Two River Bancorp Reports 2018 Second Quarter Financial Results Highlighted by 24.5% Increase in Net Income

TINTON FALLS, N.J., July 24, 2018 (GLOBE NEWSWIRE) -- Two River Bancorp (Nasdaq:TRCB) (the "Company"), the parent company of Two River Community Bank (the “Bank"), today reported financial results for the second quarter and six months ended June 30, 2018, highlighted by higher net income driven by solid loan growth during the quarter.

2018 Second Quarter Financial Highlights
(comparisons to respective prior year’s period)

• Net income increased 24.5% to $2.65 million, or $0.30 per diluted share, which included $137,000, or $0.02 per diluted share, of additional income tax expense due to New Jersey’s newly enacted Corporation Business Tax (CBT) surtax, for which the Company recorded six months of retroactive state income tax expense in the second quarter of 2018.
• Effective tax rate will increase from 26% to approximately 28% in future periods due to the impact of CBT changes
• Return on average assets of 1.00%, up from 0.87%
• Return on average equity of 9.67%, up from 8.26%
• Net interest margin improved 10 basis points to 3.59%
• Net interest income increased 12.7% to $8.97 million
• Efficiency ratio⁽¹⁾ improved to 62.6% compared to 63.9%

1. Efficiency ratio represents the ratio of non-interest expense to the sum of net interest income and non-interest income.

(Totals at June 30, 2018; comparisons to December 31, 2017)

• Total loans were $890.4 million, an increase of $39.5 million, or 9.3% annualized
• Total deposits were $880.9 million, an increase of $19.3 million, or 4.5% annualized
• Total assets increased to a record $1.056 billion, compared to $1.040 billion, or 3.0% annualized
• Tangible book value per share⁽¹⁾ increased to $10.90, compared to $10.44

1. Non-GAAP Financial Information. See “Reconciliation of Non-GAAP Financial Measures” at end of release.

Management Commentary
William D. Moss, President and CEO, stated, “The Company’s net income increased 24.5% as a result of strong loan growth and an improvement in key performance metrics during the period. We remain on track to achieve our growth and earnings goals. Higher net interest income, lower credit costs and well controlled expenses led to a 21.0% increase in income before taxes for the quarter. Although second quarter and first half results were negatively impacted by the newly enacted state tax legislation on July 1, 2018, our overall effective tax rate is expected to be comparably lower for the second half of 2018 from the prior year. Growing our lending business, while expanding core deposit relationships, continue to be our priorities. On an annualized basis, loans grew 9.3%, predominantly in the commercial real estate and construction sectors. We expect that this growth, coupled with a strong loan pipeline, will help drive profitability for the remainder of 2018.”

Dividend Increased to $0.055 per share
On July 18, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.055 per share, payable on August 29, 2018 to shareholders of record as of the close of business on August 10, 2018. This marks the 22^nd consecutive quarterly cash dividend, which represents a 22.2% increase from the prior quarter, and is the fifth consecutive year in which the Company has raised its cash dividend. 

Key Quarterly Performance Metrics

Loan Composition
The components of the Company’s loan portfolio at June 30, 2018 and December 31, 2017 are as follows:  

Deposit Composition
The components of the Company’s deposits at June 30, 2018 and December 31, 2017 are as follows:  

2018 Second Quarter Financial Review

Net Income
Net income for the three months ended June 30, 2018 increased 24.5% to $2.65 million, or $0.30 per diluted common share, compared to $2.13 million, or $0.25 per diluted common share, for the same period last year. The increase was largely due to higher net interest income and a lower loan loss provision coupled with a lower Federal corporate income tax rate, which was partially offset by an increase in non-interest expense and an increase in the New Jersey state income tax expense, as discussed below.

On July 1, 2018, New Jersey enacted Assembly Bill No. 4202 to make several changes to the New Jersey Corporation Business Tax (CBT), most notably establishing a temporary CBT surtax, effectively increasing the current CBT tax rate of 9% to 11.5%, retroactive to January 1, 2018. The CBT surtax will reduce to 1.5% from 2.5% for tax years beginning on or after January 1, 2020 through December 31, 2021. As a result of this increase, the Company recorded six months of additional state income tax expense in the second quarter of 2018 of $137,000, or $0.02 per diluted share.

On a linked quarter basis, second quarter 2018 net income remained flat compared to the first quarter of 2018, despite this additional tax expense.

Net income for the six months ended June 30, 2018 increased 35.5% to $5.33 million, or $0.61 per diluted share, compared to $3.93 million, or $0.45 per diluted share, in the same prior year period. For the first half of 2018, the Company recorded a $133,000 tax benefit related to the accounting treatment of equity-based compensation, as compared to $145,000 for the same period last year.

Net Interest Income
Net interest income for the quarter ended June 30, 2018 was $8.97 million, an increase of 12.7% compared to $7.96 million in the corresponding prior year period. This was largely due to an increase of $87.4 million, or 9.6%, in average interest-earning assets, primarily attributable to growth in the loan portfolio. On a linked quarter basis, net interest income increased $170,000, or 1.9%, from $8.80 million.

For the first half of 2018, net interest income increased 14.0% to $17.8 million from $15.6 million in the prior year period.

Net Interest Margin
The Company reported a net interest margin of 3.59% for the second quarter of 2018, compared to 3.63% in the first quarter of 2018 and 3.49% reported for the second quarter of 2017. Net interest margin declined slightly from the first quarter of 2018 largely due to a higher cost of funds.

The net interest margin for the first half of 2018 was 3.61%, compared to 3.47% in the prior year period, primarily due to higher yielding interest-earning assets.

Non-Interest Income
Non-interest income for the quarter ended June 30, 2018 declined slightly to $1.50 million, compared to $1.54 million in the corresponding prior year period.  This was largely due to lower residential mortgage banking revenues, partially offset by higher other loan fees, primarily due to loan prepayment fees, and service fees on deposit accounts.

On a linked quarter basis, non-interest income increased by $186,000, or 14.2%, from the first quarter of 2018, mainly due to higher gains on the sale of SBA loans and residential mortgage banking revenues.

For the six months ended June 30, 2018, non-interest income increased $143,000, or 5.4%, to $2.8 million from the same period in 2017.

Non-Interest Expense
Non-interest expense for the quarter ended June 30, 2018 totaled $6.55 million, an increase of $480,000, or 7.9%, from the $6.07 million reported in same period in 2017, primarily due to salary increases, new hires within the lending and deposit teams, and higher data processing expenses. The Company’s efficiency ratio was 62.6% for the quarter, compared to 63.9% for the same period in 2017.

On a linked quarter basis, non-interest expense increased $324,000, or 5.2%, largely due to higher salaries and professional expenses.

For the six months ended June 30, 2018, non-interest expense increased $930,000, or 7.8%, to $12.8 million compared to the same prior year period. Efficiency ratio for the six months ended June 30, 2018 improved to 62.1% from 64.9% compared to the same prior year period.

Provision for Loan Losses
During the quarter, a provision for loan losses of $225,000 was expensed, compared to $375,000 in the same prior year period. The majority of the second quarter 2018 provision was to support the Company’s strong loan growth. The Company had $14,000 in net loan recoveries during the quarter, compared to $11,000 in net loan recoveries during the same period last year.

For the first half of 2018, a provision of $625,000 was expensed, compared to $600,000 for the same prior year period. The Company had $92,000 of net loan charge-offs during the first half of 2018, compared to $212,000 of net loan charge-offs in the same prior year period.

As of June 30, 2018, the Company's allowance for loan losses was $11.20 million, compared to $10.67 million as of December 31, 2017. The loss allowance as a percentage of total loans was 1.26% at June 30, 2018 compared to 1.25% at December 31, 2017. 

Financial Condition / Balance Sheet

At June 30, 2018, the Company maintained capital ratios that were in excess of regulatory standards for well capitalized institutions. The Company's Tier 1 capital to average assets ratio was 8.95%, its common equity Tier 1 to risk weighted assets ratio was 9.82%, its Tier 1 capital to risk weighted assets ratio was 9.82%, and its total capital to risk weighted assets ratio was 12.04%.

Total assets as of June 30, 2018 were $1.056 billion, compared to $1.040 billion at December 31, 2017 and $983.1 million as of June 30, 2017.

Total loans as of June 30, 2018 were $890.4 million, compared to $850.9 million at December 31, 2017 and $794.9 million as of June 30, 2017.

Total deposits as of June 30, 2018 were $880.9 million, compared to $861.6 million as of December 31, 2017 and $810.7 million as of June 30, 2017. Core checking deposits at June 30, 2018 were $364.9 million, compared to $400.0 million at December 31, 2017 and $357.3 million at June 30, 2017. The Company continues to focus on building core checking account deposit relationships, which can vary from quarter to quarter due to seasonality in its municipal relationships.

Asset Quality
The Company's non-performing assets at June 30, 2018 were $1.93 million as compared to $2.07 million at December 31, 2017 and $3.18 million at June 30, 2017. Non-performing assets to total assets at June 30, 2018 were 0.18% compared to 0.20% at December 31, 2017 and 0.32% at June 30, 2017.

Non-accrual loans were $1.93 million at June 30, 2018, compared to $2.07 million at December 31, 2017 and $2.95 million at June 30, 2017. There was no OREO at June 30, 2018 and December 31, 2018, compared to $233,000 at June 30, 2017. 

Troubled debt restructured loan balances amounted to $6.71 million at June 30, 2018, with all but $877,000 performing. This compared to $7.05 million at December 31, 2017 and $7.95 million at June 30, 2017.

About the Company
Two River Bancorp is the holding company for Two River Community Bank, which is headquartered in Tinton Falls, New Jersey. Two River Community Bank operates 14 branches along with two loan production offices throughout Monmouth, Middlesex, Union, and Ocean Counties, New Jersey. More information about Two River Community Bank and Two River Bancorp is available at www.tworiverbank.com. 

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's current views and expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as "continue," "expect," "look," "believe," "anticipate," "may," "will," "should," "projects," "strategy," or similar statements. Actual results may differ materially from such forward-looking statements, and no reliance should be placed on any forward-looking statement. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, unanticipated changes in the financial markets and the direction of interest rates; volatility in earnings due to certain financial assets and liabilities held at fair value; competition levels; loan and investment prepayments differing from our assumptions; insufficient allowance for credit losses; a higher level of loan charge-offs and delinquencies than anticipated; material adverse changes in our operations or earnings; a decline in the economy in our market areas; changes in relationships with major customers; changes in effective income tax rates; higher or lower cash flow levels than anticipated; inability to hire or retain qualified employees; a decline in the levels of deposits or loss of alternate funding sources; a decrease in loan origination volume or an inability to close loans currently in the pipeline; changes in laws and regulations; adoption, interpretation and implementation of accounting pronouncements; operational risks, including the risk of fraud by employees, customers or outsiders; and the inability to successfully implement or expand new lines of business or new products and services. For a list of other factors which would affect our results, see the Company's filings with the Securities and Exchange Commission, including those risk factors identified in the "Risk Factor" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2017. The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company assumes no obligation for updating any such forward-looking statements at any time, except as required by law.

Selected Period End Balances
(in thousands)

Asset Quality Data (by Quarter)
(dollars in thousands)

Capital Ratios

Net Loan Charge-offs
(dollars in thousands)

Consolidated Average Balance Sheets & Yields
With Resultant Interest and Average Rates

(1)  Included in interest income on loans are loan fees.
(2)  Includes non-performing loans.
(3)  The interest rate spread is the difference between the weighted average yield on average interest-earning and the weighted average cost of average interest-bearing liabilities.
(4)  The interest rate margin is calculated by dividing annualized net interest income by average interest earning assets.

Consolidated Average Balance Sheets & Yields
With Resultant Interest and Average Rates

(1)  Included in interest income on loans are loan fees.
(2)  Includes non-performing loans.
(3)  The interest rate spread is the difference between the weighted average yield on average interest-earning and the weighted average cost of average interest-bearing liabilities.
(4)  The interest rate margin is calculated by dividing annualized net interest income by average interest earning assets.

Reconciliation of Non-GAAP Financial Measures

The press release contains certain financial information determined by methods other than in accordance with generally accepted accounting policies in the United States (GAAP). These non-GAAP financial measures are "book value per common share," "tangible book value per common share," "return on average tangible assets," and "return on average tangible equity." This non-GAAP disclosure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Our management uses these non-GAAP measures in its analysis of our performance because it believes these measures are material and will be used as a measure of our performance by investors.