Riverview Financial Corp - FORM 10-Q

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EX-32.2 - EX-32.2 - Riverview Financial Corp	d484505dex322.htm
EX-32.1 - EX-32.1 - Riverview Financial Corp	d484505dex321.htm
EX-31.2 - EX-31.2 - Riverview Financial Corp	d484505dex312.htm
EX-31.1 - EX-31.1 - Riverview Financial Corp	d484505dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 30, 2017

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from

333-201017

(Commission File Number)

RIVERVIEW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania		38-3917371
(State of incorporation)		(IRS Employer Identification Number)

3901 North Front Street, Harrisburg, PA		17110
(Address of principal executive offices)		(Zip code)

(717) 957-2196

(Registrant’s telephone number, including area code)

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 ☒ 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 during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files. Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 9,026,395 at October 30, 2017.

RIVERVIEW FINANCIAL CORPORATION

FORM 10-Q

For the Quarter Ended September 30, 2017


Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at September 30, 2017 and December 31, 2016		3
	Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and 2016		4
	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2017 and 2016		5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.	Controls and Procedures		35
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		36
Item 1A.	Risk Factors		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.	Defaults upon Senior Securities		36
Item 4.	Mine Safety Disclosures		36
Item 5.	Other Information		36
Item 6.	Exhibits		36
	Signatures		37

Riverview Financial Corporation

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except share data)


	September 30, 2017			December 31, 2016
Assets:
Cash and due from banks	$	8,425		$	7,783
Interest-bearing deposits in other banks		10,741			11,337
Investment securities available-for-sale		56,874			73,113
Loans held for sale		519			652
Loans, net		560,187			409,343
Less: allowance for loan losses		5,404			3,732

Net loans		554,783			405,611
Premises and equipment, net		12,163			12,201
Accrued interest receivable		1,995			1,726
Goodwill		5,079			5,408
Intangible assets		1,099			1,405
Other assets		29,701			23,812

Total assets	$	681,379		$	543,048

Liabilities:
Deposits:
Noninterest-bearing	$	76,214		$	73,932
Interest-bearing		498,736			378,628

Total deposits		574,950			452,560
Short-term borrowings		37,250			31,500
Long-term debt		6,503			11,154
Accrued interest payable		213			192
Other liabilities		5,084			5,722

Total liabilities		624,000			501,128

Stockholders’ equity:
Preferred stock: no par value, authorized 3,000,000 shares; Series A convertible perpetual preferred stock
Common stock: no par value, authorized 20,000,000 shares; September 30, 2017, issued and outstanding 4,892,143 shares; December 31, 2016, issued and outstanding 3,237,859 shares		45,427			29,052
Capital surplus		243			220
Retained earnings		12,848			14,845
Accumulated other comprehensive loss		(1,139	)		(2,197	)

Total stockholders’ equity		57,379			41,920

Total liabilities and stockholders’ equity	$	681,379		$	543,048

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Dollars in thousands, except per share data)


	Three Months Ended						Nine Months Ended
September 30,	2017			2016			2017			2016
Interest income:
Interest and fees on loans:
Taxable	$	5,717		$	4,598		$	14,991		$	13,362
Tax-exempt		146			87			361			261
Interest and dividends on investment securities available-for-sale:
Taxable		477			539			1,607			1,375
Tax-exempt		47			53			140			280
Dividends					1			3			8
Interest on interest-bearing deposits in other banks		31			13			78			41
Interest on federal funds sold		2						12			2

Total interest income		6,420			5,291			17,192			15,329

Interest expense:
Interest on deposits		821			447			2,021			1,375
Interest on short-term borrowings		112			3			197			59
Interest on long-term debt		75			77			228			214

Total interest expense		1,008			527			2,446			1,648

Net interest income		5,412			4,764			14,746			13,681
Provision for loan losses		610			29			1,734			284

Net interest income after provision for loan losses		4,802			4,735			13,012			13,397

Noninterest income:
Service charges, fees and commissions		270			315			899			933
Commission and fees on fiduciary activities		31			34			92			88
Wealth management income		179			194			631			531
Mortgage banking income		205			210			434			401
Bank owned life insurance investment income		107			118			254			276
Net gain on sale of investment securities available-for-sale		43			152			106			484

Total noninterest income		835			1,023			2,416			2,713

Noninterest expense:
Salaries and employee benefits expense		2,928			2,334			8,521			6,611
Net occupancy and equipment expense		615			538			1,895			1,617
Amortization of intangible assets		71			95			306			247
Net cost of operation of other real estate owned		(13	)		83			161			214
Other expenses		1,566			1,283			4,488			4,004

Total noninterest expense		5,167			4,333			15,371			12,693

Income (loss) before income taxes		470			1,425			57			3,417
Income tax expense (benefit)		69			454			44			838

Net income (loss)		401			971			13			2,579

Other comprehensive income:
Unrealized gain (loss) on investment securities available-for-sale		(50	)		(148	)		1,708			940
Reclassification adjustment for net (gain) loss on sale of investment securities available-for-sale included in net income (loss)		(43	)		(152	)		(106	)		(484	)

Other comprehensive income (loss)		(93	)		(300	)		1,602			456
Income tax expense (benefit) related to other comprehensive income		(32	)		(102	)		544			155

Other comprehensive income (loss), net of income taxes		(61	)		(198	)		1,058			301

Comprehensive income	$	340		$	773		$	1,071		$	2,880

Per share data:
Net income:
Basic	$	0.08		$	0.30		$	0.03		$	0.80
Diluted	$	0.08		$	0.30		$	0.03		$	0.80
Average common shares outstanding:
Basic		4,880,676			3,224,053			4,002,165			3,214,967
Diluted		4,945,456			3,244,688			4,060,813			3,237,553
Dividends declared	$	0.14		$	0.14		$	0.41		$	0.41

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)


	Preferred Stock			Common Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2016				$	28,681	$	180	$	13,550		$	(108	)	$	42,303
Net income									2,579						2,579
Other comprehensive income, net of income taxes												301			301
Compensation cost of option grants							31								31
Issuance under ESPP, 401k and Dividend Reinvestment plans: 23,923 shares					274										274
Dividends declared, $0.41 per share									(1,327	)					(1,327	)

Balance, September 30, 2016				$	28,955	$	211	$	14,802		$	193		$	44,161

Balance, January 1, 2017				$	29,052	$	220	$	14,845		$	(2,197	)	$	41,920
Net income									13						13
Other comprehensive income, net of income taxes												1,058			1,058
Compensation cost of option grants							23								23
Issuance of 269,885 common shares					2,658										2,658
Issuance of 1,348,809 preferred shares	$	13,283													13,283
Preferred shares converted into common shares		(13,283	)		13,283
Issuance under ESPP, 401k and Dividend Reinvestment plans: 29,840 shares					373										373
Exercise of stock options: 5,750 shares					61										61
Dividends declared: $0.41 per share									(2,010	)					(2,010	)

Balance, September 30, 2017	$			$	45,427	$	243	$	12,848		$	(1,139	)	$	57,379

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)


For the Nine Months Ended September 30,	2017			2016
Cash flows from operating activities:
Net income (loss)	$	13		$	2,579
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of premises and equipment		586			533
Provision for loan losses		1,734			284
Stock based compensation		23			31
Net amortization of investment securities available-for-sale		315			389
Net cost of operation of other real estate owned		161			214
Net gain on sale of investment securities available-for-sale		(106	)		(484	)
Amortization of purchase adjustment on loans		(127	)		(704	)
Amortization of intangible assets		306			247
Deferred income taxes		(47	)		384
Proceeds from sale of loans originated for sale		20,733			18,329
Net gain on sale of loans originated for sale		(434	)		(401	)
Loans originated for sale		(20,166	)		(17,654	)
Bank owned life insurance investment income		(254	)		(276	)
Net change in:
Accrued interest receivable		(269	)		(107	)
Other assets		(1,255	)		(208	)
Accrued interest payable		21			(16	)
Other liabilities		(638	)		(196	)

Net cash provided by (used in) operating activities		596			2,944

Cash flows from investing activities:
Investment securities available-for-sale:
Purchases					(40,916	)
Proceeds from repayments		1,805			7,420
Proceeds from sales		15,827			37,526
Proceeds from the sale of other real estate owned		613			1,129
Net decrease in restricted equity securities		(341	)		1,489
Net (increase) decrease in loans		(151,072	)		9,996
Business disposition (acquisition), net of cash		329			(894	)
Purchases of premises and equipment		(548	)		(447	)
Purchases of bank owned life insurance		(5,017	)		(27	)
Proceeds from bank owned life insurance					279

Net cash provided by (used in) investing activities		(138,404	)		15,555

Cash flows from financing activities:
Net increase in deposits		122,390			10,651
Net increase (decrease) in short-term borrowings		5,750			(36,575	)
Repayment of long-term debt		(5,251	)		(143	)
Proceeds from long-term debt		600			2,050
Issuance under ESPP, 401k and DRP plans		373			274
Issuance of common stock		15,941
Proceeds from exercise of stock options		61
Cash dividends paid		(2,010	)		(1,327	)

Net cash provided by (used in) financing activities		137,854			(25,070	)

Net increase (decrease) in cash and cash equivalents		46			(6,571	)
Cash and cash equivalents - beginning		19,120			22,688

Cash and cash equivalents - ending	$	19,166		$	16,117

Supplemental disclosures:
Cash paid during the period for:
Interest	$	2,425		$	1,664

Income taxes	$			$

Noncash items from investing activities:
Other real estate acquired in settlement of loans	$	293		$	1,348

See notes to consolidated financial statements.

Riverview Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of Operations

Riverview Financial Corporation, (the “Company”), a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Riverview Bank (the “Bank”). The Company services its retail and commercial customers through 17 community banking offices and three limited purpose offices located within Berks, Dauphin, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties in Pennsylvania.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP’) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year’s presentation. These reclassifications did not have any effect on the operating results or financial position of the Company. The operating results and financial position of the Company for the three and nine months ended and as of September 30, 2017, are not necessarily indicative of the results of operations and financial position that may be expected in the future. The condensed consolidated balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2016 Annual Report on Form 10-K, filed on March 29, 2017.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, the determination of other-than-temporary impairment losses on securities and impairment of goodwill. Actual results could differ from those estimates.

Recent Accounting Standards

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in ASU 2016-01, among other things: require equity investments (except 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; require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); and eliminate the requirement for public business entities to disclose the methods 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. The Company does not expect the adoption of the new accounting guidance to have a material effect on its consolidated financial statements, and expects the fair values of financial instruments disclosed in the footnotes to conform to a market participant’s view for measurement and disclosure purposes.

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: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s 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.

In March 2016, the FASB issued ASU No. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting”. The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. In addition, the amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments were effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The adoption of ASU No. 2016-07 did not have a material effect on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting”. The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments were effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU No. 2016-09 did not have a material effect on our consolidated financial statements.

In June 2016, the FASB ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We have dedicated staff and resources in place evaluating the Company’s options including evaluating the appropriate model options and collecting and reviewing loan data for use in these models. The Company is currently still assessing the impact that this new guidance will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019. The Company does not expect the adoption of the new accounting guidance to have a material effect on the statement of cash flow.

In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. ASU 2016-20 updates the new revenue standard by clarifying issues that have arisen from ASU 2014-09, but does not change the core principle of the new standard. The issues addressed in this ASU include: (i) Loan guarantee fees; (ii) Impairment testing of contract costs; (iii) Interaction of impairment testing with guidance in other topics; (iv) Provisions for losses on construction-type and production-type contracts; (v) Scope of Topic 606; (vi) Disclosure of remaining performance obligations; (vii) Disclosure of prior-period performance obligations; (viii) Contract modifications; (ix) Contract asset vs. receivable; (x) Refund liability; (xi) Advertising costs; (xii) Fixed-odds wagering contracts in the casino industry; and (xiii) Cost capitalization for advisors to private funds and public funds. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this new guidance recognized at the date of initial application. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. ASU 2016-20 and 2014-09 could require us to change how we recognize certain revenue streams within non-interest income, however, we do not expect these changes to have a significant impact on our financial statements. We continue to evaluate the impact of ASU 2016-20 and 2014-09 on our Company and expect to adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be significant.

In January 2017, FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The ASU clarifies the definition of a business to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

In January 2017, the FASB issued ASU No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the 2015 22, 2016 and November 17, 2016 EITF Meetings”. The ASU adds an SEC paragraph to ASUs 2014-09, 2016-02 and 2016-13 which specifies the SEC staff view that a registrant should evaluate ASUs that have not yet been adopted to determine the appropriate disclosure about the potential material effects of those ASUs on the financial statements when adopted. The guidance also specifies the SEC staff view on financial statement disclosures when the company does not know or cannot reasonably estimate the impact that adoption of the ASUs will have on the financial statements. The ASU also conforms to SEC guidance on accounting for tax benefits resulting from investments in affordable housing projects to the guidance in ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323). The amendments in this update are effective upon issuance. The guidance did not have a significant impact on our consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”. The amendments clarify that a financial asset is within the scope of Topic 610 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Topic 610 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Topic 610 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The guidance is effective for public business entities for annual periods beginning after December 15, 2017 and interim periods therein. Entities may use either a full or modified approach to adopt the ASU. The Company is assessing ASU 2017-05 and does not expect it to have a material impact on its accounting and disclosures.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715)”, which requires employers that offer or maintain defined benefit plans to disaggregate the service component from the other components of net benefit cost and provides guidance on presentation of the service component and the other components of net benefit cost in the statement of operations. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

In March 2017, FASB issued ASU No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Topic 310), Premium Amortization on Purchased Callable Debt Securities”. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is assessing the impact of ASU 2017-08 on its accounting and disclosures.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting”. This ASU clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting

conditions, and classification of the awards are the same immediately before and after the modification. This ASU is effective for fiscal years beginning after December 15, 2017, and interims periods within those fiscal years. The Company does not expect the adoption of the guidance to have a material impact on our consolidated financial statements.

In August 2017, FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in the Update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

2. Other comprehensive income (loss):

The components of other comprehensive income (loss) and their related tax effects are reported in the Consolidated Statements of Income and Comprehensive Income (Loss). The accumulated other comprehensive income (loss) included in the Consolidated Balance Sheets relates to net unrealized gains and losses on investment securities available-for-sale and benefit plan adjustments.

The components of accumulated other comprehensive income (loss) included in stockholders’ equity at September 30, 2017 and December 31, 2016 is as follows:


	September 30, 2017			December 31, 2016
Net unrealized loss on investment securities available-for-sale	$	(911	)	$	(2,513	)
Related income taxes		(310	)		(854	)

Net of income taxes		(601	)		(1,659	)

Benefit plan adjustments		(815	)		(815	)
Related income taxes		(277	)		(277	)

Net of income taxes		(538	)		(538	)

Accumulated other comprehensive income (loss)	$	(1,139	)	$	(2,197	)

Other comprehensive income (loss) and related tax effects for the three and nine months ended September 30, 2017 and 2016 is as follows:


Three months ended September 30,	2017			2016
Unrealized loss on investment securities available-for-sale	$	(50	)	$	(148	)
Net gain on the sale of investment securities available-for-sale ⁽¹⁾		(43	)		(152	)

Other comprehensive loss before taxes		(93	)		(300	)
Income tax expense (benefit)		(32	)		(102	)

Other comprehensive loss	$	(61	)	$	(198	)


Nine months ended September 30,	2017			2016
Unrealized gain on investment securities available-for-sale	$	1,708		$	940
Net gain on the sale of investment securities available-for-sale ⁽¹⁾		(106	)		(484	)

Other comprehensive income before taxes		1,602			456
Income tax expense (benefit)		544			155

Other comprehensive income	$	1,058		$	301

⁽¹⁾	Represents amounts reclassified out of accumulated other comprehensive income and included in gains on sale of investment securities on the consolidated statements of income and comprehensive income.

3. Earnings per share:

Basic earnings per share is computed by dividing net income (loss) allocated to common stockholders divided by the weighted-average number of common shares outstanding during the period. Net income (loss) allocated to common stockholders is net income (loss) adjusted for preferred stock dividends including dividends declared, less income (loss) allocated to participating securities. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The following table provides a reconciliation between the computation of basic earnings per share and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016:


Three months ended September 30,	2017			2016
Numerator:
Net income (loss)	$	401		$	971
Dividends on preferred stock

Net income (loss) available to common stockholders	$	401		$	971
Undistributed loss allocated to preferred stockholders

Income (loss) allocated to common stockholders	$	401		$	971

Denominator:
Basic		4,880,676			3,224,053
Dilutive options		64,780			20,635

Diluted		4,945,456			3,244,688

Earnings per share:
Basic	$	0.08		$	0.30
Diluted	$	0.08		$	0.30

Nine months ended September 30,	2017			2016
Numerator:
Net income (loss)	$	13		$	2,579
Dividends on preferred stock		(371	)

Net income (loss) available to common stockholders	$	(358	)	$	2,579
Undistributed loss allocated to preferred stockholders		475

Income (loss) allocated to common stockholders	$	117		$	2,579

Denominator:
Basic		4,002,165			3,214,967
Dilutive options		58,648			22,586

Diluted		4,060,813			3,237,553

Earnings per share:
Basic	$	0.03		$	0.80
Diluted	$	0.03		$	0.80

There were 25,300 outstanding stock options for the three and nine months ended September 30, 2016 that were excluded from the diluted earnings per share calculation because of their antidilutive effect.

On January 20, 2017, Riverview announced that it entered into agreements with accredited investors and qualified institutional buyers to raise approximately $17.0 million in common and preferred equity, before expenses, through the private placement of 269,885 shares of its no par value common stock at a price of $10.50 per share and 1,348,809 shares of a newly created Series A convertible, perpetual preferred stock (the “Series A preferred stock”) at a price of $10.50 per share.

Effective as of the close of business on June 22, 2017, the Company filed an amendment to the Articles of Incorporation to authorize a class of non-voting common stock after obtaining shareholder approval on June 21, 2017. As a result, each share of Series A preferred stock was automatically converted into one share of non-voting common stock as of the effective date. The non-voting common stock has the same relative rights as, and is identical in all respects with, each other share of common stock of the Company, except that holders of non-voting common stock do not have voting rights.

The additional capital allowed Riverview to acquire CBT Financial Corp, Clearfield, Pennsylvania, in a stock transaction valued at approximately $54.6 million effective October 1, 2017. This merger created a community banking franchise with approximately $1.2 billion of assets and provides enhanced products and services through 33 banking locations covering 12 Pennsylvania counties.

4. Investment securities:

The amortized cost and fair value of investment securities available-for-sale aggregated by investment category at September 30, 2017 and December 31, 2016 are summarized as follows:


September 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and municipals:
Taxable	$	35,424	$	392	$	684	$	35,132
Tax-exempt		5,746		55				5,801
Mortgage-backed securities:
U.S. Government agencies		1,567				31		1,536
U.S. Government-sponsored enterprises		5,516		12		105		5,423
Corporate debt obligations		9,532				550		8,982

Total	$	57,785	$	459	$	1,370	$	56,874


December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	5,088			$	67	$	5,021
State and municipals:
Taxable		44,045	$	234		1,885		42,394
Tax-exempt		5,748		3		77		5,674
Mortgage-backed securities:
U.S. Government agencies		1,905				15		1,890
U.S. Government-sponsored enterprises		9,115		28		247		8,896
Corporate debt obligations		9,542				492		9,050
Equity securities, financial services		183		5				188

Total	$	75,626	$	270	$	2,783	$	73,113

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at September 30, 2017, is summarized as follows:


September 30, 2017	Fair Value
Within one year	$	173
After one but within five years		2,281
After five but within ten years		9,316
After ten years		38,146

		49,916
Mortgage-backed securities		6,958

Total	$	56,874

Securities with a carrying value of $56,874 and $47,576 at September 30, 2017 and December 31, 2016, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At September 30, 2017 and December 31, 2016, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. Government agencies and sponsored enterprises that exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an other-than-temporary impairment (“OTTI”) has not been recognized at September 30, 2017 and December 31, 2016, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:


	Less Than 12 Months				12 Months or More				Total
September 30, 2017	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and municipals:
Taxable	$	10,533	$	227	$	13,463	$	457	$	23,996	$	684
Tax-exempt
Mortgage-backed securities:
U.S. Government agencies		1,536		31						1,536		31
U.S. Government-sponsored enterprises		3,317		58		1,757		47		5,074		105
Corporate debt obligation		3,761		239		5,221		311		8,982		550

Total	$	19,147	$	555	$	20,441	$	815	$	39,588	$	1,370


	Less Than 12 Months				12 Months or More				Total
December 31, 2016	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities	$	5,021	$	67					$	5,021	$	67
U.S. Government-sponsored enterprises
State and municipals:
Taxable		30,895		1,876	$	282	$	9		31,177		1,885
Tax-exempt		3,998		77						3,998		77
Mortgage-backed securities:
U.S. Government agencies		1,891		15						1,891		15
U.S. Government-sponsored enterprises		7,412		247						7,412		247
Corporate debt obligation		9,050		492						9,050		492

Total	$	58,267	$	2,774	$	282	$	9	$	58,549	$	2,783

The Company had 45 investment securities, consisting of 30 taxable state and municipal obligations, 11 mortgage-backed securities and four corporate debt obligations that were in unrealized loss positions at September 30, 2017. Of these securities, 16 taxable state and municipal obligation, two mortgage-backed securities and two corporate debt obligations were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at September 30, 2017. There was no OTTI recognized for the three and nine months ended September 30, 2017 and 2016.

The Company had 80 investment securities, consisting of three U.S. Treasury notes, 49 taxable state and municipal obligations, seven tax-exempt state and municipal obligations, 17 mortgage-backed securities and four corporate debt obligations that were in unrealized loss positions at December 31, 2016. Of these securities, one taxable state and municipal obligation was in a continuous unrealized loss position for twelve months or more.

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at September 30, 2017 and December 31, 2016 are summarized as follows. Net deferred loan costs were $781 and $1,077 at September 30, 2017 and December 31, 2016.


	September 30, 2017		December 31, 2016
Commercial	$	74,389	$	51,166
Real estate:
Construction		9,754		8,605
Commercial		337,688		212,550
Residential		131,741		130,874
Consumer		6,615		6,148

Total	$	560,187	$	409,343

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2017 and 2016 are summarized as follows:


				Real Estate
September 30, 2017	Commercial			Construction			Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance July 1, 2017	$	757		$	192		$	2,965		$	828		$	49		$	43	$	4,834
Charge-offs		(24	)								(18	)							(42	)
Recoveries		1												1					2
Provisions		421			(3	)		(56	)		127			(4	)		125		610

Ending balance	$	1,155		$	189		$	2,909		$	937		$	46		$	168	$	5,404


				Real Estate
September 30, 2017	Commercial			Construction			Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2017	$	629		$	160		$	2,110		$	789		$	44				$	3,732
Charge-offs		(34	)								(34	)		(7	)				(75	)
Recoveries		1						3			7			2					13
Provisions		559			29			796			175			7		$	168		1,734

Ending balance	$	1,155		$	189		$	2,909		$	937		$	46		$	168	$	5,404


				Real Estate
September 30, 2016	Commercial			Construction			Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance July 1, 2016	$	558		$	170		$	2,100		$	745		$	36				$	3,609
Charge-offs		(1	)		(1	)					(25	)		(8	)				(35	)
Recoveries		25			1						1			7					34
Provisions		(72	)		(13	)		38			69			5		$	2		29

Ending balance	$	510		$	157		$	2,138		$	790		$	40		$	2	$	3,637


				Real Estate
September 30, 2016	Commercial			Construction			Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance January 1, 2016	$	1,298		$	202		$	2,227		$	613		$	25				$	4,365
Charge-offs		(724	)		(250	)		(65	)		(33	)		(24	)				(1,096	)
Recoveries		70			1						3			10					84
Provisions		(134	)		204			(24	)		207			29		$	2		284

Ending balance	$	510		$	157		$	2,138		$	790		$	40		$	2	$	3,637

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2017 and December 31, 2016 is summarized as follows:


			Real Estate
September 30, 2017	Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	1,155	$	189	$	2,909	$	937	$	46	$	168	$	5,404

Ending balance: individually evaluated for impairment		25				194		54						273

Ending balance: collectively evaluated for impairment	$	1,130	$	189	$	2,715	$	884	$	45	$	168	$	5,131

Loans receivable:
Ending balance	$	74,389	$	9,754	$	337,688	$	131,741	$	6,615			$	560,187

Ending balance: individually evaluated for impairment		799				3,671		2,462						6,932

Ending balance: collectively evaluated for impairment	$	73,590	$	9,754	$	334,017	$	129,279	$	6,615			$	553,255


			Real Estate
December 31, 2016	Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	629	$	160	$	2,110	$	789	$	44			$	3,732

Ending balance: individually evaluated for impairment		8				140								148

Ending balance: collectively evaluated for impairment	$	621	$	160	$	1,970	$	789	$	44			$	3,584

Loans receivable:
Ending balance	$	51,166	$	8,605	$	212,550	$	130,874	$	6,148			$	409,343

Ending balance: individually evaluated for impairment		966				3,924		2,515						7,405

Ending balance: collectively evaluated for impairment	$	50,200	$	8,605	$	208,626	$	128,359	$	6,148			$	401,938

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

•

Pass - A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss or designated as Special Mention.

•

Special Mention - A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

•

Substandard - A loan that is inadequately protected by the current sound worth and paying capacity of the obligor 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. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•

Doubtful - A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

•

Loss - A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at September 30, 2017 and December 31, 2016:


September 30, 2017	Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	70,549	$	2,277	$	1,563		$	74,389
Real estate:
Construction		9,344		410					9,754
Commercial		326,203		7,753		3,732			337,688
Residential		130,001		28		1,712			131,741
Consumer		6,615							6,615

Total	$	542,712	$	10,468	$	7,007		$	560,187


December 31, 2016:	Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	47,765	$	1,604	$	1,797		$	51,166
Real estate:
Construction		8,605							8,605
Commercial		200,636		8,063		3,851			212,550
Residential		129,320		28		1,526			130,874
Consumer		6,148							6,148

Total	$	392,474	$	9,695	$	7,174		$	409,343

Information concerning nonaccrual loans by major loan classification at September 30, 2017 and December 31, 2016 is summarized as follows:


	September 30, 2017		December 31, 2016
Commercial	$	199	$	356
Real estate:
Construction
Commercial		704		359
Residential		862		671
Consumer

Total	$	1,765	$	1,386

The major classifications of loans by past due status at September 30, 2017 and December 31, 2016 are summarized as follows:


September 30, 2017	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Commercial	$	1,603	$	24	$	11	$	1,638	$	72,751	$	74,389
Real estate:
Construction										9,754		9,754
Commercial		569				235		804		336,884		337,688
Residential		818		297		440		1,555		130,186		131,741
Consumer		3		1				4		6,611		6,615

Total	$	2,993	$	322	$	686	$	4,001	$	556,186	$	560,187


December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Loans > 90 Days and Accruing
Commercial	$	580	$		$	214	$	794	$	50,372	$	51,166
Real estate:
Construction		22						22		8,583		8,605
Commercial		784		97		11		892		211,658		212,550
Residential		905		256		592		1,753		129,121		130,874	$	357
Consumer		6				2		8		6,140		6,148		2

Total	$	2,297	$	353	$	819	$	3,469	$	405,874	$	409,343	$	359

The following tables summarize information concerning impaired loans as of and for the three and nine months ended September 30, 2017 and September 30, 2016, and as of and for the year ended, December 31, 2016 by major loan classification:


							This Quarter				Year-to-Date
September 30, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	724	$	724			$	798	$	8	$	803	$	23
Real estate:
Construction
Commercial		2,753		2,753				2,760		32		2,992		90
Residential		2,274		2,292				2,304		28		2,408		87
Consumer

Total		5,751		5,769				5,862		68		6,203		200

With an allowance recorded:
Commercial		75		75	$	25		78				76		1
Real estate:
Construction
Commercial		918		918		194		820		8		798		20
Residential		188		326		54		189		2		126		6
Consumer

Total		1,181		1,319		273		1,087		10		1,000		27

Commercial		799		799		25		876		8		879		24
Real estate:
Construction
Commercial		3,671		3,671		194		3,580		40		3,790		110
Residential		2,462		2,618		54		2,493		30		2,534		93
Consumer

Total	$	6,932	$	7,088	$	273	$	6,949	$	78	$	7,203	$	227


							For the Year Ended
December 31, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	225	$	225			$	225
Real estate:
Construction
Commercial		3,094		3,094				3,168		147
Residential		2,515		2,652				2,747		130
Consumer

Total		5,834		5,971				6,140		277

With an allowance recorded:
Commercial		741		741	$	8		761		30
Real estate:
Construction
Commercial		830		830		140		840
Residential
Consumer

Total		1,571		1,571		148		1,601		30

Commercial		966		966		8		986		30
Real estate:
Construction
Commercial		3,924		3,924		140		4,008		147
Residential		2,515		2,652				2,747		130
Consumer

Total	$	7,405	$	7,542	$	148	$	7,741	$	307


							This Quarter				Year-to-Date
September 30, 2016	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	838	$	838			$	843	$	8	$	849	$	22
Real estate:
Construction
Commercial		3,438		3,438				3,455		20		3,823		110
Residential		2,709		2,846				2,907		34		2,942		102
Consumer

Total		6,985		7,122				7,205		62		7,614		234

With an allowance recorded:
Commercial		126		126	$	2		128				132
Real estate:
Construction
Commercial		298		298		55		269				231
Residential		119		119		33		119		2		120		4
Consumer

Total		543		543		90		516		2		483		4

Commercial		964		964		2		971		8		981		22
Real estate:
Construction
Commercial		3,736		3,736		55		3,724		20		4,054		110
Residential		2,828		2,965		33		3,026		36		3,062		106
Consumer

Total	$	7,528	$	7,665	$	90	$	7,721	$	64	$	8,097	$	238

For the three and nine months ended September 30, interest income, related to impaired loans, would have been $23 and $77 in 2017 and $90 and $317 in 2016 had the loans been current and the terms of the loans not been modified.

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $5,593 at September 30, 2017, $6,208 at December 31, 2016 and $6,342 at September 30, 2016.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

•

Rate Modification - A modification in which the interest rate is changed to a below market rate.

•

Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

•

Interest Only Modification - A modification in which the loan is converted to interest only payments for a period of time.

•

Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

•

Combination Modification - Any other type of modification, including the use of multiple categories above.

There were no loans modified as troubled debt restructuring for the three months ended September 30, 2017 and two loans modified as troubled debt restructuring for the nine months ended September 30, 2017 in the amount of $138. These loans are residential real estate loans. One loan was modified by court order in a confirmed Chapter 13 bankruptcy plan to reduce the principal balance, with payments to be received through the plan on the lower balance at a reduced rate of interest. One loan was matured with payments to date although financial information indicated questionable repayment ability. An extension was granted under a forbearance agreement at an increase rate of interest due to past due real estate taxes. There were no loans modified as troubled debt restructuring for the three and nine months ending September 30, 2016. There were no commitments to extend additional funds to borrowers

having loans considered troubled debt restructurings at September 30, 2017. There were two residential real estate properties held in other real estate owned totaling $144 at September 30, 2017. There were 12 residential real estate properties in the process of foreclosure totaling $682 at September 30, 2017.

During the three months ending September 30, 2017, there was one default on loans restructured within the last 12 months. During the nine months ending September 30, 2017, there were five defaults on loans restructured within the last twelve months totaling $1,374. These loans were comprised of four residential real estate loans and one commercial real estate loan. As of September 30, 2017, the defaults were cured on three of the four residential real estate loans with one residential real estate loan remaining past due in the 30-69 day category. During the three months and nine months ended September 30, 2016, there were no defaults on loans restructured within the last 12 months.

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.

As part of its acquisition due diligence process, the Bank reviews the acquired institution’s 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 allows 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 are 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 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 Bank’s 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.

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 acquired in the Union and Citizens mergers, as of the dates of the consolidation:


	Purchased Credit Impaired Loans			Purchased Non- Impaired Loans			Total Purchased Loans
Contractually required principal and interest at acquisition	$	11,184		$	174,484		$	185,668
Contractual cash flows not expected to be collected		(5,724	)		(23,009	)		(28,733	)

Expected cash flows at acquisition		5,460			151,475			156,935
Interest component of expected cash flows		(603	)		(23,119	)		(23,722	)

Basis in acquired loans at acquisition - estimated fair value	$	4,857		$	128,356		$	133,213

The unpaid principal balances and the related carrying amount of Union and Citizens acquired loans as of September 30, 2017 and December 31, 2016 were as follows:


	September 30, 2017		December 31, 2016
Credit impaired purchased loans evaluated individually for incurred credit losses
Outstanding balance	$	1,216	$	1,401
Carrying Amount		730		887
Other purchased loans evaluated collectively for incurred credit losses
Outstanding balance		72,449		84,743
Carrying Amount		71,864		83,670
Total Purchased Loans
Outstanding balance		73,665		86,144
Carrying Amount	$	72,594	$	84,557

As of the indicated dates, the changes in the accretable discount related to the purchased credit impaired loans were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Balance - beginning of period	$	313		$	457		$	370		$	524
Accretion recognized during the period		(32	)		(410	)		(76	)		(539	)
Net reclassification from non-accretable to accretable		(2	)		326			(15	)		388

Balance - end of period	$	279		$	373		$	279		$	373

The Company 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 include commitments to extend credit, unused portions of lines of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

Unused commitments at September 30, 2017, totaled $86,876, consisting of $48,695 in commitments to extend credit, $34,521 in unused portions of lines of credit and $3,660 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments, at December 31, 2016, totaled $58,475, consisting of $27,829 in commitments to extend credit, $26,729 in unused portions of lines of credit and $3,917 in standby letters of credit.

6. Other assets:

The components of other assets at September 30, 2017 and December 31, 2016 are summarized as follows:


	September 30, 2017		December 31, 2016
Other real estate owned	$	144	$	625
Bank owned life insurance		17,128		11,857
Restricted equity securities		2,186		1,845
Deferred tax assets		6,904		7,402
Other assets		3,339		2,083

Total	$	29,701	$	23,812

7. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

•

Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Cash and cash equivalents: The carrying values of cash and cash equivalents as reported on the balance sheet approximate fair value.

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Loans held for sale: The carrying value of loans held for sale as reported on the balance sheet approximate fair value.

Net loans: For adjustable-rate loans that re-price frequently and with no significant credit risk, fair values are based on carrying values. The fair values of other non-impaired loans are estimated using discounted cash flow analysis, using interest rates currently offered in the market for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.

Accrued interest receivable: The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value.

Restricted equity securities: The carrying values of restricted equity securities approximate fair value, due to the lack of marketability for these securities.

Deposits: The fair values of noninterest-bearing deposits and savings, NOW and money market accounts are the amounts payable on demand at the reporting date. The fair value estimates do not include the benefit that results from such low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair values. The discount rates used are the current rates offered for time deposits with similar maturities.

Short-term borrowings: The carrying values of short-term borrowings approximate fair value.

Long-term debt: The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rate offered for long-term debt with the same maturity.

Accrued interest payable: The carrying value of accrued interest payable as reported on the balance sheet approximates fair value.

Off-balance sheet financial instruments:

The majority of commitments to extend credit, unused portions of lines of credit and standby letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values of off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet financial instruments was not material at September 30, 2017 and December 31, 2016.

Assets and liabilities measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016 are summarized as follows:


	Fair Value Measurement Using
September 30, 2017	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
State and Municipals:
Taxable	$	35,132			$	35,132
Tax-exempt		5,801				5,801
Mortgage-backed securities:
U.S. Government agencies		1,536				1,536
U.S. Government-sponsored enterprises		5,423				5,423
Corporate debt obligations		8,982				8,982

Total	$	56,874	$		$	56,874


	Fair Value Measurement Using
December 31, 2016	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities	$	5,021			$	5,021
State and municipals:
Taxable		42,394				42,394
Tax-exempt		5,674				5,674
Mortgage-backed securities:
U.S. Government agencies		1,890				1,890
U.S. Government-sponsored enterprises		8,896				8,896
Corporate debt obligations		9,050				9,050
Equity securities, financial services		188	$	188

Total	$	73,113	$	188	$	72,925

Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2017 and December 31, 2016 are summarized as follows:


	Fair Value Measurement Using
September 30, 2017	Amount		(Level 1) Quoted Prices in Active Markets for Identical Assets	(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Loans held for sale	$	519		$	519
Other real estate owned		144				$	144
Impaired loans, net of related allowance		908					908

Total	$	1,571		$	519	$	1,052


	Fair Value Measurement Using
December 31, 2016	Amount		(Level 1) Quoted Prices in Active Markets for Identical Assets	(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Loans held for sale	$	652		$	652
Other real estate owned		625				$	625
Impaired loans, net of related allowance		1,424					1,424

Total	$	2,701		$	652	$	2,049

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

Fair value of other real estate owned is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company utilized Level 3 inputs to determine fair value at September 30, 2017 and December 31, 2016:


	Quantitative Information about Level 3 Fair Value Measurements
September 30, 2017	Fair Value Estimate	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Other real estate owned	$144	Appraisal of collateral	Appraisal adjustments		14.0% to 41.0% (32.4)%
			Liquidation expenses		7.0% to 7.0% (7.0)%
Impaired loans	$908	Appraisal of collateral	Appraisal adjustments		0.0% to 0.0% (0.0)%
			Liquidation expenses		7.0% to 7.0% (7.0)%

	Quantitative Information about Level 3 Fair Value Measurements
December 31, 2016	Fair Value Estimate	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Other real estate owned	$625	Appraisal of collateral	Appraisal adjustments		22.0% to 82.0% (45.0)%
			Liquidation expenses		3.0% to 6.0% (5.0)%
Impaired loans	$1,424	Discounted cash flow	Discount rate adjustments		3.75% to 5.50% (4.3)%
			Liquidation expenses		3.0% to 7.0% (4.5)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 Inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The carrying and fair values of the Company’s financial instruments at September 30, 2017 and December 31, 2016 and their placement within the fair value hierarchy are as follows:


			Fair Value Hierarchy
September 30, 2017	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	$	8,425	$	8,425	$	8,425
Investment securities		56,874		56,874			$	56,874
Loans held for sale		519		519				519
Net loans		554,783		553,818					$	553,818
Accrued interest receivable		1,995		1,995				1,995
Restricted equity securities		2,186		2,186		2,186
Financial liabilities:
Deposits	$	574,950	$	562,256			$	562,256
Short-term borrowings		37,250		37,250				37,250
Long-term debt		6,503		6,503				6,503
Accrued interest payable		213		213				213

			Fair Value Hierarchy
December 31, 2016	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	$	19,120	$	19,120	$	19,120
Investment securities available-for-sale		73,113		73,113		188	$	72,925
Loans held for sale		652		652				652
Net loans		405,611		407,561					$	407,561
Accrued interest receivable		1,726		1,726				1,726
Restricted equity securities		1,845		1,845		1,845
Financial liabilities:
Deposits	$	452,560	$	438,744			$	438,744
Short-term borrowings		31,500		31,500				31,500
Long-term debt		11,154		11,148				11,148
Accrued interest payable		192		192				192

Riverview Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2016.

Cautionary Note Regarding Forward-Looking Statements:

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Riverview Financial Corporation and its direct and indirect subsidiaries. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: our ability to achieve the intended benefits of acquisitions and integration of previously acquired businesses; restructuring initiatives; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; and inability of third party service providers to perform.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Riverview Financial Corporation does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are incorporated by reference into the MD&A. Certain prior period amounts have been reclassified to conform with the current year’s presentation and did not have any effect on the operating results or financial position of the Company.

Critical Accounting Policies:

Disclosure of our significant accounting policies are included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2016. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Securities and Exchange Commission on March 29, 2017.

Operating Environment:

The United States economy grew at a stronger pace in the third quarter of 2017 compared to the same period last year but declined slightly from the second quarter of 2017. The gross domestic product (“GDP”), the value of all goods and services produced in the United States, increased at an annualized rate of 3.0% in the third quarter of 2017 compared to 2.8% in the third quarter of 2016 and 3.1% in the second quarter of 2017. The consumer price index for the last 12 months rose 2.2% ending September, 2017. This inflation measure has been accelerating since June, 2017 when it was 1.6%. The Federal Open Market Committee (“FOMC”) last changed rates on June 14, 2017 where it increased the federal funds target rate for the second time in 2017 to a range of 1.00% to 1.25%. The FOMC has continued to take the stance that the current target range is accommodative and it may take additional monetary policy actions in the near term to increase general market rates. Accordingly, these interest rate increases may have an adverse impact on our loan growth, asset quality and fund costs.

Review of Financial Position:

Total assets increased $138,331, or 25.5%, to $681,379 at September 30, 2017, from $543,048 at December 31, 2016. Loans, net increased to $560,187 at September 30, 2017, compared to $409,343 at December 31, 2016, an increase of $150,844, or 36.9%. The increase in net loans during 2017 was attributable to the hiring of multiple teams of seasoned lenders having established customer relationships in new and existing markets. Investment securities decreased $16,239, or 22.2% in the nine months ended September 30, 2017. Noninterest-bearing deposits increased $2,282, while interest-bearing deposits increased $120,108 in the nine months ended September 30, 2017. Total stockholders’ equity increased $15,459, or 36.9%, to $57,379 at September 30, 2017 from $41,920 at year-end 2016. On January 20, 2017, the Company announced the successful completion of a $17.0 million private placement of common and preferred securities. The additional capital not only afforded the Company the ability to significantly grow its loan portfolio but more notably the capital raise allowed us to acquire CBT Financial Corp., the parent company of CBT Bank, in a stock transaction valued at approximately $54,568 effective October 1, 2017. This action formed a community banking franchise with approximately $1.2 billion in assets and provides enhanced products and services through 33 banking locations covering 12 Pennsylvania counties. For the nine months ended September 30, 2017, total assets averaged $611,477, an increase of $75,143 from $536,334 for the same period in 2016. For the third quarter of 2017, total assets, loans, net and deposits increased $55,761, $62,753 and $48,994, respectively, compared to the prior quarter.

Investment Portfolio:

The Company’s entire investment portfolio is held as available-for-sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. Investment securities available-for-sale totaled $56,874 at September 30, 2017, a decrease of $16,239, or 22.2% from $73,113 at December 31, 2016.

For the nine months ended September 30, 2017, the investment portfolio averaged $71,251, a decrease of $814 compared to $72,065 for the same period last year. The tax-equivalent yield on the investment portfolio increased seven basis points to 3.42% for the nine months ended September 30, 2017, from 3.35% for the comparable period of 2016. Moreover, the tax-equivalent yield for the third quarter of 2017 decreased 14 basis points from 3.47% for the second quarter of 2017.

Securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. We reported a net unrealized holding loss, included as a separate component of stockholders’ equity of $601, net of deferred income taxes of $310, at September 30, 2017, and $1,659, net of deferred income taxes of $854, at December 31, 2016.

The Asset/Liability Committee (“ALCO”) reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.

Loan Portfolio:

Loan growth increased significantly in 2017. Loans, net, increased to $560,187 at September 30, 2017 from $409,343 at December 31, 2016, an increase of $150,844, or 36.9%. We experienced growth in all major sectors of loans. Business loans, including commercial, construction and commercial real estate loans, increased $149,510, or 54.9%, to $421,831 at September 30, 2017 from $272,321 at December 31, 2016. Retail loans, including residential real estate and consumer loans, increased $1,334, or 1.0%, to $138,356 at September 30, 2017 from $137,022 at year-end 2016.

For the third quarter of 2017, loans, net grew $55,438, or 11.0%. Business loans increased $50,191, while retail loans increased $5,247 during the third quarter of 2017.

For the nine months ended September 30, 2017, loans, net averaged $478,033, an increase of $75,155, or 18.7% compared to $402,878 for the same period of 2016. The tax-equivalent yield on the loan portfolio was 4.35% for the nine months ended September 30, 2017, a 21 basis point decrease from the comparable period last year. The tax-equivalent yield on the loan portfolio increase three basis points during the third quarter of 2017 from the 4.35% tax-equivalent yield in the second quarter of 2017.

In addition to the risks inherent in our loan portfolio in the normal course of business, we are also a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as on-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk (“IRR”) in excess of the amount recognized in the consolidated financial statements.

Off-balance sheet commitments at September 30, 2017, totaled $86,876, consisting of $48,695 in commitments to extend credit, $34,521 in unused portions of lines of credit and $3,660 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison, off-balance sheet commitments, at December 31, 2016, totaled $58,475, consisting of $27,829 in commitments to extend credit, $26,729 in unused portions of lines of credit and $3,917 in standby letters of credit.

Asset Quality:

National, Pennsylvania and market area unemployment rates at September 30, 2017 and 2016 are summarized as follows:


	September 30, 2017	September 30, 2016
United States	4.2%	4.9%
Pennsylvania (statewide)	4.8%	5.5%
Berks County	4.8%	5.0%
Dauphin County	4.7%	4.8%
Lebanon	4.4%	4.4%
Lycoming	5.5%	6.3%
Northumberland County	5.3%	5.9%
Perry County	4.4%	4.6%
Schuylkill County	5.9%	6.1%
Somerset County	5.8%	6.3%

Employment conditions in 2017 improved for the United States, Commonwealth of Pennsylvania and all of the Counties in which we have branch locations. The lowest unemployment rate in 2017 for all the Counties we serve was 4.4% which was in Lebanon and Perry Counties. The decrease in unemployment rates may have a positive impact on economic growth within these areas and could have a corresponding effect on our business by increasing loan demand and improving asset quality.

Our asset quality improved in the nine months ended September 30, 2017. Nonperforming assets decreased $1,098, or 13.4% to $7,077 at September 30, 2017, from $8,175 at December 31, 2016. We experienced a decrease in restructured loans, accruing loans past due 90 days or more and foreclosed assets, which more than offset the increase in nonaccrual loans. As a percentage of loans, net and foreclosed assets, nonperforming assets equaled 1.3% at September 30, 2017 compared to 2.0% at December 31, 2016.

Loans on nonaccrual status increased $379 to $1,765 at September 30, 2017 from $1,386 at December 31, 2016. The increase in nonaccrual loans was due to increases of $345 in commercial real estate loans and $191 in residential real estate loans partially offset by a $157 decrease in commercial loans. Accruing troubled debt restructured loans declined $637, or 11.0%, to $5,168 at September 30, 2017 from $5,805 at December 31, 2016. Accruing loans past due 90 days or more declined $359, while other real estate owned decreased $481 during the nine months ended September 30, 2017.

For the three months ended September 30, 2017, nonperforming assets improved to $7,077, a decrease of $64 from $7,141 at September 30, 2016. There were decreases in accruing troubled debt restructured loans, accruing loans past due 90 days or more and other real estate owned, partially offset by an increase in nonaccrual loans.

Generally, maintaining a high loan to deposit ratio is our primary goal in order to maximize profitability. However, this objective is superseded by our attempts to ensure that asset quality remains strong. We continue to focus our efforts on maintaining sound underwriting standards for both commercial and consumer credit.

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred loan losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses is based on past events and current economic conditions. We employ the Federal Financial Institutions Examination Council Interagency Policy Statement, as amended December 13, 2006, and GAAP in assessing the adequacy of the allowance account. Under GAAP, the adequacy of the allowance account is determined based on the provisions of FASB Accounting Standards Codification (“ASC”) 310, “Receivables”, for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, “Contingencies”, for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.

We follow our systematic methodology in accordance with procedural discipline by applying it in the same manner regardless of whether the allowance is being determined at a high point or a low point in the economic cycle. Each quarter, the Chief Credit Officer identifies those loans to be individually evaluated for impairment and those loans collectively evaluated for impairment utilizing a standard criteria. Grades are assigned quarterly to loans identified to be individually evaluated. A loan’s grade may differ from period to period based on current conditions and events. However, we consistently utilize the same grading system each quarter. We consistently use loss experience from the latest eight quarters in determining the historical loss factor for each pool collectively evaluated for impairment. Qualitative factors are evaluated in the same manner each quarter and are adjusted within a relevant range of values based on current conditions. For additional disclosure related to the allowance for loan losses refer to the note entitled, “Loans, net and Allowance for Loan Losses”, in the Notes to Consolidated Financial Statements to this Quarterly Report.

The allowance for loan losses increased $1,672 to $5,404 at September 30, 2017, from $3,732 at the end of 2016. The increase in the allowance was primarily attributable to the significant loan growth in 2017. For the nine months ended September 30, 2017, net charge-offs were $62, or 0.02%, of average loans outstanding, a $950 decrease compared to $1,012, or 0.34% of average loans outstanding in the same period of 2016. Net charge-offs totaled $40 in the third quarter of 2017 as compared to $1 for the same period last year.

Deposits:

We attract the majority of our deposits from within our eight county market area that stretches from Schuylkill County in the eastern part of Pennsylvania to Somerset County in the southwestern part of Pennsylvania by offering various deposit products including demand deposit accounts, NOW accounts, business checking accounts, money market deposit accounts, savings accounts, club accounts and time deposits, including certificates of deposit and IRA’s. For the nine months ended September 30, 2017, total deposits increased to $574,950 from $452,560 at December 31, 2016. Noninterest-bearing accounts increased $2,282, while interest-bearing accounts increased $120,108 in the nine months ended September 30, 2017. Interest-bearing transaction accounts, including NOW, money market and savings accounts, increased $104,949, or 40.7%, to $362,611 at September 30, 2017 from $257,662 at December 31, 2016. Total time deposits increased $15,159 to $136,125 at September 30, 2017 from $120,966 at December 31, 2016. Time deposits less than $100 increased $6,768, or 9.2%, while time deposits of $100 or more increased $8,391, or 17.6%. For the three months ended September 30, 2017, total deposits increased $51,055 with growth in all categories except savings accounts.

For the nine months ended September 30, interest-bearing deposits averaged $440,638 in 2017 compared to $391,990 in 2016. The cost of interest-bearing deposits was 0.61% in 2017 compared to 0.47% in 2016. For the nine months ended September 30, the overall cost of interest-bearing liabilities including the cost of borrowed funds, was 0.69% in 2017 compared to 0.53% in 2016. The cost of interest-bearing liabilities increased seven basis points when comparing the third quarter of 2017 with the second quarter of 2017.

Corresponding with recent FOMC actions, interest rates have increased from historic lows that existed for an extended period. All deposit rates have increased and as such, customers have continued to be attracted to interest-bearing non-maturity deposits to provide flexibility in the event of additional increases in general market rates in the near term.

Borrowings:

The Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the Federal Home Loan Bank of Pittsburgh (“FHLB”) provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB.

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 Atlantic Community Bankers Bank (“ACBB”) and the FHLB. At September 30, 2017, short-term borrowings totaled $37,250 compared to $31,500 at December 31, 2016, all of which were borrowed under the Bank’s Open Repo Plus line with the FHLB. The average cost of short-term borrowings was 118 basis points in the nine months ended September 30, 2017 and 58 basis points during the same period last year. Long-term debt totaled $6,503 at September 30, 2017 as compared to $11,154 at December 31, 2016. The average cost of long-term debt was 3.11% in the nine months ended September 30, 2017 and 2.67% for the same period last year.

Market Risk Sensitivity:

Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”) associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

As a result of economic uncertainty and a prolonged era of historically low market rates, it has become challenging to manage IRR. Due to these factors, IRR and effectively managing it are very important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by the Board of Directors and senior management, which involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in a bank’s risk management process or high risk exposure relative to capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of a bank’s risk management process is a determining factor when evaluating capital adequacy.

The Asset Liability committee (“ALCO”), comprised of members of our Board of Directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by a RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by a RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.

Our cumulative one-year RSA/RSL ratio equaled 0.79 at September 30, 2017. Given the recent actions of the FOMC and the potential for rates to increase in the future, the focus of ALCO has been to move towards a positive static gap position.

The current position at September 30, 2017, indicates that the amount of RSL repricing within one year would exceed that of RSA, thereby causing increases in market rates, to slightly decrease net interest income. However, these forward-looking statements are qualified in the aforementioned section entitled “Forward-Looking Discussion” in this Management’s Discussion and Analysis.

Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually reprice within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity table presents a one-day position. Variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such a table.

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Model results at September 30, 2017, produced similar results from those indicated by the one-year static gap position. Given an instantaneous and parallel shift in interest rates of plus 100 basis points, our projected net interest income for the 12 months ending September 30, 2018, would decrease 1.23% from model results using current interest rates. We will continue to monitor our IRR through employing deposit and loan pricing strategies and directing the reinvestment of loan and investment repayments in order to manage our IRR position.

Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us, however we believe that our exposure to inflation can be mitigated through asset/liability management.

Liquidity:

Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:

•

Funding new and existing loan commitments;

•

Payment of deposits on demand or at their contractual maturity;

•

Repayment of borrowings as they mature;

•

Payment of lease obligations; and

•

Payment of operating expenses.

These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.

Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale. We believe liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after September 30, 2017. Our noncore funds at September 30, 2017, were comprised of time deposits in denominations of $250 or more and other borrowings. These funds are not considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly volatile. At September 30, 2017, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 6.80%, while our net short-term noncore funding ratio, noncore funds maturing within one-year, less short-term investments to assets equaled 6.54%. Comparatively, our overall noncore dependence ratio improved from year-end 2016 when it was 6.85%. Similarly, our net short-term noncore funding ratio was 7.36% at year-end, indicating that our reliance on noncore funds has decreased.

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, increased $46 during the nine months ended September 30, 2017. Cash and cash equivalents decreased $6,571 for the same period last year. For the nine months ended September 30, 2017, net cash inflows of $596 from operating activities and $137,854 from financing activities were partially offset by a net cash outflow of $138,404 from investing activities. For the same period of 2016, net cash inflows of $2,944 from operating activities and $15,555 from investing activities were more than offset by a net cash outflow of $25,070 from financing activities.

Operating activities provided net cash of $596 for the nine months ended September 30, 2017 and provided net cash of $2,944 for the same period last year. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for loan losses, is the primary source of funds from operations.

Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities used net cash of $138,404 for the nine months ended September 30, 2017. For the comparable period in 2016, investing activities provided net cash of $15,555. In 2017, an increase in lending activities was the primary factor causing the net cash outflow from investing activities. Investment portfolio activities along with a decrease in lending were the predominant factors causing the net cash inflow from investing activities in 2016.

Financing activities provided net cash of $137,854 for the nine months ended September 30, 2017 and used net cash of $25,070 for the same period last year. Deposit gathering is a predominant financing activity. During the nine months ended September 30, 2017 and 2016, deposits increased $122,390 and $10,651, respectively. Also impacting financing activities in 2017 was a capital issuance which accounted for a net cash inflow of $15,941.

We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. The current sources of funds are expected to enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $57,379, or $11.73 per common share, at September 30, 2017, and $41,920, or $12.95 per common share, at December 31, 2016. The increase in equity in the nine months ended September 30, 2017 was a result of the completion of the sale of approximately $17.0 million, before expenses, in common and preferred equity to accredited investors and qualified institutional buyers through the private placement of 269,885 shares of common stock and 1,348,809 shares of a newly created series of convertible, perpetual preferred stock. All shares of convertible, perpetual preferred stock were subsequently converted to common nonvoting shares at an exchange ratio of 1:1. Stockholders’ equity was also affected by recognizing earnings of $13, cash dividend payments of $2,010, compensation costs of $23 relating to option grants, the issuance of common stock to Riverview’s ESPP, 401k and dividend reinvestment plans of $373, the issuance of common stock related to the exercise of stock options of $61, and other comprehensive income of $1,058, resulting from net unrealized gains in the investment portfolio.

Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary supervisory actions for noncompliance. The Bank’s Tier I and total risk-based capital ratios are strong and have consistently exceeded the well capitalized regulatory capital ratios of 8.0% and 10.0% required for well capitalized institutions. The ratio of Tier 1 capital to risk-weighted assets and off-balance sheet items was 9.8% at September 30, 2017 and 9.9% at December 31, 2016. The total risk-based capital ratio was 10.7% at September 30, 2017 and 10.9% at December 31, 2016. In addition, the Bank is required to maintain a minimum common equity Tier 1 capital to risk-weighted assets of 5.75% for the calendar year of 2017. The Bank’s common equity Tier I capital to risk-weighted assets ratio was 9.8% at September 30, 2017 and 9.9% at December 31, 2016. The Bank’s Leverage ratio, which equaled 8.3% at September 30, 2017 and 7.7% at December 31, 2016, exceeded the minimum of 4.0% for capital adequacy purposes. Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized under regulatory capital guidelines. There are no conditions or negative events since this notification that we believe have changed the Bank’s category.

Review of Financial Performance:

The Company reported net earnings of $13 or $0.03 per basic and diluted weighted average common share for the nine months ended September 30, 2017, compared to net income of $2,579 or $0.80 per basic and diluted weighted average common share, for the comparable period of 2016. The net earnings recognized in the nine months ended September 30, 2017 was directly affected from incurring certain costs involved in implementing strategic initiatives to enhance shareholder value through asset growth provided by organic and inorganic opportunities. On January 20, 2017, Riverview announced the successful completion of a $17.0 million private placement of common and preferred securities. The additional capital afforded Riverview the ability to significantly grow its loan portfolio through hiring multiple teams of experienced and established lenders to serve new and existing markets. More notably the capital raise allowed Riverview to announce on April 20, 2017, the execution of a definitive business combination agreement to form a strategic partnership with CBT Financial Corp, which was effective October 1, 2017. This action created a community banking franchise with approximately $1.2 billion of assets and provides enhanced products and services through 33 banking locations covering 12 Pennsylvania counties. Merger related costs included in noninterest expense totaled $375 for the nine months ended September 30, 2017.

Net Interest Income:

Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income can have the greatest impact on net profits. Net interest income is defined as the difference between interest revenue, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings comprise interest-bearing liabilities. Net interest income is impacted by:

•

Variations in the volume, rate and composition of earning assets and interest-bearing liabilities;

•

Changes in general market rates; and

•

The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-

bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported herein on a tax-equivalent basis using the prevailing federal statutory tax rate of 34.0% in 2017 and 2016.

For the three months ended September 30, tax-equivalent net interest income increased $675 to $5,511 in 2017 from $4,836 in 2016. The net interest spread decreased to 3.46% for the three months ended September 30, 2017 from 3.92% for the three months ended September 30, 2016. The tax-equivalent net interest margin decreased to 3.57% for the third quarter of 2017 from 3.99% for the comparable period of 2016. The tax-equivalent net interest margin for the second quarter of 2017 was 3.58%.

For the three months ended September 30, tax-equivalent interest income on earning assets increased $1,156 to $6,519 in 2017 from $5,363 in 2016. The yield on earning assets, on a fully tax-equivalent basis, declined 21 basis points for the three months ended September 30, 2017 at 4.22% as compared to 4.43% for the three months ended September 30, 2016. The tax-equivalent yield on loans decreased 32 basis points for the third quarter of 2017 to 4.38% from 4.70% for the third quarter of 2016. Average loans increased to $537,740 for the quarter ended September 30, 2017 compared to $400,427 for the same period in 2016. The tax-equivalent interest earned on loans was $5,938 for the three month period ended September 30, 2017 compared to $4,730 for the same period in 2016, an increase of $1,208. Comparing the third quarters of 2017 and 2016, tax equivalent interest income on investments decreased $72 as average volumes declined $6,292 and tax-equivalent yield decreased 11 basis points.

Total interest expense increased $481 to $1,008 for the three months ended September 30, 2017 from $527 for the three months ended September 30, 2016. Deposit costs increased to 0.67% in the third quarter of 2017 from 0.45% in the third quarter of 2016. The average volume of interest bearing liabilities increased to $524,506 for the three months ended September 30, 2017 as compared to $408,670 for the three months ended September 30, 2016. The cost of funds increased to 0.76% for the third quarter of 2017 as compared to 0.51% for the same period in 2016.

For the nine months ended September 30, tax-equivalent net interest income increased $1,045 to $15,004 in 2017 from $13,959 in 2016. A favorable volume variance of $2,500 from average earning asset growth exceeding average growth in interest bearing liabilities more than offset an unfavorable rate variance of $1,455 from a decline in the net interest margin. The net interest spread decreased 30 basis points for the nine months ended September 30, 2017 to 3.47% from 3.77% for the nine months ended September 30, 2016. The tax-equivalent net interest margin for the nine months ended September 30 was 3.58% in 2017 compared to 3.85% in 2016.

For the nine months ended September 30, 2017, tax-equivalent interest income increased $1,843 to $17,450 as compared to $15,607 for the nine months ended September 30, 2016. A positive volume variance in interest income of $2,673 attributable to changes in the average balance of earning assets was offset by a negative rate variance of $830 due to a reduction in the yield on earning assets. Average volumes of earning assets increased $76,137 comparing the nine months ended September 30, 2017 and 2016. The tax-equivalent yield on earning assets decreased 14 basis points in 2017 compared to 2016.

Total interest expense increased $798 to $2,446 for the nine months ended September 30, 2017 from $1,648 for the nine months ended September 30, 2016. A change in the volume of average interest bearing liabilities caused interest expense to increase $173. The average volume of interest bearing liabilities increased to $472,805 for the nine months ended September 30, 2017, as compared to $416,363 for the nine months ended September 30, 2016. In addition, we recognized an unfavorable rate variance of $625 from a 16 basis point increase in the overall cost of funds. Cost of funds increased to 0.69% for the nine months ended September 30, 2017 as compared to 0.53% for the same period in 2016.

The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Average balances were calculated using average daily balances. Averages for earning assets include nonaccrual loans. Loan fees are included in interest income on loans. Investment averages include available-for-sale securities at amortized cost. Income on investment securities and loans is adjusted to a tax equivalent basis using the prevailing federal statutory tax rate of 34%.


	Nine months ended
	September 30, 2017							September 30, 2016
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
Assets:
Earning assets:
Loans
Taxable	$	459,703	$	14,991		4.36	%	$	390,602	$	13,362		4.57	%
Tax exempt		18,330		547		3.99	%		12,276		395		4.30	%
Investments
Taxable		65,504		1,610		3.29	%		59,430		1,383		3.11	%
Tax exempt		5,747		212		4.93	%		12,635		424		4.48	%
Interest bearing deposits		9,975		78		1.05	%		9,348		41		0.59	%
Federal funds sold		1,812		12		0.89	%		643		2		0.42	%

Total earning assets		561,071		17,450		4.16	%		484,934		15,607		4.30	%
Less: allowance for loan losses		4,409							3,928
Other assets		54,815							55,328

Total assets	$	611,477						$	536,334

Liabilities and Stockholders’ Equity:
Interest bearing liabilities:
Money market accounts	$	92,860	$	548		0.79	%	$	45,263	$	127		0.37	%
NOW accounts		140,186		409		0.39	%		139,267		313		0.30	%
Savings accounts		80,836		85		0.14	%		73,660		103		0.19	%
Time deposits less than $100		76,244		538		0.94	%		78,740		466		0.79	%
Time deposits $100 or more		50,512		441		1.17	%		55,060		366		0.89	%
Short term borrowings		22,375		197		1.18	%		13,676		59		0.58	%
Long-term debt		9,792		228		3.11	%		10,697		214		2.67	%

Total interest bearing liabilities		472,805		2,446		0.69	%		416,363		1,648		0.53	%
Non-interest bearing demand deposits		76,166							69,862
Other liabilities		5,975							6,614
Stockholders’ equity		56,531							43,495

Total liabilities and stockholders’ equity	$	611,477						$	536,334

Net interest income/spread			$	15,004		3.47	%			$	13,959		3.77	%

Net interest margin						3.58	%						3.85	%
Tax-equivalent adjustments:
Loans			$	186						$	134
Investments				72							144

Total adjustments			$	258						$	278

Provision for Loan Losses:

We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of September 30, 2017.

For the three and nine months ended September 30, the provision for loan losses totaled $610 and $1,734 in 2017, and $29 and $284 in 2016. The increase in the provision in 2017 was a direct result of loan growth.

Noninterest Income:

Noninterest income for the third quarter decreased $188, or 18.4%, to $835 in 2017 from $1,023 in 2016. The primary cause of the decrease was a $109 reduction in net gains from the sale of investment securities available-for-sale to $43 in the third quarter of 2017 from $152 in the third quarter of 2016.

For the nine months ended September 30, noninterest income amounted to $2,416 in 2017, a decrease of $297 from $2,713 in 2016. The most significant factor for the decrease was a $378 decrease in net gains recognized on the sale of available-for-sale investment securities. Partially offsetting this decrease were improvements of $100 in wealth management income and $33 in mortgage banking income.

Noninterest Expenses:

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, lease expense and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, other taxes and supplies. Several of these costs and expenses are variable, while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.

Noninterest expense increased $834, or 19.2%, to $5,167 for the three months ended September 30, 2017, from $4,333 for the same period last year. The majority of the increase was associated with an increase in salaries and employee benefits expense of $594 to $2,928 for the third quarter of 2017 from $2,334 for the third quarter of 2016. Net occupancy expense and other expenses increased $77 and $163 in the third quarter of 2017 as compared with the same period in 2016.

Noninterest expense increased $2,678, or 21.1%, to $15,371 for the nine months ended September 30, 2017, from $12,693 for the same period last year. The majority of the increase in salaries and employee benefit expense was a result of implementing the lending team lift out initiative and related costs, as well as staffing two full service offices in Berks and Lycoming Counties, respectively. Additions to leased facilities for this newly opened community banking office along with offices to support the lending teams were primarily responsible for the $278, or 17.2% increase in occupancy and equipment costs. The majority of the increase in other expenses comparing the nine months ended September 30, 2017 and 2016 was a result of incurring merger related expenses related to the business combination with CBT Financial Corp.

Income Taxes:

We recorded income tax expense of $69 for the three months ended September 30, 2017, and income tax expense of $454 for the same period last year. For the nine months ended September 30, income tax expense of $44 was recorded, as compared to an income tax expense of $838 for the comparable period of 2016.

Riverview Financial Corporation

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At September 30, 2017, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at September 30, 2017, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control.

There were no changes made in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In the opinion of the Company, after review with legal counsel, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would have a material effect on the consolidated results of operations or financial condition. There are no proceedings pending other than ordinary, routine litigation incident to the business of the Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by governmental authorities.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits.

The following Exhibits are incorporated by reference hereto:



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 Officer’s §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

32.2		Chief Financial Officer’s §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

101		Interactive Data File (XBRL).

SIGNATURES

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:		November 14, 2017

By:		/s/ Scott A. Seasock
		Scott A. Seasock
		Chief Financial Officer
		(Principal Financial Officer)

Date:		November 14, 2017

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Riverview Financial Corp Reports

Riverview Financial Corp - FORM 10-Q - November 14, 2017

Attached files

Riverview Financial Corp Reports