 thousand, respectively, comparing 2018 and 2017.
Income from bank owned life insurance increased to $776 thousand in the 12 months of 2018 compared to $449 thousand for the comparable period in 2017.
Noninterest expense decreased $2,549 thousand to $10,640 thousand for the three months ended Dec. 31, 2018, from $13,189 thousand for the same period last year.
The decrease in noninterest expense for the quarter was due primarily to recognizing merger related expenses in the fourth quarter of 2017 of $3,299 thousand.
For the 12 months ended Dec. 31, noninterest expense increased to $38,925 thousand in 2018 compared to $28,560 thousand 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 lending teams were primarily responsible for the $882 thousand increase in occupancy and equipment costs.
The majority of the $2,409 thousand increase in other expenses comparing 2018 and 2017 was a result of the business combination with CBT.
BALANCE SHEET REVIEW
Total assets, loans, net and deposits totaled $1.1 billion, $893.2 million and $1.0 billion, respectively, at Dec. 31, 2018.
For the three months ended Dec. 31, 2018, total assets, loans, net and deposits decreased $19.1 million, $22.3 million and $16.2 million, respectively.
For the year loans, net, decreased $62.8 million comparing the end of the fourth 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 $45.8 million while retail lending, including residential mortgages and consumer loans decreased $17.0 million during the 12 months ended Dec. 31, 2018.
Loan originations during the year of 2018 represented a more moderate pace as compared to 2017. The reduction in loan growth was a result of merger related attrition including payoffs on acquired purchase credit impaired loans and management’s steadfast adherence to both strong credit quality underwriting standards and pricing discipline.
Total investments were $104.7 million at Dec. 31, 2018, compared to $93.2 million at Dec. 31, 2017. Total deposits decreased $21.9 million in 2018.
Noninterest-bearing deposits increased $6.7 million, while interest-bearing deposits decreased $28.6 million.
As a percentage of total deposits, noninterest-bearing deposits amounted to 16.2 percent at Dec. 31, 2018 and 15.2 percent at Dec. 31, 2017.
Stockholders’ equity totaled $113.9 million, or $12.49 per share, at Dec. 31, 2018, $112.0 million, or $12.30 per share, at Sept. 30, 2018, and $106.3 million, or $11.72 per common share, at Dec. 31, 2017.
The increase in equity in the 12 months ended Dec. 31, 2018 was a result primarily of net income of $10.9 million offset partially by an increase of $1.0 million in the accumulated other comprehensive loss and dividends declared of $2.7 million.
Tangible stockholders’ equity per common share increased to $9.39 at Dec. 31, 2018, compared to $9.17 at Sept. 30, 2018 and $8.50 at Dec. 31, 2017.
Dividends declared for the fourth quarter of 2018 amounted to $0.10 per share representing a dividend payout ratio of 37.0 percent.
ASSET QUALITY REVIEW
Nonperforming assets were $7.2 million, or 0.81 percent of loans, net and foreclosed assets at Dec. 31, 2018 compared to $8.3 million or 0.91 percent at Sept. 30, 2018 and $8.2 million, or 0.85 percent at Dec. 31, 2017.
Adjusting for accruing restructured loans, nonperforming assets were $4.3 million, or 0.48 percent of loans, net and foreclosed assets at Dec. 31, 2018, $3.7 million, or 0.40 percent, at Sept. 30, 2018 and $2.7 million, or 0.28 percent, at Dec. 31, 2017.
The allowance for loan losses equaled $6.3 million, or 0.71 percent, of loans, net at Dec. 31, 2018, compared to $6.5 million, or 0.71 percent, at Sept. 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 1.12 percent as a percentage of loans, net at Dec. 31, 2018.
The coverage ratio, allowance for loan losses as a percentage of nonperforming assets, was 88.1 percent at Dec. 31, 2018. Excluding accruing restructured loans, the coverage ratio would be 148.0 percent at Dec. 31, 2018.
Loans charged-off, net of recoveries, for the three and 12 months ended Dec. 31, 2018, equaled $124 thousand and $573 thousand, compared to $98 thousand and $160 thousand 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/.