RIVE - Riverview Financial Corporation Reports Third Quarter Earnings For 2019

HARRISBURG, Pa., Oct. 22, 2019 /PRNewswire/ -- Riverview Financial Corporation (the "Company" or "Riverview") (NASDAQ: RIVE), today reported unaudited financial results at and for the three months and nine ended September 30, 2019.  Riverview reported net income of $2.3 million, or $0.25 per basic and diluted weighted average common share, for the third quarter of 2019, compared to net income of $2.8 million, or $0.30 per basic and diluted weighted average common share, for the third quarter of 2018. The decrease in the comparable second quarter results was caused primarily by recognizing a higher amount of loan loss provision in 2019.

For the nine months ended September 30, 2019, Riverview reported net income of $3.0 million, or $0.33 per basic and diluted weighted average common share, compared to net income of $8.4 million, or $0.92 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 $1.0 million less of net accretion on acquired assets and assumed liabilities, a $2.2 million  nonrecurring executive separation charge and $553 thousand of severance expense to employees that either retired or were separated from service due to branch network consolidations. In addition, the results for the nine months ended September 30, 2019, included $1.6 million of additional loan loss provision compared to the same period in 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. Where non-GAAP disclosures are used in this press release, a reconciliation to the comparable GAAP measures is provided in the accompanying tables. 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

• The operating efficiency ratio improved to 69.11% for the three months ended September 30, 2019 compared to 79.90% for the prior quarter.
• Total noninterest expense decreased $1,053 thousand, or 10.0%, during the quarter compared to the quarter ended June 30, 2019.
• Tax-equivalent interest income increased $523 thousand, or 4.0%, during the quarter compared to the quarter ended June 30, 2019.
• Interest expense declined $76 thousand, or 3.4%, during the quarter compared to the quarter ended June 30, 2019.
• Interest-bearing deposit costs declined in the third quarter of 2019 to 0.99% from 1.02% in the second quarter of 2019.
• Tax-equivalent net interest margin was 4.46% in the third quarter of 2019 compared to 4.15% for the same period last year. Tax-equivalent net interest margin, excluding the impact of purchase accounting, improved to 3.90% in the third quarter of 2019 compared to 3.68% 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 0.66% at the end of the third quarter of 2019, an improvement from 0.81% at December 31, 2018 and 0.91% at September 30, 2018.
• Book value per share and tangible book value per share increased to $12.77 per share, or 3.8% and $9.75 per share, or 6.3%, respectively, at the end of the third quarter of 2019, compared to the same period last year.
• Stockholders' equity as a percentage of total assets improved to 10.57% at the end of the third quarter of 2019 compared to 9.69% at the same period last year. Tangible stockholders' equity as a percentage of tangible assets increased to 8.28% at September 30, 2019, from 7.41% at September 30, 2018.

We are pleased to report our third quarter results, particularly as they are beginning to demonstrate  the impact of our strategic efficiency initiatives," said Brett D. Fulk, President and Chief Executive Officer.  Fulk continued "I am extremely pleased with the effort put forth by our management team to begin the successful execution of cost savings opportunities identified throughout the first half of 2019, leading directly to a 10% reduction in total non-interest expense this quarter compared to the second quarter of this year.  To achieve this level of expense reduction we successfully executed initiatives that reduced Salary and Employee Benefits Expense by 10% and Other Expenses by 15% during the third quarter.  Additional expense reduction initiatives will be implemented throughout the remainder of 2019, along with certain fee generation initiatives that are anticipated to have a positive material impact on our core operating results."

Regarding asset quality, Fulk commented "despite elevated loan loss provisions this quarter and year to date compared to 2018, asset quality remains very strong, as evidenced by our low level of delinquent and non-performing loans. Increased provisioning expense during 2019 is the result of identification of increasing national, regional and local economic risks emerging as the current economic cycle continues to age, coupled with efforts to address legacy loans on a "one off" basis, and should not cause readers of our financial results to draw negative conclusions about systemic loan portfolio credit quality risk within our portfolio". In closing, Fulk stated with respect to balance sheet growth.  "It is imperative we continue to expand our earning asset base responsibly.  The lack of organic loan balance growth year to date is being addressed by focusing on methods to generate additional opportunities without increasing our risk profile.  Some of these methods include expansion into new growth markets during the third quarter through the opening of two full service offices and one limited purpose office, as well as attracting additional asset generation employees to our organization."       

INCOME STATEMENT REVIEW

Tax-equivalent net interest income for the three months ended September 30 was $11.4 million in 2019 compared to $11.0 million in 2018.  The improvement in the tax-equivalent net interest income was attributable to recognizing a greater amount of net accretion on purchased assets and assumed liabilities along with an increase in the tax equivalent net interest margin, offset by a reduction in average loan volumes. Net accretion totaled $1.4 million in the third quarter of 2019 compared to $1.1 million for the same period last year.  For the three months ended September 30, the tax-equivalent net interest margin increased to 4.46% in 2019 from 4.15% in 2018. Excluding purchase accounting adjustments, the tax-equivalent net interest margins were 3.90% and 3.68% for the third quarters of 2019 and 2018. The loan portfolio yield on a tax-equivalent basis improved to 5.67% in the third quarter of 2019 compared to 5.24% for the same period last year. The cost of funds increased nine basis points comparing the third quarters of 2019 and 2018. Average loan volume declined $44.3 million to $882.6 million from $926.9 million comparing  the three months ended September 30, 2019 and 2018.

For the nine months ended September 30, tax-equivalent net interest income declined $1.0 million to $31.9 million in 2019 from $32.9 million in 2018.  The decrease in tax-equivalent net interest income was attributable to declines in average loan balances and reductions in net accretion on purchased assets and assumed liabilities, offset by an improvement in the tax equivalent net interest margin. Loans averaged $885.8 million for the nine months ended September 30, 2019 compared to $935.3 million for the same period last year. For the nine months ended September 30, tax-equivalent net interest margin was 4.18% in 2019 compared to 4.16% in 2018. Adjusting for the recognition of purchase accounting adjustments of $3.0 million and $4.1 million, the tax-equivalent net interest margin would have been 3.78% and 3.64% for the nine months ended September 30, 2019 and 2018. The tax-equivalent yield on earnings assets was 5.04% and the cost of funds was 1.06% in 2019. The tax-equivalent yield on the loan portfolio increased to 5.37% in 2019 compared to 5.19% in 2018. Excluding loan accretion of $2.9 million and $3.8 million included in loan interest income related to acquired loans, the tax-equivalent yield on the loan portfolio would have been 4.94% and 4.65% for the nine months ended September 30, 2019 and 2018. For the nine months ended September 30, investments yielded 3.06% on a tax-equivalent basis in 2019 compared to 2.79% for the same period last year. The cost of deposits increased 20 basis points to 1.00% in 2019 from 0.80% in 2018. The cost of interest-bearing liabilities increased to 1.06% in 2019 from 0.88% in 2018.

For the quarter ended September 30, the provision for loan losses was $1,049 thousand in 2019 compared to $225 thousand for the same period in 2018.  The provision for loan losses totaled $2,250 thousand for the nine months ended September 30, 2019, compared to $615 thousand in 2018. The increase in the provision for loan losses in 2019 was influenced by increasing qualitative factors related to weakening economic trends and higher historical loss factors due to an increase in net charge-offs primarily associated with legacy purchased loans.

For the quarter ended September 30, noninterest income totaled $1,960 thousand in 2019, a decrease of $94 thousand from $2,054 thousand in 2018. The decrease in noninterest income for the quarter was due primarily to decreases in services charges, fees and commissions of $138 thousand, and recognizing a net loss on the sale of investment securities of $53 thousand offset partially by an increase of $88 thousand in trust commissions and fees.  For the nine months ended September 30, noninterest income decreased to $5,897 thousand in 2019 compared to $6,540 thousand in 2018. The decrease was  primarily a result of lower service charges, fees and commissions of $649 thousand and mortgage banking income of $170 thousand offset partially by increases in trust commissions and fees of $184 thousand and wealth management income of $137 thousand. 

Noninterest expense increased $90 thousand to $9,431 thousand for the three months ended September 30, 2019, from $9,341 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 $200 thousand.  The increase in salary and benefits expense was primarily due to accruals of severances associated with staff elimination and the planned branch closures. For the nine months ended September 30, noninterest expense increased to $31,879 thousand in 2019 compared to $28,285 thousand in 2018. The increase was primarily due to $2.2 million in nonrecurring expenses from the execution of an executive separation agreement and $553 thousand of retirement and severance accruals.

BALANCE SHEET REVIEW

Total assets, loans, net, and deposits totaled $1.1 billion, $883.5 million, and $969.6 million at September 30, 2019. For the three months ended September 30, 2019, total assets, loans and deposits decreased $10.4 million, $5.8 million and $10.1 million, respectively. For the nine months ended September 30, 2019, total assets decreased $27.8 million or 2.4%. Year to date, loans, net, decreased $9.7 million comparing the end of the third quarter of 2019 to year-end 2018. Business lending, including commercial and commercial real estate loans, decreased $12.0 million while retail lending, including residential mortgages and consumer loans, decreased $16.7 million during the nine months ended September 30, 2019. For this same period construction lending increased $19.0 million.  Loan originations during the first nine 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  margin discipline on loan originations and an unwavering commitment to maintaining strong credit underwriting standards.  Total investments were $106.6 million at September 30, 2019, compared to $104.7 million at December 31, 2018. Total deposits decreased $35.0 million in the nine months ended September 30, 2019, as the softness in loan demand reduced the need to aggressively price deposits along with management's desire to maintain margins through reducing reliance on interest-bearing deposits. Noninterest-bearing deposits decreased $1.4 million, while interest-bearing deposits decreased $33.6 million. As a percentage of total deposits, noninterest-bearing deposits amounted to 16.6% at September 30, 2019 and 16.2% at December 31, 2018.

Stockholders' equity totaled $117.3 million, or $12.77 per share, at September 30, 2019, $115.7 million, or $12.62 per share, at June 30, 2019, and $113.9 million, or $12.49 per common share, at December 31, 2018. The increase in equity in the nine months ended September 30, 2019 was due primarily to an change of $2.2 million in accumulated other comprehensive income and net income of $3.0 million offset partially by dividends declared of $2.5 million. Tangible stockholders' equity per common share increased to $9.75 at September 30, 2019, compared to $9.58 at June 30, 2019 and $9.39 at December 31, 2018. Dividends declared for the third quarter of 2019 amounted to $0.075 per share representing a dividend payout ratio of 2.6% based on the Company's closing market price on September 30, 2019. 

ASSET QUALITY REVIEW

Nonperforming assets were $5.8 million, or 0.66% of loans, net, and foreclosed assets at September 30, 2019 compared to $7.2 million or 0.81% at December 31, 2018. Adjusting for accruing restructured loans, nonperforming assets were $3.1 million, or 0.35% of loans, net and foreclosed assets at September 30, 2019, and $4.3 million, or 0.48%, at December 31, 2018. The allowance for loan losses equaled $7.1 million, or 0.80%, of loans, net, at September 30, 2019, compared to $6.4 million, or 0.71%, at December 31, 2018.  Adding accounting marks for purchased credit impaired loans to the allowance for loan losses would result in a ratio of 0.94% as a percentage of loans, net at September 30, 2019. The coverage ratio, allowance for loan losses as a percentage of nonperforming assets, was 122.2% at September 30, 2019 versus 88.1% at December 31, 2018. Excluding accruing restructured loans, the coverage ratio would be 227.9% at September 30, 2019. Loans charged-off, net of recoveries, for the nine months ended September 30, 2019, equaled $1,501 thousand, compared to $154 thousand for the same period last year. 

Riverview Financial Corporation is the parent company of Riverview Bank. An independent community bank, Riverview Bank serves the Pennsylvania market areas of Berks, Blair, Bucks, Centre, Clearfield, Cumberland, Dauphin, Huntingdon, Lebanon, Lehigh, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties through 28 community banking offices and four 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 and Trust Management divisions of Riverview Bank, with assets under management exceeding $350 million, provide trust and investment advisory services to the general public. 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's operations, pricing, products and services and other factors that may be described in Riverview's 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 a regulated financial institution, 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 Core net income ratios. The reported results for the three and nine months ended September 30, 2019 and 2018, contain items which Riverview considers non-core, 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]