Attached files
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EX-32.2 - EX-32.2 - Riverview Financial Corp | d71874dex322.htm |
EX-21.1 - EX-21.1 - Riverview Financial Corp | d71874dex211.htm |
EX-32.1 - EX-32.1 - Riverview Financial Corp | d71874dex321.htm |
EX-23.2 - EX-23.2 - Riverview Financial Corp | d71874dex232.htm |
EX-31.2 - EX-31.2 - Riverview Financial Corp | d71874dex312.htm |
EX-31.1 - EX-31.1 - Riverview Financial Corp | d71874dex311.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-201017
RIVERVIEW FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania | 38-3917371 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) | |
3901 North Front Street Harrisburg, Pennsylvania |
17110 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code 717.957.2196
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, 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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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. (Check One).
Large accelerated filer | ¨ | Accelerated Filer | ¨ | |||
Non-accelerated Filer | ¨ | Smaller Reporting Company | x |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the registrants voting and non-voting common equity held by non-affiliates, on June 30, 2015, the last business day of the registrants most recently completed second fiscal quarter, was approximately $28,306,000.
As of March 16, 2016, the registrant had 3,206,927 shares of common stock outstanding.
Table of Contents
RIVERVIEW FINANCIAL CORPORATION
FORM 10-K
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Item 1B- |
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Item 7 - |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A - |
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Item 8 - |
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Item 9 - |
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure |
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Item 11 - |
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Item 12 - |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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Table of Contents
The disclosures set forth in this report are qualified by the section captioned Special Cautionary Notice Regarding Forward-Looking Statements contained in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements that are set forth elsewhere in this report.
Riverview Financial Corporation
On November 1, 2013, Riverview Financial Corporation (the Company) and Union Bancorp, Inc. (Union) consolidated to form a new Pennsylvania corporation under the name of Riverview Financial Corporation (the Company). On December 31, 2015, Riverview and The Citizens National Bank of Meyersdale, PA (Citizens) consummated the merger of Citizens with and into Riverview Bank, with Riverview Bank surviving.
The Company and its wholly-owned bank subsidiary, Riverview Bank (the 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, five 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, one full service branch in Wyomissing, Berks County, Pennsylvania, one full service office in Trevorton, Northumberland County, Pennsylvania and two full service offices in Meyersdale and Berlin, Somerset County, Pennsylvania. In addition, Riverview Bank also provides financial advisory, insurance, trust and investment services relating to non-deposit type investment products through a wealth management office located in Pottsville, Schuylkill County, Pennsylvania. The wealth management company is a division of the Bank.
Riverview Bank
Riverview Bank is a Pennsylvania chartered state bank and successor to Riverview National Bank, which was formed upon the consolidation of the charters of The First National Bank of Marysville and Halifax National Bank on December 31, 2008 and is headquartered in Marysville, Pennsylvania. After the consolidation, the branches of The First National Bank of Marysville and Halifax National Bank continued to operate under their former names as divisions of Riverview National Bank.
On March 14, 2011, Riverview National Bank filed an application with the Pennsylvania Department of Banking to convert from a national banking association to a Pennsylvania state-chartered bank. The purpose of the charter change was to provide the Bank with greater flexibility in executing its strategy of profitability and growth. The conversion was effective November 19, 2011, at which time the Bank became known as Riverview Bank and established two operating divisions, Marysville Bank and Halifax Bank.
On November 1, 2013, in connection with the consolidation of Riverview and Union, Union Bank and Trust Company, the wholly owned subsidiary of Union, merged with and into Riverview Bank (the Bank), which is a wholly owned subsidiary of the Company.
On December 31, 2015, Citizens merged with and into Riverview Bank and the former Citizens franchise operates under the name of Citizens Neighborhood Bank, a division of Riverview Bank.
Riverview Bank is a full service commercial bank providing a wide range of services to individuals, municipalities and small to medium sized businesses in its Central Pennsylvania market area of Berks, Dauphin, Perry, Northumberland, Schuylkill and Somerset counties. Riverview Banks commercial banking activities include accepting time, demand, and savings deposits and making secured and unsecured commercial, real estate and consumer loans. In addition, Riverview Bank also provides financial advisory, insurance and investment services relating to non-deposit type investment products through Riverview Financial Wealth Management, a division of Riverview Bank located in Pottsville, Schuylkill County, Pennsylvania. In addition, as part of the merger of Riverview Bank and Union Bank, Riverview Bank assumed Union Banks trust operations.
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Competition
Riverview Bank faces competition in originating loans, retaining loans and attracting deposits. Riverview Bank operates in the central Pennsylvania market, which include the counties of Berks, Dauphin, Perry, Northumberland, Schuylkill and Somerset. Within this area, Riverview Bank competes with other financial institutions, including regional banks, other community banks and, savings banks, as well as credit unions, investment brokerage firms and insurance companies. In general, the industry competes in the area of interest rates, products offered, customer service and convenience. In addition, some of these financial institutions have greater financial resources than Riverview Bank and may offer services that Riverview Bank does not provide. Riverview Bank competes in this environment by maintaining a diversified loan and deposit product line and providing wealth management and trust services. Relationships with customers are built and maintained through Riverview Banks branch network, its deployment of branch ATMs and its telephone and web-based banking services.
Supervision and Regulation of the Company and the Bank
General Overview
The Company is a bank holding company subject to supervision and regulation by the Federal Reserve Bank (FRB) and the Pennsylvania Department of Banking and Securities (DOB). In addition, the Bank is subject to supervision, regulation and examination by the Federal Deposit Insurance Corporation (FDIC) and the DOB, and its deposits are insured by the FDIC. The FRB and the DOB must approve the Companys acquisition of another bank or bank holding company. The FDIC and DOB must approve bank mergers, if the surviving bank would be a state chartered, non-member bank, as well as the establishment of new branches and new subsidiaries. Federal and state laws also impose a number of requirements and restrictions on the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the types of services which may be offered, restrictions on the ability to acquire deposits under certain circumstances, and requirements relating to the protection of consumers. The following sections discuss more fully some of the principal elements of the regulatory framework applicable to the Company and the Bank. This discussion is not intended to be an exhaustive description of the statutes and regulations applicable to each of them and is subject to, and qualified by, reference to the statutory and regulatory provisions. A change in these statutes, regulations or regulatory policies, or the adoption of new statutes, regulations or regulatory policies, may have a material effect on the Companys and the Banks respective businesses.
Effective February 11, 2015, the Company became a reporting company and is required to file periodic reports under the Securities and Exchange Act of 1934.
Recent Developments
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which became law on July 21, 2010, the Company and the Bank are subject to additional regulatory oversight and supervision. The Dodd-Frank Act significantly changed the regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes, and the regulations being developed thereunder will include, provisions affecting large and small financial institutions alike, including several provisions that affect the regulation of community banks and bank holding companies.
The Dodd-Frank Act, among other things, imposed new capital requirements on bank holding companies; changed the base for FDIC insurance assessments to a banks average consolidated total assets minus average tangible equity, rather than upon its deposit base; permanently raised the current standard deposit insurance limit to $250,000; and expanded the FDICs authority to raise insurance premiums. The legislation also called for the FDIC to raise its ratio of reserves to deposits from 1.15% to 1.35% for deposit insurance purposes by September 30, 2020 and to offset the effect of increased assessments on insured depository institutions with assets of less than $10 billion.
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The Dodd-Frank Act included provisions that affect corporate governance and executive compensation at all publicly-traded companies and allows financial institutions to pay interest on business checking accounts. The legislation also restricts proprietary trading, places restrictions on owning or sponsoring hedge and private equity funds, and regulates the derivatives activities of banks and their affiliates. The Dodd-Frank Act also established the Financial Stability Oversight Council to identify threats to the financial stability of the U.S. financial system, promote market discipline, and respond to emerging threats to the stability of the U.S. financial system.
The full effects of the Dodd-Frank Act on the financial services industry will depend, in large part, upon the extent to which regulators exercise the authority granted to them under the Dodd-Frank Act and the approaches taken in implementing those regulations. Additional uncertainty regarding the effects of the Dodd-Frank Act exists due to court decisions and the potential for additional legislative changes to the Dodd-Frank Act.
Bank Holding Company Act (BHC Act)
The Company is required to file with the Federal Reserve Bank (FRB) an annual report, other periodic reports, and such additional information as the FRB may require pursuant to the BHC Act. The FRB also examines bank holding companies and their subsidiaries. The BHC Act requires each bank holding company to obtain the prior approval of the FRB before it may acquire substantially all of the assets of any bank, or if it would acquire or control more than 5% of the voting shares of such a bank. The FRB considers numerous factors, including its capital adequacy guidelines, before approving such acquisitions.
The Community Reinvestment Act
The Community Reinvestment Act of 1977, as amended, or the CRA, and the regulations promulgated to implement the CRA, are designed to create a system for bank regulatory agencies to evaluate a depository institutions record in meeting the credit needs of its community. The CRA regulations were completely revised in 1995 to establish performance-based standards for use in examining a depository institutions compliance with the CRA, referred to in this document as the revised CRA regulations. The revised CRA regulations established new tests for evaluating both small and large depository institutions investment in the community. In connection with its assessment of CRA performance, the FDIC assigns a rating of outstanding, satisfactory, needs to improve, or substantial noncompliance. The Bank received a satisfactory rating in its last CRA examination, conducted November 18, 2013.
Dividend Restrictions
The Company is a legal entity, separate and distinct from its bank subsidiary, Riverview Bank. Declaration and payment of cash dividends that are made by the Company to shareholders are dependent upon the receipt of dividend payments from the Bank, which is the Companys primary source of revenue and cash flow. Accordingly, the ability of the Company, and consequently the ability of the Companys creditors, to participate in any distribution of the assets or earnings of the Bank is necessarily subject to the prior claims of creditors of the Bank, except to the extent that claims of the Company in its capacity as a creditor may be recognized.
As a Pennsylvania chartered bank, the Bank is subject to regulatory restrictions with regard to the payment of dividends under the Pennsylvania Banking Code. Further, the ability of a banking subsidiary to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements.
The payment of dividends by the Company and the Bank may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. The federal banking agencies have indicated that paying dividends that deplete a depository institutions capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it is already undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. Federal banking regulators have the authority to prohibit banks and bank holding companies from paying a dividend if the regulators deem such payment to be an unsafe or unsound practice.
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Capital Requirements and Source of Strength Doctrine
Under FRB regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding companys failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB regulations or both. This doctrine is commonly known as the source of strength doctrine.
The Federal banking regulators have adopted risk-based capital guidelines for bank holding companies. Currently, the required minimum ratio of total capital to risk-weighted assets (including off-balance sheet activities, such as standby letters of credit) is 8% (10% in order to be considered well-capitalized). At least 4% of the total capital (6% to be well-capitalized) is required to be Tier 1 capital, consisting principally of common shareholders equity, related surplus, retained earnings, qualifying perpetual preferred stock, and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain other intangibles. The remainder (Tier 2 capital) may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, qualifying preferred stock and a limited amount of the general loan loss allowance.
In addition to the risk-based capital guidelines, the federal banking regulators established minimum leverage ratio (Tier 1 capital to total assets) guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of 3% for those bank holding companies which have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to maintain a leverage ratio of at least 4%.
At December 31, 2015, the Company had less than $1 billion of assets and therefore, qualified as a small bank holding company exempting it from the foregoing regulatory capital standards. As a small bank holding company, the FRB will consider the Banks capital position in determining the adequacy of the Companys capital positions.
Enacted in 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, contains provisions limiting activities and business methods of depository institutions. FDICIA required the primary federal banking regulators to promulgate regulations setting forth standards relating to, among other things, internal controls and audit systems; credit underwriting and loan documentation; interest rate exposure, off-balance sheet assets and liabilities; and compensation of directors and officers. FDICIA also provided for expanded regulation of depository institutions and their affiliates, including parent holding companies, by such institutions primary federal banking regulator. Each primary federal banking regulator is required to specify, by regulation, capital standards for measuring the capital adequacy of the depository institutions it supervises and, depending upon the extent to which a depository institution does not meet such capital adequacy measures, the primary federal banking regulator may prohibit such institution from paying dividends or may require such institution to take other steps to become adequately capitalized.
FDICIA established five capital tiers, ranging from well capitalized to critically under-capitalized. A depository institution is well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure. Under FDICIA, an institution that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market; in addition, pass through insurance coverage may not be available for certain employee benefit accounts. FDICIA also requires an undercapitalized depository institution to submit an acceptable capital restoration plan to the appropriate federal bank regulatory agency. One requisite element of such a plan is that the institutions parent holding company must guarantee compliance by the institution with the plan, subject to certain limitations. In the event of the parent holding companys bankruptcy, the guarantee, and any other commitments that the parent holding company has made to federal bank regulators to maintain the capital of its depository institution subsidiaries, would be assumed by the bankruptcy trustee and entitled to priority in payment.
At December 31, 2015, the Bank qualified as well capitalized under these regulatory capital standards.
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Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons from acquiring control of a bank holding company, unless the FRB has been notified and has not objected to the transaction.
The USA Patriot Act
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2002, or the USA Patriot Act, gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. Through amendments to the Bank Secrecy Act, the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement agencies. Among other requirements, the USA Patriot Act requires banks to establish anti-money laundering policies, to adopt procedures and controls to detect and report money laundering, and to comply with certain enhanced recordkeeping obligations and due diligence standards with respect to correspondent accounts of foreign banks.
Basel III
In July 2013, the Federal Reserve Board approved the final rules (the Basel III Rules) which substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions. The new rules, which began to phase in starting January 1, 2015, with final phase in completed by January 1, 2019, are summarized as follows:
| create a new minimum Common Equity Tier I capital ratio 4.50% of risk-weighted assets and a minimum Tier I capital ratio of 6.00% of risk-weighted assets; |
| continue the current minimum total capital ratio at 8.00% of risk-weighted assets and the minimum Tier I leverage capital ratio at 4.00% of average assets; |
| institute a capital conservation buffer of 2.50% above the minimum risk-based capital requirements, which, if not maintained, restricts an institution from making capital distributions and certain discretionary bonus payments; |
| revised the definition of capital such that certain non-qualifying capital instruments, including cumulative preferred stock and trust preferred securities, will be excluded as a component for Tier I capital for institutions of the Companys size; and |
| expand the risk-weightings categories and weights for assets and off balance sheet exposures to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, and results in higher risk weights for a variety of asset categories. |
As a result of the new capital conservation buffer rules if the Companys bank subsidiary (Riverview Bank) fails to maintain the required minimum capital conservation buffer, the Company may be unable to obtain capital distributions from it, which could negatively impact the Companys ability to pay dividends, service debt obligations or repurchase common stock. In addition, such a failure could result in a restriction on the Companys ability to pay certain bonuses to executive officers, negatively impacting the Companys ability to retain key personnel.
As of December 31, 2015, the Company believes its current capital levels would meet the fully-phased in minimum capital requirements, including capital conservation buffer, as prescribed in the U.S. Basel III Capital Rules.
Basel III also introduced two required liquidity ratios. The Liquidity Coverage Ratio (LCR) requires a bank to hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days. The Net Stable Funding Ratio requires a banks available amount of stable funding to exceed the required amount of stable funding over a one year period of extended stress. The final rule was effective January 1, 2015, and applies to U.S. banking operations with assets of more than $10 billion. Smaller bank holding companies would remain subject to the prevailing qualitative supervisory framework.
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Other Matters
Federal and state law also contain a wide variety of other provisions that affect the operations of the Company and the Bank, including, but not limited to certain reporting and disclosure requirements; standards and guidelines for underwriting, account management and other aspects of lending activities; laws that prohibit discrimination; restrictions on establishing and closing branches; limitations on transactions with affiliates; restrictions on loans to insiders; and requirements relating to privacy and data security.
Effect of Governmental Policies
The Companys earnings are significantly affected by the monetary and fiscal policies of governmental authorities, including the FRB. Among the instruments of monetary policy used by the FRB to implement these objectives are open-market operations in U.S. Government securities and federal funds, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments and deposits, and the interest rates charged on loans and paid for deposits. The FRB frequently uses these instruments of monetary policy, especially its open-market operations and the discount rate, to influence the level of interest rates and to affect the strength of the economy, the level of inflation or the price of the dollar in foreign exchange markets. The monetary policies of the FRB have had a significant effect on the operating results of banking institutions in the past and are expected to continue to do so in the future. It is not possible to predict the nature of future changes in monetary and fiscal policies, or the effect which they may have on the Companys business and earnings.
Other Legislative Initiatives
Proposals may be introduced in the United States Congress and in the Pennsylvania Legislature and before various bank regulatory authorities which would alter the powers of, and place restrictions on, different types of banking organizations and which would restructure part or all of the existing regulatory framework for banks, bank holding companies and other providers of financial services. Moreover, other bills may be introduced in Congress which would further regulate, deregulate or restructure the financial services industry, including proposals to substantially reform the regulatory framework. It is not possible to predict whether these or any other proposals will be enacted into law or, even if enacted, the effect which they may have on the Companys business and earnings.
Available Information
The Company files reports, and other information with the Securities and Exchange Commission. The reports and other information filed with the SEC are available for inspection and copying at the SECs Public Reference Room at 100 F Street, NE, Room 1580, and Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer with the SEC. The SEC maintains an internet site that contains reports and information statements, and other information regarding issuers that file electronically with the SEC. The SECs internet site address is http://www.sec.gov.
The Companys headquarters are located at 3901 North Front Street, Harrisburg, Pennsylvania 17110, and its telephone number is (717) 957-2196.
At December 31, 2015, the Bank had 99 full time employees and 16 part time employees. In the opinion of management, the Bank enjoys a satisfactory relationship with its employees and is not a party to any collective bargaining agreement.
Not required for smaller reporting companies.
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ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
Properties
The table below sets forth the locations of the properties that are owned and leased in the name of Riverview Bank, which include its main office, branch offices and certain parking facilities related to its banking offices. All properties that are owned, are owned free and clear of any lien. Riverview Banks offices are all located in Pennsylvania and are listed below.
Owned Offices:
500 South State Road, Marysville, Pennsylvania 17053 (1)
Third and Market Streets, Halifax, Pennsylvania 17032 (2)
311 South Market Street, Millersburg, Pennsylvania 17061 (2)
Drive-through facility on 16 North 3rd Street, Halifax, Pennsylvania 17032 (2)
15 N. 3rd Street, Halifax, Pennsylvania 17032 (2)
Parking Lot on N. 3rd Street, Halifax, Pennsylvania 17032 (2)
Market Street Main Building, Halifax, Pennsylvania 17032 (2)
100 Hollywood Boulevard, Orwigsburg, Pennsylvania 17961 (3)
22nd & West Market Street, Pottsville, Pennsylvania 17901 (3)
308 North Claude A. Lord Boulevard, Pottsville, PA 17901 (3)
450 West Shamokin Street, Trevorton, Pennsylvania 17881 (3)
11680 Centre Turnpike, Route 61, Orwigsburg, Pennsylvania 17961 (3)
3901 North Front Street, Harrisburg, Pennsylvania 17710 (5)
2638 Woodglen Road, Pottsville, Pennsylvania 17901 (4)
135 Center Street, Meyersdale, Pennsylvania 15552 (6)
1026 Main Street, Berlin, Pennsylvania 15530 (6)
Leased Offices:
55 South Main Street, Duncannon, Pennsylvania 17020 (1)
34 South Market Street, Elizabethville, Pennsylvania 17023 (2)
920 East Wiconisco Avenue, Tower City, Pennsylvania 17980 (2)
57 S. Sillyman Street, Cressona, Pennsylvania 17929 (3)
2800 State Hill Road, Wyomissing, Pennsylvania 19610 (3)
(1) | Operates under the name Marysville Bank, a Division of Riverview Bank. |
(2) | Operates under the name Halifax Bank, a Division of Riverview Bank. |
(3) | Operates under the name Riverview Bank. |
(4) | Operates under the name Riverview Financial Wealth Management, a Division of Riverview Bank. |
(5) | Operates as the corporate headquarters for Riverview Financial Corporation housing executive offices. |
(6) | Operates under the name Citizens Neighborhood Bank, a Division of Riverview Bank. |
Riverview Bank owns a parking lot located at 110 Verbeke Street, Marysville, Pennsylvania 17053, which is adjacent to the main office building located at 200 Front Street, Marysville, Pennsylvania 17053.
All of these properties are in good condition and are deemed by management to be adequate for Riverview Banks purposes.
Management is not aware of any litigation that would have a materially adverse effect on the consolidated financial position or results of operations of the Company. There are no proceedings pending other than ordinary routine litigation incident to the business of the Company and the Bank. In addition, management does not know of any material proceedings contemplated by governmental authorities against the Company or the Bank or any of their respective properties.
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ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The authorized stock of the Company consists of 3,000,000 shares of preferred stock, no par value per share, and 5,000,000 shares of common stock, no par value per share, of which 3,205,544 common shares were issued and outstanding as of December 31, 2015 and held by approximately 724 registered holders of record. The Companys common stock is listed on the OTCQX tier of the OTC Markets Group Inc. (www.otcmarkets.com), and is traded under the symbol RIVE. The Companys common stock trades at irregular intervals.
The following table reflects high and low bid prices for shares of the Companys common stock for the periods indicated, based upon information derived from www.otcmarkets.com.
2015 | 2014 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First quarter |
$ | 18.00 | $ | 13.00 | $ | 10.35 | $ | 9.55 | ||||||||
Second quarter |
$ | 13.75 | $ | 12.00 | $ | 13.75 | $ | 9.94 | ||||||||
Third quarter |
$ | 13.00 | $ | 11.90 | $ | 13.50 | $ | 11.25 | ||||||||
Fourth quarter |
$ | 13.40 | $ | 12.50 | $ | 15.25 | $ | 12.30 |
The Company has historically paid dividends on the outstanding shares of common stock on a quarterly basis, at the discretion of the Board of Directors. The Board bases its decision on the Companys earnings, cash requirements and overall financial position. The following table presents the per share cash dividends declared by the Board of Directors and paid for the years presented.
Per Share Cash Dividends Paid |
||||
2015 First quarter |
$ | 0.1375 | ||
Second quarter |
0.1375 | |||
Third quarter |
0.1375 | |||
Fourth quarter |
0.1375 | |||
|
|
|||
$ | 0.5500 | |||
|
|
|||
Per Share Cash Dividends Paid |
||||
2014 First quarter |
$ | 0.1250 | ||
Second quarter |
0.1400 | |||
Third quarter |
0.1425 | |||
Fourth quarter |
0.1425 | |||
|
|
|||
$ | 0.5500 | |||
|
|
On February 20, 2016 the Board of Directors declared a quarterly cash dividend of $0.1375 per common share, payable on March 31, 2016 to all common shareholders of record as of March 4, 2016.
Additional information relating to dividend restrictions can be found in Note 14 Regulatory Matters and Shareholders Equity in Part II, Item 8 of this Form 10-K.
Information about Riverviews Equity Compensation Plans can be found in Part II, Item 8 under Note 10, titled Employee Benefit Plans and is incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA.
Not required for smaller reporting companies.
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RIVERVIEW FINANCIAL CORPORATION.
Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the Companys results of operations and highlights material changes for the twelve months ended December 31, 2015 and 2014 and its financial condition as of December 31, 2015 and 2014. This discussion is intended to provide additional information about the significant changes in the results of operations presented in the accompanying consolidated financial statements for the Company and its wholly owned subsidiary Bank. The Companys consolidated financial statements and results of operations essentially consist of the Banks financial condition and results of operations. Current performance does not guarantee and may not be indicative of, similar performance in the future.
Managements Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of the Companys consolidated financial statements and should be read in conjunction with the consolidated audited financial statements of the Company and notes thereto and other detailed information for the years ended December 31, 2015 and 2014 contained in Part II, Item 8, Financial Statements and Supplemental Data.
Special Cautionary Notice Regarding Forward-Looking Statements
Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed below, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words expect, anticipate, intend, plan, believe, estimate, and similar expressions are intended to identify such forward-looking statements.
The Companys actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:
| restructuring initiatives and anticipated cost savings may not have the anticipated impact on future profitability; |
| acquisitions and integration of previously acquired businesses may not be accomplished on the timeline envisioned by management, may take more time and resources than planned and may not achieve originally anticipated cost savings and synergies; |
| the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks; |
| the effects of future economic conditions on the Company and the Banks customers; |
| additional legislative and regulatory requirements; |
| the impact of governmental monetary and fiscal policies; |
| the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; |
| the effects of competition from other traditional and non-traditional financial institutions operating in the Companys market area, including local, regional, national and international based institution; |
| technological changes; |
| the failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities; |
| the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; |
| acts of war or terrorism; and |
| volatilities in the securities market. |
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All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.
Critical Accounting Policies and Estimates
The consolidated financial statements include Riverview Financial Corporation and its wholly-owned subsidiary, Riverview Bank. All significant intercompany accounts and transactions have been eliminated.
The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and results of operations for the periods indicated. Actual results could differ significantly from those estimates.
The Company has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America and that are consistent with general practices within the banking industry in the preparation of its consolidated financial statements. The Companys significant accounting policies are described in Note 1 of the Notes to audited consolidated financial statements for the period ended December 31, 2015 contained in Part II, Item 8, Financial Statements and Supplemental Data.
Certain accounting policies involve significant judgments and assumptions by the Company that have a material impact on the carrying value of certain assets and liabilities. The Company considers these accounting policies to be critical accounting policies. The judgment and assumptions used are based on historical experience and other factors, which the Company believes to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made, actual results could differ from these estimates, which could have a material impact on the carrying values of its assets and liabilities and its results of operations.
Overview
On November 1, 2013, Riverview Financial Corporation (the Company) and Union Bancorp, Inc. (Union) consolidated to form a new Pennsylvania corporation under the name of Riverview Financial Corporation (the Company).
On December 31, 2015, The Citizens National Bank of Meyersdale (Citizens) merged with and into Riverview Bank, with Riverview Bank surviving.
The Companys financial results reflect the consolidation of Union and the merger of Citizens under the purchase method of accounting with the Company treated as the acquirer from an accounting standpoint. The balance sheet as of December 31, 2015, includes the former Citizens assets and liabilities, whereas the income statement does not include any results of operations of Citizens since the merger was consummated on December 31, 2015.
Consolidated total assets were $549,449,000 at December 31, 2015, an increase of $113,303,000, or 26%, from $436,146,000 at December 31, 2014, which is attributable to the merger. The Companys gross loans increased $67,152,000, or 19.6%, to 409,845,000 at December 31, 2015, while deposits increased $76,080,000, or 20.4%, to $448,342,000. As of the effective date of the merger, Citizens had $91,602,000 in total assets, $57,862,000 in total loans and $74,406,000 in total deposits.
As a community-focused financial institution, the Company, through its wholly-owned banking subsidiary, generates the majority of its revenues from net interest income derived from its core banking activities, which totaled $15,281,000 at December 31, 2015 as compared with $15,647,000 at December 31, 2014. For the year ended December 31, 2015, the Company experienced a net loss of $754,000 as compared with net income of $2,721,000 for the year ended December 31, 2014. The decrease in 2015 earnings was attributable to the Citizens merger related cost as well as the implementation of restructuring, branch closures and other efficiency initiatives, which negatively affected earnings, but are expected to enhance future profitability. In addition, the provision for loan losses increased by $946,000, primarily due to one collateral dependent commercial loan, which had been identified and measured for impairment during the second quarter of 2015. During the fourth quarter, additional information became available with regard to the estimated value of the collateral on this loan resulting in a partial charge off and higher specific allocation to the provision for loan losses. It is managements intent to continue to grow while improving productivity throughout the Company. Basic and diluted earnings per share of ($0.28) per share for the year ended December 31, 2015 decreased from basic earnings per share of $1.01 per share
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and diluted earnings per share of $1.00 for the year ended December 31, 2014. The decrease in earnings per share was attributable to the decrease in net income year over year, which also negatively impacted the return on average assets, which was (0.17%) at December 31, 2015, a decrease from 0.63% at December 31, 2014, and the return on average equity, which was (2.01%) at December 31, 2015 as compared to 7.15% as of December 31, 2014.
The Company also generates non-interest income from fees associated with various products and services offered to customers, mortgage banking activities, bank owned life insurance (BOLI), wealth management and trust operations, and from the sale of assets, such as loans or investments. Offsetting these revenues are provisions for potential losses on loans, administrative expenses and income taxes.
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
The Companys profitability is largely a function of the spread between interest rates earned on earning assets and the interest paid on deposits and other interest-bearing liabilities. Like most financial institutions, the Companys net interest income and margin are affected by general economic conditions and other factors, including competition and fiscal and monetary policies of the federal government, that influence market interest rates and its ability to respond to changes in those rates. At any given time, the Companys assets and liabilities may be affected differently by a change in interest rates. The change in net interest income from year to year may be due to changes in interest rates, changes in volumes of interest-earning assets and interest-bearing liabilities as well as changes in the mix of such assets and liabilities.
The Companys principal interest-earning assets are loans to individuals and small businesses, with a secondary source of income earned from the investment securities portfolio and other interest-earning deposits with banks. Interest-bearing liabilities consist primarily of demand deposit accounts, time deposits, money market accounts, savings deposits and borrowings. Generally, changes in the net interest rate spread and net interest margin impact net interest income. Net interest rate spread is equal to the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is the tax equivalent net interest income divided by total average earning assets. Net interest income growth is generally dependent upon balance sheet growth and maintaining or growing the net interest margin. For analysis purposes, net interest income is evaluated on a fully tax-equivalent (FTE) basis. The FTE basis is calculated by grossing up the yield on tax-exempt securities and loans by the Federal tax rate of 34% to allow the yield on tax-exempt assets to be compared to interest earned on taxable assets.
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The following table presents a summary of Riverviews average balances, interest rates, interest income and expense, the interest rate spread and the net interest margin, on a fully tax-equivalent basis, for the years ended December 31, 2015, 2014 and 2013.
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
Year Ended December 31, |
2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||||
(Dollars in thousands) |
Balance | Average Interest |
Yield/Rate | Balance | Average Interest |
Yield/Rate | Balance | Average Interest |
Yield/Rate | |||||||||||||||||||||||||||
Assets |
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Interest-earning Assets |
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Securities: |
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Taxable securities (2) |
$ | 33,463 | $ | 959 | 2.87 | % | $ | 32,321 | $ | 1,178 | 3.64 | % | $ | 19,126 | $ | 348 | 1.82 | % | ||||||||||||||||||
Tax-exempt securities (1)(2) |
16,483 | 721 | 4.37 | % | 20,082 | 958 | 4.77 | % | 22,495 | 1,094 | 4.86 | % | ||||||||||||||||||||||||
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Total securities |
49,946 | 1,680 | 3.36 | % | 52,403 | 2,136 | 4.08 | % | 41,621 | 1,442 | 3.46 | % | ||||||||||||||||||||||||
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Loans (1)(3) |
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Consumer |
2,234 | 118 | 5.28 | % | 1,961 | 126 | 6.43 | % | 1,699 | 111 | 6.53 | % | ||||||||||||||||||||||||
Commercial |
41,828 | 1,686 | 4.03 | % | 38,255 | 1,842 | 4.82 | % | 26,123 | 1,192 | 4.56 | % | ||||||||||||||||||||||||
Real estate |
307,154 | 13,976 | 4.55 | % | 288,045 | 13,984 | 4.85 | % | 224,295 | 11,244 | 5.01 | % | ||||||||||||||||||||||||
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Total loans |
351,216 | 15,780 | 4.49 | % | 328,261 | 15,952 | 4.86 | % | 252,117 | 12,547 | 4.98 | % | ||||||||||||||||||||||||
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Other interest-earning assets |
10,935 | 149 | 1.36 | % | 12,074 | 97 | 0.80 | % | 12,163 | 37 | 0.30 | % | ||||||||||||||||||||||||
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Total interest-earning assets |
412,097 | 17,609 | 4.27 | % | 392,738 | 18,185 | 4.63 | % | 305,901 | 14,026 | 4.58 | % | ||||||||||||||||||||||||
Non-interest earning assets |
36,539 | 40,951 | 36,100 | |||||||||||||||||||||||||||||||||
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Total Assets |
$ | 448,636 | $ | 433,689 | $ | 342,001 | ||||||||||||||||||||||||||||||
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Liabilities and Shareholders Equity |
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Interest-bearing Liabilities |
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Deposits: |
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Interest-bearing demand deposits |
$ | 134,514 | $ | 475 | 0.35 | % | $ | 129,803 | $ | 502 | 0.39 | % | $ | 113,714 | $ | 554 | 0.49 | % | ||||||||||||||||||
Savings deposits |
89,340 | 210 | 0.24 | % | 88,402 | 236 | 0.27 | % | 60,071 | 277 | 0.46 | % | ||||||||||||||||||||||||
Time deposits |
95,445 | 994 | 1.04 | % | 106,165 | 1,115 | 1.05 | % | 93,297 | 1,325 | 1.42 | % | ||||||||||||||||||||||||
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Total deposits |
319,299 | 1,679 | 0.53 | % | 324,370 | 1,853 | 0.57 | % | 267,082 | 2,156 | 0.81 | % | ||||||||||||||||||||||||
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Borrowings: |
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Short-term borrowings |
23,094 | 81 | 0.35 | % | 8,726 | 21 | 0.24 | % | 263 | 1 | 0.38 | % | ||||||||||||||||||||||||
Long-term borrowings |
6,795 | 169 | 2.49 | % | 7,074 | 250 | 3.53 | % | 8,363 | 299 | 3.58 | % | ||||||||||||||||||||||||
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Total borrowings |
29,889 | 250 | 0.84 | % | 15,800 | 271 | 1.72 | % | 8,626 | 300 | 3.48 | % | ||||||||||||||||||||||||
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Total interest-bearing liabilities |
349,188 | 1,929 | 0.55 | % | 340,170 | 2,124 | 0.62 | % | 275,708 | 2,456 | 0.89 | % | ||||||||||||||||||||||||
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Non-interest bearing liabilities: |
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Demand deposits |
56,714 | 51,520 | 28,104 | |||||||||||||||||||||||||||||||||
Other liabilities |
5,231 | 3,964 | 8,252 | |||||||||||||||||||||||||||||||||
Shareholders equity |
37,503 | 38,035 | 29,937 | |||||||||||||||||||||||||||||||||
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Total Liabilities and Shareholders Equity |
$ | 448,636 | $ | 433,689 | $ | 342,001 | ||||||||||||||||||||||||||||||
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Net Interest Income |
$ | 15,680 | $ | 16,061 | $ | 11,570 | ||||||||||||||||||||||||||||||
Tax-equivalent adjustment |
(399 | ) | (414 | ) | (418 | ) | ||||||||||||||||||||||||||||||
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Net Interest Income (GAAP) |
$ | 15,281 | $ | 15,647 | $ | 11,152 | ||||||||||||||||||||||||||||||
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Net Interest Spread |
3.72 | % | 4.01 | % | 3.69 | % | ||||||||||||||||||||||||||||||
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Net Interest Margin |
3.80 | % | 4.09 | % | 3.78 | % | ||||||||||||||||||||||||||||||
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(1) | Yields on tax-exempt assets have been calculated on a fully tax equivalent basis assuming a tax rate of 34%. |
(2) | Available-for-sale securities are reported at amortized cost for purposes of calculating yields. |
(3) | For yield calculation purposes, non-accruing loans are included in the average loan balances, and any income recognized on these loans is included in interest income. |
2015 Compared to 2014
For the twelve months ended December 31, 2015, total interest income decreased on a fully tax equivalent basis (as adjusted for the tax benefit derived from tax-exempt assets) by $576,000, to $17,609,000 from $18,185,000, for the twelve months ended December 31, 2014. While total interest-earning assets increased
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$19,359,000, or 4.9%, the total yield on earning assets declined 36 basis points to 4.27% for the year ended December 31, 2015 from 4.63% for the year ended December 31, 2014. Total interest income for the 2014 year end was higher than normal due to one-time recoveries of loan interest income in the amount of $771,000. If these one-time recoveries were excluded, total interest income as of December 31, 2014 would have been $17,414,000 as compared with interest income of $17,609,000 as of December 31, 2015. While yields declined for most of the interest-earning assets for the year ended December 31, 2015, the one-time recoveries of loan interest income had the impact of inflating total interest income and the yield for the year ended December 31, 2014.
Total interest expense decreased $195,000, to $1,929,000, for the year ended December 31, 2015 from $2,124,000 for the year ended December 31, 2014. This decrease was attributable to a 7 basis-point decline in total cost of funds, which decreased to 0.55% as of the year ended December 31, 2015 from 0.62% as of the year ended December 31, 2014. The decline in the cost of funds offset the 2.7% increase in the volume of total average interest bearing liabilities. Riverview achieved lower cost of funds by replacing higher fixed rate borrowings with the FHLB with short-term borrowings from the FHLB that have a lower interest rate. Further contributing to lower cost of funds was a $5,071,000 decline in interest bearing deposits and an increase of $5,194,000 in non-interest bearing demand deposits.
Net interest income calculated on a fully tax equivalent basis decreased $381,000, to $15,680,000, as of the year ended December 31, 2015 from $16,061,000 as of the year ended December 31, 2014. Riverviews net interest spread decreased to 3.72% for the twelve months ended December 31, 2015 from 4.01% for the twelve months ended December 31, 2014, while its net interest margin also decreased to 3.80% as of the 2015 year end from 4.09% as of the 2014 year end. The decrease in cost of funds helped to offset some of the interest rate compression on the asset side of the balance sheet, which was further mitigated by the increased volume of total earning assets.
2014 Compared to 2013
Total interest income increased on a fully tax equivalent basis by $4,159,000, or 29.7%, to $18,185,000 for the year ended December 31, 2014 from $14,026,000 for the year ended December 31, 2013. The increase in total interest income was due to the $86,837,000 increase in total interest earning assets, which was attributable to the consolidation with Union, where total interest earning assets grew to $392,738,000 at December 31, 2014 as compared with $305,901,000 at December 31, 2013. In addition, included in loan interest income were recoveries of interest and fees totaling $771,000 mostly attributable to the recovery and collection of Union loans that were previously categorized as non-accruing as of the consolidation.
Total interest expense decreased $332,000, or 13.5%, to $2,124,000 for the year ended December 31, 2014 from $2,456,000 for the year ended December 31, 2013. Cost of funds decreased to 0.62% at the end of 2014 from 0.89% at the end of 2013. The decline in the cost of funds offset the 23.4% increase in the volume of average interest-bearing liabilities year over year.
Net interest income calculated on a fully tax equivalent basis increased $4,491,000, or 38.8%, to $16,061,000 for the year ended December 31, 2014 from $11,570,000 for the year ended December 31, 2013. Riverviews net interest spread increased to 4.01% at December 31, 2014 from 3.69% at December 31, 2013, while its net interest margin increased to 4.09% for the year ended December 31, 2014 from 3.78% for the year ended December 31, 2013. The decrease in the cost of funds complemented the increase in interest income resulting from the increased volume of interest earning assets and recording unexpected loan interest and fee income.
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The following table demonstrates the impact on net interest income from changes in the volume of interest-earning assets and interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities.
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31,
(In thousands) | 2015 vs. 2014 Increase/(Decrease) |
2014 vs. 2013 Increase/(Decrease) |
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Volume | Rate | Net Change |
Volume | Rate | Net Change |
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Interest Earning Assets: |
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Interest-bearing due from banks and federal funds sold |
($ | 16 | ) | $ | 68 | $ | 52 | ($ | 1 | ) | $ | 61 | $ | 60 | ||||||||||
Securities, taxable (1) |
30 | (249 | ) | (219 | ) | 478 | 352 | 830 | ||||||||||||||||
Securities, taxable-exempt (1) |
(157 | ) | (80 | ) | (237 | ) | (116 | ) | (20 | ) | (136 | ) | ||||||||||||
Loans (1) |
1,043 | (1,215 | ) | (172 | ) | 3,708 | (303 | ) | 3,405 | |||||||||||||||
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Net Change in Interest Income |
900 | (1,476 | ) | (576 | ) | 4,069 | 90 | 4,159 | ||||||||||||||||
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Interest-Bearing Liabilities: |
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Interest-bearing demand deposits |
25 | (52 | ) | (27 | ) | 62 | (114 | ) | (52 | ) | ||||||||||||||
Savings deposits |
1 | (27 | ) | (26 | ) | 73 | (114 | ) | (41 | ) | ||||||||||||||
Time deposits |
(110 | ) | (11 | ) | (121 | ) | 135 | (345 | ) | (210 | ) | |||||||||||||
Borrowings: |
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Short-term borrowings |
50 | 10 | 60 | 20 | | 20 | ||||||||||||||||||
Long-term borrowings |
(7 | ) | (74 | ) | (81 | ) | (45 | ) | (4 | ) | (49 | ) | ||||||||||||
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Net Change in Interest Expense |
(41 | ) | (154 | ) | (195 | ) | (245 | ) | (577 | ) | (332 | ) | ||||||||||||
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CHANGE IN NET INTEREST INCOME |
$ | 941 | ($ | 1,322 | ) | ($ | 381 | ) | $ | 3,824 | $ | 667 | $ | 4,491 | ||||||||||
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(1) | Yields on tax-exempt assets have been computed on a fully tax-equivalent basis assuming a tax rate of 34%. |
Provision for Loan Losses
The provision for loan losses represents managements determination of the amount necessary to be charged to operations in order to maintain the allowance for loan losses at a level that represents managements best estimate of the known and inherent losses in the existing loan portfolio. Credit exposures deemed uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off loans are credited to the allowance for loan losses. Management performs periodic evaluations of the allowance for loan losses with consideration given to historical, internal and external factors. In evaluating the adequacy of the allowance for loan losses, management considers historical loss experience, delinquency trends and charge-off activity, status of past due and non-performing loans, growth within the portfolio, the amount and types of loans comprising the loan portfolio, adverse situations that may affect a borrowers ability to pay, the estimated value of underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates and interpretations and possible revision as events occur or as more information becomes available. Loans are also reviewed for impairment based on discounted cash flows using the loans initial effective interest rates or the fair value of the collateral for certain collateral dependent loans as provided under the accounting standard relating to Accounting by Creditors for Impairment of a Loan.
After an evaluation of these factors, the Bank recorded a provision of $1,472,000 for the year ended December 31, 2015, as compared with $526,000 recorded for the 2014 year-end. The provision for 2015 was driven primarily by the deterioration in a large commercial loan. During the second quarter of 2015, this large commercial loan was identified as a problem credit and deemed to be collateral dependent (inventory). The loan was measured for impairment and a specific allocation was made reflecting managements best estimate of the potential for loss based on limited information available at that time. During the fourth quarter of 2015, additional information became available with regard to the nature, age, amount and salability of the inventory collateral, which resulted in a $400,000 partial charge-off and a $580,000 additional specific allocation to the provision for loan loss to more accurately reflect managements estimate of the potential for loss. The allowance for loan losses was $4,365,000, or 1.07% of total loans outstanding at December 31, 2015, as compared to $3,792,000, or 1.11% of total loans outstanding at December 31, 2014.
Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses, if necessary, in order to maintain the adequacy of the allowance. Management believes the allowance for loan losses at December 31, 2015 was adequate to absorb probable and potential losses inherent in the loan portfolio. At the same time, management continues to allocate dedicated resources to continue to manage at-risk credits.
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Non-Interest Income
Non-interest income is an important component of net income for the Company, representing 12.2% of the total revenues (comprised of net interest income and non-interest income) as of the 2015 year-end as compared with 15.1% as of the 2014 year-end. Non-interest income consists primarily of customer service fees and charges derived from deposit accounts, mortgage banking activities, the investment in bank owned life insurance (BOLI), wealth management services and gains from the sale of loans and available-for-sale securities.
The following table presents the components of non-interest income and related fluctuations for the years ended December 31, 2015 and 2014.
(Dollars in thousands) | Years Ended December 31, | |||||||||||||||
2015 | Increase (Decrease) Amount |
% | 2014 | |||||||||||||
Service charges on deposit accounts |
$ | 402 | ($ | 49 | ) | (10.9 | %) | $ | 451 | |||||||
Other service charges and fees |
589 | (223 | ) | (27.5 | %) | 812 | ||||||||||
Earnings on cash value of life insurance |
217 | (6 | ) | (2.7 | %) | 223 | ||||||||||
Fees and commissions from securities brokerage |
833 | (1 | ) | (0.1 | %) | 834 | ||||||||||
Gain (loss) on sale of available-for-sale securities |
(17 | ) | (480 | ) | (103.7 | %) | 463 | |||||||||
Loss on sale and valuation of other real estate owned |
(260 | ) | 57 | 18.0 | % | (317 | ) | |||||||||
Loss on sale of other assets |
(52 | ) | (50 | ) | (2500.0 | %) | (2 | ) | ||||||||
Gain on sale of mortgage loans |
386 | 71 | 22.5 | % | 315 | |||||||||||
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|||||||||||
$ | 2,098 | ($ | 681 | ) | (24.5 | %) | $ | 2,779 | ||||||||
|
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|
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|
|
Total non-interest income was 24.5% lower at December 31, 2015 as compared with December 31, 2014. Included in other services charges and fees for the year ended December 31, 2014 was a one-time entry for $229,000 relating to the restoration of a Union Bank loan that was previously charged off, which made up for a portion of the $681,000 decrease year over year. Net losses on available for sale securities, totaling $17,000, recorded during 2015 relating to calls of certain municipal bonds in the investment portfolio further added to the decrease in non-interest income year over year, considering a gain on sale of $463,000 was recorded during 2014. These items were partially offset by increased gains on the sale of mortgage loans in 2015, as well as lower losses from the sale and valuation of other real estate owned.
Non-Interest Expenses
The following table presents the components of non-interest expenses and the related changes for the years ended 2015 and 2014:
(Dollars in thousands) | Years Ended December 31, | |||||||||||||||
2015 | Increase (Decrease) Amount |
% | 2014 | |||||||||||||
Salaries and employee benefits |
$ | 10,000 | $ | 2,401 | 31.6 | % | $ | 7,599 | ||||||||
Occupancy expense |
2,052 | 697 | 51.4 | % | 1,355 | |||||||||||
Equipment expense |
648 | 17 | 2.7 | % | 631 | |||||||||||
Computer services |
12 | (239 | ) | (95.2 | %) | 251 | ||||||||||
Telecommunications and processing charges |
1,242 | 60 | 5.1 | % | 1,182 | |||||||||||
Postage and office supplies |
349 | (45 | ) | (11.4 | %) | 394 | ||||||||||
Loan prepayment penalty |
238 | 238 | 100.0 | % | | |||||||||||
FDIC premium |
338 | (26 | ) | (7.1 | %) | 364 | ||||||||||
Bank shares tax expense |
345 | 51 | 17.3 | % | 294 | |||||||||||
Directors compensation |
472 | 20 | 4.4 | % | 452 | |||||||||||
Professional services |
461 | 132 | 40.1 | % | 329 | |||||||||||
Amortization of intangible assets |
259 | (27 | ) | (9.4 | %) | 286 | ||||||||||
Other expenses |
1,395 | 80 | 6.1 | % | 1,315 | |||||||||||
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|
|
|
|
|
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Total non-interest expenses |
$ | 17,811 | $ | 3,359 | 23.2 | % | $ | 14,452 | ||||||||
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|
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Non-interest expenses increased $3,359,000, or 23.2%, in comparing 2015 year-end with the 2014 year-end. While non-interest expenses, in general, increased because of the Banks growth, the majority of the increase year over year was directly attributable to Citizens merger related costs, restructuring and other efficiency initiatives implemented during 2015 which include:
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| the departure of the former CEO resulting in severance and vacation pay expense of $1,540,000; |
| the planned closure of one Bank branch and two offices resulting in the payment of lease termination fees of $180,000, accelerated leasehold improvement expense of $329,000, and a $98,000 expense associated with the restoration of one of the Banks branches to its original condition due to its closure; |
| payment in full of two outstanding FHLB loans totaling $5,000,000, in order to reduce the Banks cost of funds which caused the Bank to incur a prepayment fee of $238,000; |
| expenses totaling $448,000, relating to the Citizens merger. |
Income Taxes
A tax benefit of $1,150,000 was recorded for the year ended December 31, 2015 as compared with a tax provision of $727,000 that was recorded for the year ended December 31, 2014. The tax benefit for 2015 reflects an effective tax rate of 60.4%. This compares with an effective rate of 21.1% for 2014. The Companys effective tax rate has historically differed from the statutory rate of 34% due to tax-exempt interest income and non-taxable income from bank owned life insurance.
FINANCIAL CONDITION
Securities
The Companys securities portfolio is comprised of state and municipal securities, U.S. government agency and mortgage-backed securities, corporate bonds and bank equity securities, which not only provide interest income, including tax-exempt income, but also provide a source of liquidity, diversify the earning assets portfolio, allow for the management of risk and tax liability, and provide collateral for public fund deposits. Policies are in place to address various aspects of managing the portfolio, including but not limited to, policies on concentrations, liquidity, credit quality, interest rate risk and regulatory guidelines. Adherence to these policies is monitored by the Banks Asset/Liability Committee (ALCO) which meets on a quarterly basis. Because of the changing nature of the banking environment and the potential need to reposition assets, all investment securities are characterized as available-for-sale and carried at fair value with net unrealized gains and losses, net of taxes, reported as a separate component of comprehensive income.
The following table illustrates the composition of the securities portfolio for the periods presented at amortized cost:
SECURITIES
(In thousands) | Amortized Cost as of December 31, |
|||||||||||
2015 | 2014 | 2013 | ||||||||||
Available-for-sale securities: |
||||||||||||
U.S. Treasuries |
$ | 103 | $ | | $ | | ||||||
U.S. Government agencies securities |
4,708 | 798 | 1,405 | |||||||||
State and municipal |
34,197 | 23,296 | 37,686 | |||||||||
U.S. Government agencies and sponsored enterprises (GSEs) - residential: |
||||||||||||
Mortgage-backed securities |
25,942 | 20,676 | 13,226 | |||||||||
Collateralized mortgage obligations (CMOs) |
1,741 | 2,364 | 3,387 | |||||||||
Corporate debt obligations |
7,989 | 489 | 1,852 | |||||||||
Equity securities, financial services |
471 | 471 | 512 | |||||||||
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$ | 75,151 | $ | 48,094 | $ | 58,068 | |||||||
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The increase in the investment portfolio was attributable to the investments of Citizens, which totaled $18,285,000 as of the December 31, 2015 effective date of the merger. During 2015, the Bank did not sell any investment securities. A $17,000 loss was recorded but was related to adjustments associated with securities that were called during the year. This compares with 2014, where the Bank sold seventeen securities at a gain of $502,000; three securities were sold at a loss of $16,000; three securities were called resulting in a gain of $4,000; and one equity security was redeemed at a loss of $27,000, resulting in a net gain of $463,000.
Included in the carrying values of investment securities at December 31, 2015 is a net unrealized gain of $699,000, as compared to a net unrealized gain of $724,000 at December 31, 2014. At December 31, 2014, the unrealized gain on securities available-for-sale, net of tax, included in shareholders equity totaled $461,000, as compared with the unrealized gain, net of tax, for $477,000 that was recorded in shareholders equity at December 31, 2014. The net decrease in the 2015 carrying value of securities in the portfolio is reflective of the impact to investment security prices as a result of changes in interest rates on the long end of the Treasury yield curve.
The Bank conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary. If such declines were deemed to be other-than-temporary, the Bank would measure the total credit-related component of the unrealized loss and recognize that portion of the loss deemed to be other than temporary as a charge to current period earnings. The remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income. The market value of the securities portfolio is significantly affected by changes in interest rates. In general, as interest rates rise, the market value of fixed-rate securities decreases, and as interest rates fall, the market value of fixed rate securities increases. No securities are considered other-than-temporarily-impaired based on managements evaluation of the individual securities, including the extent and length of the unrealized loss, the Banks ability to hold the security until maturity or until the fair value recovers, and managements opinion that it will not have to sell the securities prior to recovery of value. The Bank holds no trading securities in its portfolio, and the portfolio does not contain high risk securities or derivatives as of December 31, 2015.
The following table presents the maturities and average weighted yields of the securities portfolio at amortized cost as of December 31, 2015. Yields are based on amortized cost.
MATURITIES AND WEIGHTED AVERAGE YIELDS OF SECURITIES
Due In: | 1 Year or Less | 1 to 5 Years | 5 to 10 Years | Over 10 Years or No Maturity |
Total | |||||||||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasuries |
$ | | | $ | 103 | 0.72 | % | $ | | | $ | | | $ | 103 | 0.72 | % | |||||||||||||||||||||||
U.S. Government agencies |
101 | 3.48 | % | 24 | 1.12 | % | 1,225 | 2.99 | % | 3,358 | 2.42 | % | 4,708 | 2.59 | % | |||||||||||||||||||||||||
State and municipal |
| | 2,614 | 3.43 | % | 13,777 | 3.11 | % | 17,806 | 3.48 | % | 34,197 | 3.33 | % | ||||||||||||||||||||||||||
Mortgage-backed securities |
| | 109 | 3.69 | % | 346 | 2.50 | % | 25,487 | 2.52 | % | 25,942 | 2.52 | % | ||||||||||||||||||||||||||
CMOs |
| | | | 326 | 1.51 | % | 1,415 | 2.11 | % | 1,741 | 2.00 | % | |||||||||||||||||||||||||||
Corporate debt |
| | | | 3,990 | 3.21 | % | 3,999 | 4.00 | % | 7,989 | 3.60 | % | |||||||||||||||||||||||||||
Equity securities |
| | | | | | 471 | 2.79 | % | 471 | 2.79 | % | ||||||||||||||||||||||||||||
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$ | 101 | 3.48 | % | $ | 2,850 | 2.80 | % | $ | 19,664 | 2.18 | % | $ | 52,536 | 2.02 | % | $ | 75,151 | 2.31 | % | |||||||||||||||||||||
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All securities are available-for-sale and accounted for at fair value but presented above at amortized cost.
Weighted average yields are calculated on a fully taxable equivalent basis assuming a tax rate of 34%.
Restricted Investments in Bank Stocks
The Banks investment in restricted stocks reflects a required investment in the common stock of correspondent banks consisting of Atlantic Central Bankers Bank and the Federal Home Loan Bank of Pittsburgh (FHLB). These stocks have no readily available market values and are carried at cost since they are not actively traded.
Management evaluates restricted stock for impairment based upon its assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value. Management believes no impairment charge is necessary with regard to such restricted stock investments.
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Loans
The loan portfolio comprises the major component of the Companys earning assets and is the highest yielding asset category within the balance sheet.
The following table presents the composition of the total loan portfolio at December 31:
(Dollars in thousands) | 2015 | % of Total |
2014 | % of Total |
2013 | % of Total |
2012 | % of Total |
2011 | % of Total |
||||||||||||||||||||||||||||||
Commercial |
$ | 46,076 | 11.24 | % | $ | 37,301 | 10.88 | % | $ | 37,253 | 11.52 | % | $ | 23,423 | 9.85 | % | $ | 17,458 | 8.75 | % | ||||||||||||||||||||
Commercial real estate |
205,500 | 50.14 | % | 199,782 | 58.29 | % | 172,418 | 53.32 | % | 145,205 | 61.05 | % | 111,682 | 56.00 | % | |||||||||||||||||||||||||
Commercial land and land development |
18,599 | 4.54 | % | 11,441 | 3.34 | % | 12,594 | 3.90 | % | 12,623 | 5.31 | % | 11,471 | 5.75 | % | |||||||||||||||||||||||||
Residential real estate |
117,669 | 28.71 | % | 73,453 | 21.43 | % | 81,122 | 25.09 | % | 41,487 | 17.44 | % | 45,035 | 22.58 | % | |||||||||||||||||||||||||
Home equity lines of credit |
17,437 | 4.26 | % | 18,235 | 5.34 | % | 17,531 | 5.42 | % | 12,812 | 5.38 | % | 11,234 | 5.63 | % | |||||||||||||||||||||||||
Consumer installment |
4,564 | 1.11 | % | 2,481 | 0.72 | % | 2,419 | 0.75 | % | 2,298 | 0.97 | % | 2,569 | 1.29 | % | |||||||||||||||||||||||||
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Total loans |
409,845 | 100.00 | % | 342,693 | 100.00 | % | 323,337 | 100.00 | % | 237,848 | 100.00 | % | 199,449 | 100.00 | % | |||||||||||||||||||||||||
Allowance for loan losses |
(4,365 | ) | (3,792 | ) | (3,663 | ) | (3,736 | ) | (3,423 | ) | ||||||||||||||||||||||||||||||
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Total loans, net |
$ | 405,480 | $ | 338,901 | $ | 319,674 | $ | 234,112 | $ | 196,026 | ||||||||||||||||||||||||||||||
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At December 31, 2015, total loans receivable (net of the allowance for loan losses, unearned fees and origination costs) amounted to $405,480,000, an increase of $66,579,000, or 19.65%, as compared with $338,901,000 as of December 31, 2014. The increase in the loan portfolio was attributable to the merger with Citizens, which had outstanding loans totaling $57,862,000 as of the effective date of the merger, and growth in the commercial real estate portfolio.
Loans receivable, net of the allowance for loan losses, represented 73.8% of total assets and 90.4% of total deposits as of December 31, 2015, as compared to 77.7% and 91.0%, respectively, at December 31, 2014. All of the Banks loans are to domestic borrowers.
The Bank takes a balanced approach to its lending activities and manages risk associated with its loan portfolio by maintaining diversification within the portfolio, consistently applying prudent underwriting standards, ongoing monitoring efforts with attention to portfolio dynamics and mix, and procedures that are consistently applied and updated on an annual basis. The Bank contracts with 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 loan turndown undergoes a review for conformity with established policies and compliance with current regulatory lending laws. The Bank has not lowered its loan underwriting criteria, and management believes its standards continue to remain conservative.
Lending Activities
The Bank focuses its lending activities on making loans to small and medium sized businesses, entrepreneurs, professionals and consumers in our primary market area. Our lending activities consist of commercial loans, commercial real estate loans, commercial land and land development loans, residential real estate loans, home equity lines of credit, and consumer installment loans. Riverview Bank also makes residential real estate loans which are sold to Freddie Mac with servicing rights released.
Credit Policies and Administration
Riverview Bank has established a comprehensive lending policy, which includes rigorous underwriting standards for all types of loans. The lending staff follows pricing guidelines established periodically by our management team. In an effort to manage risk, individual lending officer lending authorities are limited. All credit requests in excess of an individual lending officers authority, up to $750,000 are approved by dual signature of two
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of the following officers: Chief Executive Officer, President, Chief Lending Officer, Chief Credit Officer or President Berks Region. Credit requests in excess of $750,000 are approved by the majority vote of a Loan Committee, consisting of the Chief Executive Officer, President, Chief Lending Officer, Chief Credit Officer and six members of the Banks Board of Directors. Credit requests in excess of $2,000,000 are approved by a majority vote of the entire Board of Directors. Management believes that the Bank employs experienced lending officers, requires appropriate collateral, carefully assesses the repayment ability of all borrowers, and adequately monitors both the financial condition of its borrowers and the concentration of loans in the portfolio.
As of December 31, 2015, Riverview Banks legal lending limit for loans to one borrower was $5,791,000. As part of its risk management strategy, the Bank may attempt to participate a portion of larger loans to other financial institutions. This strategy allows the Bank to maintain customer relationships while reducing credit exposure. However, this strategy may not always be available.
In addition to the normal repayment risks, all loans in the portfolio are subject to the state of the economy and the related effects on the borrower and/or real estate market. Longer term loans have periodic interest rate adjustments and/or call provisions. Senior management monitors the loan portfolio closely to ensure that past due loans are minimized and potential problem loans are dealt with swiftly.
Riverview Bank also retains an outside, independent firm to review the loan portfolio. This firm performs a detailed annual review. We use the results of the firms report to validate our internal loan risk ratings, and we review their commentary on specific loans and on our loan administration activities in order to improve our operations.
Commercial Loans
The Banks commercial loans consist of revolving and non- revolving lines of credit, term loans, equipment loans, standby letters of credit and unsecured loans. We originate commercial loans to established businesses for any legitimate business purpose, including the financing of machinery, equipment, leasehold improvements, inventory, carrying accounts receivable, general working capital and acquisition activities. We have a diverse customer base, and we have no concentration in these types of loans in any specific industry segment. We generally secure commercial business loans with accounts receivable, equipment, real estate and other collateral such as marketable securities, cash value of life insurance, and time deposits at the Bank.
Commercial business loans generally have a higher degree of risk. These loans typically involve higher average balances, increased difficulty in monitoring and a higher risk of default since repayment primarily depends on the successful operation of the borrowers business. To help manage this risk, we typically limit these loans to proven businesses, and we obtain appropriate collateral and personal guarantees from the principal owners of the business. We monitor the financial condition of the business by requiring submission of periodic financial statements and annual tax returns.
Commercial Real Estate Loans
The Bank finances both owner occupied and non-owner occupied commercial real estate for its customers. Our underwriting policies and process focuses on the customers ability to repay the loan as well as an assessment of the underlying real estate collateral. We originate commercial real estate loans on a fixed rate or floating rate basis. Fixed rates typically are committed for a three to five year time period, after which the rate will become floating unless an additional fixed rate period is negotiated. Repayment terms include amortization schedules from three years to a maximum of 25 years, with the majority of loans amortized over 15 to 20 years. Principal and interest payments are due monthly, with all remaining unpaid principal and interest due at maturity.
Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual declines in property values as well as changes in the economic climate that may detrimentally impact the borrowers ability to repay. We attempt to mitigate risk by carefully underwriting these loans. Our underwriting includes a cash flow analysis which is conducted by thoroughly examining leases and building operating expenses. A minimum debt coverage ratio of 1.2:1.0 is generally required. The character of the borrower and current and prospective conditions in the market are considered. We generally limit loans in this category to a maximum loan to value of 80%, and require personal guarantees of the principal owners and/or corporate guarantees. We monitor the financial condition and operating performance of these borrowers by a thorough review of annual tax returns, property operating data, and periodic financial statements.
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Commercial Land and Land Development Loans
The Banks commercial land and land development loan portfolio consists of funds advanced for construction of multifamily housing, commercial buildings, single family homes, and site acquisition and development. This segment is relatively small compared to most other portfolios of the Bank. All of these loans are concentrated in our primary market area, and the Bank is highly selective in making loans in this segment.
Construction and site acquisition and development lending entails significant risks. These loans generally involve large loan balances concentrated with single borrowers with funds advanced upon the security of the land or the project under construction. The value of the project is estimated prior to completion of construction, thus it is more difficult to accurately evaluate the total funds required to complete a project and related loan to value ratios. To mitigate risk, we generally limit construction loans to the lesser of 80% of cost or appraised value. Loan to value ratios for site acquisition and development loans is limited to 75%. A first lien position on the property is required. These loans are offered only to experienced builders and commercial entities or individuals who have demonstrated the ability to successfully and profitably complete these types of projects. Loans for multifamily and commercial buildings are typically made with the intent that upon completion of construction, the loan will convert to a permanent loan with the Bank. Loans for site acquisition and development are structured so that all funds advanced for the project are repaid upon the sale of not more than 75% of the total available lots in the development. A complete analysis of the borrower and the project is performed, including a review of costs to construct, cash flow available to support the required interest payments during construction, the feasibility of the project based on market conditions, the borrowers liquidity and ability to absorb any cost overruns, and, in the case of multifamily and commercial buildings, an assessment of the borrowers ability to repay the loan on an amortizing basis upon completion of construction. Advances for construction are made based on work completed in accordance with budget and subject to inspection by the Bank.
Residential Real Estate Loans
The Bank offers fixed and adjustable rate residential real estate secured loans to homeowners in our primary market area. These loans are made for the purchase or refinance of a borrowers primary or secondary residence. These loans also include home equity installment loans granted for a variety of purposes. Our customer base is geographically diverse, reducing our potential risk. The loans are secured with a security interest in the borrowers primary or secondary residence, with loan to value generally limited to 80%. Our underwriting includes an analysis of the borrowers debt to income ratio which generally may not exceed 40%, collateral value, length and stability of employment and prior credit history. We do not originate nor do we have any subprime residential real estate loans.
Home Equity Lines of Credit
The Bank offers variable rate residential real estate secured revolving lines of credit to homeowners. These home equity lines of credit are made to individuals in our primary market area. Our customer base is geographically diverse, reducing our potential risk. The loans are secured with a security interest in the borrowers primary or secondary residence with loan to value limited to 80%. Our underwriting includes an analysis of the borrowers debt to income ratio which generally may not exceed 40%, collateral value, length and stability of employment and prior credit history.
Consumer Installment Loans
The Bank offers various types of secured and unsecured consumer purpose installment loans. Consumer purpose non-real estate secured lines of credit also fall into this category. Our underwriting includes an analysis of the borrowers debt to income ratio, which generally may not exceed 40% (35% for unsecured loans), collateral value if any, length and stability of employment and prior credit history. These consumer loans may present greater credit risk than residential real estate loans because some are unsecured or secured by rapidly depreciating assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrowers continuing financial stability. If a borrower suffers personal financial difficulty, the loan may not be repaid. Also various federal and state laws, including bankruptcy laws, may limit the amount that can be recovered on such loans.
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In summary, the Bank takes a balanced approach to its lending activities and manages risk associated with its loan portfolio by maintaining diversification within the portfolio, consistently applying prudent underwriting standards, ongoing monitoring efforts with attention to portfolio dynamics and mix, and procedures that are consistently applied and updated on an annual basis. The Bank contracts with 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 a review for conformity with established policies and compliance with current regulatory lending laws. The Bank has not lowered its loan underwriting criteria and management believes its underwriting standards continue to remain conservative.
Other than as described herein, management does not believe there are any trends, events, or uncertainties that are reasonably expected to have a materially adverse impact on future results of operations, liquidity, or capital resources.
The following table summarizes the loan maturities and interest sensitivity for a segment of the loan portfolio.
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
COMMERCIAL AND CONSTRUCTION LOANS
December 31, 2015
(In thousands) | Due Within 1 Year |
Due 1 - 5 Years |
Due Over 5 Years |
Total | ||||||||||||
Commercial, financial, agricultural |
$ | 16,633 | $ | 17,423 | $ | 12,020 | $ | 46,076 | ||||||||
Real estate, construction |
21,750 | 4,089 | 2,188 | 28,027 | ||||||||||||
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Total |
$ | 38,383 | $ | 21,512 | $ | 14,208 | $ | 74,103 | ||||||||
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By interest rate structure: |
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Fixed rate |
$ | 14,459 | $ | 13,178 | $ | 12,723 | $ | 40,360 | ||||||||
Variable rate |
23,924 | 8,334 | 1,485 | 33,743 | ||||||||||||
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Total |
$ | 38,383 | $ | 21,512 | $ | 14,208 | $ | 74,103 | ||||||||
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Credit Risk and Loan Quality
One of the Banks key objectives has been, and continues to be, to maintain a high level of asset quality. The Bank strives to proactively monitor credit risk and exposure to ensure and protect the quality of its loan portfolio. Credit policy requires that underwriting, loan documentation and credit analysis standards be met prior to the approval and funding of any loan. These practices have contributed to the strength and credit quality of the Banks loan portfolio and have protected the portfolio during economic periods of uncertainty.
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The following table presents information about the Banks nonperforming loans and nonperforming assets for the periods presented.
RISK ELEMENTS AND ASSET QUALITY RATIO
(Dollars in thousands) | December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Non-accruing loans |
$ | 3,182 | $ | 4,245 | $ | 7,013 | $ | 3,863 | $ | 4,709 | ||||||||||
Accruing loans past due 90 days or more |
89 | 643 | 1,145 | 231 | 1,073 | |||||||||||||||
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Total nonperforming loans |
3,271 | 4,888 | 8,158 | 4,094 | 5,782 | |||||||||||||||
Foreclosed real estate |
885 | 1,022 | 1,127 | 1,909 | 1,298 | |||||||||||||||
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Total nonperforming assets |
$ | 4,156 | $ | 5,910 | $ | 9,285 | $ | 6,003 | $ | 7,080 | ||||||||||
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Restructured loans performing in accordance with modified terms |
$ | 372 | $ | 660 | $ | 1,148 | $ | 1,377 | $ | 4,262 | ||||||||||
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Non-accrual loans: |
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Interest income that would have been recorded on non-accruing loans |
$ | 159 | $ | 342 | $ | 241 | $ | 236 | $ | 216 | ||||||||||
Interest income for non-accruing loans included in net income for the period |
$ | 41 | $ | 10 | $ | 27 | $ | 10 | $ | 53 | ||||||||||
Ratios: |
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Nonperforming loans to total loans |
0.80 | % | 1.43 | % | 2.52 | % | 1.72 | % | 2.90 | % | ||||||||||
Nonperforming assets to total assets |
0.76 | % | 1.36 | % | 2.14 | % | 1.88 | % | 2.46 | % | ||||||||||
Allowance for loan losses to nonperforming loans |
133.45 | % | 77.58 | % | 44.90 | % | 91.26 | % | 59.20 | % | ||||||||||
Commitments to lend additional funds to nonperforming loan customers |
$ | | $ | | $ | | $ | | $ | |
Non-performing assets include accruing loans past due 90 days or more, non-accruing loans and foreclosed real estate. The non-performing assets to total assets ratio presented in the table for the 2015 year-end reflects improvement in the credit quality of the loan portfolio since the 2014 year-end. During 2015, the Bank experienced a decrease in non-performing assets primarily due to return to accrual status of a $1,099,000 loan relationship.
The Bank had $885,000 in real estate acquired through foreclosure as of December 31, 2015 as compared with $1,022,000 as of December 31, 2014. All of the foreclosed real estate as of the 2015 year-end was acquired during 2015 and consists of four single family homes located in communities serviced by the Bank totaling $144,000, three mixed-use properties totaling $271,000, one commercial property totaling $206,000, and three tracts of vacant land totaling $264,000. All of the foreclosed real estate held as of December 31, 2014 was sold during 2015 and consisted of five single family homes totaling $270,000, one residential development loan totaling $707,000, and one 1-4 family investment property totaling $45,000.
A loan concentration is considered to exist when the total amount of loans to any one or multiple number of borrowers engaged in similar activities or having similar economic characteristics, exceed 10% of loans outstanding in any one category.
The following table presents loan concentrations as of December 31, 2015 and December 31, 2014.
(Dollars in thousands) | December 31, 2015 |
December 31, 2014 |
||||||
Loans to Lessors of: |
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Residential buildings and dwellings |
$ | 50,773 | $ | 51,248 | ||||
Nonresidential buildings |
68,535 | 56,626 |
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Although the loans listed above were not made to any one particular borrower or industry, the quality of these loans could be affected by the regions economy and overall real estate market. The performance and loss ratios of these portfolios continues to be acceptable. The level of delinquent loans in these portfolios was significantly lower at December 31, 2015 compared to December 31, 2014.
Demand for office space and residential apartment space was solid in 2015 in the Banks market area. Absorption rates of available space continue to be positive, and occupancy and rental rates display a generally increasing trend. As such, management does not believe that this concentration is an adverse condition to the Bank at this time.
The Banks lending policy is executed through the assignment of tiered loan limit authorities to individual officers of the Bank and the Board of Directors. Although the Bank maintains sound credit policies, certain loans may deteriorate for a variety of reasons. The Banks policy is to place all loans in a non-accrual status upon becoming 90 days delinquent in their payments, unless the loan is well secured and there is documented, reasonable expectation of the collection of the delinquent amount. Loans are reviewed daily as to their status.
Allowance for Loan Losses
The allowance for loan losses represents managements best estimate of the known and inherent losses in the loan portfolio. Management believes that it uses the best information available to make determinations about the adequacy of the allowance and that it has established its existing allowance for loan losses in accordance with U.S generally accepted accounting principles (GAAP). The determination of an appropriate level of the allowance for loan losses is based upon an analysis of the risks inherent in the Banks loan portfolio. Management makes significant estimates and assumptions in determining the allowance for loan losses. Since the allowance for loan losses is dependent on conditions that may be beyond the Banks control, it is possible that managements estimates of the allowance for loan losses and actual results could differ. In conjunction with an external loan review function that operates independent of the lending function, management monitors the loan portfolio to identify risks on a timely basis so that an appropriate allowance is maintained.
Management closely monitors the quality of the loan portfolio and performs a quarterly analysis of the appropriateness of the allowance for loan losses. This analysis considers a number of relevant factors, including historical loan loss experience, general economic conditions, levels of and trends in delinquent and non-performing loans, levels of classified loans, trends in the growth rate of loans and concentrations of credit. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. Based on an evaluation of the loan portfolio, management presents a quarterly review of the allowance for loan losses to the Banks Board of Directors detailing significant events that have occurred since the last review.
The allowance consists of specific, general and unallocated components. The specific component relates to non-homogeneous loans that are classified as substandard or doubtful and deemed to be impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers homogeneous and non-impaired loans and is based on historical loss experience adjusted for qualitative factors. Management determines the unallocated portion, which represents the difference between the reported allowance for loan losses and the calculated allowance for loan losses, based generally on the following criteria:
| risk of imprecision in the specific and general reserve allocations; |
| other potential exposure in the loan portfolio, including covering the risks in the growing book of loans in the Schuylkill, Berks and Somerset County regions; |
| other potential exposure in the acquired Union Bank portfolio; |
| variances in managements assessment of national and local economic conditions; and |
| other internal or external factors that management believes appropriate at the time. |
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,
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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 borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 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 loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans 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.
As a result of managements ongoing assessment as to the adequacy of the allowance for loan losses in consideration of the risks and trends associated with the loan portfolio, a provision of $1,472,000 was made to the allowance for loan losses for the twelve months ended December 31, 2015 as compared with the $526,000 provision made for the twelve months ended December 31, 2014. Management determined that the total of the allocated and unallocated allowance for loan losses was adequate to absorb any losses inherent in the portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary, and the results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that material increases will not be necessary should the quality of the loans deteriorate as a result of factors previously discussed.
The following table sets forth information as to the analysis of the allowance for loan losses and the allocation of the loan losses as of the dates indicated:
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) | December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
Allowance, beginning of year |
$ | 3,792 | $ | 3,663 | $ | 3,736 | $ | 3,423 | $2,973 | |||||||||||
Provision for loan losses |
1,472 | 526 | 640 | 1,140 | 946 | |||||||||||||||
Loans charged off: |
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Commercial, financial, agricultural |
650 | 90 | | 268 | 398 | |||||||||||||||
Real estate mortgage |
247 | 423 | 768 | 622 | 114 | |||||||||||||||
Consumer installment |
35 | 11 | 4 | 30 | 2 | |||||||||||||||
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Total charged-off |
932 | 524 | 772 | 920 | 514 | |||||||||||||||
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Loan recoveries: |
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Commercial, financial, agricultural |
8 | 119 | 30 | 91 | 18 | |||||||||||||||
Real estate mortgage |
19 | 3 | 27 | 2 | | |||||||||||||||
Consumer installment |
6 | 5 | 2 | | | |||||||||||||||
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Total recoveries |
33 | 127 | 59 | 93 | 18 | |||||||||||||||
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Net loans charged off |
899 | 397 | 713 | 827 | 496 | |||||||||||||||
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Allowance, end of year |
$ | 4,365 | $ | 3,792 | $ | 3,663 | $ | 3,736 | $3,423 | |||||||||||
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Net charge-offs to average loans |
0.26 | % | 0.12 | % | 0.28 | % | 0.38 | % | 0.27 | % | ||||||||||
Allowance for loan losses to total loans |
1.07 | % | 1.11 | % | 1.13 | % | 1.57 | % | 1.72 | % |
The decrease in the allowance for loan losses as a percentage of total loans as of December 31, 2015 as compared with December 31, 2014 was due primarily to the December 31, 2015 merger of Citizens with and into Riverview Bank, which added $57,862,000 to total loans. The loans attributable to Citizens are recorded at their acquisition date fair values. The carryover of the allowance for loan losses for Citizens loans is prohibited as any credit losses in the loans are included in
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the determination of the fair value of the loans at the acquisition date. Exclusive of these loans, the allowance for loan losses to total loans as percentage of total loans increased from 1.11% at December 31 2014 to 1.24% as of December 31, 2015. Management continues to be attentive to potential deterioration in credit quality due to economic pressures and economic conditions in markets served by the Bank. Although management is proactive in identifying and dealing with credit issues that it can control, it anticipates that, going forward, additional provisions to its allowance for loan losses may be warranted as a result of economic factors it cannot control.
The following table details the allocation of the allowance for loan losses to the various loan categories as of the periods presented. The allocation is made for analytical purposes and is not necessarily indicative of the loan categories in which future credit losses may occur. The total allowance is available to absorb losses from any segment of loans.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) | December 31, 2015 |
December 31, 2014 |
December 31, 2013 |
December 31, 2012 |
December 31, 2011 |
|||||||||||||||||||||||||||||||||||
Amount | % Gross Loans to Total Loans |
Amount | % Gross Loans to Total Loans |
Amount | % Gross Loans to Total Loans |
Amount | % Gross Loans to Total Loans |
Amount | % Gross Loans to Total Loans |
|||||||||||||||||||||||||||||||
Commercial, financial and agricultural |
$ | 1,298 | 11.2 | % | $ | 330 | 10.9 | % | $ | 424 | 11.5 | % | $ | 545 | 9.8 | % | $ | 693 | 8.7 | % | ||||||||||||||||||||
Real estate loans: |
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Construction |
202 | 4.6 | % | 115 | 3.3 | % | 144 | 3.9 | % | 143 | 5.3 | % | 147 | 8.9 | % | |||||||||||||||||||||||||
Mortgage |
613 | 33.0 | % | 805 | 26.8 | % | 670 | 30.5 | % | 654 | 22.8 | % | 1,108 | 47.7 | % | |||||||||||||||||||||||||
Commercial |
2,227 | 50.1 | % | 2,462 | 58.3 | % | 2,079 | 53.3 | % | 2,071 | 61.1 | % | 1,118 | 33.8 | % | |||||||||||||||||||||||||
Consumer installment loans |
25 | 1.1 | % | 15 | 0.7 | % | 30 | 0.8 | % | 26 | 1.0 | % | 24 | 0.9 | % | |||||||||||||||||||||||||
Unallocated |
0 | n/a | 65 | n/a | 316 | n/a | 297 | n/a | 333 | n/a | ||||||||||||||||||||||||||||||
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Total |
$ | 4,365 | 100.0 | % | $ | 3,792 | 100.0 | % | $ | 3,663 | 100.0 | % | $ | 3,736 | 100.0 | % | $ | 3,423 | 100.0 | % | ||||||||||||||||||||
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Real estate loans continue to represent the largest segment of loans for the Bank. Loan growth in 2015 was centered in commercial real estate loans. However the allocated portion of the allowance for loan losses for this loan category as compared to the prior year decreased due to improved credit quality. The unallocated allowance for loan losses decreased compared to the prior year. Management determines the unallocated portion, which represents the difference between the reported allowance for loan losses and the calculated allowance for loan losses, based generally on the following criteria:
| risk of imprecision in the specific and general reserve allocations; |
| other potential exposure in the loan portfolio, including covering the risks in the growing book of loans in the Schuylkill, Berks and Somerset County regions; |
| other potential exposure in the acquired Union Bank and Citizens portfolios; |
| variances in managements assessment of national and local economic conditions; and |
| other internal or external factors that management believes appropriate at the time. |
Management believes the allowance for loan losses at December 31, 2015 is adequate in relation to the estimate of known inherent losses in the portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary, and the results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that material increases will not be necessary should the quality of the loans deteriorate as a result of factors previously discussed. For additional information relating to impaired loans and loan classifications, refer to Note 5 Loans Receivable, Credit Quality for Loans and the Allowance for Loan Losses - in the year-end audited consolidated financial statements and supplementary data herein incorporated in Part II, Item 8.
Deposits
The Bank generates and services deposits through its traditional branch banking delivery system. Deposits
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are the Banks major source of funds available for lending and other investment purposes. Total deposits at December 31, 2015, were $448,342,000, an increase of $76,080,000, or 20.4%, over total deposits of $372,262,000 as of December 31, 2014 due to the merger with Citizens. Noninterest bearing deposits increased $16,486,000, or 30.7%, at December 31, 2015 and interest-bearing deposits decreased $59,594,000, or 18.7%, since the 2014 year-end.
The following table sets forth the average balance of the Banks deposits and the average rates paid on those deposits for the years ended December 31, 2015, 2014 and 2013. All deposits are domestic deposits.
AVERAGE DEPOSITS BY MAJOR CLASSIFICATION
(Dollars in thousands) | December 31, | |||||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||||||
Average Balance |
Average Rate |
Average Balance |
Average Rate |
Average Balance |
Average Rate |
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Non-interest bearing demand |
$ | 56,714 | 0.00 | % | $ | 51,520 | 0.00 | % | $ | 28,104 | 0.00 | % | ||||||||||||
Interest-bearing demand |
134,514 | 0.35 | % | 129,803 | 0.39 | % | 113,715 | 0.49 | % | |||||||||||||||
Savings |
89,340 | 0.24 | % | 88,402 | 0.27 | % | 60,071 | 0.46 | % | |||||||||||||||
Time |
95,445 | 1.04 | % | 106,165 | 1.05 | % | 93,297 | 1.42 | % | |||||||||||||||
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Total deposits |
$ | 376,013 | $ | 375,890 | $ | 295,187 | ||||||||||||||||||
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The following table presents the remaining maturities and amounts of time certificates issued in denominations of $100,000 or more at December 31, 2015.
DEPOSIT MATURITIES
(In thousands) | Time Certificates |
|||
Three months or less |
$ | 6,313 | ||
Over three months but within six months |
6,260 | |||
Over six months but within twelve months |
9,115 | |||
Over twelve months |
35,879 | |||
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Total |
$ | 57,567 | ||
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Borrowings
Short-term borrowings are generally used to meet temporary funding needs and consist of federal funds purchased, securities sold under agreements to repurchase, and overnight and short-term borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB). As of December 31, 2015, short-term borrowings totaled $42,575,000, all of which were borrowed under the Banks Open Repo Plus line with the FHLB. This level of short-term borrowings compared with $12,500,000 in outstanding short-term borrowings at December 31, 2014, all of which were borrowed under the Banks FHLB Open Repo Plus line. Part of the increase was due to short-term borrowings of $8,575,000 acquired as part of the merger with Citizens with the excess of $21,500,000 representing additional borrowings that the Bank utilized during 2015 to take advantage of low interest rates.
Long-term borrowings totaled $9,350,000 at December 31, 2015 as compared with $7,000,000 outstanding at December 31, 2014, and are summarized as follows:
| During the second quarter of 2015, the Bank prepaid the balance of the $5,000,000 in long-term borrowings from the FHLB that was then outstanding, which carried an interest rate of 2.90%. During the third quarter of 2015, the Bank borrowed $5,000,000 from the FHLB at a fixed rate of 0.85% with a two year final maturity. At December 31, 2015 and December 31, 2014, there was $5,000,000 in outstanding borrowings from the FHLB; |
| During 2014, the Company borrowed $2,000,000 under a secured term loan agreement with ACNB Bank. This borrowing was outstanding at December 31, 2015 and December 31, 2014; and |
| The Company has a $5,000,000 secured guidance line of credit with ACNB Bank, Gettysburg, Pennsylvania. As of December 31, 2015, there was $2,350,000 outstanding as a result of borrowing under this line of credit during the second half of 2015. There were no outstanding borrowings drawn under this line at December 31, 2014. |
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Additional information relating to borrowings can be found in Note 9 Borrowings in the year-end audited consolidated financial statements and supplementary data contained in Part II, Item 8.
Shareholders Equity and Capital Requirements/Ratios
At December 31, 2015, shareholders equity for the Company totaled $42,303,000, an increase of $4,095,000 as compared with $38,208,000 at December 31, 2014. The increase was due to:
| The issuance of 492,178 shares of common stock in connection with the Citizens merger resulting in additional capital of $6,497,000; |
| A decrease in retained earnings due to a net loss of $754,000 recorded at December 31, 2015; |
| The payment of dividends of $1,491,000; |
| An increase in surplus of $32,000 to reflect the compensation cost associated with option grants, $8,000 representing the proceeds from the exercise of 750 options and $46,000 proceeds of 3,776 shares issued under the Companys Employee Stock Purchase Plan; and |
| A decrease in the other comprehensive income, which net of tax, decreased equity by $243,000 |
The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve Boards Small Bank Holding Company Policy Statement. Accordingly, the Company is exempt from the regulatory capital requirements administered by the federal banking agencies. However, the Bank is subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board. On January 1, 2015, the Basel III capital rules became effective for the Bank. The table that follows provides a comparison of the Banks capital ratios at December 31, 2015 and 2014, including the impact of the Citizens merger at December 31, 2015:
CAPITAL RATIOS
(Dollars in thousands) | December 31, | |||||||||||||||
2015 | 2014 | Regulatory Minimum |
Well Capitalized Requirement |
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Tier 1 capital |
$ | 38,710 | $ | 34,096 | ||||||||||||
Tier II, allowable portion of: |
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Allowance for loan losses |
4,418 | 3,803 | ||||||||||||||
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Total risk-based capital |
$ | 43,128 | $ | 37,899 | ||||||||||||
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Tier I leverage capital (to average assets) |
7.16 | % | 8.0 | % | 4.0 | % | 5.0 | % | ||||||||
Tier I risk-based capital (to risk- weighted assets) |
9.59 | % | 10.3 | % | 6.0 | % | 8.0 | % | ||||||||
Total risk-based capital (to risk-weighted assets) |
10.68 | % | 11.5 | % | 8.0 | % | 10.0 | % | ||||||||
Common equity tier 1 risk based capital (to risk-weighted assets) |
9.59 | % | n/a | 4.5 | % | 6.5 | % |
The ratios presented do not reflect additional future Basel III requirements, including a 2.5% capital conservation buffer that will apply to minimum regulatory capital ratios beginning 2016 through 2019.
At December 31, 2015 and 2014, the Banks capital ratios exceed both the regulatory minimums and the requirements necessary for designation as a well-capitalized institution under the Basel III rules. Additional information relating to regulatory capital ratios can be found in Note 14 Regulatory Matters and Shareholders Equity in the year-end audited consolidated financial statements and supplementary data contained in Part II, Item 8.
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The maintenance of a solid capital foundation continues to be a primary goal for the Company. One objective of the capital planning process is to effectively balance the retention of capital to support future growth, while at the same time, provide shareholders with an attractive long-term return on their investment. Management proactively monitors capital levels to ensure that they remain well in line with regulatory requirements, and that the Company is positioned to enact appropriate measures to ensure the strength of the Companys capital position. Management believes that the Companys capital position is adequate to support current operations and growth.
Prompt Corrective Action
In the event an institutions capital deteriorates to the Undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including:
| Implementation of a capital restoration plan and a guarantee of the plan by a parent institution; and |
| Placement of a hold on increases in assets, number of branches, or lines of business. |
If capital reaches the significantly or critically undercapitalized level, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management, and (in critically undercapitalized situations) appointment of a receiver. For well-capitalized institutions, FDICIA provides authority for regulatory intervention if an institution is engaging in unsafe or unsound practices, or if the institution receives a less than satisfactory examination report rating for asset quality, management, earnings, liquidity, or sensitivity to market risk.
Off-Balance Sheet Arrangements
The Companys financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and letters of credit made under the same standards as on-balance sheet instruments. At December 31, 2015, the Bank had unfunded outstanding commitments to extend credit of $46,081,000 and outstanding letters of credit of $3,316,000. Because these commitments have fixed expiration dates, and many will expire without being drawn upon, the total commitment level does not necessarily present significant liquidity risk to the Bank. Refer to Note 12 Financial Instruments with Off Balance Sheet Risk in the year-end audited consolidated financial statements and supplementary data contained in Part II, Item 8.
Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources.
Liquidity
Liquidity refers to the Companys ability to generate adequate amounts of cash to meet financial obligations to its customers in order to fund loans, to respond to deposit outflows and to cover operating expenses. The Company maintains a level of liquid funds through asset/liability management and seeks to ensure that these needs are met at a reasonable cost. Liquidity is essential to compensate for fluctuations in the balance sheet and provide funds for growth and normal operating expenditures. Sources of liquidity are provided on a continuous basis through scheduled and unscheduled principal reductions and interest payments on outstanding loans and investment securities. Liquidity needs may also be met by converting assets into cash or obtaining sources of additional funding, whether through deposit growth, sale of assets, borrowings under lines of credit with correspondent banks or raising additional capital.
Liquidity from the asset category is provided through cash, amounts due from banks including time deposits with banks, interest-bearing deposits with banks and federal funds sold, which totaled $22,688,000 at December 31, 2015 as compared to $15,572,000 at December 31, 2014. The increase in liquid assets year over year was attributable to the merger with Citizens, which had cash and other deposits with banks of $6,190,000 at December 31, 2015. Liquidity sources generated from assets also include scheduled and unscheduled payments of principal and interest from securities and loans in the Banks portfolios. Longer-term liquidity needs may be met by selling securities available-for-sale, selling loans, borrowing under established lines of credit or raising additional
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capital. At December 31, 2015, unpledged available-for-sale securities with a carrying value of $22,811,000 were readily available for liquidity purposes, as compared with $1,050,000 at December 31, 2014. The increase of $4,294,000 in unpledged available-for-sale securities was attributable to the additional investment securities acquired from the merger with Citizens.
On the liability side, the primary source of funds available to meet liquidity needs, are deposits. The Banks core deposits, which exclude certificates of deposit $250,000 and over, were $440,776,000 at December 31, 2015 as compared to $365,103,000 at December 31, 2014. The increase in core deposits was attributable to deposits acquired from the merger with Citizens in addition to organic growth of $3,614,000, or 1%. In general, core deposits have historically provided a source of relatively stable and low cost liquidity. Short-term and long-term borrowings utilizing the federal funds line and credit facilities established with correspondent financial institutions and the FHLB are also considered to be reliable sources for funding. As of December 31, 2015, the Company had access to three formal borrowing lines with correspondent banks totaling $197,881,000, less $51,925,000 in borrowings drawn on these facilities.
There are a number of factors that may impact the Companys liquidity position. Changes in interest rates, local economic conditions and the competitive marketplace can influence prepayments on investment securities, loan fundings and payments, and deposit flows. Management is of the opinion that its liquidity position at December 31, 2015 is adequate to respond to fluctuations on and off the balance sheet since it manages liquidity on a daily basis and expects to have sufficient funds to meet all of its funding requirements.
Except as discussed above, there are no known demands, trends, commitments, events or uncertainties that may result in, or that are reasonably likely to result in, the Companys inability to meet anticipated or unexpected needs.
Effects of Inflation
The impact of inflation upon financial institutions can affect assets and liabilities through the movement of interest rates. The exact impact of inflation on the Company is difficult to measure. Inflation may cause operating expenses to change at a rate not matched by the change in earnings. Inflation may affect the borrowing needs and desires of consumer and commercial customers, in turn affecting the growth of the Companys assets. Inflation may also affect the level of interest rates in the general market, which in turn can affect the Companys profitability and the market value of assets held. The Company actively manages its interest rate sensitive assets and liabilities, in an effort to counter the effects of inflation.
Return on Assets and Equity
The following table presents ratios as of the dates indicated:
December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Return on average assets |
(0.17 | %) | 0.63 | % | 0.43 | % | ||||||
Return on average equity |
(2.01 | %) | 7.15 | % | 4.89 | % | ||||||
Dividend payout ratio |
(196.43 | %) | 54.69 | % | 76.42 | % | ||||||
Average equity to average assets ratio |
8.36 | % | 8.77 | % | 8.75 | % |
The decrease in the return on average assets and equity ratios was due to decreased earnings year over year. The dividend payout ratio was lower for the 2015 year-end as compared with 2014 because of the net loss incurred in 2015.
New Financial Accounting Standards
Note 1 in the year-end audited consolidated financial statements and supplementary data incorporated herein in Part II, Item 8, discusses the expected impact on the Companys financial condition and results of operations for recently issued or proposed accounting standards that have not been adopted. To the extent we anticipate a significant impact to the Companys financial condition or results of operations, appropriate discussion takes place in the applicable note to the year-end audited consolidated financial statements.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 7A. QUANTATATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not required for smaller reporting companies.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
December 31, 2015 and 2014
Page | ||||
35 | ||||
Consolidated Financial Statements |
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36 | ||||
37 | ||||
38 | ||||
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40 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Riverview Financial Corporation
Harrisburg, Pennsylvania
We have audited the accompanying consolidated balance sheets of Riverview Financial Corporation and its wholly-owned subsidiary (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders equity, and cash flows for the years then ended. Riverview Financial Corporations management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Riverview Financial Corporation and its wholly-owned subsidiary as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Smith Elliott Kearns & Company, LLC |
SMITH ELLIOTT KEARNS & COMPANY, LLC |
Chambersburg, Pennsylvania
March 30, 2016
35
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RIVERVIEW FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
2015 | 2014 | |||||||
(In thousands, except share data) | ||||||||
Assets | ||||||||
Cash and due from banks |
$ | 14,679 | $ | 8,477 | ||||
Interest-bearing deposits |
7,018 | 6,103 | ||||||
|
|
|
|
|||||
Cash and Cash Equivalents |
21,697 | 14,580 | ||||||
Interest-bearing time deposits with banks |
991 | 992 | ||||||
Investment securities available-for-sale |
75,850 | 48,818 | ||||||
Mortgage loans held for sale |
1,094 | 216 | ||||||
Loans, net of allowance for loan losses of $4,365 and $3,792 |
405,480 | 338,901 | ||||||
Premises and equipment |
12,373 | 11,440 | ||||||
Accrued interest receivable |
1,594 | 1,237 | ||||||
Restricted investments in bank stocks |
2,315 | 1,002 | ||||||
Cash value of life insurance |
11,764 | 8,587 | ||||||
Foreclosed assets |
885 | 1,022 | ||||||
Goodwill |
4,757 | 2,297 | ||||||
Intangible assets |
1,501 | 1,381 | ||||||
Deferred tax assets |
7,444 | 4,092 | ||||||
Other assets |
1,704 | 1,581 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 549,449 | $ | 436,146 | ||||
|
|
|
|
|||||
Liabilities and Shareholders Equity | ||||||||
Liabilities |
||||||||
Deposits: |
||||||||
Demand, non-interest bearing |
$ | 70,106 | $ | 53,620 | ||||
Demand, interest-bearing |
131,564 | 132,860 | ||||||
Savings and money market |
110,526 | 83,748 | ||||||
Time |
136,146 | 102,034 | ||||||
|
|
|
|
|||||
Total Deposits |
448,342 | 372,262 | ||||||
Capital lease payable |
| 1,655 | ||||||
Short-term borrowings |
42,575 | 12,500 | ||||||
Long-term borrowings |
9,350 | 7,000 | ||||||
Accrued interest payable |
236 | 154 | ||||||
Other liabilities |
6,643 | 4,367 | ||||||
|
|
|
|
|||||
Total Liabilities |
507,146 | 397,938 | ||||||
|
|
|
|
|||||
Shareholders Equity |
||||||||
Preferred stock, no par value; authorized 3,000,000 shares |
| | ||||||
Common stock, no par value; authorized 5,000,000 shares; issued and outstanding 2015 3,205,544 shares; 2014 2,708,840 shares |
22,077 | 22,077 | ||||||
Surplus |
6,784 | 201 | ||||||
Retained earnings |
13,550 | 15,795 | ||||||
Accumulated other comprehensive income (loss) |
(108 | ) | 135 | |||||
|
|
|
|
|||||
Total Shareholders Equity |
42,303 | 38,208 | ||||||
|
|
|
|
|||||
Total Liabilities and Shareholders Equity |
$ | 549,449 | $ | 436,146 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
36
Table of Contents
RIVERVIEW FINANCIAL CORPORATION
Consolidated Statements of Income
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
(In thousands, except per share data) | ||||||||
Interest and Dividend Income |
||||||||
Loans, including fees |
$ | 15,626 | $ | 15,864 | ||||
Investment securities - taxable |
959 | 1,178 | ||||||
Investment securities - tax exempt |
476 | 632 | ||||||
Federal funds sold |
| 1 | ||||||
Interest-bearing deposits |
37 | 39 | ||||||
Dividends |
112 | 57 | ||||||
|
|
|
|
|||||
Total Interest Income |
17,210 | 17,771 | ||||||
|
|
|
|
|||||
Interest Expense |
||||||||
Deposits |
1,679 | 1,853 | ||||||
Short-term borrowings |
81 | 21 | ||||||
Long-term debt |
169 | 250 | ||||||
|
|
|
|
|||||
Total Interest Expense |
1,929 | 2,124 | ||||||
|
|
|
|
|||||
Net Interest Income |
15,281 | 15,647 | ||||||
Provision for Loan Losses |
1,472 | 526 | ||||||
|
|
|
|
|||||
Net Interest Income after Provision for Loan Losses |
13,809 | 15,121 | ||||||
|
|
|
|
|||||
Noninterest Income |
||||||||
Service charges on deposit accounts |
402 | 451 | ||||||
Other service charges and fees |
589 | 812 | ||||||
Earnings on cash value of life insurance |
217 | 223 | ||||||
Fees and commissions from securities brokerage |
833 | 834 | ||||||
Gain (loss) on sale of available-for-sale securities |
(17 | ) | 463 | |||||
Loss on sale and valuation of other real estate owned |
(260 | ) | (317 | ) | ||||
Loss on sale of other assets |
(52 | ) | (2 | ) | ||||
Gain on sale of mortgage loans |
386 | 315 | ||||||
|
|
|
|
|||||
Total Noninterest Income |
2,098 | 2,779 | ||||||
|
|
|
|
|||||
Noninterest Expenses |
||||||||
Salaries and employee benefits |
10,000 | 7,599 | ||||||
Occupancy expenses |
2,052 | 1,355 | ||||||
Equipment expenses |
648 | 631 | ||||||
Computer services |
12 | 251 | ||||||
Telecommunication and processing charges |
1,242 | 1,182 | ||||||
Postage and office supplies |
349 | 394 | ||||||
Loan prepayment penalty |
238 | | ||||||
FDIC premium |
338 | 364 | ||||||
Bank shares tax expense |
345 | 294 | ||||||
Directors compensation |
472 | 452 | ||||||
Professional services |
461 | 329 | ||||||
Amortization of intangible assets |
259 | 286 | ||||||
Other expenses |
1,395 | 1,315 | ||||||
|
|
|
|
|||||
Total Noninterest Expenses |
17,811 | 14,452 | ||||||
|
|
|
|
|||||
Income (Loss) before Income Taxes |
(1,904 | ) | 3,448 | |||||
Applicable Federal Income Taxes (benefit)/expense |
(1,150 | ) | 727 | |||||
|
|
|
|
|||||
Net Income (Loss) |
($ | 754 | ) | $ | 2,721 | |||
|
|
|
|
|||||
Basic Earnings Per Share |
($ | 0.28 | ) | $ | 1.01 | |||
|
|
|
|
|||||
Diluted Earnings Per Share |
($ | 0.28 | ) | $ | 1.00 | |||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
37
Table of Contents
RIVERVIEW FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
(In thousands) | ||||||||
Net income (loss) |
($ | 754 | ) | $ | 2,721 | |||
Other comprehensive income (loss), net of tax: |
||||||||
Unrealized gains and losses on securities available for sale: |
||||||||
Net unrealized gains (losses) arising during the period, net of tax of $14 and ($684) |
(27 | ) | 1,328 | |||||
Reclassification adjustment for (gains) losses included in net income, net of tax of ($6) and $158 |
11 | (307 | ) | |||||
|
|
|
|
|||||
Net change in unrealized gains (losses) |
(16 | ) | 1,021 | |||||
Defined benefit pension plan: |
||||||||
Change in benefit obligation and plan assets, net of tax of $117 and $181 |
(227 | ) | (351 | ) | ||||
|
|
|
|
|||||
Total other comprehensive income (loss), net of tax |
(243 | ) | 670 | |||||
|
|
|
|
|||||
Total comprehensive income (loss) |
($ | 997 | ) | $ | 3,391 | |||
|
|
|
|
RIVERVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2015 and 2014
(In thousands, except per share data) | Common Stock |
Surplus | Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total Shareholders Equity |
|||||||||||||||
Balance - January 1, 2014 |
$ | 22,077 | $ | 124 | $ | 14,562 | ($ | 535 | ) | $ | 36,228 | |||||||||
Net income |
| | 2,721 | | 2,721 | |||||||||||||||
Total other comprehensive income, net of tax |
| | | 670 | 670 | |||||||||||||||
Compensation cost of option grants |
| 24 | | | 24 | |||||||||||||||
Proceeds from exercise of 5,000 options |
| 53 | | | 53 | |||||||||||||||
Cash dividends, $0.55 per share |
| | (1,488 | ) | | (1,488 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance December 31, 2014 |
$ | 22,077 | $ | 201 | $ | 15,795 | $ | 135 | $ | 38,208 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
| | ($ | 754 | ) | | ($ | 754 | ) | |||||||||||
Total other comprehensive income (loss), net of tax |
| | | (243 | ) | (243 | ) | |||||||||||||
Compensation cost of option grants |
| 32 | | | 32 | |||||||||||||||
Issuance of 492,178 shares of common stock in exchange for Citizens common stock |
| 6,497 | | | 6,497 | |||||||||||||||
Issuance of 3,775 shares of common stock to ESPP |
| 46 | | | 46 | |||||||||||||||
Proceeds from exercise of 750 options |
| 8 | | | 8 | |||||||||||||||
Cash dividends, $0.55 per share |
| | (1,491 | ) | | (1,491 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance - December 31, 2015 |
$ | 22,077 | $ | 6,784 | $ | 13,550 | ($ | 108 | ) | $ | 42,303 | |||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
38
Table of Contents
RIVERVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
(In thousands) | ||||||||
Cash Flows from Operating Activities |
||||||||
Net income (loss) |
($ | 754 | ) | $ | 2,721 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Depreciation |
1,038 | 699 | ||||||
Provision for loan losses |
1,472 | 526 | ||||||
Stock option compensation expense |
32 | 24 | ||||||
Net amortization of premiums on securities available-for-sale |
419 | 399 | ||||||
Net realized loss on sale of foreclosed real estate and other assets |
312 | 319 | ||||||
Net realized (gain) loss on sale of securities available-for-sale |
17 | (463 | ) | |||||
Amortization of purchase adjustment on loans |
(276 | ) | (843 | ) | ||||
Amortization of intangible assets |
259 | 286 | ||||||
Deferred income taxes |
(1,164 | ) | (23 | ) | ||||
Proceeds from sale of mortgage loans |
21,699 | 17,518 | ||||||
Net gain on sale of mortgage loans |
(386 | ) | (315 | ) | ||||
Mortgage loans originated for sale |
(22,191 | ) | (17,174 | ) | ||||
Earnings on cash value of life insurance |
(217 | ) | (223 | ) | ||||
(Increase) decrease in accrued interest receivable and other assets |
(154 | ) | 159 | |||||
Increase (decrease) in accrued interest payable and other liabilities |
1,520 | (169 | ) | |||||
|
|
|
|
|||||
Net Cash Provided by Operating Activities |
1,626 | 3,441 | ||||||
|
|
|
|
|||||
Cash Flows from Investing Activities |
||||||||
Net maturities (purchases) of interest-bearing time deposits |
1 | 252 | ||||||
Securities available-for-sale: |
||||||||
Proceeds from maturities, calls and principal repayments |
7,596 | 10,906 | ||||||
Proceeds from sales |
| 10,179 | ||||||
Purchases |
(16,805 | ) | (11,046 | ) | ||||
Net (increase) decrease in restricted investments in bank stock |
(872 | ) | 28 | |||||
Net increase in loans |
(11,084 | ) | (19,317 | ) | ||||
Net cash acquired in business combination |
4,585 | | ||||||
Purchases of premises and equipment |
(1,496 | ) | (2,076 | ) | ||||
Proceeds from sale of foreclosed assets |
1,135 | 195 | ||||||
|
|
|
|
|||||
Net Cash Used in Investing Activities |
(16,940 | ) | (10,879 | ) | ||||
|
|
|
|
|||||
Cash Flows from Financing Activities |
||||||||
Net increase (decrease) in deposits |
1,673 | (10,053 | ) | |||||
Increase in short-term borrowings |
21,500 | 12,500 | ||||||
Proceeds from long-term borrowings |
7,350 | 2,000 | ||||||
Repayment of long-term borrowings |
(5,000 | ) | (5,000 | ) | ||||
Payment on capital lease |
(1,655 | ) | (56 | ) | ||||
Proceeds from issuance of common stock |
46 | | ||||||
Proceeds from exercise of options |
8 | 53 | ||||||
Dividends paid |
(1,491 | ) | (1,488 | ) | ||||
|
|
|
|
|||||
Net Cash Provided by (Used in) Financing Activities |
22,431 | (2,044 | ) | |||||
|
|
|
|
|||||
Net Increase (Decrease) in Cash and Cash Equivalents |
7,117 | (9,482 | ) | |||||
Cash and Cash Equivalents - Beginning |
14,580 | 24,062 | ||||||
|
|
|
|
|||||
Cash and Cash Equivalents - Ending |
$ | 21,697 | $ | 14,580 | ||||
|
|
|
|
|||||
Supplemental Disclosures of Cash Flows Information |
||||||||
Cash payments for: |
||||||||
Interest paid |
$ | 1,847 | $ | 2,167 | ||||
|
|
|
|
|||||
Income taxes paid |
$ | 275 | $ | 710 | ||||
|
|
|
|
|||||
Supplemental Schedule of Noncash Investing and Financing Activities |
||||||||
Transfer of loans to foreclosed assets |
$ | 1,171 | $ | 407 | ||||
|
|
|
|
|||||
Premises and equipment acquired through capital lease |
$ | | $ | 1,711 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statement
39
Table of Contents
Note 1 Summary of Significant Accounting Policies
Nature of Operations
Effective November 1, 2013, Riverview and Union Bancorp, Inc. consolidated to form a new Pennsylvania corporation under the name of Riverview Financial Corporation (the consolidation). Effective December 31, 2015, The Citizens National Bank of Meyersdale (Citizens) merged with and into Riverview Bank, with Riverview Bank surviving.
The Companys financial results reflect the consolidation of Riverview and Union with and into Riverview Bank. The combined financial information reflects the impact of the consolidation of Riverviews and Unions combined financial condition under the purchase method of accounting with the Company treated as the acquirer from an accounting standpoint. Under this method, the Company was formed and treated as a recapitalization of Riverview, with Riverviews assets and liabilities recorded at their historical values, and Unions assets and liabilities recorded at their fair values as of the effective date of the consolidation.
The combined financial information also reflects the impact of the merger of Citizens with and into Riverview Bank under the purchase method of accounting with the Company treated as the acquirer from an accounting standpoint. The balance sheet includes the former Union and Citizens assets and liabilities, whereas the income statement for the year ended December 31, 2015 does not include Citizens results of operations since the transaction was consummated on December 31, 2015.
The Bank is a Pennsylvania state chartered bank. The Company and the Bank are subject to regulations of certain state and federal agencies. These regulatory agencies periodically examine the Company and the Bank for adherence to laws and regulations.
The accounting and reporting policies followed by the Company 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 consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank and its operating divisions, Marysville Bank, Halifax Bank, Citizens Neighborhood Bank and Riverview Financial Wealth Management. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company uses the accrual basis of accounting.
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 the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
The Company 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.
40
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
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.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents consist of cash on hand, amounts due from banks, federal funds sold and interest-bearing deposits with the Federal Home Loan Bank and other banks. Generally, federal funds are purchased and sold for one day periods.
Investment Securities
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates the classifications as of each balance sheet date. At December 31, 2015 and 2014, all of the Companys investment securities were classified as available-for-sale.
Investment securities available-for-sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including movements in interest rates, changes in the maturity mix of the Companys assets and liabilities, liquidity needs, credit risk, regulatory considerations and other similar factors. Investment securities available-for-sale are reported at estimated fair value. Unrealized gains and losses are excluded from earnings but are reported as a separate component of shareholders equity, net of deferred taxes. Any realized gains or losses, based on the amortized cost of specific securities sold, are included in current operations.
The estimated fair values of the Companys securities are affected by changes in interest rates and credit spreads. Riverview conducts a periodic review and evaluation of the securities portfolio to determine if any declines in fair values of securities are other-than-temporary. To determine if a decline in value is other-than-temporary, the Company evaluates if it has the intent to sell these securities or if it is more likely than not that it would be required to sell the securities before the anticipated recovery. If such a decline were deemed to be other-than-temporary, the Company would measure the total credit-related component of the unrealized loss, and recognize that portion of the loss as a charge to current period earnings. The remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income. In general, as interest rates rise, the market value of the fixed-rate securities decreases and as interest rates fall, the market value of fixed-rate securities increases.
Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term other-than-temporary is not intended to indicate that the decline in value is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support realizable value equal to or greater than the carrying value of the investment.
Premiums and discounts on securities are amortized and accreted to income using a method that approximates the interest method over the remaining period of contractual maturity, adjusted for anticipated prepayments. Dividend and interest income are recognized when earned.
41
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Mortgage Loans Held for Sale
Mortgage loans originated and held for sale in the secondary market are carried at the lower of cost or
estimated fair value in the aggregate. The Bank entered into an agreement with the Federal Home Loan Mortgage Corporation (Freddie Mac) in 2009 to sell loans with servicing released. This was in addition to the agreement that the Bank entered into in 2008 to sell loans with servicing released under the Federal Home Loan Bank of Pittsburghs (FHLB) Mortgage Partnership Finance program (MPF). Premiums and discounts and origination fees and costs on loans held for sale are deferred and recognized as a component of the gain or loss on sale. Residential loan sales under the Freddie Mac and MPF programs have been made without recourse. Both programs require details of the residential loan in advance of the sale and both have the ability to perform post-closing quality control reviews. If the results of these reviews discover any documentation errors, Freddie Mac and MPF can require the Bank to repurchase the loan.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the principal amount outstanding, net of unearned income, deferred loan fees, and the allowance for loan losses. Interest is accrued on the principal balances outstanding and is credited to income as earned. Loan fees collected net of the costs of originating the loans are deferred and recognized as an adjustment to the yield over the contractual life of the related loan.
The accrual of interest on loans in all loan segments (nonaccrual loans) 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 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 managements 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 the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
An impaired loan is defined as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. Impaired loans are individually assessed to determine that each loans carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows.
As a result of the consolidation with Union, the Bank continues to maintain the fixed rate mortgages that Union sold to the Federal Home Loan Bank of Pittsburgh (FHLB), while retaining servicing rights. The Bank receives servicing fees of approximately 0.25% of the outstanding loan balances. As of December 31, 2015 and 2014, loans serviced for the benefit of others totaled $5,143,000 and $6,602,000, respectively. No loans were sold to the FHLB for the years ended December 31, 2015 and 2014. Servicing assets are not material.
Allowance for Loan Losses
The Bank maintains an allowance for loan losses, which is intended to absorb probable known and inherent losses in the outstanding loan portfolio. The allowance for loan losses is reduced by actual credit losses and is increased by the provision for loan losses and recoveries of previous losses. The provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level considered necessary and adequate by management.
42
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the loan portfolio in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as substandard or doubtful and deemed to be impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. Management determines the unallocated portion, which represents the difference between the reported allowance for loan losses and the calculated allowance for loan losses, based generally on the following criteria:
| risk of imprecision in the specific and general reserve allocations; |
| other potential exposure in the loan portfolio, including covering the risks in the growing book of loans in the Schuylkill, Berks and Somerset County regions; |
| other potential exposure in the acquired Union Bank and Citizens portfolios; |
| variances in managements assessment of national and local economic conditions; and |
| other internal or external factors that management believes are appropriate at the time. |
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 borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 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 loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
In determining the allowance for loan losses, the Bank identifies separate pools with higher loss factors to segregate unimpaired criticized and classified loans from all other unimpaired loans. This more clearly details the risk inherent in the portfolio by refining the pools of assets with similar characteristics.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are calculated principally using the straight-line method for financial reporting and the straight-line and accelerated methods for income tax purposes. When property is retired or disposed, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations. Major additions or replacements are capitalized, while repairs and maintenance are charged to expense as incurred. Interest costs incurred during construction of bank premises are capitalized unless they are determined to be insignificant.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Accrued Interest
Accrued interest is interest that has accumulated over a period of time and has been recognized even though the obligation to receive or pay has not occurred. Accrued interest can either be income, such as the receipt of interest from loans or securities, or it can be an expense, such as the payment of interest on deposits and borrowings.
Restricted Investments in Bank Stocks
Restricted bank stock represents required investments in the common stock of correspondent banks consisting of the Federal Home Loan Bank of Pittsburgh (FHLB) and Atlantic Community Bankers Bank at December 31, 2015 and 2014. Federal Reserve Bank stock was also obtained as a result of the Citizens merger and is included at December 31, 2015. Since these stocks are not actively traded and therefore have no readily determinable market value, they are carried at cost.
Management evaluates restricted stock for impairment in accordance with the accounting standard relating to Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. Managements determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of the cost rather than by recognizing temporary declines in value.
Management believes no impairment charge is necessary related to the restricted stock as of December 31, 2015 and 2014.
Transfers of Financial Assets
Transfers of financial assets, including loans and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Cash Value of Life Insurance
The Bank invests in bank owned life insurance (BOLI) as a source of funding employee benefit expenses. BOLI involves the purchase of life insurance by the Bank on a chosen group of directors and select management of the Bank. The Bank is the owner and beneficiary of the policies. The life insurance investment is carried at the cash surrender value of the underlying policies. These amounts are immediately available to the Bank upon surrender of the policies. Income generated from the increase in the cash surrender value of the policies is included in other income on the income statement.
Foreclosed Assets
Real estate and other foreclosed assets acquired in settlement of loans are recorded at fair value less costs to sell at the date of acquisition, establishing a new cost basis. Subsequent to acquisition, foreclosed assets are carried at the lower of cost or estimated fair value of the property less selling costs. Any write-down, at or prior to the dates the assets are foreclosed, is charged to the allowance for loan losses. Subsequent write-downs and any gains or losses resulting from the sale of foreclosed assets are recorded in other income. Expenses incurred in connection with holding such assets are reported in other expenses. The carrying amount of residential real estate foreclosed and held at December 31, 2015 was $143,983. The recorded investment in consumer mortgage loans where foreclosure was in process at December 31, 2015 was $442,366.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the tangible and identifiable intangible assets acquired. Under generally accepted accounting principles, business acquisition goodwill is not amortized into the income statement over an estimated life, but rather is tested at least annually for impairment. Based upon the goodwill analysis performed by an independent third party, there was no goodwill impairment for the 2015 or 2014 year ends.
Intangible Assets
Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. The Banks intangible assets consist of core deposit intangibles, which have a finite life and are amortized over their estimated useful life. A customer list intangible is also included in intangible assets as a result of the purchase of the wealth management company. This intangible is amortized as an expense over ten years using the sum of the years amortization method. Intangible assets are also subject to impairment testing when an indication of impairment exists.
Federal Income Taxes
The provision for income taxes is based on income as reported in the financial statements. Certain items of income and expense are recognized in different periods for financial reporting purposes than for federal income tax purposes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between book and tax basis of the various balance sheet assets and liabilities given current recognition to changes in tax rates and laws. Deferred tax assets must be reduced by a valuation allowance if it is more likely than not that some portion of the asset will not be realized based on projections of future taxable income and management judgment. This evaluation may change if material changes in business, tax legislation or other factors warrant such a change. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for applicable income taxes.
Advertising
Advertising costs are expensed as incurred and totaled $129,000 and $98,000 for the years ending December 31, 2015 and 2014, respectively.
Earnings Per Common Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. For diluted earnings per share, net income is divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents. The Companys common stock equivalents consist of outstanding common stock options, which amounted to 344,250 and 322,200 options as of the 2015 and 2014 year-ends. At December 31, 2015 and 2014 there was intrinsic value associated with the outstanding options because the exercise prices for the options were higher than the trading price of the stock.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The following table presents the amounts used in computing earnings per share for the years ended December 31, 2015 and 2014.
Income Numerator |
Common Shares Denominator |
EPS | ||||||||||
(In thousands, except share data) | ||||||||||||
2015: |
||||||||||||
Basic EPS |
($ | 754 | ) | 2,710,558 | ($ | 0.28 | ) | |||||
Dilutive effect of potential common stock options |
8,510 | |||||||||||
|
|
|
|
|
|
|||||||
Diluted EPS |
($ | 754 | ) | 2,719,068 | ($ | 0.28 | ) | |||||
|
|
|
|
|
|
|||||||
2014: |
||||||||||||
Basic EPS |
$ | 2,721 | 2,705,675 | $ | 1.01 | |||||||
Dilutive effect of potential common stock options |
| 10,199 | | |||||||||
|
|
|
|
|
|
|||||||
Diluted EPS |
$ | 2,721 | 2,715,874 | $ | 1.00 | |||||||
|
|
|
|
|
|
Off Balance Sheet Financial Instruments
In the ordinary course of business, the Company has entered into off balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.
Segment Reporting
The Company operates in a single business segment consisting of traditional banking activities.
Comprehensive Income
Comprehensive income is divided into net income and other comprehensive income. The components of the Companys other comprehensive income are unrealized gains and losses on securities available for sale and losses associated with the defined benefit postretirement plan. Comprehensive income is presented in the Statements of Comprehensive Income.
The following tables illustrate the disclosure of changes in the balances of each component of accumulated other comprehensive income at December 31:
2015 | ||||||||||||
(In thousands) | Unrealized Gains and Losses on Available-for- Sale |
Defined Benefit Pension Items |
Total | |||||||||
Beginning balance |
$ | 477 | ($ | 342 | ) | $ | 135 | |||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) before reclassifications |
(41 | ) | (344 | ) | (385 | ) | ||||||
Amounts reclassified from accumulated other
comprehensive |
17 | | 17 | |||||||||
Tax effect of current period changes(2) |
8 | 117 | 125 | |||||||||
|
|
|
|
|
|
|||||||
Net current-period other comprehensive income (loss) |
(16 | ) | (227 | ) | (243 | ) | ||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 461 | ($ | 569 | ) | ($ | 108 | ) | ||||
|
|
|
|
|
|
(1) | Included in gain (loss) on sale of available for sale securities on the Consolidated Statements of Income. |
(2) | $(6,000) included in tax expense (benefit) on the Consolidated Statements of Income, and the remainder is included in Accumulated Other Comprehensive Income. |
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
2014 | ||||||||||||
Unrealized Gains and Losses on Available-for- Sale |
Defined Benefit Pension Items |
Total | ||||||||||
Beginning balance |
($ | 544 | ) | $ | 9 | ($ | 535 | ) | ||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) before reclassifications |
2,010 | (532 | ) | 1,478 | ||||||||
Amounts reclassified from accumulated other comprehensive loss(1) |
(463 | ) | | (463 | ) | |||||||
Tax effect of current period changes(2) |
(526 | ) | 181 | (345 | ) | |||||||
|
|
|
|
|
|
|||||||
Net current-period other comprehensive income (loss) |
1,021 | (351 | ) | 670 | ||||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 477 | ($ | 342 | ) | $ | 135 | |||||
|
|
|
|
|
|
(1) | Included in gain (loss) on sale of available for sale securities on the Consolidated Statements of Income. |
(2) | $158,000 included in tax expense (benefit) on the Consolidated Statements of Income, and the remainder is included in Accumulated Other Comprehensive Income. |
Reclassifications
For purposes of comparability, certain prior period amounts may have been reclassified to conform with the 2015 presentation. Such reclassifications had no impact on net income.
New Accounting Standards
In June 2014, the FASB issued ASC Update 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASC Update 2014-12 clarifies guidance related to accounting for share-based payment awards with terms that allow an employees award to vest regardless of whether the employee is rendering service on the date a performance target is achieved. ASC Update 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASC Update 2014-12 is effective for public business entities interim and annual reporting periods beginning after December 15, 2015, with earlier adoption permitted. The adoption of ASC Update 2014-12 is not expected to have a material impact on the Companys consolidated financial statements.
In August 2014, the FASB issued ASC Update 2014-15, Presentation of Financial Statements Going Concern. ASC Update 2014-15 provides guidance regarding managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related disclosures. The standards update describes how an entitys management should assess whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entitys ability to continue as a going concern within one year after the date that the financial statements are issued. ASC Update 2014-15 is effective for public business entities annual reporting periods ending after December 15, 2016, with earlier adoption permitted. The adoption of ASC Update 2014-15 is not expected to have a material impact on the Companys consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The amendments in this ASU eliminate from GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for
47
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have a material impact on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The amendments in this ASU are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE) and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. The Company does not expect the adoption of ASU 2015-02 to have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customers Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customers accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendments in this ASU are effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. The Company is currently assessing the impact that ASU 2015-05 will have on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965) 1. Fully Benefit -Responsive Investment Contracts, 2. Plan Investment Disclosures, and 3. Measurement Date Practical Expedient. The amendments within this ASU are in 3 parts. Among other things, Part 1 amendments designate contract value as the only required measure for fully benefit-responsive investment contracts; Part II amendments eliminate the requirement that plans disclose: (a) individual investments that represent 5 percent or more of net assets available for benefits; and (b) the net appreciation or depreciation for investments by general type requirements for both participant-directed investments and nonparticipant-directed investments. Part III amendments provide a practical expedient to permit plans to measure investments and investment- related accounts (e.g., a liability for a pending trade with a broker) as of a month-end date that is closest to the plans fiscal year-end, when the fiscal period does not coincide with month-end. The amendments in Parts 1 and 2 of this ASU are effective on a retrospective basis and Part 3 is effective on a prospective basis, for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of ASU 2015-12 to have a material impact on its consolidated financial statements.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU 2014-09. The Company is currently assessing the impact that ASU 2015-14 (or ASU 2014-09) will have on its consolidated financial statements.
In August 2015, the FASB issued ASU 2015-15, Interest Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting). On April 7, 2015, the FASB issued ASU 2015-03, InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in ASU 2015-03 (see paragraph 835-30-45-1A) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line- of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 adds these SEC comments to the S section of the Codification. The Company does not expect the adoption of ASU 2015-15 to have a material impact on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company does not expect the adoption of ASU 2015-16 to have a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in ASU
49
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
2016-01, among other things: (1) Requires equity investments (expect those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (3) Requires separate presentation of financial assets and liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); and (4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact that ASU 2016-01 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.
Note 2 Business Combination
Riverview and Citizens entered into an Agreement and Plan of Merger, dated October 30, 2014, pursuant to which Citizens merged with and into Riverview Bank, with Riverview Bank surviving, effective December 31, 2015.
In the Merger, each share of Citizens common stock that was outstanding was converted into either (1) $38.46 in cash or 2.9586 shares of Riverview common stock, at the election of each Citizens shareholder, subject to proration in order to ensure that no more than 20% of the outstanding Citizens shares are converted into cash consideration. In accordance with the Merger Agreement, the Company issued a total of 492,178 shares. The shareholders of Citizens did not recognize gain or loss for federal income tax purposes on the shares that were exchanged for the Companys common stock in the Merger.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the effective date of the consolidation. This transaction was accounted for using the purchase method of accounting in accordance with ASC 805, Business Combinations. Accordingly the purchase price was allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values as of the effective date of the consolidation.
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Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
(In thousands) | Acquired on December 31, 2015 |
|||
Assets: |
||||
Cash and cash equivalents |
$ | 6,190 | ||
Investment securities |
18,285 | |||
Net loans |
57,862 | |||
Bank premises and equipment |
527 | |||
Other assets (including goodwill of $2,460) |
8,738 | |||
|
|
|||
Total assets |
$ | 91,602 | ||
|
|
|||
Liabilities: |
||||
Noninterest-bearing deposits |
$ | 9,765 | ||
Interest-bearing deposits |
64,641 | |||
FHLB borrowings |
8,575 | |||
Other liabilities |
519 | |||
|
|
|||
Total liabilities |
83,500 | |||
|
|
|||
Net assets acquired |
$ | 8,102 | ||
|
|
The excess of purchase price over the fair value of net assets acquired is recorded as goodwill.
The following table provides the calculation of the goodwill (dollars in thousands, except per share data):
Purchase Price: |
||||||||||
Purchase Price Consideration in Common Stock |
||||||||||
Citizens outstanding to be exchanged |
166,400 | shares | ||||||||
Exchange ratio |
2.9586 | |||||||||
|
|
|||||||||
Riverview common stock issued |
492,178 | shares | ||||||||
Fair market value of Riverview common share |
$ | 13.20 | ||||||||
Purchase price assigned to shares exchanged for stock |
$ | 6,497 | ||||||||
Citizens common shares converted to cash |
41,600 | shares | ||||||||
Per share value assigned to Citizens shares converted to cash consideration |
$ | 38.46 | ||||||||
|
|
|||||||||
Purchase price assigned to each Citizens common share exchanged for cash |
1,605 | |||||||||
|
|
|||||||||
Total Purchase Price |
$ | 8,102 | ||||||||
Net Assets Acquired: |
||||||||||
Citizens common shareholders equity |
$ | 6,297 | ||||||||
Increase (decrease) to reflect assets acquired at fair value: |
||||||||||
Investments |
(22 | ) | ||||||||
Loans: |
||||||||||
Impaired loan credit mark |
(165 | ) | ||||||||
Non-impaired loan credit mark and yield adjustment |
(159 | ) | ||||||||
Deferred fees/costs |
(366 | ) | ||||||||
Allowance for loan losses |
568 | |||||||||
Core deposit intangible |
389 | |||||||||
Premises and equipment |
(411 | ) | ||||||||
Deferred tax assets |
295 | |||||||||
Decrease to reflect liabilities acquired at fair value: |
||||||||||
Time deposits |
(784 | ) | ||||||||
|
|
|||||||||
5,642 | ||||||||||
|
|
|||||||||
Goodwill resulting from the merger |
$ | 2,460 | ||||||||
|
|
The fair value of certain assets and certain liabilities were based on quoted prices from reliable market sources. When quoted market prices were not available, the estimated fair values were based upon the best information available, including, obtaining prices for similar assets and liabilities, and the results of using other valuation techniques. The prominent other valuation techniques used were the present value technique and appraisal/third party valuations. When the present value technique was employed, the
51
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
associated cash flow estimates incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company assumed the historical book value of certain assets and liabilities represented a reasonable proxy for fair value. The Company determined that there were no other categories of identifiable intangible assets arising from the Citizens merger other than the core deposit intangible. No goodwill is expected to be deductible for tax purposes.
The following presents the unaudited pro forma consolidated results of operations of the Company for the years ended December 31, 2015 and 2014 as though Citizens merged with Riverview Bank on January 1st. The information is for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies if they actually completed the merger at the beginning of the period presented, nor does it indicate future results for any other interim or full year period. The proforma earnings per share were calculated using the Companys actual weighted average shares outstanding for the period presented.
(In thousands, except per share data) | 2015 | 2014 | ||||||
Total revenues, net of interest expense |
$ | 19,382 | $ | 20,521 | ||||
|
|
|
|
|||||
Net income (loss) |
($ | 895 | ) | 2,334 | ||||
|
|
|
|
|||||
Basic and dilutive earnings per share |
($ | 0.28 | ) | $ | 0.73 | |||
|
|
|
|
The pro forma net income amount for the year ended 2015, includes pre-tax expenses of $448,000 associated with the merger. Net loss of Citizens that is included in the pro forma consolidated net income (loss) is ($141,000) for the year ended December 31, 2015 and ($387,000) for the year ended December 31, 2014.
Note 3 Restriction on Cash and Due from Banks
The Bank is required to maintain average reserve balances in cash or on deposit with the Federal Reserve Bank. The required reserve at December 31, 2015 and 2014 was approximated at $9,324,000 and $8,805,000, respectively. In addition, the Banks other correspondents may require average compensating balances as part of their agreements to provide services. The Bank maintains balances with its correspondent banks that may exceed federal insured limits, which management considers to be a normal business risk.
Note 4 Investment Securities Available-for-Sale
The amortized cost and estimated fair values of investment securities available-for-sale are reflected in the following schedules at December 31, 2015 and 2014:
2015 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(In thousands) | ||||||||||||||||
U.S. Treasuries |
$ | 103 | $ | | $ | | $ | 103 | ||||||||
U.S. Government agency securities |
4,708 | 29 | | 4,737 | ||||||||||||
State and municipal |
34,197 | 587 | 14 | 34,770 | ||||||||||||
U.S. Government agencies and sponsored enterprises (GSEs) residential: |
||||||||||||||||
Mortgage-backed securities |
25,942 | 116 | 35 | 26,023 | ||||||||||||
Collateralized mortgage obligations (CMOs) |
1,741 | 35 | 3 | 1,773 | ||||||||||||
Corporate debt obligations |
7,989 | 17 | 62 | 7,945 | ||||||||||||
Equity securities, financial services |
471 | 31 | 2 | 499 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 75,151 | $ | 815 | $ | 116 | $ | 75,850 | |||||||||
|
|
|
|
|
|
|
|
52
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
2014 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
(In thousands) | ||||||||||||||||
U.S. Government agency securities |
$ | 798 | $ | 20 | $ | 1 | $ | 817 | ||||||||
State and municipal |
23,296 | 474 | 62 | 23,708 | ||||||||||||
U.S. Government agencies and sponsored enterprises (GSEs) residential: |
||||||||||||||||
Mortgage-backed securities |
20,676 | 229 | 3 | 20,902 | ||||||||||||
Collateralized mortgage obligations (CMOs) |
2,364 | 28 | 1 | 2,391 | ||||||||||||
Corporate debt obligations |
489 | 16 | | 505 | ||||||||||||
Equity securities, financial services |
471 | 24 | | 495 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 48,094 | $ | 791 | $ | 67 | $ | 48,818 | |||||||||
|
|
|
|
|
|
|
|
The amortized cost and fair value of debt securities available-for-sale at December 31, 2015, 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 |
$ | 103 | $ | 103 | ||||
Due after one year through five years |
3,232 | 3,272 | ||||||
Due after five years through ten years |
19,612 | 19,810 | ||||||
Due after ten years |
24,050 | 24,370 | ||||||
|
|
|
|
|||||
46,997 | 47,555 | |||||||
|
|
|
|
|||||
Mortgage-backed securities |
25,942 | 26,023 | ||||||
CMOs |
1,741 | 1,773 | ||||||
Equity securities, financial services |
471 | 499 | ||||||
|
|
|
|
|||||
28,154 | 28,295 | |||||||
|
|
|
|
|||||
$ | 75,151 | $ | 75,850 | |||||
|
|
|
|
Securities with an amortized cost of $52,384,000 and $47,084,000 and a fair value of $53,039,000 and $47,768,000 at December 31, 2015 and 2014, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.
Information pertaining to securities with gross unrealized losses at December 31, 2015 and 2014 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) | ||||||||||||||||||||||||
December 31, 2015: |
||||||||||||||||||||||||
Available-for-sale: |
||||||||||||||||||||||||
State and municipal |
$ | | $ | | $ | 652 | $ | 14 | $ | 652 | $ | 14 | ||||||||||||
Mortgage-backed securities |
9,513 | 35 | | | 9,513 | 35 | ||||||||||||||||||
Collateralized mortgage obligations (CMOs) |
725 | 3 | | | 725 | 3 | ||||||||||||||||||
Corporate debt obligations |
3,937 | 62 | | | 3,937 | 62 | ||||||||||||||||||
Equity securities, financial services |
164 | 2 | | | 164 | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 14,339 | $ | 102 | $ | 652 | $ | 14 | $ | 14,991 | $ | 116 | |||||||||||||
|
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|
|
|
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|
|
|
|
|
53
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Less Than 12 Months | More Than 12 Months | Total | ||||||||||||||||||||||
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
|||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
December 31, 2014: |
||||||||||||||||||||||||
Available-for-sale: |
||||||||||||||||||||||||
U.S. Government agency securities |
$ | 49 | $ | 1 | $ | | $ | | $ | 49 | $ | 1 | ||||||||||||
State and municipal |
2,034 | 5 | 3,455 | 57 | 5,489 | 62 | ||||||||||||||||||
Mortgage-backed securities |
3,699 | 3 | | | 3,699 | 3 | ||||||||||||||||||
Collateralized mortgage obligations (CMOs) |
423 | 1 | 100 | | 523 | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 6,205 | $ | 10 | $ | 3,555 | $ | 57 | $ | 9,760 | $ | 67 | |||||||||||||
|
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|
|
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|
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|
|
Management evaluates securities for other-than-temporary impairment on, at least a quarterly basis. It is managements 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 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 December 31, 2015, sixteen securities had unrealized losses as compared with sixteen securities at December 31, 2014. Management believes the unrealized losses relate to changes in interest rates since the individual securities were purchased as opposed to underlying credit issues. Because 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 did not sell any securities during 2015 as compared with twenty available for sale securities that were sold during 2014, totaling $10,179,000. Although no securities were sold during 2015, gross realized gains of $29,000 and gross realized losses of $46,000, resulting in a net loss of $17,000 was recorded as a result of adjustments associated with securities that were called. By comparison, in 2014 the Bank had gross realized gains of $506,000 and gross realized losses of $43,000, resulting in a $463,000 net gain from sales.
Note 5 Loans Receivable, Credit Quality for Loans and the Allowance for Loan Losses
The Bank takes a balanced approach to its lending activities and manages risk associated with its loan portfolio by maintaining diversification within the portfolio, consistently applying prudent underwriting standards, engaging in ongoing monitoring efforts with attention to portfolio dynamics and mix, and using 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 loan turndown undergoes an audit review for conformity with established policies and compliance with current regulatory lending laws. The Bank has not lowered its loan underwriting criteria, and management believes its standards continue to remain conservative. All of the Banks loans are to domestic borrowers.
The Banks 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
54
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
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, each of 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 also evaluated for loan participations bought and loans generated by the branches and commercial offices in Schuylkill, Berks and Somerset counties, which are newer market areas adjacent to the Banks original geographic footprint. In addition, there are evaluations for the acquired Union Bank portfolio.
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.
The Bank, in the ordinary course of business, has loan, deposit and other routine transactions with its executive officers, directors and entities in which they have principal ownership. Loans are made to such related parties at substantially the same terms as other borrowers and do not represent more than the usual risk of collection or present other unfavorable features.
Activity for these related party loans was as follows for the year ended December 31, 2015 (in thousands):
Balance January 1 |
$ | 6,596 | ||
Advances |
6,164 | |||
Payments |
(3,152 | ) | ||
New director and executive officers |
270 | |||
|
|
|||
Balance December 31 |
$ | 9,878 | ||
|
|
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 managements 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.
55
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The following table presents an aging of loans receivable by loan portfolio segments as of December 31, 2015 and December 31, 2014, 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 |
|||||||||||||||||||||
December 31, 2015: |
||||||||||||||||||||||||||||
Commercial |
$ | 34 | $ | | $ | 1,007 | $ | 1,041 | $ | 45,035 | $ | 46,076 | $ | | ||||||||||||||
Commercial real estate: |
||||||||||||||||||||||||||||
Non-owner occupied |
| | 24 | 24 | 110,431 | 110,455 | | |||||||||||||||||||||
Owner occupied |
172 | 447 | 270 | 889 | 68,758 | 69,647 | | |||||||||||||||||||||
1-4 family investment |
131 | | 265 | 396 | 25,002 | 25,398 | | |||||||||||||||||||||
Commercial land and land development |
| 250 | | 250 | 18,349 | 18,599 | | |||||||||||||||||||||
Residential real estate |
1,163 | 1,025 | 595 | 2,783 | 114,886 | 117,669 | 89 | |||||||||||||||||||||
Home equity lines of credit |
46 | 412 | 36 | 494 | 16,943 | 17,437 | | |||||||||||||||||||||
Consumer |
10 | | 1 | 11 | 4,553 | 4,564 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 1,556 | $ | 2,134 | $ | 2,198 | $ | 5,888 | $ | 403,957 | $ | 409,845 | $ | 89 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2014: |
||||||||||||||||||||||||||||
Commercial |
$ | 24 | $ | 41 | $ | 364 | $ | 429 | $ | 36,872 | $ | 37,301 | $ | | ||||||||||||||
Commercial real estate: |
||||||||||||||||||||||||||||
Non-owner occupied |
15 | 5,426 | 162 | 5,603 | 97,823 | 103,426 | | |||||||||||||||||||||
Owner occupied |
621 | | 758 | 1,379 | 70,178 | 71,557 | 294 | |||||||||||||||||||||
1-4 family investment |
| 515 | 446 | 961 | 23,838 | 24,799 | 132 | |||||||||||||||||||||
Commercial land and land development |
16 | | 215 | 231 | 11,210 | 11,441 | | |||||||||||||||||||||
Residential real estate |
739 | 425 | 1,805 | 2,969 | 70,484 | 73,453 | 214 | |||||||||||||||||||||
Home equity lines of credit |
103 | 59 | 436 | 598 | 17,637 | 18,235 | | |||||||||||||||||||||
Consumer |
6 | 5 | 3 | 14 | 2,467 | 2,481 | 3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 1,524 | $ | 6,471 | $ | 4,189 | $ | 12,184 | $ | 330,509 | $ | 342,693 | $ | 643 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
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|
|
Loan balances above include net deferred loan fees of $764,000 and $716,000 at December 31, 2015 and 2014, respectively.
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 $3,182,000 and $4,245,000 at December 31, 2015 and December 31, 2014, respectively. If the nonaccrual loans had performed in accordance with their original terms, interest income would have increased by $159,000 for the twelve months ended December 31, 2015 and $342,000 for the twelve months ended December 31, 2014, respectively.
The following presents loans by loan portfolio segments that were on a nonaccrual status as of December 31, 2015 and December 31, 2014:
(In thousands) | December 31, 2015 |
December 31, 2014 |
||||||
Commercial |
$ | 1,143 | $ | 515 | ||||
Commercial real estate: |
||||||||
Non-owner occupied |
24 | 162 | ||||||
Owner occupied |
766 | 701 | ||||||
1-4 family investment |
328 | 384 | ||||||
Commercial land and land development |
0 | 215 | ||||||
Residential real estate |
885 | 1,735 | ||||||
Home equity lines of credit |
36 | 533 | ||||||
|
|
|
|
|||||
Total |
$ | 3,182 | $ | 4,245 | ||||
|
|
|
|
56
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
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 borrowers 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 loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. When the measure of an impaired loan results 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 as of December 31, 2015 and December 31, 2014:
(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, 2015: |
||||||||||||||||||||
Loans with no related allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 994 | $ | 994 | $ | | $ | 1,018 | $ | 28 | ||||||||||
Commercial real estate: |
||||||||||||||||||||
Non-owner occupied |
2,163 | 2,163 | | 2,178 | 78 | |||||||||||||||
Owner occupied |
1,462 | 1,462 | | 999 | 100 | |||||||||||||||
1-4 family investment |
879 | 879 | | 892 | 29 | |||||||||||||||
Residential real estate |
2,526 | 2,644 | | 2,325 | 122 | |||||||||||||||
Home equity lines of credit |
400 | 400 | | 445 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
8,424 | 8,562 | | 7,857 | 368 | ||||||||||||||||
Loans with an allowance recorded: |
||||||||||||||||||||
Commercial |
793 | 1,193 | 700 | 663 | 21 | |||||||||||||||
Commercial real estate: |
||||||||||||||||||||
Non-owner occupied |
24 | 155 | 1 | 8 | 4 | |||||||||||||||
1-4 family investment |
186 | 193 | 7 | 190 | | |||||||||||||||
Residential real estate |
121 | 121 | 7 | 123 | 5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,124 | 1,662 | 715 | 984 | 30 | ||||||||||||||||
Total |
||||||||||||||||||||
Commercial |
1,787 | 2,187 | 700 | 1,681 | 49 | |||||||||||||||
Commercial real estate: |
||||||||||||||||||||
Non-owner occupied |
2,187 | 2,318 | 1 | 2,186 | 82 | |||||||||||||||
Owner occupied |
1,462 | 1,462 | | 999 | 100 | |||||||||||||||
1-4 family investment |
1,065 | 1,072 | 7 | 1,082 | 29 | |||||||||||||||
Residential real estate |
2,647 | 2,785 | 7 | 2,448 | 127 | |||||||||||||||
Home equity lines of credit |
400 | 400 | | 445 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 9,548 | $ | 10,224 | $ | 715 | $ | 8,841 | $ | 398 | |||||||||||
|
|
|
|
|
|
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|
|
|
57
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
(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, 2014: |
||||||||||||||||||||
Loans with no related allowance recorded: |
||||||||||||||||||||
Commercial |
$ | 1,193 | $ | 1,193 | $ | | 1,213 | 32 | ||||||||||||
Commercial real estate: |
||||||||||||||||||||
Non-owner occupied |
1,893 | 1,893 | 1,904 | 69 | ||||||||||||||||
Owner occupied |
904 | 904 | | 922 | 61 | |||||||||||||||
1-4 family investment |
857 | 857 | | 1,057 | 28 | |||||||||||||||
Commercial land and land development |
215 | 215 | | 215 | | |||||||||||||||
Residential real estate |
1,834 | 1,834 | | 1,892 | 82 | |||||||||||||||
Home equity lines of credit |
774 | 774 | | 791 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
7,670 | 7,670 | | 7,994 | 283 | ||||||||||||||||
Loans with an allowance recorded: |
||||||||||||||||||||
Commercial |
| | | | | |||||||||||||||
Commercial real estate: |
||||||||||||||||||||
Non-owner occupied |
141 | 141 | 50 | 144 | 2 | |||||||||||||||
Owner occupied |
282 | 282 | 22 | 316 | | |||||||||||||||
1-4 family investment |
191 | 191 | 5 | 194 | | |||||||||||||||
Commercial land and land development |
| | | | | |||||||||||||||
Residential real estate |
124 | 124 | 5 | 126 | 5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer |
738 | 738 | 82 | 780 | 7 | |||||||||||||||
Total |
||||||||||||||||||||
Commercial |
1,193 | 1,193 | | 1,213 | 32 | |||||||||||||||
Commercial real estate: |
||||||||||||||||||||
Non-owner occupied |
2,034 | 2,034 | 50 | 2,048 | 71 | |||||||||||||||
Owner occupied |
1,186 | 1,186 | 22 | 1,238 | 61 | |||||||||||||||
1-4 family investment |
1,048 | 1,048 | 5 | 1,251 | 28 | |||||||||||||||
Commercial land and land development |
215 | 215 | | 215 | | |||||||||||||||
Residential real estate |
1,958 | 1,958 | 5 | 2,018 | 87 | |||||||||||||||
Home equity lines of credit |
774 | 774 | | 791 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 8,408 | $ | 8,408 | $ | 82 | 8,774 | 290 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
The recorded investment in impaired loans increased by $1,816,000 at December 31, 2015 as compared to December 31, 2014. This increase resulted primarily from the impairment of one large commercial loan totaling $1,192,000, of which $400,000 was charged off, and a related commercial real estate loan totaling $270,000 in the owner occupied segment.
Impaired loans also include all loans modified and identified as troubled debt restructurings (TDRs). A loan is deemed to be a TDR when the Bank agrees to a modification to the terms of a loan resulting in a concession made by the Bank in an effort to mitigate potential loss arising from a borrowers financial difficulty. As of December 31, 2015, there were 32 restructured loans totaling $7,083,000 with 26 separate and unrelated borrowers who were experiencing financial difficulty. The modifications on these loans included reductions in interest rates, extension of maturity dates, lengthening of amortization schedules and provisions for interest only payments. There are no commitments to extend additional funds to any of these borrowers. At December 31, 2014, there were 22 restructured loans totaling $6,596,000 with 15 separate and unrelated borrowers.
58
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The following tables present the number of loans and recorded investment in loans restructured and identified as troubled debt restructurings for the twelve months ended December 31, 2015 and 2014, as well as the number and recorded investment in these loans that subsequently defaulted. Defaulted loans are those which are 30 days or more past due for payment under the modified terms.
(In thousands, except contracts data) | Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
|||||||||
December 31, 2015: |
||||||||||||
Troubled Debt Restructurings: |
||||||||||||
Commercial real estate: |
||||||||||||
Owner occupied |
1 | $ | 147 | $ | 147 | |||||||
Residential real estate |
3 | 483 | 483 | |||||||||
Number of Contracts |
Recorded Investment | |||||||||||
Troubled Debt Restructurings |
||||||||||||
That Subsequently Defaulted: |
||||||||||||
Commercial real estate: |
||||||||||||
Owner occupied |
1 | $ | 147 | |||||||||
Residential real estate |
1 | 10 | ||||||||||
(In thousands, except contracts data) | Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
|||||||||
December 31, 2014: |
||||||||||||
Troubled Debt Restructurings: |
||||||||||||
Commercial real estate: |
||||||||||||
1-4 family investment |
1 | $ | 81 | $ | 81 |
There were no troubled debt restructurings from 2014 that subsequently defaulted.
Allowance for Loan Losses
The allowance for loan losses is composed of individual valuation allowances deemed necessary to absorb probable and quantifiable losses based upon current knowledge of the loan portfolio, and loan pool valuation allowances, allocated and unallocated, deemed necessary to absorb losses which are not specifically identified but are inherent in the portfolio. Management evaluates the adequacy of the allowance on a quarterly basis. If the allowance for loan losses is not sufficient to cover actual loan losses, the Banks earnings may be reduced.
Individual valuation allowances are established in connection with specific loan reviews and the asset classification process including the procedures for impairment testing. Such a valuation, which includes a review of loans for which full collectability in accordance with contractual terms is not reasonably assured, considers the estimated fair value of the underlying collateral less the costs to sell, or the present value of expected future cash flows, or the loans observable market value. Any shortfall revealed by this analysis results in a specific allowance for the loan. Pursuant to policy, loan losses must be charged off in the period the loans, or portions thereof, are deemed uncollectible. Assumptions and judgments by management in conjunction with outside sources are used to determine whether full collectability of a loan is not reasonably assured. These assumptions and judgments are also used to determine the estimates of the fair value of the underlying collateral or the present value of expected future cash flows or the loans observable market value. Individual valuation allowances could differ materially as a result of changes in these assumptions and judgments. Individual loan analyses are performed quarterly on specific loans considered to be impaired. The results of the individual valuation allowances are aggregated and included in the overall allowance for loan losses.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with the Banks lending activity, but which, unlike individual allowances, have been allocated to unimpaired loans within the following 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. Each of 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 also separately evaluated for loan participations bought, and for loans generated by the branches and commercial offices in Schuylkill, Berks and Somerset counties, which are newer market areas adjacent to the Banks original geographic footprint. In addition, there are evaluations performed for the acquired Union Bank portfolio.
The Bank measures estimated credit losses on each of these groups of loans based on the historical loss rate of each group. The historical loss rate is calculated based on the average annualized net charge-offs over the most recent eight calendar quarters with separate calculations performed for historical Riverview losses and the acquired Union Bank portfolio.
Loss factors are ascribed to loan segments based on the relative risk in each segment as indicated by historical loss ratios, the level of criticized/classified assets, and the nature of each segment in terms of collateral and inherent risk of the loan type. Management believes that historical losses or even recent trends in losses do not form a sufficient basis to determine the appropriate level for the allowance. Management therefore also considers the following qualitative factors that are likely to cause estimated credit losses associated with each of the portfolio segments to differ from historical loss experience:
| Changes in lending policies and procedures, including changes in underwriting standards; |
| Changes in national, regional and local economic and business conditions and developments that affect the collectability of the portfolio; |
| Changes in the nature and volume of the portfolio and in the terms of loans; |
| Changes in the experience, ability and depth of lending management and other relevant staff; |
| Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified loans; |
| Changes in the quality of the Banks loan review system; |
| The existence and effect of any concentrations of credit, and the changes in the level of such concentrations; and |
| The effect of other external factors such as competition and legal and regulatory requirements in the level of estimated credit losses in the existing portfolio. |
Each portfolio segment is examined quarterly with regard to the impact of each of these factors on the quality and risk profile of the pool, and adjustments ranging from zero to fifty basis points per factor are calculated. The sum of these qualitative factor adjustments are added to the historical loss ratio for each segment, and the resulting percentage is applied to the loan balance of the segment to arrive at the required loan pool valuation allowance. An unallocated valuation allowance estimate is also made. Management determines the unallocated portion, which represents the difference between the reported allowance for loan losses and the calculated allowance for loan losses, based generally on the following criteria:
| risk of imprecision in the specific and general reserve allocations; |
| other potential exposure in the loan portfolio, including covering the risks in the growing book of loans in the Schuylkill, Berks and Somerset County regions; |
| other potential exposure in the acquired Union Bank and Citizens portfolios; |
| variances in managements assessment of national and local economic conditions; and |
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
| other internal or external factors that management believes appropriate at the time. |
The loan pool valuation allowance for each segment along with the unallocated valuation allowance is totaled and added to the individual valuation allowance for impaired loans to arrive at the total allowance for loan losses.
These evaluations are inherently subjective because even though they are based on objective data, it is managements interpretation of the data that determines the amount of the appropriate allowance. If the evaluations prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the loan portfolio resulting in additions to the allowance for loan losses and a reduction in Bank earnings.
Loan Charge Offs
Charge offs of commercial and industrial loans and commercial real estate and construction loans are recorded promptly upon determination that all or a portion of any loan balance is uncollectible. A loan is considered uncollectible when the borrower is 90 days or more delinquent in principal or interest repayment and the following conditions exist:
| It is unlikely that the borrower will have the ability to pay the debt in a timely manner; |
| Collateral value is insufficient to cover the outstanding indebtedness; and |
| Guarantors do not provide adequate support. |
All unsecured consumer loans are charged-off when they become 120 days delinquent or when it is determined that the debt is uncollectible. Overdrafts are charged off when it is determined recovery is not likely or the overdraft becomes 45 days old, whichever comes first.
All secured consumer loans, except those secured by a primary or secondary residences, are charged off when they become 120 days delinquent, or when it is determined that the debt is uncollectible.
Uncollateralized portions of residential real estate loans and consumer loans secured by real estate are charged off no later than when they are180 days past due. Current appraisals are obtained to determine the appropriate carrying balance with any exposed portion of the loan principal balance being charged off.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The allowance for loan losses is presented by loan portfolio segments with the outstanding balances of loans for the years ended December 31, 2015 and 2014 as follows:
Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | Commercial | Non-Owner Occupied |
Owner Occupied |
1-4 Family Investment |
Commercial Land and Land Development |
Residential Real Estate |
Home Equity Lines of Credit |
Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||
Allowance for Loan Losses as of December 31, 2015: |
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Beginning balance |
$ | 330 | $ | 1,380 | $ | 713 | $ | 369 | $ | 115 | $ | 701 | $ | 104 | $ | 15 | $ | 65 | $ | 3,792 | ||||||||||||||||||||
Charge-offs |
650 | 130 | 39 | 18 | | 26 | 34 | 35 | | 932 | ||||||||||||||||||||||||||||||
Recoveries |
8 | | 19 | | | | | 6 | | 33 | ||||||||||||||||||||||||||||||
Provision |
1,610 | 122 | (141 | ) | (48 | ) | 87 | (155 | ) | 23 | 39 | (65 | ) | 1,472 | ||||||||||||||||||||||||||
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Ending balance |
$ | 1,298 | $ | 1,372 | $ | 552 | $ | 303 | $ | 202 | $ | 520 | $ | 93 | $ | 25 | $ | | $ | 4,365 | ||||||||||||||||||||
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Ending balance: individually evaluated for impairment |
$ | 700 | $ | 1 | $ | | $ | 7 | $ | | $ | 7 | $ | | $ | | $ | 715 | ||||||||||||||||||||||
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Ending balance: collectively evaluated for impairment |
$ | 598 | $ | 1,371 | $ | 552 | $ | 296 | $ | 202 | $ | 513 | $ | 93 | $ | 25 | $ | 3,650 | ||||||||||||||||||||||
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Loans as of |
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Ending balance |
$ | 46,076 | $ | 110,455 | $ | 69,647 | $ | 25,398 | $ | 18,599 | $ | 117,669 | $ | 17,437 | $ | 4,564 | $ | 409,845 | ||||||||||||||||||||||
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Ending balance: individually evaluated for impairment |
$ | 1,787 | $ | 2,187 | $ | 1,462 | $ | 1,065 | $ | | $ | 2,647 | $ | 400 | $ | | $ | 9,548 | ||||||||||||||||||||||
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Ending balance: collectively evaluated for impairment |
$ | 44,289 | $ | 108,268 | $ | 68,185 | $ | 24,333 | $ | 18,599 | $ | 115,022 | $ | 17,037 | $ | 4,564 | $ | 400,297 | ||||||||||||||||||||||
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Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | Commercial | Non-Owner Occupied |
Owner Occupied |
1-4 Family Investment |
Commercial Land and Land Development |
Residential Real Estate |
Home Equity Lines of Credit |
Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||
Allowance for Loan Losses as of December 31, 2014: |
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Beginning balance |
$ | 424 | $ | 875 | $ | 831 | $ | 373 | $ | 144 | $ | 567 | $ | 103 | $ | 30 | $ | 316 | $ | 3,663 | ||||||||||||||||||||
Charge-offs |
36 | 244 | | 93 | | 140 | | 11 | 524 | |||||||||||||||||||||||||||||||
Recoveries |
119 | | | | | 3 | | 5 | 127 | |||||||||||||||||||||||||||||||
Provision |
(177 | ) | 749 | (118 | ) | 89 | (29 | ) | 271 | 1 | (9 | ) | (251 | ) | 526 | |||||||||||||||||||||||||
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Ending balance |
$ | 330 | $ | 1,380 | $ | 713 | $ | 369 | $ | 115 | $ | 701 | $ | 104 | $ | 15 | $ | 65 | $ | 3,792 | ||||||||||||||||||||
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Ending balance: individually evaluated for impairment |
$ | | $ | 50 | $ | 22 | $ | 5 | $ | | $ | 5 | $ | | $ | | $ | | $ | 82 | ||||||||||||||||||||
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Ending balance: collectively evaluated for impairment |
$ | 330 | $ | 1,330 | $ | 691 | $ | 364 | $ | 115 | $ | 696 | $ | 104 | $ | 15 | $ | 65 | $ | 3,710 | ||||||||||||||||||||
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Loans as of |
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Ending balance |
$ | 37,301 | $ | 103,426 | $ | 71,557 | $ | 24,799 | $ | 11,441 | $ | 73,453 | $ | 18,235 | $ | 2,481 | $ | 342,693 | ||||||||||||||||||||||
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Ending balance: individually evaluated for impairment |
$ | 1,193 | $ | 2,034 | $ | 1,186 | $ | 1,048 | $ | 215 | $ | 1,958 | $ | 774 | $ | | $ | 8,408 | ||||||||||||||||||||||
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Ending balance: collectively evaluated for impairment |
$ | 36,108 | $ | 101,392 | $ | 70,371 | $ | 23,751 | $ | 11,226 | $ | 71,495 | $ | 17,461 | $ | 2,481 | $ | 334,285 | ||||||||||||||||||||||
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Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Credit Quality Indicators
The Bank has established a credit risk rating system to quantify the risk in the Banks loan portfolio. This system is a critical tool for managing the Banks lending activities and for evaluating appropriate loan loss reserves. This rating system is dynamic with risk ratings subject to change at any time when circumstances warrant. The system rates the strength of the borrower and is designed to be a tool for management to manage the Banks credit risk and provide an early warning system for negative migration of credits. The system also provides for recognition of improvement in credits. Risk ratings move dynamically, both negatively and positively.
Each new, renewed or modified credit facility is given a risk rating that takes into consideration factors that affect credit quality. The primary determinants of the risk rating assigned are based upon the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower. The rating also reflects current economic and industry conditions. Major factors used in determining the rating include the following variables:
| Capitalization |
| Liquidity |
| Cash flow |
| Revenue and earnings trends |
| Management strength or weakness |
| Quality of financial information |
| Reputation and credit history |
| Industry, including economic climate |
In addition, the following factors may contribute to enhance the risk rating derived from the above factors:
Collateral: The rating may be affected by the type and quality of collateral, the level of coverage, the economic life of the collateral, liquidation value, and the Banks ability to dispose of the collateral.
Guarantors: Guarantees can differ substantially in enhancing the risk rating assigned to a loan or lending commitment. In order to provide enough support to impact the assigned rating by one or more levels, the guarantee must be unconditional and be from an individual or entity with substantial financial strength and a vested interest in the success of the borrower.
The Bank assigns risk ratings based on a scale from 1 to 8 with 1 being the highest quality rating and 8 being the lowest quality grade.
| Levels 1-4 are Pass grades |
| Level 5 is Special Mention (criticized loan) |
| Level 6 is Substandard (classified loan) |
| Level 7 is Doubtful (classified loan) |
| Level 8 is Loss (classified loan) |
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Risk Rating Definitions
1 Excellent
This category is reserved for loans that contain a virtual absence of any credit risk. The loan is secured by properly margined cash collateral (in accordance with loan policy). Loans that are unquestionably guaranteed by the U.S. government, or any agency thereof, would also fit this category.
2 Good
Loans in this category would be characterized by nominal risk and strong repayment certainty. This would include loans to companies or individuals that are paying as agreed and that are either unsecured or secured where reliance is placed on non-liquid or less than good quality liquid collateral.
3 Satisfactory
Loans in this category are considered to exhibit an average level of credit risk. However, these loans have certain risk characteristics, whether due to management, industry, economic or financial concerns. Credits with satisfactory liquidity and leverage, with losses considered to be of a temporary nature for which there is only minor concern would be so rated. Loans for start-up businesses or loans to firms exhibiting high leverage could receive this rating. Loans in this category would also include borrowers whose underlying financial strength may be relatively weak. However, risk of loss is considered minimal due to adequate, well-margined and controlled collateral.
4 Watch
Loans in this category typically demonstrate some negative trends due to financial, operational, economic, or regulatory reasons. A deteriorating collateral position or guarantor, in isolation, could also justify this rating. Such loans must have elevated monitoring as a result of negative trends which, if not addressed, could result in an unacceptable increase in credit risk.
5 Special Mention
A special mention loan has potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the loan or in the Banks credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant an adverse classification. Loans for which economic or market conditions are beginning to adversely affect the borrower may be so rated. An adverse trend in the borrowers operations or an imbalanced position in the balance sheet which has not reached a point where liquidation is jeopardized may be best handled by this rating. Loans in which actual weaknesses are evident and significant should be considered for more serious criticism. In cases where the credit is weak but trends are improving, and/or collateral support is within normal advance margins, consideration should be given for the next higher rating.
6 Substandard
A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, market, or political conditions which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. All loans in nonaccrual status may be rated no higher than substandard.
7 Doubtful
A doubtful loan has all of the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending events that may work to strengthen the
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
asset, its classification as a loss is deferred until its status can be better determined in light of pending events. Generally, pending events should be resolved within a relatively short period and the rating will be adjusted based on the new information. Because of high probability of loss, loans rated doubtful must be in non-accrual status.
8 Loss
Loans classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though a partial recovery may be effected in the future. When access to collateral, rather than the value of the collateral, is a problem, a less severe classification may be appropriate. However, the Bank will not maintain an asset on the balance sheet if realizing its value would require long-term litigation or other lengthy recovery efforts. Losses are recorded in the period the asset becomes uncollectible.
The following table presents the credit quality indicators and total credit exposure for each segment in the loan portfolio by internally assigned grades as of December 31, 2015 and 2014:
Commercial Real Estate | ||||||||||||||||||||||||||||||||||||
(In thousands) | Commercial | Non-Owner Occupied |
Owner Occupied |
1-4 Family Investment |
Commercial Land and Land Development |
Residential Real Estate |
Home Equity Lines of Credit |
Consumer | Total | |||||||||||||||||||||||||||
December 31, 2015: |
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1 Excellent |
$ | 249 | $ | | $ | | $ | | $ | | $ | | $ | | $ | 114 | $ | 363 | ||||||||||||||||||
2 Good |
2,729 | 111 | 1,190 | 35 | 168 | | | | 4,233 | |||||||||||||||||||||||||||
3 Satisfactory |
39,193 | 99,010 | 60,806 | 17,990 | 18,070 | 113,681 | 16,671 | 4,450 | 369,871 | |||||||||||||||||||||||||||
4 Watch |
1,206 | 5,730 | 4,290 | 5,238 | 111 | 403 | 338 | | 17,316 | |||||||||||||||||||||||||||
5 Special Mention |
443 | 2,270 | 1,530 | 1,269 | | 164 | 28 | | 5,704 | |||||||||||||||||||||||||||
6 Substandard |
2,256 | 3,334 | 1,831 | 866 | 250 | 3421 | 400 | | 12,358 | |||||||||||||||||||||||||||
7 Doubtful |
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8 Loss |
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Total |
$ | 46,076 | $ | 110,455 | $ | 69,647 | $ | 25,398 | $ | 18,599 | $ | 117,669 | $ | 17,437 | $ | 4,564 | $ | 409,845 | ||||||||||||||||||
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December 31, 2014: |
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1 Excellent |
$ | 275 | $ | | $ | | $ | | $ | | $ | | $ | | $ | 161 | $ | 436 | ||||||||||||||||||
2 Good |
3,975 | 169 | 1,682 | 46 | 183 | | | | 6,055 | |||||||||||||||||||||||||||
3 Satisfactory |
30,593 | 93,180 | 61,916 | 18,445 | 10,671 | 68,288 | 16,894 | 2,320 | 302,307 | |||||||||||||||||||||||||||
4 Watch |
722 | 4,697 | 5,743 | 3,704 | 154 | 1,728 | 489 | | 17,237 | |||||||||||||||||||||||||||
5 Special Mention |
145 | 3,031 | 1,031 | 1,741 | 218 | 124 | 319 | | 6,609 | |||||||||||||||||||||||||||
6 Substandard |
1,591 | 2,349 | 1,185 | 863 | 215 | 3,313 | 533 | | 10,049 | |||||||||||||||||||||||||||
7 Doubtful |
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8 Loss |
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Total |
$ | 37,301 | $ | 103,426 | $ | 71,557 | $ | 24,799 | $ | 11,441 | $ | 73,453 | $ | 18,235 | $ | 2,481 | $ | 342,693 | ||||||||||||||||||
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The adequacy of the allowance is analyzed quarterly, and adjusted to the level deemed appropriate by credit administration management, based upon its risk assessment of the entire portfolio. Based upon credit administrations review of the classified loans and the overall allowance levels as they relate to the entire loan portfolio at December 31, 2015, management believes the allowance for loan losses has been established at levels sufficient to cover the probable incurred losses in the loan portfolio.
Purchased Loans
Purchased loans are initially recorded at their acquisition date fair values. The carryover of the allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for purchased loans are based on a cash flow methodology that involves assumptions and judgments as to credit risk, default rates, loss severity, collateral values, discount rates, payment speeds, and prepayment risk.
65
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
As part of its acquisition due diligence process, the Bank reviewed the acquired institutions loan grading system and the associated risk rating for loans. In performing this review, the Bank considers cash flows, debt service coverage, delinquency status, accrual status, and collateral for the loan. This process allowed the Bank to clearly identify the population of acquired loans that had evidence of deterioration in credit quality since origination and for which it was probable, at acquisition, that the Bank would be unable to collect all contractually required payments. All such loans identified by the Bank were considered to be within the scope of ASC 310-30, Loan and Debt Securities Acquired with Deteriorated Credit Quality and are identified as Purchased Credit Impaired Loans.
As a result of the merger with Citizens, effective December 31, 2015, the Bank identified ten purchased credit impaired (PCI) loans. As part of the consolidation with Union, effective November 1, 2013, the Bank identified fourteen purchased credit impaired (PCI) loans. For all PCI loans, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require the Bank to evaluate the need for an allowance for loan losses on these loans. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the non-accretable discount which the Bank then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loan. The Banks evaluation of the amount of future cash flows that it expects to collect is based on a cash flow methodology that involves assumptions and judgments as to credit risk, collateral values, discount rates, payment speeds, and prepayment risk. Charge-offs of the principal amount on purchased impaired loans are first applied to the non-accretable discount.
As a result of this accounting methodology, certain credit-related ratios of the Bank, including, for example, the growth rate in non-performing assets, may not necessarily be directly comparable with periods prior to the acquisition of the PCI loans.
For purchased loans that are not deemed impaired at acquisition, credit discounts representing principal losses expected over the life of the loans are a component of the initial fair value, and the discount is accreted to interest income over the life of the asset. Subsequent to the purchase date, the method used to evaluate the sufficiency of the credit discount is similar to originated loans, and if necessary, additional reserves are recognized in the allowance for loan losses.
The following is a summary of the loans purchased in the Union transaction as of November 1, 2013, the date of the consolidation:
Purchased Credit Impaired Loans |
Purchased Non- Impaired Loans |
Total Purchased Loans |
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Union | (In thousands) | |||||||||||
Contractually required principal and interest at acquisition |
$ | 10,290 | $ | 92,704 | $ | 102,994 | ||||||
Contractual cash flows not expected to be collected |
(5,487 | ) | (9,492 | ) | (14,979 | ) | ||||||
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Expected cash flows at acquisition |
4,803 | 83,212 | 88,015 | |||||||||
Interest component of expected cash flows |
(386 | ) | (12,278 | ) | (12,664 | ) | ||||||
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Basis in acquired loans at acquisition estimated fair value |
$ | 4,417 | $ | 70,934 | $ | 75,351 | ||||||
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Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The unpaid principal balances and the related carrying amount of acquired loans as of December 31, 2015 and 2014 were as follows:
December 31, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Credit impaired purchased loans evaluated individually for incurred credit losses |
||||||||
Outstanding balance |
$ | 1,478 | $ | 2,672 | ||||
Carrying Amount |
668 | 713 | ||||||
Other purchased loans evaluated collectively for incurred credit losses |
||||||||
Outstanding balance |
49,762 | 59,808 | ||||||
Carrying Amount |
47,723 | 57,920 | ||||||
Total Purchased Loans |
||||||||
Outstanding balance |
51,240 | 62,480 | ||||||
Carrying Amount |
48,391 | 58,633 |
The changes in the accretable discount related to the purchased credit impaired loans are were as follows:
December 31, 2015 |
December 31, 2014 |
|||||||
(In thousands) | ||||||||
Balance beginning of period |
$ | 310 | $ | 378 | ||||
Accretion recognized during the period |
(134 | ) | (746 | ) | ||||
Net reclassification from non-accretable to accretable |
131 | 678 | ||||||
|
|
|
|
|||||
Balance end of period |
$ | 307 | $ | 310 | ||||
|
|
|
|
The following is a summary of the loans purchased in the Citizens merger as of December 31, 2015, the effective date of the merger:
Purchased Credit Impaired Loans |
Purchased Non- Impaired Loans |
Total Purchased Loans |
||||||||||
Citizens | (In thousands) | |||||||||||
Contractually required principal and interest at acquisition |
$ | 894 | $ | 81,780 | $ | 82,674 | ||||||
Contractual cash flows not expected to be collected |
(237 | ) | (13,517 | ) | (13,754 | ) | ||||||
|
|
|
|
|
|
|||||||
Expected cash flows at acquisition |
657 | 68,263 | 68,920 | |||||||||
Interest component of expected cash flows |
(217 | ) | (10,841 | ) | (11,058 | ) | ||||||
|
|
|
|
|
|
|||||||
Basis in acquired loans at acquisition estimated fair value |
$ | 440 | $ | 57,422 | $ | 57,862 | ||||||
|
|
|
|
|
|
The unpaid principal balances and the related carrying amount of acquired loans as of December 31, 2015 were as follows:
December 31, 2015 |
||||
Credit impaired purchased loans evaluated individually for incurred credit losses |
||||
Outstanding balance |
$ | 608 | ||
Carrying Amount |
440 | |||
Other purchased loans evaluated collectively for incurred credit losses |
||||
Outstanding balance |
57,581 | |||
Carrying Amount |
57,422 | |||
Total Purchased Loans |
||||
Outstanding balance |
58,189 | |||
Carrying Amount |
57,862 |
67
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The changes in the accretable discount related to the purchased credit impaired loans were as follows:
December 31, 2015 |
||||
(In thousands) | ||||
Balance beginning of period |
$ | | ||
Citizens acquisition |
217 | |||
Accretion recognized during the period |
| |||
Net reclassification from non-accretable to accretable |
| |||
|
|
|||
Balance end of period |
$ | 217 | ||
|
|
Note 6 - Premises and Equipment
Premises and equipment consisted of the following at December 31:
Estimated Useful Life | 2015 | 2014 | ||||||||
(In thousands) | ||||||||||
Land |
| $ | 2,302 | $ | 2,171 | |||||
Bank premises and land improvements |
7 - 50 years | 9,347 | 7,559 | |||||||
Leasehold improvements |
10 -30 years | 2,081 | 2,700 | |||||||
Furnishings and equipment |
3 -10 years | 4,523 | 3,312 | |||||||
Construction in progress |
| 287 | 39 | |||||||
|
|
|
|
|||||||
$ | 18,540 | 15,781 | ||||||||
Accumulated depreciation |
(6,167 | ) | (4,341 | ) | ||||||
|
|
|
|
|||||||
$ | 12,373 | $ | 11,440 | |||||||
|
|
|
|
Operating and Capital Leases
The Bank entered into a fifteen year operating lease agreement in 2003 for the land on which the Duncannon office is located. In 2005, the Bank entered into an agreement to lease an office on Good Hope Road in Hampden Township, Cumberland County, on which lease payments began in 2006 and extend through 2017. Effective June 2015, the Bank terminated its lease for the office on Good Hope Road and incurred a lease termination fee of $96,000. As part of the consolidation with Halifax, effective December 31, 2008, the Bank assumed the lease of the then Halifax National Banks branch in Elizabethville, Dauphin County, which began in 2008 and expires in 2018. During the latter part of 2010, the Bank entered into an agreement to lease the land occupied by the office located on East Wiconisco Avenue, Tower City, Schuylkill County, on which lease payments began 2010 and extend through 2035. The Bank entered into an agreement during July 2011 to lease a branch office in Cressona, Schuylkill County, in which lease payments commenced August 2011 and extend through July 2016. During September 2015, the Bank terminated the lease for these two locations, which resulted in incurring a lease termination fee of $84,000. Effective July 31, 2012, the Bank entered into an agreement to lease a commercial condominium unit in Wyomissing, Berks County, with lease payments commencing August 1, 2012 through July 31, 2013 and renewed on a month-to-month basis until June 2014. On April 10, 2014, the Bank entered into an Assumption and Assignment Agreement to assume the property lease from another financial institution for a branch office located at 2800 State Hill Road, Wyomissing, Berks County with payments commencing June 1, 2014. The initial term of this lease expires December 31, 2022. On December 27, 2012, the Bank acquired a wealth management company and assumed the lease of its commercial office located in Orwigsburg, Schuylkill County in which lease payments of the original lease commenced May 1, 2012 and extend through April 30, 2015. This lease was not extended at the expiration date.
68
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The Bank is responsible for taxes, utilities and other expenses related to the properties. All of the lease agreements contain renewal options. Total expense for operating leases in 2015 and 2014 was $547,000 and $358,000, respectively.
At December 31, 2015, future minimum lease payments under non-cancelable lease arrangements are as follows (in thousands):
Years ending December 31, |
||||
2016 |
$ | 227 | ||
2017 |
185 | |||
2018 |
179 | |||
2019 |
148 | |||
2020 |
149 | |||
Thereafter |
735 |
Prior to the consolidation with Riverview, Union entered into an installment lease purchase agreement relating to a branch office that was being built at 100 Hollywood Boulevard, Orwigsburg, Schuylkill County, Pennsylvania 17901. This capital lease was assumed by the Bank as part of the consolidation. Once the construction on this property was completed, the lease term commenced January 2014 in accordance with the commencement notice. On April 8, 2014, the Bank entered into a purchase and sale agreement to purchase the property for $1,771,185. Under the agreement, the Bank received as credit against the purchase price, an amount equal to all lease payments made from January 1, 2014 through January 15, 2015, which was the closing date. The amount of the credit against the purchase price amounted to $121,185.
Note 7 Goodwill and Intangible Assets
Goodwill and intangible assets were $6,258,000 at December 31, 2015 and $3,678,000 at December 31, 2014. The carrying amount of goodwill was $4,757,000 at December 31, 2015 and $2,297,000 at December 31, 2014. The intangible assets increased to $1,501,000 at December 31, 2015 from $1,381,000 at December 31, 2014. The increase in goodwill and intangible assets is attributable to the Citizens merger.
The gross carrying amount and accumulated amortization related to intangible assets at December 31, 2015 and 2014 are presented below:
December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
|||||||||||||
(In thousands) | ||||||||||||||||
Core deposit intangibles-HNB |
$ | 173 | $ | 161 | $ | 173 | $ | 145 | ||||||||
Core deposit intangibles-Union |
1,264 | 400 | 1,264 | 224 | ||||||||||||
Core deposit intangibles-Citizens |
389 | | | | ||||||||||||
Customer list intangible |
463 | 227 | 463 | 160 | ||||||||||||
Loan servicing rights |
57 | 57 | 57 | 47 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total intangible assets |
$ | 2,346 | $ | 845 | $ | 1,957 | $ | 576 | ||||||||
|
|
|
|
|
|
|
|
At December 31, 2015, a core deposit intangible of $389,000 was recorded as a result of the merger with Citizens. This intangible will be amortized on an accelerated basis over the 10 year estimated life of the core deposit base.
Amortization expense for all other intangible assets totaled $259,000 and $286,000 for the years ended 2015 and 2014, respectively, and is reflected within the consolidated statements of income.
69
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Riverview estimates the amortization expense for the core deposit and customer list intangibles as follows (in thousands):
Years ending December 31, |
||||
2016 |
$ | 302 | ||
2017 |
257 | |||
2018 |
226 | |||
2019 |
194 | |||
2020 |
162 | |||
Thereafter |
360 | |||
|
|
|||
$ | 1,501 | |||
|
|
Based upon the goodwill analysis performed by an independent third party, there was no goodwill impairment for the years ended December 31, 2015 and 2014.
Note 8 - Deposits
Deposits at December 31, 2015 and 2014 are summarized as follows:
(Dollars in thousands) | December 31, | |||||||||||||||
2015 | 2014 | |||||||||||||||
Balance | Average Rate |
Balance | Average Rate |
|||||||||||||
Non-interest bearing demand |
$ | 70,106 | 0.00 | % | $ | 53,620 | 0.00 | % | ||||||||
Interest-bearing demand |
131,564 | 0.35 | % | 132,860 | 0.39 | % | ||||||||||
Savings |
110,526 | 0.24 | % | 83,748 | 0.27 | % | ||||||||||
Time |
136,146 | 1.04 | % | 102,034 | 1.05 | % | ||||||||||
|
|
|
|
|||||||||||||
Total deposits |
$ | 448,342 | $ | 372,262 | ||||||||||||
|
|
|
|
Scheduled contractual maturities of time deposits at December 31, 2015 are as follows (in thousands):
Years ending December 31, |
||||
2016 |
$ | 55,716 | ||
2017 |
42,514 | |||
2018 |
22,046 | |||
2019 |
5,691 | |||
2020 |
8,029 | |||
Thereafter |
2,150 | |||
|
|
|||
$ | 136,146 | |||
|
|
Time deposits of $250,000 or more at December 31, 2015 and 2014 approximated $7,566,000 and $7,159,000, respectively.
The Bank accepts deposits from its executive officers, directors, their immediate families, and affiliated companies on the same terms as those for comparable transactions of unrelated customers. The amount of these deposits totaled $1,153,000 and $1,082,000 at December 31, 2015 and 2014, respectively.
Note 9 - Borrowings
The Bank has an unsecured line of credit agreement with Atlantic Community Bankers Bank. The line amount was $7,500,000 at December 31, 2015 and December 31, 2014. Interest accrues based on the daily federal funds rate. There were no amounts outstanding on this line of credit at December 31, 2015 or 2014.
70
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The Bank has entered into agreements with the Federal Home Loan Bank of Pittsburgh (FHLB) which allow for borrowings up to a percentage of certain qualifying collateral assets. At December 31, 2015, the Bank had a maximum borrowing capacity of approximately $183,381,000 with the FHLB of Pittsburgh. The borrowing capacity is collateralized by security agreements in certain real estate loans valued at $264,687,000 recorded on the books of the Bank. Borrowings from the FHLB of Pittsburgh include long-term borrowing agreements which are subject to restrictions and penalties for early repayment under certain circumstances and borrowings under repurchase advance agreements.
A summary of short-term borrowings is as follows at December 31:
2015 | 2014 | 2013 | ||||||||||
(Dollars in thousands) | ||||||||||||
FHLB Open Repo Plus |
$ | 42,575 | $ | 12,500 | $ | | ||||||
|
|
|
|
|
|
|||||||
$ | 42,575 | $ | 12,500 | $ | | |||||||
|
|
|
|
|
|
|||||||
Weighted average rate at end of year |
0.43 | % | 0.30 | % | | |||||||
Maximum amount outstanding at any end of month |
$ | 46,854 | $ | 14,000 | | |||||||
Daily average amount outstanding |
$ | 22,380 | $ | 8,727 | | |||||||
Approximate weighted average interest rate for year |
0.33 | % | 0.30 | % | |
Included in outstanding FHLB Open Repo Plus borrowings at December 31, 2015 were Citizens Repo Plus borrowings of $8,575,000, which the Bank acquired as part of the merger.
Long-term borrowings totaled $9,350,000 at December 31, 2015 and $7,000,000 at December 31, 2014 and are summarized as follows:
| FHLB of Pittsburgh borrowings under long-term arrangements are summarized as follows at December 31: |
Maturity Date |
Interest Rate | 2015 | 2014 | |||||||||||
(In thousands) | ||||||||||||||
07/12/17 |
0.85 | % | Mid-term repo fixed rate | $5,000 | $ | | ||||||||
04/09/18 |
2.90 | % | Fixed rate until 4/9/2013(1) | | 5,000 | |||||||||
|
|
|
|
|||||||||||
$5,000 | $ | 5,000 | ||||||||||||
|
|
|
|
(1) | Convertible select fixed rate to a floating rate of 3 month Libor plus 23 basis points resetting quarterly at the discretion of the FHLB, which was prepaid during the second quarter of 2015, resulting in a prepayment penalty of $238,000. |
| Riverview had a secured closed-end line of credit for $2,000,000 with The Gratz Bank, Gratz, Pennsylvania. This line was paid in full and cancelled during 2014. |
| During 2014, the Company borrowed $2,000,000 under a secured term loan agreement with ACNB Bank, Gettysburg, Pennsylvania. This loan settled September 3, 2014 and matures March 3, 2031, with a variable interest rate based on the greater of the Wall Street Journal Prime or 3.25% until March 3, 2016, and thereafter, adjusted every three years and indexed to the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years, plus 3%, with a floor of 4.25%. Interest is payable monthly for a period of 18 months until March 3, 2016, and thereafter 180 monthly payments of principal and interest in an amount sufficient to fully amortize the balance of the loan over 15 years. |
| The Company has a $5,000,000 secured guidance line of credit with ACNB Bank. As of December 31, 2015, there was $2,350,000 outstanding as a result of borrowing under this line of credit during the second half of 2015. There were no outstanding borrowings drawn under this line at December 31, 2014. The maximum term of the facility is 42 months consisting of a non-revolving draw period followed by a principal repayment term. The interest rate is fixed at 3.99% until |
71
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
January 11, 2016. Thereafter, the interest rate will be adjusted every three years and indexed to the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years, as made available by the Federal Reserve, plus 3%, rounded up to the nearest 0.125%, with a floor of 4.50% until July 11, 2016 and then a floor of 4.25% thereafter. Each advance under the loan will require monthly interest only payments until January 11, 2016. Thereafter, each advance shall require180 monthly payments of principal including interest in an amount sufficient to fully amortize the balance of the loan over the term of the loan. |
Both the term loan and guidance line of credit with ACNB Bank are secured by 1,175,000 shares of the Banks common stock. This represents approximately 67% of the issued and outstanding shares of Riverview Bank common stock and this percentage must be maintained at all times during the life of the loans. Both borrowing facilities are subject to prepayment penalties equal to 2% of the amount prepaid if prepaid by a third party. If at any time either of these borrowing facilities is in default, all loans outstanding with ACNB Bank will be considered in default and all outstanding amounts will be immediately due and payable in full.
Contractual principal payments for all long-term borrowings are expected to be as follows:
Years Ending December 31, |
||||
2016 |
$ | 119 | ||
2017 |
5,216 | |||
2018 |
226 | |||
2019 |
235 | |||
2020 |
246 | |||
Thereafter |
3,308 | |||
|
|
|||
$ | 9,350 | |||
|
|
Note 10 Employee Benefit Plans
Defined Contribution Plan
The Bank maintains a contributory 401(k) retirement plan for all eligible employees. Currently, the Banks policy is to match 100% of the employees voluntary contribution to the plan up to a maximum of 4% of the employees compensation. Additionally, the Bank may make discretionary contributions to the plan after considering current profits and business conditions. The amount charged to expense in 2015 and 2014 totaled $258,000 and $420,000, respectively. Of these amounts, discretionary contributions approximated $92,000 and $253,000, respectively.
Director Emeritus Plan
Effective November 2, 2011, a Director Emeritus Agreement (the Agreement) was entered into by and between the Company, the Bank and the Directors. In order to promote orderly succession of the Companys and Banks Board of Directors, the Agreement defines the benefits the Company is willing to provide upon the termination of service to those individuals who were Directors of the Company and Bank as of December 31, 2011, where the Company will pay the Director $15,000 per year for services performed as a Director Emeritus, which may be increased at the sole discretion of the Board of Directors. The benefit is paid over five years, in 12 monthly installments to a Director:
| upon termination of service as a Director on or after the age of 65, provided the Director agrees to provide certain ongoing services for Riverview; |
| upon termination of service as a Director due to a disability prior to age 65; |
| upon a change of control; or |
| upon the death of a Director after electing to be a Director Emeritus. |
72
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Expenses recorded under the terms of this agreement were $36,000 and $45,000 for the years ended December 31, 2015 and 2014, respectively.
Deferred Compensation Agreements
The Bank maintains five Supplemental Executive Retirement Plan (SERP) agreements that provide specified benefits to certain key executives. The agreements were specifically designed to encourage key executives to remain as employees of the Bank. The agreements are unfunded, with benefits to be paid from the Banks general assets. After normal retirement, benefits are payable to the executive or his beneficiary in equal monthly installments for a period of 15 years for two of the executives and 20 years for three of the executives. There are provisions for death benefits should a participant die before his retirement date. These benefits are also subject to change of control and other provisions.
The Bank maintains a Director Deferred Fee Agreement (DDFA) which allows electing directors to defer payment of their directors fees until a future date. In addition, the Bank maintains an Executive Deferred Compensation Agreement (EDCA) with two of its executives. This agreement, which was initiated in 2010, allows the executives of the Bank to defer payment of their base salary, bonus and performance based compensation until a future date. For both types of deferred fee agreements, the estimated present value of the future benefits is accrued over the effective dates of the agreements using an interest factor that is evaluated and approved by the compensation committee of the Board of Directors on an annual basis. The agreements are unfunded, with benefits to be paid from the Banks general assets.
The accrued benefit obligations for all the plans total $1,941,000 at December 31, 2015 and $1,645,000 at December 31, 2014 and are included in other liabilities. Expenses relating to these plans totaled $176,000 and $159,000 in the years ended December 31, 2015 and 2014, respectively.
Stock Option Plan
In January 2009, Riverview implemented a nonqualified stock option plan. The purpose of the 2009 Stock Option Plan was to advance the development, growth and financial condition of Riverview by providing incentives through participation in the appreciation of the common stock of Riverview to secure, retain and motivate its directors, officers and key employees and to align such persons interests with those of Riverviews shareholders. Originally, shares of Riverviews common stock that could be issued or transferred under this plan could not exceed, in the aggregate, 170,000 shares. On January 4, 2012, the 2009 Stock Option Plan was amended and restated to increase the total number of shares of common stock that may be issued under the Plan through grants of nonqualified stock options. The amendment increased the number of shares available under the Plan, in the aggregate, to 220,000 shares from 170,000 shares that were originally documented in the Plan. On April 16, 2014, the 2009 Plan was again amended and restated to increase the total number of shares of common stock by 130,000 shares, thus increasing the total number of available shares under the Plan to 350,000 shares.
The vesting schedule for all option grants is a seven year cliff, which means that the options are 100% vested in the seventh year following the grant date and the expiration date of all options is ten years following the grant date. The Plan states that upon the date of death of a participant, all awards granted pursuant to the agreement for that participant shall become fully vested and remain exercisable for the option grants remaining term. As of December 31, 2015, there were 171,000 option grants fully vested and exercisable. This was the result of the Board of Directors approval as of December 31, 2013 to accelerate the vesting period for these options. There was no acceleration of vesting during 2015 or 2014.
73
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
A summary of the status of Riverviews stock option plan as of December 31, 2015 is as follows:
Options |
Vested Shares |
Weighted Average Exercise Price Per Share |
Non-vested Shares |
Weighted Average Exercise Price Per Share |
Total Shares |
Weighted Average Exercise Price Per Share |
||||||||||||||||||
Outstanding January 1, 2015 |
174,250 | $ | 10.58 | 147,950 | $ | 9.93 | 322,200 | $ | 10.29 | |||||||||||||||
Granted |
| | 25,300 | 12.97 | 25,300 | 12.93 | ||||||||||||||||||
Forfeited |
(2,500 | ) | | | | (2,500 | ) | 10.35 | ||||||||||||||||
Exercised |
(750 | ) | $ | 10.60 | | | (750 | ) | 10.60 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Outstanding December 31, 2015 |
171,000 | $ | 10.58 | 173,250 | $ | 10.38 | 344,250 | $ | 10.48 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Options exercisable at year end |
171,000 | | | | 168,500 | | ||||||||||||||||||
Weighted average fair value of options per share granted during the year |
| | $ | 2.79 | | $ | 2.79 | | ||||||||||||||||
Remaining contractual life |
| 6 years | 6 years |
The fair value of each option granted during 2015 and 2014 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions.
2015 Option Grants | 2014 Option Grants | |||||||||||||||
September | November | January | May | |||||||||||||
Number of options |
2,500 | 22,800 | 40,750 | 107,200 | ||||||||||||
Fair value per share |
$ | 2.55 | $ | 2.82 | $ | 1.66 | $ | 1.40 | ||||||||
Dividend yield |
4.53 | % | 4.25 | % | 5.64 | % | 5.50 | % | ||||||||
Expected life |
8.5 years | 8.5 years | 8.5 years | 8.5 years | ||||||||||||
Expected volatility |
33.64 | % | 32.79 | % | 32.48 | % | 27.55 | % | ||||||||
Risk-free interest rate |
1.75 | % | 2.04 | % | 2.17 | % | 2.25 | % |
Information pertaining to options outstanding is as follows for the periods presented:
December 31, 2015 | ||||||||||||
Options Outstanding |
Options Exercisable | |||||||||||
Range of exercise price |
Number |
Weighted Average Remaining Life |
Weighted Price |
Number |
Weighted Price |
Weighted | ||||||
$9.75 - $13.05 |
344,250 | 6.1 years | $10.48 | 171,000 | $9.83 | 2.2 years |
There was intrinsic value associated with the 344,250 outstanding stock options at December 31, 2015 considering that the market value of the stock as of the close of business at year end was $13.20 per share as compared with the option exercise price of $10.60 for 164,250 options, $10.35 for 6,750 options, $9.75 for 40,750 options, $10.00 for 107,200 options, $12.25 for 2,500 options and $13.05 for 22,800 options. In addition, there was intrinsic value associated with the 322,200 options outstanding at December 31, 2014, where the market value of the stock as of the close of business at year end was $15.25 per share as compared with the option exercise price of $10.60 for 165,000 options, $10.35 for 9,250 options, $9.75 for 40,750 options and $10.00 for 107,200 options.
74
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Riverview accounts for these options in accordance with generally accepted accounting principles related to Share Based Payments, which requires that the fair value of the equity awards be recognized as compensation expense over the period during which the employee is required to provide service in exchange for such an award. Riverview is amortizing compensation expense over the vesting period, or seven years. Total compensation expense relating to the options that has been recognized is $328,000, of which $32,000 was recorded for the twelve months ended December 31, 2015. The remaining unrecognized compensation expense as of December 31, 2015 was $233,000. In comparison with 2014, $24,000 in option compensation expense was recorded for the twelve months ended December 31, 2014. The increase in option compensation expense in 2015 was due to the granting of 25,300 options during the fourth quarter. In addition, 750 options were exercised during the third quarter of 2015.
For the twelve months ended December 31, 2014, 147,950 options were granted during the first and second quarters of 2014 and 5,000 options were exercised in the third quarter of 2014.
Employee Stock Purchase Plan
Effective March 5, 2014, the Board of Directors adopted and approved the Riverview Financial Corporation Employee Stock Purchase Plan (ESPP). The ESPP, which is a qualified plan, was then approved by the shareholders at the May 14, 2014 annual meeting. Under the ESPP, employees of the Company and its affiliate may purchase up to 170,000 shares of common stock of the Company, with up to a 15% price discount.
On April 15, 2015, the Company filed a Registration Statement on Form S-8, to register 75,000 shares of common stock that the Company may issue to the ESPP.
For the year ended December 31, 2015, 5,212 shares of common stock were acquired by the ESPP, out of which 3,775 shares were issued by Riverview from the reserve of 75,000 shares that were registered. For the year ended December 31, 2014, 2,020 shares of common stock were acquired by the ESPP, all in the open market.
Defined Benefit Pension Plan
As a result of the consolidation with Union, the Company took over Unions noncontributory defined benefit pension plan, which substantially covered all Union employees. The plan benefits were based on average salary and years of service. Union elected to freeze all benefits earned under the plan effective January 1, 2007.
The Company accounts for the defined benefit pension plan in accordance with FASB ASC Topic 715, Compensation-Retirement Plans. This guidance requires the Company to recognize the funded status (i.e. the difference between the fair value of the plan assets and the projected benefit obligation) of the benefit plan.
The following table presents the plans funded status and the amounts recognized in the Companys consolidated financial statements for 2015 and 2014. The measurement date, for purposes of these valuations, was December 31, 2015 and 2014.
(In thousands) | 2015 | 2014 | ||||||
Obligations and funded status: |
||||||||
Change in benefit obligations: |
||||||||
Benefit obligation beginning January 1, 2015 and January 1, 2014 |
$ | 4,292 | $ | 3,923 | ||||
Interest cost |
155 | 174 | ||||||
Benefits paid |
(253 | ) | (243 | ) | ||||
Change in actuarial assumption |
92 | 450 | ||||||
Experience gain at 1/1/2014 |
12 | (12 | ) | |||||
|
|
|
|
|||||
Benefit obligation at end of year |
4,298 | 4,292 | ||||||
Change in plan assets: |
||||||||
Fair value of plan assets at January 1, 2015 and January 1, 2014 |
3,551 | 3,674 | ||||||
Adjustment to asset value at January 1 |
(1 | ) | 1 | |||||
Actual return on plan assets |
(41 | ) | 119 | |||||
Benefits paid |
(253 | ) | (243 | ) | ||||
|
|
|
|
|||||
Fair value of plan assets at end of year |
3,256 | 3,551 | ||||||
|
|
|
|
|||||
Funded status included in other liabilities |
($ | 1,042 | ) | ($ | 741 | ) | ||
|
|
|
|
Amounts related to the plan that have been recognized in accumulated other comprehensive loss but not yet recognized as a component of net periodic pension cost are as follows for the years ended December 31:
(In thousands) | 2015 | 2014 | ||||||
Net gain (loss) |
($ | 861 | ) | ($ | 518 | ) | ||
Less: Income tax effect |
292 | 176 | ||||||
|
|
|
|
|||||
Net amount recognized in other comprehensive income (loss) |
($ | 569 | ) | ($ | 342 | ) | ||
|
|
|
|
75
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The amount of net actuarial gain or loss expected to be amortized in 2016 is $33,000.
Net periodic pension expense included the following components for the years ended December 31:
(In thousands) | 2015 | 2014 | ||||||
Interest cost |
$ | 155 | $ | 174 | ||||
Expected return on plan assets |
(205 | ) | (213 | ) | ||||
Amortization of net loss |
7 | | ||||||
|
|
|
|
|||||
Net periodic pension gain |
($ | 43 | ) | ($ | 39 | ) | ||
|
|
|
|
The accumulated benefit obligation was $4,298,000 at December 31, 2015 and $4,292,000 at December 31, 2014.
The following is a summary of actuarial assumptions used for the Companys pension plan:
2015 | 2014 | |||||||
Discount rate |
4.34 | % | 3.72 | % | ||||
Expected long-term rate of return on plan assets |
6.00 | % | 6.00 | % |
The selected long-term rate of return on plan assets was primarily based on the asset allocation of the plans assets. Analysis of the historic returns on these asset classes and projections of expected future returns were considered in setting the long-term rate of return.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):
2016 |
$ | 240 | ||
2017 |
234 | |||
2018 |
230 | |||
2019 |
231 | |||
2020 |
235 | |||
2021 2025 |
1,243 | |||
|
|
|||
Total |
$ | 2,413 | ||
|
|
The Companys pension plan asset allocations as of the year ends, by asset category, are as follows:
2015 | 2014 | |||||||
Cash and cash equivalents |
0.00 | % | 0.00 | % | ||||
Equity |
67.08 | % | 70.52 | % | ||||
Fixed income |
32.92 | % | 29.48 | % | ||||
|
|
|
|
|||||
Total |
100.00 | % | 100.00 | % | ||||
|
|
|
|
76
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The fair value of the Companys pension plan assets at December 31, 2015 by asset category are as follows:
2015 | ||||||||||||||||
(In thousands) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | | $ | | ||||||||
Mutual funds: |
||||||||||||||||
One year fixed income fund |
292 | 292 | | | ||||||||||||
Short-term investment grade fund |
876 | 876 | | | ||||||||||||
GNMA fund |
780 | 780 | | | ||||||||||||
Index 500 fund |
273 | 273 | | | ||||||||||||
Value index fund |
319 | 319 | | | ||||||||||||
Mid cap value index fund |
138 | 138 | | | ||||||||||||
Developed markets fund |
122 | 122 | | | ||||||||||||
U.S. targeted fund |
182 | 182 | | | ||||||||||||
International small cap value fund |
112 | 112 | | | ||||||||||||
Emerging markets core equity fund |
102 | 102 | | | ||||||||||||
Real estate securities fund |
40 | 40 | | | ||||||||||||
International real estate fund |
20 | 20 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 3,256 | $ | 3,256 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
2014 | ||||||||||||||||
(In thousands) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | | $ | | ||||||||
Mutual funds: |
||||||||||||||||
One year fixed income fund |
837 | 837 | | | ||||||||||||
Short-term investment grade fund |
1,048 | 1,048 | | | ||||||||||||
GNMA fund |
210 | 210 | | | ||||||||||||
Index 500 fund |
306 | 306 | | | ||||||||||||
Value index fund |
358 | 358 | | | ||||||||||||
Mid cap value index fund |
154 | 154 | | | ||||||||||||
U.S. targeted fund |
207 | 207 | | | ||||||||||||
International value fund |
132 | 132 | | | ||||||||||||
International small cap value fund |
122 | 122 | | | ||||||||||||
Emerging markets core equity fund |
112 | 112 | | | ||||||||||||
Real estate securities fund |
43 | 43 | | | ||||||||||||
International real estate fund |
22 | 22 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 3,551 | $ | 3,551 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
The valuation used is based on quoted market prices provided by an independent third party.
The Company does not expect to contribute to the plan in 2016.
As a result of the merger of Citizens, the Company took over Citizens noncontributory defined benefit pension plan, which substantially covered all Citizens employees. The plan benefits were based on average salary and years of service. Citizens elected to freeze all benefits earned under the plan effective January 1, 2013.
77
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The following table presents the plans funded status and the amounts recognized in the Companys consolidated financial statements for 2015. The measurement date, for purposes of these valuations, was December 31, 2015.
(In thousands) | 2015 | |||
Obligations and funded status: |
||||
Benefit obligations at end of year |
$ | 3,951 | ||
Fair value of plan assets at end of year |
3,602 | |||
|
|
|||
Funded status included in other liabilities |
($ | 349 | ) | |
|
|
The amount of net actuarial loss expected to be amortized in 2016 is $1,000.
The accumulated benefit obligation was $3,951,000 at December 31, 2015.
The following is a summary of actuarial assumptions used for the pension plan:
2015 | ||||
Discount rate |
4.34 | % | ||
Expected long-term rate of return on plan assets |
7.25 | % |
The selected long-term rate of return on plan assets was primarily based on the asset allocation of the plans assets. Analysis of the historic returns on these asset classes and projections of expected future returns were considered in setting the long-term rate of return.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):
2016 |
$ | 286 | ||
2017 |
285 | |||
2018 |
277 | |||
2019 |
272 | |||
2020 |
264 | |||
2021 2025 |
1,194 | |||
|
|
|||
Total |
$ | 2,578 | ||
|
|
The Companys pension plan asset allocations as of the year ends, by asset category, are as follows:
2015 | ||||
Cash and cash equivalents |
0.94 | % | ||
Equity |
36.10 | % | ||
Fixed income |
62.96 | % | ||
|
|
|||
Total |
100.00 | % | ||
|
|
78
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The fair value of the Companys pension plan assets at December 31, 2015 by asset category are as follows:
2015 | ||||||||||||||||
(In thousands) | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Cash and cash equivalents |
$ | 34 | $ | 34 | $ | | $ | | ||||||||
Mutual funds: |
||||||||||||||||
Large-cap value |
131 | 131 | | | ||||||||||||
Large-cap core |
136 | 136 | | | ||||||||||||
Mid-cap core |
161 | 161 | | | ||||||||||||
Small-cap core |
78 | 78 | | | ||||||||||||
International core |
308 | 308 | | | ||||||||||||
Large cap growth |
280 | 280 | | | ||||||||||||
Small/midcap growth |
82 | 82 | | | ||||||||||||
Common/collective trust large cap value |
124 | | 124 | | ||||||||||||
Long duration government credit |
1,577 | 1,577 | | | ||||||||||||
Long U.S. Treasury ETF |
691 | 691 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 3,602 | $ | 3,478 | $ | 124 | $ | | ||||||||
|
|
|
|
|
|
|
|
The valuation used is based on quoted market prices provided by an independent third party.
The Company does not expect to contribute to the plan in 2016.
Note 11 - Taxes
Income tax expense (benefit) and the related effective income tax rates are comprised of the following items for the years ended December 31:
(Dollars in thousands) | 2015 | 2014 | ||||||||||||||
Tax at statutory rates |
($ | 647 | ) | 34 | % | $ | 1,172 | 34 | % | |||||||
Tax-exempt interest income |
(290 | ) | 15 | % | (284 | ) | (8 | %) | ||||||||
Life insurance income |
(74 | ) | 4 | % | (75 | ) | (2 | %) | ||||||||
Interest disallowance |
7 | | 8 | | ||||||||||||
Low income housing credit |
(123 | ) | 6 | % | (123 | ) | (4 | %) | ||||||||
Other |
(23 | ) | 1 | % | 29 | 1 | % | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Federal Income Taxes |
($ | 1,150 | ) | 60 | % | $ | 727 | 21 | % | |||||||
|
|
|
|
|
|
|
|
Deferred income taxes result from income and expense items which are recognized for financial statement purposes in different reporting periods than for federal income tax purposes. The current and deferred portions of applicable income taxes (benefits) for the years ended December 31 are as follows:
(In thousands) | 2015 | 2014 | ||||||
Current tax |
$ | 14 | $ | 570 | ||||
Deferred tax expense (benefit) |
(1,164 | ) | 157 | |||||
|
|
|
|
|||||
Applicable Federal Income Tax Expense (Benefit) |
($ | 1,150 | ) | $ | 727 | |||
|
|
|
|
79
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The Company records deferred taxes, at the 34% tax rate, on cumulative temporary differences. Components of deferred tax assets and liabilities, included in other assets on the consolidated balance sheet, are as follows at December 31:
(In thousands) | 2015 | 2014 | ||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 1,212 | $ | 854 | ||||
Non-accrual loan interest |
139 | 225 | ||||||
Deferred compensation |
660 | 560 | ||||||
Purchase accounting adjustments |
557 | 449 | ||||||
Alternative minimum tax credit carryforwards |
378 | 406 | ||||||
OREO valuation |
99 | 162 | ||||||
Acquisition costs Union |
249 | 269 | ||||||
Acquisition costs Citizens |
139 | 28 | ||||||
Unfunded pension liability |
473 | 265 | ||||||
Stock options |
111 | 100 | ||||||
Contractual payouts |
385 | | ||||||
Low income housing credit carryforwards |
1,063 | 1,020 | ||||||
Net operating loss carryforwards |
2,556 | 494 | ||||||
Capital loss carryovers |
42 | | ||||||
Charitable contribution carryovers |
2 | | ||||||
Valuation allowance on the fair value of investment securities acquired |
| 83 | ||||||
Other |
101 | 49 | ||||||
|
|
|
|
|||||
8,166 | 4,964 | |||||||
Deferred tax liabilities: |
||||||||
Accumulated depreciation |
(444 | ) | (626 | ) | ||||
Unrealized gain on investment securities |
(278 | ) | (246 | ) | ||||
|
|
|
|
|||||
(722 | ) | (872 | ) | |||||
|
|
|
|
|||||
Net Deferred Tax Asset |
$ | 7,444 | $ | 4,092 | ||||
|
|
|
|
The Company has not recorded a valuation allowance for the deferred tax assets as management believes it is more likely than not that they will be ultimately realized.
The Company did not record a net gain from the sale of available-for-sale securities during 2015. By comparison the Company recorded a $463,000 net gain from the sale of available-for-sale securities during 2014, which was taxed at 34%, or $158,000. The low income housing credits (LIHC) and net operating losses (NOL) can both be carried forward for 20 years. The LIHC credits have accumulated for 2006-2015 and will not expire until 2026-2033. The NOL has accumulated for 2010 2015 and will not expire until 2030-2033, as management elected to carryover the 2015 NOL, rather than carry it back. The NOL carryovers are subject to certain limitations relating to offsetting future taxable income. Charitable contributions have a five year carryover life, capital loss carryovers have a five year carryover life and the AMT credit carryover has an infinite carryover life.
Uncertain Tax Positions
In connection with the accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for certain tax positions, the Company has evaluated its tax position as of December 31, 2015. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has more than a 50 percent likelihood of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. Under the more likely than not threshold guidelines, the Company believes no significant uncertain tax position exists, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. As of December 31, 2015, the Company had no material unrecognized tax benefits or accrued interest and penalties. Interest and penalties associated with unrecognized tax benefits would be classified as additional income taxes in the Consolidated Statements of Income. At December 31, 2015 and 2014, there was no liability for unrecognized tax benefits. The Company and its subsidiary are subject to U. S. Federal income tax as well as income tax of the Commonwealth of Pennsylvania.
80
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2012.
Note 12 - Financial Instruments with Off Balance Sheet Risk
The Bank is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit, typically residential mortgage loans and commercial loans and, to a lesser extent, standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.
The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making such commitments and conditional obligations as it does for on balance sheet instruments. The Bank does not anticipate any material losses from those commitments.
Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extensions of credit, is based on managements credit evaluation of the customer. Collateral requirements vary but may include investments, property, plant and equipment, and income-producing commercial properties. For loans secured by real estate, the Bank generally requires loan to value ratios of no greater than 80%. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary. The current amount of the liability as of December 31, 2015 and 2014 for guarantees under standby letters of credit is not material.
The Banks exposure to credit loss for loan commitments (unfunded loans and unused lines of credit, including home equity lines of credit) and standby and performance letters of credit was as follows at December 31:
Contract or Notional Amount | ||||||||
2015 | 2014 | |||||||
(In thousands) | ||||||||
Commitments to grant loans |
$ | 19,602 | $ | 17,046 | ||||
Unfunded commitments of existing loans |
26,479 | 33,603 | ||||||
Standby and performance letters of credit |
3,316 | 2,667 | ||||||
|
|
|
|
|||||
$ | 49,397 | $ | 53,316 | |||||
|
|
|
|
Note 13 - Concentrations of Credit Risk
Substantially all of the Companys business activity, including loans and loan commitments, is with customers located within its trade area within the counties of Berks, Cumberland, Dauphin, Perry, Schuylkill and Somerset, Pennsylvania. A loan concentration is considered to exist when the total amount of loans to any one or multiple number of borrowers engaged in similar activities or have similar economic characteristics, exceeds 10% of loans outstanding in any one category.
The following table presents loan concentrations as of December 31, 2015 and December 31, 2014.
81
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
(Dollars in thousands) |
December 31, 2015 |
December 31, 2014 |
||||||
Loans to Lessors of: |
||||||||
Residential buildings and dwellings |
$ | 50,773 | $ | 51,248 | ||||
Nonresidential buildings |
68,535 | 56,626 |
Such loans were not made to any one particular borrower or industry. However, the quality of these loans could be affected by the regions economy and overall real estate market. The performance and loss ratio of these portfolios continues to be acceptable. The level of delinquent loans in these portfolios was significantly lower at December 31, 2015 compared to December 31, 2014.
Note 14 - Regulatory Matters and Shareholders Equity
The ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances is restricted by applicable regulations. Regulatory approval is required if the total of all dividends declared by a state-chartered bank in any calendar year exceeds net profits (as defined) for that year combined with the retained net profits for the two preceding years. At December 31, 2015, $369,000 of undistributed earnings of the Bank, included in consolidated shareholders equity, was available for distribution to the Company as dividends without prior regulatory approval.
The Bank is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that if undertaken, could have a direct material effect on the Company and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier 1 capital to risk-weighted assets (as defined in the regulations), and Tier 1 capital to average total assets (as defined). Management believes that as of December 31, 2015, the Bank meets all the capital adequacy requirements to which it is subject.
As of December 31, 2015, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events since year end that management believes have changed the Banks category.
The Federal Reserve Board approved a final rule in 2006 that expands the definition of a small bank holding company (BHC) under the Boards Small Bank Holding Company Policy Statement and the Boards risk-based and leverage capital guidelines for bank holding companies. In 2015, the Federal Reserve increased the asset limit to qualify as a small bank holding company from $500 million to $1 billion. Currently, the Company meets the eligibility criteria of a small BHC and is exempt from risk-based capital and leverage rules, (including Basel III). The Bank is not exempt from those requirements.
The Banks actual capital ratios, which include the merger of Citizens at December 31, 2015, and the minimum ratios required for capital adequacy purposes to be considered well capitalized under the prompt corrective action provisions are summarized below for the periods presented:
82
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Actual | Minimum Regulatory Capital Ratios under Basel III (without 2.5% capital conservation buffer phase-in) |
Well Capitalized under Basel III |
||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
As of December 31, 2015: |
||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) |
$ | 43,128 | 10.7 | % | $ | 32,296 | ³8.0 | % | $40,370 | ³10.0 | % | |||||||||||||
Tier 1 capital (to risk-weighted assets) |
38,710 | 9.6 | 24,222 | ³6.0 | 32,296 | ³8.0 | ||||||||||||||||||
Tier 1 capital (to average total assets) |
38,710 | 7.2 | 21,611 | ³4.0 | 27,014 | ³5.0 | ||||||||||||||||||
Common equity tier 1 risk based capital (to risk-weighted assets) |
38,710 | 9.6 | 18,167 | ³4.5 | 26,241 | ³6.5 | ||||||||||||||||||
Minimum Regulatory Capital Ratios |
Well Capitalized under Prompt Corrective Action Provisions |
|||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of December 31, 2014: |
||||||||||||||||||||||||
Total risk-based capital (to risk-weighted assets) |
$ | 37,899 | 11.5 | % | $ | 26,385 | ³8.0 | % | $32,982 | ³10.0 | % | |||||||||||||
Tier 1 capital (to risk-weighted assets) |
34,096 | 10.3 | 13,193 | ³4.0 | 19,789 | ³6.0 | ||||||||||||||||||
Tier 1 capital (to average total assets) |
34,096 | 8.0 | 17,103 | >4.0 | 21,378 | ³5.0 |
The Basel III capital rules became effective for the Bank on January 1, 2015. A new capital ratio Common equity tier 1 risk based capital was introduced under the Basel III capital rules. The presentation above does not take into account the 2.5% capital conservation buffer phase-in because the buffer does not apply until 2016, with full phase-in to be effective by 2019.
Note 15 - Fair Value Measurements and Fair Values of Financial Instruments
Management uses its best judgment in estimating the fair value of the Companys financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates set forth herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
The Fair Value Measurements standard establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are as follows:
Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | |||
Level 2: | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. |
83
Table of Contents
Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Level 3: | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). |
An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. At December 31, 2015 and 2014 the Company had no liabilities subject to fair value reporting requirements.
The fair value of securities available for sale are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for specific securities, but rather by relying on the securities relationship to other benchmark quoted prices. For these securities, the Company obtains fair value measurements from an independent pricing service. For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31 are as follows:
Description |
Balance | (Level 1) Quoted Prices in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
(In thousands) | ||||||||||||||||
December 31, 2015: |
||||||||||||||||
U.S. Treasuries |
$ | 103 | $ | | $ | 103 | $ | | ||||||||
U.S. Government agency securities |
4,737 | | 4,737 | | ||||||||||||
State and municipal |
34,770 | | 34,770 | | ||||||||||||
U.S. Government agencies and sponsored enterprises (GSEs) residential: |
||||||||||||||||
Mortgage-backed securities |
26,023 | | 26,023 | | ||||||||||||
Collateralized mortgage obligations (CMOs) |
1,773 | | 1,773 | | ||||||||||||
Corporate debt obligations |
7,945 | | 7,945 | | ||||||||||||
Equity securities, financial services |
499 | 499 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities available-for- sale |
$ | 75,850 | $ | 499 | $ | 75,351 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2014: |
||||||||||||||||
U.S. Government agency securities |
$ | 817 | $ | | $ | 817 | $ | | ||||||||
State and municipal |
23,708 | | 23,708 | | ||||||||||||
U.S. Government agencies and sponsored enterprises (GSEs) residential: |
||||||||||||||||
Mortgage-backed securities |
20,902 | | 20,902 | | ||||||||||||
Collateralized mortgage obligations (CMOs) |
2,391 | | 2,391 | | ||||||||||||
Corporate debt obligations |
505 | | 505 | | ||||||||||||
Equity securities, financial services |
495 | 495 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Securities available-for- sale |
$ | 48,818 | $ | 495 | $ | 48,323 | $ | | ||||||||
|
|
|
|
|
|
|
|
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with accounting principles generally accepted in the United States of America. Adjustments to the fair value of these assets usually results from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or fair value. These loans typically consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis.
Other Real Estate Owned
Certain assets, such as other real estate owned (OREO) are measured at fair value of real estate acquired through foreclosure at an estimated fair value less cost to sell. At or near the time of foreclosure, real estate appraisals are obtained on the properties acquired through foreclosure. The real estate is then valued at the lesser of the appraised value or the loan balance, including interest receivable, at the time of foreclosure less an estimate of costs to sell the property. Appraised values are typically determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the acquired property is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered a Level 3. The estimate of costs to sell the property is based on historical transactions of similar holdings.
Impaired Loans
ASC 820 applies to loans measured for impairment using the practical expedients permitted by generally accepted accounting principles (GAAP), including impaired loans measured at an observable market price (if available), or at the fair value of the loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of collateral. The value of the collateral is typically determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of Riverview using observable market data (Level 2). However, if the collateral is a house or building in the process of construction, or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value of the applicable business financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level 3). Impaired loans are measured at the lower of cost or fair value of the underlying collateral less estimated costs to sell on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as a provision for loan losses on the Consolidated Statements of Income. The Company had impaired loans of $9,548,000 at December 31, 2015, of which $1,124,000 required a specific allowance of $715,000. This compares with impaired loans of $8,408,000 at December 31, 2014, of which $738,000 required a specific allowance of $82,000.
Goodwill
The fair value of goodwill is determined in the same manner as goodwill recognized in a business combination and uses standard valuation methodologies. Fair value may be determined using market prices, comparison to similar assets, market multiples, discounted cash flow analysis and other factors. Estimated cash flows may extend far into the future and by their nature are difficult to determine over an extended time frame. Factors that may significantly affect the estimates include specific industry or market sector conditions, changes in revenue growth trends, customer behavior, competitive forces, cost structures and changes in discount rates. The Company did not incur goodwill impairment during the years ended December 31, 2015 or 2014.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
A summary of assets at December 31, 2015 and 2014 measured at estimated fair value on a nonrecurring basis is as follows:
Level 1 |
Level 2 | Level 3 | Total | Total Gains/(Losses) |
||||||||||||||
(In thousands) | ||||||||||||||||||
December 31, 2015: |
||||||||||||||||||
Loans held for sale |
$ | $ | 1,094 | $ | | $ | 1,094 | $ | | |||||||||
Other real estate owned |
| 885 | | 885 | (220 | ) | ||||||||||||
Impaired loans, net of related allowance |
| 316 | 93 | 409 | | |||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||
Total |
$ | $ | 2,295 | $ | 93 | $ | 2,388 | ($ | 220 | ) | ||||||||
|
|
|
|
|
|
|
|
|
||||||||||
Level 1 |
Level 2 | Level 3 | Total | Total Gains/ Losses |
||||||||||||||
(In thousands) | ||||||||||||||||||
December 31, 2014: |
||||||||||||||||||
Loans held for sale |
$ | $ | 216 | $ | | $ | 216 | $ | | |||||||||
Other real estate owned |
| 1,022 | | 1,022 | (38 | ) | ||||||||||||
Impaired loans, net of related allowance |
| 656 | | 656 | | |||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||
Total |
$ | $ | 1,894 | | $ | 1,894 | ($ | 38 | ) | |||||||||
|
|
|
|
|
|
|
|
|
The following table presents additional quantitative information about assets measures at fair value on a nonrecurring basis and for which Level 3 inputs have been used to determine fair value (in thousands):
December 31, 2015 |
Fair Value Estimate | Valuation Technique |
Unobservable Input |
Range | ||||||
Inventory | $ | 93 | Estimated salvage(1) | Salvage valuation and liquidation adjustments(2) |
88%-90% |
(1) | Fair value is generally determined through estimated values of the underlying collateral. |
(2) | Values may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and adjustments are presented as a percent of the original inventory value. |
The following information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of the Companys assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Companys disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Companys financial instruments at December 31, 2015 and 2014.
Cash and cash equivalents (carried at cost):
The carrying amount reported in the balance sheet for cash, due from banks, federal funds sold and interest-bearing deposits approximate those assets fair values.
Interest-bearing time deposits with banks (carried at cost):
Fair values for fixed-rate time certificates of deposit approximate cost. The Company generally purchases amounts below the insured limit, thus limiting the amount of credit risk on these time deposits.
Securities (carried at fair value):
The fair value of securities available-for-sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
quoted market prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, managements best estimate is used. Managements best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that include assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.
Mortgage loans held for sale (carried at lower of cost or fair value):
The fair value of mortgages held for sale is determined, when possible, using quoted secondary market prices. If no such quoted prices exist, the fair value of the loan is determined using quoted market prices for a similar loan or loans, adjusted for the specific attributes of that loan.
Loans (carried at cost)
The fair values of loans are estimated using discounted cash flow analysis, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturities or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Restricted investment in Bank stocks (carried at cost):
The carrying amount of restricted investment in Bank stock approximates fair value, and considers the limited marketability of such securities.
Accrued interest receivable and payable (carried at cost):
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit liabilities (carried at cost):
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Lease payable
The carrying amounts of lease payables approximate their fair values.
Short-term borrowings (carried at cost):
The carrying amounts of short-term borrowings approximate their fair values.
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Long-term borrowings (carried at cost):
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. The prices were obtained from an active market and represent a fair value that is deemed to represent the transfer price if the liability were assumed by a third party.
Off-balance sheet financial instruments (disclosed at cost):
Fair values for the Companys off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.
The estimated fair values of the Companys financial instruments at December 31, 2015 and 2014 are presented as follows:
Fair Value Measurements at December 31, 2015 Using: | ||||||||||||||||||||
(In thousands) | Carrying Amount |
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 21,697 | $ | 21,697 | $ | 21,697 | $ | | $ | | ||||||||||
Interest-bearing time deposits |
991 | 991 | 991 | | | |||||||||||||||
Investment securities |
75,850 | 75,850 | 499 | 75,351 | | |||||||||||||||
Mortgage loans held for sale |
1,094 | 1,094 | | 1,094 | | |||||||||||||||
Loans, net |
405,480 | 411,521 | | 411,428 | 93 | |||||||||||||||
Accrued interest receivable |
1,594 | 1,594 | 1,594 | | | |||||||||||||||
Restricted investments in bank stocks |
2,315 | 2,315 | | | 2,315 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
448,342 | 441,413 | | 441,413 | | |||||||||||||||
Short-term borrowings |
42,275 | 42,275 | | 42,275 | | |||||||||||||||
Long-term borrowings |
9,350 | 9,343 | | 9,343 | | |||||||||||||||
Accrued interest payable |
236 | 236 | 236 | | | |||||||||||||||
Off balance sheet financial instruments |
| | | | |
Fair Value Measurements at December 31, 2014 Using: | ||||||||||||||||||||
(In thousands) | Carrying Amount |
Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 14,580 | $ | 14,580 | $ | 14,580 | $ | | $ | | ||||||||||
Interest-bearing time deposits |
992 | 992 | 992 | | | |||||||||||||||
Investment securities |
48,818 | 48,818 | 495 | 48,323 | | |||||||||||||||
Mortgage loans held for sale |
216 | 216 | | 216 | | |||||||||||||||
Loans, net |
338,901 | 341,121 | | 341,121 | | |||||||||||||||
Accrued interest receivable |
1,237 | 1,237 | 1,237 | | | |||||||||||||||
Restricted investments in bank stocks |
1,002 | 1,002 | | | 1,002 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
372,262 | 366,510 | | 366,510 | | |||||||||||||||
Capital lease payable |
1,655 | 1,655 | | 1,655 | | |||||||||||||||
Short-term borrowings |
12,500 | 12,499 | | 12,499 | | |||||||||||||||
Long-term borrowings |
7,000 | 7,283 | | 7,283 | | |||||||||||||||
Accrued interest payable |
154 | 154 | 154 | | | |||||||||||||||
Off balance sheet financial instruments |
| | | | |
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Note 16 - Commitments and Contingencies
The Company may be subject to numerous claims and lawsuits which arise primarily in the normal course of business. At December 31, 2015, there were no such claims or lawsuits which, in the opinion of management, would have a materially adverse effect on the financial position or results of operations of the Company.
The Company and the Bank entered into a Confidential Separation Agreement and General Release with Robert M. Garst, the former Chief Executive Officer, effective June 30, 2015. Under this agreement the Company is committed to make a separation payment of $1,410,000 and a severance payment of $100,000, less applicable taxes and withholdings, payable in twenty-four equal monthly installments beginning July 2015 and ending June 2017.
Note 17 Riverview Financial Corporation (Parent Company Only) Financial Information
Balance Sheets
December 31, | ||||||||
2015 | 2014 | |||||||
(In thousands) | ||||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 52 | $ | 35 | ||||
Investment in bank subsidiary |
46,502 | 40,089 | ||||||
Real estate, net |
73 | 73 | ||||||
Other assets |
35 | 16 | ||||||
|
|
|
|
|||||
$ | 46,662 | $ | 40,213 | |||||
|
|
|
|
|||||
Liabilities and Shareholders Equity |
||||||||
Long-term borrowings |
$ | 4,350 | $ | 2,000 | ||||
Other liabilities |
9 | 5 | ||||||
|
|
|
|
|||||
Total Liabilities |
4,359 | 2,005 | ||||||
|
|
|
|
|||||
Shareholders equity |
42,303 | 38,208 | ||||||
|
|
|
|
|||||
$ | 46,662 | $ | 40,213 | |||||
|
|
|
|
Statements of Income
Years Ended December 31, |
||||||||
2015 | 2014 | |||||||
(In thousands) | ||||||||
Income, dividends from bank subsidiary |
$ | 745 | $ | 1,364 | ||||
Interest expense |
82 | 103 | ||||||
|
|
|
|
|||||
Income Before Equity in Undistributed (Distributions in Excess of) Net Income of Subsidiary |
663 | 1,261 | ||||||
Undistributed net income (loss) of subsidiary |
(1,445 | ) | 1,460 | |||||
|
|
|
|
|||||
Net Income (Loss) before income taxes |
(782 | ) | $ | 2,721 | ||||
Federal income tax expense (benefit) |
28 | | ||||||
|
|
|
|
|||||
Net Income (Loss) |
($ | 754 | ) | $ | 2,721 | |||
|
|
|
|
|||||
Total Comprehensive Income (Loss) |
($ | 997 | ) | $ | 3,391 | |||
|
|
|
|
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Notes to Consolidated Financial Statements (continued)
December 31, 2015 and 2014
Statements of Cash Flows
Years Ended December 31, |
||||||||
2015 | 2014 | |||||||
(In thousands) | ||||||||
Cash Flows from Operating Activities |
||||||||
Net income (loss) |
($ | 754 | ) | $ | 2,721 | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Option expense |
32 | 24 | ||||||
Undistributed net (income) loss of subsidiary |
1,445 | (1,460 | ) | |||||
(Increase) decrease in accrued interest receivable and other assets |
(18 | ) | (13 | ) | ||||
Increase (decrease) in accrued interest payable and other liabilities |
4 | (4 | ) | |||||
|
|
|
|
|||||
Net Cash Provided by Operating Activities |
709 | 1,268 | ||||||
|
|
|
|
|||||
Cash Flows from Investing Activities |
||||||||
Cash consideration for Citizens merger |
(1,605 | ) | | |||||
|
|
|
|
|||||
Net Cash Used in Investing Activities |
(1,605 | ) | | |||||
|
|
|
|
|||||
Cash Flows from Financing Activities |
||||||||
Proceeds from long-term debt |
2,350 | | ||||||
Repayment of long-term borrowings |
| (3,000 | ) | |||||
Proceeds from exercise of options |
8 | 53 | ||||||
Proceeds from issuance of common stock |
46 | | ||||||
Dividends paid |
(1,491 | ) | (1,488 | ) | ||||
|
|
|
|
|||||
Net Cash Provided by (Used in) Financing Activities |
913 | (4,435 | ) | |||||
|
|
|
|
|||||
Increase (Decrease) in Cash and Cash Equivalents |
17 | (3,167 | ) | |||||
Cash and Cash Equivalents - Beginning |
35 | 3,202 | ||||||
|
|
|
|
|||||
Cash and Cash Equivalents - Ending |
$ | 52 | $ | 35 | ||||
|
|
|
|
Note 18 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. In preparing these consolidated financial statements, Riverview evaluated the events and transactions that occurred from the date of the financial statements through March 29, 2016, the date these consolidated financial statements were issued, and has identified the following events that require recognition or disclosure in the consolidated financial statements:
| On March 28, 2016, the Company borrowed $2,050,000 under its $5,000,000 secured guidance line of credit with ACNB Bank, which increased outstanding borrowings under this line to $4,400,000. The Company down-streamed $1,600,000 of the loan proceeds to the Bank as a capital contribution. |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits pursuant to the Securities and Exchange Act of 1934 is recorded, processed and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on their evaluation of those controls and procedures as of December 31, 2015, the Chief Executive Officer and the Chief Financial Officer of the Company concluded that the Companys disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during the fourth quarter of 2015 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Managements Report on Internal Controls Over Financial Reporting.
Management is responsible for establishing and maintaining internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) under the Securities and Exchange Act of 1934. Under the supervision and with the participation of the principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commissions (COSO). Based on our evaluation under the framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2015.
/s/ Kirk D. Fox |
/s/ Theresa M. Wasko |
|||||
Chief Executive Officer | Chief Financial Officer |
This annual report does not include an attestation report of the Companys independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission, which exempt smaller reporting companies from this requirement, thus permitting the Company to provide only managements report in this annual report.
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information about Directors
The four (4) persons below are Class 3 directors and are up for re-election at the 2016 Annual Meeting of Shareholders.
Nominees for Class 3 Directors
For a Term of Three Years
Name and Age |
Director Since |
Principal Occupation for the Past Five Years and Positions Held with Riverview Financial Corporation and Subsidiaries | ||
Albert J. Evans, 48 |
2007(3) | Mr. Evans is practicing attorney for more than 20 years and is a Vice President of the law firm of Fanelli, Evans & Patel, P.C. located in Pottsville, Pennsylvania. He formerly served as a director of Union Bancorp, Inc. and Union Bank and Trust Company, Pottsville, Pennsylvania since 2007. We believe Mr. Evanss qualifications to sit on our Board of Directors include his extensive legal and business expertise and his knowledge of local communities served by the Bank. | ||
Kirk D. Fox, 49 |
2007(1)(2) | Mr. Fox is the Chief Executive Officer of Riverview Financial Corporation and Riverview Bank, effective June 30, 2015. Previously, he held the position of President since December 31, 2008. Mr. Fox was an Executive Vice President of HNB Bancorp, Inc. and Chief Lending Officer of Halifax National Bank from August 2004 to December 31, 2008. Prior to that Mr. Fox was Vice President and Commercial Loan Officer for Community Bank, where he worked since 1988. He formerly served as a director of HNB Bancorp, Inc. and Halifax National Bank since 2007. We believe Mr. Foxs qualifications to sit on our Board of Directors include his vast banking knowledge and his experience, leadership skills and familiarity with the communities served by the Bank. |
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Name and Age |
Director Since |
Principal Occupation for the Past Five Years and Positions Held with Riverview Financial Corporation and Subsidiaries | ||
R. Keith Hite, 68 |
2006(1)(2) | Mr. Hite is a Vice President with Blackford Ventures, a Lancaster, Pennsylvania based investment capital firm. He retired six years ago, after 30 years as Executive Director of the Pennsylvania State Association of Township Supervisors. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 2006. We believe Mr. Hites qualifications to sit on our Board of Directors include his executive leadership skills in managing a state association and his extensive knowledge of local markets served by the Bank. | ||
David W. Hoover, 55 |
2007(1)(2) | Mr. Hoover is the owner and President of Hoover Financial Services, Inc., which is an accounting/tax preparation/business consulting firm located in Halifax, Pennsylvania for nearly 20 years. He formerly served as a director of HNB Bancorp, Inc. and Halifax National Bank since 2007. Mr. Hoover has been the Chairman of the Board of Riverview Financial Corporation and Riverview Bank since their inception December 2008. We believe Mr. Hoovers qualifications to sit on our Board of Directors include his leadership skills, financial expertise and his knowledge of the communities served by the Bank. |
Information regarding the Companys continuing directors is provided as follows:
Class 1 Directors to serve until 2017
Name and Age |
Director Since |
Principal Occupation for the Past Five Years and Positions Held with Riverview Financial Corporation and Subsidiaries | ||
James G. Ford, II, 68 |
2006(1)(2) | Mr. Ford is President of the J. LeRue Hess Agency, Inc. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 2006. We believe Mr. Fords qualifications to sit on our Board of Directors include his extensive sales and marketing experience in the insurance industry as well as his leadership as president of a company. | ||
Howard R. Greenawalt, 63 |
2012(2) | Mr. Greenawalt is a certified public accountant and a former owner and officer of Greenawalt & Company, P.C., a public accounting firm located in Mechanicsburg, Pennsylvania. He retired as an owner of the firm on January 1, 2012, but continues as an employee of the firm. We believe Mr. Greenawalts qualifications to sit on our Board of Directors include his extensive audit, accounting and tax background and his familiarity with the Corporation and its wholly-owned bank subsidiary, considering he prepared the corporate tax returns for the Corporation prior to his retirement from his accounting firm. |
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Name and Age |
Director Since |
Principal Occupation for the Past Five Years and Positions Held with Riverview Financial Corporation and Subsidiaries | ||
Brett D. Fulk, 47 |
2015 | Mr. Fulk is the President and a director of Riverview Financial Corporation and Riverview Bank, effective June 30, 2015. Previously, he was the Chief Operations Officer since he joined the Company and the Bank in July 2011. From November 2007 to June 2011, Mr. Fulk served as a Managing Director of Commercial Services, Pennsylvania division, Regional Executive, and Region President for Susquehanna Bank. From 1990 to 2007, Mr. Fulk served in the capacity of Region President in both the Northcentral PA and York Regions for CommunityBanks (which was acquired by Susquehanna Bank). | ||
William C. Yaag, 64 |
2012(3) | Mr. Yaag is a partner, treasurer and general manager of Dan-Ed Corporation, which does business as Guers Dairy in Pottsville, Pennsylvania. He formerly served as a director of Union Bancorp, Inc. and Union Bank and Trust Company, Pottsville, Pennsylvania since 2012. We believe Mr. Yaags qualifications to sit on our Board of Directors include his leadership skills and experience in managing a local company and his knowledge of local communities served by the Bank. |
Class 2 Directors to serve until 2018
Name and Age Nominees: |
Director Since |
Principal Occupation for the Past Five Years and Positions Held with Riverview Financial Corporation and Subsidiaries | ||
Daniel R. Blaschak, 57 |
1994(3) | Mr. Blaschak is a director of Blaschak Coal Corporation and a director and treasurer of Penn Equipment Corporation and Fisher Mining Company. He formerly served as a director of Union Bancorp, Inc. and Union Bank and Trust Company, Pottsville, Pennsylvania since 1994. We believe Mr. Blaschaks qualifications to sit on our Board of Directors include his leadership skills, his knowledge of local communities served by the Bank, and his 21 years of experience as a bank board member. | ||
Joseph D. Kerwin, 52 |
2005(1)(2) | Mr. Kerwin is a practicing attorney with over 25 years of experience and is a partner with the law firm of Kerwin & Kerwin located in Elizabethville, Pennsylvania. He formerly served as a director of HNB Bancorp, Inc. and Halifax National Bank since 2005. We believe Mr. Kerwins qualifications to sit on our Board of Directors include his extensive legal and business expertise and his knowledge of the communities served by the Bank. | ||
Timothy E. Resh, 62 |
2008(4) | Mr. Resh is a retired pastor of Brothers Valley Church of the Brethren. He formerly served as the Chairman of the Board of Citizens National Bank of Meyersdale since 2008. We believe Mr. Reshs qualifications to sit on our Board of Directors include his extensive experience in business management, community leadership, agricultural operations and customer and retail operations. | ||
John M. Schrantz, 65 |
1994(1)(2) | Mr. Schrantz is President of the Rohrer Companies, Inc. (Rohrer Bus Service). He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 1994. Mr. Schrantz has been the Vice-Chairman of the Board of Riverview and the Bank since their inception in December 2008. We believe Mr. Schrantzs qualifications to sit on our Board of Directors include his financial expertise and leadership skills as president of a local company. |
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Name and Age Nominees: |
Director Since |
Principal Occupation for the Past Five Years and Positions Held with Riverview Financial Corporation and Subsidiaries | ||
David A. Troutman, 59 |
2002(1)(2) | Mr. Troutman is President and owner of A.W. Troutman DBA/ Troutmans Chevrolet Buick GMC, an automobile dealership in Millersburg, PA and the owner of W.C. Troutman Company, a finance company in Millersburg, PA. He formerly served as a director of Halifax National Bank since 2002. We believe Mr. Troutmans qualifications to sit on our Board of Directors include his business expertise and leadership skills as president and owner of a local company and his knowledge of the communities served by the Bank. |
(1) | Includes service as a director of First Perry Bancorp, Inc. and its subsidiary, The First National Bank of Marysville and HNB Bancorp, Inc. and its subsidiary, Halifax National Bank. |
(2) | Includes service as a director of Riverview Financial Corporation and its subsidiary, Riverview Bank. |
(3) | Although the individual became a director of the Corporation effective November 1, 2013 as a result of the consolidation with Union Bancorp, Inc., the year presented includes service as a director of Union Bancorp, Inc. and its subsidiary, Union Bank and Trust Company. |
(4) | Although the individual became a director of the Corporation effective December 31, 2015 as a result of the merger of Citizens National Bank of Meyersdale, the year presented includes service as a director of Citizens. |
The Board of Directors of the Corporation has a standing Audit Committee comprised of independent directors meeting the heightened independence requirements applicable to audit committee members. The members of the Audit Committee are R. Keith Hite, Chairman, Daniel R. Blaschak, Arthur M. Feld, Howard Greenawalt, Joseph D. Kerwin and Timothy E. Resh. The Audit Committee is charged with providing assistance to the Board in fulfilling its responsibilities to the shareholders in the areas of financial reporting, adherence to policies and procedures, and safeguarding of the Companys assets. The Board of Directors has determined that Mr. Greenawalt is the audit committee financial expert as defined in SEC Regulation S-K, by reason that Mr. Greenawalt is a certified public accountant with an extensive audit, accounting and tax background and familiarity with the banking industry.
The Corporation adopted a Code of Ethics that applies to all directors, officers and employees of the Corporation and the Bank. The Code of Ethics defines the standards of honesty, integrity, impartiality and conduct that are essential to ensure the proper performance of the Companys business and to ensure the public trust. A copy of the full text of the Code of Ethics may be obtained, without charge, by contacting Maureen Duzick, Secretary, Riverview Financial Corporation, 3901 North Front Street, Harrisburg, Pennsylvania 17110.
Executive Officers
The following table provides information, as of December 31, 2015, about the Corporations executive officers; who were not already discussed above in their roles as directors.
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Name |
Age | Principal Occupation For the Past Five Years and Position Held with Riverview Financial Corporation and Subsidiaries | ||
Theresa M. Wasko |
63 | Mrs. Wasko is the Chief Financial Officer of Riverview Financial Corporation and Riverview Bank since January 2009. Prior to that, Mrs. Wasko served as the Chief Financial Officer of Great Bear Bank (a bank in organization) from 2007 to 2009 and Chief Financial Officer of East Penn Bank from 1998 to 2007. |
ITEM 11. | EXECUTIVE COMPENSATION. |
Directors Compensation
The following table summarizes the total compensation paid to independent directors during the year ended December 31, 2015:
Name |
Fees Earned or Paid in Cash (1) ($) |
Bonus ($) |
Option Awards (2) ($) |
Options Exercised (3) ($) |
Total ($) |
|||||||||||||||
Felix E. Bartush, Jr. |
21,000 | | 3,243 | | 24,243 | |||||||||||||||
Daniel R. Blaschak |
21,000 | | 3,243 | | 24,243 | |||||||||||||||
Albert J. Evans |
21,000 | | 3,243 | | 24,243 | |||||||||||||||
Arthur M. Feld |
23,000 | | 3,243 | 1,838 | 28,081 | |||||||||||||||
James G. Ford, II |
21,000 | | 3,243 | | 24,243 | |||||||||||||||
Howard R. Greenawalt |
21,000 | | 3,243 | | 24,243 | |||||||||||||||
R. Keith Hite |
23,000 | | 3,243 | | 26,242 | |||||||||||||||
David W. Hoover |
29,500 | | 3,243 | | 32,743 | |||||||||||||||
Joseph D. Kerwin |
21,000 | | 3,243 | | 24,243 | |||||||||||||||
John M. Schrantz |
27,500 | | 3,243 | | 30,743 | |||||||||||||||
David A. Troutman |
22,000 | | 3,243 | | 25,243 | |||||||||||||||
William C. Yaag |
21,000 | | 3,243 | | 24,243 |
(1) | Retainer fee for services as a director. |
(2) | Options were granted during 2015. The per share grant date fair market value under the accounting standard relating to Accounting for Stock-Based Compensation on the common stock option grants for the named executives was $2.82 per share for the 1,150 options granted to each independent director on November 18, 2015. |
(3) | The bargain element in the exercise of 750 options, which was reported as income, was the difference between the market value of the stock on the exercise date, which was $13.05 per share, and the exercise price of the options, which was $10.60 per share. |
The Corporation maintains a Director Deferred Fee Agreement (DDFA) which allows electing directors to defer payment of their director fees until a future date. Under this agreement, the estimated present value of the future benefits is accrued over the effective dates of the agreement at an interest rate that is declared annually by the Board of Directors. Accordingly, the Board of Directors declared the interest rate to be 6.28% for 2015 for the Agreements with Directors Fox and Yaag. The rate is based on the five year average of the 20 year CMT, plus 3%, with a minimum rate of 4%.
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The Corporation and its subsidiary, Riverview Bank, entered into a Director Emeritus Agreement (the Agreement) with its directors, effective November 2, 2011. In order to promote the orderly succession of the Board of Directors, the Agreement defines the benefits the Bank is willing to provide upon the termination of service to those individuals who currently served as directors of the Corporation up to December 31, 2011, provided the director provides the services contemplated in the Agreement. Among various provisions, the material terms of the Agreement are as follows:
| The Bank shall pay the director or the directors beneficiary $15,000 per year, which may be increased at the sole discretion of the board of directors, for five years and paid in 12 equal monthly installments in the following circumstances: |
| Upon termination of service as a director on or after the age of 65, provided the director agrees to provide certain ongoing services for the Bank; |
| Upon termination of service as a director due to a disability prior to the age of 65; |
| Upon a change in control; |
| Upon the death of a director after electing to be a director emeritus. |
| The Bank shall not pay any benefits under the Agreement (1) to the extent limited by Section 280G of the Internal Revenue Code or which would be prohibited as a golden parachute payment, (2) the director is terminated for cause, as defined in the Agreement, (3) if the director is removed by the Banks regulator, (4) if the director engages in competition with the Bank after termination of service, or (5) if the director commits suicide within two years after the date of the Agreement. |
Named Executive Officer Compensation
The following table summarizes the total compensation for Kirk D. Fox, Riverview Financial Corporations Chief Executive Officer, Brett D. Fulk, Riverview Financial Corporations President, and Theresa M. Wasko, Riverview Financial Corporations Chief Financial Officer for the past two (2) fiscal years. These individuals are referred to as the Named Executive Officers.
Summary Compensation Table
Name and Principal Position |
Year | Salary | Bonus | Option Awards(1) |
All Other Compensation |
Total | ||||||||||||||||||
Kirk D. Fox, |
2015 | $ | 331,500 | $ | 100,000 | $ | 12,690 | $ | 98,183 | (2) | $ | 542,373 | ||||||||||||
President |
2014 | 325,000 | 25,000 | 28,000 | 98,139 | (3) | 476,139 | |||||||||||||||||
Brett D. Fulk |
2015 | 316,200 | 100,000 | 12,690 | 44,677 | (4) | 473,567 | |||||||||||||||||
Chief Operations Officer |
2014 | 310,000 | 25,000 | 28,000 | 44,346 | (5) | 404,346 | |||||||||||||||||
Theresa M. Wasko |
2015 | 164,383 | 10,000 | | 10,250 | (6) | 184,633 | |||||||||||||||||
Chief Financial Officer |
2014 | 161,160 | 15,000 | 5,600 | 16,139 | (7) | 197,899 |
(1) | The per share grant date fair market value under the accounting standard relating to Accounting for Stock-Based Compensation on the common stock option grants for the named executives was $1.40 per share for 2014. |
(2) | Includes an automobile allowance for personal use of $1,819; 401(k) match of $11,282; life insurance premiums of $317; profit sharing of $3,811; change of $10,464 in accrued pension value of supplemental retirement plan; deferred compensation earnings of $45,490; bank contribution to deferred compensation plan of $10,000; and director fees of $15,000. |
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(3) | Includes an automobile allowance for personal use of $1,702; 401(k) match of $7,800; life insurance premiums of $296; profit sharing of $13,000; change of $9,492 in accrued pension value of supplemental retirement plan; deferred compensation earnings of $45,834; country club membership of $1,015; vacation reimbursement of $4,000; and director fees of $15,000. |
(4) | Includes an automobile allowance for personal use of $7,136; 401(k) match of $10,207; life insurance premiums of $305; profit sharing of $4,766; private and country club membership of $1,765; change of $7,488 in accrued pension value of supplemental retirement plan; deferred compensation earnings of $5,510; and a director fee of $7,500. |
(5) | Includes an automobile allowance for personal use of $5,388; 401(k) match of $10,400; life insurance premiums of $285; profit sharing of $13,000; private and country club membership of $1,445; and change of $6,828 in accrued pension value of supplemental retirement plan; and vacation reimbursement of $4,000. |
(6) | Includes a 401(k) match of $6,875; life insurance premiums of $305; profit sharing of $3,070. |
(7) | Includes a 401(k) match of $7,046; life insurance premiums of $285; profit sharing of $8,808. |
Messrs. Fox and Fulk are parties to three-year term evergreen employment agreements. On every anniversary date of each agreement, the employment period is extended automatically for one additional year, unless notice of nonrenewal is given. The agreements provide that the executives may participate in those employee benefit plans for which they are eligible. Each also provides that if the executive is terminated without cause or, if after a change in control, there is a reduction in his salary or benefits, or a change in his reporting responsibilities, duties or titles. he will receive three times his annual compensation, as defined in the agreement and includes the amount the Bank pays for employee benefits for the executive for a one year period, which will be paid in 24 equal monthly installments beginning within 30 days from his separation of service. In addition, for Mr. Fox only, the Bank shall transfer and deliver title to the Bank automobile which he uses at the time of separation.
Mrs. Wasko is party to a one-year term evergreen employment agreement, which provides that she will receive one times her annual base salary, payable in 12 equal monthly installments in the event she is terminated without cause or, if after a change in control. She will also be reimbursed for the monthly premium paid to obtain substantially similar employee benefits for 12 months following the date of termination of employment or until the she secures substantially similar benefits through other employment, whichever occurs first.
If the payments to be paid as described above for Messrs Fox and Fulk are determined to be parachute payments, subjecting the executive to excise taxes, the executive will receive an additional cash payment in an amount such that the after-tax proceeds of such payment will be equal to the amount of the excise tax.
On January 24, 2012, the Employment Agreement of Mr. Fox was amended and restated to comply with Section 409A of the Internal Revenue Code of 1986, as amended.
On November 16, 2011, Mr. Fox signed a Noncompetition Agreement. The purpose for the noncompetition agreement was to define the restrictions placed on the executives during and after his employment with the Corporation and the Bank in terms of being engaged in certain activities which may be considered to be competitive with the goodwill and proprietary rights of Riverview and Riverview Bank. In consideration of the executives entering into this agreement, Riverview Bank:
| paid the executive $10,250 upon its execution; |
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| provides the executive with a membership at a country club during their employment; and |
| provides the executive with an additional $10,000 in supplemental term insurance during their employment. |
Riverview maintains an Executive Deferred Compensation program in which two of Riverviews executives participate, allowing the executives to defer payment of their base salary, bonus and performance based compensation until a future date. Under this agreement, the estimated present value of the future benefits is accrued over the effective dates of the agreement at an interest rate that is declared annually by the board of directors. Accordingly, the board of directors declared the interest rate to be 6.28% for 2015. The agreement is unfunded, with benefits to be paid from Riverviews general assets.
Elements of Executive Compensation
The Corporations executive compensation and benefits package consists of direct compensation and corporate sponsored benefit plans, including base salary, bonuses, health and welfare benefits, profit sharing/401(k) plan, and stock option plans. Each component is designed to contribute to a total package that is competitive, performance-based, valued by the executives of the Corporation and to align their interests with those of the shareholders.
Base salary
A competitive base salary is necessary to attract and retain talented executives. The base salary for each named executive officer is determined based upon experience, expected personal performance, salary levels that are in place for comparable positions within the industry, and responsibilities assumed by the named executive officers. While an executive officers initial salary is determined by an assessment of competitive market levels, the major factor in determining base salary increases is individual performance. The Compensation Committee evaluates executive officer base salary levels on an annual basis. The Corporation usually grants annual increases to executives as well as increases needed to reflect changes in responsibilities and the market competitive environment.
In establishing base salaries for 2015, the Compensation Committee considered the Corporations financial performance in comparison with historical trends and peer group and market based industry data. In consideration of the general economic conditions prevailing in 2015 and the Corporations financial performance in spite of such conditions, and to maintain a competitive salary base for the executive officers, the Committee determined that an increase in base salary for 2015 was appropriate.
Bonuses
The annual bonus is tied to the Corporations performance and is not only granted to the named executive officers but was granted to all employees of the Corporation during 2015. This award is made at the discretion of the Board of Directors if the Board is of the opinion that such an award is merited. The bonus is designed to align the employees interests with those of shareholders by linking the Corporations performance to such a cash award.
Director Fees
Messrs. Fox and Fulk are members of the Board of Directors and each received the equivalent of $15,000 per year as a retainer fee for serving on the Board. Since Mr. Fulk became a member of the Board effective June 30, 2015, he received six months of the retainer.
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Profit Sharing/401(k) Plan
Executive officers participate in the Profit Sharing/401(k) Plan, which is offered to all full-time employees who have completed at least one year of service and are at least 18 years of age. This plan is a means for employees to contribute and save for their retirement, and it has a combined tax qualified savings feature and profit sharing feature for employees. The Corporation makes a contributory match to the plan for each participating employee at a discretionary percentage of their respective compensation. The Corporation may also make a discretionary contribution annually to the plan based upon the corporations financial performance. This discretionary contribution is designed to award employees for contributing to the Corporations financial success. Contributions are expressed as a percentage of base salary and executive officers receive the same percentage of base salary as all other employees. During 2015, the percentage of the discretionary contribution made to all eligible 401(k) participants was approximately 1.8%.
Stock Option Plan
In January 2009, the Corporation adopted the 2009 Stock Option Plan. The purpose of the 2009 Plan was to advance the development, growth and financial condition of the Corporation by providing incentives through participation in the appreciation of the common stock of the Corporation to secure, retain and motivate the Corporations directors, officers and key employees and to align such persons interests with those of Corporations shareholders.
Supplemental Executive Retirement Plan
In 2008, HNB Bancorp, a predecessor of the Corporation, implemented a supplemental executive retirement plan covering Kirk D. Fox, who at the time was an Executive Vice President of HNB Bancorp. The plan was assumed by the Corporation after the consolidation of HNB Bancorp with First Perry Bancorp, forming Mr. Fulk will receive $20,000 per year for 20 years beginning upon his termination of employment after reaching normal retirement age, unless his termination is due to cause as defined by the agreement.
Perquisites
Riverview provides an allowance for automobile use to Messrs. Fox and Fulk. In addition, they are entitled to a membership at a country club during their employment. These provisions are viewed as a normal and reasonable benefit in a highly competitive financial service industry.
Grants of Plan-Based Awards
In January 2009, the Corporation implemented a nonqualified stock option plan. Effective January 4, 2012, the Corporation increased the number of shares of the Corporations common stock that may be issued or transferred under this plan from 170,000 shares, in the aggregate, to 220,000 shares. On April 16, 2014, the 2009 the Plan was again amended and restated to increase the total number of shares of common stock by 130,000 shares, thus increasing the total number of available shares under the Plan to 350,000 shares.
In accordance with the 2009 Plan, the vesting schedule for the options is a seven year cliff, which means that the options are 100% vested in the seventh year following the grant date and the expiration date is ten years following the grant date. However, on December 18, 2013, the Board of Directors approved accelerating the vesting of the 179,250 options that were granted and outstanding to date.
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The following table presents equity incentive plan awards outstanding at December 31, 2015 for each named executive officer and information relating to those option awards that are unexercised and option awards that have not vested:
Outstanding Equity Awards at December 31, 2015 |
||||||||||||||||||||
Name |
Number of securities underlying unexercised options (#) exercisable |
Number of securities underlying unexercised options (#) unexercisable |
Grant Date |
Option exercise price ($/Share) |
Option Expiration Date |
|||||||||||||||
Kirk D. Fox |
25,000 | | 1/21/2009 | $ | 10.60 | (1) | 1/21/2019 | |||||||||||||
3,000 | | 9/16/2009 | $ | 10.60 | (1) | 9/16/2019 | ||||||||||||||
| 20,000 | 5/5/2014 | $ | 10.00 | 5/5/2024 | |||||||||||||||
| 4,500 | 11/18/2015 | $ | 13.05 | 11/18/2025 | |||||||||||||||
Brett D. Fulk |
11,000 | | 12/07/2011 | $ | 10.60 | 12/07/2021 | ||||||||||||||
10,000 | | 1/4/2012 | $ | 10.35 | 1/4/2022 | |||||||||||||||
| 20,000 | 5/5/2014 | $ | 10.00 | 5/5/2024 | |||||||||||||||
| 4,500 | 11/18/2015 | $ | 13.05 | 11/18/2025 | |||||||||||||||
Theresa M. Wasko |
10,000 | | 1/21/2009 | $ | 10.60 | (1) | 1/21/2019 | |||||||||||||
5,000 | | 9/16/2009 | $ | 10.60 | (1) | 9/16/2019 | ||||||||||||||
| 4,000 | 5/5/2014 | $ | 10.00 | 5/5/2024 |
(1) | On December 7, 2011, the Board of Directors approved the reduction of the exercise price of the options granted in 2009 and 2011 from $13.00 per share to $10.60 per share, which was the fair market value of the stock at that date. |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee examines the compensation structure of the Company and establishes the compensation of officers and employees of the Company. The Committee recommends to the full Board of Directors for its approval the compensation (both salary and bonus) of such persons based on, among other things: the overall performance of the Company and the amounts allocated in the Companys budget toward compensation.
The Compensation Committee is comprised of Joseph D. Kerwin, Chairman, David W. Hoover and John M. Schrantz., who are all considered to be independent (as independence is currently defined in the NASDAQ listing standards). In addition, Kirk D. Fox, Chief Executive Officer, and Brett D. Fulk, President, are ex officio members of the Compensation Committee, but do not participate in their own review or vote on their own compensation increases. During 2015, there were no interlocking relationships between Riverviews executives and compensation committee members, and executives and compensation committee members of other entities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Principal Holders
To the best of our knowledge, no person or entity owned of record or beneficially, on March 25, 2016, more than 5% of the outstanding Corporations common stock.
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Beneficial Ownership of Executive Officers, Directors and Nominees
The following table shows, as of March 20, 2015, the amount and percentage of the Corporations common stock beneficially owned by each director, each nominee, each named executive officer and all directors, nominees and executive officers of the corporation as a group.
Unless otherwise indicated in a footnote appearing below the table, all shares reported in the following table are owned directly by the reporting person. The number of shares owned by the directors, nominees and executive officers is rounded to the nearest whole share.
Name of Individual or Identity of Group |
Amount and Nature of Beneficial Ownership (1) |
Percent of Class | ||||||
Directors and Nominees: |
||||||||
Felix E. Bartush, Jr. |
47,000 | 1.42 | % | |||||
Daniel R. Blaschak |
16,086 | 0.49 | % | |||||
Albert J. Evans |
11,618 | 0.35 | % | |||||
Arthur M. Feld |
20,350 | 0.62 | % | |||||
James G. Ford, II (2) |
15,675 | 0.47 | % | |||||
Kirk D. Fox (3) |
33,245 | 1.01 | % | |||||
Brett D. Fulk (4) |
31,366 | 0.95 | % | |||||
Howard R. Greenawalt |
8,000 | 0.24 | % | |||||
R. Keith Hite (2) |
34,700 | 1.05 | % | |||||
David W. Hoover (2) |
28,644 | 0.87 | % | |||||
Joseph D. Kerwin (2) |
29,123 | 0.88 | % | |||||
Timothy E. Resh |
2,969 | 0.09 | % | |||||
John M. Schrantz (2) |
19,437 | 0.59 | % | |||||
David A. Troutman (2) |
31,055 | 0.94 | % | |||||
William C. Yaag |
8,888 | 0.27 | % | |||||
Non-Director Executive Officers: |
||||||||
Theresa M. Wasko (5) |
16,561 | 0.50 | % | |||||
|
|
|||||||
All directors and executive officers as a group (16 persons) |
354,717 | 10.73 | % |
(1) | Beneficial ownership of shares of the Corporations common stock is determined in accordance with Securities and Exchange Commission Rule 13d-3, which provides that a person should be credited with the ownership of any stock held, directly or indirectly, through any contact, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote or to direct the voting of the stock; or (ii) investment power, which includes the power to dispose or direct the disposition of the stock; or (iii) the right to acquire beneficial ownership within 60 days after December 31, 2015. |
(2) | Total includes 5,750 fully vested options that may be exercised at any time. |
(3) | Total includes 28,000 fully vested options that may be exercised at any time. |
(4) | Total includes 21,000 fully vested options that may be exercised at any time. |
(5) | Total includes 15,000 fully vested options that may be exercised at any time. |
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Securities Authorized for Issuance Under Equity Compensation Plans
The following table discloses the number of outstanding options granted by the Corporation to participants in all equity compensation plans, as well as the number of securities remaining available for future issuance under the plans as of December 31, 2015
Information pertaining to options outstanding at December 31, 2015 is as follows:
Number of Securities to be Issued Upon Exercise of Outstanding Options |
Weighted Average Exercise Price of Outstanding Options |
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans |
||||||||||
Plan not approved by shareholders |
344,250 | (1) | $ | 10.48 | | |||||||
Plan approved by shareholders |
| | |
(1) | Effective January 4, 2012, the 2009 Plan was amended and restated to increase the number of common shares available under the Plan, in the aggregate, to 220,000 shares as compared with 170,000 shares. On April 16, 2014, the 2009 the Plan was again amended and restated to increase the total number of shares of common stock by 130,000 shares, thus increasing the total number of available shares under the Plan to 350,000 shares. On March 24, 2016, the Company filed a Registration Statement to register 344,250 shares of its no par value common stock for issuance pursuant to the exercise of stock options issued under the Plan. |
The vesting schedule for all options issued under the 2009 Plan is a seven year cliff, which means that the options are 100% vested in the seventh year following the grant date and expire ten years following the grant date. However, on December 18, 2013, the Board of Directors approved accelerating the vesting of the 179,250 options that were granted and outstanding. Additional information relating to the 2009 Plan can be found in Note 10 Employee Benefit Plans incorporated in the Corporations annual report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Currently, the Board of Directors is comprised of fifteen members. The Corporation has chosen to follow the NASDAQ Stock Market standards for independence. Under those standards, the following thirteen directors are considered independent: Messrs. Bartush, Blaschak, Evans, Feld, Ford, Greenawalt, Hite, Hoover, Kerwin, Resh, Schrantz, Troutman and Yaag. This constitutes more than a majority of the Board of Directors. Only independent directors serve on our Audit Committee, Compensation Committee and Governance and Nominating Committee.
In determining the directors independence, the Board of Directors considered the services provided, loan transactions between Riverview Bank and the directors, their respective family members and businesses with whom they are associated, as well as any contributions made to non-profit organizations with whom the directors are associated.
The following table includes a description of other categories or types of transactions, relationships or arrangements considered by the Board (in addition to those listed above and under the section entitled Transactions with Directors and Executive Officers below) in reaching its determination that the thirteen directors are independent.
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Name |
Independent |
Other Transactions/Relationships/Arrangements | ||
Mr. Bartush |
Yes | Signage | ||
Mr. Blaschak |
Yes | None | ||
Mr. Evans |
Yes | Legal services | ||
Mr. Feld |
Yes | Legal services loan closings and collection work | ||
Mr. Ford |
Yes | Insurance consulting | ||
Mr. Greenawalt |
Yes | Fixed asset recordkeeping and consulting | ||
Mr. Hite |
Yes | None | ||
Mr. Hoover |
Yes | Payroll processing services | ||
Mr. Kerwin |
Yes | Legal services contracts | ||
Mr. Resh |
Yes | None | ||
Mr. Schrantz |
Yes | None | ||
Mr. Troutman |
Yes | Automobile sales and repairs | ||
Mr. Yaag |
Yes | None |
In each case, the Board determined that none of the transactions noted impair the independence of the director.
Some of the Corporations directors and executive officers and the companies with which they are associated were customers of, and had banking transactions with, the Corporations subsidiary bank, Riverview Bank and its operating divisions, Marysville Bank and Halifax Bank, during 2015. All loans and loan commitments made to them and to their companies were made in the ordinary course of bank business, on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with other customers of the Bank, and did not involve more than a normal risk of collectability or present other unfavorable features. The Corporation anticipates that the Bank will enter into similar transactions in the future.
The Board of Directors must approve all related party transactions that are significant. In turn, the director or officer in question is excused from the Board meeting at the time the decision is made.
Riverview did not pay any of the independent directors more than $120,000 for any services they rendered to either the Corporation or to Riverview Bank during 2015.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Upon recommendation of the Corporations Audit Committee, Smith Elliott Kearns & Company, LLC has been selected by the Board of Directors as the independent auditors for 2016. Smith Elliott Kearns & Company, LLC has been the independent certified public accounting firm for Riverview Financial Corporation since 2009. Aggregate fees billed by Smith Elliott Kearns & Company, LLC for services rendered in the aggregate for the years ended December 31, 2015 and 2014 were as follows:
2015 | 2014 | |||||||
Audit fees(1) |
$ | 74,495 | $ | 62,600 | ||||
Audit-related fees(2) |
11,210 | 23,195 | ||||||
Tax fees(3) |
10,490 | 13,900 | ||||||
All other fees(4) |
| 2,310 | ||||||
|
|
|
|
|||||
Total |
$ | 96,195 | $ | 102,005 | ||||
|
|
|
|
(1) | Audit fees were for professional services rendered for the audits of the consolidated financial statements of the Company for the years ended December 31, 2015 and 2014, reviews of interim financial statements included in 10-Q filings for 2015 and review of the annual filings on Form 10-K for 2015 and 2014. |
(2) | Audit related fees were for professional services rendered in connection with certain regulatory reporting requirements, consents and other required procedures in connection with the filings for the Citizens merger completed December 31, 2015. |
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(3) | Tax fees were for professional services rendered for preparation of the Companys corporate tax returns and other tax compliance issues. |
(4) | Other fees were for consultations concerning general accounting issues. |
The report issued by Smith Elliott Kearns & Company, LLC in connection with the audit of the financial statements of the Corporation for the year ended December 31, 2015 did not contain an adverse opinion or a disclaimer of opinion, nor was such report qualified or modified as to uncertainty, audit scope, or accounting principles.
The Audit Committee pre-approved all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit related services, tax services and other services. The Audit Committee pre-approval process is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre-approve particular services on a case by case basis. For each proposed service, the independent auditor is required to provide detailed back-up documentation at the time of approval.
Representatives of Smith Elliott Kearns & Company, LLC are expected to be present at the annual meeting. While the representatives will not have an opportunity to make a statement, the representatives will be available to respond to appropriate questions.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) | 1. Financial statements are incorporated by reference in Part II, Item 8 hereof. |
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. | The financial statement schedules, required by Regulation S-X, are omitted because the information is either not applicable or is included elsewhere in the consolidated financial statements. |
3. | The following Exhibits are filed as part of this filing on Form 10-K, or incorporated by reference hereto: |
2.1 | Agreement and Plan of Merger, dated October 30, 2014, between Riverview Financial Corporation and The Citizens National Bank of Meyersdale. (Incorporated by reference to Annex A included in Riverviews Registration Statement on Form S-4 (Registration No. 333-201017 file December 17, 2014.) | |
3.1 | Articles of Incorporation of Riverview Financial Corporation. (Incorporated by reference to Exhibit D of Annex A included in Riverviews Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-188193 filed August 5, 2013.) | |
3.2 | Amended and Restated Bylaws of Riverview Financial Corporation. (Incorporated by reference to Exhibit 3(ii) to Riverviews Current Report on Form 8-K (Registration No. 333-188193 filed March 4, 2015.) | |
21.1 | Subsidiaries of Registrant. | |
23.2 | Consent of Independent Registered Public Accounting Firm. |
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31.1 | Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). | |
31.2 | Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). | |
32.1 | Chief Executive Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). | |
32.2 | Chief Financial Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: | /s/ Kirk D. Fox | |
Kirk D. Fox | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | March 30, 2016 | |
By: | /s/ Theresa M. Wasko | |
Theresa M. Wasko | ||
Chief Financial Officer | ||
(Principal Executive Officer) | ||
Date: | March 30, 2016 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
DATE | ||||
By: | /s/ Kirk D. Fox Kirk D. Fox Chief Executive Officer and Director (Principal Executive Officer) |
March 30, 2016 | ||
By: |
/s/ Theresa M. Wasko Theresa M. Wasko Chief Financial Officer (Principal Financial Officer) |
March 30, 2016 | ||
By: |
/s/ Felix Bartush Felix Bartush, Director |
March 30, 2016 | ||
By: |
/s/ Daniel R. Blaschak Daniel R. Blaschak, Director |
March 30, 2016 | ||
By: |
/s/ Albert J. Evans Daniel R. Blaschak, Director |
March 30, 2016 | ||
By: |
/s/ Arthur M. Feld Arthur M. Feld, Director |
March 30, 2016 | ||
By: |
/s/ James G. Ford, II James G. Ford, II, Director |
March 30, 2016 |
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DATE | ||||
By: |
/s/ Brett D. Fulk Brett D. Fulk, President & Director |
March 30, 2016 | ||
By: |
/s/ Howard R. Greenawalt Howard R. Greenawalt, Director |
March 30, 2016 | ||
By: | /s/ R. Keith Hite R. Keith Hite, Director |
March 30, 2016 | ||
By: |
/s/ David W. Hoover David W. Hoover, Chairman of the Board and Director |
March 30, 2016 | ||
By: |
/s/ Joseph D. Kerwin Joseph D. Kerwin, Director |
March 30, 2016 | ||
By: |
/s/ Timothy E. Resh Timothy E. Resh, Director |
March 30, 2016 | ||
By: |
/s/ John M. Schrantz John M. Schrantz, Vice Chairman of the Board and Director |
March 30, 2016 | ||
By: |
/s/ David A. Troutman David A. Troutman, Director |
March 30, 2016 | ||
By: |
/s/ William C. Yaag William C. Yaag, Director |
March 30, 2016 |
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Exhibit No. | Description | |
2.1 | Agreement and Plan of Merger, dated October 30, 2014, between Riverview Financial Corporation and The Citizens National Bank of Meyersdale. (Incorporated by reference to Annex A included in Riverviews Registration Statement on Form S-4 (Registration No. 333-201017 filed December 17, 2014.) | |
3.1 | Articles of Incorporation of Riverview Financial Corporation. (Incorporated by reference to Exhibit D of Annex A included in Riverviews Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-188193 filed August 5, 2013.) | |
3.2 | Amended and Restated Bylaws of Riverview Financial Corporation. (Incorporated by reference to Exhibit 3(ii) to Riverviews Current Report on Form 8-K (Registration No. 333-188193 filed March 4, 2015.) | |
21.1 | Subsidiaries of Registrant. | |
23.2 | Consent of Independent Registered Public Accounting Firm. | |
31.1 | Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). | |
31.2 | Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). | |
32.1 | Chief Executive Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). | |
32.2 | Chief Financial Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). | |
101 | Interactive Data File (XBRL) furnished herewith. |
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