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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2013

 

or

 

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                    to                    .

 

333-188193

Commission File Number

 

RIVERVIEW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Pennsylvania

 

26-3853402

(State or other jurisdiction of

 

(IRS Employer Identification Number)

incorporation or organization)

 

 

 

3rd and Market Streets, Halifax, PA 17032

(Address of principal executive offices)

 

Registrant’s telephone number: 717-896-3433

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  o  NO  x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  x  NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

 

Accelerated filer  o

Non-accelerated filer    o

 

Smaller reporting company   x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o  NO  x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,716,316 shares of Common Stock, par value $0.50 per share, outstanding as of September 19, 2013.

 

 

 



Table of Contents

 

Explanatory Note

 

Riverview Financial Corporation (“Riverview”), and Union Bancorp, Inc. (“Union”) filed a Registration Statement on Form S-4 (333-188193) (the “Registration Statement”), which became effective on August 9, 2013, pertaining to the proposed consolidation of Riverview and Union into a new, yet-to-be-formed company.  The parties anticipate that the consolidation will close in the fourth quarter of 2013.  As a result of Riverview being deemed a registrant for the purposes of the Registration Statement, Riverview is required, under Section 15(d) of the Securities Exchange Act of 1934, to file this Quarterly Report for the period ended June 30, 2013 within 45 days of the effective date of the Registration Statement.

 

2



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

 

INDEX TO FORM 10-Q

 

 

 

PAGE

 

 

 

PART I.

Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets at June 30, 2013 (unaudited) and December 31, 2012

4

 

 

 

 

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and 2012 (unaudited)

5

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012 (unaudited)

6

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2013 and 2012 (unaudited)

7

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012 (unaudited)

8

 

 

 

 

Notes to Consolidated Financial Statements

10

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

49

 

 

 

Item 4.

Controls and Procedures

49

 

 

 

PART II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

50

 

 

 

Item 1A.

Risk Factors

50

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

 

Item 3.

Defaults Upon Senior Securities

50

 

 

 

Item 4.

Mine Safety Disclosures

50

 

 

 

Item 5.

Other Information

50

 

 

 

Item 6.

Exhibits

50

 

 

 

SIGNATURES

52

 

 

Exhibit Index

53

 

 

3



Table of Contents

 

PART I.

FINANCIAL INFORMATION

 

 

ITEM 1:

FINANCIAL STATEMENTS

 

RIVERVIEW FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEET

 

 

 

June 30,

 

December 31,

 

(In thousands, except share data)

 

2013

 

2012

 

 

 

(Unaudited)

 

(Audited)

 

Assets

 

Cash and due from banks

 

$

9,288

 

$

8,611

 

Federal funds sold

 

7,942

 

1,567

 

Interest bearing deposits

 

5,096

 

5,774

 

Cash and cash equivalents

 

22,326

 

15,952

 

Interest bearing time deposits with banks

 

250

 

250

 

Investment securities available for sale

 

32,680

 

45,101

 

Mortgage loans held for sale

 

856

 

830

 

Loans, net of allowance for loan losses of $3,773 - 2013; $3,736 - 2012

 

236,394

 

234,112

 

Premises and equipment

 

6,948

 

7,162

 

Accrued interest receivable

 

911

 

1,014

 

Restricted investments in bank stocks

 

973

 

1,429

 

Cash value of life insurance

 

6,818

 

6,706

 

Foreclosed assets

 

1,809

 

1,909

 

Goodwill

 

2,297

 

2,297

 

Intangible assets

 

493

 

547

 

Other assets

 

2,074

 

1,888

 

Total Assets

 

$

314,829

 

$

319,197

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

Liabilities

 

 

 

 

 

Deposits:

 

 

 

 

 

Demand, non-interest bearing

 

$

22,865

 

$

24,526

 

Demand, interest bearing

 

110,968

 

97,576

 

Savings and money market

 

58,469

 

48,342

 

Time

 

86,347

 

99,001

 

Total deposits

 

278,649

 

269,445

 

Short-term borrowings

 

 

11,000

 

Long-term borrowings

 

7,000

 

9,550

 

Accrued interest payable

 

131

 

214

 

Other liabilities

 

2,314

 

2,251

 

Total Liabilities

 

288,094

 

292,460

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

Common stock, par value $0.50 per share; authorized 5,000,000 shares; issued 2013 and 2012 1,750,003 shares; outstanding 2013 and 2012 1,716,316 shares

 

875

 

875

 

Surplus

 

11,372

 

11,350

 

Retained earnings

 

14,832

 

14,217

 

Accumulated other comprehensive income (loss)

 

(7

)

632

 

Treasury stock, at cost 2013 and 2012 33,687 shares

 

(337

)

(337

)

Total Shareholders’ Equity

 

26,735

 

26,737

 

Total Liabilities and Shareholders’ Equity

 

$

314,829

 

$

319,197

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

(In thousands, except share data)

 

June 30,

 

June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

2,970

 

$

2,815

 

$

5,936

 

$

5,691

 

Investment securities - taxable

 

34

 

153

 

86

 

325

 

Investment securities - tax exempt

 

178

 

184

 

356

 

358

 

Interest-bearing deposits

 

7

 

5

 

12

 

14

 

Dividends

 

1

 

1

 

3

 

2

 

Total Interest Income

 

3,190

 

3,158

 

6,393

 

6,390

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

Deposits

 

541

 

713

 

1,165

 

1,460

 

Short-term borrowings

 

 

2

 

1

 

3

 

Long-term debt

 

79

 

91

 

160

 

184

 

Total Interest Expense

 

620

 

806

 

1,326

 

1,647

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

2,570

 

2,352

 

5,067

 

4,743

 

 

 

 

 

 

 

 

 

 

 

Provision for Loan Losses

 

 

35

 

 

85

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income after Provision for Loan Losses

 

2,570

 

2,317

 

5,067

 

4,658

 

 

 

 

 

 

 

 

 

 

 

Noninterest Income

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

74

 

66

 

146

 

128

 

Other service charges and fees

 

96

 

89

 

171

 

182

 

Earnings on cash value of life insurance

 

55

 

63

 

114

 

126

 

Fees and commissions from securities brokerage

 

157

 

 

272

 

 

Gain on sale of available for sale securities

 

 

 

119

 

770

 

Loss on sale of other real estate owned

 

(35

)

(28

)

(35

)

(28

)

Gain/(loss) on write-down of other real estate owned

 

1

 

 

(74

)

 

Loss on other assets

 

 

(7

)

 

(7

)

Gain on sale of mortgage loans

 

229

 

90

 

386

 

163

 

Total Noninterest Income

 

577

 

273

 

1,099

 

1,334

 

 

 

 

 

 

 

 

 

 

 

Noninterest Expenses

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

1,259

 

1,131

 

2,521

 

2,310

 

Occupancy expenses

 

240

 

219

 

495

 

447

 

Equipment expenses

 

129

 

119

 

263

 

242

 

Telecommunication and processing charges

 

178

 

149

 

369

 

323

 

Postage and office supplies

 

68

 

64

 

124

 

125

 

FDIC premiums

 

66

 

66

 

106

 

136

 

Bank shares tax expense

 

74

 

71

 

147

 

142

 

Directors’ compensation

 

67

 

66

 

142

 

132

 

Professional services

 

43

 

47

 

99

 

98

 

Other expenses

 

261

 

186

 

502

 

330

 

Total Noninterest Expenses

 

2,385

 

2,118

 

4,768

 

4,285

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

762

 

472

 

1,398

 

1,707

 

 

 

 

 

 

 

 

 

 

 

Applicable Federal Income Taxes

 

201

 

78

 

354

 

416

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

561

 

$

394

 

$

1,044

 

$

1,291

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Earnings Per Share

 

$

0.33

 

$

0.23

 

$

0.61

 

$

0.75

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three and Six Months Ended June 30, 2013 and 2012

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands)

 

Net income

 

$

561

 

$

394

 

$

1,044

 

$

1,291

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains and losses on securities available for sale:

 

 

 

 

 

 

 

 

 

Net unrealized losses arising during the period, net of tax

 

(393

)

(223

)

(718

)

(1,039

)

Reclassification adjustment for income included in net income, net of tax

 

 

 

79

 

509

 

Total other comprehensive income (loss), net of tax

 

(393

)

(223

)

(639

)

(530

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

168

 

$

171

 

$

405

 

$

761

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Six Months Ended June 30, 2013 and 2012

(Unaudited)

 

(In thousands, except share data)

 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Treasury
Stock

 

Total
Shareholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2012

 

$

875

 

$

11,307

 

$

13,490

 

$

1,006

 

$

(272

)

$

26,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

1,291

 

 

 

1,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

(530

)

 

(530

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation cost of option grants

 

 

27

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends, $0.25 per share

 

 

 

(430

)

 

 

(430

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase common stock

 

 

 

 

 

(13

)

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — June 30, 2012

 

$

875

 

$

11,334

 

$

14,351

 

$

476

 

$

(285

)

$

26,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2013

 

$

875

 

$

11,350

 

$

14,217

 

$

632

 

$

(337

)

$

26,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

1,044

 

 

 

1,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

(639

)

 

(639

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation cost of option grants

 

 

22

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends, $0.25 per share

 

 

 

(429

)

 

 

(429

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — June 30, 2013

 

$

875

 

$

11,372

 

$

14,832

 

$

(7

)

$

(337

)

$

26,735

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

(In thousands)

 

2013

 

2012

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income

 

$

1,044

 

$

1,291

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation

 

295

 

299

 

Provision for loan losses

 

 

85

 

Granting of stock options

 

22

 

27

 

Net amortization of premiums on securities available for sale

 

158

 

180

 

Net realized loss from write-down or sale of foreclosed real estate and other assets

 

109

 

28

 

Net realized gain on sale of securities available for sale

 

(119

)

(770

)

Acquisition of mortgage servicing rights

 

 

(3

)

Amortization of intangible assets

 

54

 

17

 

Deferred income taxes

 

(146

)

278

 

Proceeds from sale of mortgage loans

 

24,767

 

12,643

 

Net gain on sale of mortgage loans

 

(386

)

(163

)

Mortgage loans originated for sale

 

(24,407

)

(12,783

)

Earnings on cash value of life insurance, net

 

(114

)

(126

)

(Increase) decrease in accrued interest receivable and other assets

 

392

 

(307

)

Decrease in accrued interest payable and other liabilities

 

(20

)

(367

)

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

1,649

 

329

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

Purchases

 

 

(29,214

)

Proceeds from maturities, calls and principal repayments

 

5,987

 

3,501

 

Proceeds from sales

 

5,427

 

19,106

 

Proceeds from the sale of foreclosed real estate

 

135

 

 

Net decrease in restricted investments in bank stock

 

456

 

150

 

Net increase in loans

 

(2,426

)

(13,180

)

Purchases of premises and equipment

 

(81

)

(315

)

Purchase of life insurance

 

 

(775

)

Proceeds from life insurance

 

2

 

 

 

 

 

 

 

 

Net Cash Provided by (Used in) Investing Activities

 

9,500

 

(20,727

)

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

Net increase in deposits

 

9,204

 

2,332

 

Net increase in securities sold under agreements to repurchase

 

 

627

 

Payments on short-term borrowings

 

(11,000

)

2,000

 

Repayment of long-term debt

 

(2,550

)

(1,128

)

Purchase of treasury stock

 

 

(13

)

Dividends paid

 

(429

)

(430

)

 

 

 

 

 

 

Net Cash Provided by (Used in) Financing Activities

 

(4,755

)

3,388

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

6,374

 

(17,010

)

Cash and Cash Equivalents - Beginning

 

15,952

 

27,905

 

 

 

 

 

 

 

Cash and Cash Equivalents - Ending

 

$

22,326

 

$

10,895

 

 

8



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS — CONTINUED

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flows Information

 

 

 

 

 

Interest paid

 

$

1,376

 

$

1,687

 

Income taxes paid

 

$

339

 

$

362

 

 

 

 

 

 

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

 

 

 

 

Other real estate acquired in settlement of loans

 

$

144

 

$

983

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

9



Table of Contents

 

RIVERVIEW FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

 

Note 1 - Summary of Significant Accounting Policies

 

Nature of Operations

 

Riverview Financial Corporation (“Riverview”) and its wholly-owned bank subsidiary, Riverview Bank (“Bank”), provide loan, deposit and a full range of banking services to individuals, businesses and municipalities through two full service offices in Marysville and Duncannon, Perry County, Pennsylvania, one full service office in Enola, Cumberland County, Pennsylvania, four full service offices in Tower City, Cressona, Pottsville and Orwigsburg, Schuylkill County, Pennsylvania, three full service and one drive-up office in Halifax, Millersburg and Elizabethville, Dauphin County, Pennsylvania and one commercial office in Wyomissing, Berks County, Pennsylvania.  Effective December 27, 2012, the Bank purchased a wealth management business located in Orwigsburg, Schuylkill County, Pennsylvania that provides financial advisory, insurance and investment services relating to non-deposit type investment products.  The business, known as Riverview Financial Wealth Management, is a division of the Bank.

 

The Bank is a Pennsylvania chartered state bank, which competes with several other financial institutions within its geographic footprint to provide its banking and wealth management services to individuals, businesses, municipalities and other organizations.

 

Riverview and the Bank are subject to regulations of certain state and federal agencies.  These regulatory agencies periodically examine Riverview and the Bank for adherence to laws and regulations.

 

The accounting and reporting policies followed by Riverview conform to generally accepted accounting principles and to general practices within the banking industry.  The following paragraphs briefly describe the more significant accounting policies.

 

Principles of Consolidation and Basis of Accounting

 

The accompanying unaudited consolidated financial statements include the accounts of Riverview and its wholly-owned bank subsidiaryAll significant intercompany accounts and transactions have been eliminated in consolidation.  Riverview uses the accrual basis of accounting.

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and are presented in accordance with instructions for Form 10-Q and Rule 10-01 of Securities and Exchange Commission Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation are of a normal and recurring nature and have been included.

 

Operating results for the three and six months ended June 30, 2013, are not necessarily indicative of the results that may be expected for the year ended December 31, 2013 or any other future period.  The consolidated financial statements presented in this report should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2012, included in Riverview’s Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 9, 2013.

 

Use of Estimates

 

These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and predominant practices within the banking industry.  The preparation of these consolidated financial statements requires Riverview to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and

 

10



Table of Contents

 

Note 1 - Summary of Significant Accounting Policies (Continued)

 

liabilities.  Riverview evaluates estimates on an ongoing basis.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the potential impairment of goodwill, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities and the valuation of real estate acquired by foreclosure or in satisfaction of loans.  The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.  In connection with the determination of the estimated losses on loans and foreclosed real estate, management obtains independent appraisals for significant collateral.

 

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans.  Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination.  Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term.  However, the amount of the change that is reasonably possible cannot be estimated.

 

Accounting Policies

 

The accounting policies of Riverview as applied in the interim financial statements presented, are substantially the same as those followed on an annual basis as presented in Riverview’s annual audited financial statements included in Riverview’s Registration Statement on Form S-4.

 

Segment Reporting

 

Riverview operates in a single business segment consisting of traditional banking activities.

 

Subsequent Events

 

Generally accepted accounting principles establish general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued.  The subsequent events principle sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and specifies the disclosures that should be made about the events or transactions that occur after the balance sheet date.  In preparing these consolidated financial statements, Riverview evaluated the events and transactions that occurred after June 30, 2013 through the date these consolidated financial statements were issued, and has not identified any events that require recognition or disclosure in the consolidated financial statements.

 

Note 2 — Consolidation with Union Bancorp, Inc.

 

On March 7, 2013, Riverview Financial Corporation and Union Bancorp, Inc. jointly announced the signing of a definitive agreement to consolidate, forming a new corporation, known as “Newco”, which will adopt the name of “Riverview Financial Corporation”.  The respective bank subsidiaries will merge as part of the transaction.  The proposed consolidation will create a full-service community banking organization serving the Perry, Dauphin, Cumberland, Schuylkill, Northumberland and Berks county markets.  On a proforma basis as of March 31, 2013, the resulting company would have approximately $435,326,000 in assets, $306,285,000 in loans and $382,590,000 in deposits and will be considered well capitalized under capital adequacy guidelines.  The transaction is expected to close in the fourth quarter of 2013, subject to the approval of the shareholders of each institution.  All regulatory approvals have been received.

 

Under the terms of the consolidation agreement, shareholders of Union will receive 1.95 shares of Newco common stock in exchange for each share of Union common stock they own immediately prior to the completion of the consolidation, and Riverview shareholders will receive one share of Newco’s common stock in exchange for each

 

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Table of Contents

 

Note 2 — Merger with Union Bancorp, Inc. (Continued)

 

share of Riverview common stock they own immediately prior to the completion of the consolidation.  As a result of the transaction, Riverview’s shareholders are expected to own approximately 63.5% of the outstanding combined company’s common stock and Union’s shareholders are expected to own 36.5% of the combined company’s outstanding common stock.

 

Note 3 - Earnings Per Common Share

 

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.  For diluted earnings per share, net income is divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents.  Riverview’s common stock equivalents consist of outstanding common stock options, for 179,250 shares of Riverview common stock as of June 30, 2013 and June 30, 2012.  There was intrinsic value associated with all of the stock options outstanding at June 30, 2013 because the exercise prices for the options were lower than the trading price of the stock.

 

The following table presents the amounts used in computing earnings per share the periods presented:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands, except share data)

 

2013

 

2012

 

2013

 

2012

 

Net income applicable to common stock

 

$

561

 

$

394

 

$

1,044

 

$

1,291

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

1,716,316

 

1,721,204

 

1,716,316

 

1,721,511

 

Effect of dilutive securities, stock options

 

1,521

 

3,638

 

3,203

 

6,300

 

Weighted-average common shares outstanding used to calculate diluted earnings per share

 

1,717,837

 

1,724,842

 

1,719,519

 

1,727,811

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.33

 

$

0.23

 

$

0.61

 

$

0.75

 

Diluted earnings per share

 

$

0.33

 

$

0.23

 

$

0.61

 

$

0.75

 

 

Note 4 - Investment Securities Available-for-Sale

 

The following tables present the amortized cost and estimated fair values of investment securities at June 30, 2013 and December 31, 2012, all of which were available-for-sale:

 

June 30, 2013:

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

$

22,241

 

$

381

 

$

348

 

$

22,274

 

U.S. Government agencies and sponsored enterprises (GSEs) - residential:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

10,450

 

6

 

50

 

10,406

 

 

 

$

32,691

 

$

387

 

$

398

 

$

32,680

 

 

12



Table of Contents

 

Note 4 - Investment Securities Available-for-Sale (Continued)

 

December 31, 2012:

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

U.S Government agencies

 

$

3,500

 

$

6

 

$

 

$

3,506

 

State and municipal

 

22,252

 

665

 

64

 

22,853

 

U.S. Government agencies and sponsored enterprises (GSEs) - residential:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

12,837

 

169

 

 

13,006

 

Collateralized mortgage obligations (CMOs)

 

5,555

 

181

 

 

5,736

 

 

 

$

44,144

 

$

1,021

 

$

64

 

$

45,101

 

 

The amortized cost and fair value of debt securities available-for-sale at June 30, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without call or prepayment penalties:

 

 

 

Amortized
Cost

 

Fair
Value

 

 

 

(In thousands)

 

 

 

 

 

 

 

Due in one year or less

 

$

 

$

 

Due after one year through five years

 

1,950

 

1,993

 

Due after five years through ten years

 

7,766

 

7,907

 

Due after ten years

 

12,525

 

12,374

 

 

 

22,241

 

22,274

 

Mortgage-backed securities

 

10,450

 

10,406

 

 

 

 

 

 

 

 

 

$

32,691

 

$

32,680

 

 

Securities with an amortized cost of $32,689,000 and a fair value of $32,679,000 were pledged at June 30, 2013 as collateral for public fund deposits and for other purposes as required or permitted by law.  This compares to December 31, 2012, where securities with an amortized cost of $30,949,000 and a fair value of $31,797,000 were pledged for the same purposes.

 

Information pertaining to securities with gross unrealized losses at June 30, 2013 and December 31, 2012 aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

 

 

 

Less Than 12 Months

 

More Than 12 Months

 

Total

 

 

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

 

 

(In thousands)

 

June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

$

6,919

 

$

304

 

$

1,270

 

$

44

 

$

8,189

 

$

348

 

Mortgage-backed securities

 

7,033

 

50

 

 

 

7,033

 

50

 

 

 

$

13,952

 

$

354

 

$

1,270

 

$

44

 

$

15,222

 

$

398

 

December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal

 

$

5,053

 

$

64

 

$

 

$

 

$

5,053

 

$

64

 

 

 

$

5,053

 

$

64

 

$

 

$

 

$

5,053

 

$

64

 

 

13



Table of Contents

 

Note 4 - Investment Securities Available-for-Sale (Continued)

 

Management evaluates securities for other-than-temporary impairment, on at least a quarterly basis.  It is management’s intent to hold all investments until maturity unless market, economic, credit quality or specific investment concerns warrant a sale of securities.  Consideration is given to (1) the length of time and the extent to which the fair value of securities has been less than cost, (2) the credit quality or financial condition and near-term prospects of the issuer, and (3) the intent and ability of the corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

At June 30, 2013, nineteen state and municipal securities and ten mortgage-backed securities had unrealized losses as compared with twelve state and municipal securities that had unrealized losses at December 31, 2012.  Management believes that the securities with unrealized losses do not represent impairments that are other-than-temporary.  Rather, management believes that the unrealized losses relate to changes in interest rates since the individual securities were purchased as opposed to underlying credit issues.  As management does not intend to sell any debt securities, and it is more likely than not that management will not be required to sell any debt securities before the cost bases are recovered, no declines are deemed to be other-than-temporary.

 

As part of its strategy to manage interest rate risk and prepayment risk inherent within the investment portfolio, the Bank sold five available-for-sale mortgage-backed securities totaling $5,309,000 during the first six months of 2013.  There were no securities sold during the three months ended June 30, 2013 since all of the 2013 securities sales occurred in the first quarter of the year.  On a year to date basis, gross realized gains amounted to $119,000 and gross realized losses were zero, resulting in a $119,000 net gain on the sale.  The Bank reinvested the proceeds from the sale into funding loan growth.

 

Note 5 Loans Receivable, Credit Quality for Loans and the Allowance for Loan Losses

 

The loan portfolio comprises the major component of Riverview’s earning assets and is the highest yielding asset category.  Loans receivable are summarized as follows for the periods presented:

 

(Dollars in thousands)

 

June 30,
2013

 

December 31,
2012

 

 

 

 

 

 

 

Commercial, financial, agricultural

 

$

26,541

 

$

23,321

 

Real Estate:

 

 

 

 

 

Construction

 

17,413

 

19,026

 

Mortgage

 

96,771

 

96,345

 

Commercial

 

97,307

 

97,061

 

Consumer installment

 

1,649

 

1,651

 

Total loans

 

239,681

 

237,404

 

Deferred loan fees

 

486

 

444

 

Total loans, net of fees

 

$

240,167

 

$

237,848

 

Allowance for loan losses

 

$

(3,773

)

$

(3,736

)

Total loans, net

 

$

236,394

 

$

234,112

 

 

The Bank takes a balanced approach to its lending activities by managing risk associated with its loan portfolio.  This is achieved by maintaining diversification within the portfolio, consistently applying prudent underwriting standards, ensure monitoring efforts are ongoing with attention to portfolio dynamics and mix, and following procedures that are consistently applied and updated on an annual basis.  The Bank contracts an independent third party each year to conduct a credit review of the loan portfolio to provide an independent assessment of asset quality through an evaluation of the established underwriting criteria used in originating credits.  Separately, every loan booked and every loan turndown undergoes an audit review for conformity with established policies and compliance with current regulatory lending laws.  The Bank has not changed its loan underwriting criteria, and management believes its standards continue to remain conservative.  All of the Bank’s loans are to domestic borrowers.

 

14



Table of Contents

 

Note 5 — Loans Receivable, Credit Quality for Loans and the Allowance for Loan Losses (Continued)

 

The Bank’s management monitors the loan portfolio on a regular basis with consideration given to detailed analysis of loans by portfolio segment.  Portfolio segments represent pools of loans with similar risk characteristics.  There are eight  portfolio segments — commercial loans; non-owner occupied commercial real estate loans; owner occupied commercial real estate loans; one-to-four family investment property loans; commercial land/land development/construction loans; residential real estate loans; home equity lines of credit; and consumer loans.  For the purpose of estimating the allowance for loan losses, the segments for commercial loans, non-owner occupied commercial real estate loans, owner occupied commercial real estate loans, one-to-four family investment property loans, and commercial land/land development/construction loans are broken into sub-segments for loan participations bought and loans generated by the branches and commercial offices in Schuylkill and Berks counties, which are new market areas adjacent to the Bank’s traditional geographic footprint.

 

The loans in these sub-segments have risk characteristics that differ from the general segments and merit separate analysis in order to afford additional granularity and accuracy in management’s estimate for the allowance for loan losses.  Internal policy requires that the Chief Credit Officer report to the Board of Directors on a quarterly basis to discuss the status of the loan portfolio and any related credit quality issues.  These reports include, but are not limited, to information on past due and nonaccrual loans, impaired loans, the allowance for loan losses, changes in the allowance for loan losses, credit quality indicators and foreclosed assets.

 

Past Due Loans and Nonaccrual Loans

 

Loans are considered to be past due when they are not paid in accordance with contractual terms.  Past due loans are monitored by portfolio segment and by severity of delinquency — 30-59 days past due; 60-89 days past due; and 90 days and greater past due.  The accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing.  A loan may remain on accrual status if it can be documented that it is well secured and in the process of collection.  When a loan is placed on nonaccrual status, all unpaid interest credited to income in the current calendar year is reversed and all unpaid interest accrued in prior calendar years is charged against the allowance for loan losses.  Interest payments received on nonaccrual loans are either applied against principal or reported as interest income according to management’s judgment as to the collectability of principal.  Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

 

The following table presents an aging of loans receivable by loan portfolio segments as of June 30, 2013 and December 31, 2012, and includes nonaccrual loans and loans past due 90 days or more and still accruing:

 

(In thousands)

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days
and
Greater

 

Total
Past Due

 

Current

 

Total

 

Recorded
Investment
Greater Than 90
Days & Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

99

 

$

 

$

27

 

$

126

 

$

26,552

 

$

26,678

 

$

27

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

 

918

 

 

918

 

65,526

 

66,444

 

 

Owner occupied

 

233

 

 

618

 

851

 

50,637

 

51,488

 

618

 

1-4 family investment

 

488

 

 

345

 

833

 

26,612

 

27,445

 

 

Commercial land and land development

 

219

 

49

 

 

268

 

12,915

 

13,183

 

 

Residential real estate

 

903

 

225

 

1,350

 

2,478

 

37,745

 

40,223

 

232

 

Home equity lines of credit

 

42

 

 

473

 

515

 

11,892

 

12,407

 

 

Consumer

 

2

 

 

 

2

 

2,297

 

2.299

 

 

Total

 

$

1,986

 

$

1,192

 

$

2,813

 

$

5,991

 

$

234,176

 

$

240,167

 

$

877

 

 

15



Table of Contents

 

Note 5 — Loans Receivable, Credit Quality for Loans and the Allowance for Loan Losses (Continued)

 

 

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days
and
Greater

 

Total
Past Due

 

Current

 

Total

 

Recorded
Investment
Greater Than 90
Days & Accruing

 

December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

58

 

$

 

$

 

$

58

 

$

23,365

 

$

23,423

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

 

 

386

 

386

 

66,308

 

66,694

 

 

Owner occupied

 

237

 

 

119

 

356

 

50,270

 

50,626

 

 

1-4 family investment

 

99

 

83

 

306

 

488

 

27,397

 

27,885

 

 

Commercial land and land development

 

16

 

 

 

16

 

12,607

 

12,623

 

 

Residential real estate

 

730

 

926

 

1,404

 

3,060

 

38,427

 

41,487

 

231

 

Home equity lines of credit

 

 

 

479

 

479

 

12,333

 

12,812

 

 

Consumer

 

58

 

1

 

 

59

 

2,239

 

2,298

 

 

Total

 

$

1,198

 

$

1,010

 

$

2,694

 

$

4,902

 

$

232,946

 

$

237,848

 

$

231

 

 

Included within the loan portfolio are loans in which the Bank discontinued the accrual of interest due to the deterioration in the financial condition of the borrower.  Such loans approximated $3,451,000 at June 30, 2013.  If the nonaccrual loans had performed in accordance with their original terms, interest income would have increased by $94,000 for the six months ended June 30, 2013 and $138,000 for the six months ended June 30, 2012.

 

The following presents loans by loan portfolio segments that were on a nonaccrual status as of June 30, 2013 and December 31, 2012:

 

(In thousands)

 

June 30,
 2013

 

December 31,
2012

 

Commercial

 

$

180

 

$

190

 

Commercial real estate:

 

 

 

 

 

Non-owner occupied

 

918

 

1,159

 

Owner occupied

 

269

 

399

 

1-4 family investment

 

388

 

389

 

Commercial land and land development

 

 

 

Residential real estate

 

1,153

 

1,173

 

Home equity lines of credit

 

543

 

553

 

Total

 

$

3,451

 

$

3,863

 

 

Impaired Loans

 

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Bank further identifies all loans in nonaccrual status and troubled debt restructured loans as impaired loans, except large groups of smaller balance homogeneous loans that are collectively evaluated for impairment.  Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless the loans are the subject of a restructuring agreement.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.  When the measure of an impaired loan results

 

16



Table of Contents

 

Note 5 — Loans Receivable, Credit Quality for Loans and the Allowance for Loan Losses (Continued)

 

in a realizable value that is less than the recorded investment in the loan, the difference is recorded as a specific valuation allowance against that loan and the Bank then makes the appropriate adjustment to the allowance for loan losses.

 

The following presents impaired loans by loan portfolio segments for June 30, 2013 and December 31, 2012:

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30, 2013

 

Six Months Ended
June 30, 2013

 

(In thousands)

 

Recorded
Investment
in Impaired
Loans

 

Unpaid
Principal
Balance of
Impaired
Loans

 

Related
Allowance

 

Average
Recorded
Investment
in Impaired
Loans

 

Interest
Income
Recognized

 

Average
Recorded
Investment
in Impaired
Loans

 

Interest
Income
Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

718

 

$

718

 

$

 

$

723

 

$

8

 

$

725

 

$

16

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

2,835

 

2,835

 

 

3,032

 

15

 

3,048

 

31

 

Owner occupied

 

490

 

490

 

 

649

 

4

 

773

 

9

 

1-4 family investment

 

987

 

987

 

 

1,003

 

7

 

1,002

 

15

 

Commercial land and land development

 

 

 

 

 

 

 

 

Residential real estate

 

1,159

 

1,159

 

 

1,199

 

9

 

1,201

 

14

 

Home equity lines of credit

 

776

 

776

 

 

791

 

2

 

792

 

5

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans with an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

170

 

170

 

1

 

189

 

 

189

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

 

 

 

 

 

 

 

Owner occupied

 

 

 

 

 

 

 

 

1-4 family investment

 

310

 

310

 

224

 

310

 

 

310

 

 

Commercial land and land development

 

 

 

 

 

 

 

 

Residential real estate

 

545

 

545

 

224

 

568

 

3

 

568

 

5

 

Home equity lines of credit

 

65

 

65

 

47

 

65

 

 

65

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

888

 

888

 

1

 

912

 

8

 

914

 

16

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

2,835

 

2,835

 

 

3,032

 

15

 

3,048

 

31

 

Owner occupied

 

490

 

490

 

 

649

 

4

 

773

 

9

 

1-4 family investment

 

1,297

 

1,297

 

224

 

1,313

 

7

 

1,312

 

15

 

Commercial land and land development

 

 

 

 

 

 

 

 

Residential real estate

 

1,704

 

1,074

 

224

 

1,767

 

12

 

1,769

 

19

 

Home equity lines of credit

 

841

 

841

 

47

 

856

 

2

 

857

 

5

 

Consumer

 

 

 

 

 

 

 

 

 

 

$

8,055

 

$

8,055

 

$

496

 

$

8,529

 

$

48

 

$

8,673

 

$

95

 

 

17



Table of Contents

 

Note 5 — Loans Receivable and Credit Quality for Loans and the Allowance for Loan Losses (Continued)

 

(In thousands)

 

Recorded
Investment
in Impaired
Loans

 

Unpaid
Principal
Balance of
Impaired
Loans

 

Related
Allowance

 

Average
Recorded
Investment in
Impaired
Loans

 

Interest
Income
Recognized

 

December 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

Loans with no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

731

 

$

731

 

 

$

747

 

$

34

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

3,082

 

3,082

 

 

3,441

 

61

 

Owner occupied

 

991

 

991

 

 

1,059