HARRISBURG – Riverview Financial Corp. has reported unaudited financial results at and for the three months and six months ended June 30, 2019.
Riverview reported net income of $1.4 million, or $0.16 per basic and diluted weighted average common share, for the second quarter of 2019, compared to net income of $2.8 million, or $0.31 per basic and diluted weighted average common share, for the second quarter of 2018.
For the six months ended June 30, 2019, Riverview reported net income of $747 thousand, or $0.08 per basic and diluted weighted average common share, compared to net income of $5.6 million, or $0.62 per basic and diluted weighted average common share, for the same period last year.
The year-over-year reduction was largely a function of recognizing $1.2 million less of net accretion on acquired assets and assumed liabilities and a $2.2 million nonrecurring executive separation charge in 2019.
In addition, the results for the first six months ended June 30, 2019, included $456 thousand of severance expense to employees that either retired or were separated from service due to branch network consolidations. Comparatively, Riverview incurred merger related costs of $461 thousand for the first half of 2018.
In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America (“GAAP”), 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.
- Book value per share and tangible book value per share increased to $12.62 per share, or 3.9 percent and $9.58 per share, or 6.6 percent, respectively, at the end of the second quarter of 2019, compared to the same period last year.
- Tax-equivalent net interest margin was 4.20 percent in the second quarter of 2019 compared to 3.94 percent for the same period last year. Tax-equivalent net interest margin, excluding the impact of purchase accounting, improved to 3.76 percent in the second quarter of 2019 compared to 3.62 percent for the same period last year.
- Continued strength in asset quality as nonperforming assets as a percentage of loans, net and other real estate owned was 0.56 percent at the end of the second quarter of 2019, an improvement from 0.81 percent at Dec. 31, 2018 and 0.89 percent at June 30, 2018.
“Riverview Financial Corp. is at an inflection point in its evolution from a $250 million institution covering two counties eight years ago to the $1.1 billion institution we are today, which will be covering 14 counties in the near future, while adding Trust, Wealth Management and Treasury Management services along the way,” said Brett D. Fulk, president and chief executive officer.
“Growth to gain required scale was a priority over the past eight years. While reasonable and profitable growth remains an important component of our strategic plan, we have transitioned rapidly to focus intently on operational efficiencies and the consistent achievement of higher levels of core operating performance.
“Historically we maintained staffing levels, processes and operating systems that made the aforementioned growth possible over the past eight years.
“However, today we find ourselves capable of growing our balance sheet utilizing more efficient processes, implementation of strategic outsourced financial technology partnerships, utilization of more sophisticated technological resources internally and a more streamlined employee base.”
Fulk went on to say, “We continued the development and implementation of certain initiatives necessary to improve operating efficiencies, grow interest income and enhance noninterest income in order to establish a consistent core earnings run rate acceptable for an organization of our size and scale during the first half of this year.
“One such initiative was a retail branch performance and resource allocation analysis, resulting in the closure of two underperforming offices with successful transition of customers to nearby offices during the first quarter of 2019 and the pending closure of two additional branch offices and the sale of a third to a local financial institution in the second half of 2019, pending regulatory approvals.
“This particular initiative has resulted in a 17 percent reduction of full-service offices when compared to year end 2018 without a material negative impact to Riverview’s deposit, loan or customer base.
“Additional efficiency initiatives include, but are certainly not limited to a reduction in the size of our board of directors from 16 to 13 members following several previously announced departures for various reasons, and a bank-wide reduction in staff effort, which is anticipated to have a materially positive impact to our ongoing core performance despite the resulting one-time severance related expenses taken as a result of these efforts during the second quarter.”
“In concert with divestiture of existing offices, in order to improve operating efficiencies and redefine our market footprint, Riverview continues to seek new opportunities to reposition itself within growth markets.
“To this end, Riverview is pleased to announce that it has received regulatory approval to open full-service offices in two very attractive markets, Camp Hill, Cumberland County and Allentown, Lehigh County, Pa.
“We believe the opportunity to enter these new growth markets, both contiguous to existing Riverview markets, with offices staffed by experienced bankers that are well-known and established in those markets, is an exciting prospect for our franchise.”
“We have had significant success historically with de-novo branch expansion efforts in growth markets by attracting outstanding employees within those markets, and I expect these new offices and markets will continue our trend of past organic expansion success,” continued Fulk.
“With respect to interest income, we anticipate loan growth opportunities through the addition of several experienced commercial relationship managers resulting from ongoing market disruption, chiefly among our largest competitors.
“Lastly, we have identified or developed several new products and services that will be introduced throughout the second half of 2019, each with demonstrated ability to either enhance revenue or decrease expenses.
“In closing, management recognizes the need to address efficiencies through the identification and elimination of inefficiencies within our existing infrastructure, processes and procedures, to maintain consistent expense discipline, while continuing to grow our balance sheet and revenue in a measured, profitable manner.
“There is no higher priority in our company at the present time than positioning Riverview Financial Corp. to capitalize on our increased size and scale for the purpose of enhancing long-term shareholder value through demonstration of improving efficiencies and consistent earnings results, while continuing to maintain pricing and underwriting discipline and ongoing focus on asset quality.
“As we focus on enhancing shareholder value, we will continue to adequately reserve for the risks in our loan portfolio. Given the late state of the economic cycle we currently find ourselves in, we believe the need to maintain strong reserves in our allowance for loan losses is paramount.
“Therefore, we will not sacrifice our asset quality standards nor our need to adequately allocate reserves to our allowance for loan losses in future periods.”
“The Riverview Financial Corp. Board of Directors and Management team is excited about our ability to build upon a solid franchise foundation through execution of our strategic initiatives, many of which are outlined herein,” concluded Fulk.
Income Statement Review
Tax-equivalent net interest income for the three and six months ended June 30 were $10.8 million and $20.6 million in 2019 compared to $10.4 million and $21.9 million in 2018.
The decrease in tax-equivalent net interest income was attributable to declines in loan balances and reductions in net accretion on purchased assets and assumed liabilities, offset by an improvement in the tax equivalent net interest margin.
For the three months ended June 30, the tax-equivalent net interest margin increased to 4.20 percent in 2019 from 3.94 percent in 2018.
The loan portfolio yield on a tax-equivalent basis improved to 5.41 percent in the second quarter of 2019 compared to 4.95 percent for the same period last year. The cost of funds increased 18 basis points comparing the second quarters of 2019 and 2018.
For the six months ended June 30, the tax-equivalent net interest margin was 4.03 percent in 2019 compared to 4.16 percent in 2018.
The tax-equivalent net interest margin excluding purchase accounting adjustments would have been 3.71 percent and 3.62 percent for the six months ended June 30, 2019 and 2018.
The tax-equivalent yield on earnings assets was 4.90 percent and the cost of funds was 1.07 percent in 2019. The tax-equivalent yield on the loan portfolio increased to 5.22 percent in 2019 compared to 5.16 percent in 2018.
The tax-equivalent yield on the loan portfolio would have been 4.88 percent and 4.60 percent for the first six months of 2019 and 2018, excluding loan accretion of $1.5 million and $2.6 million included in loan interest income related to acquired loans.
For the six months ended June 30, investments yielded 3.10 percent on a tax-equivalent basis in 2019 compared to 2.78 percent for the same period last year. The cost of deposits increased 25 basis points to 1.01 percent in 2019 from 0.76 percent in 2018.
The cost of interest-bearing liabilities increased to 1.07 percent in 2019 from 0.84 percent in 2018. Loans, net averaged $887.4 million in 2019 and $939.6 million in 2018.
Average investments totaled $105.2 million in 2019 and $92.3 million in 2018. Average interest-bearing liabilities decreased to $839.2 million in 2019 from $881.7 million in 2018.
For the quarter ended June 30, the provision for loan losses was $618 thousand in 2019 compared to no provision for the same period in 2018.
The provision for loan losses totaled $1,201 thousand for the six months ended June 30, 2019, compared to $390 thousand in 2018.
The increase in the provision for loan losses in 2019 was influenced by increasing qualitative factors related to economic trends.
For the quarter ended June 30, noninterest income totaled $2,126 thousand in 2019, a decrease of $407 thousand from $2,533 thousand in 2018.
The decrease in noninterest income for the quarter was due primarily to decreases in services charges, fees and commissions of $336 thousand, and mortgage banking income of $89 thousand.
For the six months ended June 30, noninterest income decreased to $3,937 thousand in 2019 compared to $4,486 thousand in 2018.
Service charges, fees and commissions declined $511 thousand due to reduced fees on loan swap arrangements, while mortgage banking income declined $153 thousand due to lower volumes of originations in saleable loans.
Noninterest expense increased $1,076 thousand to $10,484 thousand for the three months ended June 30, 2019, from $9,408 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 $609 thousand and other expenses of $555 thousand.
The increase in salary and benefits expense was primarily due to accruals of $456 thousand in contractual payments due to retirement and severances associated with staff elimination and the planned branch closures.
For the six months ended June 30, noninterest expense increased to $22,448 thousand in 2019 compared to $18,944 thousand in 2018.
The increase was primarily due to $2.2 million in nonrecurring expenses from the execution of an executive separation agreement and $456 thousand of retirement and severance accruals.
Balance Sheet Review
Total assets, loans, net, and deposits totaled $1.1 billion, $889.3 million, and $979.7 million, respectively, at June 30, 2019.
For the three months ended June 30, 2019, total assets and deposits decreased $18.5 million and $21.3 million, respectively, while loans, net increased $11.2 million.
Year to date, loans, net, decreased $3.9million comparing the end of the second quarter of 2019 to year end 2018.
Business lending, including commercial and commercial real estate loans, decreased $2.1 million while retail lending, including residential mortgages and consumer loans, decreased $11.2 million during the six months ended June 30, 2019.
For this same period construction lending increased $9.4 million. Loan originations during the first six months of 2019 represented a more moderate pace as compared to the same period of 2018.
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 $100.3 million at June 30, 2019, compared to $104.7 million at Dec. 31, 2018.
Total deposits decreased $24.9 million in the six months of 2019 as management sought to maintain margins and was able to reduce reliance on higher cost deposits.
Noninterest-bearing deposits decreased $2.2 million, while interest-bearing deposits decreased $22.7 million. As a percentage of total deposits, noninterest-bearing deposits amounted to 16.4 percent at June 30, 2019 and 16.2 percent at Dec. 31, 2018.
Stockholders’ equity totaled $115.7 million, or $12.62 per share, at June 30, 2019, $113.5 million, or $12.40 per share, at March 30, 2019, and $113.9 million, or $12.49 per common share, at Dec. 31, 2018.
The increase in equity in the six months ended June 30, 2019 was due primarily to an increase of $2.4 million in accumulated other comprehensive income and net income of $747 thousand offset partially by dividends declared of $1.8 million.
Tangible stockholders’ equity per common share increased to $9.58 at June 30, 2019, compared to $9.33 at March 30, 2019 and $9.39 at Dec. 31, 2018.
Dividends declared for the second quarter of 2019 amounted to $0.10 per share representing a dividend payout ratio of 64.0 percent.
Asset Quality Review
Nonperforming assets were $5.0 million, or 0.56 percent of loans, net and foreclosed assets at June 30, 2019 compared to $7.2 million or 0.81 percent at Dec. 31, 2018.
Adjusting for accruing restructured loans, nonperforming assets were $2.3 million, or 0.26 percent of loans, net and foreclosed assets at June 30, 2019, and $4.3 million, or 0.48 percent, at Dec. 31, 2018.
The allowance for loan losses equaled $7.0 million, or 0.79 percent, of loans, net, at June 30, 2019, compared to $6.3 million, or 0.71 percent, at Dec. 31, 2018.
Adding accounting marks for purchased credit impaired loans to the allowance for loan losses would result in a ratio of 1.06 percent as a percentage of loans, net at June 30, 2019.
The coverage ratio, allowance for loan losses as a percentage of nonperforming assets, was 139.5 percent at June 30, 2019 versus 88.1 percent at Dec. 31, 2018.
Excluding accruing restructured loans, the coverage ratio would be 304.0 percent at June 30, 2019. Loans charged-off, net of recoveries, for the six months ended June 30, 2019, equaled $547 thousand, compared to $295 thousand for the same period last year.
Riverview Financial Corp. is the parent company of Riverview Bank. An independent community bank, Riverview Bank serves the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Cumberland, Dauphin, Huntingdon, Lebanon, Lehigh, 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 of Riverview Bank, 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/.