Riverview Financial Corporation Reports Third Quarter 2018 Financial Results

Tax-equivalent net interest income for the three and nine months ended September 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 September 30, the tax-equivalent net interest margin increased to 4.15% in 2018 from 3.57% in 2017. The loan portfolio yield on a tax-equivalent basis improved to 5.24% in the third quarter of 2018 compared to 4.38% 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 September 30, 2018 and 2017.

For the nine months ended September 30, the tax-equivalent net interest margin was 4.16% in 2018 compared to 3.58% in 2017. The tax-equivalent net interest margin excluding purchase accounting adjustments would have been 3.64% in the nine months ended September 30, 2018. The tax-equivalent yield on earnings assets was 4.88% and the cost of funds was 0.88% in 2018. The tax-equivalent yield on the loan portfolio increased to 5.19% in 2018 compared to 4.35% in 2017. The tax-equivalent yield on the loan portfolio would have been 4.65% 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 September 30, investments yielded 2.79% on a tax-equivalent basis in 2018 compared to 3.42% for the same period last year. The cost of deposits increased 19 basis points to 0.80% in 2018 from 0.61% in 2017. The cost of interest bearing liabilities increased to 0.88% in 2018 from 0.69% 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 September 30, the provision for loan losses was $225 thousand in 2018 compared to $610 thousand for the same period in 2017.  The provision for loan losses totaled $615 thousand for the nine months ended September 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 September 30, noninterest income totaled $2,054 thousand in 2018, an increase of $1,219 thousand from $835 thousand in 2017. The increase in noninterest income for the quarter was due primarily to increases in services charges, fees and commissions of $997 thousand, trust income of $195 thousand, and bank owned life insurance investment income of $87 thousand.  For the nine months ended September 30, noninterest income increased to $6,540 thousand in 2018 compared to $2,416 thousand in 2017. Wealth management income decreased $59 thousand 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 thousand, respectively, comparing the nine months of 2018 and 2017. Mortgage banking income in the three quarters of 2018 improved to $527 thousand compared to $434 thousand in 2017. Income from bank owned life insurance increased to $584 thousand in the nine months of 2018 compared to $254 thousand for the comparable period in 2017.

Noninterest expense increased $4,174 thousand to $9,341 thousand for the three months ended September 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 September 30, noninterest expense increased to $28,285 thousand in 2018 compared to $15,371 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 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 September 30, 2018. For the three months ended September 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 September 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 September 30, 2018, compared to $93.2 million at December 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% at September 30, 2018 and 15.2% at December 31, 2017.

Stockholders' equity totaled $112.0 million or $12.30 per share at September 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 December 31, 2017. The increase in equity in the nine months ended September 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 September 30, 2018, compared to $8.99 at June 30, 2018 and $8.50 at December 31, 2017.  Dividends declared for the third quarter of 2018 amounted to $0.10 per share representing a dividend payout ratio of 32.6%.

ASSET QUALITY REVIEW

Nonperforming assets were $8.3 million, or 0.91% of loans, net and foreclosed assets at September 30, 2018 compared to $8.4 million or 0.89% at June 30, 2018 and $8.2 million, or 0.85% at December 31, 2017. This asset quality ratio remains significantly improved from 1.26%, at September 30, 2017. Adjusting for accruing restructured loans, nonperforming assets were $3.7 million, or 0.40% of loans, net and foreclosed assets at September 30, 2018, $3.7 million or 0.39% at June 30, 2018 and $2.7 million, or 0.28%, at December 31, 2017. The allowance for loan losses equaled $6.5 million, or 0.71% of loans, net at September 30, 2018, compared to $6.4 million or 0.68% at June 30 2018 and $6.3 million, or 0.66% at December 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% as a percentage of loans, net at September 30, 2018. The coverage ratio, allowance for loan losses as a percentage of nonperforming assets, was 77.5% at September 30, 2018. Excluding accruing restructured loans, the coverage ratio would be 175.7% at September 30, 2018. Loans charged-off, net of recoveries, for the three and nine months ended September 30, 2018, equaled $154 thousand and $449 thousand, compared to $40 thousand and $62 thousand for the same period last year. 

Riverview Financial Corporation 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 3 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/.

Safe Harbor Forward-Looking Statements:

We make statements in this press release, and we may from time to time make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting Riverview Financial Corporation, Riverview Bank, and its subsidiaries (collectively, "Riverview") that may be considered "forward-looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "intend" and "potential." For these statements, Riverview claims the protection of the statutory safe harbors for forward-looking statements.

Riverview cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and political conditions, particularly in our market area; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting Riverview' operations, pricing, products and services and other factors that may be described in Riverview' Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time.

In addition to these risks, acquisitions and business combinations present risks other than those presented by the nature of the business acquired. Acquisitions and business combinations may be substantially more expensive to complete than originally anticipated, and the anticipated benefits may be significantly harder-or take longer-to achieve than expected. As regulated financial institutions, our pursuit of attractive acquisition and business combination opportunities could be negatively impacted by regulatory delays or other regulatory issues. Regulatory and/or legal issues related to the pre­acquisition operations of an acquired or combined business may cause reputational harm to Riverview following the acquisition or combination, and integration of the acquired or combined business with ours may result in additional future costs arising as a result of those issues. 

The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, Riverview assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

In addition to evaluating its results of operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Riverview routinely presents and supplements its evaluation with an analysis of certain non-GAAP financial measures, such as tangible stockholders' equity and adjusted net income ratios. The reported results for the three and nine months ended September 30, 2018 and 2017, contain items which Riverview considers non-adjusted, namely net gains on sales of investment securities available-for-sale, acquisition related expenses and the adjustment to tax expense due to the enactment of the Tax Act. Riverview presents the non-GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in Riverview's results of operation.  Presentation of these non-GAAP financial measures is consistent with how Riverview evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in evaluation of companies in Riverview's industry. Where non-GAAP measures are used in this press release, reconciliations to the comparable GAAP measures are provided in the accompanying tables. The non-GAAP financial measures Riverview uses may differ from similarly titled non-GAAP financial measures of other financial institutions.  These non-GAAP financial measures would not be considered a substitute for GAAP basis measures, and Riverview strongly encourages a review of its condensed consolidated financial statements in their entirety.  Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the tabular material that follows.

[TABULAR MATERIAL FOLLOWS]

Summary Data
Riverview Financial Corporation
Five Quarter Trend
(In thousands, except per share data)
			Sept 30	Jun 30	Mar 31	Dec 31	Sept 30
			2018	2018	2018	2017	2017
Key performance data:
Per common share data:
Net income (loss)			$  0.30	$  0.31	$  0.31	$  (0.55)	$  0.08
Adjusted net income (1)			$  0.31	$  0.31	$  0.35	$  0.13	$  0.09
Cash dividends declared			$  0.10	$  0.10	$  0.00	$  0.14	$  0.14
Book value			$12.30	$12.15	$11.93	$11.72	$11.73
Tangible book value (1)			$9.17	$8.99	$8.75	$8.50	$10.47
Market value:
High			$14.40	$12.75	$13.85	$13.65	$13.50
Low			$12.56	$11.85	$12.31	$12.95	$12.15
Closing			$13.60	$12.65	$12.31	$13.15	$13.20
Market capitalization			$123,905	$115,052	$111,827	$119,262	$64,576
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