UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2018
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-38627
Riverview Financial Corporation
(Exact name of registrant as specified in its charter)
| Pennsylvania | 38-3917371 | |
| State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
3901 North Front Street,
Harrisburg, PA 17110
(Address of principal executive offices) (Zip Code)
(717)957-2196
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: Voting Common Stock.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting 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 Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant, on June 30, 2018, the last day of the registrant’s most recently completed second fiscal quarter, was approximately $111,869,748 (based on the closing sales price of the registrant’s common stock on that date). (1)
The number of shares of the registrant’s voting common stock outstanding as of February 28, 2019 was 7,801,010 shares. The number of shares of the registrant’s non-voting common stock outstanding as of February 28, 2019 was 1,348,809 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its 2019 annual meeting of shareholders, within 120 days of the end of registrant’s fiscal year, is incorporated by reference into Part III of this Annual Report on Form 10-K.
| (1) | The aggregate dollar amount of the voting stock set forth equals the number of shares of the Company’s voting and nonvoting common stock outstanding, reduced by the number of shares of voting and nonvoting common stock held by officers, directors, shareholders owning in excess of 10% of the Company’s Common Stock and the Company’s employee benefit plans multiplied by the last reported sale price for the Company’s Common Stock on June 30, 2018, the last business day of the registrants most recently completed second fiscal quarter. The information provided shall not be construed as an admission that any officer, director or 10% shareholder of the Company, or any employee benefit plan, may be deemed an affiliate of the Company or that such person or entity is the beneficial owner of the shares reported as being held by such person or entity, and any such inference is hereby disclaimed. |
Riverview Financial Corporation
Form 10K
For the Year Ended December 31, 2018
TABLE OF CONTENTS
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Cautionary Note Regarding Forward-Looking Statements.
This Annual Report on Form 10-K may contain 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, financial conditions, results of operations and expectations of Riverview Financial Corporation and its direct and indirect subsidiaries. These forward-looking statements are generally identified by use of the words such as “may”, “should”, “will”, “could”, “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project”, “plan”, “goal”, “strategy”, “likely”, “seek”, “future”, “target”, “preliminary”, “range” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
| • | the ability to achieve the intended benefits of the merger with CBT Financial Corp.; |
| • | the effect of changes in market interest rates and the relative balances of rate-sensitive assets to rate-sensitive liabilities on net interest margin and net interest income; |
| • | increases in non-performing assets, which may require Riverview Financial Corporation to increase the allowance for credit losses, charge off loans and incur elevated collection and carrying costs related to such non-performing assets; |
| • | the impact of adverse economic conditions, particularly in the Riverview Financial Corporation market area, on the performance of its loan portfolio and the demand for its products and services; |
| • | the effects of changes in interest rates on demand for Riverview Financial Corporation’s products and services; |
| • | the effects of changes in interest rates or disruptions in liquidity markets on Riverview Financial Corporation’s sources of funding; |
| • | the impact of legislative and regulatory changes and the increasing amount of time and resources spent on compliance; |
| • | 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; |
| • | our ability to attract and retain deposits; |
| • | the effect of competition on deposit and loan rates, growth and on the net interest margin; |
| • | changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; |
| • | the failure to identify and to address cyber-security risks; |
| • | the ability to keep pace with technological changes; |
| • | the ability to attract and retain talented personnel; |
| • | capital and liquidity strategies, including Riverview Financial Corporation’s ability to comply with applicable capital and liquidity requirements, and its ability to generate capital internally or raise capital on favorable terms; |
| • | Riverview Financial Corporation’s reliance on its subsidiaries for substantially all revenues and its ability to pay dividends or other distributions; |
| • | the effects of changes in relevant accounting principles and guidelines on Riverview Financial Corporation’s financial condition; and |
| • | the impact of the inability and failure of third party service providers to perform their contractual obligations. |
Any forward-looking statement made by us in this document is based only on information currently available to us and speaks only as of the date on which it is made. Riverview Financial Corporation undertakes no obligation, other than as required by law, to update or revise any forward-looking statements as a result of new information, future events or otherwise.
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| Item 1. | Business. |
General
Riverview Financial Corporation (the “Company”) was formed in 2013 as a bank holding company incorporated under the laws of Pennsylvania. The Company provides a full range of financial services through its wholly-owned bank subsidiary, Riverview Bank (the “Bank”), which is its sole operating segment. The Company has approximately 310 employees.
The Bank is a state-chartered bank and trust company regulated by the Pennsylvania Department of Banking and Securities (“DOB”) and the Federal Deposit Insurance Corporation (“FDIC”) that offers financial services through 28 community banking offices and four limited purpose offices.
Effective October 1, 2017, the Company merged with CBT Financial Corp. (“CBT”) and its subsidiary, CBT Bank, merged with and into the Bank. The Company’s financial results reflect the merger of CBT Bank and the Bank under the purchase method of accounting, with the Company treated as the acquirer from an accounting standpoint.
Unless the context indicates otherwise, all references in this annual report to the “Company”, “Bank”, “we,” “us” and “our” refer to Riverview Financial Corporation, its direct and indirect subsidiaries and its and their respective predecessors.
We primarily generate income through interest income derived from our loan and securities portfolios. Other income is generated primarily from transaction fees, trust and wealth management fees, mortgage banking fees and service charges on deposit accounts. Our primary costs are interest paid on deposits and borrowings and general operating expenses. We provide a variety of commercial and retail banking and financial services to businesses, non-profit organizations, governmental and municipal agencies, professional customers, and retail customers, on a personalized basis.
Market Areas
The Bank’s market area consists of Berks, Blair, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties in Central Pennsylvania.
Products and Services
The Bank offers a variety of consumer and commercial banking products and services throughout its market area. Our primary lending products are real estate, commercial and consumer loans. Our primary deposit products are NOW, demand deposit accounts, and certificate of deposit accounts. We also offer ATM access, investment accounts, trust department services and other various lending, depository and related financial services.
Lending Activities
We provide a full range of retail and commercial lending products designed to meet the borrowing needs of consumers and small- and medium-sized businesses in our market area. A significant amount of our loans are made to customers located within our market area. We have no foreign loans or highly leveraged transaction loans, as defined by the Board of Governors of the Federal Reserve. Although we participate in loans originated by other banks, we have originated the majority of the loans in our portfolio.
Our primary commercial products are loans to small- and medium- sized businesses. Our consumer products include one-to-four family residential mortgages, consumer, automobile, home equity, educational and lines of credit loans. Our retail lending products include the following types of loans, among others: residential real estate; automobiles; manufactured housing; personal; student; and home equity. Our commercial lending products include the following types of loans, among others: commercial real estate; working capital; equipment and other commercial needs; construction; and agricultural and mineral rights. The terms offered on a loan vary depending on the type of loan and credit-worthiness of the borrower. We fund our loans, primarily, from our various deposit products which include certificates of deposits, savings, money market and various demand deposit accounts that are offered to both consumer and commercial customers.
Payment risk is a function of the economic climate in which our lending activities are conducted. Economic downturns in the economy generally, or in a particular sector, could cause cash flow problems for our customers, impairing their ability to repay loans we make to them. We attempt to minimize this risk by avoiding loan concentrations to a single customer or a group of similar customer types, the loss of any one or more of whom would have a materially adverse effect on its financial condition. One element of interest rate risk arises from making fixed rate loans in an environment of changing interest rates. We attempt to mitigate this risk by making adjustable rate loans and by limiting repricing terms to five years or less for commercial customers requiring fixed rate loans.
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Our lending activity also exposes us to the risk that any collateral we take as security is not adequate. We attempt to manage collateral risk by avoiding loan concentrations to particular types of borrowers, by perfecting liens on collateral and by obtaining appraisals on property prior to extending loans. We attempt to mitigate our exposure to these and other types of lending risks by stratifying authorization requirements by loan size and complexity.
We are not dependent upon a single customer, or a few customers, the loss of one or more of which would have a materially adverse effect on our operations. In the ordinary course of our business, our operations and earnings are not materially affected by seasonal changes or by Federal, state or local environmental laws or regulations.
We intend to continue to evaluate commercial real estate, commercial business and governmental lending opportunities, including small business lending. We continue to proactively monitor and manage existing credit relationships.
We have not engaged in sub-prime residential mortgage lending, which is defined as mortgage loans advanced to borrowers who do not qualify for market interest rates because of problems with their credit history. We focus our lending efforts within our market area.
Deposit Activities
Our primary source of funds is the cash flow provided by our financing activities, mainly deposit gathering. We offer a variety of deposit accounts with a range of interest rates and terms, including, among others: money market accounts; NOW accounts; savings accounts; certificates of deposit; individual retirement accounts, and demand deposit accounts. These deposits are primarily obtained from areas surrounding our branch offices. We rely primarily on marketing, product innovation, technology, service and long-standing relationships with customers to attract and retain deposits. Other deposit related services include: remote deposit capture; automatic clearing house transactions; cash management services; automated teller machines; point of sale transactions; safe deposit boxes; night depository services; direct deposit; and official check services.
Trust, Wealth Management and Brokerage Services
Through our trust department, we offer a broad range of fiduciary and investment services. Our trust and investment services include:
| • | investment management; |
| • | IRA trustee services; |
| • | estate administration; |
| • | living trusts; |
| • | trustee under will; |
| • | guardianships; |
| • | life insurance trusts; |
| • | custodial services / IRA custodial services; |
| • | corporate trusts; and |
| • | pension and profit sharing plans. |
We provide a comprehensive array of wealth management products and services through Riverview Wealth Management and Trust Management divisions to individuals, small businesses and nonprofit entities. These products and services include the following, among others: investment portfolio management; brokerage; estate planning assistance; annuities; business succession planning; insurance; education funding strategies; and tax planning assistance.
We have a third-party marketing agreement with a broker-dealer that allows us to offer a full range of securities, brokerage services and annuity sales to our customers. We have three dedicated locations that provide such investor services as well as accommodating customer meetings by appointment within our retail banking offices. Through these divisions, our clients have access to a wide array of financial products including stocks, bonds, mutual funds, annuities and insurance.
Competition
The banking and financial services industries are highly competitive. Within its geographic region, the Bank faces direct competition from other commercial banks, varying in size from local community banks to larger regional and nationwide banks, credit unions and non-bank entities. As a result of the wide availability of electronic delivery channels, the Bank also faces competition from financial institutions that do not have a physical presence in its geographic markets.
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Many of our competitors are substantially larger in terms of assets and available resources. Certain of these institutions have significantly higher lending limits than we do and may provide various services to their customers that we presently do not. In addition, we experience competition for deposits from mutual funds and broker dealers, while consumer discount, mortgage and insurance companies compete with us for various types of loans. Credit unions, finance companies and mortgage companies enjoy certain competitive advantages over us, as they are not subject to the same regulatory restrictions and taxation as commercial banks. Principal methods of competing for bank products, permitted nonbanking services and financial activities include price, nature of product, quality of service, convenience of location, and availability of banking convenience technology, including telephone and web-based banking services.
In our market area, interest rates on deposits, especially time deposits, and interest rates and fees charged to customers on loans are very competitive. In the current economic environment, we are experiencing increased competition in view of our loan demand and deposit gathering.
We believe that our most significant competitive advantage originates from our business philosophy, which includes offering direct access to senior management and other officers, providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures, and consistently applied credit policies. In addition, our success has been, and will continue to be, a result of our emphasis on community involvement and customer relationships. With consolidation continuing in the financial industry, and particularly in our market area, smaller community banks like us are gaining opportunities to increase market share as larger institutions reduce their emphasis on, or exit, the markets.
Seasonality
Generally, our operations are not seasonal in nature. Our deposit activities, however, have been somewhat influenced by fiscal funding appropriations related to municipalities and school districts in our market areas, which are to some extent seasonal in nature.
Supervision and Regulation
We are extensively regulated under federal and state laws. Generally, these laws and regulations are intended to protect consumers, not shareholders. The following is a summary description of certain provisions of law that affect the regulation of bank holding companies and banks. This discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in laws and regulations may have a material effect on our business and prospects.
The Company is a bank holding company within the meaning of the BHCA and is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) or (“FRB”). We are required to file annual and quarterly reports with the FRB and to provide the FRB with such additional information as the FRB may require. The FRB also conducts periodic examinations of the Company. In addition, under the Pennsylvania Banking Code of 1965 of the Pennsylvania Department of Banking and Securities (“DOB”), has the authority to examine the books, records and affairs of the Company and to require any documentation deemed necessary to ensure compliance with the Pennsylvania Banking Code.
With certain limited exceptions, we are required to obtain prior approval from the FRB before acquiring direct or indirect ownership or control of more than 5% of any voting securities or substantially all assets of a bank or bank holding company, or before merging or consolidating with another bank holding company. Additionally, with certain exceptions, any person or entity proposing to acquire control through direct or indirect ownership of 25% or more of our voting securities is required to give 60 days’ written notice of the acquisition to the FRB, which may prohibit the transaction, and to publish notice to the public.
The Bank is primarily regulated by the DOB and the FDIC. The DOB may prohibit an institution, over which it has supervisory authority, from engaging in activities or investments that the agency believes constitute unsafe or unsound banking practices. Federal banking regulators have extensive enforcement authority over the institutions they regulate to prohibit or correct activities that violate law, regulation or a regulatory agreement or which are deemed to constitute unsafe or unsound practices.
Enforcement actions may include:
| • | the appointment of a conservator or receiver; |
| • | the issuance of a cease and desist order; |
| • | the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution affiliated parties; |
| • | the issuance of directives to increase capital; |
| • | the issuance of formal and informal agreements and orders; |
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| • | the removal of or restrictions on directors, officers, employees and institution-affiliated parties; and |
| • | the enforcement of any such mechanisms through restraining orders or any other court actions. |
We are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons which generally require that such credit extensions be made on substantially the same terms as are available to third parties dealing with us, and do not involve more than the normal risk of repayment or present other unfavorable features. Other laws limit the maximum amount that we may loan to any one customer as a percentage of our capital levels.
Permitted Non-Banking Activities
Generally, a bank holding company may not engage in any activities other than banking, managing or controlling its bank and other authorized subsidiaries, or providing service to those subsidiaries. With prior approval of the FRB, we may acquire more than 5% of the assets or outstanding shares of a company engaging in non-bank activities determined by the FRB to be closely related to the business of banking or of managing or controlling banks. The FRB provides expedited procedures for expansion into approved categories of non-bank activities.
Limitations on Dividends and Other Payments and Transactions
Our ability to pay dividends is largely dependent upon the receipt of dividends from the Bank. The Company relies on dividends from the Bank for its own ability to pay dividends to shareholders. Both federal and state laws impose restrictions on the ability of both the Company and the Bank to pay dividends.
Bank Holding Company Act (“BHCA”)
Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions on extensions of credit to the bank holding company or its subsidiaries, and on the use of their securities as collateral for loans. These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for the payment of dividends, interest and operating expenses. Further, subject to certain exceptions, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements relating to any extension of credit, the lease or sale of property, or furnishing of services.
Under longstanding FRB policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the FRB may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injection may be called for at a time when the holding company does not have the resources to provide it. In addition, depository institutions insured by the FDIC can be held liable for any losses incurred, or reasonably anticipated to be incurred, in connection with the default of or assistance provided to a commonly controlled FDIC-insured depository institution. Accordingly, in the event any insured subsidiary of a bank holding company causes a loss to the FDIC, other insured subsidiaries of a bank holding company could be required to compensate the FDIC by reimbursing it for the estimated amount of such loss. Such cross-guarantee liabilities generally are superior in priority to the obligation of the depository institutions to its shareholders, due solely to their status as shareholders, and obligations to other affiliates.
Pennsylvania Law
As a Pennsylvania bank holding company, the Company is subject to various restrictions on its activities as set forth in Pennsylvania law. This is in addition to those restrictions set forth in federal law. Under Pennsylvania law, a bank holding company that desires to acquire a bank or bank holding company that has its principal place of business in Pennsylvania must obtain permission from the DOB.
Financial Institution Reform, Recovery, and Enforcement Act (“FIRREA”)
FIRREA was enacted to address the financial condition of the Federal Savings and Loan Insurance Corporation, to restructure the regulation of the thrift industry, and to enhance the supervisory and enforcement powers of the federal bank and thrift regulatory agencies. As the primary federal regulator of the Bank, the FDIC, in conjunction with the DOB, is responsible for its supervision. When dealing with capital requirements, those regulatory bodies have the flexibility to impose supervisory agreements on institutions that fail to comply with regulatory requirements. The imposition of a capital plan, termination of deposit insurance, and removal or temporary suspension of an officer, director or other institution-affiliated person may cause enforcement actions.
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There are three levels of civil penalties under FIRREA:
| • | The first tier provides for civil penalties of up to $5,500 per day for any violation of law or regulation; |
| • | The second tier provides for civil penalties of up to $27,500 per day if more than a minimal loss or a pattern is involved; and. |
| • | Finally, civil penalties of up to the lesser of $1.1 million or 1% of total assets per day may be assessed for knowingly or recklessly causing a substantial loss to an institution or taking action that results in a substantial pecuniary gain or other benefit. |
Criminal penalties are increased to $1.1 million per violation and may be up to $5.5 million for continuing violations or for the actual amount of gain or loss. These penalties may be combined with prison sentences of up to five years. These penalties are subject to adjustment in accordance with inflation adjustment procedures prescribed under applicable law.
Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”)
FDICIA provides for, among other things:
| • | publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants; |
| • | the establishment of uniform accounting standards by federal banking agencies; |
| • | the establishment of a “prompt corrective action” system of regulatory supervision and intervention, based on capitalization levels, with more scrutiny and restrictions placed on depository institutions with lower levels of capital; |
| • | additional grounds for the appointment of a conservator or receiver; and |
| • | restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements. |
A central feature of FDICIA is the requirement that the federal banking agencies take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories:
| • | “well capitalized”; |
| • | “adequately capitalized”; |
| • | “under capitalized”; |
| • | “significantly undercapitalized”; and |
| • | “critically undercapitalized”. |
The Bank was categorized as “well capitalized” under the regulatory framework for prompt corrective action at December 31, 2018, based on the most recent notification from the FDIC. An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, management, earnings or liquidity.
Beginning January 1, 2015, all insured depository institutions are required to incorporate the revised regulatory capital requirements, discussed below under the heading “Risk Based Capital Requirements”, into the prompt corrective action framework, including the new common equity tier 1 capital asset ratio and a higher tier 1 risk-based capital ratio.
FDICIA generally prohibits a depository institution from making any capital distributions, including payment of a cash dividend or paying any management fees to its holding company, if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized”. Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized and requirements to reduce total assets and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator generally within 90 days of the date such institution is determined to be critically undercapitalized.
FDICIA provides the federal banking agencies with significantly expanded powers to take enforcement action against institutions that fail to comply with capital or other standards. Such actions may include the termination of deposit insurance by the FDIC or the appointment of a receiver or conservator for the institution. FDICIA also limits the circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver.
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Under FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the federal bank regulatory agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. Any institution that fails to meet these standards may be required to develop an acceptable plan, specifying the steps that the institutions will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In July 2010, the federal banking agencies issued Guidance on Sound Incentive Compensation Policies (“Guidance”) that applies to all banking organizations supervised by the agencies, thereby including both the Company and the Bank. Pursuant to the Guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation arrangements should: provide employees with incentives that appropriately balance risk and reward; be compatible with effective controls and risk management; and be supported by strong corporate governance, including active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation. Specific regulatory requirements regarding incentive compensation are discussed in the section titled “Dodd-Frank Act”.
Risk-Based Capital Requirements
The federal banking regulators have adopted certain risk-based capital guidelines to assist in assessing capital adequacy of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse agreements, which are recorded as off-balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit-equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain US Treasury securities, to 100% for assets with relatively high credit risk, such as business loans.
A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off-balance-sheet items, against both total qualifying capital, Common Equity Tier 1 capital, and Tier 1 capital.
“Common Equity Tier 1 Capital” includes common equity and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions and retained earnings.
“Tier 1”, or core capital, includes common equity, non-cumulative preferred stock and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions.
“Tier 2”, or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations less restricted deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies.
In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations began January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began compliance on January 1, 2014. The final rules call for the following capital requirements:
A minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%.
A minimum ratio of tier 1 capital to risk-weighted assets of 6%.
A minimum ratio of total capital to risk-weighted assets of 8%.
A minimum leverage ratio of 4%.
In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments to executives. The phase-in period for the capital conservation and countercyclical capital buffers for all banking organizations began on January 1, 2016, with final phase in to be completed by January 1, 2019.
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Under the proposed rules, accumulated other comprehensive income (“AOCI”) would have been included in a banking organization’s common equity tier 1 capital. The final rules allow community banks to make a one-time election not to include these additional components of AOCI in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. The opt-out election was required to be made in the first call report or FR Y-9 series report that is filed after the financial institution becomes subject to the final rule. The Bank “opted-out” of the inclusion of the components of AOCI in regulatory capital.
Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-up approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250 percent risk weight.
Under the new rules, mortgage servicing assets (“MSAs”) and certain deferred tax assets (“DTAs”) are subject to stricter limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and makes selected other changes in risk weights and credit conversion factors.
Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions including:
| • | limitations on its ability to pay dividends; |
| • | the issuance by the applicable regulatory authority of a capital directive to increase capital, and in the case of depository institutions, the termination of deposit insurance by the FDIC, as well as to the measures described under FDICIA as applicable to undercapitalized institutions. |
In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Bank to grow and could restrict the amount of profits, if any, available for the payment of dividends to the Company.
At December 31, 2018, the Bank was “well capitalized” under the foregoing requirements with a common equity tier 1 risk-based capital ratio of 10.7%, tier 1 leverage capital ratio of 8.4%, tier 1 risk-based capital ratio of 10.7% and a total capital ratio of 11.4%.
Interest Rate Risk
Regulatory agencies include in their evaluations of a bank’s capital adequacy, an assessment of the bank’s interest rate risk exposure. The standards for measuring the adequacy and effectiveness of a banking organization’s interest rate risk management includes a measurement of board of directors and senior management oversight, and a determination of whether a banking organization’s procedures for comprehensive risk management are appropriate to the circumstances of the specific banking organization. We utilize internal interest rate risk models to measure and monitor interest rate risk. Finally, regulatory agencies, as part of the scope of their periodic examinations, evaluate our interest rate risk.
Community Reinvestment Act (“CRA”)
Under the CRA, the Bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to ascertain and meet the credit needs of its entire community, including low- and moderate-income areas. CRA is designed to create a system for bank regulatory agencies to evaluate a depository institution’s record in meeting the credit needs of its community. CRA regulations were completely revised as of July 1, 1995, to establish performance-based standards for use in examining for compliance. Assessment by bank regulators of CRA compliance focuses on three tests: (i) a lending test, to evaluate the institution’s record of making loans, including community development loans, in its designated assessment areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and areas and small businesses; and (iii) a service test, to evaluate the institution’s delivery of banking services throughout its CRA assessment area, including low and moderate income areas. The Bank had its last completed CRA compliance examination conducted January 30, 2017 and received a “satisfactory” rating.
Bank Secrecy Act, USA Patriot Act of 2001 (“Patriot Act”), and Related Rules and Regulations
The Patriot Act contains anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. Among other requirements, the Patriot Act and the related regulations impose the following requirements with respect to financial institutions:
| • | Establishment of anti-money laundering programs; |
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| • | Establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time; |
| • | Establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and |
| • | Prohibition on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks. |
Failure to comply with the Patriot Act’s requirements could have serious legal, financial, regulatory and reputational consequences. In addition, bank regulators will consider a holding company’s effectiveness in combating money laundering when ruling on BHCA and Bank Merger Act applications.
In May 2018, a Financial Crimes Enforcement Network rule requiring banks to implement strengthened customer due diligence requirements took effect. Among other requirements, the rules contain explicit customer due diligence requirements and require banks to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions.
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act became law. Dodd-Frank is intended to effect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank created the Financial Stability Oversight Council to identify systemic risks in the financial system and gave federal regulators the authority to take control of and liquidate financial firms. Dodd-Frank additionally created the Consumer Financial Protection Bureau, an independent federal regulator that administers federal consumer protection laws. Dodd-Frank has and is expected to continue to have a significant impact on our business operations as its provisions take effect. It is expected that, as various implementing rules and regulations continue to be released, they will increase our operating and compliance costs and could increase our interest expense. Among the provisions that affect us or are likely to affect us are the following:
Volker Rule
As mandated by the Dodd-Frank Act, in December 2013, the OCC, FRB, FDIC, SEC and Commodity Futures Trading Commission issued a final rule (the “Final Rules”) implementing certain prohibitions and restrictions on the ability of a banking entity and non-bank financial company supervised by the FRB to engage in proprietary trading and have certain ownership interests in, or relationships with, a “covered fund” (the “Volker Rule”). On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was signed into law. Among other relief, the EGRRCPA exempts banking organizations with $10 billion or less in total consolidated assets, and total trading assets and trading liabilities that are 5% or less of total consolidated assets, from the Volcker Rule.
Incentive-Based Compensation
The Dodd-Frank Act requires, in part, that the federal banking agencies and the SEC establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. The federal banking agencies issued such proposed rules in April 2011 and issued a revised proposed rule in June 2016, implementing these requirements and prohibitions. The revised proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets, for which it would go beyond the existing Guidance to (i) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight and (iv) establish minimum recordkeeping and (v) mandate disclosures to the appropriate federal banking agency. The Company believes that it meets substantially all the standards that have been adopted.
Holding Company Capital Requirements
Dodd-Frank requires the FRB to apply consolidated capital requirements to bank holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets. Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion are consistent with safety and soundness. EGRRCPA also requires the federal banking agencies to adopt a community bank leverage ratio of 8% to 10%, for qualifying banking organizations with total consolidated assets of less than $10 billion. Such institutions that satisfy the community bank leverage ratio would be deemed to satisfy generally applicable risk-based and leverage capital requirements, and to have the capital ratios that are required to be considered “well capitalized” under the prompt corrective action framework. Additionally, the EGRRCPA amends the federal banking agencies’ regulatory capital rules to narrow the definition of high volatility commercial real estate (“HVCRE”) loans, which receive a higher risk weighting than other commercial real estate loans under risk-based capital requirements.
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Deposit Insurance
Dodd-Frank permanently increases the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor. Substantially all deposits of the Bank are insured up to that limit. Dodd-Frank also broadens the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. Dodd-Frank requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund (“DIF”) from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio reaches 1.50% of insured deposits. In lieu of the dividend payments, the FDIC has adopted progressively lower assessment rate schedules that become effective when the reserve ratio exceeds 2.0% and 2.5%. In setting the assessment rates necessary to meet the new 1.35% requirement, the FDIC is required to offset the effect of this provision on insured depository institutions with total consolidated assets of less than $10 billion, so that more of the cost of raising the reserve ratio will be borne by the institutions with more than $10 billion in assets. In October 2010, the FDIC adopted a restoration plan to ensure that the DIF reserve ratio reaches 1.35% by September 30, 2020. Additionally, on December 22, 2017, the Tax Cuts and Jobs Act was enacted, which, among other things, disallows the deduction of FDIC insurance premiums for tax purposes, effective January 1, 2018, where previously, FDIC insurance premiums were fully deductible for tax purposes.
The FDIC annually establishes for the DIF a designated reserve ratio, or DRR, of estimated insured deposits. The FDIC announced that the DRR for 2018 will remain at 2.00%, which is the same ratio that has been in effect since January 1, 2011. The FDIC is authorized to change deposit insurance assessment rates as necessary to maintain the DRR, without further notice-and-comment rulemaking, provided that: (i) no such adjustment can be greater than three basis points from one quarter to the next, (ii) adjustments cannot result in rates more than three basis points above or below the base rates and (iii) rates cannot be negative. On October 22, 2015, the FDIC issued a proposal to increase the reserve ratio for the DIF to the minimum level of 1.35%. The FDIC adopted the final rule on March 15, 2016, which imposes on insured depository institutions with $10 billion or more in total consolidated assets, a quarterly surcharge equal to an annual rate of 4.5 basis points applied to the deposit insurance assessment base, after making certain adjustments. The rule became effective on July 1, 2016.
Pursuant to the Dodd-Frank Act, the FDIC has backup enforcement authority over a depository institution holding company, such as the Company, if the conduct or threatened conduct of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF.
Corporate Governance
Dodd-Frank requires publicly-traded companies to give stockholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by stockholders. Additionally, Dodd-Frank directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded. Dodd-Frank also gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.
Prohibition Against Charter Conversions of Troubled Institutions
Dodd-Frank prohibits a depository institution from converting from a state to a federal charter, or vice versa, while it is the subject of a cease and desist order or other formal enforcement action or a memorandum of understanding with respect to a significant supervisory matter unless the appropriate federal banking agency gives notice of the conversion to the federal or state authority that issued the enforcement action and that agency does not object within 30 days. The notice must include a plan to address the significant supervisory matters. The converting institution must also file a copy of the conversion application with its current federal regulator, which must notify the resulting federal regulator of any ongoing supervisory or investigative proceedings that are likely to result in an enforcement action and provide access to all supervisory and investigative information relating thereto.
Interstate Branching
Dodd-Frank authorizes national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks are able to enter new markets more freely.
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Limits on Interstate Acquisitions and Mergers
Dodd-Frank precludes a bank holding company from engaging in an interstate acquisition–the acquisition of a bank outside its home state–unless the bank holding company is both well capitalized and well managed. Furthermore, a bank may not engage in an interstate merger with a bank headquartered in another state unless the surviving institution will be well capitalized and well managed. The previous standard in both cases was adequately capitalized and adequately managed.
Limits on Interchange Fees
Dodd-Frank amended the Electronic Fund Transfer Act to give the Federal Reserve the authority, among other things, to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve issued its final rule, Regulation II, effective October 1, 2011. Consistent with Dodd-Frank, issuers with less than $10 billion in assets, like the Company, are exempt from debit card interchange fee standards.
Consumer Financial Protection Bureau
Dodd-Frank created the CFPB, which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, TILA, RESPA, Fair Credit Reporting Act, Fair Debt Collection Act, Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. Dodd-Frank authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, Dodd-Frank allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
Ability to Repay and Qualified Mortgage Rule
Pursuant to the Dodd Frank Act, the Consumer Financial Protection Bureau issued a final rule on January 10, 2013, which became effective January 10, 2014, amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit decision:
| • | current or reasonably expected income or assets; |
| • | current employment status; |
| • | the monthly payment on the covered transaction; |
| • | the monthly payment on any simultaneous loan; |
| • | the monthly payment for mortgage-related obligations; |
| • | current debt obligations, alimony, and child support; |
| • | the monthly debt-to-income ratio or residual income; and |
| • | credit history. |
Alternatively, the mortgage lender can originate “qualified mortgages”, which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Loans which meet these criteria will be considered qualified mortgages, and as a result will generally protect lenders from fines or litigation in the event of foreclosure. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. The final rule, as issued, is not expected to have a material impact on our lending activities or our results of operations or financial condition.
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TILA/RESPA Integrated Disclosures (“TRID”)
On October 3, 2015, the CFPB implemented a final rule combining the mortgage disclosures consumers previously received under TILA and RESPA. For more than 30 years, the TILA and RESPA mortgage disclosures had been administered separately by, respectively, the Federal Reserve Board and the U.S. Department of Housing and Urban Development. The final rule requires lenders to provide applicants with the new Loan Estimate and Closing Disclosure and generally applies to most closed-end consumer mortgage loans for which the creditor or mortgage broker receives an application on or after October 3, 2015.
Consumer Lending Laws
Bank regulatory agencies are increasingly focusing attention on consumer protection laws and regulations. To promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services, the Dodd-Frank Act established the CFPB. This agency is responsible for interpreting and enforcing federal consumer financial laws, as defined by the Dodd-Frank Act, that, among other things, govern the provision of deposit accounts along with mortgage origination and servicing. Some federal consumer financial laws enforced by the CFPB include the Equal Credit Opportunity Act, TILA, the Truth in Savings Act, the Home Mortgage Disclosure Act, RESPA, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act. The CFPB is also authorized to prevent any institution under its authority from engaging in unfair, deceptive, or abusive acts or practices in connection with consumer financial products and services. As a residential mortgage lender, the Company and the Bank are subject to multiple federal consumer protection statutes and regulations, including, but not limited to, TILA, the Home Mortgage Disclosure Act, the Equal Credit Opportunity Act, RESPA, the Fair Credit Reporting Act, the Fair Debt Collection Act and the Flood Disaster Protection Act. Failure to comply with these and similar statutes and regulations can result in the Company and the Bank becoming subject to formal or informal enforcement actions, the imposition of civil money penalties, and consumer litigation.
Commercial Real Estate Guidance
In December 2015, the federal banking agencies released a statement entitled “Statement on Prudent Risk Management for Commercial Real Estate Lending” (the “CRE Statement”). In the CRE Statement, the agencies express concerns with institutions that ease commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that they will continue to pay special attention to commercial real estate lending activities and concentrations going forward. The agencies previously issued guidance in December 2006, entitled “Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”, which states that an institution is potentially exposed to significant commercial real estate concentration risk, and should employ enhanced risk management practices, where total commercial real estate loans represents 300% or more of its total capital and the outstanding balance of such institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.
Privacy Protection and Cybersecurity
The Bank is subject to regulations implementing the privacy protection provisions of the GLB Act. These regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “nonpublic personal information,” to customers at the time of establishing the customer relationship and annually thereafter. The regulations also require the Bank to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices. In addition, to the extent its sharing of such information is not covered by an exception, the Bank is required to provide its customers with the ability to “opt-out” of having the Bank share their nonpublic personal information with unaffiliated third parties.
The Bank is subject to regulatory guidelines establishing standards for safeguarding customer information. These regulations implement certain provisions of the GLB Act. The guidelines describe the federal bank regulatory agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. In October 2016, the federal banking agencies issued an advance notice of proposed rulemaking on enhanced cybersecurity risk-management and resilience standards that would apply to large and interconnected banking organizations and to services provided by third parties to these firms. These enhanced standards would apply only to depository institutions and depository institution holding companies with total consolidated assets of $50 billion or more.
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Federal Reserve System
FRB regulations require depository institutions to maintain cash reserves against their transaction accounts (primarily NOW and demand deposit accounts). A reserve of 3% is to be maintained against aggregate transaction accounts between $16.0 million and $122.3 million (subject to adjustment by the FRB) plus a reserve of 10% (subject to adjustment by the FRB between 8% and 14%) against that portion of total transaction accounts in excess of $122.3 million. The first $16.0 million of otherwise reservable balances (subject to adjustment by the FRB) is exempt from the reserve requirements. The Bank is in compliance with the foregoing requirements.
Required reserves must be maintained in the form of vault cash, an account at a Federal Reserve Bank or a pass-through account as defined by the FRB. Pursuant to the Emergency Economic Stabilization Act of 2008, the Federal Reserve Banks pay interest on depository institution required and excess reserve balances. The interest rate paid on required reserve balances is currently the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest target federal funds rate in effect during the reserve maintenance period.
Future Legislation
Proposed legislation is introduced in almost every legislative session that would dramatically affect the regulation of the banking industry. We cannot predict if any such legislation will be adopted nor if adopted how it would affect our business. History has demonstrated that new legislation or changes to existing laws or regulations usually results in greater compliance burden and therefore generally increases the cost of doing business.
Employees
As of December 31, 2018, we had 310 employees. We are not parties to any collective bargaining agreements and we consider our employee relations to be good.
Availability of Securities Filings
Effective February 11, 2015, the Company became a reporting company and was required to file certain periodic reports under the Securities and Exchange Act of 1934 as required by Section 15(d) of that act. Effective August 10, 2018, the Company registered its stock under Section 12(b) of the Exchange Act and thereby became required to file certain additional periodic reports under the Exchange Act. We file the required annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.
In addition, we maintain an Internet website at www.riverviewbankpa.com. We make available, free of charge, through the “Investor Relations” link on our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
| Item 1A. | Risk Factors. |
Not required for smaller reporting companies.
| Item 1B. | Unresolved Staff Comments. |
None.
| Item 2. | Properties. |
Our corporate headquarters is located at 3901 North Front Street, Harrisburg, Pennsylvania, and includes our executive offices as well as portions of our finance, information services, credit, and branch administration departments. Portions of our deposit operations, human resource administration, as well as trust service offices are located at 2638 Woodglen Road, Pottsville, Pennsylvania. Portions of our loan operations, credit administration, BSA and IT departments are located at 200 Front Street, Marysville, Pennsylvania. Additionally, compliance and portions of finance operations, human resource administration and operations, loan and deposit operations, credit administration and trust operations and services are located at 11 North Second Street, Clearfield, Pennsylvania. Each of these facilities is owned by the Bank.
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The Bank operates 28 community banking offices and four limited purpose offices within Berks, Blair, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties in Pennsylvania. Eight of the branch offices are leased by the Bank, while the remainder of the facilities are owned. All retail banking offices have ATMs and are equipped with closed circuit security monitoring.
We consider our properties to be suitable and adequate for our current and immediate future purposes.
| Item 3. | Legal Proceedings. |
In the opinion of the Company, after review with legal counsel, there are no proceedings pending to which the Company is party to or to which its property is subject, which, if determined to be adverse to the Company, would be material in relation to the Company’s consolidated financial condition. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by governmental authorities.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
As of February 28, 2019, there were approximately 1,091 registered holders of our common stock, no par value. Our common stock trades on the Nasdaq Global Market under the symbol “RIVE.”
| Item 6. | Selected Financial Data. |
Not required for smaller reporting companies
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Management’s Discussion and Analysis
(Dollars in thousands, except per share data)
Management’s Discussion and Analysis appearing on the following pages should be read in conjunction with the Consolidated Financial Statements contained in this Annual Report on Form 10-K.
Forward-Looking Discussion:
In addition to the historical information contained in this document, the discussion presented may contain and, from time to time, may make, certain statements that constitute forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. These statements are not historical facts, but instead represent the current expectations, plans or forecasts of the Company and its subsidiary regarding its future operating results, financial position, asset quality, credit reserves, credit losses, capital levels, dividends, liquidity, service charges, cost savings, effective tax rate, impact of changes in fair value of financial assets and liabilities, impact of new accounting and regulatory guidance, legal proceedings and other matters relating to us and the securities that we may offer from time to time. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict, change over time and are often beyond our control. Actual outcomes and results may differ materially from those expressed in, or implied by, forward-looking statements.
You should not place undue reliance on any forward-looking statements, which speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made. 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.
Critical Accounting Policies:
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of consolidated financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during those reporting periods.
For a discussion of the recent Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”), refer to Note 1 entitled “Summary of significant accounting policies — Recent accounting standards”, in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
An accounting estimate requires assumptions about uncertain matters that could have a material effect on the consolidated financial statements if a different amount within a range of estimates was used or if estimates changed from period to period. Readers of this report should understand that estimates are made considering facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from when those estimates were made. Significant estimates that are particularly susceptible to material change within the near term relate to the determination of the allowance for loan losses, determination of other-than-temporary impairment of investment securities, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or satisfaction of loans, the valuation of deferred tax assets, the valuation of acquired assets and liabilities assumed in business combinations and the impairment of goodwill. Actual amounts could differ from those estimates.
We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to individually evaluated loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date. The balance in the allowance for loan losses account is based on past events and current economic conditions.
The allowance for loan losses account consists of an allocated element and an unallocated element. The allocated element consists of a specific portion for the impairment of loans individually evaluated and a formula portion for loss contingencies on those loans collectively evaluated. The unallocated element, if any, is used to cover inherent losses that exist as of the evaluation date, but which have not been identified as part of the allocated allowance using our impairment evaluation methodology due to limitations in the process.
We monitor the adequacy of the allocated portion of the allowance quarterly and adjust the allowance as necessary through normal operations. This ongoing evaluation reduces potential differences between estimates and actual observed losses. The determination of the level of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accordingly, management cannot ensure that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required, resulting in an adverse impact on operating results.
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In determining the requirement to record an other-than-temporary impairment on debt securities owned by us, four main characteristics are considered including: (i) the length of time and the extent to which the fair value has been less than amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) whether the market decline was affected by macroeconomic conditions and (iv) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on information available to us at a point in time.
Fair values of financial instruments, in cases where quoted market prices are not available, are based on estimates using present value or other valuation techniques which are subject to change.
Real estate acquired through foreclosure, deeds in lieu of foreclosure, or in satisfaction of loans is adjusted to fair value based upon current estimates derived through independent appraisals less anticipated costs to sell. However, proceeds realized from sales may ultimately be higher or lower than those estimates.
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The amount of deferred tax assets is reduced, if necessary, to the amount that, based on available evidence, will more likely than not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The acquired assets and liabilities assumed in business combinations are measured at fair value as of the acquisition date. In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.
Goodwill is evaluated at least annually for impairment, or more frequently if conditions indicate potential impairment exists. Any impairment losses arising from such testing are reported in the income statement in the current period as a separate line item within operations.
For a further discussion of our critical accounting policies refer to Note 1 entitled “Summary of significant accounting policies” in the Notes to Consolidated Financial Statements to this Annual Report. This Note lists the significant accounting policies used by us in the development and presentation of the consolidated financial statements. This MD&A, the Notes to Consolidated Financial Statements and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary to understand and evaluate our financial position, results of operations and cash flows.
Operating Environment:
The gross domestic product (“GDP”), the value of all goods and services produced in the Nation, increased at an annual rate of 2.9% in 2018, as compared to the 2.2% pace in 2017. The acceleration in annual GDP reflects upturns in personal consumption expenditures and government spending. Despite the annual improvement, the GDP for the fourth quarter of 2018 declined to 2.6% from 3.4% in the prior quarter, reflecting a downturn in personal consumption spending and an increase in imports. Inflationary concerns continue to be contained as the consumer price index (“CPI”) was 1.9% in 2018 and 2.1% in 2017. The Federal Reserve Board’s Federal Open Market Committee’s (“FOMC”) preferred measure of inflation, which excludes food and energy costs, rose 2.2% in 2018 and moved above the FOMC’s benchmark of 2.0%. In keeping inflation in check, the FOMC increased rates four times in 2018 for a total of 100 basis points based on expectations that the job market and the economy will continue to strengthen further. The FOMC stated at its December 2018 meeting that they anticipate the pending need for more rate increases throughout 2019, with determinations to be made based on information at the time rate change decisions are considered.
FOMC actions have a direct impact on our business and profitability. Similar to most banks, we have experienced deposit disintermediation from time deposits to interest-bearing non-maturity transaction accounts as a result of the continuation of the relatively low interest rate environment. Further FOMC actions resulting in acceleration of the increasing interest rate cycle may increase our cost of funds as depositors may be enticed to transfer funds from lower cost interest-bearing transaction accounts to higher cost time deposits. Many of our competitors have a high dependence on short-term borrowed funds. If rates continue to rise, these banks may aggressively increase rates offered on their deposits in an effort to mitigate the risk of corresponding changes in their funding costs with changes in the federal funds rate. These actions may impact us as we may have to raise rates to retain customers and provide liquidity for funding loans. A continuation in the rising rate cycle can also impact our primary business of lending in a number of ways. In order to offset increases in funding costs we may have to seek higher yielding loan types that could have an
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impact on loan concentration levels. Our asset quality may be adversely impacted if borrowers with adjustable rate loans are unable to cover debt service in the future as rates rise. We continually monitor adjustable rate relationships to mitigate this risk through stress testing over various rate scenarios. In addition, adjustable rate borrowers may request renegotiation of existing loans to longer-term fixed rate loans to avoid the possibility of future increases in their debt service costs. There is a possibility we may lose customers to competitors if we are unable or unwilling to provide longer term fixed rate funding.
Employment conditions overall improved in the United States in 2018. The number of people employed increased at a greater pace as compared to the increase in the civilian labor force in 2017. As a result, the annual unemployment rate for the United States fell to 3.9% in 2018 from 4.1% in 2017. The improvements in job growth were offset partially by slower wage growth in 2018.
Similarly, employment conditions in 2018 improved for the Commonwealth of Pennsylvania as evidenced by a decrease in the unemployment rate to 4.0% in 2018 from 4.4% in 2017. With respect to the markets we serve, the unemployment rate decreased in all of the twelve counties in which we have branch locations. The average unemployment rate for Counties in our market area decreased to 4.4% in 2018 from 4.9% in 2017. The lowest 2018 unemployment rate within the counties we serve was in Centre County at 3.1%. Continued improvement in unemployment rates could favorably impact the rate of economic growth in our market and may have a corresponding impact on our loan and deposit growth and profitability.
National, Pennsylvania and our market area’s non-seasonally-adjusted annual unemployment rates in 2018 and 2017 are summarized as follows:
| 2018 | 2017 | |||||||
| United States |
3.9 | % | 4.1 | % | ||||
| Pennsylvania |
4.0 | 4.4 | ||||||
| Berks County |
3.8 | 4.0 | ||||||
| Blair County |
4.0 | 4.3 | ||||||
| Centre County |
3.1 | 3.2 | ||||||
| Clearfield County |
5.3 | 5.9 | ||||||
| Dauphin County |
3.6 | 4.1 | ||||||
| Huntingdon County |
5.6 | 6.3 | ||||||
| Lebanon County |
3.6 | 3.8 | ||||||
| Lycoming County |
4.8 | 5.4 | ||||||
| Northumberland County |
5.4 | 5.6 | ||||||
| Perry County |
3.4 | 4.0 | ||||||
| Schuylkill County |
5.0 | 5.4 | ||||||
| Somerset County |
5.5 | 6.2 | ||||||
The banking industry operating performance increased in 2018 as net income for all Federal Deposit Insurance Corporation (“FDIC”)-insured banks in 2018, totaled $236.7 billion, an increase of $72.4 billion, or 44.1%, from 2017. Excluding one-time income tax expenses associated with the enactment of the new tax law in the fourth quarter, net income for all FDIC insured banks in 2018 would have been $207.9 billion, an increase of 13.5% over 2017 industry results. FDIC-insured community banks’ net income in 2018 improved to $26.1 billion, an increase of $5.9 million, or 29.4%, over 2017. Excluding the one-time income tax expense, net income for all FDIC-insured community banks in 2018 would have been $24.1 billion, an increase of 10.7% when compared to 2017. The improvement in earnings was largely the result of increases in net interest income of $5.8 billion, or 8.3%, offset partially by an increase in noninterest expense of $3.0 million, or 5.3%.
The forecasted improvements in employment conditions and economic growth, coupled with reductions in the tax rates enacted by recent tax reform legislation, could spur continued expansion in the United States and local economies beyond 2019. This could affect interest rates paid on deposits, which may adversely impact bank earnings as net interest margins compress from the inability of management to keep funding costs low. Increased loan growth, continuous expense control and sound balance sheet management could offset some of the negative impact of the reduction in net interest margins from funding costs.
Review of Financial Position:
Riverview Financial Corporation, (“Riverview” or 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”). On October 2, 2017, The Company announced the completion of its merger of equals with CBT Financial Corp. (“CBT”), effective October 1, 2017 pursuant to the Agreement and Plan of Merger between Riverview and CBT, dated April 19, 2017. On the effective date, CBT was merged with and into Riverview, with Riverview surviving (the “merger”). Additionally, CBT Bank, the wholly-owned subsidiary of CBT, merged with and into Riverview Bank, the wholly-owned subsidiary of Riverview, with Riverview Bank as
-18-
the surviving institution. The Company’s financial results reflect the merger of CBT Bank with and into Riverview Bank under the purchase method of accounting, with the Company treated as the acquirer for accounting and reporting purposes. In accordance with the acquisition accounting for the merger, the historical assets and liabilities of CBT have been recorded at their respective estimated fair values on the date of the merger. The historical financial information included in the Company’s consolidated financial statements and related notes as reported in this Form 10-K is that of Riverview and, consequently, comparisons may not be particularly meaningful. The results for the year ended December 31, 2018 include the operating results of Riverview and the CBT division for the entire year, as compared with the results for the year ended December 31, 2017, which included three months of the operating results of the CBT. The merger had a significant impact on the results of operations for the year ended December 31, 2017.
Riverview Bank, with 28 community banking offices and four limited purpose offices, is a full-service commercial bank offering a wide range of traditional banking services and financial advisory, insurance and investment services to individuals, municipalities and small to medium sized businesses in the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Dauphin, Huntington, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties.
The Bank is state-chartered under the jurisdiction of the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. The Bank’s primary product is loans to small- and medium-sized businesses. Other lending products include one-to-four family residential mortgages and consumer loans. The Bank primarily funds its loans by offering interest-bearing transaction accounts to commercial enterprises and individuals. Other deposit product offerings include certificates of deposits and various demand deposit accounts. The Bank offers a broad range of financial advisory, investment and fiduciary services through its wealth management and trust operating divisions.
The wealth management and trust divisions did not meet the quantitative thresholds for required segment disclosure in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Bank’s 28 community banking offices, all similar with respect to economic characteristics, share a majority of the following aggregation criteria: (i) products and services; (ii) operating processes; (iii) customer bases; (iv) delivery systems; and (v) regulatory oversight. Accordingly, they were aggregated into a single operating segment.
The Company faces competition primarily from commercial banks, thrift institutions and credit unions within the northern, central and southwestern Pennsylvania markets, many of which are substantially larger in terms of assets and capital. In addition, mutual funds and security brokers compete for various types of deposits, and consumer, mortgage, leasing and insurance companies compete for various types of loans and leases. Principal methods of competing for banking and permitted nonbanking services include price, nature of product, quality of service and convenience of location.
The Company and the Bank are subject to regulations of certain federal and state regulatory agencies and undergo periodic examinations.
Readers of this Management Discussion and Analysis are encouraged to refer to the note entitled “Merger accounting,” in the Notes to the Consolidated Financial Statements to more fully understand the impact that the merger had on the Company’s financial position and results of operations.
Total assets, loans and deposits were $1.1 billon, $893.2 million and $1,004.6 million, respectively, at December 31, 2018. Comparatively, total assets, loans and deposits were $1.2 billon, $956.0 million and $1,026.5 million, respectively, at December 31, 2017. All major categories of loans declined in 2018. Business lending, including commercial and commercial real estate decreased $40.7 million, while retail lending, including residential mortgages and consumer loans decreased $22.1 million during 2018. Investment securities increased $11.5 million, or 12.3%, in 2018. Noninterest-bearing deposits increased $6.7 million, while interest-bearing deposits decreased $28.6 million in 2018 as compared with 2017.
The loan portfolio consisted of $660.1 million of business loans, including construction, commercial and commercial real estate loans, and $233.1 million in retail loans, including residential mortgage and consumer loans at December 31, 2018. Total investment securities were $104.7 million at December 31, 2018, all of which were classified as available-for sale. Total deposits consisted of $162.6 million in noninterest-bearing deposits and $842.0 million in interest-bearing deposits at December 31, 2018.
Stockholders’ equity equaled $113.9 million, or $12.49 per share, at December 31, 2018, and $106.3 million or $11.72 per share, at December 31, 2017. Dividends declared for the 2018 amounted to $0.30 per share, representing an annual yield of 2.8% based on the closing price of the Company’s common stock of $10.90 per share on December 31, 2018.
Nonperforming assets equaled $7,202 or 0.81% of loans, net and foreclosed assets at December 31, 2018, an improvement from $8,151, or 0.85%, at December 31, 2017. Nonperforming loans at December 31, 2018 and December 31, 2017 exclude $3,825 and $8,512, respectively, of loans acquired with deteriorated credit quality, which were recorded at their fair value at acquisition. The allowance for loan losses equaled $6,348, or 0.71%, of loans, net, at December 31, 2018, compared to $6,306, or 0.66%, of loans, net at year-end 2017. The increase in the ratio of the allowance for loan losses as a percentage of loans, net, was the result of reduced loan balances. Loans charged-off, net of recoveries equaled $573, or 0.06%, of average loans in 2018, compared to $160, or 0.03%, of average loans in 2017.
-19-
Investment Portfolio:
Our investment portfolio provides a source of liquidity needed to meet expected loan demand and generates a reasonable return in order to increase our profitability. Additionally, we utilize the investment portfolio to meet pledging requirements. At December 31, 2018, our portfolio consisted primarily of taxable and tax-exempt state and municipal bonds and mortgage-backed securities, which provide a source of income and liquidity.
Our investment portfolio is subject to various risk elements that may negatively impact our liquidity and profitability. The greatest risk element affecting our portfolio is market risk or interest rate risk (“IRR”). Understanding IRR, along with other inherent risks and their potential effects, is essential in effectively managing the investment portfolio.
Market risk or IRR relates to the inverse relationship between bond prices and market yields. It is defined as the risk that increases in general market interest rates will result in market value depreciation. A marked reduction in the value of the investment portfolio could subject us to liquidity strains and reduced earnings if we are unable or unwilling to sell these investments at a loss. Moreover, the inability to liquidate these assets could require us to seek alternative funding, which may further reduce profitability and expose us to greater risk in the future. In addition, since our entire investment portfolio is designated as available-for-sale and carried at estimated fair value, with net unrealized gains and losses reported as a separate component of stockholders’ equity, market value depreciation could negatively impact our capital position.
During 2018, the FOMC increased its target federal funds rate 25 basis points four times, totaling 100 basis points for the year. The FOMC stated that they expect economic conditions will continue to improve and may warrant additional increases in the federal funds rate but that the timing and magnitude of these changes will depend ultimately on incoming economic data. Our investment portfolio consists primarily of fixed-rate bonds. As a result, changes in general market interest rates have a significant influence on the fair value of our portfolio. Specifically, the parts of the yield curve most closely related to our investments include the 2-year and 7-year U.S. Treasury securities. The yield on the 2-year U.S. Treasury note affects the values of our U.S. Government agency and U.S. Governments-sponsored enterprises mortgage-backed securities, whereas the 7-year U.S. Treasury note influences the value of taxable and tax-exempt state and municipal obligations. The yield on the 2-year U.S. Treasury increased from 1.89% at year-end 2017 to 2.48% at year-end 2018. The yield on the 7-year U.S. Treasury increased 26 basis points from 2.33% at December 31, 2017, to 2.59% at December 31, 2018. Since bond prices move inversely to yields, we reported net unrealized holding losses, included as a separate component of stockholders’ equity of $1,725, net of income taxes of $458, at December 31, 2018.
In order to monitor the potential effects interest rate fluctuations could have on the value of our investments, we perform stress test modeling on the portfolio. Stress tests conducted on our portfolio at December 31, 2018, indicated that should there be a parallel increase in the yield curve over one year by 100, 200 and 300 basis points, we would anticipate declines of 4.1%, 8.1% and 12.0% in the market value of our portfolio.
-20-
The carrying values of the major classifications of investment securities and their respective percentages of total investment securities for the past three years are summarized as follows:
Distribution of investment securities
| 2018 | 2017 | 2016 | ||||||||||||||||||||||
| December 31 |
Amount | % | Amount | % | Amount | % | ||||||||||||||||||
| U.S. Treasury securities |
$ | 5,021 | 6.87 | % | ||||||||||||||||||||
| U.S. Government-sponsored enterprises |
||||||||||||||||||||||||
| State and municipals: |
||||||||||||||||||||||||
| Taxable |
$ | 33,278 | 31.79 | % | $ | 35,002 | 37.56 | % | 42,394 | 57.98 | ||||||||||||||
| Tax-exempt |
12,776 | 12.21 | 16,308 | 17.50 | 5,674 | 7.76 | ||||||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||||||||||
| U.S. Government agencies |
23,670 | 22.61 | 22,817 | 24.48 | 1,890 | 2.59 | ||||||||||||||||||
| U.S. Government-sponsored enterprises |
26,195 | 25.02 | 10,089 | 10.82 | 8,896 | 12.17 | ||||||||||||||||||
| Corporate debt obligations |
8,758 | 8.37 | 8,985 | 9.64 | 9,050 | 12.38 | ||||||||||||||||||
| Equity securities, financial services |
188 | 0.25 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 104,677 | 100.00 | % | $ | 93,201 | 100.00 | % | $ | 73,113 | 100.00 | % | ||||||||||||
|
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|
|||||||||||||
Investment securities increased $11.5 million to $104.7 million at December 31, 2018 from $93.2 million at December 31, 2017`. At December 31, 2018, the entire investment portfolio was classified 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. While there were no investment purchases in 2017, there were 15 securities purchased in 2018 totaling $31.0 million. Repayments of investment securities totaled $12.8 million in 2018 and $5.7 million in 2017. Proceeds from the sale of investment securities available-for-sale totaled $4.8 million in 2018 and consisted of U.S. Treasury securities. This compares to proceeds of $19.0 million from the sale of investment securities available-for-sale in 2017, where the majority of the sales were mortgage-backed securities and tax-exempt municipal securities. Gross gains of $40 without incurring any gross losses, resulted in a net gain of $40 that was recognized from the sale of investment securities in 2018. Gross gains of $166 and gross losses of $77, resulting in a net gain of $89, were recognized from the sale of investment securities in 2017.
The composition of the investment portfolio changed during 2018 due to the purchase of U.S. Government Agency and U.S. Government-sponsored enterprise investments. U.S. Government agency and U.S. Government-sponsored enterprise mortgage-backed securities comprised 47.6% of the total portfolio at year-end 2018 compared to 35.3% at the end of 2017. Tax-exempt municipal obligations decreased as a percentage of the total portfolio to 12.2% at year-end 2018 from 17.5% at the end of 2017, while taxable municipal securities decreased to 31.8% of the total portfolio at year-end 2018 from 37.6% at the end of 2017. Corporate debt comprised 8.4% of the portfolio at the end of 2018 from 9.6% at year ended 2017. As a result of the changes that occurred within the portfolio during 2018, the average life and the modified duration of the investment portfolio decreased to 6.5 years and 5.3 years, respectively, at December 31, 2018 as compared with 8.4 years and 6.7 years at December 31, 2017.
There were no other-than-temporary impairments (“OTTI”) recognized for the years ended December 31, 2018 and 2017. For additional information related to OTTI refer to Note 4 entitled “Investment securities” in the Notes to Consolidated Financial Statements to this Annual Report.
Investment securities averaged $94.3 million and equaled 8.9% of average earning assets in 2018, compared to $78.4 million and equaled 11.4% of average earning assets in 2017. The tax-equivalent yield on the investment portfolio decreased 35 basis points to 2.84% in 2018 from 3.19% in 2017. In addition to measuring our performance using the book yield, we monitor and evaluate our investment portfolio with respect to total return in comparison to national benchmarks. Total return is a comprehensive industry-wide approach measuring investment portfolio performance. This measure is superior to measuring performance strictly on the basis of yield since it not only considers income earned similar to the yield approach, but also includes the reinvestment income on repayments and capital gains and losses, whether realized or unrealized. The total return of our investment portfolio improved to 3.43% in 2018 from 3.01% in 2017, and was significantly better than the Bloomberg Barclays aggregate-bond index, a benchmark used by most investment managers, of 0.01% in 2018.
At December 31, 2018 and 2017, there were no securities of any individual issuer, except for U.S. Government agencies and U.S. Government -sponsored enterprises, that exceeded 10.0% of stockholders’ equity.
-21-
The maturity distribution based on amortized cost, fair value and weighted-average, tax-equivalent yield of the investment portfolio at December 31, 2018, is summarized as follows. The weighted-average yield, based on amortized cost, has been computed for tax-exempt state and municipals on a tax-equivalent basis using the prevailing federal statutory tax rate. The distributions are based on contractual maturity. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Maturity distribution of investment securities
| After one but | After five but | |||||||||||||||||||||||||||||||||||||||
| Within one year | within five years | within ten years | After ten years | Total | ||||||||||||||||||||||||||||||||||||
| December 31, 2018 |
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||
| Amortized Cost: |
||||||||||||||||||||||||||||||||||||||||
| State and municipals: |
||||||||||||||||||||||||||||||||||||||||
| Taxable |
$ | 2,581 | 3.32 | % | $ | 7,724 | 3.84 | % | $ | 23,720 | 3.39 | % | $ | 34,025 | 3.49 | % | ||||||||||||||||||||||||
| Tax-exempt |
$ | 2,288 | 1.40 | % | 2,127 | 2.52 | 3,149 | 2.47 | 5,406 | 4.02 | 12,970 | 2.94 | ||||||||||||||||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
| U.S. Government agencies |
140 | 3.66 | 23,575 | 3.01 | 23,715 | 3.01 | ||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored enterprises |
2,075 | 3.12 | 15,524 | 2.89 | 9,036 | 2.87 | 26,635 | 2.90 | ||||||||||||||||||||||||||||||||
| Corporate debt obligations |
3,500 | 2.60 | 6,015 | 4.01 | 9,515 | 3.49 | ||||||||||||||||||||||||||||||||||
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| Total |
$ | 2,288 | 1.40 | % | $ | 6,783 | 3.01 | % | $ | 30,037 | 3.06 | % | $ | 67,752 | 3.29 | % | $ | 106,860 | 3.17 | % | ||||||||||||||||||||
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| Fair Value: |
||||||||||||||||||||||||||||||||||||||||
| State and municipals: |
||||||||||||||||||||||||||||||||||||||||
| Taxable |
$ | 2,583 | $ | 7,691 | $ | 23,004 | $ | 33,278 | ||||||||||||||||||||||||||||||||
| Tax-exempt |
$ | 2,283 | 2,119 | 3,081 | 5,293 | 12,776 | ||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||||||
| U.S. Government agencies |
136 | 23,534 | 23,670 | |||||||||||||||||||||||||||||||||||||
| U.S. Government-sponsored enterprises |
2,063 | 15,334 | 8,798 | 26,195 | ||||||||||||||||||||||||||||||||||||
| Corporate debt obligations |
3,187 | 5,571 | 8,758 | |||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||||||
| Total |
$ | 2,283 | $ | 6,765 | $ | 29,429 | $ | 66,200 | $ | 104,677 | ||||||||||||||||||||||||||||||
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Loan Portfolio:
Economic factors and how they affect loan demand are important to us and the overall banking industry, as lending is a primary business activity. Loans are the most significant component of earning assets and they generate the greatest amount of revenue for us. Similar to the investment portfolio there are risks inherent in the loan portfolio that must be understood and considered in managing the lending function. These risks include IRR, credit concentrations and fluctuations in demand. Changes in economic conditions and interest rates affect these risks, which influence loan demand, the composition of the loan portfolio and profitability of the lending function.
The composition of the loan portfolio at year-end for the past five years is summarized as follows:
Distribution of loan portfolio
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||||||
| December 31 |
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| Commercial |
$ | 122,919 | 13.76 | % | $ | 140,116 | 14.65 | % | $ | 51,166 | 12.50 | % | $ | 46,076 | 11.24 | % | $ | 37,301 | 10.88 | % | ||||||||||||||||||||
| Real estate: |
||||||||||||||||||||||||||||||||||||||||
| Construction |
39,556 | 4.43 | 34,405 | 3.60 | 8,605 | 2.10 | 18,599 | 4.54 | 11,441 | 3.34 | ||||||||||||||||||||||||||||||
| Commercial |
497,597 | 55.71 | 526,230 | 55.05 | 212,550 | 51.93 | 205,500 | 50.14 | 199,782 | 58.30 | ||||||||||||||||||||||||||||||
| Residential |
221,115 | 24.76 | 240,626 | 25.17 | 130,874 | 31.97 | 135,106 | 32.97 | 91,688 | 26.76 | ||||||||||||||||||||||||||||||
| Consumer |
11,997 | 1.34 | 14,594 | 1.53 | 6,148 | 1.50 | 4,564 | 1.11 | 2,481 | 0.72 | ||||||||||||||||||||||||||||||
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| Loans, net |
893,184 | 100.00 | % | 955,971 | 100.00 | % | 409,343 | 100.00 | % | 409,845 | 100.00 | % | 342,693 | 100.00 | % | |||||||||||||||||||||||||
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| Less: allowance for loan loss |
6,348 | 6,306 | 3,732 | 4,365 | 3,792 | |||||||||||||||||||||||||||||||||||
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| Net loans |
$ | 886,836 | $ | 949,665 | $ | 405,611 | $ | 405,480 | $ | 338,901 | ||||||||||||||||||||||||||||||
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-22-
Loans, net decreased $62.8 million in 2018 to $893.2 million at December 31, 2018 as compared with $956.0 million at December 31, 2017. The reduction in loan volumes was a result of merger related attrition, including payoffs of acquired purchase credit impaired loans and management’s steadfast adherence to strong credit quality underwriting standards and pricing discipline. Business loans, including construction, commercial loans and commercial real estate loans, were $660.1 million, or 73.9%, of loans, net at December 31, 2018, and $700.8 million, or 73.3%, at year-end 2017. Residential mortgages and consumer loans totaled $233.1 million, or 26.1%, of loans, net at year-end 2018 and $255.2 million, or 26.7%, at year-end 2017. Acquired loans from the merger with CBT amounted to $382.5 million at the effective date of the merger. Loan balances reduced by $62.8 million, or 6.6%, in 2018, realizing decreases of $21.8 million in the first quarter, $24.4 million in the third quarter and $22.3 million in the fourth quarter, offset by a $5.7 million increase in the second quarter.
Loans averaged $928.4 million in 2018 compared to $597.1 million in 2017. Taxable loans averaged $892.3 million, while tax-exempt loans averaged $36.1 million in 2018. The increase in average loans year-over-year was attributable to the merger with CBT during October 2017. The loan portfolio continues to play a prominent role in our earning asset mix. As a percentage of earning assets, average loans equaled 88.0% in 2018 as compared with 86.7% in 2017.
The prime rate increased 100 basis points in 2018 to 5.50% at year end from 4.50% at the beginning of the year. The tax-equivalent yield on our loan portfolio increased 68 basis points to 5.27% in 2018 from 4.59% in 2017. Included in loan interest income in 2018 was the recognition of fair value accretion of $5.2 million on acquired loans, which increased the tax-equivalent net interest margin by 56 basis points. Excluding accretion on acquired loans, the tax equivalent yield on the loan portfolio improved 27 basis points to 4.71% in 2018 from 4.44% in 2017. The change was attributable to increases in yields on adjustable rate loans from increases in the prime rate along with the addition of higher yielding loans acquired from CBT.
The maturity distribution and sensitivity information of the loan portfolio by major classification at December 31, 2018, is summarized as follows:
Maturity distribution and interest sensitivity of loan portfolio
| December 31, 2018 |
Within one year |
After one but within five years |
After five years |
Total | ||||||||||||
| Maturity schedule: |
||||||||||||||||
| Commercial |
$ | 3,411 | $ | 22,174 | $ | 97,334 | $ | 122,919 | ||||||||
| Real estate: |
||||||||||||||||
| Construction |
11,733 | 10,837 | 16,986 | 39,556 | ||||||||||||
| Commercial |
6,136 | 23,856 | 467,605 | 497,597 | ||||||||||||
| Residential |
8,010 | 18,656 | 194,449 | 221,115 | ||||||||||||
| Consumer |
2,186 | 5,985 | 3,826 | 11,997 | ||||||||||||
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|
|||||||||
| Total |
$ | 31,476 | $ | 81,508 | $ | 780,200 | $ | 893,184 | ||||||||
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|||||||||
| Predetermined interest rates |
$ | 16,137 | $ | 57,251 | $ | 164,791 | $ | 238,179 | ||||||||
| Floating or adjustable interest rates |
15,339 | 24,257 | 615,409 | 655,005 | ||||||||||||
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|||||||||
| Total |
$ | 31,476 | $ | 81,508 | $ | 780,200 | $ | 893,184 | ||||||||
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|
|
|
|
|
|||||||||
As previously mentioned, there are numerous risks inherent in the mortgage loan portfolio. We manage the portfolio by employing sound credit policies and utilizing various modeling techniques in order to limit the effects of such risks. In addition, we utilize private mortgage insurance (“PMI”) to mitigate credit risk in the loan portfolio.
In an attempt to limit IRR and liquidity strains, we continually examine the maturity distribution and interest rate sensitivity of the loan portfolio. Given the potential for rates to rise in the future, we continued to place emphasis on originating short term fixed-rate and adjustable-rate loans. Fixed-rate loans represented 26.7% of the loan portfolio at December 31, 2018, compared to floating or adjustable-rate loans at 73.3%. Approximately 46.3% of the loan portfolio is expected to reprice within the next 12 months.
Additionally, our secondary market mortgage banking program provides us with an additional source of liquidity and a means to limit our exposure to IRR. Through this program, we are able to competitively price conforming one-to-four family residential mortgage loans without taking on IRR which would result from retaining these long-term, low fixed-rate loans on our books. The loans originated are subsequently sold in the secondary market, with the sales price locked in at the time of commitment, thereby greatly reducing our exposure to IRR.
In addition to the risks inherent in our portfolio in the normal course of business, we are also 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, and may involve, to varying degrees, elements of credit risk and IRR in excess of the amount recognized in the consolidated financial statements.
-23-
Credit risk is the principal risk associated with these instruments. Our involvement and exposure to credit loss in the event that the instruments are fully drawn upon and the customer defaults is represented by the contractual amounts of these instruments. In order to control credit risk associated with entering into commitments and issuing letters of credit, we employ the same credit quality and collateral policies in making commitments that we use in other lending activities.
We evaluate each customer’s creditworthiness on a case-by-case basis, and if deemed necessary, obtain collateral and personal guarantees. The amount and nature of the collateral obtained, or personal guarantees are based on our credit evaluation and overall assessment of risk.
The contractual amounts of off-balance sheet commitments at year-end for the past three years are summarized as follows:
Distribution of off-balance sheet commitments
| December 31 |
2018 | 2017 | 2016 | |||||||||
| Commitments to extend credit |
$ | 96,431 | $ | 52,706 | $ | 26,042 | ||||||
| Unused portions of lines of credit |
59,512 | 72,157 | 28,516 | |||||||||
| Standby and performance letters of credit |
5,789 | 4,871 | 3,917 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 161,732 | $ | 129,734 | $ | 58,475 | ||||||
|
|
|
|
|
|
|
|||||||
We record a valuation allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. The valuation allowance amounted to $73 and $66 at December 31, 2018 and 2017, respectively. We do not anticipate that losses, if any, that may occur as a result of funding off-balance sheet commitments, would have a material adverse effect on our operating results or financial position.
Asset Quality:
We are committed to developing and maintaining sound, quality assets through our credit risk management policies and procedures. Credit risk is the risk to earnings or capital which arises from a borrower’s failure to meet the terms of their loan agreement. We manage credit risk by diversifying the loan portfolio and applying policies and procedures designed to foster sound lending practices. These policies include certain standards that assist lenders in making judgments regarding the character, capacity, cash flow, capital structure and collateral of the borrower.
With regard to managing our exposure to credit risk, we have established maximum loan-to-value ratios for commercial mortgage loans not to exceed 80.0% of the lower of cost or appraised value. With regard to residential mortgages, customers with loan-to-value ratios between 80.0% and 100.0% are generally required to obtain PMI. The 80.0% loan-to-value threshold provides a cushion in the event the property is devalued. PMI is used to protect us from loss in the event loan-to-value ratios exceed 80.0% and the customer defaults on the loan. Appraisals are performed by an independent appraiser engaged by us, not the customer, who is either state certified or state licensed depending upon collateral type and loan amount.
With respect to lending procedures, loan relationship managers, centralized underwriters, working with independent credit department analysts in the case of self-employed borrowers or commercial entities, must determine the borrower’s ability to repay the credit based on prevailing and expected market conditions prior to requesting approval for the loan. The Board of Directors establishes and reviews, at least annually, the lending authority for all approving authorities. Credits beyond centralized underwriting or joint officer signature authorities are elevated to an Officer’s Loan Committee and, if necessary, to a Director’s Loan Committee, for approval. All credit decisions attempt to assure the quality of the loan portfolio through careful analysis of credit applications, adherence to credit policies, and the examination of outstanding loans and delinquencies. These procedures assist in the early detection and timely follow-up of problem loans.
Credit risk is also managed by quarterly loan quality reviews of our loan portfolio by the asset quality committee as well as an annual loan portfolio review conducted by an independent loan review company. These reviews aid us in identifying deteriorating financial conditions of borrowers, allowing us to proactively develop plans to either assist customers in remedying these situations or exit a relationship.
-24-
Nonperforming assets consist of nonperforming loans and foreclosed assets. Nonperforming loans include nonaccrual loans, troubled debt restructured loans and accruing loans past due 90 days or more. For a discussion of our policy regarding nonperforming assets and the recognition of interest income on impaired loans, refer to the notes entitled, “Summary of significant accounting policies — Nonperforming assets,” and “Loans, net and allowance for loan losses” in the Notes to Consolidated Financial Statements to this Annual Report.
Information concerning nonperforming assets for the past five years is summarized as follows. The table includes credits classified for regulatory purposes and all material credits that cause us to have serious doubts as to the borrower’s ability to comply with present loan repayment terms.
Distribution of nonperforming assets
| December 31 |
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| Nonaccruing loans: |
||||||||||||||||||||
| Commercial |
$ | 1,141 | $ | 75 | $ | 356 | $ | 1,143 | $ | 515 | ||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
215 | |||||||||||||||||||
| Commercial |
702 | 363 | 359 | 1,118 | 1,247 | |||||||||||||||
| Residential |
886 | 1,307 | 671 | 921 | 2,268 | |||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
2,729 | 1,745 | 1,386 | 3,182 | 4,245 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Accruing troubled debt restructured loans: |
||||||||||||||||||||
| Commercial |
107 | 702 | 617 | 644 | 678 | |||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
752 | 2,670 | 3,229 | 3,305 | 2,960 | |||||||||||||||
| Residential |
2,054 | 2,106 | 1,959 | 2,717 | 1,331 | |||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
2,913 | 5,478 | 5,805 | 6,666 | 4,969 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Accruing loans past due 90 days or more: |
||||||||||||||||||||
| Commercial |
82 | |||||||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
247 | |||||||||||||||||||
| Commercial |
170 | 150 | 426 | |||||||||||||||||
| Residential |
290 | 533 | 357 | 89 | 214 | |||||||||||||||
| Consumer |
50 | 9 | 2 | 3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
839 | 692 | 359 | 89 | 643 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total nonperforming loans |
6,481 | 7,915 | 7,550 | 9,937 | 9,857 | |||||||||||||||
| Other real estate owned |
721 | 236 | 625 | 885 | 1,022 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total nonperforming assets |
$ | 7,202 | $ | 8,151 | $ | 8,175 | $ | 10,822 | $ | 10,879 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Ratios: |
||||||||||||||||||||
| Nonperforming loans to total loans, net |
0.73 | % | 0.83 | % | 1.84 | % | 2.42 | % | 2.88 | % | ||||||||||
| Nonperforming assets to total loans, net and OREO |
0.81 | % | 0.85 | % | 1.99 | % | 2.63 | % | 3.17 | % | ||||||||||
We experienced an improvement in our asset quality, evidenced by a decrease in nonperforming assets of $949, or 11.6%, to $7,202, or 0.81%, of loan, net of unearned income and foreclosed assets at December 31, 2018, from $8,151, or 0.85%, of loans, net of unearned income and foreclosed assets at December 31, 2017. The improvement resulted from a decrease of $2,565 in accruing troubled debt restructured loans partially offset by increases of $485 in other real estate owned, $984 in nonaccrual loans and $147 in accruing loans past due 90 days or more. Nonperforming loans at December 31, 2018 and December 31, 2017 exclude $3,825 and $8,512, respectively, of loans acquired with deteriorated credit quality, which were recorded at their fair value at acquisition. For further discussion of assets classified as nonperforming assets, refer to the note entitled, “Loans, net and the allowance for loan losses”, in the Notes to the Consolidated Financial Statements to this Annual Report.
We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to individually evaluated loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date. The balance in the allowance for loan losses account is based on past events and current economic conditions. We employ the FFIEC Interagency Policy Statement, as amended 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 for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.
-25-
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 our Chief Credit Officer identifies those loans to be individually evaluated for impairment and those to be collectively evaluated for impairment utilizing a standard criterion. Internal risk ratings 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 to assure directional consistency of the allowance for loan loss account. Regulators, in reviewing the loan portfolio as part of the scope of a regulatory examination, may require us to increase our allowance for loan losses or take other actions that would require increases to our allowance for loan losses.
For a further discussion of our accounting policies for determining the amount of the allowance and a description of the systematic analysis and procedural discipline applied, refer to the note entitled, “Summary of significant accounting policies — Allowance for loan losses”, in the Notes to Consolidated Financial Statements to this Annual Report.
A reconciliation of the allowance for loan losses and an illustration of charge-offs and recoveries by major loan category for the past five years are summarized as follows:
Reconciliation of allowance for loan losses
| December 31 |
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| Allowance for loan losses at beginning of year |
$ | 6,306 | $ | 3,732 | $ | 4,365 | $ | 3,792 | $ | 3,663 | ||||||||||
| Loans charged-off: |
||||||||||||||||||||
| Commercial |
206 | 43 | 767 | 650 | 36 | |||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
78 | 249 | ||||||||||||||||||
| Commercial |
65 | 187 | 337 | |||||||||||||||||
| Residential |
104 | 38 | 68 | 60 | 140 | |||||||||||||||
| Consumer |
437 | 58 | 25 | 35 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
747 | 217 | 1,174 | 932 | 524 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Loan recovered: |
||||||||||||||||||||
| Commercial |
11 | 5 | 70 | 8 | 119 | |||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
6 | 10 | 19 | |||||||||||||||||
| Residential |
31 | 17 | 7 | 3 | ||||||||||||||||
| Consumer |
126 | 25 | 11 | 6 | 5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
174 | 57 | 88 | 33 | 127 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net loans charged-off |
573 | 160 | 1,086 | 899 | 397 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Provision for loan losses |
615 | 2,734 | 453 | 1,472 | 526 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Allowance for loan losses at end of year |
$ | 6,348 | $ | 6,306 | $ | 3,732 | $ | 4,365 | $ | 3,792 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net charge-offs to average loans |
0.06 | % | 0.03 | % | 0.27 | % | 0.26 | % | 0.12 | % | ||||||||||
| Allowance for loan losses to total loans, net |
0.71 | % | 0.66 | % | 0.91 | % | 1.07 | % | 1.11 | % | ||||||||||
The allowance for loan losses increased $42 to $6,348 at December 31, 2018, from $6,306 at the end of 2017. The increase resulted from a provision for loan losses of $615, which was partially offset by net loans charged-off of $573. The decrease in the loan loss provision to $615 in 2018 from $2,734 in 2017 was the result of a decrease in loans, net, of $62.8 million, or 6.6%, from 2017, and improved credit quality. The allowance for loan losses, as a percentage of loans, net of unearned income, was 0.71% at the end of 2018, compared to 0.66% at the end of 2017. The increase in this ratio compared to that of the prior year-end was a result of reduced loan balances.
Past due loans not satisfied through repossession, foreclosure or related actions are evaluated individually to determine if all or part of the outstanding balance should be charged against the allowance for loan losses account. Any subsequent recoveries are credited to the allowance account. Net loans charged-off increased $413 to $573 in 2018 from $160 in 2017. Net charge-offs, as a percentage of average loans outstanding, equaled 0.06% in 2018 and 0.03% in 2017.
-26-
Allocation of the allowance for loan losses
The allocation of the allowance for loan losses compared to the percentage of loans by major loan category for the past five years is summarized as follows:
| 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||||||
| December 31 |
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| Allocated allowance: |
||||||||||||||||||||||||||||||||||||||||
| Specific: |
||||||||||||||||||||||||||||||||||||||||
| Commercial |
$ | 382 | 0.16 | % | $ | 56 | 0.14 | % | $ | 8 | 0.24 | % | $ | 700 | 0.44 | % | 0.35 | % | ||||||||||||||||||||||
| Real Estate: |
||||||||||||||||||||||||||||||||||||||||
| Construction |
0.06 | |||||||||||||||||||||||||||||||||||||||
| Commercial |
78 | 0.54 | 76 | 1.04 | 140 | 0.96 | 8 | 1.15 | $ | 77 | 1.25 | |||||||||||||||||||||||||||||
| Residential |
28 | 0.30 | 92 | 0.37 | 0.61 | 7 | 0.74 | 5 | 0.80 | |||||||||||||||||||||||||||||||
| Consumer |
||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total specific |
488 | 1.00 | 224 | 1.55 | 148 | 1.81 | 715 | 2.33 | 82 | 2.46 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Formula: |
||||||||||||||||||||||||||||||||||||||||
| Commercial |
780 | 13.60 | 1,150 | 14.52 | 621 | 12.26 | 598 | 10.80 | 330 | 10.53 | ||||||||||||||||||||||||||||||
| Real Estate: |
||||||||||||||||||||||||||||||||||||||||
| Construction |
404 | 4.43 | 379 | 3.60 | 160 | 2.10 | 202 | 4.54 | 115 | 3.28 | ||||||||||||||||||||||||||||||
| Commercial |
3,220 | 55.17 | 2,887 | 54.00 | 1,970 | 50.97 | 2,219 | 48.99 | 2,385 | 57.05 | ||||||||||||||||||||||||||||||
| Residential |
1,258 | 24.46 | 1,248 | 24.80 | 789 | 31.36 | 606 | 32.23 | 800 | 25.96 | ||||||||||||||||||||||||||||||
| Consumer |
50 | 1.34 | 37 | 1.53 | 44 | 1.50 | 25 | 1.11 | 15 | 0.72 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total formula |
5,712 | 99.00 | 5,701 | 98.45 | 3,584 | 98.19 | 3,650 | 97.67 | 3,645 | 97.54 | ||||||||||||||||||||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total allocated allowance |
6,200 | 100.00 | % | 5,925 | 100.00 | % | 3,732 | 100.00 | % | 4,365 | 100.00 | % | 3,727 | 100.00 | % | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Unallocated allowance |
148 | 381 | 65 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total |
$ | 6,348 | $ | 6,306 | $ | 3,732 | $ | 4,365 | $ | 3,792 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
The allocated element of the allowance for loan losses account increased $275 to $6,200 at December 31, 2018, compared to $5,925 at December 31, 2017. Both the specific and formula portions of the allowance for loan losses increased from the end of 2017. The specific portion of the allowance for impairment of loans individually evaluated under FASB ASC 310 increased $264 to $488 at December 31, 2018, from $224 at December 31, 2017. The formula portion of the allowance for loans collectively evaluated for impairment under FASB ASC 450, increased $11 to $5,712 at December 31, 2018, from $5,701 at December 31, 2017. The increase in the specific portion of the allowance was a result of an allocation related to the addition of one specifically identified and individually evaluated loan. The increase in the formula portion was due to changes in qualitative factors used to evaluate the portfolios. There was a $148 unallocated reserve balance at December 31, 2018 and a $381 unallocated element at December 31, 2017. The unallocated balance is used to cover inherent losses that exist as of the evaluation date, but which have not been identified as part of the allocated allowance using the above impairment evaluation methodology due to limitations in the process. One such limitation is the imprecision of accurately estimating the impact current economic conditions will have on historical loss rates. Variations in the magnitude of impact may cause estimated credit losses associated with the current portfolio to differ from historical loss experience, resulting in an allowance that is higher or lower than the anticipated level. Management establishes the unallocated element of the allowance by considering a number of environmental risks similar to those used to determine the qualitative factors. Management continually monitors trends in historical and qualitative factors, including trends in the volume, composition and credit quality within the portfolio. The reasonableness of the unallocated element is evaluated through monitoring trends in its level to determine if changes from period to period are directionally consistent with changes in the loan portfolio.
The coverage ratio, the allowance for loan losses account as a percentage of nonperforming loans, is an industry ratio used to test the ability of the allowance account to absorb potential losses arising from nonperforming loans. The coverage ratio was 97.9% at December 31, 2018 and 79.7% at December 31, 2017. We believe that our allowance was adequate to absorb probable credit losses at December 31, 2018.
Deposits:
Our deposit base is the primary source of funds to support our operations. We offer a variety of deposit products to meet the needs of our individual and commercial customers. Total deposits decreased $21.9 million in 2018. Noninterest-bearing deposits grew $6.7 million while interest-bearing deposits decreased $28.6 million in 2018. Noninterest-bearing deposits represented 16.2% of total deposits while interest-bearing deposits accounted for 83.8% of total deposits at December 31, 2018. Total deposits grew $574.0 million in 2017 including deposits assumed from the merger with CBT of $438.8 million at the effective date of the merger and
-27-
organic deposit growth totaling $135.2 million. Deposit volume changes were mixed for the four quarters of 2018. Quarterly deposit growth in 2018 totaled $12.1 million, or 1.2%, in the first quarter and $3.0 million, or 0.3%, in the third quarter offset by decreases of $20.9 million, or 2.0%, in the second quarter and $16.1 million, or 1.6%, in the fourth quarter.
Interest-bearing transaction accounts, which include money market accounts, NOW accounts, and savings accounts, decreased $35.3 million in 2018. The decrease in interest-bearing transaction accounts during 2018 consisted of decreases of $22.5 million in money market accounts and $60.3 million in savings accounts, offset by an increase of $47.5 million in NOW accounts. Total time deposits increased $6.7 million to $313.9 million at December 31, 2018 from $307.2 million at December 31, 2017. Our customers were drawn to higher yielding time deposit accounts as general market rates increased throughout 2018.
The average amount of, and the rate paid on major classifications of deposits for the past three years are summarized as follows:
Deposit distribution
| 2018 | 2017 | 2016 | ||||||||||||||||||||||
| Year ended December 31 |
Average Balance |
Average Rate |
Average Balance |
Average Rate |
Average Balance |
Average Rate |
||||||||||||||||||
| Interest-bearing: |
||||||||||||||||||||||||
| Money market accounts |
$ | 118,175 | 0.94 | % | $ | 104,698 | 0.79 | % | $ | 46,410 | 0.38 | % | ||||||||||||
| NOW accounts |
273,953 | 0.62 | 158,504 | 0.42 | 137,484 | 0.29 | ||||||||||||||||||
| Savings accounts |
148,441 | 0.08 | 114,731 | 0.14 | 74,814 | 0.18 | ||||||||||||||||||
| Time deposits |
316,418 | 1.34 | 171,834 | 1.07 | 131,343 | 0.83 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total interest-bearing |
856,987 | 0.84 | % | 549,767 | 0.63 | % | 390,051 | 0.46 | % | |||||||||||||||
| Noninterest-bearing |
159,751 | 94,906 | 70,456 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total deposits |
$ | 1,016,738 | $ | 644,673 | $ | 460,507 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
Total deposits averaged $1,016.7 million in 2018, increasing $372.1 million, or 57.7%, compared to 2017. The increase in average deposits was primarily attributable to the CBT merger, which was effective October 1, 2017. Average noninterest-bearing deposits increased $64.9 million, while average interest-bearing accounts grew $307.2 million. Average interest-bearing transaction deposits, including money market, NOW and savings accounts, increased $162.6 million, while average total time deposits increased $144.6 million comparing 2018 with 2017.
Our cost of interest-bearing deposits increased 21 basis points to 0.84% in 2018 from 0.63% in 2017. Specifically, the cost of interest-bearing transaction accounts increased 10 basis points to 0.54%, while the cost of time deposits increased 27 basis points to 1.34% comparing 2018 and 2017.
Volatile deposits, defined as time deposits $100 or more, averaged $115.9 million in 2018, an increase of $49.4 million, or 74.4%, from $66.5 million in 2017. Our average cost of these funds increased 3 basis points to 1.19% in 2018 from 1.16% in 2017. This type of funding is considered to be volatile since it is susceptible to withdrawal by the depositor as they are particularly price sensitive and are therefore not considered to be a reliable source of long-term liquidity.
Maturities of time deposits $100 or more for the past three years are summarized as follows:
Maturity distribution of time deposits $100 or more
| December 31 |
2018 | 2017 | 2016 | |||||||||
| Within three months |
$ | 9,044 | $ | 8,938 | $ | 6,137 | ||||||
| After three months but within six months |
10,308 | 16,193 | 6,102 | |||||||||
| After six months but within twelve months |
19,316 | 18,584 | 13,636 | |||||||||
| After twelve months |
77,394 | 70,734 | 21,899 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | 116,062 | $ | 114,449 | $ | 47,774 | ||||||
|
|
|
|
|
|
|
|||||||
In addition to deposit gathering, we have in place a secondary source of liquidity to fund operations through exercising existing credit arrangements with the Federal Home Loan Bank of Pittsburgh (“FHLB-Pgh”). For a further discussion of our borrowings and their terms, refer to the notes entitled, “Short-term borrowings” and “Long-term debt,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
-28-
Market Risk Sensitivity:
Market risk is the risk to our earnings and/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 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 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. Interest rate changes affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. 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.
The FOMC increased its target federal funds rate by a total of 100 basis points in 2018. The final increase in December 2018 was the ninth consecutive increase of 25 basis point increments since the fourth quarter of 2015. The FOMC has recently signaled that it may slow or delay its future monetary actions until the latter part of 2019. As a result, the timing and the magnitude of future monetary policy actions that will impact the current interest rate environment are uncertain. Given these conditions, IRR and the ability to effectively manage it are extremely critical to both bank management and regulators. The FFIEC, through its advisory guidance, reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing and internal controls related to the IRR exposure of depository institutions. According to the guidance, bank regulators believe the current financial market and economic conditions present significant risk management challenges to all financial institutions. Although bank regulators recognize that some degree of IRR is inherent in banking, they expect institutions to have sound risk management practices in place to measure, monitor and control IRR exposure. The guidance states that the adequacy and effectiveness of an institution’s IRR management process, and the level of IRR exposure, are critical factors in the bank regulators’ evaluation of an institution’s sensitivity to changes in interest rates and capital adequacy. Material weaknesses in risk management processes or high levels of IRR exposure relative to capital will require corrective action. We believe our risk management practices regarding IRR were suitable and adequate given the level of IRR exposure at December 31, 2018.
The Asset/Liability Committee (“ALCO”), comprised of members of executive and 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 utilizing several 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”), rate sensitive liabilities (“RSL”) and overall operating results and financial position.
With respect to evaluating our exposure to IRR on earnings, we utilize a gap analysis model that considers repricing frequencies of RSA and RSL. 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 an 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 an RSA/RSL ratio 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 interest rate sensitivity gap position, illustrating RSA and RSL at their related carrying values, is summarized as follows. The distributions in the table are based on a combination of maturities, call provisions, repricing frequencies and prepayment patterns. Adjustable-rate assets and liabilities are distributed based on the repricing frequency of the instrument. Mortgage instruments are distributed in accordance with estimated cash flows, assuming there is no change in the current interest rate environment.
-29-
Interest rate sensitivity
| December 31, 2018 |
Due within three months |
Due after three months but within twelve months |
Due after one year but within five years |
Due after five years |
Total | |||||||||||||||
| Rate-sensitive assets: |
||||||||||||||||||||
| Interest-bearing deposits in other banks |
$ | 37,108 | $ | 37,108 | ||||||||||||||||
| Investment securities |
6,240 | $ | 15,281 | $ | 32,437 | $ | 50,719 | 104,677 | ||||||||||||
| Loans held for sale |
637 | 637 | ||||||||||||||||||
| Loans, net |
260,957 | 152,715 | 445,195 | 34,317 | 893,184 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total rate-sensitive assets |
$ | 304,942 | $ | 167,996 | $ | 477,632 | $ | 85,036 | $ | 1,035,606 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Rate-sensitive liabilities: |
||||||||||||||||||||
| Money market accounts |
$ | 113,220 | $ | 113,220 | ||||||||||||||||
| NOW accounts |
8,582 | $ | 25,747 | $ | 137,320 | $ | 114,433 | 286,082 | ||||||||||||
| Savings accounts |
3,863 | 11,589 | 61,806 | 51,504 | 128,762 | |||||||||||||||
| Time deposits |
42,419 | 71,615 | 192,167 | 7,754 | 313,955 | |||||||||||||||
| Long-term debt |
6,892 | 6,892 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total rate-sensitive liabilities |
$ | 174,976 | $ | 108,951 | $ | 391,293 | $ | 173,691 | $ | 848,911 | ||||||||||
|
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|
|
|
|
|
|
|
|
|
|||||||||||
| Rate-sensitivity gap: |
||||||||||||||||||||
| Period |
$ | 129,966 | $ | 59,045 | $ | 86,339 | $ | (88,655 | ) | |||||||||||
| Cumulative |
$ | 129,966 | $ | 189,011 | $ | 275,350 | $ | 186,695 | ||||||||||||
| RSA/RSL ratio: |
||||||||||||||||||||
| Period |
1.74 | 1.54 | 1.22 | 0.49 | ||||||||||||||||
| Cumulative |
1.74 | 1.67 | 1.41 | 1.22 | 1.22 | |||||||||||||||
At December 31, 2018, we had cumulative one-year RSA/RSL ratios of 1.67. As previously mentioned, this positive gap position indicated that if interest rates increase, our earnings would likely be favorably impacted. Given current improvement in economic conditions and the recent monetary policy actions of the FOMC increasing short-term rates and the possibility that they will continue to raise short-term rates in 2019, the focus of ALCO has been to maintain the positive gap position to safeguard future earnings from the potential risk of rising interest rates. ALCO will continue to focus efforts on strategies in 2019 that maintain a positive gap position between RSA and RSL. 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 credible 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 and variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such a table. For example, the conservative nature of our Asset/Liability Management Policy assigns money market accounts to the “Due within three months” repricing interval. In reality, these accounts may reprice less frequently and in different magnitudes than changes in general market interest rate levels.
We utilize a simulation model to address the failure of the static gap model to address the dynamic changes in the balance sheet composition or prevailing interest rates and to enhance our asset/liability management. This model creates pro forma net interest income scenarios under various interest rate shocks. Given a gradual nonparallel shift in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending December 31, 2019, would increase at 3.1% from model results using current interest rates.
We will continue to monitor our IRR position in 2019 and employ deposit and loan pricing strategies, as well as directing the reinvestment of loan and investment cash flow to maintain a favorable 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 our asset/liability management program.
-30-
Liquidity:
Liquidity management is essential to our continuing operations as it gives us the ability to meet our financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Our 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. |
Our liquidity position is impacted by several factors which include, among others, loan origination volumes, loan and investment maturity structure and cash flows, demand for core deposits and certificate of deposit maturity structure and retention. We manage these liquidity risks daily, thus enabling us to effectively monitor fluctuations in our position and adapt our position according to market influence and balance sheet trends. We also forecast future liquidity needs and develop strategies to ensure adequate liquidity at all times.
Historically, core deposits have been our 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. As a final source of liquidity, we have available borrowing arrangements with various financial intermediaries, including the FHLB-Pgh. At December 31, 2018, our maximum borrowing capacity with the FHLB-Pgh was $458.5 million, of which there were no outstanding borrowings while $39.2 million was utilized to issue letters of credit. We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.
We maintain a Contingency Funding Plan to address liquidity in the event of a funding crisis. Examples of some of the causes of a liquidity crisis include, among others, natural disasters, war, events causing reputational harm, and severe and prolonged asset quality problems. The Plan recognizes the need to provide alternative funding sources in times of crisis that go beyond our core deposit base. As a result, we have created a funding program that ensures the availability of various alternative wholesale funding sources that can be used whenever appropriate. Identified alternative funding sources include:
| • | FHLB-Pgh advances; |
| • | Federal Reserve Bank discount window; |
| • | Repurchase agreements; |
| • | Brokered deposits; and |
| • | Federal funds purchased. |
Based on our liquidity position at December 31, 2018, we do not anticipate the need to have a material reliance on any of these sources in the near term.
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 illustrate our reliance on noncore funds to fund our investments and loans maturing after 2018. At December 31, 2018, our noncore funds consisted of time deposits in denominations of $250 or more, short-term borrowings and long-term debt. Large denomination time deposits are not considered to be a strong source of liquidity since they are interest rate sensitive and are considered to be highly volatile. At December 31, 2018, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 0.65%. Our net short-term noncore funding dependence ratio, noncore funds maturing within one year, less short-term investments to long-term assets equaled 1.73%. Comparatively, our ratios equaled 3.73% and 1.96% at the end of 2017, which indicated a decrease in our reliance on noncore funds. We believe that by supplying adequate volumes of short-term investments and implementing competitive pricing strategies on deposits, we can ensure adequate liquidity to support future growth.
The Consolidated Statements of Cash Flows present the change in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents consist of cash on hand, cash items in the process of collection, noninterest-bearing and interest-bearing deposits with other banks and federal funds sold. Cash and cash equivalents increased $28,030 for the year ended December 31, 2018, whereas, for the year ended December 31, 2017, cash and cash equivalents increased $6,666. During 2018, cash provided by operating and investing activities more than offset cash used in financing activities.
-31-
Operating activities provided net cash of $11,755 in 2018 and used net cash of $673 in 2017. Net income, adjusted for the effects of noncash expenses such as depreciation, amortization and accretion of tangible and intangible assets and investment securities, mortgage loans originated for sale, bank owned life insurance investment income and the provision for loan losses, is the primary source of funds from operations.
Our primary investing activities involve transactions related to our investment and loan portfolios. Net cash provided by investing activities totaled $52,676 in 2018 as compared to net cash used of $111,113 in investing activities in 2017. Net cash provided by lending activities was $66,698 in 2018, as compared to net cash of $163,790 used lending activities in 2017. Activities related to our investment portfolio used net cash of $13,312 in 2018 and provided cash of $24,712 in 2017.
Net cash used by financing activities equaled $36,401 in 2018 while net cash provided by financing activities in 2017 was $118,452. Deposit gathering, which is our predominant financing activity, decreased $21,887 in 2018 and as compared to an increase of $135,075 in 2017. In addition, we used cash to pay down short- and long-term borrowings by $12,341 in 2018 and $30,822 in 2017. A capital offering in the first quarter of 2017 provided net cash of $15,941 in 2017.
We anticipate our liquidity position to be stable in 2019. We are expecting positive loan demand throughout 2019 and anticipate funding this demand through deposit growth, payments and prepayments on loans and investments and advances from the FHLB-Pgh. If economic conditions were to weaken it may result in increased interest in bank deposits, as consumers continue to save rather than spend. However, we cannot predict the economic climate or the savings habits of consumers. Should economic conditions continue to improve, deposit gathering may be negatively impacted as depositors seek alternative investments in the market. Regardless of economic conditions and stock market fluctuations, we believe that through constant monitoring and adherence to our liquidity plan, we believe we will have the means to provide adequate cash to fund normal operations in 2019.
Capital Adequacy:
We believe a strong capital position is essential to our continued growth and profitability. We strive to maintain a relatively high level of capital to provide our depositors and stockholders with a margin of safety. In addition, a strong capital base allows us to take advantage of profitable opportunities, support future growth and provide protection against any unforeseen losses.
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.
Our ALCO reviews our capital position quarterly. As part of its review, the ALCO considers: (i) the current and expected capital requirements, including the maintenance of capital ratios in excess of minimum regulatory guidelines; (ii) potential changes in the market value of our securities due to interest rate changes and effect on capital; (iii) projected organic and inorganic asset growth; (iv) the anticipated level of net earnings and capital position, taking into account the projected asset/liability position and exposure to changes in interest rates; (v) significant deteriorations in asset quality; and (vi) the source and timing of additional funds to fulfill future capital requirements.
To assure capital adequacy, our Board of Directors annually reviews and approves a Capital Plan. Among other specific objectives, this comprehensive plan: (i) attempts to ensure that we remain well capitalized under the regulatory framework for prompt corrective action; (ii) evaluates our capital adequacy exposure through risk assessment; (iii) establishes event triggers and action plans to ensure capital adequacy; and (iv) identifies realistic and readily available alternative sources for augmenting capital if higher capital levels are required.
On August 30, 2018, the Federal Reserve enacted changes to Regulation Y to increase the threshold to qualify as a small holding company from $1 billion to $3 billion. As a result, and for the foreseeable future, the Company will not be subject to capital ratio computations and limitations on dividends. Our ability to declare and pay dividends in the future is based on our operating results, financial and economic conditions, capital and growth objectives, appropriate dividend restrictions and other relevant factors. We rely on dividends received from our subsidiary, Riverview Bank, for payment of dividends to stockholders. The Bank’s ability to pay dividends is subject to federal and state regulations. For a further discussion on our ability to declare and pay dividends in the future and dividend restrictions, refer to the note entitled, “Regulatory matters,” in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
-32-
In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. As a result, new risk-based capital rules became effective January 1, 2015 requiring us to maintain a “capital conservation buffer” of 250 basis points in excess of the “minimum capital ratio.” The minimum capital ratio is equal to the prompt corrective action adequately capitalized threshold ratio. The capital conservation buffer is phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. The phased in minimum ratios for 2018 include a common equity Tier 1 to risk-weighted assets ratio of 6.375%, Tier 1 capital to risk-weighted assets ratio of 7.875% and a Total capital to risk-weighted assets ratio of 9.875%. For a further discussion of the incorporation of the revised regulatory requirements into the prompt corrective action framework, refer to the section entitled, “Supervision and Regulatory – Risk-Based Capital Requirements,” in Part I of this Annual Report.
Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of depositors’ 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 Bank’s ratio of Tier 1 capital to risk-weighted assets and off-balance sheet items was 10.7% at December 31, 2018, and 9.7% at December 31, 2017. The total risk-based capital ratio was 11.4% at December 31, 2018 and 10.4% at December 31, 2017. In addition, the Bank is required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio in order to be considered well capitalized of 6.5% at December 31, 2018 and 2017. The Bank’s common equity Tier I capital to risk-weighted assets ratio was 10.7% at December 31, 2018 and 9.7% at December 31, 2017. The Bank’s Leverage ratio, which equaled 8.4% at December 31, 2018, and 7.9% at December 31, 2017, exceeded the minimum of 5.0% for well capitalized adequacy purposes. Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized at December 31, 2018 and 2017. There are no conditions or negative events since this notification that we believe have changed the Bank’s category. For a further discussion of these risk-based capital standards and supervisory actions for noncompliance, refer to the note entitled, “Regulatory matters,” in the Notes to Consolidated Financial Statements to this Annual Report.
Stockholders’ equity was $113.9 million, or $12.49 per share, at December 31, 2018, and $106.3 million, or $11.72 per share, at December 31, 2017. Stockholders’ equity increased primarily due to the retention of earnings during 2018. Average stockholders’ equity to average total assets equaled 9.61% in 2018 and 9.37% in 2017. We declared dividends of $0.30 per share in 2018 and $0.55 in 2017. The dividend payout ratio, dividends declared as a percent of net income (loss), equaled 25.2% in 2018 and (0.66)% in 2017.
Review of Financial Performance:
For the year ended December 31, 2018, Riverview reported net income of $10.9 million, or $1.19 per basic and diluted weighted average common share, compared to a net loss of $4.9 million, or $(0.91) per basic and diluted weighted average common share, for the year-ended December 31, 2017. Return on average assets and return on average equity were 0.94% and 9.81% for the year ended December 31, 2018 and (0.65)% and (6.97)% for the year ended December 31, 2017.
The merger with CBT had a significant impact on the results of operations. The merger of equals between Riverview and CBT was accounted for using the acquisition method of accounting and adjusted the acquired assets and liabilities assumed of CBT to fair value as of the acquisition date. Accordingly, the results for the year ended December 31, 2018, include the operating results of Riverview and CBT for the entire year and while the operating results for the year ended December 31, 2017 include the operating results Riverview for the entire year and CBT since October 1, 2017. All prior period information represents the results of Riverview and, consequently, comparisons may not be particularly meaningful. The results for the year ended December 31, 2018 include pre-tax merger expenses of approximately $553. Pre-tax merger related expenses amounted to $3,674 in 2017.
Another significant event impacting the financial results of Riverview in 2017 was the enactment of the Tax Cuts and Jobs Act (the “Act”) on December 22, 2017. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and business. For businesses, the Act reduces the corporate federal tax rate from a maximum rate of 35% to a flat rate of 21%. Under generally accepted accounting principles, Riverview uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. As of a result of the reduction in the corporate income tax rate to 21%, Riverview reduced its deferred tax asset by recording an adjustment in tax expense of $3.9 million during the quarter ended December 31, 2017.
-33-
Net Interest Income:
Net interest income is the fundamental source of earnings for commercial banks. Moreover, 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 and 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 interest 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 average 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 pretax yields lower than their taxable counterparts. Therefore, to make the analysis of net interest income more comparable, tax-exempt income and yields are reported in this analysis on a tax-equivalent basis using the prevailing federal statutory tax rate.
Similar to all banks, we consider the maintenance of an adequate net interest margin to be of primary concern. The current economic environment has been challenging for the banking industry with respect to historically low interest rates and competition. No assurance can be given as to how general market conditions will change or how such changes will affect net interest income. Therefore, we believe through prudent deposit and loan pricing practices, careful investing, and constant monitoring of nonperforming assets, our net interest margin will remain strong.
We analyze interest income and interest expense by segregating rate and volume components of earning assets and interest-bearing liabilities. The impact changes in the interest rates earned and paid on assets and liabilities, along with changes in the volumes of earning assets and interest-bearing liabilities, have on net interest income are summarized as follows. The net change or mix component, attributable to the combined impact of rate and volume changes within earning assets and interest-bearing liabilities’ categories, has been allocated proportionately to the change due to rate and the change due to volume.
Net interest income changes due to rate and volume
| 2018 vs 2017 | 2017 vs 2016 | |||||||||||||||||||||||
| Increase (decrease) | Increase (decrease) | |||||||||||||||||||||||
| attributable to | attributable to | |||||||||||||||||||||||
| Total | Rate | Volume | Total | Rate | Volume | |||||||||||||||||||
| Interest income: |
||||||||||||||||||||||||
| Loans: |
||||||||||||||||||||||||
| Taxable |
$ | 21,259 | $ | 4,774 | $ | 16,485 | $ | 8,909 | $ | 441 | $ | 8,468 | ||||||||||||
| Tax-exempt |
268 | (183 | ) | 451 | 226 | (237 | ) | 463 | ||||||||||||||||
| Investments: |
||||||||||||||||||||||||
| Taxable |
118 | (181 | ) | 299 | 220 | (37 | ) | 257 | ||||||||||||||||
| Tax-exempt |
60 | (124 | ) | 184 | (150 | ) | (56 | ) | (94 | ) | ||||||||||||||
| Interest-bearing deposits |
454 | 150 | 304 | 67 | 50 | 17 | ||||||||||||||||||
| Federal funds sold |
8 | 9 | (1 | ) | 10 | 3 | 7 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total interest income |
22,167 | 4,445 | 17,722 | 9,282 | 164 | 9,118 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Interest expense: |
||||||||||||||||||||||||
| Money market accounts |
282 | 168 | 114 | 654 | 302 | 352 | ||||||||||||||||||
| NOW accounts |
1,049 | 415 | 634 | 260 | 194 | 66 | ||||||||||||||||||
| Savings accounts |
(50 | ) | (86 | ) | 36 | 34 | (32 | ) | 66 | |||||||||||||||
| Time deposits |
2,419 | 558 | 1,861 | 748 | 367 | 381 | ||||||||||||||||||
| Short-term borrowings |
(200 | ) | 65 | (265 | ) | 146 | 108 | 38 | ||||||||||||||||
| Long-term debt |
345 | 248 | 97 | 106 | 110 | (4 | ) | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total interest expense |
3,845 | 1,368 | 2,477 | 1,948 | 1,049 | 899 | ||||||||||||||||||
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|
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|
|
|
|||||||||||||
| Net interest income |
$ | 18,322 | $ | 3,077 | $ | 15,245 | $ | 7,334 | $ | (885 | ) | $ | 8,219 | |||||||||||
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-34-
For the years ended December 31, tax-equivalent net interest income was $44,221 in 2018 and $25,899 in 2017. The improvement in net interest income was a result of both favorable rate and volume variances caused primarily by assets acquired and liabilities assumed from the merger. Total tax-equivalent interest income increased $22,167 offset partially by an increase in total interest expense of $3,845, which resulted in a total improvement in tax-equivalent net interest income of $18,322.
An overall favorable rate variance resulted from an increase in the tax-equivalent yield on earning assets that exceeded an increase in the cost of funds. As a result, tax-equivalent net interest income increased $3,077 due to changes in earning asset yields, and fund costs comparing 2018 and 2017. The tax-equivalent yield on earning assets improved 59 basis points to 4.95% in 2018 from 4.36% in 2017, resulting in an increase in interest income of $4,445. The tax-equivalent yield on the loan portfolio increased 68 basis points to 5.27% in 2018 from 4.59% in 2017 and resulted in an improvement in interest income of $4,591. The recognition of fair value accretion on acquired CBT loans more than offset lower reinvestment rates on originated loans in 2018. The tax-equivalent yield on the investment portfolio decreased 35 basis points to 2.84% in 2018 from 3.19% in 2017 as a result of the inclusion of the investments of CBT, which were shorter terms and lower yielding as compared to Riverview’s investments.
The favorable rate variance in earning asset yields was offset by an increase of 20 basis points in fund costs to 0.91% in 2018 from 0.71% in 2017. The increase in the fund costs accounted for a $1,368 increase in interest expense in 2018. We experienced increases in the rates paid on all major categories of interest-bearing deposits with the exception of savings accounts. Specifically, the cost of money market accounts increased 15 basis points resulting in an addition to interest expense of $168 comparing 2018 and 2017. The cost of NOW accounts increased 20 basis points and caused interest expense to increase $415. With regard to time deposits, the average rate paid for time deposits increased 27 basis points resulting in a $558 increase in interest expense. Savings account costs declined six basis points resulting in a $86 decline in interest expense. The average rate paid on short-term borrowings increased 47 basis points in line with the change in the federal funds rate causing interest expense on these borrowings to increase $65. Long-term debt costs increased by 2.02% with a resulting increase to interest expense of $248 for 2018.
The growth in average earning assets of $366.6 million exceeded that of average interest-bearing liabilities of $292.2 million, resulting in additional tax-equivalent net interest income of $15,245. Average earning assets increased to $1,055.3 million in 2018 from $688.7 million in 2017 and accounted for a $17,722 increase in tax-equivalent interest income. Average loans, net increased $331.4 million, which caused tax-equivalent loan interest income to increase $16,936. Average investments increased $15.9 million, resulting in an increase in interest income of $483. Average interest-bearing deposits in other banks increased $19.4 million, resulting in an increase in interest income of $150.
Average interest-bearing liabilities rose $292.2 million to $871.7 million in 2018 from $579.5 million in 2017 causing interest expense to increase $2,477. Average interest-bearing transaction accounts, including money market, NOW and savings accounts grew $162.6 million, which in aggregate caused a $784 increase in interest expense. Time deposits averaged $144.6 million more in 2018 and caused interest expense to increase $1,861. Average short-term borrowings were $17.3 million less and lowered interest expense by $265, while long-term debt averaged $2.2 million more and increased interest expense by $97 comparing 2018 and 2017.
-35-
The average balances of assets and liabilities, corresponding interest income and expense, and resulting average yields or rates paid are summarized as follows. 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 rates in 2018 and 2017.
Summary of net interest income
| 2018 | 2017 | |||||||||||||||||||||||
| Average Balance |
Interest Income/ Expense |
Average Interest Rate |
Average Balance |
Interest Income/ Expense |
Average Interest Rate |
|||||||||||||||||||
| Assets: |
||||||||||||||||||||||||
| Earning assets: |
||||||||||||||||||||||||
| Loans: |
||||||||||||||||||||||||
| Taxable |
$ | 892,331 | $ | 47,733 | 5.35 | % | $ | 574,116 | $ | 26,474 | 4.61 | % | ||||||||||||
| Tax-exempt |
36,120 | 1,177 | 3.26 | 22,973 | 909 | 3.96 | ||||||||||||||||||
| Investments: |
||||||||||||||||||||||||
| Taxable |
79,731 | 2,276 | 2.85 | 69,707 | 2,158 | 3.10 | ||||||||||||||||||
| Tax-exempt |
14,519 | 405 | 2.79 | 8,670 | 345 | 3.98 | ||||||||||||||||||
| Interest-bearing deposits |
31,307 | 575 | 1.84 | 11,901 | 121 | 1.02 | ||||||||||||||||||
| Federal funds sold |
1,285 | 20 | 1.56 | 1,367 | 12 | 0.88 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total earning assets |
1,055,293 | 52,186 | 4.95 | % | 688,734 | 30,019 | 4.36 | % | ||||||||||||||||
| Less: allowance for loan losses |
6,436 | 4,704 | ||||||||||||||||||||||
| Other assets |
104,019 | 67,897 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total assets |
$ | 1,152,876 | $ | 751,927 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Liabilities and Stockholders’ Equity: |
||||||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Money market accounts |
$ | 118,175 | 1,113 | 0.94 | % | $ | 104,698 | 831 | 0.79 | % | ||||||||||||||
| NOW accounts |
273,953 | 1,709 | 0.62 | 158,504 | 660 | 0.42 | ||||||||||||||||||
| Savings accounts |
148,441 | 115 | 0.08 | 114,731 | 165 | 0.14 | ||||||||||||||||||
| Time deposits |
316,418 | 4,252 | 1.34 | 171,834 | 1,833 | 1.07 | ||||||||||||||||||
| Short-term borrowings |
1,799 | 30 | 1.67 | 19,106 | 230 | 1.20 | ||||||||||||||||||
| Long-term debt |
12,912 | 746 | 5.78 | 10,669 | 401 | 3.76 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total interest-bearing liabilities |
871,698 | 7,965 | 0.91 | % | 579,542 | 4,120 | 0.71 | % | ||||||||||||||||
| Noninterest-bearing deposits |
159,751 | 94,906 | ||||||||||||||||||||||
| Other liabilities |
10,692 | 7,003 | ||||||||||||||||||||||
| Stockholders’ equity |
110,735 | 70,476 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total liabilities and stockholders’ equity |
$ | 1,152,876 | $ | 751,927 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net interest income/spread |
$ | 44,221 | 4.04 | % | $ | 25,899 | 3.65 | % | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Net interest margin |
4.19 | % | 3.76 | % | ||||||||||||||||||||
| Tax-equivalent adjustments: |
||||||||||||||||||||||||
| Loans |
$ | 247 | $ | 309 | ||||||||||||||||||||
| Investments |
85 | 117 | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total adjustments |
$ | 332 | $ | 426 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
-36-
| 2016 | ||||||||||||
| Average Balance |
Interest Income/ Expense |
Average Interest Rate |
||||||||||
| Assets: |
||||||||||||
| Earning assets: |
||||||||||||
| Loans: |
||||||||||||
| Taxable |
$ | 390,668 | $ | 17,565 | 4.50 | % | ||||||
| Tax-exempt |
12,335 | 683 | 5.54 | |||||||||
| Investments: |
||||||||||||
| Taxable |
61,439 | 1,939 | 3.16 | |||||||||
| Tax-exempt |
10,904 | 495 | 4.54 | |||||||||
| Interest-bearing deposits |
9,440 | 53 | 0.56 | |||||||||
| Federal funds sold |
489 | 2 | 0.41 | |||||||||
|
|
|
|
|
|||||||||
| Total earning assets |
485,275 | 20,737 | 4.27 | % | ||||||||
| Less: allowance for loan losses |
3,849 | |||||||||||
| Other assets |
54,023 | |||||||||||
|
|
|
|||||||||||
| Total assets |
$ | 535,449 | ||||||||||
|
|
|
|||||||||||
| Liabilities and Stockholders’ Equity: |
||||||||||||
| Interest-bearing liabilities: |
||||||||||||
| Money market accounts |
$ | 46,410 | 177 | 0.38 | % | |||||||
| NOW accounts |
137,484 | 400 | 0.29 | |||||||||
| Savings accounts |
74,814 | 131 | 0.18 | |||||||||
| Time deposits |
131,343 | 1,085 | 0.83 | |||||||||
| Short-term borrowings |
14,063 | 84 | 0.60 | |||||||||
| Long-term debt |
10,824 | 295 | 2.73 | |||||||||
|
|
|
|
|
|||||||||
| Total interest-bearing liabilities |
414,938 | 2,172 | 0.52 | % | ||||||||
| Noninterest-bearing deposits |
70,456 | |||||||||||
| Other liabilities |
6,638 | |||||||||||
| Stockholders’ equity |
43,417 | |||||||||||
|
|
|
|||||||||||
| Total liabilities and stockholders’ equity |
$ | 535,449 | ||||||||||
|
|
|
|
|
|||||||||
| Net interest income/spread |
$ | 18,565 | 3.75 | % | ||||||||
|
|
|
|||||||||||
| Net interest margin |
3.83 | % | ||||||||||
| Tax-equivalent adjustments: |
||||||||||||
| Loans |
$ | 232 | ||||||||||
| Investments |
169 | |||||||||||
|
|
|
|||||||||||
| Total adjustments |
$ | 401 | ||||||||||
|
|
|
|||||||||||
Note: Average balances were calculated using average daily balances. Average balances for loans include nonaccrual loans. Loan fees are included in interest income on loans.
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, volume 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 an appropriate level. The provision for loan losses equaled $615 in 2018 and $2,734 in 2017. The primary causes for the decrease were improvement in the credit quality of the portfolio and a $62.8 million reduction in loan balance in 2018. Based on our most recent evaluation at December 31, 2018, we believe that the allowance was adequate to absorb any known or potential losses in our portfolio.
Noninterest Income:
Noninterest income increased $4,469, or 101.3%, to $8,880 in 2018 from $4,411 in 2017. The primary reason for the significant increase was a result of the acquisition of CBT during the fourth quarter of 2017. Most of the categories of noninterest income increased with the exception wealth management income, mortgage banking income and net gains on sale of investment securities.
-37-
Service charges, fees and commissions increased to $5,697 in 2018 from $2,037 in 2017. Commissions and fees on fiduciary activities increased $571 as a result of adding a sizable trust department from CBT in the fourth quarter of 2017. Income from investments in bank owned life insurance increased to $776 in 2018 from $449 in 2017.
Noninterest Expense:
In general, noninterest expense is categorized into three main groups, salary and employee benefit expense, occupancy and equipment expense and other expenses. Salary and employee benefit expenses are costs associated with providing salaries, employer payroll taxes and benefits to our employees. Occupancy and equipment expenses, or the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, insurance, common area maintenance expenses, and utility costs. Other expenses include general operating expenses such as marketing, other taxes, stationery and supplies, contractual services, insurance, including FDIC assessment and loan collection costs. 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.
The major components of noninterest expense for the past three years are summarized as follows:
Noninterest expense
| Year ended December 31 |
2018 | 2017 | 2016 | |||||||||
| Salaries and employee benefits expense: |
||||||||||||
| Salaries and payroll taxes |
$ | 18,759 | $ | 13,313 | $ | 7,705 | ||||||
| Employee benefits |
3,305 | 1,883 | 1,556 | |||||||||
|
|
|
|
|
|
|
|||||||
| Salaries and employee benefits expense |
22,064 | 15,196 | 9,261 | |||||||||
|
|
|
|
|
|
|
|||||||
| Occupancy and equipment expenses: |
||||||||||||
| Occupancy expense |
2,472 | 1,849 | 1,415 | |||||||||
| Equipment expense |
1,681 | 1,422 | 750 | |||||||||
|
|
|
|
|
|
|
|||||||
| Occupancy and equipment expenses |
4,153 | 3,271 | 2,165 | |||||||||
|
|
|
|
|
|
|
|||||||
| Other expenses: |
||||||||||||
| Amortization of intangible assets |
867 | 538 | 340 | |||||||||
| Net cost of operating other real estate |
48 | 172 | 331 | |||||||||
| Advertising |
647 | 456 | 248 | |||||||||
| Professional fees |
892 | 1,503 | 578 | |||||||||
| FDIC insurance and assessments |
609 | 443 | 387 | |||||||||
| Telecommunications and processing fees |
4,436 | 1,884 | 1,365 | |||||||||
| Director fees |
685 | 705 | 344 | |||||||||
| Bank shares tax |
736 | 372 | 215 | |||||||||
| Stationary and supplies |
497 | 344 | 265 | |||||||||
| Other |
3,291 | 3,676 | 1,830 | |||||||||
|
|
|
|
|
|
|
|||||||
| Other expenses |
12,708 | 10,093 | 5,903 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total noninterest expense |
$ | 38,925 | $ | 28,560 | $ | 17,329 | ||||||
|
|
|
|
|
|
|
|||||||
Noninterest expense was $38,925 for the year ended December 31, 2018 compared to $28,560 for the year ended December 31, 2017. Merger related expenses included in noninterest expense were $553 in 2018 and $3,674 in 2017. All categories of noninterest expense were impacted by the inclusion of CBT effective October 1, 2017.
Salaries and employee benefits expense constitute the majority of our noninterest expenses, accounting for 56.7% of total noninterest expense. Salaries and employee benefits expense increased $6,868, or 45.2%, to $22,064 in 2018 from $15,196 in 2017. Salaries and payroll taxes increased $5,446 while employee benefits expense increased $1,422. The addition of CBT and related costs account for the majority of the increase in salaries and employee benefits costs.
Occupancy and equipment expense increased $882, or 27.0%, to $4,153 in 2018 from $3,271 in 2017. Specifically, building-related costs increased $623, while equipment-related costs increased $259. Additions to leased facilities for newly opened community banking offices along with offices to support the lending teams and the addition of CBT occupancy expenses were primarily responsible for the increase in occupancy and equipment costs.
-38-
Other expenses increased $2,615, or 25.9%, to $12,708 in 2018 from $10,093 in 2017. The increase along most categories of other expenses were a direct result of the business combination with CBT.
Income Taxes:
Our income tax expense was $2,371 in 2018 compared to $3,501 in 2017. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the highest U.S. corporate tax rate from the current rate of 35% to 21%, effective January 1, 2018. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted rate. This revaluation resulted in an additional charge of $3,888 to 2017 income tax expense in continuing operations and a corresponding reduction in the net deferred tax assets. The Company’s tax expense was also influenced by tax-exempt income on loans and investments, bank owned life insurance investment income and investment tax credits related to our limited partnership investment in a low- to moderate-income residential housing program, which allow us to mitigate our tax burden.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Not required for smaller reporting companies.
-39-
| Item 8. | Financial Statements and Supplementary Data. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Riverview Financial Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Riverview Financial Corporation (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Dixon Hughes Goodman LLP
We have served as the Company’s auditor since 2016.
Gaithersburg, Maryland
March 14, 2019
-40-
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Riverview Financial Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Riverview Financial Corporation’s (the “Company”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of Riverview Financial Corporation as of December 31, 2018 and 2017, and for each of the years in the two years ended December 31, 2018, and our report dated March 14, 2019, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Dixon Hughes Goodman LLP
Gaithersburg, Maryland
March 14, 2019
-41-
Riverview Financial Corporation
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| December 31 |
2018 | 2017 | ||||||
| Assets: |
||||||||
| Cash and due from banks |
$ | 16,708 | $ | 9,413 | ||||
| Interest-bearing deposits in other banks |
37,108 | 16,373 | ||||||
| Investment securities available-for-sale |
104,677 | 93,201 | ||||||
| Loans held for sale |
637 | 254 | ||||||
| Loans, net |
893,184 | 955,971 | ||||||
| Less: allowance for loan losses |
6,348 | 6,306 | ||||||
|
|
|
|
|
|||||
| Net loans |
886,836 | 949,665 | ||||||
| Premises and equipment, net |
18,208 | 18,631 | ||||||
| Accrued interest receivable |
3,010 | 3,237 | ||||||
| Goodwill |
24,754 | 24,754 | ||||||
| Intangible assets |
3,509 | 4,376 | ||||||
| Other assets |
42,156 | 43,703 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 1,137,603 | $ | 1,163,607 | ||||
|
|
|
|
|
|||||
| Liabilities: |
||||||||
| Deposits: |
||||||||
| Noninterest-bearing |
$ | 162,574 | $ | 155,895 | ||||
| Interest-bearing |
842,019 | 870,585 | ||||||
|
|
|
|
|
|||||
| Total deposits |
1,004,593 | 1,026,480 | ||||||
| Short-term borrowings |
6,000 | |||||||
| Long-term debt |
6,892 | 13,233 | ||||||
| Accrued interest payable |
484 | 468 | ||||||
| Other liabilities |
11,724 | 11,170 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
1,023,693 | 1,057,351 | ||||||
|
|
|
|
|
|||||
| Stockholders’ equity: |
||||||||
| Common stock, no par value, authorized 20,000,000 shares, issued and outstanding: 2018; 9,121,555 shares; 2017; 9,069,363 shares |
101,134 | 100,476 | ||||||
| Capital surplus |
332 | 423 | ||||||
| Retained earnings |
15,063 | 6,936 | ||||||
| Accumulated other comprehensive loss |
(2,619 | ) | (1,579 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
113,910 | 106,256 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 1,137,603 | $ | 1,163,607 | ||||
|
|
|
|
|
|||||
See notes to consolidated financial statements.
-44-
Riverview Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except per share data)
| Year Ended December 31 |
2018 | 2017 | ||||||
| Interest income: |
||||||||
| Interest and fees on loans: |
||||||||
| Taxable |
$ | 47,733 | $ | 26,474 | ||||
| Tax-exempt |
930 | 600 | ||||||
| Interest and dividends on investment securities: |
||||||||
| Taxable |
2,276 | 2,155 | ||||||
| Tax-exempt |
320 | 228 | ||||||
| Dividends |
3 | |||||||
| Interest on interest-bearing deposits in other banks |
575 | 121 | ||||||
| Interest on federal funds sold |
20 | 12 | ||||||
|
|
|
|
|
|||||
| Total interest income |
51,854 | 29,593 | ||||||
|
|
|
|
|
|||||
| Interest expense: |
||||||||
| Interest on deposits |
7,189 | 3,489 | ||||||
| Interest on short-term borrowings |
30 | 230 | ||||||
| Interest on long-term debt |
746 | 401 | ||||||
|
|
|
|
|
|||||
| Total interest expense |
7,965 | 4,120 | ||||||
|
|
|
|
|
|||||
| Net interest income |
43,889 | 25,473 | ||||||
| Provision for loan losses |
615 | 2,734 | ||||||
|
|
|
|
|
|||||
| Net interest income after provision for loan losses |
43,274 | 22,739 | ||||||
|
|
|
|
|
|||||
| Noninterest income: |
||||||||
| Service charges, fees and commissions |
5,697 | 2,037 | ||||||
| Commission and fees on fiduciary activities |
915 | 344 | ||||||
| Wealth management income |
811 | 832 | ||||||
| Mortgage banking income |
641 | 660 | ||||||
| Bank owned life insurance investment income |
776 | 449 | ||||||
| Net gain on sale of investment securities available-for-sale |
40 | 89 | ||||||
|
|
|
|
|
|||||
| Total noninterest income |
8,880 | 4,411 | ||||||
|
|
|
|
|
|||||
| Noninterest expense: |
||||||||
| Salaries and employee benefits expense |
22,064 | 15,196 | ||||||
| Net occupancy and equipment expense |
4,153 | 3,271 | ||||||
| Amortization of intangible assets |
867 | 538 | ||||||
| Net cost of operating other real estate |
48 | 172 | ||||||
| Other expenses |
11,793 | 9,383 | ||||||
|
|
|
|
|
|||||
| Total noninterest expense |
38,925 | 28,560 | ||||||
|
|
|
|
|
|||||
| Income (loss) before income taxes |
13,229 | (1,410 | ) | |||||
| Income tax expense |
2,371 | 3,501 | ||||||
|
|
|
|
|
|||||
| Net income (loss) |
10,858 | (4,911 | ) | |||||
|
|
|
|
|
|||||
| Other comprehensive income (loss): |
||||||||
| Unrealized gain (loss) on investment securities available-for-sale |
(1,012 | ) | 1,471 | |||||
| Reclassification adjustment for net gain on sales included in net income |
(40 | ) | (89 | ) | ||||
| Change in pension liability |
(265 | ) | (54 | ) | ||||
| Income tax expense (benefit) related to other comprehensive loss |
(277 | ) | 451 | |||||
|
|
|
|
|
|||||
| Other comprehensive income (loss), net of income taxes |
(1,040 | ) | 877 | |||||
|
|
|
|
|
|||||
| Comprehensive income (loss) |
$ | 9,818 | $ | (4,034 | ) | |||
|
|
|
|
|
|||||
| Per share data: |
||||||||
| Net income (loss): |
||||||||
| Basic |
$ | 1.19 | $ | (0.91 | ) | |||
| Diluted |
$ | 1.19 | $ | (0.91 | ) | |||
| Average common shares outstanding: |
||||||||
| Basic |
9,096,142 | 5,260,537 | ||||||
| Diluted |
9,148,297 | 5,260,537 | ||||||
| Dividends declared |
$ | 0.30 | $ | 0.55 | ||||
See notes to consolidated financial statements.
-45-
Riverview Financial Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except per share data)
|
For the two years ended December 31, 2018 |
Preferred Stock |
Common Stock |
Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total | ||||||||||||||||||
| Balance, January 1, 2017 |
$ | 29,052 | $ | 220 | $ | 14,845 | $ | (2,197 | ) | $ | 41,920 | |||||||||||||
| Net loss |
(4,911 | ) | (4,911 | ) | ||||||||||||||||||||
| Other comprehensive income, net of income taxes |
877 | 877 | ||||||||||||||||||||||
| Compensation cost of option grants |
203 | 203 | ||||||||||||||||||||||
| 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: 40,032 shares |
504 | 504 | ||||||||||||||||||||||
| Exercise of stock options: 38,833 shares |
411 | 411 | ||||||||||||||||||||||
| Tax Cuts and Jobs Act reclassification from other comprehensive income to retained earnings |
259 | (259 | ) | |||||||||||||||||||||
| Dividends declared: $0.55 per share |
(3,257 | ) | (3,257 | ) | ||||||||||||||||||||
| Issuance of 4,133,945 shares in fair value of consideration exchanged in merger |
54,568 | 54,568 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance, December 31, 2017 |
$ | $ | 100,476 | $ | 423 | $ | 6,936 | $ | (1,579 | ) | $ | 106,256 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income |
10,858 | 10,858 | ||||||||||||||||||||||
| Other comprehensive loss, net of income taxes |
(1,040 | ) | (1,040 | ) | ||||||||||||||||||||
| Compensation cost of option grants |
9 | 9 | ||||||||||||||||||||||
| Issuance under ESPP, 401k and Dividend Reinvestment plans: 40,791 shares |
517 | 517 | ||||||||||||||||||||||
| Exercise of stock options: 11,401 shares |
141 | (100 | ) | 41 | ||||||||||||||||||||
| Dividends declared: $0.30 per share |
(2,731 | ) | (2,731 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance, December 31, 2018 |
$ | $ | 101,134 | $ | 332 | $ | 15,063 | $ | (2,619 | ) | $ | 113,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
See notes to consolidated financial statements.
-46-
Riverview Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
| Year Ended December 31 |
2018 | 2017 | ||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 10,858 | $ | (4,911 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization of premises and equipment |
1,219 | 702 | ||||||
| Provision for loan losses |
615 | 2,734 | ||||||
| Stock based compensation |
9 | 203 | ||||||
| Net amortization of investment securities available-for-sale |
824 | 540 | ||||||
| Net cost of operation of other real estate owned |
48 | 172 | ||||||
| Net gain on sale of investment securities available-for-sale |
(40 | ) | (89 | ) | ||||
| Amortization of purchase adjustment on loans |
(5,191 | ) | (895 | ) | ||||
| Amortization of intangible assets |
867 | 538 | ||||||
| Deferred income taxes |
2,340 | 3,501 | ||||||
| Proceeds from sale of loans originated for sale |
23,967 | 29,602 | ||||||
| Net gain on sale of loans originated for sale |
(641 | ) | (660 | ) | ||||
| Loans originated for sale |
(23,709 | ) | (28,544 | ) | ||||
| Bank owned life insurance investment income |
(776 | ) | (449 | ) | ||||
| Net change in: |
||||||||
| Accrued interest receivable |
227 | (617 | ) | |||||
| Other assets |
568 | (1,851 | ) | |||||
| Accrued interest payable |
16 | 20 | ||||||
| Other liabilities |
554 | (669 | ) | |||||
|
|
|
|
|
|||||
| Net cash provided by (used in) operating activities |
11,755 | (673 | ) | |||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Investment securities available-for-sale: |
||||||||
| Purchases |
(30,981 | ) | ||||||
| Proceeds from repayments |
12,844 | 5,760 | ||||||
| Proceeds from sales |
4,825 | 18,952 | ||||||
| Proceeds from the sale of other real estate owned |
174 | 767 | ||||||
| Net decrease in restricted equity securities |
252 | 859 | ||||||
| Net (increase) decrease in loans |
66,698 | (163,790 | ) | |||||
| Net cash acquired in business combination |
32,022 | |||||||
| Business disposition (acquisitions), net of cash |
329 | |||||||
| Purchases of premises and equipment |
(1,115 | ) | (1,008 | ) | ||||
| Proceeds from sale of equipment |
19 | |||||||
| Purchase of bank owned life insurance |
(21 | ) | (5,023 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by (used in) investing activities |
52,676 | (111,113 | ) | |||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Net increase (decrease) in deposits |
(21,887 | ) | 135,075 | |||||
| Net decrease in short-term borrowings |
(6,000 | ) | (25,500 | ) | ||||
| Repayment of long-term debt |
(6,341 | ) | (5,322 | ) | ||||
| Proceeds from long-term debt |
600 | |||||||
| Issuance under DRP, 401k and ESPP plans |
517 | 504 | ||||||
| Issuance of common stock |
15,941 | |||||||
| Proceeds from exercise of options |
41 | 411 | ||||||
| Cash dividends paid |
(2,731 | ) | (3,257 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
(36,401 | ) | 118,452 | |||||
|
|
|
|
|
|||||
| Net increase in cash and cash equivalents |
28,030 | 6,666 | ||||||
| Cash and cash equivalents - beginning |
25,786 | 19,120 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents - ending |
$ | 53,816 | $ | 25,786 | ||||
|
|
|
|
|
|||||
| Supplemental disclosures: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 7,949 | $ | 3,844 | ||||
| Federal income taxes |
$ | 300 | ||||||
| Noncash items from investing activities: |
||||||||
| Other real estate acquired in settlement of loans |
$ | 707 | $ | 358 | ||||
| Acquisition: |
||||||||
| Assets acquired excluding cash: |
||||||||
| Investment securities available-for-sale |
$ | 43,869 | ||||||
| Loans, net |
382,461 | |||||||
| Accrued interest receivable |
894 | |||||||
| Premises and equipment |
6,143 | |||||||
| Other assets |
21,730 | |||||||
| Liabilities assumed: |
||||||||
| Deposits |
438,845 | |||||||
| Long-term debt |
6,801 | |||||||
| Accrued interest payable |
256 | |||||||
| Other liabilities |
$ | 6,323 | ||||||
See notes to consolidated financial statements.
-47-
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” or “Riverview”), 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”). On October 2, 2017, the Company announced the completion of its merger of equals with CBT Financial Corp. (“CBT”), effective October 1, 2017 pursuant to the Agreement and Plan of Merger between Riverview and CBT, dated April 19, 2017. On the effective date, CBT was merged with and into Riverview, with Riverview surviving (the “merger”). Additionally, CBT Bank, the wholly-owned subsidiary of CBT, merged with and into Riverview Bank, the wholly-owned subsidiary of Riverview, with Riverview Bank as the surviving institution. The Company’s financial results reflect the merger of CBT Bank with and into Riverview Bank under the purchase method of accounting, with the Company treated as the acquirer from an accounting and reporting purposes. As a result, the historical financial information included in the Company’s consolidated financial statements and related notes as reported in this Form 10-K is that of Riverview.
Riverview Bank, with 28 full service offices and four limited purpose offices, is a full-service commercial bank offering a wide range of traditional banking services and financial advisory, insurance and investment services to individuals, municipalities and small to medium sized businesses in the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties.
The Bank is state-chartered under the jurisdiction of the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. The Bank’s primary product is loans to small- and medium-sized businesses. Other lending products include one-to-four family residential mortgages and consumer loans. The Bank primarily funds its loans by offering interest-bearing transaction accounts to commercial enterprises and individuals. Other deposit product offerings include certificates of deposits and various demand deposit accounts. The Bank offers a broad range of financial advisory, investment and fiduciary services through its wealth management and trust operating divisions.
The wealth management and trust divisions did not meet the quantitative thresholds for required segment disclosure in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Bank’s thirty community banking offices, all similar with respect to economic characteristics, share a majority of the following aggregation criteria: (i) products and services; (ii) operating processes; (iii) customer bases; (iv) delivery systems; and (v) regulatory oversight. Accordingly, they were aggregated into a single operating segment.
The Company faces competition primarily from commercial banks, thrift institutions and credit unions within the Central, Northern and Southwestern Pennsylvania markets, many of which are substantially larger in terms of assets and capital. In addition, mutual funds and security brokers compete for various types of deposits, and consumer, mortgage, leasing and insurance companies compete for various types of loans and leases. Principal methods of competing for banking and permitted nonbanking services include price, nature of product, quality of service and convenience of location.
The Company and the Bank are subject to regulations of certain federal and state regulatory agencies and undergo periodic examinations.
Basis of presentation:
The consolidated financial statements of the Company have been prepared in conformity with GAAP, Regulation S-X and reporting practices applied in the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. The Company also presents herein condensed parent company only financial information regarding Riverview Financial Corporation (“Parent Company”). Prior period amounts are reclassified when necessary to conform with the current year’s presentation. Such reclassifications had no effect on financial position or results of operations.
The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2018, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.
-48-
Estimates:
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, determination of other-than-temporary impairment losses on securities, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ from those estimates.
Investment securities:
Investment securities are classified and accounted for as either held-to-maturity, available-for-sale, or trading account securities based on management’s intent at the time of acquisition. Management is required to reassess the appropriateness of such classifications at each reporting date. The Company classifies debt securities as held-to maturity when management has the positive intent and ability to hold such securities to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities are designated as available-for-sale when they are to be held for indefinite periods of time as management intends to use such securities to implement asset/liability strategies or to sell them in response to changes in interest rates, prepayment risk, liquidity requirements, or other circumstances identified by management. Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of income taxes, excluded from earnings and reported in a separate component of stockholders’ equity. Estimated fair values for investment securities are based on market prices from a national pricing service. Realized gains and losses are computed using the specific identification method and are included in noninterest income. Premiums are amortized, and discounts are accreted using the interest method over the contractual lives of investment securities. Investment securities that are bought and held principally for the purpose of selling them in the near term, in order to generate profits from market appreciation, are classified as trading account securities. Trading account securities are carried at market value. Interest on trading account securities is included in interest income. Profits or losses on trading account securities are included in noninterest income. All of the Company’s investment securities were classified as available-for-sale in 2018 and 2017. Transfers of securities between categories are recorded at fair value at the date of the transfer, with the accounting treatment of unrealized gains or losses determined by the category into which the security is transferred.
Management evaluates each investment security at least quarterly, to determine if a decline in fair value below its amortized cost is an other-than-temporary impairment (“OTTI”), and more frequently when economic or market concerns warrant an evaluation. Factors considered in determining whether an other-than-temporary impairment was incurred include: (i) the length of time and the extent to which the fair value has been less than amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) whether a decline in fair value is attributable to adverse conditions specifically related to the security or specific conditions in an industry or geographic area; (iv) the credit-worthiness of the issuer of the security; (v) whether dividend or interest payments have been reduced or have not been made; (vi) an adverse change in the remaining expected cash flows from the security such that the Company will not recover the amortized cost of the security; (vii) whether management intends to sell the security; and (viii) if it is more likely than not that management will be required to sell the security before recovery. If a decline is judged to be other-than-temporary, the individual security is written-down to fair value with the credit related component of the write-down included in earnings and the non-credit related component included in other comprehensive income or loss. The assessment of whether an other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time.
Loans held for sale:
Loans held for sale consist of one-to-four family residential mortgages originated and intended for sale in the secondary market with servicing rights released. The loans are carried in aggregate at the lower of cost or estimated market value, based upon current delivery prices in the secondary mortgage market. Gains or losses on the sale of these loans are recognized in noninterest income at the time of sale using the specific identification method. Loan origination fees, net of certain direct loan origination costs, are included in net gains or losses upon the sale of the related mortgage loan. These loans are generally sold without servicing rights retained and without recourse.
Loans, net:
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of deferred fees or costs. Interest income is accrued on the principal amount outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the related loan as an adjustment to yield using the effective interest method. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective interest method. Delinquency fees are recognized in income when chargeable, assuming collectability is reasonably assured.
-49-
Transfers of financial assets, which include loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (i) the assets have been isolated from the Company; (ii) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
The loan portfolio is segmented into commercial and retail loans. Commercial loans consist of commercial and commercial real estate loans. Retail loans consist of residential real estate and other consumer loans.
The Company makes commercial loans for real estate development and other business purposes required by the customer base. The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversion of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of these loans is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value of not greater than 80% and vary in terms. Commercial and commercial real estate loans generally have higher credit risk compared to residential mortgage loans and consumer loans, as they typically involve larger loan balances concentrated with single borrowers or groups of borrowers. In addition, the payment expectations on loans secured by income-producing properties typically depend on the successful operations of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.
Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential mortgage loans. Of primary concern in commercial real estate lending is the borrower’s and any guarantor’s creditworthiness and the feasibility and cash flow potential of the financed project. Additional considerations include: location, market and geographic concentrations, loan to value, strength of guarantors and quality of tenants. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual consolidated financial statements on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a commercial real estate loan, we consider and review a cash flow analysis of the borrower and guarantor, when applicable, and considers the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios, the ratio of earnings before debt service to debt service, of at least 1.2 times. An environmental report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.
Residential mortgages, including home equity loans, are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages may have amortizations up to 30 years.
Consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are secured. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. In the latter case, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state insolvency laws, may limit the amount that can be recovered on such loans.
Off-balance sheet financial instruments:
In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, unused portions of lines of credit and standby letters of credit. These financial instruments are recorded in the consolidated financial statements when they are funded. Fees on commercial letters of credit and on unused available lines of credit are recorded as service charges, fees and commissions and are included in noninterest income when earned. The Company records an allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability.
-50-
Nonperforming assets:
Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans include nonaccrual loans, troubled debt restructured loans and accruing loans past due 90 days or more. Past due status is based on contractual terms of the loan. Generally, a loan is classified as nonaccrual when it is determined that the collection of all or a portion of interest or principal is doubtful or when a default of interest or principal has existed for 90 days or more, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual, interest accruals are discontinued, and uncollected accrued interest is reversed against income in the current period. Interest collections after a loan has been placed on nonaccrual status are credited to the principal balance. Interest earned that would have been recognized is credited to income over the remaining life of the loan using the effective yield method if the nonaccrual loan is returned to performing status. A nonaccrual loan is returned to performing status when the loan is current as to principal and interest and has performed according to the contractual terms for a minimum of six months.
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 can 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. |
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 of 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. |
Other real estate owned is comprised of properties acquired through foreclosure proceedings or in-substance foreclosures. A loan is classified as in-substance foreclosure when the Company has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate owned is included in other assets and recorded at fair value less cost to sell at the time of acquisition, establishing a new cost basis. Any excess of the loan balance over the recorded value is charged to the allowance for loan losses. Subsequent declines in the recorded values of the properties prior to their disposal and costs to maintain the assets are included in other expenses. Any gain or loss realized upon disposal of other real estate owned is included in noninterest expense.
-51-
Allowance for loan losses:
The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date. The allowance for loan losses account is maintained through a provision for loan losses charged to earnings. Loans, or portions of loans, determined to be confirmed losses are charged against the allowance account and subsequent recoveries, if any, are credited to the account. A loss is considered confirmed when information available at the financial statement date indicates the loan, or a portion thereof, is uncollectible. Nonaccrual, troubled debt restructured, and loans deemed impaired at the time of acquisition are reviewed monthly to determine if carrying value reductions are warranted or if these classifications should be changed. Consumer loans are considered losses and charged-off when they are 120 days past due.
Management evaluates the adequacy of the allowance for loan losses account quarterly. This assessment is based on past charge-off experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. Regulators, in reviewing the loan portfolio as part of the scope of a regulatory examination, may require the Company to increase its allowance for loan losses or take other actions that would require the Company to increase its allowance for loan losses.
The allowance for loan losses is maintained at a level believed to be adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses consists of an allocated element and an unallocated element. The allocated element consists of a specific allowance for impaired loans individually evaluated under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, “Receivables,” and a formula portion for loss contingencies on those loans collectively evaluated under FASB ASC 450, “Contingencies.”
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Factors considered by management in determining impairment include payment status, ability to pay and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company recognizes interest income on impaired loans, including the recording of cash receipts for nonaccrual, restructured loans or accruing loans depending on the status of the impaired loan. Loans considered impaired under FASB ASC 310 are measured for impairment 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. If 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, is less than the recorded investment in the loan, a specific allowance for the loan will be established.
The formula portion of the allowance for loan losses relates to large pools of smaller-balance homogeneous loans and those identified loans considered not individually impaired having similar characteristics as these loan pools. Loss contingencies for each of the major loan pools are determined by applying a total loss factor to the current balance outstanding for each individual pool. The total loss factor is comprised of a historical loss factor using a loss migration method plus qualitative factors, which adjust the historical loss factor for changes in trends, conditions and other relevant factors that may affect repayment of the loans in these pools as of the evaluation date. Loss migration involves determining the percentage of each pool that is expected to ultimately result in loss based on historical loss experience. Historical loss factors are based on the ratio of net loans charged-off to loans, net, for each of the major groups of loans evaluated and measured for impairment under FASB ASC 450. The historical loss factor for each pool is an average of the Company’s historical net charge-off ratio for the most recent rolling eight quarters. Management adjusts these historical loss factors by qualitative factors that represent a number of environmental risks that may cause estimated credit losses associated with the current portfolio to differ from historical loss experience. These environmental risks include: (i) changes in lending policies and procedures including underwriting standards and collection, charge-off and recovery practices; (ii) changes in the composition and volume of the portfolio; (iii) changes in national, local and industry conditions, including the effects of such changes on the value of underlying collateral for collateral-dependent loans; (iv) changes in the volume and severity of classified loans including past due, nonaccrual, troubled debt restructures and other loan modifications; (v) changes in the levels of, and trends in, charge-offs and recoveries; (vi) the existence and effect of any concentrations of credit and changes in the level of such concentrations; (vii) changes in the experience, ability and depth of lending management and other relevant staff; (viii) changes in the quality of the loan review system and the degree of oversight by the board of directors; and (ix) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the current loan portfolio. Each environmental risk factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.
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Management revised its calculation for, and application of, qualitative factors applied to their identified segments of homogenous loan pools. Prior to the fourth quarter of 2018, management calculated separate and distinct qualitative factors for Riverview Bank and each of its three purchased portfolios as a result of loans previously acquired in business combinations. Management determined that it would calculate qualitative factors on a weighted average basis combined for Riverview Bank and all purchased portfolios for each identified segment of homogenous loan pools. This had the impact of reducing the overall rate of qualitative adjustment to historical losses but was offset by an increased level of reserve on acquired performing loans as a result of normal accretion of acquisition related fair value marks. This change in methodology did not have a material impact on the amount of the allowance for loan losses at December 31, 2018, the date of the change, as compared to the prior methodology.
The unallocated element, if any, is used to cover inherent losses that exist as of the evaluation date, but which have not been identified as part of the allocated allowance using the above impairment evaluation methodology due to limitations in the process. One such limitation is the imprecision of accurately estimating the impact current economic conditions will have on historical loss rates. Variations in the magnitude of impact may cause estimated credit losses associated with the current portfolio to differ from historical loss experience, resulting in an allowance that is higher or lower than the anticipated level. Management establishes the unallocated element of the allowance by considering environmental risks similar to the ones used for determining the qualitative factors. Management continually monitors trends in historical and qualitative factors, including trends in the volume, composition and credit quality of the portfolio. The reasonableness of the unallocated element is evaluated through monitoring trends in its level to determine if changes from period to period are directionally consistent with changes in the loan portfolio.
Management believes the level of the allowance for loan losses was adequate to absorb probable credit losses as of December 31, 2018.
Premises and equipment, net:
Land is stated at cost. Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. The cost of routine maintenance and repairs is expensed as incurred. The cost of major replacements, renewals and betterments is capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are eliminated, and any resulting gain or loss is reflected in noninterest income. Depreciation and amortization are computed principally using the straight-line method based on the following estimated useful lives of the related assets, or in the case of leasehold improvements, to the expected terms of the leases, if shorter:
| Premises and leasehold improvements |
7 – 50 years | |
| Leasehold improvements |
10 – 30 years | |
| Furniture, fixtures and equipment |
3 – 10 years |
Business combinations, goodwill and other intangible assets, net:
The Company accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the purchase method. Core deposit intangibles and other identified intangibles with finite useful lives are amortized using the sum of the year’s digits over their estimated useful lives of up to ten years.
Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. 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 includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional allowance for credit losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the non-accretable discount which the Company will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan. Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the non-accretable difference portion of the fair value adjustment.
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The Company accounts for performing loans acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition.
Customer list intangibles are also included in intangible assets as a result of the purchase of the wealth management companies. These intangibles are amortized as an expense over ten years using the sum of the years’ amortization method.
Goodwill and other intangible assets are tested for impairment annually during the fourth quarter of each year or when circumstances arise indicating impairment may have occurred. In making this assessment that impairment has occurred, management considers a number of factors including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows, and current market data. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of impairment. Changes in economic and operating conditions, as well as other factors, could result in impairment in future periods. Any impairment losses arising from such testing would be reported in the Consolidated Statements of Income and Comprehensive Income as a separate line item within operations. There were no impairment losses recognized as a result of periodic impairment testing in each of the two-years ended December 31, 2018.
Restricted equity securities:
As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB-Pgh”) and Atlantic Community Bankers Bank (“ACBB”), the Company is required to purchase and hold stock in these entities to satisfy membership and borrowing requirements. This stock is restricted in that it can only be redeemed by these entities or to another member institution and all redemptions of stock must be at par. As a result of these restrictions, restricted equity stock is unlike other investment securities as there is no trading market in it and the transfer price is determined by the FHLB-Pgh and ACBB membership rules and not by market participants. Therefore, it is accounted for at historical cost and evaluated for impairment. The carrying value of restricted stock is included in other assets.
Bank owned life insurance:
The Company invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on certain of its directors and employees. The Bank is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies and is included in other assets. Income from increases in cash surrender value of the policies is included in noninterest income.
Pension and post-retirement benefit plans:
The Company sponsors various pension plans covering substantially all employees. The Company also provides post-retirement benefit plans other than pensions, consisting principally of life insurance benefits, to eligible retirees. The liabilities and annual income or expense of the Company’s pension and other post-retirement benefit plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return, based on the market-related value of assets. The fair values of plan assets are determined based on prevailing market prices or estimated fair value for investments with no available quoted prices.
Statements of Cash Flows:
The Consolidated Statements of Cash Flows are presented using the indirect method. For purposes of cash flow, cash and cash equivalents include cash on hand, cash items in the process of collection, noninterest-bearing and interest-bearing deposits in other banks and federal funds sold.
Fair value of financial instruments:
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.
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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. |
The following methods and assumptions were used by the Company to construct the summary table in Note 13 containing the 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 available-for-sale: The fair values of debt securities are based on pricing from a matrix pricing model.
Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.
Net Loans: At December 31, 2018, the exit price observations are obtained from an independent third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions. The new methodology is a result of the adoption of ASU No. 2016-01.
At December 31, 2017, for adjustable-rate loans that reprice 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.
In conjunction with the merger, the loans purchased were recorded at their acquisition date fair value. In order to record the loans at fair value, management made three different types of fair value adjustments. A market rate adjustment was made to adjust for the movement in market interest rates, irrespective of credit adjustments, compared to the stated rates of the acquired loans. A credit adjustment was made on pools of homogeneous loans representing the changes in credit quality of the underlying borrowers from the loan inception to the acquisition date. The credit adjustment on distressed loans represents the portion of the loan balance that has been deemed uncollectible based on the management’s expectations of future cash flows for each respective loan.
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.
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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. The carrying values of adjustable-rate, fixed-term time deposits approximate their fair values at the reporting date. 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 of 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 December 31, 2018 and December 31, 2017.
Advertising:
The Company follows the policy of charging marketing and advertising costs to expense as incurred. Advertising expense for the years ended December 31, 2018 and 2017 was $647 and $456, respectively.
Income taxes:
The Company accounts for income taxes in accordance with the income tax accounting guidance set forth in FASB ASC 740, “Income Taxes”. ASC 740 sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.
The calculation of the provision for income taxes is complex and requires the use of estimates and judgments. The Company has two accruals for income taxes: (i) an income tax payable representing the estimated net amount currently due to the federal government, net of any reserve for potential audit issues and any tax refunds; and (ii) a deferred federal income tax and related valuation accounts, representing the estimated impact of temporary differences between how the Company recognizes its assets and liabilities under GAAP, and how such assets and liabilities are recognized under federal tax law.
Deferred income taxes are provided on the balance sheet method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the effective date. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the more likely than not threshold, no tax benefit is recorded. Under the more likely than not threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company had no material unrecognized tax benefits or accrued interest and penalties for any year in the three-year period ended December 31, 2018.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“TCJA”). The legislation significantly changes U.S. tax law by, among other things, lowering the corporate income tax rate and changes to business-related exclusions. The TCJA permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. Accordingly, in the fourth quarter 2017 a tax expense of $3,888 was recorded for the effects of the legislation.
As applicable, the Company recognizes accrued interest and penalties assessed as a result of a taxing authority examination through income tax expense. The Company files consolidated income tax returns in the United States of America and various states’ jurisdictions. With limited exception, the Company is no longer subject to federal and state income tax examinations by taxing authorities for years before 2015.
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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 December 31, 2018 and 2017 are as follows:
| December 31 |
2018 | 2017 | ||||||
| Net unrealized gain (loss) on investment securities available-for-sale |
$ | (2,183 | ) | $ | (1,131 | ) | ||
| Income tax expense (benefit) |
(458 | ) | (238 | ) | ||||
|
|
|
|
|
|||||
| Net of income taxes |
(1,725 | ) | (893 | ) | ||||
|
|
|
|
|
|||||
| Benefit plan adjustments |
(1,132 | ) | (869 | ) | ||||
| Income tax expense (benefit) |
(238 | ) | (183 | ) | ||||
|
|
|
|
|
|||||
| Net of income taxes |
(894 | ) | (686 | ) | ||||
|
|
|
|
|
|||||
| Accumulated other comprehensive loss |
$ | (2,619 | ) | $ | (1,579 | ) | ||
|
|
|
|
|
|||||
Other comprehensive income (loss) and related tax effects for the years ended December 31, 2018 and 2017 are as follows:
| Year ended December 31 |
2018 | 2017 | ||||||
| Unrealized gain (loss) on investment securities available-for-sale |
$ | (1,012 | ) | $ | 1,471 | |||
|
|
|
|
|
|||||
| Net (gain) loss on the sale of investment securities available-for-sale (1) |
(40 | ) | (89 | ) | ||||
|
|
|
|
|
|||||
| Benefit plans: |
||||||||
| Amortization of actuarial loss (gain)(2) |
81 | 49 | ||||||
| Actuarial (loss) gain |
(346 | ) | (103 | ) | ||||
|
|
|
|
|
|||||
| Net change in benefit plan liabilities |
(265 | ) | (54 | ) | ||||
|
|
|
|
|
|||||
| Other comprehensive income (loss) gain before taxes |
(1,317 | ) | 1,328 | |||||
| Income tax expense (benefit) |
(277 | ) | 451 | |||||
|
|
|
|
|
|||||
| Other comprehensive income (loss) |
$ | (1,040 | ) | $ | 877 | |||
|
|
|
|
|
|||||
| (1) | Represents amounts reclassified out of accumulated comprehensive income and included in gains on sale of investment securities on the consolidated statements of income and comprehensive income. |
| (2) | Represents amounts reclassified out of accumulated comprehensive income and included in the computation of net periodic pension expense. Refer to Note 15 included in these consolidated financial statements. |
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.
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The following table provides a reconciliation between the computation of basic earnings per share and diluted earnings per share for the years ended December 31, 2018 and 2017:
| For the Year Ended December 31 |
2018 | 2017 | ||||||
| Numerator: |
||||||||
| Net income (loss) |
$ | 10,858 | $ | (4,911 | ) | |||
| Dividends on preferred stock |
(371 | ) | ||||||
|
|
|
|
|
|||||
| Net income (loss) available to common stockholders |
10,858 | (5,282 | ) | |||||
| Undistributed income (loss) allocated to preferred stockholders |
475 | |||||||
|
|
|
|
|
|||||
| Income (loss) allocated to common stockholders |
$ | 10,858 | $ | (4,807 | ) | |||
|
|
|
|
|
|||||
| Denominator: |
||||||||
| Basic |
9,096,142 | 5,260,537 | ||||||
| Dilutive options |
52,155 | |||||||
|
|
|
|
|
|||||
| Diluted |
9,148,297 | 5,260,537 | ||||||
|
|
|
|
|
|||||
| Earnings per share: |
||||||||
| Basic |
$ | 1.19 | $ | (0.91 | ) | |||
| Diluted |
$ | 1.19 | $ | (0.91 | ) | |||
Common stock equivalents outstanding that are anti-dilutive and thus excluded from the calculation of the diluted number of shares represented above were 43,350 in 2018 and 298,246 in 2017.
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.
Stock-based compensation:
The Company recognizes all share-based payments to employees in the consolidated statement of operations based on their grant date fair values. The fair value of such equity instruments is recognized as an expense in the historical consolidated financial statements as services are performed. The Company uses the Black-Scholes Model to estimate the fair value of each option on the date of grant. The Black-Scholes Model estimates the fair value of employee stock options using a pricing model which takes into consideration the exercise price of the option, the expected life of the option, the current market price and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company typically grants stock options to employees with an exercise price equal to the fair value of the shares at the date of grant. The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period.
Recent Accounting Standards
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (i) 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. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (ii) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (iii) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) 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 on the balance sheet; (v) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) require an entity to present separately in other
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comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset , securities or loans and receivables, on the balance sheet or the accompanying notes to the financial statements; and (viii) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company measured the fair value of its loan portfolio using an exit price notion for the fiscal years beginning after December 31, 2017, including interim periods thereafter. The adoption of ASU 2016-01 did not have a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”. From the lessee’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”. The amendments in this Update corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the lease standard. The amendments target 16 issues including: residual value guarantees; rate implicit in the lease; lessee reassessment of lease classification; lessor reassessment of lease term and purchase option; variable lease payments that depend on an index or a rate; investment tax credits; lease term and purchase option; transition guidance for amounts previously recognized in business combinations; recognition of certain transition adjustments in earnings rather than equity; transition guidance for leases previously classified as capital leases under Topic 840; transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840; transition guidance for sale and leaseback transactions; impairment of net investment in the lease; unguaranteed residual asset; effect of initial direct costs on rate implicit in the lease; and failed sale and leaseback transaction. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”. This amendment provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840. In addition, the ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02, “Leases (Topic 842).” The new practical expedient will allow lessors to elect, by class of underlying asset, to not separate non-lease components from the associated lease component when specified conditions are met. Examples of non-lease components include equipment maintenance services, common area maintenance services in real estate, or other goods or services provided to the lessee apart from the right to use the underlying asset. The practical expedient must be applied consistently for all lease contracts. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842)—Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Upon adoption of ASU 2016-02, ASU 2018-10, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we expect to recognize right-of-use assets and related lease liabilities totaling $3,719. We expect to elect to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases, as defined by related accounting guidance. We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet. We expect to utilize the transition approach prescribed by ASU 2018-11. The adoption of the guidance on January 1, 2019, is not expected to have a significant impact on the Company’s financial position or operating results.
In June 2016, the FASB issued 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. In November 2018, the FASB issued ASU No. 2018-19—Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. 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. During the third quarter of 2018, we selected a vendor-based solution and are currently collecting and reviewing loan data for use in this model. The Company is currently assessing the impact that this new guidance will have on its consolidated financial statements.
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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 flows.
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. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including trust and asset management fees, deposit related fees, and interchange fees. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company adopted ASU 2014-09 and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. The adoption of ASU 2016-20 and 2014-09 did not have a material effect on our consolidated financial statements. See Note 14 Revenue Recognition for more information.
In January 2017, the 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 adoption of ASU No. 2017-01 did not have a material effect on our consolidated financial statements.
In January 2017, the 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 adoption of ASU No. 2017-05 did not have a material effect on our consolidated financial statements.
In March 2017, the FASB issued ASU No. 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 adoption of ASU No. 2017-07 did not have a material effect on our consolidated financial statements.
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In March 2017, the 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 does not expect the adoption of ASU No. 2017-08 to have a material effect on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 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 adoption of ASU No. 2017-09 did not have a material effect on our consolidated financial statements.
In August 2017, the FASB issued ASU No. 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. The Company does not expect the adoption of ASU No. 2017-12 to have a material effect on our consolidated financial statements.
In September 2017, the FASB issued ASU No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This Accounting Standards Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the July 20, 2017 Emerging Issues Task Force (EITF) meeting. The July announcement addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphs pursuant to the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula,” effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases. The amendments in this Update also rescind three SEC Observer Comments effective upon the initial adoption of Topic 842. One SEC Staff Observer comment is being moved to Topic 842. The adoption of ASU 2017-13 did not have a material effect on our consolidated financial statements.
In November 2017, the FASB issued ASU No. 2017-14 “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This Accounting Standards Update amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of ASU No. 2017-14 did not have a material effect on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow for a reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the Company elected to early adopt this guidance effective December 31, 2017. The adoption of ASU No. 2018-02 resulted in a reclassification of stranded tax effects of $259 from accumulated other comprehensive income (loss) to retained earnings.
In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which makes minor changes to the ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The technical corrections affect the following aspects of the ASU: (i) equity securities without a readily determinable fair value — discontinuation; (ii) equity securities without a readily determinable fair value — adjustments; (iii) forward contracts and purchased options; (iv) presentation requirements for certain fair value option liabilities; (v) fair value option liabilities denominated in a foreign currency and (vi) transition guidance for equity securities without a readily determinable fair value. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The adoption of ASU No. 2018-03 did not have a material effect on our consolidated financial statements.
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In March 2018, the FASB issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin [SAB] No. 118”. The ASU adds seven paragraphs to ASC 740, Income Taxes, that contain SEC guidance related to SAB 118 codified as SEC SAB Topic 5.EE, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”). The adoption of ASU No. 2018-05 did not have a material effect on our consolidated financial statements.
In May 2018, the FASB issued ASU No. 2018-06, “Codification Improvements to Topic 942, Financial Services—Depository and Lending”. The amendments in this Update supersede the guidance in Subtopic 942-740, Financial Services—Depository and Lending—Income Taxes, that is related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency (“OCC”) and no longer is relevant. The amendments in this Update were effective upon issuance of this Update. The adoption of ASU No. 2018-06 did not have a material effect on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this Update improve the effectiveness of fair value measurement disclosures by modifying the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”. Subtopic 715-20 addresses the disclosure of other accounting and reporting requirements related to single-employer defined benefit pension or other postretirement benefit plans. The amendments in this Update remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the Board’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments in this Update apply to all employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for all entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.
2. Merger accounting:
On April 20, 2017, the Company and CBT announced the execution of a definitive merger agreement, providing for the merger of CBT with and into the Company. Immediately following the holding company merger, CBT Bank merged with and into Riverview Bank, the wholly-owned subsidiary of Riverview. This merger became effective prior to the start of business on October 1, 2017. Pursuant to the terms of the merger agreement, the merger was effected by the issuance of shares of Riverview stock to CBT shareholders. Each share of CBT common stock was converted into the right to receive 2.86 shares of Riverview common stock, with cash paid in lieu of fractional shares. The merger provided an expanded geographic footprint for the Company and increased the size of the balance sheet wherein the combined companies can realize economies of scale and other operating efficiencies.
The merger has been accounted for using the acquisition method of accounting. To determine the accounting treatment of the merger, management utilized the following factors in concluding that Riverview is considered to be the accounting acquirer:
| • | The roles of the Chief Executive Officer and President of the post-combination entity has been assumed by the executive officers of Riverview; |
| • | After the closing of the merger and as a result of the fixed share exchange ratio of 2.86 shares of Riverview common stock for each CBT common share, the former CBT shareholders, as a group, held approximately 45.8 percent of the outstanding shares of Riverview’s stock; and |
| • | Riverview contributed greater than fifty percent of the total assets and tangible equity to the combined entity. |
Based on consideration of all the relevant facts and circumstances of the merger, including the above factors, for accounting purposes, Riverview is considered to have acquired CBT in this transaction with the surviving legal entity operating under Riverview’s Articles of Incorporation. As a result, the historical financial statements of the combined company are the historical financial statements of Riverview. The assets and liabilities of CBT as of the effective date of the merger were recorded at their respective estimated fair values and added to those of Riverview. The excess of purchase price over the net estimated fair values of the acquired assets and liabilities of CBT Financial was allocated to all identifiable intangible assets. The remaining excess was allocated to goodwill. The goodwill resulting from the merger will not be amortized to expense, but instead will be reviewed for impairment at least annually. To
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the extent goodwill is impaired, its carrying value would be written down to its implied fair value and a charge would be made to earnings. Customer related intangibles and other intangibles with definite useful lives will be amortized to expense over their estimated useful lives. These financial statements will reflect the results attributable to the acquired operations of CBT, as the acquired company for accounting purposes, beginning on the effective date of the merger. The Company utilized the closing price of its common stock on September 29, 2017, the last trading day prior to the merger, of $13.20 per share to determine the acquisition date fair value of the consideration transferred.
The acquired assets and assumed liabilities were measured at fair value as of the acquisition date. In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest, which required the utilization of significant estimates and judgment in accounting for the acquisition. As of October 1, 2017, goodwill totaled $19,675, which is equal to the excess of the consideration transferred over the fair value of the identifiable net assets acquired in connection with the merger. Goodwill recorded in the Merger resulted from the expected synergies of the combined operations of the newly merged entities as well as intangibles that do not qualify for separate recognition such as the acquired workforce. There was no tax-deductible goodwill in the transaction.
| Purchase Price Consideration in Common Stock: |
||||||||
| CBT shares outstanding exchanged |
1,445,474 | |||||||
| Exchange ratio |
2.86 | |||||||
|
|
|
|||||||
| Riverview shares issued |
4,134,056 | |||||||
| Less: fractional shares issued to CBT shareholders |
111 | |||||||
|
|
|
|||||||
| Riverview shares issued to CBT shareholders |
4,133,945 | |||||||
| Value assigned to Riverview shares |
$ | 13.20 | ||||||
|
|
|
|||||||
| Purchase price |
$ | 54,568 | ||||||
| Purchase price consideration for fractional shares |
1 | |||||||
|
|
|
|||||||
| Total Purchase Price |
54,569 | |||||||
|
|
|
|||||||
| Net Assets Acquired: |
||||||||
| Cash and due from banks |
$ | 32,022 | ||||||
| Investment securities available-for-sale |
43,869 | |||||||
| Loans, net |
382,461 | |||||||
| Accrued interest receivable |
894 | |||||||
| Premises and equipment |
6,143 | |||||||
| Other assets |
21,730 | |||||||
| Deposits |
(438,845 | ) | ||||||
| Long-term debt |
(6,801 | ) | ||||||
| Accrued interest payable |
(256 | ) | ||||||
| Other liabilities |
(6,323 | ) | ||||||
|
|
|
|||||||
| Net assets acquired |
34,894 | |||||||
|
|
|
|||||||
| Goodwill resulting from merger |
$ | 19,675 | ||||||
|
|
|
The estimated fair values of cash and due from banks, accrued interest receivable, other assets, accrued interest payable and other liabilities approximate their stated values.
The estimated fair values of the investment securities available-for-sale were calculated primarily using level 2 inputs. The prices for these instruments are obtained through an independent pricing service and are derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviewed the data and assumptions used in pricing the securities to ensure the highest level of significant inputs are derived from market observable data.
Land and buildings included in premises and equipment, net, and real estate acquired through foreclosure included in other assets were primarily valued based on appraised collateral values. The Company prepared an internal market rent analysis to compare the lease contract obligations to comparable market rental rates. The Company believed that the leased contract rates were in a reasonable range of market rental rates and concluded that no fair value adjustment related to leasehold interest was necessary.
The most significant fair value determination related to the valuation of acquired loans using level 3 input. The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected life time losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company prepared three separate
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loan fair value adjustments that it believed a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three-separate fair valuation methodologies employed are: 1) an interest rate loan fair value adjustment; 2) a general credit fair value adjustment; and 3) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310-30 procedures. The acquired loans were recorded at fair value at the acquisition date without carryover of CBT Bank’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $393,821.
The table below illustrates the fair value adjustments made to the amortized cost basis to present a fair value of the loans acquired. The credit adjustment on purchased credit impaired loans was derived in accordance with ASC 310-30 and represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.
| Gross amortized cost basis at October 1, 2017 |
$ | 393,821 | ||
| Interest rate fair value adjustment on pools of homogeneous loans |
2,356 | |||
| Credit fair value adjustment on pools of homogeneous loans |
(5,627 | ) | ||
| Credit and interest fair value adjustment on purchased credit impaired loans |
(8,089 | ) | ||
|
|
|
|||
| Fair value of acquired loans at October 1, 2017 |
$ | 382,461 | ||
|
|
|
CBT Bank’s loans, without evidence of credit deterioration, were assembled into groupings by characteristics such as loan type, term, collateral and rate and fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value. The discount rate utilized was the average of market rates for similar loans obtained from various external data sources. Additionally, consideration was given to management’s best estimates of default rates and payment speeds in projecting the expected cash flows. A general credit risk fair value adjustment was calculated using a two-part general credit fair value analysis: (1) expected lifetime losses, using an average of historical losses of the Company, Riverview Bank and peer banks; and (2) an estimated fair value adjustment for qualitative factors related to general economic conditions and the risk related to lack of familiarity with the originator’s underwriting process. At acquisition, CBT Bank’s loan portfolio, without evidence of credit deterioration, was recorded at a current fair value of $373,868.
CBT Bank’s loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality. Management measured loan fair values based on loan file reviews including borrower financial statements or tax returns, appraised collateral values, expected cash flows and historical loss factors. Such loans were fair valued by discounting the expected cash flows at acquisition by an observable discount rate for similar instruments that a market participant would consider in determining fair value. The difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a nonaccretable difference.
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The following is a summary of the acquired impaired loans from the merger with CBT Bank:
| Acquired Impaired Loans |
||||
| Contractually required principal and interest at acquisition |
$ | 16,682 | ||
| Contractual cash flows not expected to be collected (nonaccretable discount) |
(6,033 | ) | ||
|
|
|
|||
| Expected cash flows at acquisition |
10,649 | |||
| Interest component of expected cash flows (accretable discount) |
(2,056 | ) | ||
|
|
|
|||
| Fair value of acquired loans |
$ | 8,593 | ||
|
|
|
|||
The Company recorded a core deposit intangible asset related to a value ascribed to demand, interest checking, money market and savings accounts, referred to as core deposits, acquired as part of the acquisition. The value assigned to the acquired core deposits represents the future economic benefit of the potential cost savings from acquiring the core deposits, net of operating expenses and including ancillary fee income, compared to the cost of obtaining alternative funds from available market sources. Management used estimates including the expected attrition rates of core deposit accounts, future interest rate levels, and the cost of servicing various depository products. The Company also recorded a trade name intangible asset using relief from the royalty method. The value assigned to the trade name represents the present value of the potential cost savings of paying a royalty for the use of a trade name. Both the core deposit intangible and trade name intangible are being amortized over an estimated useful life of 10 years.
Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of time deposits was calculated as the present value of the certificates’ expected contractual payments discounted by market rates for similar time deposits.
The Company assumed trust preferred subordinate debt with the merger. The fair value of the trust preferred subordinate debt was determined based upon an estimated fair value from an independent investment banking firm.
The amount of revenue derived from CBT since the acquisition date included in the consolidated income statement for the year ended December 31, 2017 was approximately $6,724.
In connection with the acquisition, Riverview incurred merger-related expenses relating to personnel, professional fees, occupancy and equipment and other costs of integrating and conforming acquired operations. Those expenses consisted largely of costs related to professional and consulting services, employment severance and early retirement charges, termination of contractual agreements and conversion of systems and/or integration of operations, initial communication expenses, printing and filing costs of completing the transaction and investment banking charges.
A summary of merger related costs included in the consolidated statements of income for the years ended December 31, 2018 and 2017 are summarized as follows:
| December 31 |
2018 | 2017 | ||||||
| Accounting |
$ | 119 | ||||||
| Legal and consulting |
$ | 49 | 623 | |||||
| Salaries and benefits |
220 | 1,779 | ||||||
| Equipment disposition and contract termination |
3 | 634 | ||||||
| System conversion/deconversion costs |
71 | 368 | ||||||
| Other |
210 | 151 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 553 | $ | 3,674 | ||||
|
|
|
|
|
|||||
Pro Forma Condensed Combined Financial Information:
The following table presents unaudited pro forma information as if the merger between Riverview and CBT had been completed on January 1, 2016. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company merged with CBT at the beginning of 2016. Supplemental pro forma earnings were adjusted to exclude merger related costs. The expected future amortizations of the various fair value adjustments were included beginning in 2016. Cost savings are not reflected in the unaudited pro forma amounts for the periods presented. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions on revenues, expense efficiencies, or other factors.
-65-
| Year ended December 31, |
2017 | |||
| Net interest income after loan loss provision |
$ | 36,187 | ||
| Noninterest income |
7,871 | |||
| Noninterest expense |
39,092 | |||
|
|
|
|||
| Net income |
$ | 4,966 | ||
|
|
|
|||
| Net income per share |
$ | 0.95 | ||
|
|
|
|||
3. Cash and due from banks:
The Bank is required to maintain average reserve balances in cash or on deposit with the Federal Reserve Bank. There was no required reserve at December 31, 2018. The required reserve was $12,336 at December 31, 2017. In addition, the Bank’s other correspondents may require average compensating balances as part of their agreements to provide services. The Bank maintains balances with correspondent banks that may exceed federal insured limits, which management considers to be a normal business risk.
4. Investment securities:
The amortized cost and fair value of investment securities available-for-sale aggregated by investment category at December 31, 2018 and 2017 are summarized as follows:
| December 31, 2018 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
| State and municipals: |
||||||||||||||||
| Taxable |
$ | 34,025 | $ | 145 | $ | 892 | $ | 33,278 | ||||||||
| Tax-exempt |
12,970 | 2 | 196 | 12,776 | ||||||||||||
| Mortgage-backed securities: |
||||||||||||||||
| U.S. Government agencies |
23,715 | 61 | 106 | 23,670 | ||||||||||||
| U.S. Government-sponsored enterprises |
26,635 | 11 | 451 | 26,195 | ||||||||||||
| Corporate debt obligations |
9,515 | 757 | 8,758 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 106,860 | $ | 219 | $ | 2,402 | $ | 104,677 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| December 31, 2017 |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
| State and municipals: |
||||||||||||||||
| Taxable |
$ | 35,352 | $ | 334 | $ | 684 | $ | 35,002 | ||||||||
| Tax-exempt |
16,325 | 47 | 64 | 16,308 | ||||||||||||
| Mortgage-backed securities: |
||||||||||||||||
| U.S. Government agencies |
22,908 | 3 | 94 | 22,817 | ||||||||||||
| U.S. Government-sponsored enterprises |
10,218 | 19 | 148 | 10,089 | ||||||||||||
| Corporate debt obligations |
9,529 | 544 | 8,985 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 94,332 | $ | 403 | $ | 1,534 | $ | 93,201 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The Company had a net unrealized loss of $1,725, net of deferred income taxes of $458 at December 31, 2018, and a net unrealized loss of $893, net of deferred income taxes of $238 at December 31, 2017. Proceeds from the sale of investment securities available-for-sale amounted to $4,825 in 2018. Gross gains of $40 and no gross losses were realized from the sale of securities in 2018. The income tax provision applicable to net realized gains amounted to $8 in 2018. In 2017, proceeds from the sale of investment securities available-for-sale amounted to $18,952, with gross gains of $166 and gross losses of $77 realized from the sale.
-66-
The maturity distribution of the fair value, which is the net carrying amount of the debt securities classified as available-for-sale at December 31, 2018, is summarized as follows:
| December 31, 2018 |
Fair Value |
|||
| Within one year |
$ | 2,283 | ||
| After one but within five years |
4,702 | |||
| After five but within ten years |
13,959 | |||
| After ten years |
33,868 | |||
|
|
|
|||
| 54,812 | ||||
| Mortgage-backed securities |
49,865 | |||
|
|
|
|||
| Total |
$ | 104,677 | ||
|
|
|
|||
Securities with a carrying value of $71,797 and $93,201 at December 31, 2018 and 2017, respectively, were pledged to secure public deposits 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 December 31, 2018 and December 31, 2017, 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 December 31, 2018 and 2017, 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 | ||||||||||||||||||||||
| December 31, 2018 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
| State and municipals: |
||||||||||||||||||||||||
| Taxable |
$ | 2,300 | $ | 4 | $ | 22,943 | $ | 888 | $ | 25,243 | $ | 892 | ||||||||||||
| Tax-exempt |
1,950 | 32 | 9,556 | 164 | 11,506 | 196 | ||||||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||||||||||
| U.S. Government agencies |
7,862 | 66 | 1,216 | 40 | 9,078 | 106 | ||||||||||||||||||
| U.S. Government-sponsored enterprises |
18,110 | 163 | 7,133 | 288 | 25,243 | 451 | ||||||||||||||||||
| Corporate debt obligations |
8,758 | 757 | 8,758 | 757 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 30,222 | $ | 265 | $ | 49,606 | $ | 2,137 | $ | 79,828 | $ | 2,402 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
| December 31, 2017 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
| State and municipals: |
||||||||||||||||||||||||
| Taxable |
$ | 4,757 | $ | 30 | $ | 20,185 | $ | 654 | $ | 24,942 | $ | 684 | ||||||||||||
| Tax-exempt |
10,506 | 64 | 10,506 | 64 | ||||||||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||||||||||
| U.S. Government agencies |
16,746 | 87 | 193 | 7 | 16,939 | 94 | ||||||||||||||||||
| U.S. Government-sponsored enterprises |
4,294 | 23 | 4,174 | 125 | 8,468 | 148 | ||||||||||||||||||
| Corporate debt obligations |
3,800 | 200 | 5,185 | 344 | 8,985 | 544 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
$ | 40,103 | $ | 404 | $ | 29,737 | $ | 1,130 | $ | 69,840 | $ | 1,534 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The Company had 92 investment securities, consisting of 39 taxable state and municipal obligations, 22 tax-exempt municipal obligations, four corporate obligations and 27 mortgage-backed securities that were in unrealized loss positions at December 31, 2018. Of these securities, 35 taxable state and municipal obligations, 19 tax-exempt municipal obligations, four corporate obligations and 13 mortgage-backed securities 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
-67-
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 any of the unrealized losses to be OTTI at December 31, 2018.
The Company had 88 investment securities, consisting of 34 taxable state and municipal obligations, 21 tax-exempt municipal obligations, four corporate obligations and 29 mortgage-backed securities that were in unrealized loss positions at December 31, 2017. Of these securities, 25 taxable state and municipal obligations, two corporate obligations and five mortgage-backed securities were 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 December 31, 2018 and 2017 are summarized as follows. Net deferred loan costs were $1,026 and $863 at December 31, 2018 and 2017, respectively.
| December 31 |
2018 | 2017 | ||||||
| Commercial |
$ | 122,919 | $ | 140,116 | ||||
| Real estate: |
||||||||
| Construction |
39,556 | 34,405 | ||||||
| Commercial |
497,597 | 526,230 | ||||||
| Residential |
221,115 | 240,626 | ||||||
| Consumer |
11,997 | 14,594 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 893,184 | $ | 955,971 | ||||
|
|
|
|
|
|||||
Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $9,555 and $9,465 at December 31, 2018 and 2017, respectively. Advances and repayments during 2018, totaled $1,096 and $1,006, respectively. As a result of the merger, the composition of the individuals considered related parties at December 31, 2017 changed. Loan balances totaling $5,244 were removed for individuals no longer considered related parties and $6,387 was included for individuals added as related parties in 2017. There were no related party loans that were classified as nonaccrual, past due, or restructured or considered a potential credit risk at December 31, 2018 and 2017.
At December 31, 2018, the majority of the Company’s loans were at least partially secured by real estate located in Central and Southwestern Pennsylvania. Therefore, a primary concentration of credit risk is directly related to the real estate market in these areas. Changes in the general economy, local economy or in the real estate market could affect the ultimate collectability of this portion of the loan portfolio. Management does not believe there are any other significant concentrations of credit risk that could affect the loan portfolio.
The changes in the allowance for loan losses account by major classification of loan for the years ended December 31, 2018 and 2017 are summarized as follows:
| Real Estate | ||||||||||||||||||||||||||||
| December 31, 2018 |
Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses: |
||||||||||||||||||||||||||||
| Beginning Balance January 1, 2018 |
$ | 1,206 | $ | 379 | $ | 2,963 | $ | 1,340 | $ | 37 | $ | 381 | $ | 6,306 | ||||||||||||||
| Charge-offs |
(206 | ) | (104 | ) | (437 | ) | (747 | ) | ||||||||||||||||||||
| Recoveries |
11 | 6 | 31 | 126 | 174 | |||||||||||||||||||||||
| Provisions |
151 | 25 | 329 | 19 | 324 | (233 | ) | 615 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance |
$ | 1,162 | $ | 404 | $ | 3,298 | $ | 1,286 | $ | 50 | $ | 148 | $ | 6,348 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Real Estate | ||||||||||||||||||||||||||||
| December 31, 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 |
(43 | ) | (78 | ) | (38 | ) | (58 | ) | (217 | ) | ||||||||||||||||||
| Recoveries |
5 | 10 | 17 | 25 | 57 | |||||||||||||||||||||||
| Provisions |
615 | 297 | 843 | 572 | 26 | $ | 381 | 2,734 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance |
$ | 1,206 | $ | 379 | $ | 2,963 | $ | 1,340 | $ | 37 | $ | 381 | $ | 6,306 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
-68-
The allocation of the allowance for loan losses and the related loans by major classifications of loans at December 31, 2018 and December 31, 2017 is summarized as follows:
| Real Estate | ||||||||||||||||||||||||||||
| December 31, 2018 |
Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses: |
||||||||||||||||||||||||||||
| Ending balance |
$ | 1,162 | $ | 404 | $ | 3,298 | $ | 1,286 | $ | 50 | $ | 148 | $ | 6,348 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: individually evaluated for impairment |
382 | 78 | 28 | 488 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: collectively evaluated for impairment |
780 | 404 | 3,220 | 1,258 | 50 | 148 | 5,860 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: purchased credit impaired loans |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Loans receivable: |
||||||||||||||||||||||||||||
| Ending balance |
$ | 122,919 | $ | 39,556 | $ | 497,597 | $ | 221,115 | $ | 11,997 | $ | $ | 893,184 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: individually evaluated for impairment |
1,249 | 1,643 | 2,146 | 5,038 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: collectively evaluated for impairment |
121,521 | 39,556 | 492,779 | 218,468 | 11,997 | 884,321 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: purchased credit impaired loans |
$ | 149 | $ | $ | 3,175 | $ | 501 | $ | $ | $ | 3,825 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Real Estate | ||||||||||||||||||||||||||||
| December 31, 2017 |
Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||
| Allowance for loan losses: |
||||||||||||||||||||||||||||
| Ending balance |
$ | 1,206 | $ | 379 | $ | 2,963 | $ | 1,340 | $ | 37 | $ | 381 | $ | 6,306 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: individually evaluated for impairment |
56 | 76 | 92 | 224 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: collectively evaluated for impairment |
1,150 | 379 | 2,887 | 1,248 | 37 | 381 | 6,082 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: purchased credit impaired loans |
$ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Loans receivable: |
||||||||||||||||||||||||||||
| Ending balance |
$ | 140,116 | $ | 34,405 | $ | 526,230 | $ | 240,626 | $ | 14,594 | $ | $ | 955,971 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: individually evaluated for impairment |
777 | 2,988 | 2,482 | 6,247 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: collectively evaluated for impairment |
138,824 | 34,405 | 516,300 | 237,089 | 14,594 | 941,212 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Ending balance: purchased credit impaired loans |
$ | 515 | $ | $ | 6,942 | $ | 1,055 | $ | $ | $ | 8,512 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
-69-
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 December 31, 2018 and 2017:
| December 31, 2018 |
Pass | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||
| Commercial |
$ | 109,609 | $ | 9,123 | $ | 4,187 | $ | $ | 122,919 | |||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
39,265 | 291 | 39,556 | |||||||||||||||||
| Commercial |
471,364 | 13,106 | 13,127 | 497,597 | ||||||||||||||||
| Residential |
216,218 | 2,126 | 2,771 | 221,115 | ||||||||||||||||
| Consumer |
11,997 | 11,997 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 848,453 | $ | 24,355 | $ | 20,376 | $ | $ | 893,184 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| December 31, 2017: |
Pass | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||
| Commercial |
$ | 126,506 | $ | 9,372 | $ | 4,238 | $ | $ | 140,116 | |||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
32,840 | 1,442 | 123 | 34,405 | ||||||||||||||||
| Commercial |
497,852 | 15,305 | 13,073 | 526,230 | ||||||||||||||||
| Residential |
234,808 | 2,214 | 3,604 | 240,626 | ||||||||||||||||
| Consumer |
14,474 | 120 | 14,594 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 906,480 | $ | 28,453 | $ | 21,038 | $ | $ | 955,971 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2018 and 2017. PCI loans are excluded from the aging and nonaccrual loan schedules.
| Accrual Loans | ||||||||||||||||||||||||||||
| December 31, 2018 |
30-59 Days Past Due |
60-89 Days Past Due |
90 or More Days Past Due |
Total Past Due |
Current | Nonaccrual Loans |
Total Loans | |||||||||||||||||||||
| Commercial |
$ | 69 | $ | 128 | $ | 82 | $ | 279 | $ | 121,350 | $ | 1,141 | $ | 122,770 | ||||||||||||||
| Real estate: |
||||||||||||||||||||||||||||
| Construction |
11 | 655 | 247 | 913 | 38,643 | 39,556 | ||||||||||||||||||||||
| Commercial |
467 | 538 | 170 | 1,175 | 492,545 | 702 | 494,422 | |||||||||||||||||||||
| Residential |
4,537 | 1,322 | 290 | 6,149 | 213,579 | 886 | 220,614 | |||||||||||||||||||||
| Consumer |
124 | 57 | 50 | 231 | 11,766 | 11,997 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 5,208 | $ | 2,700 | $ | 839 | $ | 8,747 | $ | 877,883 | $ | 2,729 | $ | 889,359 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Purchased credit impaired loans |
3,825 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Total Loans |
$ | 893,184 | ||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Accrual Loans | ||||||||||||||||||||||||||||
| December 31, 2017 |
30-59 Days Past Due |
60-89 Days Past Due |
90 or More Days Past Due |
Total Past Due |
Current | Nonaccrual Loans |
Total Loans | |||||||||||||||||||||
| Commercial |
$ | 1,829 | $ | 85 | $ | 1,914 | $ | 137,612 | $ | 75 | $ | 139,601 | ||||||||||||||||
| Real estate: |
||||||||||||||||||||||||||||
| Construction |
8 | 8 | 34,397 | 34,405 | ||||||||||||||||||||||||
| Commercial |
2,213 | 152 | $ | 150 | 2,515 | 516,410 | 363 | 519,288 | ||||||||||||||||||||
| Residential |
2,110 | 551 | 533 | 3,194 | 235,070 | 1,307 | 239,571 | |||||||||||||||||||||
| Consumer |
149 | 60 | 9 | 218 | 14,376 | 14,594 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 6,309 | $ | 848 | $ | 692 | $ | 7,849 | $ | 937,865 | $ | 1,745 | $ | 947,459 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Purchased credit impaired loans |
8,512 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Total Loans |
$ | 955,971 | ||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
-70-
The following tables summarize information concerning impaired loans including purchase credit impaired loans as of and for the years ended December 31, 2018 and 2017, by major loan classification:
| For the Year Ended | ||||||||||||||||||||
| December 31, 2018 |
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
| With no related allowance: |
||||||||||||||||||||
| Commercial |
$ | 149 | $ | 149 | $ | 459 | $ | 564 | ||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
4,284 | 4,284 | 6,382 | 2,846 | ||||||||||||||||
| Residential |
2,466 | 2,466 | 2,875 | 460 | ||||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
6,899 | 6,899 | 9,716 | 3,870 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| With an allowance recorded: |
||||||||||||||||||||
| Commercial |
1,249 | 1,249 | $ | 382 | 1,117 | 7 | ||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
534 | 534 | 78 | 676 | 17 | |||||||||||||||
| Residential |
181 | 319 | 28 | 184 | 3 | |||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
1,964 | 2,102 | 488 | 1,977 | 27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Commercial |
1,398 | 1,398 | 382 | 1,576 | 571 | |||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
4,818 | 4,818 | 78 | 7,058 | 2,863 | |||||||||||||||
| Residential |
2,647 | 2,785 | 28 | 3,059 | 463 | |||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 8,863 | $ | 9,001 | $ | 488 | $ | 11,693 | $ | 3,897 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| For the Year Ended | ||||||||||||||||||||
| December 31, 2017 |
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
| With no related allowance: |
||||||||||||||||||||
| Commercial |
$ | 1,107 | $ | 1,107 | $ | 1,210 | $ | 77 | ||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
9,399 | 9,399 | 10,164 | 340 | ||||||||||||||||
| Residential |
3,197 | 3,215 | 2,896 | 149 | ||||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
13,703 | 13,721 | 14,270 | 566 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| With an allowance recorded: |
||||||||||||||||||||
| Commercial |
185 | 185 | $ | 56 | 186 | 1 | ||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
531 | 531 | 76 | 532 | 23 | |||||||||||||||
| Residential |
340 | 478 | 92 | 339 | 12 | |||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
1,056 | 1,194 | 224 | 1,057 | 36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Commercial |
1,292 | 1,292 | 56 | 1,396 | 78 | |||||||||||||||
| Real estate: |
||||||||||||||||||||
| Construction |
||||||||||||||||||||
| Commercial |
9,930 | 9,930 | 76 | 10,696 | 363 | |||||||||||||||
| Residential |
3,537 | 3,693 | 92 | 3,235 | 161 | |||||||||||||||
| Consumer |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 14,759 | $ | 14,915 | $ | 224 | $ | 15,327 | $ | 602 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
-71-
For the years ended December 31, interest income, related to impaired loans, would have been $99 in 2018 and $77 in 2017 had the loans been current and the terms of the loans not been modified.
There were no loans modified as troubled debt restructurings for the year ended December 31, 2018. At December 31, 2018, there were 14 restructured loans totaling $2,925. At and for the year ended December 31, 2017, there were two loans modified as troubled debt restructurings and 19 restructured loans totaling $5,606.
The following tables present the number of loans and recorded investment in loans restructured and identified as troubled debt restructurings for the year ended December 31, 2017. Defaulted loans are those which are 30 days or more past due for payment under the modified terms.
| December 31, 2017 |
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post-Modification Outstanding Recorded Investment |
Recorded Investment |
||||||||||||
| Troubled Debt Restructurings: |
||||||||||||||||
| Residential real estate |
2 | $ | 196 | $ | 173 | $ | 128 | |||||||||
During 2018, there were two defaults on loans restructured, totaling $759, and there were five defaults on loans restructured, totaling $697 during 2017.
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 CBT, effective October 1, 2017, the Bank identified 37 purchased credit impaired (“PCI”) loans. As part of the merger with Citizens, effective December 31, 2015, the Bank identified 10 PCI loans. As a result of the consolidation with Union, effective November 1, 2013, the Bank identified 14 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.
-72-
The unpaid principal balances and the related carrying amount of acquired loans as of December 31, 2018 and December 31, 2017 were as follows:
| December 31, 2018 |
December 31, 2017 |
|||||||
| Credit impaired purchased loans evaluated individually for incurred credit losses: |
||||||||
| Outstanding balance |
$ | 7,491 | $ | 16,803 | ||||
| Carrying Amount |
3,825 | 8,512 | ||||||
| Other purchased loans evaluated collectively for incurred credit losses: |
||||||||
| Outstanding balance |
315,013 | 421,620 | ||||||
| Carrying Amount |
314,328 | 418,146 | ||||||
| Total Purchased Loans: |
||||||||
| Outstanding balance |
322,504 | 438,423 | ||||||
| Carrying Amount |
$ | 318,153 | $ | 426,658 | ||||
As of the indicated dates, the changes in the accretable discount related to the purchased credit impaired loans were as follows:
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Balance - beginning of period |
$ | 2,129 | $ | 370 | ||||
| Additions |
2,056 | |||||||
| Accretion recognized during the period |
(3,791 | ) | (297 | ) | ||||
| Net reclassification from non-accretable to accretable |
2,241 | |||||||
|
|
|
|
|
|||||
| Balance - end of period |
$ | 579 | $ | 2,129 | ||||
|
|
|
|
|
|||||
6. Off-balance sheet financial instruments:
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.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, unused portions of lines of credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. We record a valuation allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. The allowance was $73 and $66 at December 31, 2018 and 2017, respectively.
The contractual amounts of off-balance sheet commitments at December 31, 2018 and 2017 are summarized as follows:
| December 31, |
2018 | 2017 | ||||||
| Commitments to extend credit |
$ | 96,431 | $ | 52,706 | ||||
| Unused portions of lines of credit |
59,512 | 72,157 | ||||||
| Standby letters of credit |
5,789 | 4,871 | ||||||
|
|
|
|
|
|||||
| $ | 161,732 | $ | 129,734 | |||||
|
|
|
|
|
|||||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.
-73-
Unused portions of lines of credit, including home equity and overdraft protection agreements, are commitments for possible future extensions of credit to existing customers. Unused portions of home equity lines are collateralized and generally have fixed expiration dates. Overdraft protection agreements are uncollateralized and usually do not carry specific maturity dates. Unused portions of lines of credit ultimately may not be drawn upon to the total extent to which the Company is committed.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all standby letters of credit expire within twelve months. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral supporting these standby letters of credit as deemed necessary. The carrying value of the liability for the Company’s obligations under guarantees for standby letters of credit was not material at December 31, 2018 and 2017.
7. Premises and equipment, net:
Premises and equipment at December 31, 2018 and 2017 are summarized as follows:
| December 31 |
2018 | 2017 | ||||||
| Land |
$ | 4,361 | $ | 4,561 | ||||
| Premises and leasehold improvements |
15,261 | 14,303 | ||||||
| Furniture, fixtures and equipment |
6,073 | 6,054 | ||||||
|
|
|
|
|
|||||
| 25,695 | 24,918 | |||||||
| Less: accumulated depreciation |
7,487 | 6,287 | ||||||
|
|
|
|
|
|||||
| $ | 18,208 | $ | 18,631 | |||||
|
|
|
|
|
|||||
Depreciation and amortization included in noninterest expense amounted to $1,219 and $702 in 2018 and 2017, respectively.
Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2018, pertaining to banking premises and equipment, future minimum annual rent commitments under various operating leases are summarized as follows:
| 2019 |
$ | 536 | ||
| 2020 |
505 | |||
| 2021 |
443 | |||
| 2022 |
360 | |||
| 2023 |
219 | |||
| Thereafter |
$ | 582 | ||
|
|
|
|||
| $ | 2,645 | |||
|
|
|
The leases contain options to extend for periods from one to ten years. The cost of such options is not included in the annual rental commitments. Rent expense for the years ended December 31, 2018 and 2017 amounted to $522 and $488, respectively.
8. Intangible assets, net:
The gross carrying amount and accumulated amortization related to intangible assets at December 31, 2018 and 2017 are presented below:
| 2018 | 2017 | |||||||||||||||
| December 31 |
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
||||||||||||
| Core deposit intangibles |
$ | 4,558 | $ | 1,667 | $ | 4,558 | $ | 968 | ||||||||
| Customer list intangible |
1,082 | 541 | 1,164 | 475 | ||||||||||||
| Non-compete intangible |
39 | 39 | ||||||||||||||
| Trade name intangibles |
102 | 25 | 102 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total intangible assets |
$ | 5,742 | $ | 2,233 | $ | 5,863 | $ | 1,487 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Amortization expense for intangible assets totaled $867 and $538 for the years ended 2018 and 2017, respectively.
-74-
Riverview estimates the amortization expense for amortizable intangibles as follows:
| 2019 |
$ | 773 | ||
| 2020 |
676 | |||
| 2021 |
581 | |||
| 2022 |
479 | |||
| 2023 |
370 | |||
| Thereafter |
630 | |||
|
|
|
|||
| $ | 3,509 | |||
|
|
|
9. Other assets:
The components of other assets at December 31, 2018 and 2017 are summarized as follows:
| December 31 |
2018 | 2017 | ||||||
| Other real estate owned |
$ | 721 | $ | 236 | ||||
| Bank owned life insurance |
29,862 | 29,065 | ||||||
| Restricted equity securities |
1,054 | 1,306 | ||||||
| Deferred tax assets |
5,884 | 7,949 | ||||||
| Other assets |
4,635 | 5,147 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 42,156 | $ | 43,703 | ||||
|
|
|
|
|
|||||
10. Deposits:
The major components of interest-bearing and noninterest-bearing deposits at December 31, 2018 and 2017 are summarized as follows:
| December 31 |
2018 | 2017 | ||||||
| Interest-bearing deposits: |
||||||||
| Money market accounts |
$ | 113,220 | $ | 135,747 | ||||
| Now accounts |
286,082 | 238,609 | ||||||
| Savings accounts |
128,762 | 189,044 | ||||||
| Time deposits |
313,955 | 307,185 | ||||||
|
|
|
|
|
|||||
| Total interest-bearing deposits |
842,019 | 870,585 | ||||||
| Noninterest-bearing deposits |
162,574 | 155,895 | ||||||
|
|
|
|
|
|||||
| Total deposits |
$ | 1,004,593 | $ | 1,026,480 | ||||
|
|
|
|
|
|||||
The aggregate amount of time deposits that met or exceeded the FDIC insurance limit of $250 was $33,044 at December 31, 2018 and $35,182 at December 31, 2017.
The aggregate amounts of maturities for all time deposits at December 31, 2018, are summarized as follows:
| 2019 |
$ | 106,488 | ||
| 2020 |
78,909 | |||
| 2021 |
58,023 | |||
| 2022 |
41,203 | |||
| 2023 |
21,623 | |||
| Thereafter |
7,709 | |||
|
|
|
|||
| $ | 313,955 | |||
|
|
|
Deposits of directors, executive officers, principal stockholders or their affiliates are accepted on the same terms and at the prevailing interest rates offered at the time of deposit for comparable transactions with unrelated parties. The amount of related party deposits totaled $1,476 at December 31, 2018 and $3,578 at December 31, 2017.
-75-
The aggregate amount of deposits reclassified as loans was $169 at December 31, 2018, and $145 at December 31, 2017. Management evaluates transaction accounts that are overdrawn for collectability as part of its evaluation for credit losses. During 2018 and 2017, no deposits were received on terms other than those available in the normal course of business.
11. Short-term borrowings:
Short-term borrowings consisting of FHLB-Pgh and ACBB generally represent overnight or less than 30-day borrowings at December 31, 2018 and 2017 are summarized as follows:
| At and for the year ended December 31, 2018 | ||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||
| Maximum | Average | Average | ||||||||||||||||||
| Ending | Average | Month-End | Rate for | Rate at End | ||||||||||||||||
| Balance | Balance | Balance | the Year | of the Year | ||||||||||||||||
| FHLB-Pgh Open Repo Plus advances |
$ | $ | 1,693 | $ | 17,100 | 1.65 | % | |||||||||||||
| ACBB advances |
106 | 3,394 | 1.89 | % | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | $ | 1,799 | $ | 20,494 | 1.67 | % | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| At and for the year ended December 31, 2017 | ||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||
| Maximum | Average | Average | ||||||||||||||||||
| Ending | Average | Month-End | Rate for | Rate at End | ||||||||||||||||
| Balance | Balance | Balance | the Year | of the Year | ||||||||||||||||
| FHLB-Pgh Open Repo Plus advances |
$ | 6,000 | $ | 18,957 | $ | 43,000 | 1.20 | % | 1.54 | % | ||||||||||
| ACBB advances |
149 | 1.34 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 6,000 | $ | 19,106 | $ | 43,000 | 1.20 | % | 1.54 | % | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
The Bank has an agreement with the FHLB-Pgh which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At December 31, 2018, the Bank’s maximum borrowing capacity was $419,307, of which $39,200 was outstanding in borrowings. Advances with the FHLB-Pgh are secured under terms of a blanket collateral agreement by a pledge of FHLB-Pgh stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB-Pgh advances based on rates of the FHLB-Pgh discount notes. This rate resets each day.
The Bank also has an unsecured line of credit agreement with ACBB, where the line amount was $10,000 at December 31, 2018 and December 31, 2017. There were no amounts outstanding on this line of credit at December 31, 2018 and 2017. Interest on this borrowing accrues daily based on the daily federal funds rate.
12. Long-term debt:
Long-term debt consisting of the following advances at December 31, 2018 and 2017 are as follows:
| Interest Rate | ||||||||||||||||||||
| Loan Type |
Due | Fixed | Adjustable | 2018 | 2017 | |||||||||||||||
| Unsecured term loan |
March 3, 2031 | 4.25 | % | $ | 1,823 | |||||||||||||||
| Unsecured non-revolving line |
March 3, 2031 | 4.25 | % | 318 | ||||||||||||||||
| March 3, 2031 | 4.25 | % | 1,818 | |||||||||||||||||
| April 3, 2031 | 4.25 | % | 1,874 | |||||||||||||||||
| June 3, 2032 | 4.50 | % | 582 | |||||||||||||||||
| Subordinated debt |
September 17, 2033 | 5.74 | % | $ | 4,195 | 4,164 | ||||||||||||||
| September 15, 2035 | 4.33 | % | 2,697 | 2,654 | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||
| $ | 6,892 | $ | 13,233 | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||
-76-
Maturities of long-term debt, by contractual maturity, in years subsequent to December 31, 2018 are as follows:
| 2019 |
||||
| 2020 |
||||
| 2021 |
||||
| 2022 |
||||
| 2023 |
||||
| Thereafter |
$ | 6,892 | ||
|
|
|
|||
| $ | 6,892 | |||
|
|
|
The $2,000 unsecured term loan agreement with a local bank, due March 3, 2031, was fixed at 3.25% until March 3, 2016, and thereafter, adjusted every three years and indexed to the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years, plus 3%, with a floor of 4.25%. Interest is payable monthly for a period of 18 months until March 3, 2016, and thereafter, 180 monthly payments of principal and interest in an amount sufficient to fully amortize the balance of the loan over 15 years. This unsecured term loan was paid off without prepayment penalty on December 21, 2018.
The $5,000 unsecured, non-revolving line of credit with a local bank consisted of four separate draws of $350, $2,000, $2,050 and $600. The aggregate outstanding balance of the line was $4,592 at December 31, 2017. The maximum term of the facility is 42 months consisting of a non-revolving draw period followed by a principal repayment term. The interest was fixed at 3.99% until January 11, 2016. Thereafter, the interest rate will be adjusted every three years and indexed to the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years, plus 3%, rounded up to the nearest 0.125%, with a floor of 4.50% until July 11, 2016, and then a floor of 4.25% thereafter. Each advance required 180 monthly payments of principal including interest in an amount sufficient to fully amortize the balance of the loan over the term of the loan. This unsecured line of credit was paid off without prepayment penalty on December 21, 2018.
As a result of the merger with CBT, the Company assumed the subordinated debentures that were recorded as of the October 1, 2017 effective date. A trust formed by CBT Financial issued $5,000 of floating rate trust preferred securities in 2003 as part of a pooled offering of such securities. The interest rate adjusts quarterly to the three-month LIBOR rate plus 2.95%. CBT Financial issued subordinated debentures to the trust in exchange for ownership of all of the common securities of the trust and the proceeds of the offering; the debentures represent the sole asset of the trust. CBT Financial became eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2008 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2033. The interest rate on the subordinated debentures was 5.74% and 4.55% on December 31, 2018 and 2017.
In 2005 a trust formed by CBT Financial issued $4,000 of fixed rate trust preferred securities as part of a pooled offering of such securities. CBT Financial issued subordinated debentures to the trust in exchange for ownership of all of the common securities of the trust and the proceeds of the offering; the debentures represent the sole asset of the trust. CBT Financial became eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2010 at a price of 100% of face value. CBT Financial did not redeem the subordinated debentures and the rate converted to a floating rate of three-month LIBOR plus 1.54%. The subordinated debentures must be redeemed no later than 2035. The interest rate on the subordinated debentures was 4.33% and 3.13% on December 31, 2018 and 2017.
Interest payments on the debentures may be deferred at any time at the election of the Company for up to 20 consecutive quarterly periods (5 years). Interest on the debentures will accrue during the extension period, and all accrued principal and interest must be paid at the end of the extension period. During an extension period, the Company may not declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to any of the Company’s capital stock.
-77-
13. Fair value of financial instruments:
Assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017 are summarized as follows:
| Fair Value Measurement Using | ||||||||||||||||
| December 31, 2018 |
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 |
$ | 33,278 | $ | 33,278 | ||||||||||||
| Tax-exempt |
12,776 | 12,776 | ||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||
| U.S. Government agencies |
23,670 | 23,670 | ||||||||||||||
| U.S. Government-sponsored enterprises |
26,195 | 26,195 | ||||||||||||||
| Corporate debt obligations |
8,758 | 8,758 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 104,677 | $ | $ | 104,677 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Fair Value Measurement Using | ||||||||||||||||
| December 31, 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 |
$ | 35,002 | $ | 35,002 | ||||||||||||
| Tax-exempt |
16,308 | 16,308 | ||||||||||||||
| Mortgage-backed securities: |
||||||||||||||||
| U.S. Government agencies |
22,817 | 22,817 | ||||||||||||||
| U.S. Government-sponsored enterprises |
10,089 | 10,089 | ||||||||||||||
| Corporate debt obligations |
8,985 | 8,985 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 93,201 | $ | $ | 93,201 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017 are summarized as follows:
| Fair Value Measurement Using | ||||||||||||||||
| December 31, 2018 |
Amount | (Level 1) Quoted Prices in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
| Other real estate owned |
$ | 721 | $ | 721 | ||||||||||||
| Impaired loans, net of related allowance |
1,476 | 1,476 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,197 | $ | 2,197 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Fair Value Measurement Using | ||||||||||||||||
| December 31, 2017 |
Amount | (Level 1) Quoted Prices in Active Markets for Identical Assets |
(Level 2) Significant Other Observable Inputs |
(Level 3) Significant Unobservable Inputs |
||||||||||||
| Other real estate owned |
$ | 236 | $ | 236 | ||||||||||||
| Impaired loans, net of related allowance |
832 | 832 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 1,068 | $ | 1,068 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
-78-
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||
| December 31, 2018 |
Fair Value Estimate |
Valuation Techniques |
Unobservable Input |
Range (Weighted Average) | ||||||||
| Other real estate owned |
$ | 721 | Appraisal of collateral | Appraisal adjustments | 0.0% to 69.0% (28.4)% | |||||||
| Liquidation expenses | 0.0% to 7.0% (7.0)% | |||||||||||
| Impaired loans |
$ |
1,476 |
|
Appraisal of collateral | Appraisal adjustments | 0.0% to 0.0% (0.0)% | ||||||
| Liquidation expenses | 7.0% to 25.0% (10.3)% | |||||||||||
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||
| December 31, 2017 |
Fair Value Estimate |
Valuation Techniques |
Unobservable Input |
Range (Weighted Average) | ||||||||
| Other real estate owned |
$ | 236 | Appraisal of collateral | Appraisal adjustments | 0.0% to 69.0% (39.0)% | |||||||
| Liquidation expenses | 0.0% to 7.0% (7.0)% | |||||||||||
| Impaired loans |
$ | 832 | Appraisal of collateral | Appraisal adjustments | 0.0% to 0.0% (0.0)% | |||||||
| Liquidation expenses | 0.0% to 7.0% (7.0)% | |||||||||||
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 December 31, 2018 and 2017 and their placement within the fair value hierarchy are as follows:
| Fair Value Hierarchy | ||||||||||||||||||||
| December 31, 2018 |
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 |
$ | 53,816 | $ | 53,816 | $ | 53,816 | ||||||||||||||
| Investment securities available-for-sale |
104,677 | 104,677 | $ | 104,677 | ||||||||||||||||
| Loans held for sale |
637 | 637 | 637 | |||||||||||||||||
| Net loans |
886,836 | 872,455 | $ | 872,455 | ||||||||||||||||
| Accrued interest receivable |
3,010 | 3,010 | 663 | 2,347 | ||||||||||||||||
| Restricted equity securities |
1,054 | 1,054 | 1,054 | |||||||||||||||||
| Financial liabilities: |
||||||||||||||||||||
| Deposits |
$ | 1,004,593 | $ | 999,929 | $ | 999,929 | ||||||||||||||
| Long-term borrowings |
6,892 | 6,892 | 6,892 | |||||||||||||||||
| Accrued interest payable |
484 | 484 | 484 | |||||||||||||||||
-79-
| Fair Value Hierarchy | ||||||||||||||||||||
| December 31, 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 |
$ | 25,786 | $ | 25,786 | $ | 25,786 | ||||||||||||||
| Investment securities available-for-sale |
93,201 | 93,201 | $ | 93,201 | ||||||||||||||||
| Loans held for sale |
254 | 254 | 254 | |||||||||||||||||
| Net loans |
949,665 | 954,876 | $ | 954,876 | ||||||||||||||||
| Accrued interest receivable |
3,237 | 3,237 | 640 | 2,597 | ||||||||||||||||
| Restricted equity securities |
1,306 | 1,306 | 1,306 | |||||||||||||||||
| Financial liabilities: |
||||||||||||||||||||
| Deposits |
$ | 1,026,480 | $ | 1,022,068 | $ | 1,022,068 | ||||||||||||||
| Short-term borrowings |
6,000 | 6,000 | 6,000 | |||||||||||||||||
| Long-term borrowings |
13,233 | 14,634 | 14,634 | |||||||||||||||||
| Accrued interest payable |
468 | 468 | 468 | |||||||||||||||||
14. Revenue recognition:
On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 1 Summary of Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and other fees. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.
Service Charges, Fees and Commissions
Service charges on deposit accounts consist of monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. Such income is presented net of network expenses as the Company acts as an agent in these transactions. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Other noninterest income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, investment advisor fees from wealth management products, safety deposit box rental fees, and other miscellaneous revenue streams. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees or trailers from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. Investment advisor fees from wealth management products is earned over time and based on an annual percentage rate of the net asset value. The investment advisor fees are charged to the customer’s account in advance on the first month
-80-
of the quarter, and the revenue is recognized over the following three-month period. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.
Trust and Asset Management
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2018 and 2017.
| Year Ended December 31 |
2018 | 2017 | ||||||
| Noninterest Income: |
||||||||
| In-scope of Topic 606: |
||||||||
| Service charges, fees and commissions |
$ | 5,697 | $ | 2,037 | ||||
| Trust and asset management |
1,726 | 1,176 | ||||||
|
|
|
|
|
|||||
| Noninterest income (in-scope of Topic 606) |
7,423 | 3,213 | ||||||
| Noninterest income (out-of-scope of Topic 606) |
1,457 | 1,198 | ||||||
|
|
|
|
|
|||||
| Total noninterest income |
$ | 8,880 | $ | 4,411 | ||||
|
|
|
|
|
|||||
Contract Balances
A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration, resulting in a contract receivable, or before payment is due, resulting in a contract asset. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2018 and 2017, the Company did not have any significant contract balances.
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained, for example, sales commission. The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.
15. Employee Benefit Plans:
Defined Contribution Plan:
The Bank maintains a contributory 401(k) retirement plan for all eligible employees. Currently, the Bank’s policy is to match 100% of the employee’s voluntary contribution to the plan up to a maximum of 4% of the employees’ compensation. Additionally, the Bank may make discretionary contributions to the plan after considering current profits and business conditions. The amount charged to expense in 2018 and 2017 totaled $508 and $328, respectively. Of these amounts, no discretionary contributions were made in 2018 and 2017.
-81-
Director Emeritus Plan:
Effective November 2, 2011, a Director Emeritus Agreement (the “Agreement”) was entered into by and between the Company, the Bank and certain Directors. In order to promote orderly succession of the Company’s and Bank’s Board of Directors, the Agreement defines the benefits the Company is willing to provide upon the termination of service to those individuals who served as Directors of the Company and Bank as of December 31, 2011, where the Company will pay the Director $15 per year for services performed as a Director Emeritus, which may be increased at the sole discretion of the Board of Directors. The agreement further states that the benefit is to be paid to a Director Emeritus over five years, in 12 monthly installments:
| • | upon termination of service as a Director on or after the age of 65, provided the Director agrees to provide certain ongoing services for Riverview; |
| • | upon termination of service as a Director due to a disability prior to age 65; |
| • | upon a change of control; or |
| • | upon the death of a Director after electing to be a Director Emeritus. |
Expenses recorded under the terms of this agreement were $83 and $38 for the years ended December 31, 2018 and 2017, respectively.
Deferred Compensation Agreements:
The Bank maintains 12 Supplemental Executive Retirement Plan (“SERP”) agreements that provide specified benefits to certain key executives. The agreements were specifically designed to encourage key executives to remain as employees of the Bank. The agreements are unfunded, with benefits to be paid from the Bank’s general assets. After normal retirement, benefits are payable to the executive or his/her beneficiary in equal monthly installments for a period of 15 years for nine of the executives and 20 years for three of the executives. There are provisions for death benefits should a participant die before his/her retirement date. These benefits are also subject to change of control and other provisions.
The Bank maintains a “Director Deferred Fee Agreement” (“DDFA”) which allows electing directors to defer payment of their directors’ fees until a future date. In addition, the Bank maintains an “Executive Deferred Compensation Agreement” (“EDCA”) with 12 of its current and former executives. This agreement allows the executives of the Bank to defer payment of their base salary, bonus and performance-based compensation until a future date. For both types of deferred fee agreements during the deferral period, the estimated present value of the future benefits is accrued over the effective dates of the agreements using an interest factor that is evaluated and approved by the compensation committee of the Board of Directors on an annual basis. The agreements are unfunded, with benefits to be paid from the Bank’s general assets.
The accrued benefit obligations for all the plans total $4,749 at December 31, 2018 and $4,460 at December 31, 2017 and are included in other liabilities. Expenses relating to these plans totaled $332 and $240 in the years ended December 31, 2018 and 2017, respectively.
Stock Option Plan:
The Company has a nonqualified stock option plan to advance the development, growth and financial condition of the Company. This plan provides incentives through participation in the appreciation of its common stock in order to secure, retain and motivate directors, officers and key employees and align such person’s interests with those of its shareholders. A total of 350,000 shares were originally authorized under the stock option plan.
The vesting schedule for all option grants is a seven-year cliff, which means that the options are 100% vested in the seventh year following the grant date while the expiration date of all options is ten years following the grant date. The Plan states that upon the date of death of a participant, all awards granted pursuant to the agreement for that participant shall become fully vested and remain exercisable for the option grant’s remaining term. All stock options, except for 6,500 stock options granted during 2018, were fully vested and exercisable at December 31, 2018.
-82-
The following table summarizes the stock option activity for the years ended December 31, 2018 and 2017:
| 2018 | 2017 | |||||||||||||||
| Option Grants |
Weighted Average Exercise Price |
Option Grants |
Weighted Average Exercise Price |
|||||||||||||
| Outstanding – January 1, 2018 |
298,246 | $ | 10.56 | 321,079 | $ | 10.47 | ||||||||||
| Granted |
6,500 | 12.88 | 20,000 | 11.94 | ||||||||||||
| Forfeited |
(5,750 | ) | 10.60 | (4,000 | ) | 10.00 | ||||||||||
| Exercised |
(35,516 | ) | 10.57 | (38,833 | ) | 10.59 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Outstanding – December 31, 2018 |
263,480 | $ | 10.62 | 298,246 | $ | 10.56 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Options vested and exercisable at year-end |
256,980 | 298,246 | ||||||||||||||
| Range of exercise price |
$ | 9.75 - $13.05 | $ | 9.75 - $13.05 | ||||||||||||
| Remaining contractual life |
4.06 years | 4.72 years | ||||||||||||||
The fair value of options granted during 2018 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions.
| Option Grants March 16, 2018 |
Option Grants June 26, 2018 |
|||||||
| Number of options |
5,000 | 1,500 | ||||||
| Fair value per share |
$ | 2.01 | $ | 1.39 | ||||
| Dividend yield |
4.24 | % | 3.28 | % | ||||
| Expected life |
8.5 years | 8.5 years | ||||||
| Expected volatility |
23.26 | % | 14.02 | % | ||||
| Risk-free interest rate |
2.78 | % | 2.83 | % | ||||
During the year ended December 31, 2018, there were 35,516 stock options exercised with a total intrinsic value (the amount by which the stock price exceeded the exercise price) and fair value of approximately $115 and $490, respectively. Cash received from the exercise of stock options for the year ended December 31, 2018 was $55.
There was intrinsic value associated with 220,130 options outstanding at December 31, 2018, where the market value of the stock as of the close of business at year end was $10.90 per share as compared with the option exercise price of $9.75 for 26,830 options, $10.00 for 92,800 options, $10.35 for 12,500 options and $10.60 for 88,000 options. There was no intrinsic value associated with 43,350 options outstanding at December 31, 2018, where the market value of the stock as of the close of business at year end was $10.90 per share as compared with the option exercise price of $12.25 for 2,500 options, $13.05 for 19,350 options, $11.94 for 15,000 options, $12.97 for 5,000 options and $12.58 for 1,500 options
At December 31, 2017, there was intrinsic value associated with 298,246 options outstanding, where the market value of the stock as of the close of business at year end was $13.15 per share as compared with the option exercise price of $10.60 for 113,500 options, $10.35 for 12,500 options, $9.75 for 31,996 options, $10.00 for 98,400 options, $12.25 for 2,500 options, $13.05 for 19,350 options and $11.94 for 20,000 options.
The Company accounts for these options in accordance with GAAP, which requires that the fair value of the equity awards be recognized as compensation expense over the period during which the employee is required to provide service in exchange for such an award. The Company policy has been to amortize compensation expense over the vesting period, or seven years. The Company recognized $9 and $203 of compensation expense for stock options in the years ended December 31, 2018 and 2017. As of December 31, 2018, the Company had no unrecognized compensation expense associated with the stock options since all of the options granted prior to 2018 were fully vested in 2017 as a result of the change in control associated with the merger with CBT, which in turn caused compensation expense to be higher in 2017 as compared with 2018.
Employee Stock Purchase Plan:
The Company has an Employee Stock Purchase Plan (“ESPP”), whereby employees may purchase up to 170,000 shares of common stock of the Company, at a discount of up to a 15%. On April 15, 2015, the Company filed a Registration Statement on Form S-8, to register 75,000 shares of common stock that the Company may issue to the ESPP. Common shares acquired through the ESPP totaled 18,650 shares in 2018 and 11,301 shares in 2017.
-83-
Defined Benefit Pension Plan and Post Retirement Benefit Plan:
As a result of the consolidation with Union, the Company took over Union’s noncontributory defined benefit pension plan, which substantially covered all Union employees. The plan benefits were based on average salary and years of service. Union elected to freeze all benefits earned under the plan effective January 1, 2007.
The Company also assumed responsibility of Citizens’ noncontributory defined benefit pension plan effective as of the December 31, 2015 merger date. The plan substantially covered all Citizens employees and the plan benefits were based on average salary and years of service. Citizens elected to freeze all benefits earned under the plan effective January 1, 2013.
As a result of the merger of equals effective October 1, 2017, the Company assumed responsibility of CBT’s postretirement benefits plan, which is an unfunded postretirement benefit plan covering health insurance costs and postretirement life insurance benefits for certain retirees.
The Company accounts for the defined benefit pension plan and the postretirement benefits plan in accordance with FASB ASC Topic 715, “Compensation-Retirement Plans”. This guidance requires the Company to recognize the funded status, which is the difference between the fair value of the plan assets and the projected benefit obligation of the benefit plan.
The following table presents the plans’ funded status and the amounts recognized in the Company’s consolidated financial statements for 2018 and 2017. The measurement date, for purposes of these valuations, was December 31, 2018 and 2017.
| Benefit Plans | ||||||||
| 2018 | 2017 | |||||||
| Obligations and funded status: |
||||||||
| Change in benefit obligations: |
||||||||
| Benefit obligation beginning January 1, |
$ | 8,403 | $ | 8,002 | ||||
| Interest cost |
291 | 322 | ||||||
| Benefits paid |
(546 | ) | (535 | ) | ||||
| Assumption of CBT obligation |
154 | |||||||
| Change due to plan amendment |
(95 | ) | ||||||
| Actuarial (gain)/loss |
(479 | ) | 555 | |||||
|
|
|
|
|
|||||
| Benefit obligation at end of year |
7,669 | 8,403 | ||||||
| Change in plan assets: |
||||||||
| Fair value of plan assets at January 1, |
7,191 | 6,723 | ||||||
| Adjustment to asset value at January 1 |
||||||||
| Actual return on plan assets |
(349 | ) | 807 | |||||
| Contributions |
8 | 193 | ||||||
| Benefits paid |
(540 | ) | (532 | ) | ||||
|
|
|
|
|
|||||
| Fair value of plan assets at end of year |
6,310 | 7,191 | ||||||
|
|
|
|
|
|||||
| Funded status included in other liabilities |
$ | (1,359) | $ | (1,212) | ||||
|
|
|
|
|
|||||
Amounts related to the plan that have been recognized in accumulated other comprehensive loss but not yet recognized as a component of net periodic pension cost are as follows for the years ended December 31:
| Benefit Plans | ||||||||
| 2018 | 2017 | |||||||
| Net gain (loss) |
$ | (1,132) | $ | (869 | ) | |||
| Income tax expense (benefit) |
(238 | ) | (183 | ) | ||||
|
|
|
|
|
|||||
| Net amount recognized in other comprehensive income (loss) |
$ | (894) | $ | (686 | ) | |||
|
|
|
|
|
|||||
The amount of net actuarial cost expected to be amortized in 2019 is $17 for the pension plans.
-84-
Net periodic pension expense and postretirement benefit cost include the following components for the years ended December 31:
| Pension Benefits | ||||||||
| 2018 | 2017 | |||||||
| Interest cost |
$ | 291 | $ | 322 | ||||
| Expected return on plan assets |
(486 | ) | (456 | ) | ||||
| Amortization of net loss |
81 | 49 | ||||||
|
|
|
|
|
|||||
| Net periodic pension cost (credit) |
$ | (114 | ) | $ | (85) | |||
|
|
|
|
|
|||||
| Postretirement Life Insurance Benefits |
||||||||
| 2018 | 2017 | |||||||
| Service cost |
$ | $ | 1 | |||||
| Interest cost |
2 | 1 | ||||||
|
|
|
|
|
|||||
| Net periodic postretirement benefit cost (credit) |
$ | 2 | $ | 2 | ||||
|
|
|
|
|
|||||
The accumulated benefit obligation was $7,669 at December 31, 2018 and $8,403 at December 31, 2017 for the pension benefit and postretirement benefit plans.
| Pension Benefits | ||||||||||||||||||||||||
| Union | Citizens | Postretirement Life Insurance Benefits |
||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
| Discount rate |
3.60 | % | 4.14 | % | 3.60 | % | 4.14 | % | 4.25 | % | 3.75 | % | ||||||||||||
| Expected long-term rate of return on plan assets |
7.00 | % | 7.00 | % | 7.00 | % | 7.00 | % | ||||||||||||||||
The following summarizes the actuarial assumptions used for the Company’s pension plan and postretirement benefits plan:
| • | For the pension plan, the selected long-term rate of return on plan assets was primarily based on the asset allocation of the plan’s assets. Analysis of the historic returns on these asset classes and projections of expected future returns were considered in setting the long-term rate of return. |
| • | The benefit offered under the postretirement benefits plan is fixed; therefore, the accumulated postretirement benefit obligation is not impacted by health care cost trends or the rate of compensation increase. |
-85-
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
| Pension Benefits |
Postretirement Life Insurance Benefits |
|||||||
| 2019 |
$ | 528 | $ | 5 | ||||
| 2020 |
522 | 5 | ||||||
| 2021 |
513 | 5 | ||||||
| 2022 |
513 | 4 | ||||||
| 2023 |
502 | 4 | ||||||
| 2024 – 2028 |
2,362 | 16 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 4,940 | $ | 39 | ||||
|
|
|
|
|
|||||
The Company’s pension plan asset allocations as of the year ends, by asset category, are as follows:
| Pension Benefits | ||||||||
| 2018 | 2017 | |||||||
| Cash and cash equivalents |
0.70 | % | 0.76 | % | ||||
| Equity |
34.53 | 40.19 | ||||||
| Fixed income |
64.77 | 59.05 | ||||||
|
|
|
|
|
|||||
| Total |
100.00 | % | 100.00 | % | ||||
|
|
|
|
|
|||||
The fair value of the pension plan assets at December 31, 2018 and 2017 by asset category are as follows:
| 2018 | ||||||||||||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
| Cash and cash equivalents |
$ | 44 | $ | 44 | ||||||||||||
| Mutual fund – equity: |
||||||||||||||||
| Large-cap value |
233 | 233 | ||||||||||||||
| Large-cap core |
237 | 237 | ||||||||||||||
| Mid-cap core |
261 | 261 | ||||||||||||||
| Small-cap core |
115 | 115 | ||||||||||||||
| International growth |
461 | 461 | ||||||||||||||
| Large cap growth |
485 | 485 | ||||||||||||||
| Small / midcap growth |
141 | 141 | ||||||||||||||
| Mutual funds/ETFs – fixed income: |
||||||||||||||||
| Fixed income – core plus |
1,443 | 1,443 | ||||||||||||||
| Intermediate duration |
483 | 483 | ||||||||||||||
| Long duration – Government credit |
1,555 | 1,555 | ||||||||||||||
| Long U.S. Treasury - ETF |
606 | 606 | ||||||||||||||
| Common /collective trusts – equity: |
||||||||||||||||
| Large cap value |
246 | $ | 246 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 6,310 | $ | 6,064 | $ | 246 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
-86-
| 2017 | ||||||||||||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
| Cash and cash equivalents |
$ | 55 | $ | 55 | ||||||||||||
| Mutual fund – equity: |
||||||||||||||||
| Large-cap value |
297 | 297 | ||||||||||||||
| Large-cap core |
302 | 302 | ||||||||||||||
| Mid-cap core |
348 | 348 | ||||||||||||||
| Small-cap core |
166 | 166 | ||||||||||||||
| International growth |
656 | 656 | ||||||||||||||
| Large cap growth |
634 | 634 | ||||||||||||||
| Small / midcap growth |
184 | 184 | ||||||||||||||
| Mutual funds/ETFs – fixed income: |
||||||||||||||||
| Fixed income – core plus |
1,483 | 1,483 | ||||||||||||||
| Intermediate duration |
501 | 501 | ||||||||||||||
| Long duration – Government credit |
1,632 | 1,632 | ||||||||||||||
| Long U.S. Treasury - ETF |
630 | 630 | ||||||||||||||
| Common /collective trusts – equity: |
||||||||||||||||
| Large cap value |
303 | $ | 303 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 7,191 | $ | 6,888 | $ | 303 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The valuation used is based on quoted market prices provided by an independent third party.
The Company does not expect to contribute to either of the plans in 2019.
16. Income taxes:
The current and deferred amounts of the provision for income taxes expense (benefit) for each of the years ended December 31, 2018 and 2017 are summarized as follows:
| Year Ended December 31 |
2018 | 2017 | ||||||
| Current |
$ | 31 | $ | |||||
| Deferred |
2,340 | 3,501 | ||||||
|
|
|
|
|
|||||
| $ 2.371 | $ 3,501 | |||||||
|
|
|
|
|
|||||
The components of the net deferred tax asset at December 31, 2018 and 2017 are summarized as follows:
| December 31 |
2018 | 2017 | ||||||
| Deferred tax assets: |
||||||||
| Allowance for loan losses |
$ | 1,121 | $ | 991 | ||||
| Deferred compensation |
1,007 | 949 | ||||||
| Purchase accounting adjustments |
827 | 1,863 | ||||||
| Alternate minimum tax credit carryforwards |
608 | 608 | ||||||
| Benefit plans |
238 | 183 | ||||||
| Accrued expenses |
242 | 231 | ||||||
| Unrealized loss on investment securities available-for-sale |
458 | 238 | ||||||
| Low income housing credit carryforwards |
1,063 | 1,063 | ||||||
| Net operating loss carryforwards |
761 | 1,827 | ||||||
| Other |
133 | 571 | ||||||
|
|
|
|
|
|||||
| Total |
6,458 | 8,524 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Premises and equipment, net |
(574 | ) | (575 | ) | ||||
|
|
|
|
|
|||||
| Total |
(574 | ) | (575 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax asset |
$ | 5,884 | $ | 7,949 | ||||
|
|
|
|
|
|||||
-87-
Management believes that future taxable income will be sufficient to utilize deferred tax assets. Core earnings of the Company will continue to support the recognition of the deferred tax asset based on future growth projections.
A reconciliation between the amount of the effective income tax expense and the income tax expense that would have been provided at the federal statutory rate of 21.0 percent for the year ended December 31, 2018 and 34.0 percent for the year ended December 31, 2017 is summarized as follows:
| Year Ended December 31 |
2018 | 2017 | ||||||
| Federal income tax at statutory rate |
$ | 2,778 | $ | (479) | ||||
| Tax exempt interest |
(248 | ) | (282 | ) | ||||
| Bank owned life insurance income |
(163 | ) | (153 | ) | ||||
| Tax Cuts and Jobs Act legislation |
3,888 | |||||||
| Disallowed merger related costs |
225 | |||||||
| Other, net |
4 | 302 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 2,371 | $ | 3,501 | ||||
|
|
|
|
|
|||||
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the highest U.S. corporate tax rate from the current rate of 35% to 21%, effective January 1, 2018. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted rate. This revaluation resulted in an additional charge of $3,888 to income tax expense in continuing operations and a corresponding reduction in the net deferred tax assets. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the 2018 and 2017 consolidated financial statements.
As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, deferred tax assets and liabilities were remeasured based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. Notwithstanding the foregoing, management is still analyzing certain aspects of the new law and refining their calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts.
17. Parent company financial statements:
Condensed Balance Sheets
| December 31 |
2018 | 2017 | ||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 249 | $ | 426 | ||||
| Investment in bank subsidiary |
120,607 | 119,297 | ||||||
| Premises, net |
73 | 73 | ||||||
| Other assets |
336 | 201 | ||||||
|
|
|
|
|
|||||
| $ 121,265 | $ 119,997 | |||||||
|
|
|
|
|
|||||
| Liabilities and stockholders’ equity |
||||||||
| Long-term borrowings |
$ | 6,892 | $ | 13,233 | ||||
| Other liabilities |
463 | 508 | ||||||
|
|
|
|
|
|||||
| Total Liabilities |
7,355 | 13,741 | ||||||
|
|
|
|
|
|||||
| Stockholders’ equity |
113,910 | 106,256 | ||||||
|
|
|
|
|
|||||
| $ 121,265 | $ 119,997 | |||||||
|
|
|
|
|
|||||
-88-
Condensed Statements of Income and Comprehensive Income
| December 31 |
2018 | 2017 | ||||||
| Income, dividends from bank subsidiary |
$ | 9,229 | $ | 2,090 | ||||
| Interest expense |
747 | 379 | ||||||
|
|
|
|
|
|||||
| Income before equity in undistributed net income of subsidiary |
8,482 | 1,711 | ||||||
| Undistributed net income (loss) of subsidiary |
2,350 | (7,019 | ) | |||||
| Noninterest expense |
164 | 21 | ||||||
|
|
|
|
|
|||||
| Net income (loss) before income taxes |
$ | 10,668 | $ | (5,329) | ||||
| Income tax benefit |
(190 | ) | (418 | ) | ||||
|
|
|
|
|
|||||
| Net income (loss) |
$ | 10,858 | $ | (4,911) | ||||
|
|
|
|
|
|||||
| Total comprehensive income (loss) |
$ | 9,818 | $ | (4,034) | ||||
|
|
|
|
|
|||||
Condensed Statements of Cash Flows
| Year Ended December 31 |
2018 | 2017 | ||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 10,858 | $ | (4,911) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Option expense |
9 | 203 | ||||||
| Undistributed net (income) loss of subsidiary |
(2,350 | ) | 7,019 | |||||
| Increase in accrued interest receivable and other assets |
(135 | ) | (124 | ) | ||||
| Decrease in accrued interest payable and other liabilities |
(45 | ) | (556 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
8,337 | 1,631 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Capitalization of subsidiary |
(15,500 | ) | ||||||
| Cash consideration for business acquisition |
(1 | ) | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(15,501) | |||||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Proceeds from long-term debt |
600 | |||||||
| Repayment of long-term borrowings |
(6,341 | ) | (338 | ) | ||||
| Proceeds from exercise of options |
41 | 411 | ||||||
| Proceeds from issuance of common stock |
517 | 16,856 | ||||||
| Dividends paid |
(2,731 | ) | (3,257 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by(used in) financing activities |
(8,514 | ) | 14,272 | |||||
|
|
|
|
|
|||||
| Increase (decrease) in cash and cash equivalents |
(177 | ) | 402 | |||||
| Cash and cash equivalents - beginning |
426 | 24 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents - ending |
$ | 249 | $ | 426 | ||||
|
|
|
|
|
|||||
18. Regulatory matters:
In 2018, the Federal Reserve increased the asset limit to qualify as a small bank holding company from $1 billion to $3 billion. As a result, the Company met the eligibility criteria for a small bank holding company and was exempt from risk-based capital and leverage rules, including Basel III.
The Bank’s ability to pay a dividend up to the bank holding company in order to fund the payment of a dividend to shareholders is governed by Section 1302 of the Pennsylvania Banking Code of 1965 which states that the board of directors of an institution may only declare and pay dividends out of accumulated net earnings.
The amount of funds available for transfer from the Bank to the Company in the form of loans and other extensions of credit is also limited. Under Federal Regulation, transfers to any one affiliate are limited to 10.0 percent of capital and surplus. At December 31, 2018, the maximum amount available for transfer from the Bank to the Company in the form of loans amounted to $12,607. At December 31, 2018 and 2017, there were no loans outstanding, nor were any advances made during 2018 and 2017.
The Company and Bank are subject to certain regulatory capital requirements administered by the federal banking agencies, which are defined in Section 38 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken,
-89-
could have a direct material effect on the Company’s and Bank’s consolidated financial statements. In the event an institution is deemed to be undercapitalized by such standards, FDICIA prescribes an increasing amount of regulatory intervention, including the required institution of a capital restoration plan and restrictions on the growth of assets, branches or lines of business. Further restrictions are applied to the significantly or critically undercapitalized institutions including restrictions on interest payable on accounts, dismissal of management and appointment of a receiver. For well capitalized institutions, FDICIA provides authority for regulatory intervention when the institution is deemed to be engaging in unsafe and unsound practices or receives a less than satisfactory examination report rating. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
New risk-based capital rules became effective January 1, 2015 requiring the Bank to maintain a “capital conservation buffer” of 250 basis points in excess of the “minimum capital ratio.” The minimum capital ratio is equal to the prompt corrective action adequately capitalized threshold ratio. The capital conservation buffer will be phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers.
The Bank was categorized as “well capitalized” under the regulatory guidance at December 31, 2018 and 2017, based on the most recent notification from the Federal Deposit Insurance Corporation. To be categorized as well capitalized, the Bank must maintain certain minimum Tier I risk-based, total risk-based, Tier I Leverage and Common equity Tier I risk-based capital ratios as set forth in the following tables. The Tier I Leverage ratio is defined as Tier I capital to total average assets less intangible assets. There are no conditions or events since the most recent notification that management believes have changed the Bank’s category.
The Bank’s capital ratios and the minimum ratios required for capital adequacy purposes and to be considered well capitalized under the prompt corrective action provisions are summarized below for the year ended December 31, 2018:
| Actual | Minimum Regulatory Capital Ratios under Basel III (with 1.875% capital conservation buffer phase-in) |
Well Capitalized under Basel III |
||||||||||||||||||||||
| December 31, 2018: |
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| Total risk-based capital (to risk-weighted assets: |
||||||||||||||||||||||||
| Riverview Bank |
$ | 100,001 | 11.4 | % | $ | 86,443 | ³ | 9.875 | % | $ | 87,538 | ³ | 10.0 | % | ||||||||||
| Tier 1 capital (to risk-weighted assets): |
||||||||||||||||||||||||
| Riverview Bank |
93,580 | 10.7 | 68,936 | ³ | 7.875 | 70,030 | ³ | 8.0 | ||||||||||||||||
| Tier 1 capital (to average total assets): |
||||||||||||||||||||||||
| Riverview Bank |
93,580 | 8.4 | 44,733 | ³ | 4.00 | 55,916 | ³ | 5.0 | ||||||||||||||||
| Common equity tier 1 risk-based capital (to risk-weighted assets): |
||||||||||||||||||||||||
| Riverview Bank |
93,580 | 10.7 | 55,805 | ³ | 6.375 | 56,900 | ³ | 6.5 | ||||||||||||||||
The Bank’s capital ratios and minimum ratios required for capital adequacy purposes and to be considered well capitalized under prompt corrective action provisions are summarized below for the year ended December 31, 2017:
| Actual | Minimum Regulatory Capital Ratios under Basel III (with 1.25% capital conservation buffer phase-in) |
Well Capitalized under Basel III |
||||||||||||||||||||||
| December 31, 2017: |
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
| Total risk-based capital (to risk-weighted assets): |
||||||||||||||||||||||||
| Riverview Bank |
$ | 96,926 | 10.4 | % | $ | 85,963 | ³ | 9.25 | % | $ | 92,933 | ³ | 10.0 | % | ||||||||||
| Tier 1 capital (to risk-weighted assets): |
||||||||||||||||||||||||
| Riverview Bank |
90,553 | 9.7 | 67,376 | ³ | 7.25 | 74,346 | ³ | 8.0 | ||||||||||||||||
| Tier 1 capital (to average total assets): |
||||||||||||||||||||||||
| Riverview Bank |
90,553 | 7.9 | 45,583 | ³ | 4.00 | 56,978 | ³ | 5.0 | ||||||||||||||||
| Common equity tier 1 risk-based capital (to risk-weighted assets): |
||||||||||||||||||||||||
| Riverview Bank |
90,553 | 9.7 | 53,437 | ³ | 5.75 | 60,407 | ³ | 6.5 | ||||||||||||||||
-90-
19. Contingencies:
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 be material in relation to the Company’s consolidated 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.
Neither the Company nor any of its property is subject to any material legal proceedings. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising out of pending and threatened lawsuits will have a material effect on the operating results or financial position of the Company.
20. Subsequent Events:
In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred from the date of the financial statements through the date these consolidated financial statements were issued and has not identified any events that require recognition or disclosure in the consolidated financial statements.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Internal Controls
At December 31, 2018, the end of the period covered by this Annual Report on Form 10-K, the Chief Executive Officer and President (“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 December 31, 2018, 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.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for the preparation and fair presentation of the accompanying consolidated balance sheets of Riverview Financial Corporation and subsidiary (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2018, in accordance with accounting principles generally accepted in the United States. This responsibility includes: establishing, implementing and maintaining adequate internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable under the circumstances. We are also responsible for compliance with the laws and regulations relating to safety and soundness that are designated by the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System and the Pennsylvania Department of Banking.
Our internal control over financial reporting process is designed and effected by those charged with governance, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of America and financial statements for regulatory reporting purposes. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and financial statements for regulatory reporting purposes, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
-91-
Our internal controls are designed to provide reasonable assurance that assets are safeguarded, and transactions are initiated, executed, recorded and reported in accordance with our intentions and authorizations and to comply with applicable laws and regulations. The internal control system includes an organizational structure that provides appropriate delegation of authority and segregation of duties, established policies and procedures and comprehensive internal audit and loan review programs. To enhance the reliability of internal controls, we recruit and train highly qualified personnel and maintain sound risk management practices. The internal control system is maintained through a monitoring process that includes a program of internal audits.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our internal control over financial reporting at the end of each fiscal year and report, based on that assessment, whether the Company’s internal control over financial reporting is effective. Our assessment includes controls over initiating, recording, processing and reconciling account balances, classes of transactions and disclosure and related assertions included in the financial statements. Our assessment also includes controls related to the initiation and processing of non-routine and non-systematic transactions, to the selection and application of appropriate accounting policies and to the prevention, identification and detection of fraud.
There are inherent limitations in any internal control system, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation.
Furthermore, due to changes in conditions, the effectiveness of internal controls may vary over time. Our internal auditor reviews, evaluates and makes recommendations on policies and procedures, which serves as an integral, but independent, component of our internal control.
Our financial reporting and internal controls are under the general oversight of our board of directors, acting through its audit committee. The audit committee is composed entirely of independent directors. The independent registered public accounting firm and the internal auditor have direct and unrestricted access to the audit committee at all times. The audit committee meets periodically with us, the internal auditor and the independent registered public accounting firm to determine that each is fulfilling its responsibilities and to support actions to identify, measure and control risks and augment internal controls.
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our management, including our CEO and CFO, assessed the effectiveness of our internal controls over financial reporting, including controls over the preparation of regulatory financial statements in accordance with FDICIA requirements under Part 363, as of December 31, 2018 using the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. Our management’s assessment included extensive documenting, evaluating and testing the design and operating effectiveness of our internal control over financial reporting.
Based on its assessment, management believes that our internal control over financial reporting was effective as of December 31, 2018.
Management’s assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and financial statements for regulatory reporting purposes in accordance with FDICIA requirements under Part 363, as of December 31, 2018, has been audited by Dixon Hughes Goodman LLP an independent public accounting firm, as stated in their report dated March 14, 2019.
| /s/ Brett D. Fulk |
| Brett D. Fulk |
| Chief Executive Officer and President |
| (Principal Executive Officer) |
| March 14, 2019 |
| /s/ Scott A. Seasock |
| Scott A. Seasock |
| Chief Financial Officer |
| (Principal Financial Officer and Principal Accounting Officer) |
| March 14, 2019 |
-92-
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information. |
None.
| Item 10. | Directors, Executive Officers and Corporate Governance. |
We incorporate herein by reference the information appearing under the headings “Proposal 1: Election of Directors”; “Named Executive Officers”; “Code of Ethics”; “Meetings and Committees of the Board of Directors”; and “Audit Committee” by reference to the definitive proxy statement for our 2019 annual meeting of shareholders.
| Item 11. | Executive Compensation. |
We incorporate herein by reference the information appearing under the headings “Executive Compensation” and “Directors’ Compensation” in the definitive proxy statement for our 2019 annual meeting of shareholders.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
We incorporate herein by reference the information appearing under the heading “Share Ownership” in the definitive proxy statement for our 2019 annual meeting of shareholders.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
We incorporate herein by reference the information appearing under the headings “Related Party Transactions” and “Director Independence” in the definitive proxy statement for our 2019 annual meeting of shareholders.
| Item 14. | Principal Accounting Fees and Services. |
We incorporate herein by reference the information appearing under the heading “Independent Registered Public Accounting Firm” in the definitive proxy statement for our 2019 annual meeting of shareholders.
-93-
| Item 15. | Exhibits, Financial Statement Schedules. |
| (a)(1) | The following consolidated financial statements of the Company are filed as part of this Form 10-K: | |||
| (i) | Reports of Independent Registered Public Accounting Firm | |||
| (ii) | Consolidated Statements of Financial Condition as of December 31, 2018 and December 31, 2017 | |||
| (iii) | Consolidated Statements of Income for the fiscal years ended December 31, 2018 and December 31, 2017 | |||
| (iv) | Consolidated Statements of Comprehensive Income for the fiscal years ended December 31, 2018 and December 31, 2017 | |||
| (v) | Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 31, 2018 and December 31, 2017 | |||
| (vi) | Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2018 and December 31, 2017 | |||
| (vii) | Notes to Consolidated Financial Statements | |||
(a)(2) Financial Statements Schedules. All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have therefore been omitted.
-94-
(a)(3) Exhibits.
-95-
-96-
| * | Filed by Riverview Financial’s predecessor, CIK# 0001452899. |
| ** | Filed by Riverview Financial’s predecessor, CIK# 0001445059. |
-97-
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.
| Riverview Financial Corporation | ||
| By: | /s/ Brett D. Fulk | |
| Brett D. Fulk | ||
| Chief Executive Officer and President | ||
| (Principal Executive Officer) | ||
| March 14, 2019 | ||
| By: | /s/ Scott A. Seasock | |
| Scott A. Seasock | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| March 14, 2019 | ||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Brett D. Fulk and Scott A. Seasock as his or her attorney-in-fact, with the full power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ John G. Soult, Jr. John G. Soult, Jr. |
Director and Chairman of the Board |
March 14, 2019 | ||
| /s/ David W. Hoover David W. Hoover |
Director and Vice-Chairman of the Board |
March 14, 2019 | ||
| /s/ Brett D. Fulk Brett D. Fulk |
Director, Chief Executive Officer and President (Principal Executive Officer) |
March 14, 2019 | ||
| /s/ Scott A. Seasock Scott A. Seasock |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
March 14, 2019 | ||
| /s/ Paula M. Cherry Paula M. Cherry |
Director |
March 14, 2019 | ||
| /s/ Albert J. Evans Albert J. Evans |
Director |
March 14, 2019 | ||
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| Name | Title | Date | ||
| /s/ Maureen M. Gathagan Maureen M. Gathagan |
Director |
March 14, 2019 | ||
| /s/ Howard R. Greenawalt Howard R. Greenawalt |
Director |
March 14, 2019 | ||
| /s/ Charles R. Johnston Charles R. Johnston |
Director |
March 14, 2019 | ||
| /s/ Joseph D. Kerwin Joseph D. Kerwin |
Director |
March 14, 2019 | ||
| /s/ Andrew J. Kohlhepp Andrew J. Kohlhepp |
Director |
March 14, 2019 | ||
| /s/ Kevin D. McMillen Kevin D. McMillen |
Director |
March 14, 2019 | ||
| /s/ Carl W. Metzgar Carl W. Metzgar |
Director |
March 14, 2019 | ||
| /s/ Timothy E. Resh Timothy E. Resh |
Director |
March 14, 2019 | ||
| /s/ Marlene K. Sample Marlene K. Sample |
Director |
March 14, 2019 | ||
| /s/ William E. Wood William E. Wood |
Director |
March 14, 2019 | ||
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Exhibit 10.35
RIVERVIEW FINANCIAL CORPORATION
EQUITY AND CASH INCENTIVE COMPENSATION PLAN
Effective Date: February 22, 2018
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RIVERVIEW FINANCIAL CORPORATION
EQUITY AND CASH INCENTIVE COMPENSATION PLAN
| 1. | Purpose of the Plan. The purposes of the Equity and Cash Incentive Compensation Plan (the “Plan”) of Riverview Financial Corporation (the “Company”) are to: (i) align the interests of key individuals with those of the Company’s shareholders by encouraging and creating ownership of Shares of Common Stock of the Company; (ii) enable the Company to attract and retain qualified individuals who contribute to the Company’s success by their efforts, service, ability and ingenuity; (iii) provide meaningful long-term equity and cash-based rewards and incentive opportunities to key individuals who are responsible for the success of the Company and who are in a position to make significant contributions toward its objectives; (iv) reward individual performance; and (v) allow the Company to be competitive with its peers. |
| 2. | Definitions. For purposes of the Plan, the following words or phrases shall have the meanings assigned to them below: |
| 2.1. | “Affiliate” means a parent or subsidiary corporation of the Company, as defined in Section 424 of the Code (substituting “Company” for “employer corporation”), or any other entity that is a parent or subsidiary of the Company, including a parent or subsidiary which becomes such after the Effective Date of the Plan. |
| 2.2. | “Applicable Laws” means the requirements related to or implicated by the administration of the Plan under applicable state corporate law, United States federal and state securities laws, the Code, and any stock exchange or quotation system on which the Shares of Common Stock are listed or quoted. |
| 2.3. | “Award” means any right granted under the Plan, including an Incentive Stock Option, a Non-Qualified Stock Option, a Stock Appreciation Right, a Restricted Award, a Performance Share Award or a Performance Compensation Award. Each Award shall be subject to the terms and conditions of the Plan and to such other terms and conditions included by the Committee in the Award Agreement, to the extent not inconsistent with this Plan. |
| 2.4. | “Award Agreement” means a written agreement, contract, certificate or other instrument or document evidencing the terms and conditions of an individual Award granted under the Plan which may, in the discretion of the Committee, be transmitted electronically to any Participant. |
| 2.5. | “Board” means the Board of Directors of the Company. |
| 2.6. | “Business Combination” has the meaning set forth in Section 2.8.d. |
2.7. “Cause” means with respect to any Employee:
| a. | If the Employee is a party to an employment or service agreement with the Company or one of its Affiliates and such agreement provides for a definition of Cause, the definition contained therein; or |
| b. | If no such agreement exists, or if such agreement does not define Cause, the following: |
| i. | the Employee shall have committed an act of dishonesty constituting a felony and resulting or intending to result directly or indirectly in gain or personal enrichment at the expense of the Company or an Affiliate; |
| ii. | the Employee’s use of alcohol or other drugs which interferes with the performance by the Employee or the Consultant of his or her duties for the Company or an Affiliate; |
| iii. | the Employee deliberately and intentionally refused or otherwise failed (for reasons other than incapacity due to accident or physical or mental illness) to perform Employee’s duties to the Company or an Affiliate, with such refusal or failure continuing for a period of at least 30 consecutive days following the receipt by the Employee of written notice from the Company or an Affiliate setting forth in detail the facts upon which the Company or the Affiliate relies in concluding that the Employee has deliberately and intentionally refused or failed to perform such duties; |
| iv. | the Employee’s material violation of the Company’s Code of Conduct (or similar code of conduct maintained by an Affiliate); or |
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| v. | the Employee’s conduct that brings discredit on or injures the reputation of the Company, in the Company’s reasonable discretion. |
The Committee may determine that a Consultant is terminated for Cause as a result of a violation of the Company’s Code of Conduct (or similar code of conduct maintained by an Affiliate). For purposes of the Plan, the Committee shall determine the effect of all matters and questions relating to whether an Employee has been discharged for Cause, including but not limited to terminations pursuant to the Company’s Code of Conduct.
| 2.8. | “Change in Control” of the Company means: |
| a. | a majority of the members of the Board are replaced during any twelve-month (12) period by directors whose appointment or election is not endorsed by a majority of the Board before the date of appointment or election; |
| b. | the acceptance and completion of a tender offer or exchange offer by any entity, person or group (including any affiliates of such entity, person or group, other than an Affiliate of the Company) for fifty percent (50%) or more of the outstanding voting power of all capital stock of the Company; |
| c. | the acquisition by any entity, person or group (including any affiliates of such entity, person or group, other than an Affiliate of the Company) of beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the Company’s capital stock entitled to fifty percent (50%) or more of the outstanding voting power of all capital stock of the Company; |
| d. | a merger, consolidation, division, share exchange, or any other transaction or a series of transactions outside the ordinary course of business involving the Company (a “Business Combination”), as a result of which the holders of the outstanding voting capital stock of the Company immediately prior to such Business Combination, excluding any shareholder who is a party to the Business Combination (other than the Company) or is such party’s affiliate as defined in the Exchange Act, hold less than a majority of the voting capital stock of the surviving or resulting corporation; or |
| e. | the transfer of substantially all of the assets of the Company other than to a wholly owned subsidiary of the Company. |
| 2.9. | “Code” means the Internal Revenue Code of 1986, as amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder. |
| 2.10. | “Code of Conduct” means the Company’s Code of Conduct approved by the Board, as amended from time to time, and posted on the Company’s website. |
| 2.11. | “Committee” means the Human Resources Committee of the Board, or such other committee of the Board appointed by the Board to administer this Plan, in accordance with Article 3. |
| 2.12. | “Common Stock” means the common stock, no par value, of the Company. |
| 2.13. | “Company” means Riverview Financial Corporation a Pennsylvania business corporation, and any successor thereto. |
| 2.14. | “Consultant” means any former director, employee or advisory board member of the Company or an Affiliate who is subsequently engaged by the Company or an Affiliate to render consulting or advisory services. The term “Consultant” shall not include a current Director, advisory board member or a current member of the board of an Affiliate. |
| 2.15. | “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee or Consultant or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate will not constitute an interruption of Continuous Service. The Committee or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. |
| 2.16. | “Covered Employee” has the same meaning as set forth in Section 162(m)(3) of the Code, as interpreted by Internal Revenue Service Notice 2007-49 and modified by the Tax Cuts and Jobs Act of 2017. |
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| 2.17. | “Date of Grant” means the date on which the Committee adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award or, if a later date is set forth in such resolution, then such date as is set forth in such resolution. |
| 2.18. | “Date of Exercise” in respect of any Option granted under the Plan means the date on which the Participant’s written notice of Exercise is received by the Company pursuant to procedures prescribed by the Committee. |
| 2.19. | “Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; provided, however, for purposes of determining the term of an Incentive Stock Option pursuant to Article 6 hereof, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. Whether an individual has a Disability shall be determined under procedures established by the Committee. Except in situations where the Committee is determining Disability for purposes of the term of an Incentive Stock Option pursuant to Article 6 hereof, the Committee may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates. |
| 2.20. | “Disqualifying Disposition” has the meaning set forth in Section 6.4. |
| 2.21. | “Director” means a member of the Board. |
| 2.22. | “Effective Date” is described in Article 0. |
| 2.23. | “Employee” means any person employed by the Company or an Affiliate; provided, that, for purposes of determining eligibility to receive Incentive Stock Options, an Employee means an employee of the Company or a parent or subsidiary corporation within the meaning of Section 424 of the Code. |
| 2.24. | “Exchange Act” has the meaning set forth in Section 2.8.c. |
| 2.25. | “Exercise” in respect of an Option, means the delivery by the Participant to the Secretary of the Company of a written notice of exercise in the form specified by the Committee, accompanied by payment in full of the Option Exercise Price. |
| 2.26. | “Fair Market Value” means, as of any date, the value of a share of the Common Stock, determined as follows: (i) If the Common Stock is listed on any national stock exchange or national interdealer quotation system, the Fair Market Value shall be the closing price on the Date of Grant (or if no sales of shares were reported on any stock exchange or quoted on any interdealer quotation system on that day, the price on the next preceding trading day on which such price was quoted) as quoted on such exchange or interdealer quotation system on the day of determination, as reported in the Wall Street Journal or such other source as the Committee deems reliable; or (ii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee and such determination shall be conclusive and binding on all persons. |
| 2.27. | “Incentive Stock Option” means an Option issued pursuant to the Plan that meets the requirements of Section 422 of the Code, as set forth in Section 6.3. |
| 2.28. | “Independent” or “Independence” means, with respect to a Director who is a Committee member, the independence requirements applicable to a Committee member under the rules and regulations of the U.S. Securities and Exchange Commission and the national securities exchange or national interdealer quotation system on which the Common Stock is then listed or quoted. |
| 2.29. | “Non-Employee Director” means a Director who is a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act. |
| 2.30. | “Non-Qualified Stock Option” means an Option issued pursuant to the Plan that is not intended to be an Incentive Stock Option. |
| 2.31. | “Option” means a right granted to a Participant to purchase Shares at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. |
| 2.32. | “Optionee” means a Participant to whom an Option has been awarded. |
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| 2.33. | “Option Exercise Price” means the price at which a Share of Common Stock may be purchased upon the Exercise of an Option. |
| 2.34. | “Outside Director” means a Director who is an “outside director” within the meaning of Section 162(m) of the Code and Treasury Regulations Section 1.162-27(e)(3) or any successor to such statute and regulation. |
| 2.35. | “Participant” means an eligible person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award. |
| 2.36. | “Performance Compensation Award” means any Award designated by the Committee as a Performance Compensation Award pursuant to Article 10 of the Plan. |
| 2.37. | “Performance Criteria” means the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award under the Plan. The Performance Criteria that will be used to establish the Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company (or Affiliate, division, business unit or operational unit of the Company) and may be, but shall not be limited to, the following, used individually or in ratios or other combinations: (a) basic earnings per share; (b) basic cash earnings per share; (c) diluted earnings per share; (d) core earnings per share; (e) diluted cash earnings per share; (f) earnings before taxes; (g) net income; (h) net interest income; (i) non-interest income; (j) revenue; (k) efficiency ratio; (l) salaries and benefits efficiency ratio; (m) return on average assets; (n) core return on average assets; (o) core return on equity; (p) return on average shareholders’ equity; (q) return on average tangible shareholders’ equity; (r) core earnings; (s) operating income; (t) net interest margin; (u) net interest rate spread; (v) growth in assets, loans or deposits; (w) loan production volume; (x) sales; (y) net charge-offs; (z) nonperforming/classified assets; (aa) classified loans; (bb) cash flow; (cc) capital level (core or risk-based); (dd) interest rate risk exposure-net portfolio value; (ee) interest rate risk-sensitivity; (ff) liquidity; (gg) strategic business objectives, cost control, business expansion goals, and goals relating to acquisitions or divestitures, or goals relating to capital raising and capital management; (hh) objective customer service measures or indices, (ii) stock price (including, but not limited to, growth measures and total shareholder return); (jj) operating expense as a percentage of average assets; (kk) core deposits as a percentage of total deposits; (ll) net charge-off percentage; (mm) loan delinquency rates; and (nn) market share. |
Any one or more of the Performance Criteria may be used on an absolute or relative basis in any combination or ratio, or year-over-year change to measure the performance of the Company and/or an Affiliate as a whole or any division, business unit or operational unit of the Company and/or an Affiliate or any combination thereof, as the Committee may deem appropriate, or as compared to the performance of a group of comparable companies, or published or special index that the Committee, in its sole discretion, deems appropriate.
The Committee may alter the governing Performance Criteria and the Committee has sole discretion to make such changes without obtaining shareholder approval.
| 2.38. | “Performance Formula” means, for a Performance Period, the one or more objective formulas applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period. |
| 2.39. | “Performance Goals” means, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria. The Committee may, in its sole and absolute discretion, adjust or modify the calculation of a Performance Goal for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants based on the following events: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor or pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year; (f) acquisitions or divestitures; (g) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (h) foreign exchange gains and losses; and (i) a change in the Company’s fiscal year. |
| 2.40. | “Performance Period” means the one or more periods of time not less than one fiscal quarter in duration, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to any the payment of a Performance Compensation Award. |
| 2.41. | “Performance Share Award” means any Award granted pursuant to Article 9 hereof. |
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| 2.42. | “Performance Share” means the grant of a right to receive a number of actual shares of Common Stock or share units based upon the performance of the Company during a Performance Period, as determined by the Committee. |
| 2.43. | “Plan” means this Riverview Financial Corporation Equity and Cash Incentive Compensation Plan. |
| 2.44. | “Repricing” means any transaction performed with the intent or effect of (a) reducing the exercise price of any outstanding Option or Stock Appreciation Right Awards; (b) cancelling or exchanging outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or replacement Options and/or Stock Appreciation Rights, including through a tender offer process, with exercise prices that are less than the exercise price of the cancelled or exchanged Options and/or Stock Appreciation Rights; or (c) any similar share exchange transaction involving outstanding Awards. |
| 2.45. | “Restricted Award” means any Award granted pursuant to Article 8. |
| 2.46. | “Restricted Period” has the meaning set forth in Section 8.1. |
| 2.47. | “Restricted Stock” has the meaning set forth in Section 8.1. |
| 2.48. | “Restricted Stock Unit” has the meaning set forth in Section 8.1. |
| 2.49. | “Retirement” means retirement from employment with the Company or any Affiliate after achieving age 60 with at least 10 years of service to the Company or any Affiliate. |
| 2.50. | “Securities Act” has the meaning set forth in Section 14.2. |
| 2.51. | “Shares” means shares of Common Stock subject to Awards or available for future Awards under this Plan. |
| 2.52. | “Stock Appreciation Right” means the right pursuant to an Award granted under Article 7 to receive, upon exercise, an amount payable in cash or Shares equal to the number of Shares subject to the Stock Appreciation Right that is being exercised multiplied by the excess of (a) the Fair Market Value of a Share on the date the Award is exercised, over (b) the exercise price specified in the Stock Appreciation Right Award Agreement. |
| 2.53. | “Ten Percent Shareholder” means a person who on the Date of Grant owns, either directly or within the meaning of the attribution rules in Section 424(d) of the Code, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any one of its subsidiaries, as defined respectively in Sections 424(e) and 424(f) of the Code. |
| 3. | Administration of the Plan. |
| 3.1. | Committee Composition. The Plan shall be administered by the Committee, or, in the Board’s sole discretion, by the Independent Directors on the Board. The Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Board may abolish the Committee at any time and revest in the Independent Directors on the Board the administration of the Plan. Each member of the Committee shall be Independent. Except as otherwise determined by the Board, the Committee shall consist solely of two or more Non-Employee Directors. The Board shall have discretion to determine whether or not it intends to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act. Nothing herein shall create an inference that an Award is not validly granted under the Plan in the event Awards are granted under the Plan by a compensation committee of the Board that does not at all times consist solely of two or more Non-Employee Directors who are also Outside Directors. The Committee shall act pursuant to a vote of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous consent of its members. Minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board, the Committee may establish and follow such rules and regulations for the conduct of its business as it may determine to be advisable. |
| 3.2. | Delegation. The Committee, or if no Committee has been appointed, the Board, may delegate administration of the Plan to a committee or committees of one or more members of the Board. The Committee shall have the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and reference in this Plan to the Board or the Committee shall thereafter be to the committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Within the scope of such authority, the Board or the Committee may also delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Awards to eligible individuals who are not then subject to Section 16 of the Exchange Act. |
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| 3.3. | Authority of Committee. Subject to the terms of the Plan, the Committee’s charter and Applicable Laws, and in addition to other express powers and authorization conferred by the Plan, the Committee shall be vested with full authority: |
| a. | to adopt, amend and rescind such rules and regulations as it deems necessary or desirable to administer the Plan; |
| b. | to construe, interpret and apply the provisions of the Plan; |
| c. | to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; |
| d. | to delegate its authority to one or more officers of the Company with respect to Awards that do not involve Covered Employees or “insiders” within the meaning of Section 16 of the Exchange Act; |
| e. | to determine when Awards are to be granted under the Plan and the applicable Date of Grant; |
| f. | from time to time to select, subject to the limitations set forth in this Plan, those Participants to whom Awards shall be granted; |
| g. | to determine the number of Shares to be made subject to each Award; |
| h. | to determine whether an Option is to be an Incentive Stock Option or a Non-Qualified Stock Option; |
| i. | to prescribe the terms and conditions of each Award, including, without limitation, the exercise price, medium of payment and vesting provisions, and to specify the provisions of the Award Agreement relating to such grant; |
| j. | to determine the target number of Performance Shares to be granted pursuant to a Performance Share Award, the Performance Criteria that will be used to establish the Performance Goals, the Performance Period(s) and the number of Performance Shares earned by a Participant; |
| k. | to designate an Award (including a cash bonus) as a Performance Compensation Award and to select the Performance Criteria that will be used to establish the Performance Goals; |
| l. | to amend any outstanding Awards, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding Award; provided, however, that if any such amendment impairs a Participant’s rights or increases a Participant’s obligations under his or her Award or creates or increases a Participant’s federal income tax liability with respect to an Award, such amendment shall also be subject to the Participant’s consent; |
| m. | to determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their employment or service for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to Employees under the Company’s employment policies, subject to the requirements of Section 409A of the Code; |
| n. | to make decisions with respect to outstanding Awards that may become necessary upon a Change in Control or an event that triggers anti-dilution adjustments; |
| o. | to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; and |
| p. | to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the Plan. |
The Committee also may modify the purchase price or the exercise price of any outstanding Award, subject to the requirements of Section 409A of the Code, provided that if the modification effects a Repricing, shareholder approval shall be required before the Repricing is effective. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon the Company and all Participants and any person claiming under or through a Participant, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious.
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| 3.4. | Indemnification. In addition to such other rights of indemnification as they may have as Directors or members of the Committee, and to the extent allowed by Applicable Laws, no member of the Committee or of the Board shall be liable for any determination, decision or action made in good faith with respect to the Plan or any Award granted under the Plan. |
| 4. | Shares Subject to the Plan. |
| 4.1. | Shares Subject to the Plan. Subject to adjustment as provided in Article 12, the total number of Shares available for the grant of Awards under the Plan shall be 500,000 Shares (as restated for stock splits and dividends). For purposes of Section 422 of the Code, in no event shall any Participant receive Awards to acquire more than 500,000 Shares in any fiscal year of the Company. During the term of each Award, the Company shall keep reserved at all times the number of shares of Common Stock required to satisfy all such Awards. As the Committee may determine from time to time, the shares of Common Stock available for distribution under the Plan may consist either in whole or in part of authorized but unissued Common Stock or shares of Common Stock held in treasury. |
| 4.2. | Recycling of Shares. Any Shares subject to an Award that is cancelled, forfeited or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the Plan. Any Shares that are issued upon the exercise or vesting of an Award shall be deducted from the available Shares under the Plan as one (1) Share for each Share issued under the Award. Notwithstanding anything to the contrary contained herein, Shares subject to an Award under the Plan shall not again be made available for issuance or delivery under the Plan if such Shares are (a) Shares tendered in payment of the Option Exercise Price, (b) Shares delivered to or withheld by the Company to satisfy any tax withholding obligation, or (c) Shares covering an Option or a stock-settled Stock Appreciation Right or other Awards that were not issued upon the settlement of the Award. |
| 5. | Eligibility. |
| 5.1. | General. All Employees, directors and Consultants of the Company or any of its Affiliates are eligible to participate in the Plan, whether now existing as an Affiliate or later become an Affiliate. The Committee shall determine, in its discretion, which such eligible persons shall be granted Awards and become Participants in this Plan. |
| 5.2. | Eligibility for Specific Awards. Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock Options may be granted to Employees and Consultants and those individuals whom the Committee determines are reasonably expected to become Employees and Consultants following the Date of Grant. |
| 5.3. | Ten Percent Shareholders. An Incentive Stock Option shall not be granted to a Ten Percent Shareholder unless the Option Exercise Price is at least 110% of the Fair Market Value of the Common Stock at the Date of Grant and the Option is not exercisable after the expiration of five (5) years from the Date of Grant. |
| 6. | Option Provisions. |
| 6.1. | General. Each Option granted under the Plan shall be evidenced by an Award Agreement. Each Option so granted shall be subject to the conditions set forth in this Article 6, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Each Option shall specify the number of Shares that may be purchased pursuant to the Option, the Option Exercise Price, the term of the Option, vesting schedule and such other terms, conditions and limitations established by the Committee as are consistent with the terms of the Plan. The Award Agreement shall identify the Option as a Non-Qualified Stock Option or an Incentive Stock Option. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: |
| a. | Term. Subject to the provisions of Section 5.3 regarding Ten Percent Shareholders, no Option shall be exercisable after the expiration of ten (10) years from the Date of Grant. |
| b. | Option Exercise Price of an Incentive Stock Option. Subject to the provisions of Section 5.3 regarding Ten Percent Shareholders, the Option Exercise Price of each Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Shares subject to the Option on the Date of Grant. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. |
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| c. | Option Exercise Price of a Non-Qualified Stock Option. The Option Exercise Price of each Non-Qualified Stock Option shall not be less than 100% of the Fair Market Value of the Shares subject to the Option on the Date of Grant. Notwithstanding the foregoing, a Non-Qualified Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 409A of the Code. |
| d. | Consideration. Each Participant who elects to Exercise an Option granted pursuant to the Plan shall be required to give written notice to the Company of such election and of the number of Shares he or she has elected to purchase, in such form as the Committee shall have prescribed or approved. At the time of Exercise of the Option, the price of the Shares purchased shall become immediately due and payable (i) in cash or by check, (ii) by tendering to the Company Shares of the Company that have been held by the Participant for at least six months, having a Fair Market Value as of the Date of Exercise equal to the Option Exercise Price, (iii) by any method established by the Committee to facilitate ownership of Shares, including so-called “cashless exercise”, (iv) by reduction in the number of Shares otherwise deliverable upon exercise of such Option with a Fair Market Value equal to the aggregate Option Exercise Price at the time of Exercise, (v) by any combination of the methods of payment described in (i), (ii) , (iii) or (iv), or (vi) in any other form of legal consideration that may be acceptable to the Committee. Notwithstanding the foregoing, during any period for which the Shares are publicly traded (i.e., the Common Stock is listed on any national stock exchange or a national interdealer quotation system) an Exercise by an Officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited with respect to any Award under this Plan. |
| 6.2. | Transferability. An Option shall not be transferable except by will, by the laws of descent and distribution, or pursuant to a domestic relations order entered into by a court of competent jurisdiction and shall be exercisable during the lifetime of the Optionee only by the Optionee. Notwithstanding the foregoing, the Optionee may, by delivering written notice to the Company, in a form satisfactory to the Company designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to Exercise the Option. |
| 6.3. | Termination of Continuous Service. |
| a. | Unless otherwise provided in the terms of an Award Agreement, a vested Option may be Exercised by an Optionee only while the Optionee is an Employee of or Consultant to the Company or an Affiliate and has maintained Continuous Service as an Employee or Consultant since the Date of Grant of the Option, except if the Optionee’s Continuous Service ceases by reason of the Optionee’s Disability, death or Retirement or as a result of layoff or position elimination. |
| b. | If the Continuous Service of an Optionee is terminated: |
| i. | as a result of the Optionee’s Disability, such Optionee may, but only within a one (1) year period from the date of such termination of Continuous Service (and no later than the date that the Option would otherwise expire), Exercise the Option to the extent the Optionee was entitled to Exercise it at the date of such termination of Continuous Service; |
| ii. | as a result of the Optionee’s death, to the extent the Optionee was entitled to Exercise the Option immediately prior to the Optionee’s death, such Option of the deceased Optionee may be Exercised, but only within one (1) year from the date of the Optionee’s death (and no later than the date on which such Option would otherwise expire), by the person or persons (including the Optionee’s estate) to whom the Optionee’s rights under such Option shall have passed by will or by the laws of descent and distribution; |
| iii. | as a result of the Optionee’s Retirement, the Optionee may Exercise his or her currently exercisable Options for up to one year from the date of his or her Retirement (but not beyond the date when the Option would otherwise expire); however, if exercisable Incentive Stock Options are not Exercised within 90 days of Retirement, they will convert automatically to Non-Qualified Stock Options; and |
| iv. | as a result of layoff or position elimination, the Optionee may Exercise vested Options for up to 90 days (but no later than the date the Option would expire) following the date of such termination. |
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| c. | On the date of termination of Continuous Service, all unvested Options shall be cancelled. |
| 6.4. | Incentive Stock Option Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Shares with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company and its Affiliates) exceeds the limitation imposed by Section 422 of the Code (currently $100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Non-Qualified Stock Options. |
| 6.5. | Incentive Stock Option Qualifying Disposition. With respect to Shares acquired as a result of the Exercise of an Incentive Stock Option, any disposition of such Shares other than by will or by the laws of descent and distribution before the later of the expiration of the two (2) year period beginning on the Date of Grant of such Incentive Stock Option, or the expiration of the one (1) year period beginning on the date of the transfer of such Shares pursuant to such Exercise, will not be prohibited by the Plan, but may disqualify the disposition from receiving favorable tax treatment under Section 421(a) of the Code. The Committee may require an Optionee to give prompt notice (as described below) to the Company concerning any disposition of Shares received upon the Exercise of an Incentive Stock Option within: (i) two (2) years from the date of granting such Incentive Stock Option to such Optionee, (ii) one (1) year from the transfer of such shares of Stock to such Optionee, or (iii) such other period as the Committee may from time to time determine. The Committee may direct in the applicable Award Agreement that an Optionee with respect to an Incentive Stock Option undertake to give such notice described in the preceding sentence at such time and containing such information as the Committee may prescribe, and/or that the certificates or book entry registration evidencing Shares acquired by Exercise of an Incentive Stock Option refer to such requirement to give such notice. Notice means written notification actually received by the Company at its executive offices on a day when the Company’s executive offices are open for business, or, if received after such time, such notice shall be deemed received on the next such day, which notice may be delivered in such manner as may be prescribed from time to time by the Committee. |
| 7. | Stock Appreciation Rights. |
| 7.1. | General. Each Stock Appreciation Right granted under the Plan shall be evidenced by an Award Agreement. Each Stock Appreciation Right so granted shall be subject to the conditions set forth in this Article 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. |
| 7.2. | Term. The term of a Stock Appreciation Right granted under the Plan shall be determined by the Committee; provided, however, no Stock Appreciation Right shall be exercisable later than the tenth anniversary of the Date of Grant. |
| 7.3. | Exercise and Payment. Upon exercise of a Stock Appreciation Right, the holder shall be entitled to receive from the Company in cash (unless otherwise provided) an amount equal to the number of Shares subject to the Stock Appreciation Right that is being Exercised multiplied by the excess of (i) the Fair Market Value of a Share on the date the Award is exercised, over (ii) the exercise price specified in the Stock Appreciation Right. Payment, if any, with respect to the exercise of a Stock Appreciation Right shall be made on the date of exercise. Payment shall be made in the form of Shares (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Committee in its sole discretion), cash or a combination thereof, as determined by the Committee. |
| 7.4. | Exercise Price. The exercise price of a Stock Appreciation Right shall be determined by the Committee but shall not be less than 100% of the Fair Market Value of one Share on the Date of Grant of such Stock Appreciation Right. A Stock Appreciation Right, by its terms, shall be exercisable only when the Fair Market Value per Share subject to the Stock Appreciation Right exceeds the exercise price per Share thereof. |
| 8. | Restricted Awards. |
| 8.1. | General. A Restricted Award is an Award of actual Shares (“Restricted Stock”) or hypothetical Common Stock units having a value equal to the Fair Market Value of an identical number of Shares (“Restricted Stock Units”), which may, but need not, provide that such Restricted Award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for such period (the “Restricted Period”) as the Committee shall determine. Each Restricted Award granted under the Plan shall be evidenced by an Award Agreement. Each Restricted Award so granted shall be subject to the conditions set forth in this Article 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. |
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| 8.2. | Restricted Stock. |
| a. | Each Participant granted Restricted Stock shall execute and deliver to the Company an Award Agreement with respect to the Restricted Stock setting forth the restrictions and other terms and conditions applicable to such Restricted Stock. If the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than delivered to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (A) an escrow agreement satisfactory to the Committee, if applicable and (B) the appropriate blank stock power with respect to the Restricted Stock covered by such agreement. If a Participant fails to execute an Award Agreement evidencing a Restricted Stock Award and, if applicable, an escrow agreement and stock power, or such other agreements and documents as the Committee may require, the Award shall be null and void. Subject to the restrictions set forth in the Award, the Participant generally shall have the rights and privileges of a shareholder as to such Restricted Stock, including the right to vote such Restricted Stock. |
| b. | At the discretion of the Committee, a Participant may be granted the right to receive dividends on Restricted Stock; provided that any cash dividends and stock dividends with respect to the Restricted Stock shall be withheld by the Company for the Participant’s account, and interest may be credited on the amount of the cash dividends withheld at a rate and subject to such terms as determined by the Committee. The cash dividends or stock dividends so withheld by the Committee and attributable to any particular share of Restricted Stock (and earnings thereon, if applicable) shall be distributed to the Participant in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, if applicable, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends. |
| 8.3. | Restricted Stock Units. |
| a. | The terms and conditions of a grant of Restricted Stock Units shall be reflected in an Award Agreement. No Shares shall be issued at the time a Restricted Stock Unit is granted, and the Company will not be required to set aside a fund for the payment of any such Award. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder. |
| b. | At the discretion of the Committee, each Restricted Stock Unit (representing one Share) may be credited with cash, Shares or other property equivalent to all or a portion of the dividends paid with respect to the outstanding Common Stock paid by the Company in respect of one Share (“Dividend Equivalents”). Dividend Equivalents shall be withheld by the Company for the Participant’s account, and interest may be credited on the amount of cash Dividend Equivalents withheld at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant’s account and attributable to any particular Restricted Stock Unit (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the Committee, in Shares having a Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Restricted Stock Unit and, if such Restricted Stock Unit is forfeited, the Participant shall have no right to such Dividend Equivalents. |
| 8.4. | Restrictions. |
| a. | Restricted Stock awarded to a Participant shall be subject to the following restrictions until the expiration of the Restricted Period, and to such other terms and conditions as may be set forth in the applicable Award Agreement: (A) if an escrow arrangement is used, the Participant shall not be entitled to delivery of the stock certificate, or exercise control over a book entry account; (B) the Shares shall be subject to the restrictions on transferability set forth in the Award Agreement; (C) the Shares shall be subject to forfeiture to the extent provided in the applicable Award Agreement; and (D) to the extent such Shares are forfeited, the stock certificates shall be returned to the Company, or book entry positions cancelled, and all rights of the Participant to such Shares and as a shareholder with respect to such Shares shall terminate without further obligation on the part of the Company. |
| b. | A Restricted Stock Units Award shall be subject to (A) forfeiture until the expiration of the Restricted Period, and satisfaction of any applicable Performance Goals during such period, to the extent provided in the applicable Award Agreement, and to the extent such Restricted Stock Units are forfeited, all rights of the Participant to such Restricted Stock Units shall terminate without further obligation on the part of the Company and (B) such other terms and conditions as may be set forth in the applicable Award Agreement. |
| c. | The Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock and Restricted Stock Units whenever it may determine that, by reason of changes in Applicable Laws or other changes in circumstances arising after the date the Restricted Stock or Restricted Stock Units are granted, such action is appropriate. |
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| 8.5. | Delivery of Restricted Stock and Settlement of Restricted Stock Units. Upon the expiration of the Restricted Period with respect to any Shares of Restricted Stock, the restrictions set forth in Section 8.4 and the applicable Award Agreement shall be of no further force or effect with respect to such Shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall cause a book entry notation to be made or deliver to the Participant, or his or her beneficiary, without charge, the stock certificate evidencing the Shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full Share) and any cash dividends or stock dividends credited to the Participant’s account with respect to such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his or her beneficiary, without charge, one Share for each such outstanding Restricted Stock Unit (“Vested Unit”) and cash equal to any Dividend Equivalents credited with respect to each such Vested Unit in accordance with Section 8.03 hereof and the interest thereon or, at the discretion of the Committee, in Shares having a Fair Market Value equal to such Dividend Equivalents and the interest thereon, if any; provided, however, that, if explicitly provided in the applicable Award Agreement, the Committee may, in its sole discretion, elect to pay cash or part cash and part Shares in lieu of delivering only Shares for Vested Units. If a cash payment is made in lieu of delivering Shares, the amount of such payment shall be equal to the Fair Market Value of the Shares as of the date on which the Restricted Period lapsed with respect to each Vested Unit. |
| 8.6. | Stock Restrictions. Each certificate, or book entry account, representing Restricted Stock awarded under the Plan shall bear a legend in such form, or be subject to transfer restrictions, as the Company deems appropriate. |
| 9. | Performance Share Awards. |
| 9.1. | Grant of Performance Share Awards. Each Performance Share Award granted under the Plan shall be evidenced by an Award Agreement. Each Performance Share Award so granted shall be subject to the conditions set forth in this Article 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. The Committee shall have the discretion to determine: (i) the number of Shares or Share - denominated units subject to a Performance Share Award granted to any Participant; (ii) the Performance Period applicable to any Award; (iii) the conditions that must be satisfied for a Participant to earn an Award; and (iv) the other terms, conditions and restrictions of the Award. |
| 9.2. | Earning Performance Share Awards. The number of Performance Shares earned by a Participant will depend on the extent to which the Performance Goals established by the Committee are attained within the applicable Performance Period, as determined by the Committee. No payout shall be made with respect to any Performance Share Award except upon written certification by the Committee that the minimum threshold Performance Goal(s) have been achieved. |
| 9.3. | Dividend Equivalents. At the discretion of the Committee, each Performance Share Award (representing one Share) may be credited with Dividend Equivalents. Dividend Equivalents shall be withheld by the Company for the Participant’s account, and interest (for cash-settled Dividend Equivalents) or additional Dividend Equivalents (for stock-settled Dividend Equivalents) may be credited on the amount of Dividend Equivalents withheld at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant’s account and attributable to any particular Performance Share Award (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the Committee, in Shares having a Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Performance Share Award and, if such Performance Share Award is unearned or is forfeited, the Participant shall have no right to such Dividend Equivalents. |
| 10. | Performance Compensation Awards. |
| 10.1. | General. The Committee shall have the authority, at the time of grant of any Award described in this Plan, to designate such Award as a Performance Compensation Award. In addition, the Committee shall have the authority to make an Award of a cash bonus to any Participant and designate such Award as a Performance Compensation Award. |
| 10.2. | Eligibility. The Committee will, in its sole discretion, designate which Participants will be eligible to receive Performance Compensation Awards in respect of such Performance Period. However, designation of a Participant eligible to receive an Award hereunder for a Performance Period shall not in any manner entitle the Participant to receive payment in respect of any Performance Compensation Award for such Performance Period. The determination as to whether or not such Participant becomes entitled to payment in respect of any Performance Compensation Award shall be decided solely in accordance with the provisions of this Article 10. Moreover, designation of a Participant eligible to receive an Award hereunder for a particular Performance Period shall not require designation of such Participant eligible to receive an Award hereunder in any subsequent Performance Period and designation of one person as a Participant eligible to receive an Award hereunder shall not require designation of any other person as a Participant eligible to receive an Award hereunder in such period or in any other period. |
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| 10.3. | Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the Committee shall have full discretion to select the length of such Performance Period (provided any such Performance Period shall be not less than one fiscal quarter in duration), the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goal(s) that is (are) to apply to the Performance Formula. The Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence of this Section 10.3 and record the same in writing. |
| 10.4. | Payment of Performance Compensation Awards. |
| a. | Condition to Receipt of Payment. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period. |
| b. | Limitation. A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and/or (B) the Performance Formula, as applied against such Performance Goals indicates that all or some portion of such Participant’s Performance Compensation Award has been earned for the Performance Period. |
| c. | Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing the amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the actual size of each Participant’s Performance Compensation Award for the Performance Period. |
| d. | Use of Discretion. In determining the actual size of an individual Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period if, in its sole judgment, such reduction or elimination is appropriate. The Committee shall not have the discretion to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained or (B) increase a Performance Compensation Award above the maximum amount payable under Section 10.4.f of the Plan. |
| e. | Timing of Award Payments. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Article 10, but in no event earlier than the end of the Performance Period or later than March 15 of the calendar year following the calendar year during which the Performance Period or, if later the required certifications, are completed. |
| f. | Maximum Award Payable. The maximum Performance Compensation Award payable in Shares to any one Participant under the Plan for any fiscal year is subject to the limitation set forth in Section 4.1. The maximum aggregate Performance Compensation Awards payable in cash to any one Participant for any designated Performance Period is $5,000,000. Any Performance Compensation Award for which payment has been deferred shall not (between the date as of which the Award is deferred and the payment date) increase (1) with respect to a Performance Compensation Award that is payable in cash, by a measuring factor for each fiscal year greater than a reasonable rate of interest set by the Committee or (2) with respect to a Performance Compensation Award that is payable in Shares, by an amount greater than the appreciation of a Share from the date such Award is deferred to the payment date. |
| 11. | Vesting. |
| 11.1. | General. The Committee shall specify the vesting schedule or conditions of each Award. Unless the Committee specifies a different vesting schedule or terms and conditions at the Date of Grant, the terms of this Article 11 shall apply. |
| 11.2. | Time-Vested Awards. Awards that have a time or service-based vesting schedule and are not subject to performance vesting requirements (“Time-Vested Awards”) will vest and become Exercisable, or have lapse of forfeiture restrictions, as applicable, (unless the Committee provides otherwise in the Award Agreement) on the third anniversary of the Date of Grant. All Stock Option and Stock Appreciation Rights Time-Vested Awards shall (unless the Committee provides otherwise in the Award Agreement) automatically vest upon death, Disability or Retirement. Forfeiture restrictions on Restricted Stock Time-Vested Awards shall (unless the Committee provides otherwise in the Award Agreement) |
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| automatically lapse upon death or disability but shall not automatically lapse upon retirement. Forfeiture restrictions on Restricted Stock Unit Time-Vested Awards shall (unless the Committee provides otherwise in the Award Agreement) automatically lapse upon death, Disability or Retirement; provided, however, if a Restricted Stock Unit Time-Vested Award becomes payable upon Retirement (and such Retirement constitutes a separation from service within the meaning of Code Section 409A), such Restricted Stock Unit Time-Vested Award will not be paid until the date that is six months following such date of Retirement. In no event will the Committee, in the exercise of its discretion, establish a vesting period for a Restricted Stock or Restricted Stock Unit Time Vested Award that is less than one year after the Date of Grant. In the case of Restricted Stock Units that vest pursuant to this Section 11.2 (and subject to the six-month delay for payment of Time-Vested Restricted Stock Units payable upon Retirement), such Awards shall be settled no later than two and a half months following the end of the year in which such Award vests. |
| 11.3. | Performance Awards. |
| a. | General. Each Performance Compensation Award and Performance Share Award shall be subject to the Committee determination, based on Performance Goals for the Performance Periods to which such Award relates, as to whether the Award is earned and the extent to which it is earned. Such Awards shall be subject to the Committee’s certification of the attainment of such Performance Goals in accordance with the terms of Articles 9 and 10. |
| b. | Retirement Vesting. Upon a Participant’s Retirement prior to the end of a Performance Period, the Committee shall (i) determine the extent to which Performance Goals with respect to such Performance Period have been met during or with respect to the period of the Participant’s active employment, and (ii) cause to be paid to the applicable Participant partial or full Awards for such future Performance Period based upon the Committee’s determination of the degree of attainment of Performance Goals. |
| 12. | Changes in Capital Structure. |
| 12.1. | Adjustment Upon Changes in the Common Stock. In the event of any change in the Common Stock through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend or other change in the corporate structure of the Company, the Committee shall appropriately adjust the maximum number of Shares subject to the Plan, all Awards then currently outstanding, the maximum number of Shares with respect to which any one person may be granted Awards during any period as set forth in Sections 4.1 and 10.4.f of the Plan, and the exercise price of Options and Stock Appreciation Rights, so that upon Exercise, the Participant shall receive the same number of Shares in exchange for the same aggregate exercise price he or she would have received had he or she been the holder of all Shares subject to his or her outstanding Options and Stock Appreciation Rights immediately before the effective date of such change in the capital structure of the Company, and the benefits, rights and features relating to Shares underlying Restricted Awards shall be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan. Any such adjustment shall not result in the issuance of fractional shares, and the Committee shall round down the number of Shares subject to any outstanding Award unless the transaction that resulted in the capital structure change specifically authorizes a rounding up of the shares. Each such adjustment shall be made in such manner so as not to constitute a “modification” in the case of Incentive Stock Options as defined in Section 424 of the Code and in the case of Non-Qualified Stock Options, in such manner so as not to constitute a “modification” within the meaning of Section 409A of the Code. Any adjustments made under this Section 12.1 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. |
| 12.2. | Adjustment Binding. Any adjustment by the Committee pursuant to this Article 12 in the number of Shares subject to the Plan or to any outstanding Award, or to the exercise price stated in any Option or Stock Appreciation Right, or to the benefits, rights and features relating to Restricted Awards, shall be final, binding and conclusive. Notice of any adjustment shall be given by the Company to each Participant holding an Award which shall have been so adjusted. |
| 12.3. | Adjustment to Grants. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. |
| 13. | Effect of Change in Control. |
| 13.1. | General. Unless otherwise provided in an Award Agreement, notwithstanding any provision of the Plan to the contrary: |
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| a. | In the event of a Participant’s termination of Continuous Service without Cause during the 12-month period following a Change in Control, notwithstanding any provision of the Plan or any applicable Award Agreement to the contrary, all Options and Stock Appreciation Rights shall become immediately exercisable with respect to 100% of the Shares subject to such Options or Stock Appreciation Rights, and/or the Restricted Period shall expire immediately with respect to 100% of the shares of Restricted Stock or Restricted Stock Units as of the date of the Participant’s termination of Continuous Service. |
| b. | With respect to Performance Compensation Awards, in the event of a Change in Control, all incomplete Performance Periods in respect of such Award in effect on the date the Change in Control occurs shall end on the date of such change, and the Committee shall (i) determine the extent to which Performance Goals with respect to each such Performance Period have been met based upon such audited or unaudited financial information then available as it deems relevant and (ii) cause to be paid to the applicable Participants partial or full Awards with respect to Performance Goals for each such Performance Period based upon the Committee’s determination of the degree of attainment of Performance Goals or, if not determinable, assuming that the applicable “target” levels of performance have been attained. |
| 13.2. | Committee Discretion. In addition, in the event of a Change in Control, the Committee may, in its discretion, and upon at least 10 days’ advance notice to the affected persons, cancel any outstanding Awards and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Awards based upon the price per Share received or to be received by other shareholders of the Company in the event. In the case of any Option or Stock Appreciation Right with an exercise price that equals or exceeds the price paid for a Share in connection with the Change in Control, the Committee may cancel the Option or Stock Appreciation Right without the payment of consideration therefor. |
| 13.3. | Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its Affiliates, taken as a whole. |
| 14. | Registration of Stock. |
| 14.1. | General. No Option granted pursuant to the Plan shall be exercisable, nor shall Restricted Stock vest, in whole or in part, if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Shares subject to such Option or the Restricted Stock on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option (or the issuance of Shares thereunder) or the vesting of such Restricted Stock, unless such listing, registration, qualification, consent or approval may be effected or obtained free of any conditions not acceptable to the Committee. |
| 14.2. | Restrictions. If a registration statement under the Securities Act of 1933 (the “Securities Act”) with respect to the Shares issuable upon Exercise of any Option, Restricted Stock or other Award granted under the Plan is not in effect at the time of Exercise, as a condition of the issuance of the Shares, the Committee may require the Participant receiving Shares pursuant to an Award to give the Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the Shares for his or her own account for investment and not with a view to its distribution. The Company may place upon any stock certificate issued in connection with an Award the following legend or such other legend as the Committee may prescribe to prevent disposition of the Shares in violation of the Securities Act or any other applicable securities law: |
“The shares represented by this certificate have not been registered under the Securities Act of 1933 (the “Act”) and may not be sold, pledged, hypothecated or otherwise transferred or offered for sale in the absence of an effective registration statement covering such shares which has been filed under the Act or a written opinion of counsel for the Company that registration is not required.”
| 15. | Tax Withholding. To the extent provided by the terms of an Award Agreement, and subject to the discretion of the Committee, the Participant shall satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Shares under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Company to withhold Shares from the Shares otherwise issuable to the Participant as a result of the Exercise or acquisition of Shares under the Award, provided, however, that no Shares are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (c) delivering to the Company previously owned and unencumbered Shares of the Company. |
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| 16. | Amendment or Termination of the Plan. |
| 16.1. | Amendment of the Plan. The Board may at any time amend, modify, suspend or terminate the Plan; provided that, except as provided in Article 12, the Board may not, without the consent of the shareholders of the Company, make any amendment or modification which: |
| a. | increases the maximum number of Shares as to which Awards may be granted under the Plan; |
| b. | changes the class of eligible Participants; |
| c. | effects a Repricing transaction; |
| d. | increases materially the benefits accruing to a Participant under the Plan; or |
| e. | otherwise requires the approval of the shareholders of the Company under Applicable Laws (including the requirements of Section 422 of the Code) or listing requirements relating to the Shares. |
| 16.2. | Amendments Pertaining to Qualification. Notwithstanding the provisions of Section 16.1 above, the Board reserves the right to amend or modify the terms and provisions of the Plan and of any outstanding Awards granted under the Plan to the extent necessary to qualify any or all Options granted under the Plan for such favorable federal income tax treatment (including deferral of taxation upon Exercise) as may be afforded employee stock options under Section 422 of the Code, the regulations promulgated thereunder, and any amendments or replacements thereof. |
| 16.3. | Term of the Plan. Unless previously terminated by the Board, the Plan shall terminate on, and no Award shall be granted after, the tenth anniversary of the Effective Date of the Plan. |
| 16.4. | No Impairment of Rights. No amendment, modification or termination of the Plan (whether by action of the Board or by expiration of the Plan term) shall in any manner negatively affect any Award theretofore granted under the Plan without the consent of the Participant or any person claiming under or through the Participant. |
| 17. | General Provisions. |
| 17.1. | Non-Uniform Treatment. No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants. |
| 17.2. | Shareholders. No Award shall confer on any Participant any of the rights of a shareholder of the Company unless and until Shares are duly issued or transferred to the Participant in accordance with the terms of the Award. |
| 17.3. | Employment or Service. Nothing contained in the Plan or any applicable award agreement shall confer upon any employee or other person any right to continue in the employ or service of the Company or any Affiliate or to interfere in any way with the right of the Company or any Affiliate to terminate his or her employment or service at any time or increase or decrease his or her compensation or fees from the rate in existence at the time of granting an Award. |
| 17.4. | Other Compensation Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases. |
| 17.5. | Clawback. Notwithstanding any other provisions in this Plan, any Award which is, or may become, subject to recovery under any law, regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to any policy implemented by the Company to effect such law, regulation or stock exchange listing requirement. |
| 17.6. | Recapitalizations. Each Award Agreement shall be deemed to contain provisions required to reflect the provisions of Article 12. |
| 17.7. | Delivery. Upon exercise of a right granted under this Plan, the Company shall issue Shares or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory or regulatory obligations the Company shall issue Shares or pay any amounts due within a reasonable period of time thereafter. |
| 17.8. | Other Provisions. The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of the Awards, as the Committee may deem advisable. |
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| 17.9. | Section 409A. The Plan is intended to comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Committee shall make a good faith effort to interpret and administer the Plan in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless Applicable Laws require otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, (a) amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant’s termination of Continuous Service shall instead be paid on the first payroll date after the six-month anniversary of the Participant’s separation from service (or the Participant’s death, if earlier), and (b) amounts payable upon the termination of a Participant’s Continuous Service shall only be payable if such termination constitutes a “separation from service” within the meaning of Section 409A of the Code. Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Participant under Section 409A of the Code and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty. |
| 17.10. | Section 16 Compliance. It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict with the intent expressed in this Section, such provision to the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict. |
| 17.11. | Beneficiary Designation. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries by whom any right under the Plan is to be exercised in case of such Participant’s death. Each designation will revoke all prior designations by the same Participant, shall be in a form reasonably prescribed by the Committee and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. |
| 17.12. | Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the issuance of Shares or the payment of cash upon Exercise or payment of any Award. Proceeds from the issuance of Shares pursuant to Awards granted under the Plan shall constitute general funds of the Company. The expenses of the Plan shall be borne by the Company. |
| 17.13. | Acceptance of Terms and Conditions. By accepting any benefit under the Plan, each recipient of an Award under the Plan and each person claiming under or through such recipient shall be conclusively deemed to have indicated their acceptance and ratification of, and consent to, all of the terms and conditions of the Plan and any action taken under the Plan by the Committee, the Company or the Board, in any case in accordance with the terms and conditions of the Plan. |
| 17.14. | Liability. Any liability of the Company or any Affiliate to any recipient of an Award under the Plan with respect to any Award shall be based solely upon contractual obligations created by the Plan and the Award Agreement. Neither the Company nor any Affiliate nor any member of the Committee or the Board, nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability, in the absence of bad faith, to any party for any action taken or not taken in connection with the Plan, except as may expressly be provided by statute. |
| 17.15. | Choice of Law. The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to such state’s choice of law provisions, except as superseded by applicable federal law. |
| 17.16. | Severability. If any of the provisions of the Plan or any Award Agreement is held to be invalid, illegal or unenforceable, whether in whole or in part, such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby. |
| 17.17. | Headings. The words “Article,” “Section” and “paragraph” shall refer to provisions of the Plan, unless expressly indicated otherwise. Wherever any words are used in the Plan or any Award agreement in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. |
| 18. | Effective Date. This Plan was approved by the Board on February 22, 2018 which shall be the Effective Date of the Plan. |
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Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
| Name |
Jurisdiction of Incorporation | |||
| Riverview Bank |
Pennsylvania | |||
E-1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Riverview Financial Corporation
We consent to the incorporation by reference in the registration statements (No. 333-210378, 333-207953 and 333-203544) on Form S-8 of Riverview Financial Corporation of our report dated March 14, 2019, with respect to the consolidated financial statements of Riverview Financial Corporation and the effectiveness of internal control over financial reporting, which reports appear in Riverview Financial Corporation’s 2018 Annual Report on Form 10-K.
| /s/ Dixon Hughes Goodman LLP |
| Gaithersburg, Maryland |
| March 14, 2019 |
E-2
Exhibit 31.1
CERTIFICATION
I, Brett D. Fulk certify that:
1. I have reviewed this annual report on Form 10-K of Riverview Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for internal purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: March 14, 2019 | By: | /s/ Brett D. Fulk | ||||
| Brett D. Fulk Chief Executive Officer and President |
E-3
Exhibit 31.2
CERTIFICATION
I, Scott A. Seasock certify that:
1. I have reviewed this annual report on Form 10-K of Riverview Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for internal purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: March 14, 2019 | By: | /s/ Scott A. Seasock | ||||
| Scott A. Seasock Chief Financial Officer |
E-4
Exhibit 32.1
CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, Brett D. Fulk, Chief Executive Officer and President of Riverview Financial Corporation (the “Company”), hereby certify that, to the best of my knowledge, the Company’s Annual Report on Form 10-K for the period ended December 31, 2018 (the “Report”):
| 1. | fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2018. |
| Date: March 14, 2019 | By: | /s/ Brett D. Fulk | ||||
| Brett D. Fulk Chief Executive Officer and President |
E-5
Exhibit 32.2
CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, Scott A. Seasock, Chief Financial Officer of Riverview Financial Corporation (the “Company”), hereby certify that, to the best of my knowledge, the Company’s Annual Report on Form 10-K for the period ended December 31, 2018 (the “Report”):
| 1. | fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2018. |
| Date: March 14, 2019 | By: | /s/ Scott A. Seasock | ||||
| Scott A. Seasock Chief Financial Officer |
E-6
Document And Entity Information - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2018 |
Feb. 28, 2019 |
Jun. 30, 2018 |
|
| Document and Entity Information [Abstract] | |||
| Document Type | 10-K | ||
| Amendment Flag | false | ||
| Document Period End Date | Dec. 31, 2018 | ||
| Document Fiscal Year Focus | 2018 | ||
| Document Fiscal Period Focus | FY | ||
| Entity Registrant Name | Riverview Financial Corp | ||
| Entity Central Index Key | 0001590799 | ||
| Current Fiscal Year End Date | --12-31 | ||
| Entity Well-known Seasoned Issuer | No | ||
| Entity Voluntary Filers | No | ||
| Entity Current Reporting Status | Yes | ||
| Entity Filer Category | Non-accelerated Filer | ||
| Entity Common Stock, Shares Outstanding | 7,801,010 | ||
| Entity Public Float | $ 111,869,748 | ||
| Trading Symbol | RIVE | ||
| Entity Shell Company | false | ||
| Entity Emerging Growth Company | false | ||
| Entity Small Business | true |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | ||
| Common stock, shares authorized | 20,000,000 | 20,000,000 |
| Common stock, shares issued | 9,121,555 | 9,069,363 |
| Common stock, shares outstanding | 9,121,555 | 9,069,363 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Statement of Stockholders' Equity [Abstract] | ||
| Issuance of common shares | 269,885 | |
| Issuance of preferred shares | 1,348,809 | |
| Issuance under ESPP, 401k and Dividend Reinvestment plans, shares | 40,032 | 40,791 |
| Exercise of stock options, shares | 35,516 | 38,833 |
| Exercise of stock options, shares | 11,401 | |
| Dividends declared, per share | $ 0.55 | $ 0.30 |
| Issuance of shares in fair value of consideration exchanged in merger, shares | $ 4,133,945 | |
Summary of significant accounting policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of significant accounting policies | 1. Summary of significant accounting policies: Nature of Operations: Riverview Financial Corporation, (the “Company” or “Riverview”), 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”). On October 2, 2017, the Company announced the completion of its merger of equals with CBT Financial Corp. (“CBT”), effective October 1, 2017 pursuant to the Agreement and Plan of Merger between Riverview and CBT, dated April 19, 2017. On the effective date, CBT was merged with and into Riverview, with Riverview surviving (the “merger”). Additionally, CBT Bank, the wholly-owned subsidiary of CBT, merged with and into Riverview Bank, the wholly-owned subsidiary of Riverview, with Riverview Bank as the surviving institution. The Company’s financial results reflect the merger of CBT Bank with and into Riverview Bank under the purchase method of accounting, with the Company treated as the acquirer from an accounting and reporting purposes. As a result, the historical financial information included in the Company’s consolidated financial statements and related notes as reported in this Form 10-K is that of Riverview. Riverview Bank, with 28 full service offices and four limited purpose offices, is a full-service commercial bank offering a wide range of traditional banking services and financial advisory, insurance and investment services to individuals, municipalities and small to medium sized businesses in the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties. The Bank is state-chartered under the jurisdiction of the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. The Bank’s primary product is loans to small- and medium-sized businesses. Other lending products include one-to-four family residential mortgages and consumer loans. The Bank primarily funds its loans by offering interest-bearing transaction accounts to commercial enterprises and individuals. Other deposit product offerings include certificates of deposits and various demand deposit accounts. The Bank offers a broad range of financial advisory, investment and fiduciary services through its wealth management and trust operating divisions. The wealth management and trust divisions did not meet the quantitative thresholds for required segment disclosure in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Bank’s thirty community banking offices, all similar with respect to economic characteristics, share a majority of the following aggregation criteria: (i) products and services; (ii) operating processes; (iii) customer bases; (iv) delivery systems; and (v) regulatory oversight. Accordingly, they were aggregated into a single operating segment. The Company faces competition primarily from commercial banks, thrift institutions and credit unions within the Central, Northern and Southwestern Pennsylvania markets, many of which are substantially larger in terms of assets and capital. In addition, mutual funds and security brokers compete for various types of deposits, and consumer, mortgage, leasing and insurance companies compete for various types of loans and leases. Principal methods of competing for banking and permitted nonbanking services include price, nature of product, quality of service and convenience of location. The Company and the Bank are subject to regulations of certain federal and state regulatory agencies and undergo periodic examinations. Basis of presentation: The consolidated financial statements of the Company have been prepared in conformity with GAAP, Regulation S-X and reporting practices applied in the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. The Company also presents herein condensed parent company only financial information regarding Riverview Financial Corporation (“Parent Company”). Prior period amounts are reclassified when necessary to conform with the current year’s presentation. Such reclassifications had no effect on financial position or results of operations. The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2018, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued. Estimates: 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, determination of other-than-temporary impairment losses on securities, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ from those estimates. Investment securities: Investment securities are classified and accounted for as either held-to-maturity, available-for-sale, or trading account securities based on management’s intent at the time of acquisition. Management is required to reassess the appropriateness of such classifications at each reporting date. The Company classifies debt securities as held-to maturity when management has the positive intent and ability to hold such securities to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities are designated as available-for-sale when they are to be held for indefinite periods of time as management intends to use such securities to implement asset/liability strategies or to sell them in response to changes in interest rates, prepayment risk, liquidity requirements, or other circumstances identified by management. Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of income taxes, excluded from earnings and reported in a separate component of stockholders’ equity. Estimated fair values for investment securities are based on market prices from a national pricing service. Realized gains and losses are computed using the specific identification method and are included in noninterest income. Premiums are amortized, and discounts are accreted using the interest method over the contractual lives of investment securities. Investment securities that are bought and held principally for the purpose of selling them in the near term, in order to generate profits from market appreciation, are classified as trading account securities. Trading account securities are carried at market value. Interest on trading account securities is included in interest income. Profits or losses on trading account securities are included in noninterest income. All of the Company’s investment securities were classified as available-for-sale in 2018 and 2017. Transfers of securities between categories are recorded at fair value at the date of the transfer, with the accounting treatment of unrealized gains or losses determined by the category into which the security is transferred. Management evaluates each investment security at least quarterly, to determine if a decline in fair value below its amortized cost is an other-than-temporary impairment (“OTTI”), and more frequently when economic or market concerns warrant an evaluation. Factors considered in determining whether an other-than-temporary impairment was incurred include: (i) the length of time and the extent to which the fair value has been less than amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) whether a decline in fair value is attributable to adverse conditions specifically related to the security or specific conditions in an industry or geographic area; (iv) the credit-worthiness of the issuer of the security; (v) whether dividend or interest payments have been reduced or have not been made; (vi) an adverse change in the remaining expected cash flows from the security such that the Company will not recover the amortized cost of the security; (vii) whether management intends to sell the security; and (viii) if it is more likely than not that management will be required to sell the security before recovery. If a decline is judged to be other-than-temporary, the individual security is written-down to fair value with the credit related component of the write-down included in earnings and the non-credit related component included in other comprehensive income or loss. The assessment of whether an other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. Loans held for sale: Loans held for sale consist of one-to-four family residential mortgages originated and intended for sale in the secondary market with servicing rights released. The loans are carried in aggregate at the lower of cost or estimated market value, based upon current delivery prices in the secondary mortgage market. Gains or losses on the sale of these loans are recognized in noninterest income at the time of sale using the specific identification method. Loan origination fees, net of certain direct loan origination costs, are included in net gains or losses upon the sale of the related mortgage loan. These loans are generally sold without servicing rights retained and without recourse. Loans, net: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of deferred fees or costs. Interest income is accrued on the principal amount outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the related loan as an adjustment to yield using the effective interest method. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective interest method. Delinquency fees are recognized in income when chargeable, assuming collectability is reasonably assured. Transfers of financial assets, which include loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (i) the assets have been isolated from the Company; (ii) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The loan portfolio is segmented into commercial and retail loans. Commercial loans consist of commercial and commercial real estate loans. Retail loans consist of residential real estate and other consumer loans. The Company makes commercial loans for real estate development and other business purposes required by the customer base. The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversion of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of these loans is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value of not greater than 80% and vary in terms. Commercial and commercial real estate loans generally have higher credit risk compared to residential mortgage loans and consumer loans, as they typically involve larger loan balances concentrated with single borrowers or groups of borrowers. In addition, the payment expectations on loans secured by income-producing properties typically depend on the successful operations of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential mortgage loans. Of primary concern in commercial real estate lending is the borrower’s and any guarantor’s creditworthiness and the feasibility and cash flow potential of the financed project. Additional considerations include: location, market and geographic concentrations, loan to value, strength of guarantors and quality of tenants. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual consolidated financial statements on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a commercial real estate loan, we consider and review a cash flow analysis of the borrower and guarantor, when applicable, and considers the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios, the ratio of earnings before debt service to debt service, of at least 1.2 times. An environmental report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. Residential mortgages, including home equity loans, are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages may have amortizations up to 30 years. Consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are secured. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. In the latter case, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state insolvency laws, may limit the amount that can be recovered on such loans. Off-balance sheet financial instruments: In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, unused portions of lines of credit and standby letters of credit. These financial instruments are recorded in the consolidated financial statements when they are funded. Fees on commercial letters of credit and on unused available lines of credit are recorded as service charges, fees and commissions and are included in noninterest income when earned. The Company records an allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. Nonperforming assets: Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans include nonaccrual loans, troubled debt restructured loans and accruing loans past due 90 days or more. Past due status is based on contractual terms of the loan. Generally, a loan is classified as nonaccrual when it is determined that the collection of all or a portion of interest or principal is doubtful or when a default of interest or principal has existed for 90 days or more, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual, interest accruals are discontinued, and uncollected accrued interest is reversed against income in the current period. Interest collections after a loan has been placed on nonaccrual status are credited to the principal balance. Interest earned that would have been recognized is credited to income over the remaining life of the loan using the effective yield method if the nonaccrual loan is returned to performing status. A nonaccrual loan is returned to performing status when the loan is current as to principal and interest and has performed according to the contractual terms for a minimum of six months. 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 can generally fall within the following categories:
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:
Other real estate owned is comprised of properties acquired through foreclosure proceedings or in-substance foreclosures. A loan is classified as in-substance foreclosure when the Company has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate owned is included in other assets and recorded at fair value less cost to sell at the time of acquisition, establishing a new cost basis. Any excess of the loan balance over the recorded value is charged to the allowance for loan losses. Subsequent declines in the recorded values of the properties prior to their disposal and costs to maintain the assets are included in other expenses. Any gain or loss realized upon disposal of other real estate owned is included in noninterest expense. Allowance for loan losses: The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date. The allowance for loan losses account is maintained through a provision for loan losses charged to earnings. Loans, or portions of loans, determined to be confirmed losses are charged against the allowance account and subsequent recoveries, if any, are credited to the account. A loss is considered confirmed when information available at the financial statement date indicates the loan, or a portion thereof, is uncollectible. Nonaccrual, troubled debt restructured, and loans deemed impaired at the time of acquisition are reviewed monthly to determine if carrying value reductions are warranted or if these classifications should be changed. Consumer loans are considered losses and charged-off when they are 120 days past due. Management evaluates the adequacy of the allowance for loan losses account quarterly. This assessment is based on past charge-off experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. Regulators, in reviewing the loan portfolio as part of the scope of a regulatory examination, may require the Company to increase its allowance for loan losses or take other actions that would require the Company to increase its allowance for loan losses. The allowance for loan losses is maintained at a level believed to be adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses consists of an allocated element and an unallocated element. The allocated element consists of a specific allowance for impaired loans individually evaluated under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, “Receivables,” and a formula portion for loss contingencies on those loans collectively evaluated under FASB ASC 450, “Contingencies.” A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Factors considered by management in determining impairment include payment status, ability to pay and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company recognizes interest income on impaired loans, including the recording of cash receipts for nonaccrual, restructured loans or accruing loans depending on the status of the impaired loan. Loans considered impaired under FASB ASC 310 are measured for impairment 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. If 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, is less than the recorded investment in the loan, a specific allowance for the loan will be established. The formula portion of the allowance for loan losses relates to large pools of smaller-balance homogeneous loans and those identified loans considered not individually impaired having similar characteristics as these loan pools. Loss contingencies for each of the major loan pools are determined by applying a total loss factor to the current balance outstanding for each individual pool. The total loss factor is comprised of a historical loss factor using a loss migration method plus qualitative factors, which adjust the historical loss factor for changes in trends, conditions and other relevant factors that may affect repayment of the loans in these pools as of the evaluation date. Loss migration involves determining the percentage of each pool that is expected to ultimately result in loss based on historical loss experience. Historical loss factors are based on the ratio of net loans charged-off to loans, net, for each of the major groups of loans evaluated and measured for impairment under FASB ASC 450. The historical loss factor for each pool is an average of the Company’s historical net charge-off ratio for the most recent rolling eight quarters. Management adjusts these historical loss factors by qualitative factors that represent a number of environmental risks that may cause estimated credit losses associated with the current portfolio to differ from historical loss experience. These environmental risks include: (i) changes in lending policies and procedures including underwriting standards and collection, charge-off and recovery practices; (ii) changes in the composition and volume of the portfolio; (iii) changes in national, local and industry conditions, including the effects of such changes on the value of underlying collateral for collateral-dependent loans; (iv) changes in the volume and severity of classified loans including past due, nonaccrual, troubled debt restructures and other loan modifications; (v) changes in the levels of, and trends in, charge-offs and recoveries; (vi) the existence and effect of any concentrations of credit and changes in the level of such concentrations; (vii) changes in the experience, ability and depth of lending management and other relevant staff; (viii) changes in the quality of the loan review system and the degree of oversight by the board of directors; and (ix) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the current loan portfolio. Each environmental risk factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation. Management revised its calculation for, and application of, qualitative factors applied to their identified segments of homogenous loan pools. Prior to the fourth quarter of 2018, management calculated separate and distinct qualitative factors for Riverview Bank and each of its three purchased portfolios as a result of loans previously acquired in business combinations. Management determined that it would calculate qualitative factors on a weighted average basis combined for Riverview Bank and all purchased portfolios for each identified segment of homogenous loan pools. This had the impact of reducing the overall rate of qualitative adjustment to historical losses but was offset by an increased level of reserve on acquired performing loans as a result of normal accretion of acquisition related fair value marks. This change in methodology did not have a material impact on the amount of the allowance for loan losses at December 31, 2018, the date of the change, as compared to the prior methodology. The unallocated element, if any, is used to cover inherent losses that exist as of the evaluation date, but which have not been identified as part of the allocated allowance using the above impairment evaluation methodology due to limitations in the process. One such limitation is the imprecision of accurately estimating the impact current economic conditions will have on historical loss rates. Variations in the magnitude of impact may cause estimated credit losses associated with the current portfolio to differ from historical loss experience, resulting in an allowance that is higher or lower than the anticipated level. Management establishes the unallocated element of the allowance by considering environmental risks similar to the ones used for determining the qualitative factors. Management continually monitors trends in historical and qualitative factors, including trends in the volume, composition and credit quality of the portfolio. The reasonableness of the unallocated element is evaluated through monitoring trends in its level to determine if changes from period to period are directionally consistent with changes in the loan portfolio. Management believes the level of the allowance for loan losses was adequate to absorb probable credit losses as of December 31, 2018. Premises and equipment, net: Land is stated at cost. Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. The cost of routine maintenance and repairs is expensed as incurred. The cost of major replacements, renewals and betterments is capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are eliminated, and any resulting gain or loss is reflected in noninterest income. Depreciation and amortization are computed principally using the straight-line method based on the following estimated useful lives of the related assets, or in the case of leasehold improvements, to the expected terms of the leases, if shorter:
Business combinations, goodwill and other intangible assets, net: The Company accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the purchase method. Core deposit intangibles and other identified intangibles with finite useful lives are amortized using the sum of the year’s digits over their estimated useful lives of up to ten years. Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. 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 includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional allowance for credit losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the non-accretable discount which the Company will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan. Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the non-accretable difference portion of the fair value adjustment. The Company accounts for performing loans acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition. Customer list intangibles are also included in intangible assets as a result of the purchase of the wealth management companies. These intangibles are amortized as an expense over ten years using the sum of the years’ amortization method. Goodwill and other intangible assets are tested for impairment annually during the fourth quarter of each year or when circumstances arise indicating impairment may have occurred. In making this assessment that impairment has occurred, management considers a number of factors including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows, and current market data. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of impairment. Changes in economic and operating conditions, as well as other factors, could result in impairment in future periods. Any impairment losses arising from such testing would be reported in the Consolidated Statements of Income and Comprehensive Income as a separate line item within operations. There were no impairment losses recognized as a result of periodic impairment testing in each of the two-years ended December 31, 2018. Restricted equity securities: As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB-Pgh”) and Atlantic Community Bankers Bank (“ACBB”), the Company is required to purchase and hold stock in these entities to satisfy membership and borrowing requirements. This stock is restricted in that it can only be redeemed by these entities or to another member institution and all redemptions of stock must be at par. As a result of these restrictions, restricted equity stock is unlike other investment securities as there is no trading market in it and the transfer price is determined by the FHLB-Pgh and ACBB membership rules and not by market participants. Therefore, it is accounted for at historical cost and evaluated for impairment. The carrying value of restricted stock is included in other assets. Bank owned life insurance: The Company invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on certain of its directors and employees. The Bank is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies and is included in other assets. Income from increases in cash surrender value of the policies is included in noninterest income. Pension and post-retirement benefit plans: The Company sponsors various pension plans covering substantially all employees. The Company also provides post-retirement benefit plans other than pensions, consisting principally of life insurance benefits, to eligible retirees. The liabilities and annual income or expense of the Company’s pension and other post-retirement benefit plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return, based on the market-related value of assets. The fair values of plan assets are determined based on prevailing market prices or estimated fair value for investments with no available quoted prices. Statements of Cash Flows : The Consolidated Statements of Cash Flows are presented using the indirect method. For purposes of cash flow, cash and cash equivalents include cash on hand, cash items in the process of collection, noninterest-bearing and interest-bearing deposits in other banks and federal funds sold. Fair value of financial instruments: 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:
The following methods and assumptions were used by the Company to construct the summary table in Note 13 containing the 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 available-for-sale: The fair values of debt securities are based on pricing from a matrix pricing model. Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market. Net Loans: At December 31, 2018, the exit price observations are obtained from an independent third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions. The new methodology is a result of the adoption of ASU No. 2016-01. At December 31, 2017, for adjustable-rate loans that reprice 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. In conjunction with the merger, the loans purchased were recorded at their acquisition date fair value. In order to record the loans at fair value, management made three different types of fair value adjustments. A market rate adjustment was made to adjust for the movement in market interest rates, irrespective of credit adjustments, compared to the stated rates of the acquired loans. A credit adjustment was made on pools of homogeneous loans representing the changes in credit quality of the underlying borrowers from the loan inception to the acquisition date. The credit adjustment on distressed loans represents the portion of the loan balance that has been deemed uncollectible based on the management’s expectations of future cash flows for each respective loan. 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. The carrying values of adjustable-rate, fixed-term time deposits approximate their fair values at the reporting date. 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 of 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 December 31, 2018 and December 31, 2017. Advertising: The Company follows the policy of charging marketing and advertising costs to expense as incurred. Advertising expense for the years ended December 31, 2018 and 2017 was $647 and $456, respectively. Income taxes: The Company accounts for income taxes in accordance with the income tax accounting guidance set forth in FASB ASC 740, “Income Taxes”. ASC 740 sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The calculation of the provision for income taxes is complex and requires the use of estimates and judgments. The Company has two accruals for income taxes: (i) an income tax payable representing the estimated net amount currently due to the federal government, net of any reserve for potential audit issues and any tax refunds; and (ii) a deferred federal income tax and related valuation accounts, representing the estimated impact of temporary differences between how the Company recognizes its assets and liabilities under GAAP, and how such assets and liabilities are recognized under federal tax law. Deferred income taxes are provided on the balance sheet method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the effective date. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the more likely than not threshold, no tax benefit is recorded. Under the more likely than not threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company had no material unrecognized tax benefits or accrued interest and penalties for any year in the three-year period ended December 31, 2018. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“TCJA”). The legislation significantly changes U.S. tax law by, among other things, lowering the corporate income tax rate and changes to business-related exclusions. The TCJA permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. Accordingly, in the fourth quarter 2017 a tax expense of $3,888 was recorded for the effects of the legislation. As applicable, the Company recognizes accrued interest and penalties assessed as a result of a taxing authority examination through income tax expense. The Company files consolidated income tax returns in the United States of America and various states’ jurisdictions. With limited exception, the Company is no longer subject to federal and state income tax examinations by taxing authorities for years before 2015. 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 December 31, 2018 and 2017 are as follows:
Other comprehensive income (loss) and related tax effects for the years ended December 31, 2018 and 2017 are as follows:
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 years ended December 31, 2018 and 2017:
Common stock equivalents outstanding that are anti-dilutive and thus excluded from the calculation of the diluted number of shares represented above were 43,350 in 2018 and 298,246 in 2017. 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. Stock-based compensation: The Company recognizes all share-based payments to employees in the consolidated statement of operations based on their grant date fair values. The fair value of such equity instruments is recognized as an expense in the historical consolidated financial statements as services are performed. The Company uses the Black-Scholes Model to estimate the fair value of each option on the date of grant. The Black-Scholes Model estimates the fair value of employee stock options using a pricing model which takes into consideration the exercise price of the option, the expected life of the option, the current market price and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company typically grants stock options to employees with an exercise price equal to the fair value of the shares at the date of grant. The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. Recent Accounting Standards In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (i) 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. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (ii) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (iii) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) 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 on the balance sheet; (v) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset , securities or loans and receivables, on the balance sheet or the accompanying notes to the financial statements; and (viii) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company measured the fair value of its loan portfolio using an exit price notion for the fiscal years beginning after December 31, 2017, including interim periods thereafter. The adoption of ASU 2016-01 did not have a material effect on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases”. From the lessee’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”. The amendments in this Update corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the lease standard. The amendments target 16 issues including: residual value guarantees; rate implicit in the lease; lessee reassessment of lease classification; lessor reassessment of lease term and purchase option; variable lease payments that depend on an index or a rate; investment tax credits; lease term and purchase option; transition guidance for amounts previously recognized in business combinations; recognition of certain transition adjustments in earnings rather than equity; transition guidance for leases previously classified as capital leases under Topic 840; transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840; transition guidance for sale and leaseback transactions; impairment of net investment in the lease; unguaranteed residual asset; effect of initial direct costs on rate implicit in the lease; and failed sale and leaseback transaction. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”. This amendment provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840. In addition, the ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02, “Leases (Topic 842).” The new practical expedient will allow lessors to elect, by class of underlying asset, to not separate non-lease components from the associated lease component when specified conditions are met. Examples of non-lease components include equipment maintenance services, common area maintenance services in real estate, or other goods or services provided to the lessee apart from the right to use the underlying asset. The practical expedient must be applied consistently for all lease contracts. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842)—Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Upon adoption of ASU 2016-02, ASU 2018-10, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we expect to recognize right-of-use assets and related lease liabilities totaling $3,719. We expect to elect to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases, as defined by related accounting guidance. We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet. We expect to utilize the transition approach prescribed by ASU 2018-11. The adoption of the guidance on January 1, 2019, is not expected to have a significant impact on the Company’s financial position or operating results. In June 2016, the FASB issued 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. In November 2018, the FASB issued ASU No. 2018-19—Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. 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. During the third quarter of 2018, we selected a vendor-based solution and are currently collecting and reviewing loan data for use in this model. The Company is currently 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 flows. 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. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including trust and asset management fees, deposit related fees, and interchange fees. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company adopted ASU 2014-09 and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. The adoption of ASU 2016-20 and 2014-09 did not have a material effect on our consolidated financial statements. See Note 14 Revenue Recognition for more information. In January 2017, the 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 adoption of ASU No. 2017-01 did not have a material effect on our consolidated financial statements. In January 2017, the 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 adoption of ASU No. 2017-05 did not have a material effect on our consolidated financial statements. In March 2017, the FASB issued ASU No. 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 adoption of ASU No. 2017- 07 did not have a material effect on our consolidated financial statements. In March 2017, the 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 does not expect the adoption of ASU No. 2017-08 to have a material effect on our consolidated financial statements. In May 2017, the FASB issued ASU No. 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 adoption of ASU No. 2017-09 did not have a material effect on our consolidated financial statements. In August 2017, the FASB issued ASU No. 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. The Company does not expect the adoption of ASU No. 2017-12 to have a material effect on our consolidated financial statements. In September 2017, the FASB issued ASU No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This Accounting Standards Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the July 20, 2017 Emerging Issues Task Force (EITF) meeting. The July announcement addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphs pursuant to the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula,” effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases. The amendments in this Update also rescind three SEC Observer Comments effective upon the initial adoption of Topic 842. One SEC Staff Observer comment is being moved to Topic 842. The adoption of ASU 2017-13 did not have a material effect on our consolidated financial statements. In November 2017, the FASB issued ASU No. 2017-14 “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This Accounting Standards Update amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of ASU No. 2017-14 did not have a material effect on our consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow for a reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the Company elected to early adopt this guidance effective December 31, 2017. The adoption of ASU No. 2018-02 resulted in a reclassification of stranded tax effects of $259 from accumulated other comprehensive income (loss) to retained earnings. In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which makes minor changes to the ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The technical corrections affect the following aspects of the ASU: (i) equity securities without a readily determinable fair value — discontinuation; (ii) equity securities without a readily determinable fair value — adjustments; (iii) forward contracts and purchased options; (iv) presentation requirements for certain fair value option liabilities; (v) fair value option liabilities denominated in a foreign currency and (vi) transition guidance for equity securities without a readily determinable fair value. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The adoption of ASU No. 2018-03 did not have a material effect on our consolidated financial statements. In March 2018, the FASB issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin [SAB] No. 118”. The ASU adds seven paragraphs to ASC 740, Income Taxes, that contain SEC guidance related to SAB 118 codified as SEC SAB Topic 5.EE, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”). The adoption of ASU No. 2018-05 did not have a material effect on our consolidated financial statements. In May 2018, the FASB issued ASU No. 2018-06, “Codification Improvements to Topic 942, Financial Services—Depository and Lending”. The amendments in this Update supersede the guidance in Subtopic 942-740, Financial Services—Depository and Lending—Income Taxes, that is related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency (“OCC”) and no longer is relevant. The amendments in this Update were effective upon issuance of this Update. The adoption of ASU No. 2018-06 did not have a material effect on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this Update improve the effectiveness of fair value measurement disclosures by modifying the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures. In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”. Subtopic 715-20 addresses the disclosure of other accounting and reporting requirements related to single-employer defined benefit pension or other postretirement benefit plans. The amendments in this Update remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the Board’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments in this Update apply to all employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for all entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures. |
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| Merger accounting | 2. Merger accounting: On April 20, 2017, the Company and CBT announced the execution of a definitive merger agreement, providing for the merger of CBT with and into the Company. Immediately following the holding company merger, CBT Bank merged with and into Riverview Bank, the wholly-owned subsidiary of Riverview. This merger became effective prior to the start of business on October 1, 2017. Pursuant to the terms of the merger agreement, the merger was effected by the issuance of shares of Riverview stock to CBT shareholders. Each share of CBT common stock was converted into the right to receive 2.86 shares of Riverview common stock, with cash paid in lieu of fractional shares. The merger provided an expanded geographic footprint for the Company and increased the size of the balance sheet wherein the combined companies can realize economies of scale and other operating efficiencies. The merger has been accounted for using the acquisition method of accounting. To determine the accounting treatment of the merger, management utilized the following factors in concluding that Riverview is considered to be the accounting acquirer:
Based on consideration of all the relevant facts and circumstances of the merger, including the above factors, for accounting purposes, Riverview is considered to have acquired CBT in this transaction with the surviving legal entity operating under Riverview’s Articles of Incorporation. As a result, the historical financial statements of the combined company are the historical financial statements of Riverview. The assets and liabilities of CBT as of the effective date of the merger were recorded at their respective estimated fair values and added to those of Riverview. The excess of purchase price over the net estimated fair values of the acquired assets and liabilities of CBT Financial was allocated to all identifiable intangible assets. The remaining excess was allocated to goodwill. The goodwill resulting from the merger will not be amortized to expense, but instead will be reviewed for impairment at least annually. To the extent goodwill is impaired, its carrying value would be written down to its implied fair value and a charge would be made to earnings. Customer related intangibles and other intangibles with definite useful lives will be amortized to expense over their estimated useful lives. These financial statements will reflect the results attributable to the acquired operations of CBT, as the acquired company for accounting purposes, beginning on the effective date of the merger. The Company utilized the closing price of its common stock on September 29, 2017, the last trading day prior to the merger, of $13.20 per share to determine the acquisition date fair value of the consideration transferred. The acquired assets and assumed liabilities were measured at fair value as of the acquisition date. In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest, which required the utilization of significant estimates and judgment in accounting for the acquisition. As of October 1, 2017, goodwill totaled $19,675, which is equal to the excess of the consideration transferred over the fair value of the identifiable net assets acquired in connection with the merger. Goodwill recorded in the Merger resulted from the expected synergies of the combined operations of the newly merged entities as well as intangibles that do not qualify for separate recognition such as the acquired workforce. There was no tax-deductible goodwill in the transaction.
The estimated fair values of cash and due from banks, accrued interest receivable, other assets, accrued interest payable and other liabilities approximate their stated values. The estimated fair values of the investment securities available-for-sale were calculated primarily using level 2 inputs. The prices for these instruments are obtained through an independent pricing service and are derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviewed the data and assumptions used in pricing the securities to ensure the highest level of significant inputs are derived from market observable data. Land and buildings included in premises and equipment, net, and real estate acquired through foreclosure included in other assets were primarily valued based on appraised collateral values. The Company prepared an internal market rent analysis to compare the lease contract obligations to comparable market rental rates. The Company believed that the leased contract rates were in a reasonable range of market rental rates and concluded that no fair value adjustment related to leasehold interest was necessary. The most significant fair value determination related to the valuation of acquired loans using level 3 input. The business combination resulted in the acquisition of loans with and without evidence of credit quality deterioration. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected life time losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company prepared three separate loan fair value adjustments that it believed a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three-separate fair valuation methodologies employed are: 1) an interest rate loan fair value adjustment; 2) a general credit fair value adjustment; and 3) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310-30 procedures. The acquired loans were recorded at fair value at the acquisition date without carryover of CBT Bank’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $393,821. The table below illustrates the fair value adjustments made to the amortized cost basis to present a fair value of the loans acquired. The credit adjustment on purchased credit impaired loans was derived in accordance with ASC 310-30 and represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.
CBT Bank’s loans, without evidence of credit deterioration, were assembled into groupings by characteristics such as loan type, term, collateral and rate and fair valued by discounting both expected principal and interest cash flows using an observable discount rate for similar instruments that a market participant would consider in determining fair value. The discount rate utilized was the average of market rates for similar loans obtained from various external data sources. Additionally, consideration was given to management’s best estimates of default rates and payment speeds in projecting the expected cash flows. A general credit risk fair value adjustment was calculated using a two-part general credit fair value analysis: (1) expected lifetime losses, using an average of historical losses of the Company, Riverview Bank and peer banks; and (2) an estimated fair value adjustment for qualitative factors related to general economic conditions and the risk related to lack of familiarity with the originator’s underwriting process. At acquisition, CBT Bank’s loan portfolio, without evidence of credit deterioration, was recorded at a current fair value of $373,868. CBT Bank’s loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required cash flows due to concerns about credit quality. Management measured loan fair values based on loan file reviews including borrower financial statements or tax returns, appraised collateral values, expected cash flows and historical loss factors. Such loans were fair valued by discounting the expected cash flows at acquisition by an observable discount rate for similar instruments that a market participant would consider in determining fair value. The difference between contractually required payments at the acquisition date and cash flows expected to be collected was recorded as a nonaccretable difference. The following is a summary of the acquired impaired loans from the merger with CBT Bank:
The Company recorded a core deposit intangible asset related to a value ascribed to demand, interest checking, money market and savings accounts, referred to as core deposits, acquired as part of the acquisition. The value assigned to the acquired core deposits represents the future economic benefit of the potential cost savings from acquiring the core deposits, net of operating expenses and including ancillary fee income, compared to the cost of obtaining alternative funds from available market sources. Management used estimates including the expected attrition rates of core deposit accounts, future interest rate levels, and the cost of servicing various depository products. The Company also recorded a trade name intangible asset using relief from the royalty method. The value assigned to the trade name represents the present value of the potential cost savings of paying a royalty for the use of a trade name. Both the core deposit intangible and trade name intangible are being amortized over an estimated useful life of 10 years. Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of time deposits was calculated as the present value of the certificates’ expected contractual payments discounted by market rates for similar time deposits. The Company assumed trust preferred subordinate debt with the merger. The fair value of the trust preferred subordinate debt was determined based upon an estimated fair value from an independent investment banking firm. The amount of revenue derived from CBT since the acquisition date included in the consolidated income statement for the year ended December 31, 2017 was approximately $6,724. In connection with the acquisition, Riverview incurred merger-related expenses relating to personnel, professional fees, occupancy and equipment and other costs of integrating and conforming acquired operations. Those expenses consisted largely of costs related to professional and consulting services, employment severance and early retirement charges, termination of contractual agreements and conversion of systems and/or integration of operations, initial communication expenses, printing and filing costs of completing the transaction and investment banking charges. A summary of merger related costs included in the consolidated statements of income for the years ended December 31, 2018 and 2017 are summarized as follows:
Pro Forma Condensed Combined Financial Information: The following table presents unaudited pro forma information as if the merger between Riverview and CBT had been completed on January 1, 2016. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company merged with CBT at the beginning of 2016. Supplemental pro forma earnings were adjusted to exclude merger related costs. The expected future amortizations of the various fair value adjustments were included beginning in 2016. Cost savings are not reflected in the unaudited pro forma amounts for the periods presented. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions on revenues, expense efficiencies, or other factors.
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Cash and due from banks |
12 Months Ended | |
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Dec. 31, 2018 | ||
| Cash and Cash Equivalents [Abstract] | ||
| Cash and due from banks | 3. Cash and due from banks: The Bank is required to maintain average reserve balances in cash or on deposit with the Federal Reserve Bank. There was no required reserve at December 31, 2018. The required reserve was $12,336 at December 31, 2017. In addition, the Bank’s other correspondents may require average compensating balances as part of their agreements to provide services. The Bank maintains balances with correspondent banks that may exceed federal insured limits, which management considers to be a normal business risk. |
Investment securities |
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| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities | 4. Investment securities: The amortized cost and fair value of investment securities available-for-sale aggregated by investment category at December 31, 2018 and 2017 are summarized as follows:
The Company had a net unrealized loss of $1,725, net of deferred income taxes of $458 at December 31, 2018, and a net unrealized loss of $893, net of deferred income taxes of $238 at December 31, 2017. Proceeds from the sale of investment securities available-for-sale amounted to $4,825 in 2018. Gross gains of $40 and no gross losses were realized from the sale of securities in 2018. The income tax provision applicable to net realized gains amounted to $8 in 2018. In 2017, proceeds from the sale of investment securities available-for-sale amounted to $18,952, with gross gains of $166 and gross losses of $77 realized from the sale. The maturity distribution of the fair value, which is the net carrying amount of the debt securities classified as available-for-sale at December 31, 2018, is summarized as follows:
Securities with a carrying value of $71,797 and $93,201 at December 31, 2018 and 2017, respectively, were pledged to secure public deposits 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 December 31, 2018 and December 31, 2017, 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 December 31, 2018 and 2017, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:
The Company had 92 investment securities, consisting of 39 taxable state and municipal obligations, 22 tax-exempt municipal obligations, four corporate obligations and 27 mortgage-backed securities that were in unrealized loss positions at December 31, 2018. Of these securities, 35 taxable state and municipal obligations, 19 tax-exempt municipal obligations, four corporate obligations and 13 mortgage-backed securities 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 any of the unrealized losses to be OTTI at December 31, 2018. The Company had 88 investment securities, consisting of 34 taxable state and municipal obligations, 21 tax-exempt municipal obligations, four corporate obligations and 29 mortgage-backed securities that were in unrealized loss positions at December 31, 2017. Of these securities, 25 taxable state and municipal obligations, two corporate obligations and five mortgage-backed securities were in a continuous unrealized loss position for twelve months or more. |
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Loans, net and allowance for loan losses |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans, net and allowance for loan losses | 5. Loans, net and allowance for loan losses: The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2018 and 2017 are summarized as follows. Net deferred loan costs were $1,026 and $863 at December 31, 2018 and 2017, respectively.
Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $9,555 and $9,465 at December 31, 2018 and 2017, respectively. Advances and repayments during 2018, totaled $1,096 and $1,006, respectively. As a result of the merger, the composition of the individuals considered related parties at December 31, 2017 changed. Loan balances totaling $5,244 were removed for individuals no longer considered related parties and $6,387 was included for individuals added as related parties in 2017. There were no related party loans that were classified as nonaccrual, past due, or restructured or considered a potential credit risk at December 31, 2018 and 2017. At December 31, 2018, the majority of the Company’s loans were at least partially secured by real estate located in Central and Southwestern Pennsylvania. Therefore, a primary concentration of credit risk is directly related to the real estate market in these areas. Changes in the general economy, local economy or in the real estate market could affect the ultimate collectability of this portion of the loan portfolio. Management does not believe there are any other significant concentrations of credit risk that could affect the loan portfolio. The changes in the allowance for loan losses account by major classification of loan for the years ended December 31, 2018 and 2017 are summarized as follows:
The allocation of the allowance for loan losses and the related loans by major classifications of loans at December 31, 2018 and December 31, 2017 is summarized as follows:
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 December 31, 2018 and 2017:
The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2018 and 2017. PCI loans are excluded from the aging and nonaccrual loan schedules.
The following tables summarize information concerning impaired loans including purchase credit impaired loans as of and for the years ended December 31, 2018 and 2017, by major loan classification:
For the years ended December 31, interest income, related to impaired loans, would have been $99 in 2018 and $77 in 2017 had the loans been current and the terms of the loans not been modified. There were no loans modified as troubled debt restructurings for the year ended December 31, 2018. At December 31, 2018, there were 14 restructured loans totaling $2,925. At and for the year ended December 31, 2017, there were two loans modified as troubled debt restructurings and 19 restructured loans totaling $5,606. The following tables present the number of loans and recorded investment in loans restructured and identified as troubled debt restructurings for the year ended December 31, 2017. Defaulted loans are those which are 30 days or more past due for payment under the modified terms.
During 2018, there were two defaults on loans restructured, totaling $759, and there were five defaults on loans restructured, totaling $697 during 2017. 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 CBT, effective October 1, 2017, the Bank identified 37 purchased credit impaired (“PCI”) loans. As part of the merger with Citizens, effective December 31, 2015, the Bank identified 10 PCI loans. As a result of the consolidation with Union, effective November 1, 2013, the Bank identified 14 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 unpaid principal balances and the related carrying amount of acquired loans as of December 31, 2018 and December 31, 2017 were as follows:
As of the indicated dates, the changes in the accretable discount related to the purchased credit impaired loans were as follows:
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Off-balance sheet financial instruments |
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| Off-balance sheet financial instruments | 6. Off-balance sheet financial instruments: 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. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, unused portions of lines of credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. We record a valuation allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. The allowance was $73 and $66 at December 31, 2018 and 2017, respectively. The contractual amounts of off-balance sheet commitments at December 31, 2018 and 2017 are summarized as follows:
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment. Unused portions of lines of credit, including home equity and overdraft protection agreements, are commitments for possible future extensions of credit to existing customers. Unused portions of home equity lines are collateralized and generally have fixed expiration dates. Overdraft protection agreements are uncollateralized and usually do not carry specific maturity dates. Unused portions of lines of credit ultimately may not be drawn upon to the total extent to which the Company is committed. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all standby letters of credit expire within twelve months. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral supporting these standby letters of credit as deemed necessary. The carrying value of the liability for the Company’s obligations under guarantees for standby letters of credit was not material at December 31, 2018 and 2017. |
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Premises and equipment, net |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment, net | 7. Premises and equipment, net: Premises and equipment at December 31, 2018 and 2017 are summarized as follows:
Depreciation and amortization included in noninterest expense amounted to $1,219 and $702 in 2018 and 2017, respectively. Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2018, pertaining to banking premises and equipment, future minimum annual rent commitments under various operating leases are summarized as follows:
The leases contain options to extend for periods from one to ten years. The cost of such options is not included in the annual rental commitments. Rent expense for the years ended December 31, 2018 and 2017 amounted to $522 and $488, respectively. |
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Intangible assets, net |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets, net | 8. Intangible assets, net: The gross carrying amount and accumulated amortization related to intangible assets at December 31, 2018 and 2017 are presented below:
Amortization expense for intangible assets totaled $867 and $538 for the years ended 2018 and 2017, respectively. Riverview estimates the amortization expense for amortizable intangibles as follows:
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Other assets |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | 9. Other assets: The components of other assets at December 31, 2018 and 2017 are summarized as follows:
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Deposits |
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| Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits | 10. Deposits: The major components of interest-bearing and noninterest-bearing deposits at December 31, 2018 and 2017 are summarized as follows:
The aggregate amount of time deposits that met or exceeded the FDIC insurance limit of $250 was $33,044 at December 31, 2018 and $35,182 at December 31, 2017. The aggregate amounts of maturities for all time deposits at December 31, 2018, are summarized as follows:
Deposits of directors, executive officers, principal stockholders or their affiliates are accepted on the same terms and at the prevailing interest rates offered at the time of deposit for comparable transactions with unrelated parties. The amount of related party deposits totaled $1,476 at December 31, 2018 and $3,578 at December 31, 2017. The aggregate amount of deposits reclassified as loans was $169 at December 31, 2018, and $145 at December 31, 2017. Management evaluates transaction accounts that are overdrawn for collectability as part of its evaluation for credit losses. During 2018 and 2017, no deposits were received on terms other than those available in the normal course of business. |
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Short-term borrowings |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short-term borrowings | 11. Short-term borrowings: Short-term borrowings consisting of FHLB-Pgh and ACBB generally represent overnight or less than 30-day borrowings at December 31, 2018 and 2017 are summarized as follows:
The Bank has an agreement with the FHLB-Pgh which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At December 31, 2018, the Bank’s maximum borrowing capacity was $419,307, of which $39,200 was outstanding in borrowings. Advances with the FHLB-Pgh are secured under terms of a blanket collateral agreement by a pledge of FHLB-Pgh stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB-Pgh advances based on rates of the FHLB-Pgh discount notes. This rate resets each day. The Bank also has an unsecured line of credit agreement with ACBB, where the line amount was $10,000 at December 31, 2018 and December 31, 2017. There were no amounts outstanding on this line of credit at December 31, 2018 and 2017. Interest on this borrowing accrues daily based on the daily federal funds rate. |
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Long-term debt |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | 12. Long-term debt: Long-term debt consisting of the following advances at December 31, 2018 and 2017 are as follows:
Maturities of long-term debt, by contractual maturity, in years subsequent to December 31, 2018 are as follows:
The $2,000 unsecured term loan agreement with a local bank, due March 3, 2031, was fixed at 3.25% until March 3, 2016, and thereafter, adjusted every three years and indexed to the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years, plus 3 %, with a floor of 4.25%. Interest is payable monthly for a period of 18 months until March 3, 2016, and thereafter, 180 monthly payments of principal and interest in an amount sufficient to fully amortize the balance of the loan over 15 years. This unsecured term loan was paid off without prepayment penalty on December 21, 2018. The $5,000 unsecured, non-revolving line of credit with a local bank consisted of four separate draws of $350, $2,000, $2,050 and $600. The aggregate outstanding balance of the line was $4,592 at December 31, 2017. The maximum term of the facility is 42 months consisting of a non-revolving draw period followed by a principal repayment term. The interest was fixed at 3.99% until January 11, 2016 . Thereafter, the interest rate will be adjusted every three years and indexed to the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years, plus 3%, rounded up to the nearest 0.125%, with a floor of 4.50% until July 11, 2016, and then a floor of 4.25% thereafter. Each advance required 180monthly payments of principal including interest in an amount sufficient to fully amortize the balance of the loan over the term of the loan. This unsecured line of credit was paid off without prepayment penalty on December 21, 2018.As a result of the merger with CBT, the Company assumed the subordinated debentures that were recorded as of the October 1, 2017 effective date. A trust formed by CBT Financial issued $5,000 of floating rate trust preferred securities in 2003 as part of a pooled offering of such securities. The interest rate adjusts quarterly to the three-month LIBOR rate plus 2.95%. CBT Financial issued subordinated debentures to the trust in exchange for ownership of all of the common securities of the trust and the proceeds of the offering; the debentures represent the sole asset of the trust. CBT Financial became eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2008 at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2033. The interest rate on the subordinated debentures was 5.74% and 4.55% on December 31, 2018 and 2017. In 2005 a trust formed by CBT Financial issued $4,000 of fixed rate trust preferred securities as part of a pooled offering of such securities. CBT Financial issued subordinated debentures to the trust in exchange for ownership of all of the common securities of the trust and the proceeds of the offering; the debentures represent the sole asset of the trust. CBT Financial became eligible to redeem the subordinated debentures, in whole but not in part, beginning in 2010 at a price of 100% of face value. CBT Financial did not redeem the subordinated debentures and the rate converted to a floating rate of three-month LIBOR plus 1.54%. The subordinated debentures must be redeemed no later than 2035. The interest rate on the subordinated debentures was 4.33% and 3.13% on December 31, 2018 and 2017. Interest payments on the debentures may be deferred at any time at the election of the Company for up to 20 consecutive quarterly periods ( 5 years). Interest on the debentures will accrue during the extension period, and all accrued principal and interest must be paid at the end of the extension period. During an extension period, the Company may not declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to any of the Company’s capital stock. |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of financial instruments | 13. Fair value of financial instruments: Assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017 are summarized as follows:
Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017 are summarized as follows:
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
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 December 31, 2018 and 2017 and their placement within the fair value hierarchy are as follows:
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Revenue recognition |
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| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue recognition | 14. Revenue recognition: On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 1 Summary of Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and other fees. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below. Service Charges, Fees and Commissions Service charges on deposit accounts consist of monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. Such income is presented net of network expenses as the Company acts as an agent in these transactions. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Other noninterest income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, investment advisor fees from wealth management products, safety deposit box rental fees, and other miscellaneous revenue streams. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees or trailers from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. Investment advisor fees from wealth management products is earned over time and based on an annual percentage rate of the net asset value. The investment advisor fees are charged to the customer’s account in advance on the first month of the quarter, and the revenue is recognized over the following three-month period. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Trust and Asset Management Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2018 and 2017.
Contract Balances A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration, resulting in a contract receivable, or before payment is due, resulting in a contract asset. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of December 31, 2018 and 2017, the Company did not have any significant contract balances. Contract Acquisition Costs In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained, for example, sales commission. The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost. |
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Employee Benefit Plans |
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| Postemployment Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee Benefit Plans | 15. Employee Benefit Plans: Defined Contribution Plan: The Bank maintains a contributory 401(k) retirement plan for all eligible employees. Currently, the Bank’s policy is to match 100% of the employee’s voluntary contribution to the plan up to a maximum of 4% of the employees’ compensation. Additionally, the Bank may make discretionary contributions to the plan after considering current profits and business conditions. The amount charged to expense in 2018 and 2017 totaled $508 and $328, respectively. Of these amounts, no discretionary contributions were made in 2018 and 2017. Director Emeritus Plan: Effective November 2, 2011, a Director Emeritus Agreement (the “Agreement”) was entered into by and between the Company, the Bank and certain Directors. In order to promote orderly succession of the Company’s and Bank’s Board of Directors, the Agreement defines the benefits the Company is willing to provide upon the termination of service to those individuals who served as Directors of the Company and Bank as of December 31, 2011, where the Company will pay the Director $15 per year for services performed as a Director Emeritus, which may be increased at the sole discretion of the Board of Directors. The agreement further states that the benefit is to be paid to a Director Emeritus over five years, in 12 monthly installments:
Expenses recorded under the terms of this agreement were $83 and $38 for the years ended December 31, 2018 and 2017, respectively. Deferred Compensation Agreements: The Bank maintains 12 Supplemental Executive Retirement Plan (“SERP”) agreements that provide specified benefits to certain key executives. The agreements were specifically designed to encourage key executives to remain as employees of the Bank. The agreements are unfunded, with benefits to be paid from the Bank’s general assets. After normal retirement, benefits are payable to the executive or his/her beneficiary in equal monthly installments for a period of 15 years for nine of the executives and 20 years for three of the executives. There are provisions for death benefits should a participant die before his/her retirement date. These benefits are also subject to change of control and other provisions. The Bank maintains a “Director Deferred Fee Agreement” (“DDFA”) which allows electing directors to defer payment of their directors’ fees until a future date. In addition, the Bank maintains an “Executive Deferred Compensation Agreement” (“EDCA”) with 12 of its current and former executives. This agreement allows the executives of the Bank to defer payment of their base salary, bonus and performance-based compensation until a future date. For both types of deferred fee agreements during the deferral period, the estimated present value of the future benefits is accrued over the effective dates of the agreements using an interest factor that is evaluated and approved by the compensation committee of the Board of Directors on an annual basis. The agreements are unfunded, with benefits to be paid from the Bank’s general assets. The accrued benefit obligations for all the plans total $4,749 at December 31, 2018 and $4,460 at December 31, 2017 and are included in other liabilities. Expenses relating to these plans totaled $332 and $240 in the years ended December 31, 2018 and 2017, respectively. Stock Option Plan: The Company has a nonqualified stock option plan to advance the development, growth and financial condition of the Company. This plan provides incentives through participation in the appreciation of its common stock in order to secure, retain and motivate directors, officers and key employees and align such person’s interests with those of its shareholders. A total of 350,000 shares were originally authorized under the stock option plan. The vesting schedule for all option grants is a seven-year cliff, which means that the options are 100% vested in the seventh year following the grant date while the expiration date of all options is ten years following the grant date. The Plan states that upon the date of death of a participant, all awards granted pursuant to the agreement for that participant shall become fully vested and remain exercisable for the option grant’s remaining term. All stock options, except for 6,500 stock options granted during 2018, were fully vested and exercisable at December 31, 2018. The following table summarizes the stock option activity for the years ended December 31, 2018 and 2017:
The fair value of options granted during 2018 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions.
During the year ended December 31, 2018, there were 35,516 stock options exercised with a total intrinsic value (the amount by which the stock price exceeded the exercise price) and fair value of approximately $115 and $490, respectively. Cash received from the exercise of stock options for the year ended December 31, 2018 was $55. There was intrinsic value associated with 220,130 options outstanding at December 31, 2018, where the market value of the stock as of the close of business at year end was $10.90 per share as compared with the option exercise price of $9.75 for 26,830 options, $10.00 for 92,800 options, $10.35 for 12,500 options and $10.60 for 88,000 options. There was no intrinsic value associated with 43,350 options outstanding at December 31, 2018, where the market value of the stock as of the close of business at year end was $10.90 per share as compared with the option exercise price of $12.25 for 2,500 options, $13.05 for 19,350 options, $11.94 for 15,000 options, $12.97 for 5,000 options and $12.58 for 1,500 options At December 31, 2017, there was intrinsic value associated with 298,246 options outstanding, where the market value of the stock as of the close of business at year end was $13.15 per share as compared with the option exercise price of $10.60 for 113,500 options, $10.35 for 12,500 options, $9.75 for 31,996 options, $10.00 for 98,400 options, $12.25 for 2,500 options, $13.05 for 19,350 options and $11.94 for 20,000 options. The Company accounts for these options in accordance with GAAP, which requires that the fair value of the equity awards be recognized as compensation expense over the period during which the employee is required to provide service in exchange for such an award. The Company policy has been to amortize compensation expense over the vesting period, or seven years. The Company recognized $9 and $203 of compensation expense for stock options in the years ended December 31, 2018 and 2017. As of December 31, 2018, the Company had no unrecognized compensation expense associated with the stock options since all of the options granted prior to 2018 were fully vested in 2017 as a result of the change in control associated with the merger with CBT, which in turn caused compensation expense to be higher in 2017 as compared with 2018. Employee Stock Purchase Plan: The Company has an Employee Stock Purchase Plan (“ESPP”), whereby employees may purchase up to 170,000 shares of common stock of the Company, at a discount of up to a 15%. On April 15, 2015, the Company filed a Registration Statement on Form S-8, to register 75,000 shares of common stock that the Company may issue to the ESPP. Common shares acquired through the ESPP totaled 18,650 shares in 2018 and 11,301 shares in 2017. Defined Benefit Pension Plan and Post Retirement Benefit Plan: As a result of the consolidation with Union, the Company took over Union’s noncontributory defined benefit pension plan, which substantially covered all Union employees. The plan benefits were based on average salary and years of service. Union elected to freeze all benefits earned under the plan effective January 1, 2007. The Company also assumed responsibility of Citizens’ noncontributory defined benefit pension plan effective as of the December 31, 2015 merger date. The plan substantially covered all Citizens employees and the plan benefits were based on average salary and years of service. Citizens elected to freeze all benefits earned under the plan effective January 1, 2013. As a result of the merger of equals effective October 1, 2017, the Company assumed responsibility of CBT’s postretirement benefits plan, which is an unfunded postretirement benefit plan covering health insurance costs and postretirement life insurance benefits for certain retirees. The Company accounts for the defined benefit pension plan and the postretirement benefits plan in accordance with FASB ASC Topic 715, “Compensation-Retirement Plans”. This guidance requires the Company to recognize the funded status, which is the difference between the fair value of the plan assets and the projected benefit obligation of the benefit plan. The following table presents the plans’ funded status and the amounts recognized in the Company’s consolidated financial statements for 2018 and 2017. The measurement date, for purposes of these valuations, was December 31, 2018 and 2017.
Amounts related to the plan that have been recognized in accumulated other comprehensive loss but not yet recognized as a component of net periodic pension cost are as follows for the years ended December 31:
The amount of net actuarial cost expected to be amortized in 2019 is $17 for the pension plans. Net periodic pension expense and postretirement benefit cost include the following components for the years ended December 31:
The accumulated benefit obligation was $7,669 at December 31, 2018 and $8,403 at December 31, 2017 for the pension benefit and postretirement benefit plans.
The following summarizes the actuarial assumptions used for the Company’s pension plan and postretirement benefits plan:
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
The Company’s pension plan asset allocations as of the year ends, by asset category, are as follows:
The fair value of the pension plan assets at December 31, 2018 and 2017 by asset category are as follows:
The valuation used is based on quoted market prices provided by an independent third party. The Company does not expect to contribute to either of the plans in 2019. |
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Income taxes |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | 16. Income taxes: The current and deferred amounts of the provision for income taxes expense (benefit) for each of the years ended December 31, 2018 and 2017 are summarized as follows:
The components of the net deferred tax asset at December 31, 2018 and 2017 are summarized as follows:
Management believes that future taxable income will be sufficient to utilize deferred tax assets. Core earnings of the Company will continue to support the recognition of the deferred tax asset based on future growth projections. A reconciliation between the amount of the effective income tax expense and the income tax expense that would have been provided at the federal statutory rate of 21.0 percent for the year ended December 31, 2018 and 34.0 percent for the year ended December 31, 2017 is summarized as follows:
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the highest U.S. corporate tax rate from the current rate of 35% to 21%, effective January 1, 2018. As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted rate. This revaluation resulted in an additional charge of $3,888 to income tax expense in continuing operations and a corresponding reduction in the net deferred tax assets. The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the 2018 and 2017 consolidated financial statements. As stated above, as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, deferred tax assets and liabilities were remeasured based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which these assets and liabilities are expected to reverse in the future. Notwithstanding the foregoing, management is still analyzing certain aspects of the new law and refining their calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts. |
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Parent company financial statements |
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| Condensed Financial Information Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Parent company financial statements | 17. Parent company financial statements: Condensed Balance Sheets
Condensed Statements of Income and Comprehensive Income
Condensed Statements of Cash Flows
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Regulatory matters |
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| Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Regulatory matters | 18. Regulatory matters: In 2018, the Federal Reserve increased the asset limit to qualify as a small bank holding company from $1 billion to $3 billion. As a result, the Company met the eligibility criteria for a small bank holding company and was exempt from risk-based capital and leverage rules, including Basel III. The Bank’s ability to pay a dividend up to the bank holding company in order to fund the payment of a dividend to shareholders is governed by Section 1302 of the Pennsylvania Banking Code of 1965 which states that the board of directors of an institution may only declare and pay dividends out of accumulated net earnings. The amount of funds available for transfer from the Bank to the Company in the form of loans and other extensions of credit is also limited. Under Federal Regulation, transfers to any one affiliate are limited to 10.0 percent of capital and surplus. At December 31, 2018, the maximum amount available for transfer from the Bank to the Company in the form of loans amounted to $12,607. At December 31, 2018 and 2017, there were no loans outstanding, nor were any advances made during 2018 and 2017. The Company and Bank are subject to certain regulatory capital requirements administered by the federal banking agencies, which are defined in Section 38 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s consolidated financial statements. In the event an institution is deemed to be undercapitalized by such standards, FDICIA prescribes an increasing amount of regulatory intervention, including the required institution of a capital restoration plan and restrictions on the growth of assets, branches or lines of business. Further restrictions are applied to the significantly or critically undercapitalized institutions including restrictions on interest payable on accounts, dismissal of management and appointment of a receiver. For well capitalized institutions, FDICIA provides authority for regulatory intervention when the institution is deemed to be engaging in unsafe and unsound practices or receives a less than satisfactory examination report rating. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. New risk-based capital rules became effective January 1, 2015 requiring the Bank to maintain a “capital conservation buffer” of 250 basis points in excess of the “minimum capital ratio.” The minimum capital ratio is equal to the prompt corrective action adequately capitalized threshold ratio. The capital conservation buffer will be phased in over four years beginning on January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. Failure to maintain the required capital conservation buffer will result in limitations on capital distributions and on discretionary bonuses to executive officers. The Bank was categorized as “well capitalized” under the regulatory guidance at December 31, 2018 and 2017, based on the most recent notification from the Federal Deposit Insurance Corporation. To be categorized as well capitalized, the Bank must maintain certain minimum Tier I risk-based, total risk-based, Tier I Leverage and Common equity Tier I risk-based capital ratios as set forth in the following tables. The Tier I Leverage ratio is defined as Tier I capital to total average assets less intangible assets. There are no conditions or events since the most recent notification that management believes have changed the Bank’s category. The Bank’s capital ratios and the minimum ratios required for capital adequacy purposes and to be considered well capitalized under the prompt corrective action provisions are summarized below for the year ended December 31, 2018:
The Bank’s capital ratios and minimum ratios required for capital adequacy purposes and to be considered well capitalized under prompt corrective action provisions are summarized below for the year ended December 31, 2017:
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Contingencies |
12 Months Ended | |
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Dec. 31, 2018 | ||
| Commitments and Contingencies Disclosure [Abstract] | ||
| Contingencies | 19. Contingencies: 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 be material in relation to the Company’s consolidated 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. Neither the Company nor any of its property is subject to any material legal proceedings. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising out of pending and threatened lawsuits will have a material effect on the operating results or financial position of the Company. |
Subsequent Events |
12 Months Ended | |
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Dec. 31, 2018 | ||
| Subsequent Events [Abstract] | ||
| Subsequent Events | 20. Subsequent Events: In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred from the date of the financial statements through the date these consolidated financial statements were issued, and has not identified any events that require recognition or disclosure in the consolidated financial statements. |
Summary of significant accounting policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nature of Operations | Nature of Operations: Riverview Financial Corporation, (the “Company” or “Riverview”), 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”). On October 2, 2017, the Company announced the completion of its merger of equals with CBT Financial Corp. (“CBT”), effective October 1, 2017 pursuant to the Agreement and Plan of Merger between Riverview and CBT, dated April 19, 2017. On the effective date, CBT was merged with and into Riverview, with Riverview surviving (the “merger”). Additionally, CBT Bank, the wholly-owned subsidiary of CBT, merged with and into Riverview Bank, the wholly-owned subsidiary of Riverview, with Riverview Bank as the surviving institution. The Company’s financial results reflect the merger of CBT Bank with and into Riverview Bank under the purchase method of accounting, with the Company treated as the acquirer from an accounting and reporting purposes. As a result, the historical financial information included in the Company’s consolidated financial statements and related notes as reported in this Form 10-K is that of Riverview. Riverview Bank, with 28 full service offices and four limited purpose offices, is a full-service commercial bank offering a wide range of traditional banking services and financial advisory, insurance and investment services to individuals, municipalities and small to medium sized businesses in the Pennsylvania market areas of Berks, Blair, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties. The Bank is state-chartered under the jurisdiction of the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. The Bank’s primary product is loans to small- and medium-sized businesses. Other lending products include one-to-four family residential mortgages and consumer loans. The Bank primarily funds its loans by offering interest-bearing transaction accounts to commercial enterprises and individuals. Other deposit product offerings include certificates of deposits and various demand deposit accounts. The Bank offers a broad range of financial advisory, investment and fiduciary services through its wealth management and trust operating divisions. The wealth management and trust divisions did not meet the quantitative thresholds for required segment disclosure in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Bank’s thirty community banking offices, all similar with respect to economic characteristics, share a majority of the following aggregation criteria: (i) products and services; (ii) operating processes; (iii) customer bases; (iv) delivery systems; and (v) regulatory oversight. Accordingly, they were aggregated into a single operating segment. The Company faces competition primarily from commercial banks, thrift institutions and credit unions within the Central, Northern and Southwestern Pennsylvania markets, many of which are substantially larger in terms of assets and capital. In addition, mutual funds and security brokers compete for various types of deposits, and consumer, mortgage, leasing and insurance companies compete for various types of loans and leases. Principal methods of competing for banking and permitted nonbanking services include price, nature of product, quality of service and convenience of location. The Company and the Bank are subject to regulations of certain federal and state regulatory agencies and undergo periodic examinations. |
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| Basis of presentation | Basis of presentation: The consolidated financial statements of the Company have been prepared in conformity with GAAP, Regulation S-X and reporting practices applied in the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation. The Company also presents herein condensed parent company only financial information regarding Riverview Financial Corporation (“Parent Company”). Prior period amounts are reclassified when necessary to conform with the current year’s presentation. Such reclassifications had no effect on financial position or results of operations. The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2018, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued. |
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| Estimates | Estimates: 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, determination of other-than-temporary impairment losses on securities, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ from those estimates. |
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| Investment securities | Investment securities: Investment securities are classified and accounted for as either held-to-maturity, available-for-sale, or trading account securities based on management’s intent at the time of acquisition. Management is required to reassess the appropriateness of such classifications at each reporting date. The Company classifies debt securities as held-to maturity when management has the positive intent and ability to hold such securities to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premium and accretion of discount. Investment securities are designated as available-for-sale when they are to be held for indefinite periods of time as management intends to use such securities to implement asset/liability strategies or to sell them in response to changes in interest rates, prepayment risk, liquidity requirements, or other circumstances identified by management. Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of income taxes, excluded from earnings and reported in a separate component of stockholders’ equity. Estimated fair values for investment securities are based on market prices from a national pricing service. Realized gains and losses are computed using the specific identification method and are included in noninterest income. Premiums are amortized, and discounts are accreted using the interest method over the contractual lives of investment securities. Investment securities that are bought and held principally for the purpose of selling them in the near term, in order to generate profits from market appreciation, are classified as trading account securities. Trading account securities are carried at market value. Interest on trading account securities is included in interest income. Profits or losses on trading account securities are included in noninterest income. All of the Company’s investment securities were classified as available-for-sale in 2018 and 2017. Transfers of securities between categories are recorded at fair value at the date of the transfer, with the accounting treatment of unrealized gains or losses determined by the category into which the security is transferred. Management evaluates each investment security at least quarterly, to determine if a decline in fair value below its amortized cost is an other-than-temporary impairment (“OTTI”), and more frequently when economic or market concerns warrant an evaluation. Factors considered in determining whether an other-than-temporary impairment was incurred include: (i) the length of time and the extent to which the fair value has been less than amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) whether a decline in fair value is attributable to adverse conditions specifically related to the security or specific conditions in an industry or geographic area; (iv) the credit-worthiness of the issuer of the security; (v) whether dividend or interest payments have been reduced or have not been made; (vi) an adverse change in the remaining expected cash flows from the security such that the Company will not recover the amortized cost of the security; (vii) whether management intends to sell the security; and (viii) if it is more likely than not that management will be required to sell the security before recovery. If a decline is judged to be other-than-temporary, the individual security is written-down to fair value with the credit related component of the write-down included in earnings and the non-credit related component included in other comprehensive income or loss. The assessment of whether an other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. |
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| Loans held for sale | Loans held for sale: Loans held for sale consist of one-to-four family residential mortgages originated and intended for sale in the secondary market with servicing rights released. The loans are carried in aggregate at the lower of cost or estimated market value, based upon current delivery prices in the secondary mortgage market. Gains or losses on the sale of these loans are recognized in noninterest income at the time of sale using the specific identification method. Loan origination fees, net of certain direct loan origination costs, are included in net gains or losses upon the sale of the related mortgage loan. These loans are generally sold without servicing rights retained and without recourse. |
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| Loans, net | Loans, net: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of deferred fees or costs. Interest income is accrued on the principal amount outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the related loan as an adjustment to yield using the effective interest method. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective interest method. Delinquency fees are recognized in income when chargeable, assuming collectability is reasonably assured. Transfers of financial assets, which include loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (i) the assets have been isolated from the Company; (ii) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The loan portfolio is segmented into commercial and retail loans. Commercial loans consist of commercial and commercial real estate loans. Retail loans consist of residential real estate and other consumer loans. The Company makes commercial loans for real estate development and other business purposes required by the customer base. The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversion of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayment of these loans is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value of not greater than 80% and vary in terms. Commercial and commercial real estate loans generally have higher credit risk compared to residential mortgage loans and consumer loans, as they typically involve larger loan balances concentrated with single borrowers or groups of borrowers. In addition, the payment expectations on loans secured by income-producing properties typically depend on the successful operations of the related business and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential mortgage loans. Of primary concern in commercial real estate lending is the borrower’s and any guarantor’s creditworthiness and the feasibility and cash flow potential of the financed project. Additional considerations include: location, market and geographic concentrations, loan to value, strength of guarantors and quality of tenants. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual consolidated financial statements on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a commercial real estate loan, we consider and review a cash flow analysis of the borrower and guarantor, when applicable, and considers the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios, the ratio of earnings before debt service to debt service, of at least 1.2 times. An environmental report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. Residential mortgages, including home equity loans, are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages may have amortizations up to 30 years. Consumer loans include installment loans, car loans, and overdraft lines of credit. The majority of these loans are secured. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. In the latter case, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state insolvency laws, may limit the amount that can be recovered on such loans. |
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| Off-balance sheet financial instruments | Off-balance sheet financial instruments: In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, unused portions of lines of credit and standby letters of credit. These financial instruments are recorded in the consolidated financial statements when they are funded. Fees on commercial letters of credit and on unused available lines of credit are recorded as service charges, fees and commissions and are included in noninterest income when earned. The Company records an allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. |
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| Nonperforming assets | Nonperforming assets: Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans include nonaccrual loans, troubled debt restructured loans and accruing loans past due 90 days or more. Past due status is based on contractual terms of the loan. Generally, a loan is classified as nonaccrual when it is determined that the collection of all or a portion of interest or principal is doubtful or when a default of interest or principal has existed for 90 days or more, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual, interest accruals are discontinued, and uncollected accrued interest is reversed against income in the current period. Interest collections after a loan has been placed on nonaccrual status are credited to the principal balance. Interest earned that would have been recognized is credited to income over the remaining life of the loan using the effective yield method if the nonaccrual loan is returned to performing status. A nonaccrual loan is returned to performing status when the loan is current as to principal and interest and has performed according to the contractual terms for a minimum of six months. 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 can generally fall within the following categories:
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:
Other real estate owned is comprised of properties acquired through foreclosure proceedings or in-substance foreclosures. A loan is classified as in-substance foreclosure when the Company has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate owned is included in other assets and recorded at fair value less cost to sell at the time of acquisition, establishing a new cost basis. Any excess of the loan balance over the recorded value is charged to the allowance for loan losses. Subsequent declines in the recorded values of the properties prior to their disposal and costs to maintain the assets are included in other expenses. Any gain or loss realized upon disposal of other real estate owned is included in noninterest expense. |
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| Allowance for loan losses | Allowance for loan losses: The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date. The allowance for loan losses account is maintained through a provision for loan losses charged to earnings. Loans, or portions of loans, determined to be confirmed losses are charged against the allowance account and subsequent recoveries, if any, are credited to the account. A loss is considered confirmed when information available at the financial statement date indicates the loan, or a portion thereof, is uncollectible. Nonaccrual, troubled debt restructured, and loans deemed impaired at the time of acquisition are reviewed monthly to determine if carrying value reductions are warranted or if these classifications should be changed. Consumer loans are considered losses and charged-off when they are 120 days past due. Management evaluates the adequacy of the allowance for loan losses account quarterly. This assessment is based on past charge-off experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. Regulators, in reviewing the loan portfolio as part of the scope of a regulatory examination, may require the Company to increase its allowance for loan losses or take other actions that would require the Company to increase its allowance for loan losses. The allowance for loan losses is maintained at a level believed to be adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses consists of an allocated element and an unallocated element. The allocated element consists of a specific allowance for impaired loans individually evaluated under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, “Receivables,” and a formula portion for loss contingencies on those loans collectively evaluated under FASB ASC 450, “Contingencies.” A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Factors considered by management in determining impairment include payment status, ability to pay and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company recognizes interest income on impaired loans, including the recording of cash receipts for nonaccrual, restructured loans or accruing loans depending on the status of the impaired loan. Loans considered impaired under FASB ASC 310 are measured for impairment 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. If 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, is less than the recorded investment in the loan, a specific allowance for the loan will be established. The formula portion of the allowance for loan losses relates to large pools of smaller-balance homogeneous loans and those identified loans considered not individually impaired having similar characteristics as these loan pools. Loss contingencies for each of the major loan pools are determined by applying a total loss factor to the current balance outstanding for each individual pool. The total loss factor is comprised of a historical loss factor using a loss migration method plus qualitative factors, which adjust the historical loss factor for changes in trends, conditions and other relevant factors that may affect repayment of the loans in these pools as of the evaluation date. Loss migration involves determining the percentage of each pool that is expected to ultimately result in loss based on historical loss experience. Historical loss factors are based on the ratio of net loans charged-off to loans, net, for each of the major groups of loans evaluated and measured for impairment under FASB ASC 450. The historical loss factor for each pool is an average of the Company’s historical net charge-off ratio for the most recent rolling eight quarters. Management adjusts these historical loss factors by qualitative factors that represent a number of environmental risks that may cause estimated credit losses associated with the current portfolio to differ from historical loss experience. These environmental risks include: (i) changes in lending policies and procedures including underwriting standards and collection, charge-off and recovery practices; (ii) changes in the composition and volume of the portfolio; (iii) changes in national, local and industry conditions, including the effects of such changes on the value of underlying collateral for collateral-dependent loans; (iv) changes in the volume and severity of classified loans including past due, nonaccrual, troubled debt restructures and other loan modifications; (v) changes in the levels of, and trends in, charge-offs and recoveries; (vi) the existence and effect of any concentrations of credit and changes in the level of such concentrations; (vii) changes in the experience, ability and depth of lending management and other relevant staff; (viii) changes in the quality of the loan review system and the degree of oversight by the board of directors; and (ix) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the current loan portfolio. Each environmental risk factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation. Management revised its calculation for, and application of, qualitative factors applied to their identified segments of homogenous loan pools. Prior to the fourth quarter of 2018, management calculated separate and distinct qualitative factors for Riverview Bank and each of its three purchased portfolios as a result of loans previously acquired in business combinations. Management determined that it would calculate qualitative factors on a weighted average basis combined for Riverview Bank and all purchased portfolios for each identified segment of homogenous loan pools. This had the impact of reducing the overall rate of qualitative adjustment to historical losses but was offset by an increased level of reserve on acquired performing loans as a result of normal accretion of acquisition related fair value marks. This change in methodology did not have a material impact on the amount of the allowance for loan losses at December 31, 2018, the date of the change, as compared to the prior methodology. The unallocated element, if any, is used to cover inherent losses that exist as of the evaluation date, but which have not been identified as part of the allocated allowance using the above impairment evaluation methodology due to limitations in the process. One such limitation is the imprecision of accurately estimating the impact current economic conditions will have on historical loss rates. Variations in the magnitude of impact may cause estimated credit losses associated with the current portfolio to differ from historical loss experience, resulting in an allowance that is higher or lower than the anticipated level. Management establishes the unallocated element of the allowance by considering environmental risks similar to the ones used for determining the qualitative factors. Management continually monitors trends in historical and qualitative factors, including trends in the volume, composition and credit quality of the portfolio. The reasonableness of the unallocated element is evaluated through monitoring trends in its level to determine if changes from period to period are directionally consistent with changes in the loan portfolio. Management believes the level of the allowance for loan losses was adequate to absorb probable credit losses as of December 31, 2018. |
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| Premises and equipment, net | Premises and equipment, net: Land is stated at cost. Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. The cost of routine maintenance and repairs is expensed as incurred. The cost of major replacements, renewals and betterments is capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are eliminated, and any resulting gain or loss is reflected in noninterest income. Depreciation and amortization are computed principally using the straight-line method based on the following estimated useful lives of the related assets, or in the case of leasehold improvements, to the expected terms of the leases, if shorter:
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| Business combinations, goodwill and other intangible assets, net | Business combinations, goodwill and other intangible assets, net: The Company accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the purchase method. Core deposit intangibles and other identified intangibles with finite useful lives are amortized using the sum of the year’s digits over their estimated useful lives of up to ten years. Loans that the Company acquires in connection with acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. 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 includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional allowance for credit losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the non-accretable discount which the Company will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan. Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the non-accretable difference portion of the fair value adjustment. The Company accounts for performing loans acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition. Customer list intangibles are also included in intangible assets as a result of the purchase of the wealth management companies. These intangibles are amortized as an expense over ten years using the sum of the years’ amortization method. Goodwill and other intangible assets are tested for impairment annually during the fourth quarter of each year or when circumstances arise indicating impairment may have occurred. In making this assessment that impairment has occurred, management considers a number of factors including, but not limited to, operating results, business plans, economic projections, anticipated future cash flows, and current market data. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of impairment. Changes in economic and operating conditions, as well as other factors, could result in impairment in future periods. Any impairment losses arising from such testing would be reported in the Consolidated Statements of Income and Comprehensive Income as a separate line item within operations. There were no impairment losses recognized as a result of periodic impairment testing in each of the two-years ended December 31, 2018. |
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| Restricted equity securities | Restricted equity securities: As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB-Pgh”) and Atlantic Community Bankers Bank (“ACBB”), the Company is required to purchase and hold stock in these entities to satisfy membership and borrowing requirements. This stock is restricted in that it can only be redeemed by these entities or to another member institution and all redemptions of stock must be at par. As a result of these restrictions, restricted equity stock is unlike other investment securities as there is no trading market in it and the transfer price is determined by the FHLB-Pgh and ACBB membership rules and not by market participants. Therefore, it is accounted for at historical cost and evaluated for impairment. The carrying value of restricted stock is included in other assets. |
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| Bank owned life insurance | Bank owned life insurance: The Company invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on certain of its directors and employees. The Bank is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies and is included in other assets. Income from increases in cash surrender value of the policies is included in noninterest income. |
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| Pension and post-retirement benefit plans | Pension and post-retirement benefit plans: The Company sponsors various pension plans covering substantially all employees. The Company also provides post-retirement benefit plans other than pensions, consisting principally of life insurance benefits, to eligible retirees. The liabilities and annual income or expense of the Company’s pension and other post-retirement benefit plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return, based on the market-related value of assets. The fair values of plan assets are determined based on prevailing market prices or estimated fair value for investments with no available quoted prices. |
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| Statements of Cash Flows | Statements of Cash Flows : The Consolidated Statements of Cash Flows are presented using the indirect method. For purposes of cash flow, cash and cash equivalents include cash on hand, cash items in the process of collection, noninterest-bearing and interest-bearing deposits in other banks and federal funds sold. |
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| Fair value of financial instruments | Fair value of financial instruments: 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:
The following methods and assumptions were used by the Company to construct the summary table in Note 13 containing the 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 available-for-sale: The fair values of debt securities are based on pricing from a matrix pricing model. Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market. Net Loans: At December 31, 2018, the exit price observations are obtained from an independent third-party using its proprietary valuation model and methodology and may not reflect actual or prospective market valuations. The valuation is based on the probability of default, loss given default, recovery delay, prepayment, and discount rate assumptions. The new methodology is a result of the adoption of ASU No. 2016-01. At December 31, 2017, for adjustable-rate loans that reprice 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. In conjunction with the merger, the loans purchased were recorded at their acquisition date fair value. In order to record the loans at fair value, management made three different types of fair value adjustments. A market rate adjustment was made to adjust for the movement in market interest rates, irrespective of credit adjustments, compared to the stated rates of the acquired loans. A credit adjustment was made on pools of homogeneous loans representing the changes in credit quality of the underlying borrowers from the loan inception to the acquisition date. The credit adjustment on distressed loans represents the portion of the loan balance that has been deemed uncollectible based on the management’s expectations of future cash flows for each respective loan. 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. The carrying values of adjustable-rate, fixed-term time deposits approximate their fair values at the reporting date. 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. |
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| Off-balance sheet financial instruments | 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 of 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 December 31, 2018 and December 31, 2017. |
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| Advertising | Advertising: The Company follows the policy of charging marketing and advertising costs to expense as incurred. Advertising expense for the years ended December 31, 2018 and 2017 was $647 and $456, respectively. |
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| Income taxes | Income taxes: The Company accounts for income taxes in accordance with the income tax accounting guidance set forth in FASB ASC 740, “Income Taxes”. ASC 740 sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The calculation of the provision for income taxes is complex and requires the use of estimates and judgments. The Company has two accruals for income taxes: (i) an income tax payable representing the estimated net amount currently due to the federal government, net of any reserve for potential audit issues and any tax refunds; and (ii) a deferred federal income tax and related valuation accounts, representing the estimated impact of temporary differences between how the Company recognizes its assets and liabilities under GAAP, and how such assets and liabilities are recognized under federal tax law. Deferred income taxes are provided on the balance sheet method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the effective date. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a likelihood of being realized on examination of more than 50 percent. For tax positions not meeting the more likely than not threshold, no tax benefit is recorded. Under the more likely than not threshold guidelines, the Company believes no significant uncertain tax positions exist, either individually or in the aggregate, that would give rise to the non-recognition of an existing tax benefit. The Company had no material unrecognized tax benefits or accrued interest and penalties for any year in the three-year period ended December 31, 2018. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“TCJA”). The legislation significantly changes U.S. tax law by, among other things, lowering the corporate income tax rate and changes to business-related exclusions. The TCJA permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. Accordingly, in the fourth quarter 2017 a tax expense of $3,888 was recorded for the effects of the legislation. As applicable, the Company recognizes accrued interest and penalties assessed as a result of a taxing authority examination through income tax expense. The Company files consolidated income tax returns in the United States of America and various states’ jurisdictions. With limited exception, the Company is no longer subject to federal and state income tax examinations by taxing authorities for years before 2015. |
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| Other comprehensive income (loss) | 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 December 31, 2018 and 2017 are as follows:
Other comprehensive income (loss) and related tax effects for the years ended December 31, 2018 and 2017 are as follows:
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| Earnings per share | 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 years ended December 31, 2018 and 2017:
Common stock equivalents outstanding that are anti-dilutive and thus excluded from the calculation of the diluted number of shares represented above were 43,350 in 2018 and 298,246 in 2017. 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. |
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| Stock-based compensation | Stock-based compensation: The Company recognizes all share-based payments to employees in the consolidated statement of operations based on their grant date fair values. The fair value of such equity instruments is recognized as an expense in the historical consolidated financial statements as services are performed. The Company uses the Black-Scholes Model to estimate the fair value of each option on the date of grant. The Black-Scholes Model estimates the fair value of employee stock options using a pricing model which takes into consideration the exercise price of the option, the expected life of the option, the current market price and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company typically grants stock options to employees with an exercise price equal to the fair value of the shares at the date of grant. The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. |
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| Recent Accounting Standards | Recent Accounting Standards In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (i) 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. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (ii) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (iii) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) 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 on the balance sheet; (v) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset , securities or loans and receivables, on the balance sheet or the accompanying notes to the financial statements; and (viii) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company measured the fair value of its loan portfolio using an exit price notion for the fiscal years beginning after December 31, 2017, including interim periods thereafter. The adoption of ASU 2016-01 did not have a material effect on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases”. From the lessee’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”. The amendments in this Update corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the lease standard. The amendments target 16 issues including: residual value guarantees; rate implicit in the lease; lessee reassessment of lease classification; lessor reassessment of lease term and purchase option; variable lease payments that depend on an index or a rate; investment tax credits; lease term and purchase option; transition guidance for amounts previously recognized in business combinations; recognition of certain transition adjustments in earnings rather than equity; transition guidance for leases previously classified as capital leases under Topic 840; transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840; transition guidance for sale and leaseback transactions; impairment of net investment in the lease; unguaranteed residual asset; effect of initial direct costs on rate implicit in the lease; and failed sale and leaseback transaction. In July 2018, the FASB also issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements”. This amendment provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840. In addition, the ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02, “Leases (Topic 842).” The new practical expedient will allow lessors to elect, by class of underlying asset, to not separate non-lease components from the associated lease component when specified conditions are met. Examples of non-lease components include equipment maintenance services, common area maintenance services in real estate, or other goods or services provided to the lessee apart from the right to use the underlying asset. The practical expedient must be applied consistently for all lease contracts. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842)—Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Upon adoption of ASU 2016-02, ASU 2018-10, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we expect to recognize right-of-use assets and related lease liabilities totaling $3,719. We expect to elect to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases, as defined by related accounting guidance. We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet. We expect to utilize the transition approach prescribed by ASU 2018-11. The adoption of the guidance on January 1, 2019, is not expected to have a significant impact on the Company’s financial position or operating results. In June 2016, the FASB issued 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. In November 2018, the FASB issued ASU No. 2018-19—Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. 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. During the third quarter of 2018, we selected a vendor-based solution and are currently collecting and reviewing loan data for use in this model. The Company is currently 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 flows. 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. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including trust and asset management fees, deposit related fees, and interchange fees. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company adopted ASU 2014-09 and its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. The adoption of ASU 2016-20 and 2014-09 did not have a material effect on our consolidated financial statements. See Note 14 Revenue Recognition for more information. In January 2017, the 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 adoption of ASU No. 2017-01 did not have a material effect on our consolidated financial statements. In January 2017, the 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 adoption of ASU No. 2017-05 did not have a material effect on our consolidated financial statements. In March 2017, the FASB issued ASU No. 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 adoption of ASU No. 2017- 07 did not have a material effect on our consolidated financial statements. In March 2017, the 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 does not expect the adoption of ASU No. 2017-08 to have a material effect on our consolidated financial statements. In May 2017, the FASB issued ASU No. 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 adoption of ASU No. 2017-09 did not have a material effect on our consolidated financial statements. In August 2017, the FASB issued ASU No. 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. The Company does not expect the adoption of ASU No. 2017-12 to have a material effect on our consolidated financial statements. In September 2017, the FASB issued ASU No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This Accounting Standards Update adds SEC paragraphs pursuant to the SEC Staff Announcement at the July 20, 2017 Emerging Issues Task Force (EITF) meeting. The July announcement addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphs pursuant to the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula,” effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases. The amendments in this Update also rescind three SEC Observer Comments effective upon the initial adoption of Topic 842. One SEC Staff Observer comment is being moved to Topic 842. The adoption of ASU 2017-13 did not have a material effect on our consolidated financial statements. In November 2017, the FASB issued ASU No. 2017-14 “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This Accounting Standards Update amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of ASU No. 2017-14 did not have a material effect on our consolidated financial statements. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow for a reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the Company elected to early adopt this guidance effective December 31, 2017. The adoption of ASU No. 2018-02 resulted in a reclassification of stranded tax effects of $259 from accumulated other comprehensive income (loss) to retained earnings. In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which makes minor changes to the ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. The technical corrections affect the following aspects of the ASU: (i) equity securities without a readily determinable fair value — discontinuation; (ii) equity securities without a readily determinable fair value — adjustments; (iii) forward contracts and purchased options; (iv) presentation requirements for certain fair value option liabilities; (v) fair value option liabilities denominated in a foreign currency and (vi) transition guidance for equity securities without a readily determinable fair value. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The adoption of ASU No. 2018-03 did not have a material effect on our consolidated financial statements. In March 2018, the FASB issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin [SAB] No. 118”. The ASU adds seven paragraphs to ASC 740, Income Taxes, that contain SEC guidance related to SAB 118 codified as SEC SAB Topic 5.EE, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”). The adoption of ASU No. 2018-05 did not have a material effect on our consolidated financial statements. In May 2018, the FASB issued ASU No. 2018-06, “Codification Improvements to Topic 942, Financial Services—Depository and Lending”. The amendments in this Update supersede the guidance in Subtopic 942-740, Financial Services—Depository and Lending—Income Taxes, that is related to Circular 202 because that guidance has been rescinded by the Office of the Comptroller of the Currency (“OCC”) and no longer is relevant. The amendments in this Update were effective upon issuance of this Update. The adoption of ASU No. 2018-06 did not have a material effect on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this Update improve the effectiveness of fair value measurement disclosures by modifying the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures. In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”. Subtopic 715-20 addresses the disclosure of other accounting and reporting requirements related to single-employer defined benefit pension or other postretirement benefit plans. The amendments in this Update remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the Board’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments in this Update apply to all employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for all entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures. |
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Summary of significant accounting policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Estimated Useful Lives of Related Assets and Leasehold Improvements | Depreciation and amortization are computed principally using the straight-line method based on the following estimated useful lives of the related assets, or in the case of leasehold improvements, to the expected terms of the leases, if shorter:
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| Summary of Components of Accumulated Other Comprehensive Income (Loss) |
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| Schedule of Other Comprehensive Income (Loss) and Related Tax Effects | Other comprehensive income (loss) and related tax effects for the years ended December 31, 2018 and 2017 are as follows:
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| Computation of Earnings per Share | The following table provides a reconciliation between the computation of basic earnings per share and diluted earnings per share for the years ended December 31, 2018 and 2017:
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Merger accounting (Tables) |
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| Schedule of Information Concerning Impaired Loans | The following tables summarize information concerning impaired loans including purchase credit impaired loans as of and for the years ended December 31, 2018 and 2017, by major loan classification:
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| CBT Financial Corp [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Calculation of Goodwill |
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| Fair Value Adjustments Made to Amortized Cost Basis in Order to Present a Fair Value of the Loans Acquired | The table below illustrates the fair value adjustments made to the amortized cost basis to present a fair value of the loans acquired. The credit adjustment on purchased credit impaired loans was derived in accordance with ASC 310-30 and represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.
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| Schedule of Information Concerning Impaired Loans | The following is a summary of the acquired impaired loans from the merger with CBT Bank:
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| Summary of Merger Related Costs Included in Consolidated Statements of Income | A summary of merger related costs included in the consolidated statements of income for the years ended December 31, 2018 and 2017 are summarized as follows:
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| Merger proforma information | The following table presents unaudited pro forma information as if the merger between Riverview and CBT had been completed on January 1, 2016. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company merged with CBT at the beginning of 2016. Supplemental pro forma earnings were adjusted to exclude merger related costs. The expected future amortizations of the various fair value adjustments were included beginning in 2016. Cost savings are not reflected in the unaudited pro forma amounts for the periods presented. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions on revenues, expense efficiencies, or other factors.
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Investment securities (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Amortized Cost and Fair Value of Investment Securities Available-for-Sale Aggregated by Investment Category | The amortized cost and fair value of investment securities available-for-sale aggregated by investment category at December 31, 2018 and 2017 are summarized as follows:
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| Schedule of Debt Securities Classified Available-for-Sale Maturity Distribution of Fair Value | The maturity distribution of the fair value, which is the net carrying amount of the debt securities classified as available-for-sale at December 31, 2018, is summarized as follows:
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| Schedule of Fair Value Gross Unrealized Losses of Investment Securities Unrealized Losses | 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 December 31, 2018 and 2017, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:
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Loans, net and allowance for loan losses (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Loans Outstanding | The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2018 and 2017 are summarized as follows. Net deferred loan costs were $1,026 and $863 at December 31, 2018 and 2017, respectively.
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| Schedule of Allowance for Loan Losses Account by Major Classification of Loan | The changes in the allowance for loan losses account by major classification of loan for the years ended December 31, 2018 and 2017 are summarized as follows:
The allocation of the allowance for loan losses and the related loans by major classifications of loans at December 31, 2018 and December 31, 2017 is summarized as follows:
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| Summary of Major Classification of Loans Summarized by Aggregate Pass Rating | 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 December 31, 2018 and 2017:
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| Summary of Classes of Loan Portfolio Summarized by Aging Categories of Performing Loans and Nonaccrual Loans | The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2018 and 2017. PCI loans are excluded from the aging and nonaccrual loan schedules.
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| Schedule of Information Concerning Impaired Loans | The following tables summarize information concerning impaired loans including purchase credit impaired loans as of and for the years ended December 31, 2018 and 2017, by major loan classification:
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| Schedule of Number of Loans and Recorded Investment in Troubled Debt Restructurings | The following tables present the number of loans and recorded investment in loans restructured and identified as troubled debt restructurings for the year ended December 31, 2017. Defaulted loans are those which are 30 days or more past due for payment under the modified terms.
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| Summary of Unpaid Principal Balances and Related Carrying Amounts of Union Acquired Loans |
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| Summary of Changes in Accretable Discount Related to Purchased Credit Impaired Loans | As of the indicated dates, the changes in the accretable discount related to the purchased credit impaired loans were as follows:
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Off-balance sheet financial instruments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
| Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Contractual Amounts of Off-Balance Sheet Commitments | The contractual amounts of off-balance sheet commitments at December 31, 2018 and 2017 are summarized as follows:
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Premises and equipment, net (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Premises and Equipment | Premises and equipment at December 31, 2018 and 2017 are summarized as follows:
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| Schedule of Future Minimum Annual Rent Commitments under Various Operating Leases | Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2018, pertaining to banking premises and equipment, future minimum annual rent commitments under various operating leases are summarized as follows:
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Intangible assets, net (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Gross Carrying Amount and Accumulated Amortization Related to Intangible Assets | The gross carrying amount and accumulated amortization related to intangible assets at December 31, 2018 and 2017 are presented below:
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| Estimation of Amortization Expense | Riverview estimates the amortization expense for amortizable intangibles as follows:
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Other assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Other Assets | The components of other assets at December 31, 2018 and 2017 are summarized as follows:
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Deposits (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Interest-Bearing and Noninterest-Bearing Deposits | The major components of interest-bearing and noninterest-bearing deposits at December 31, 2018 and 2017 are summarized as follows:
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| Schedule of Aggregate Amounts of Maturities for all Time Deposits | The aggregate amounts of maturities for all time deposits at December 31, 2018, are summarized as follows:
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Short-term borrowings (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Short-term Borrowings | Short-term borrowings consisting of FHLB-Pgh and ACBB generally represent overnight or less than 30-day borrowings at December 31, 2018 and 2017 are summarized as follows:
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Long-term debt (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Long-term Debt Advances | Long-term debt consisting of the following advances at December 31, 2018 and 2017 are as follows:
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| Scheduled Contractual Maturities of Borrowings | Maturities of long-term debt, by contractual maturity, in years subsequent to December 31, 2018 are as follows:
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Fair value of financial instruments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | Assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017 are summarized as follows:
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| Summary of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis | Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017 are summarized as follows:
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| Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis | The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
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| Carrying and Fair Values of Riverview's Financial Instruments |
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Revenue recognition (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Noninterest Income, Segregated by Revenue Streams in-Scope and Out-of-Scope of Topic 606 | The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended December 31, 2018 and 2017.
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Employee Benefit Plans (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Postemployment Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock Option Activity | The following table summarizes the stock option activity for the years ended December 31, 2018 and 2017:
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| Schedule of Weighted Average Assumptions of Fair Value of Option Granted | The fair value of options granted during 2018 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions.
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| Schedule of Plan's Funded Status | The following table presents the plans’ funded status and the amounts recognized in the Company’s consolidated financial statements for 2018 and 2017. The measurement date, for purposes of these valuations, was December 31, 2018 and 2017.
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| Schedule of Amounts Related to Plan Recognized in Accumulated Other Comprehensive Loss but not Yet Recognized as Component of Net Periodic Pension Cost | Amounts related to the plan that have been recognized in accumulated other comprehensive loss but not yet recognized as a component of net periodic pension cost are as follows for the years ended December 31:
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| Schedule of Net Periodic Pension Expense and Postretirement Benefit Cost |
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| Summary of Actuarial Assumptions Used for Company's Pension and Postretirement Benefit Plan | The accumulated benefit obligation was $7,669 at December 31, 2018 and $8,403 at December 31, 2017 for the pension benefit and postretirement benefit plans.
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| Schedule of Expected Benefit Payments |
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| Schedule of Company's Pension Plan Asset Allocations, by Asset Category | The Company’s pension plan asset allocations as of the year ends, by asset category, are as follows:
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| Schedule of Fair Value of Company's Pension Plan Assets, by Asset Category | The fair value of the pension plan assets at December 31, 2018 and 2017 by asset category are as follows:
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Income taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Current and Deferred Amounts of Provision for Income Taxes Expense (Benefit) | The current and deferred amounts of the provision for income taxes expense (benefit) for each of the years ended December 31, 2018 and 2017 are summarized as follows:
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| Components of Net Deferred Tax Asset | The components of the net deferred tax asset at December 31, 2018 and 2017 are summarized as follows:
|
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| Reconciliation Between Amount of Effective Income Tax Expense and Income Tax Expense | A reconciliation between the amount of the effective income tax expense and the income tax expense that would have been provided at the federal statutory rate of 21.0 percent for the year ended December 31, 2018 and 34.0 percent for the year ended December 31, 2017 is summarized as follows:
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Parent company financial statements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Condensed Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Condensed Balance Sheets | Condensed Balance Sheets
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| Condensed Statements of Income and Comprehensive Income | Condensed Statements of Income and Comprehensive Income
|
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| Condensed Statements of Cash Flows | Condensed Statements of Cash Flows
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Regulatory matters (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of the Company's and Bank's Capital Ratios and Minimum Ratios Required for Capital Adequacy Purposes | The Bank’s capital ratios and the minimum ratios required for capital adequacy purposes and to be considered well capitalized under the prompt corrective action provisions are summarized below for the year ended December 31, 2018:
The Bank’s capital ratios and minimum ratios required for capital adequacy purposes and to be considered well capitalized under prompt corrective action provisions are summarized below for the year ended December 31, 2017:
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Summary of Significant Accounting Policies - Schedule of Estimated Useful Lives of Related Assets and Leasehold Improvements (Detail) |
12 Months Ended |
|---|---|
Dec. 31, 2018 | |
| Minimum [Member] | Premises and Leasehold Improvements [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | P7Y |
| Minimum [Member] | Leasehold Improvements [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | P10Y |
| Minimum [Member] | Furniture, Fixtures and Equipment [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | P3Y |
| Maximum [Member] | Premises and Leasehold Improvements [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | P50Y |
| Maximum [Member] | Leasehold Improvements [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | P30Y |
| Maximum [Member] | Furniture, Fixtures and Equipment [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | P10Y |
Summary of Significant Accounting Policies - Summary of Components of Accumulated Other Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Income tax expense (benefit) | $ (277) | $ 451 |
| Net of income taxes | (1,040) | 877 |
| Accumulated other comprehensive loss | (2,619) | (1,579) |
| Unrealized Losses on Available-for-Sale [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Benefit plan adjustments | (2,183) | (1,131) |
| Income tax expense (benefit) | (458) | (238) |
| Net of income taxes | (1,725) | (893) |
| Defined Benefit Pension Items [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Benefit plan adjustments | (1,132) | (869) |
| Income tax expense (benefit) | (238) | (183) |
| Net of income taxes | $ (894) | $ (686) |
Summary of Significant Accounting Policies - Schedule of Other Comprehensive Income (Loss) and Related Tax Effects (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Other Comprehensive Income (Loss), Tax [Abstract] | ||
| Unrealized gain (loss) on investment securities available-for-sale | $ (1,012) | $ 1,471 |
| Net (gain) loss on the sale of investment securities available-for-sale | (40) | (89) |
| Benefit plans: | ||
| Amortization of actuarial loss (gain) | 81 | 49 |
| Actuarial (loss) gain | (346) | (103) |
| Net change in benefit plan liabilities | (265) | (54) |
| Other comprehensive income (loss) gain before taxes | (1,317) | 1,328 |
| Income tax expense (benefit) | (277) | 451 |
| Other comprehensive income (loss) | $ (1,040) | $ 877 |
Summary of Significant Accounting Policies - Computation of Earnings per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Numerator: | ||
| Net income (loss) | $ 10,858 | $ (4,911) |
| Dividends on preferred stock | (371) | |
| Net income (loss) available to common stockholders | 10,858 | (5,282) |
| Undistributed income (loss) allocated to preferred stockholders | 475 | |
| Income (loss) allocated to common stockholders | $ 10,858 | $ (4,807) |
| Denominator: | ||
| Basic | 9,096,142 | 5,260,537 |
| Dilutive options | 52,155 | |
| Diluted | 9,148,297 | 5,260,537 |
| Basic | $ 1.19 | $ (0.91) |
| Diluted | $ 1.19 | $ (0.91) |
Merger Accounting - Fair Value Adjustments Made to Amortized Cost Basis in Order to Present a Fair Value of the Loans Acquired (Detail) - CBT Financial Corp [Member] - USD ($) $ in Thousands |
Oct. 01, 2017 |
Dec. 31, 2018 |
|---|---|---|
| Gross amortized cost basis at October 1, 2017 | $ 393,821 | |
| Interest rate fair value adjustment on pools of homogeneous loans | 2,356 | |
| Fair value of acquired loans at October 1, 2017 | 382,461 | $ 382,461 |
| Homogeneous Loan Pools [Member] | ||
| Credit fair value adjustment on pools of homogeneous loans | (5,627) | |
| Purchased Credit Impaired Loans [Member] | ||
| Credit and interest fair value adjustment on purchased credit impaired loans | $ (8,089) |
Merger Accounting - Summary of Loans Purchased (Detail) - CBT Financial Corp [Member] - Purchased Credit Impaired Loans [Member] $ in Thousands |
Oct. 01, 2017
USD ($)
|
|---|---|
| Contractually required principal and interest at acquisition | $ 16,682 |
| Contractual cash flows not expected to be collected (nonaccretable discount) | (6,033) |
| Expected cash flows at acquisition | 10,649 |
| Interest component of expected cash flows (accretable discount) | (2,056) |
| Fair value of acquired loans | $ 8,593 |
Merger Accounting - Summary of Merger Related Costs Included in Consolidated Statements of Income (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Salaries and benefits | $ 22,064 | $ 15,196 |
| CBT Financial Corp [Member] | ||
| Accounting | 119 | |
| Legal and consulting | 49 | 623 |
| Salaries and benefits | 220 | 1,779 |
| Equipment disposition and contract termination | 3 | 634 |
| System conversion/deconversion costs | 71 | 368 |
| Other | 210 | 151 |
| Total | $ 553 | $ 3,674 |
Merger Accounting - Merger Proforma Information (Detail) - CBT Financial Corp [Member] $ / shares in Units, $ in Thousands |
12 Months Ended |
|---|---|
|
Dec. 31, 2017
USD ($)
$ / shares
| |
| Net interest income after loan loss provision | $ 36,187 |
| Noninterest income | 7,871 |
| Noninterest expense | 39,092 |
| Net income | $ 4,966 |
| Net income per share | $ / shares | $ 0.95 |
Cash and Due from Banks - Additional Information (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Receivables [Abstract] | ||
| Average reserve balances required with Federal Reserve Bank | $ 0 | $ 12,336 |
Investment Securities - Schedule of Debt Securities Classified Available-for-Sale Maturity Distribution of Fair Value (Detail) $ in Thousands |
Dec. 31, 2018
USD ($)
|
|---|---|
| Schedule of Available-for-sale Securities [Line Items] | |
| Available-for-sale securities, Within one year, Fair Value | $ 2,283 |
| Available-for-sale securities, After one but within five years, Fair Value | 4,702 |
| Available-for-sale securities, After five but within ten years, Fair Value | 13,959 |
| Available-for-sale securities, After ten years, Fair Value | 33,868 |
| Available-for-sale securities, Single maturity, Fair Value | 54,812 |
| Total available-for-sale securities, Fair Value | 104,677 |
| Mortgage-Backed Securities [Member] | |
| Schedule of Available-for-sale Securities [Line Items] | |
| Available-for-sale securities, Without single maturity, Fair Value | $ 49,865 |
Loans, Net and Allowance for Loan Losses - Schedule of Loans Outstanding (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Receivables [Abstract] | ||
| Commercial | $ 122,919 | $ 140,116 |
| Construction | 39,556 | 34,405 |
| Commercial | 497,597 | 526,230 |
| Residential | 221,115 | 240,626 |
| Consumer | 11,997 | 14,594 |
| Total | $ 893,184 | $ 955,971 |
Loans, Net and Allowance for Loan Losses - Schedule of Number of Loans and Recorded Investment in Troubled Debt Restructurings (Detail) $ in Thousands |
12 Months Ended | |
|---|---|---|
|
Dec. 31, 2018
USD ($)
Contract
|
Dec. 31, 2017
USD ($)
Contract
|
|
| Financing Receivable, Modifications [Line Items] | ||
| Troubled Debt Restructurings, Number of Contracts | Contract | 14 | 19 |
| Troubled Debt Restructurings, Recorded Investment | $ 2,925 | $ 5,606 |
| Residential Real Estate [Member] | ||
| Financing Receivable, Modifications [Line Items] | ||
| Troubled Debt Restructurings, Number of Contracts | Contract | 2 | |
| Troubled Debt Restructurings, Pre-Modification Outstanding Recorded Investment | $ 196 | |
| Troubled Debt Restructurings, Post-Modification Outstanding Recorded Investment | 173 | |
| Troubled Debt Restructurings, Recorded Investment | $ 128 | |
Loans, Net and Allowance for Loan Losses - Summary of Unpaid Principal Balances and Related Carrying Amounts of Acquired Loans (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Outstanding balance | $ 322,504 | $ 438,423 |
| Carrying Amount | 318,153 | 426,658 |
| Credit Impaired Purchased Loans Evaluated Individually for Incurred Credit Losses [Member] | ||
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Outstanding balance | 7,491 | 16,803 |
| Carrying Amount | 3,825 | 8,512 |
| Other Purchased Loans Evaluated Collectively for Incurred Credit Losses [Member] | ||
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Outstanding balance | 315,013 | 421,620 |
| Carrying Amount | $ 314,328 | $ 418,146 |
Loans, Net and Allowance for Loan Losses - Summary of Changes in Accretable Discount Related to Purchased Credit Impaired Loans (Detail) - Citizens National Bank of Meyersdale [Member] - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Balance - beginning of period | $ 2,129 | $ 370 |
| Additions | 2,056 | |
| Accretion recognized during the period | (3,791) | (297) |
| Net reclassification from non-accretable to accretable | 2,241 | |
| Balance—end of period | $ 579 | $ 2,129 |
Off-Balance Sheet Financial Instruments - Additional Information (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Fair Value Disclosures [Abstract] | ||
| Valuation allowance for off-balance sheet credit losses | $ 73 | $ 66 |
Off-Balance Sheet Financial Instruments - Schedule of Contractual Amounts of Off-Balance Sheet Commitments (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
| Contractual amounts | $ 161,732 | $ 129,734 |
| Standby Letters of Credit [Member] | ||
| Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
| Contractual amounts | 5,789 | 4,871 |
| Commitments to Extend Credit [Member] | ||
| Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
| Contractual amounts | 96,431 | 52,706 |
| Unused Portions of Lines of Credit [Member] | ||
| Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
| Contractual amounts | $ 59,512 | $ 72,157 |
Premises and Equipment, Net - Schedule of Premises and Equipment (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Premises and equipment, Gross | $ 25,695 | $ 24,918 |
| Less accumulated depreciation | 7,487 | 6,287 |
| Premises and equipment, Net | 18,208 | 18,631 |
| Land [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Premises and equipment, Gross | 4,361 | 4,561 |
| Premises and Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Premises and equipment, Gross | 15,261 | 14,303 |
| Furniture, Fixtures and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Premises and equipment, Gross | $ 6,073 | $ 6,054 |
Premises and Equipment, Net - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Operating Leased Assets [Line Items] | ||
| Depreciation and amortization included to noninterest expense | $ 1,219 | $ 702 |
| Rent expense | $ 522 | $ 488 |
| Minimum [Member] | ||
| Operating Leased Assets [Line Items] | ||
| Operating leases extended period of lease | 1 year | |
| Maximum [Member] | ||
| Operating Leased Assets [Line Items] | ||
| Operating leases extended period of lease | 10 years | |
Premises and Equipment, Net - Schedule of Future Minimum Lease Payments under Non-Cancelable Lease Arrangements (Detail) $ in Thousands |
Dec. 31, 2018
USD ($)
|
|---|---|
| Property, Plant and Equipment [Abstract] | |
| 2019 | $ 536 |
| 2020 | 505 |
| 2021 | 443 |
| 2022 | 360 |
| 2023 | 219 |
| Thereafter | 582 |
| Operating leases, Future minimum annual rent commitments total | $ 2,645 |
Intangible Assets, Net - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Amortization of intangible assets | $ 867 | $ 538 |
Intangible Assets, Net - Estimation of Amortization Expense (Detail) $ in Thousands |
Dec. 31, 2018
USD ($)
|
|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| 2019 | $ 773 |
| 2020 | 676 |
| 2021 | 581 |
| 2022 | 479 |
| 2023 | 370 |
| Thereafter | 630 |
| Total amortization expense for intangibles | $ 3,509 |
Other Assets - Components of Other Assets (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Other Assets [Abstract] | ||
| Other real estate owned | $ 721 | $ 236 |
| Bank owned life insurance | 29,862 | 29,065 |
| Restricted equity securities | 1,054 | 1,306 |
| Deferred tax assets | 5,884 | 7,949 |
| Other assets | 4,635 | 5,147 |
| Total | $ 42,156 | $ 43,703 |
Deposits - Components of Interest-Bearing and Noninterest-Bearing Deposits (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Interest-bearing deposits: | ||
| Money market accounts | $ 113,220 | $ 135,747 |
| Now accounts | 286,082 | 238,609 |
| Savings accounts | 128,762 | 189,044 |
| Time deposits | 313,955 | 307,185 |
| Total interest-bearing deposits | 842,019 | 870,585 |
| Noninterest-bearing deposits | 162,574 | 155,895 |
| Total deposits | $ 1,004,593 | $ 1,026,480 |
Deposits - Additional Information (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Schedule Of Deposits [Line Items] | ||
| Aggregate amount of time deposits at or above FDIC insurance limit of $250,000 | $ 33,044 | $ 35,182 |
| Deposits | 1,004,593 | 1,026,480 |
| Aggregate amount of deposits reclassified as loan | 169 | 145 |
| Related Parties [Member] | ||
| Schedule Of Deposits [Line Items] | ||
| Deposits | $ 1,476 | $ 3,578 |
Deposits - Schedule of Aggregate Amounts of Maturities for all Time Deposits (Detail) $ in Thousands |
Dec. 31, 2018
USD ($)
|
|---|---|
| Deposits [Abstract] | |
| 2019 | $ 106,488 |
| 2020 | 78,909 |
| 2021 | 58,023 |
| 2022 | 41,203 |
| 2023 | 21,623 |
| Thereafter | 7,709 |
| Total | $ 313,955 |
Short-term Borrowings - Additional Information (Detail) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Short-term Debt [Line Items] | ||
| Short-term borrowings outstanding amount | $ 6,000,000 | |
| Federal Home Loan Bank of Pittsburgh [Member] | ||
| Short-term Debt [Line Items] | ||
| Maximum borrowing capacity | $ 419,307,000 | |
| Short-term borrowings outstanding amount | 39,200,000 | 6,000,000 |
| Unsecured Debt [Member] | Atlantic Community Bankers Bank [Member] | ||
| Short-term Debt [Line Items] | ||
| Maximum borrowing capacity | 10,000,000 | 10,000,000 |
| Outstanding line of credit | $ 0 | $ 0 |
Long-term Debt - Scheduled Contractual Maturities of Borrowings (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Long-term Debt, Fiscal Year Maturity [Abstract] | ||
| 2019 | ||
| 2020 | ||
| 2021 | ||
| 2022 | ||
| 2023 | ||
| Thereafter | 6,892 | |
| Total | $ 6,892 | $ 13,233 |
Fair Value of Financial Instruments - Summary of Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (Detail) - Fair Value Measurements Nonrecurring [Member] - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Other real estate owned | $ 721 | $ 236 |
| Impaired loans, net of related allowance | 1,476 | 832 |
| Total | 2,197 | 1,068 |
| Significant Unobservable Inputs (Level 3) [Member] | ||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Other real estate owned | 721 | 236 |
| Impaired loans, net of related allowance | 1,476 | 832 |
| Total | $ 2,197 | $ 1,068 |
Revenue Recognition - Summary of Non Interest Income, Segregated by Revenue Streams in-Scope and Out-of-Scope of Topic 606 (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Noninterest Income [Abstract] | ||
| Noninterest Income | $ 8,880 | $ 4,411 |
| In-scope of Topic 606 [Member] | ||
| Noninterest Income [Abstract] | ||
| Noninterest Income | 7,423 | 3,213 |
| In-scope of Topic 606 [Member] | Service Charges, Fees and Commissions [Member] | ||
| Noninterest Income [Abstract] | ||
| Noninterest Income | 5,697 | 2,037 |
| In-scope of Topic 606 [Member] | Investment Advisory, Management and Administrative Service [Member] | ||
| Noninterest Income [Abstract] | ||
| Noninterest Income | 1,726 | 1,176 |
| Out-scope of Topic 606 [Member] | ||
| Noninterest Income [Abstract] | ||
| Noninterest Income | $ 1,457 | $ 1,198 |
Revenue Recognition - Additional Information (Detail) - USD ($) |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Contract with Customer, Asset, Net | $ 0 | $ 0 |
| Contract with Customer, Liability | $ 0 | $ 0 |
Employee Benefit Plans - Summary of Stock Option Activity (Detail) - $ / shares |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Retirement Benefits [Abstract] | ||
| Outstanding, Beginning balance | 298,246 | 321,079 |
| Granted, Shares | 6,500 | 20,000 |
| Forfeited, Shares | (5,750) | (4,000) |
| Exercised, Shares | (35,516) | (38,833) |
| Outstanding, Ending balance | 263,480 | 298,246 |
| Options vested and exercisable at year-end | 256,980 | 298,246 |
| Range of exercise price, Lower | $ 9.75 | $ 9.75 |
| Range of exercise price, Upper | $ 13.05 | $ 13.05 |
| Remaining contractual life | 4 years 22 days | 4 years 8 months 19 days |
| Outstanding, Weighted Average Exercise Price Per Share, Beginning balance | $ 10.56 | $ 10.47 |
| Granted, Weighted Average Exercise Price Per Share | 12.88 | 11.94 |
| Forfeited, Weighted Average Exercise Price Per Share | 10.60 | 10.00 |
| Exercised, Weighted Average Exercise Price Per Share | 10.57 | 10.59 |
| Outstanding, Weighted Average Exercise Price Per Share, Ending balance | $ 10.62 | $ 10.56 |
Employee Benefit Plans - Schedule of Weighted Average Assumptions of Fair Value of Option Granted (Detail) - $ / shares |
1 Months Ended | |
|---|---|---|
Jun. 26, 2018 |
Mar. 16, 2018 |
|
| Retirement Benefits [Abstract] | ||
| Number of options | 1,500 | 5,000 |
| Fair value per share | $ 1.39 | $ 2.01 |
| Dividend yield | 3.28% | 4.24% |
| Expected life | 8 years 6 months | 8 years 6 months |
| Expected volatility | 14.02% | 23.26% |
| Risk-free interest rate | 2.83% | 2.78% |
Employee Benefit Plans - Schedule of Plan's Funded Status (Detail) - Defined Benefit Pension Plan and Post Retirement Benefit Plan [Member] - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Change in benefit obligations: | ||
| Benefit obligation beginning January 1 | $ 8,403 | $ 8,002 |
| Interest cost | 291 | 322 |
| Benefits paid | (546) | (535) |
| Assumption of CBT obligation | 154 | |
| Change due to plan amendment | (95) | |
| Actuarial (gain)/loss | (479) | 555 |
| Benefit obligation at end of year | 7,669 | 8,403 |
| Change in plan assets: | ||
| Fair value of plan assets at January 1 | 7,191 | 6,723 |
| Actual return on plan assets | (349) | 807 |
| Contributions | 8 | 193 |
| Benefits paid | (540) | (532) |
| Fair value of plan assets at end of year | 6,310 | 7,191 |
| Funded status included in other liabilities | $ (1,359) | $ (1,212) |
Employee Benefit Plans - Schedule of Amounts Related to Plan Recognized in Accumulated Other Comprehensive Loss but not Yet Recognized as Component of Net Periodic Pension Cost (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Defined Benefit Plan Disclosure [Line Items] | ||
| Income tax expense (benefit) | $ (277) | $ 451 |
| Net amount recognized in other comprehensive income (loss) | (1,040) | 877 |
| Defined Benefit Pension Items [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Income tax expense (benefit) | (238) | (183) |
| Net amount recognized in other comprehensive income (loss) | (894) | (686) |
| Defined Benefit Pension Items [Member] | Defined Benefit Pension Plan and Post Retirement Benefit Plan [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Net gain (loss) | (1,132) | (869) |
| Income tax expense (benefit) | (238) | (183) |
| Net amount recognized in other comprehensive income (loss) | $ (894) | $ (686) |
Employee Benefit Plans - Schedule of Net Periodic Pension Expense and Postretirement Benefit Cost (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Postretirement Life Insurance [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Service cost | $ 1 | |
| Interest cost | $ 2 | 1 |
| Net periodic pension cost / postretirement benefit cost (credit) | 2 | 2 |
| Pension Plan [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Interest cost | 291 | 322 |
| Expected return on plan assets | (486) | (456) |
| Amortization of net loss | 81 | 49 |
| Net periodic pension cost / postretirement benefit cost (credit) | $ (114) | $ (85) |
Employee Benefit Plans - Summary of Actuarial Assumptions Used for Company's Pension and Postretirement Benefit Plan (Detail) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Pension Plan [Member] | Union [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Discount rate | 3.60% | 4.14% |
| Expected long-term rate of return on plan assets | 7.00% | 7.00% |
| Pension Plan [Member] | Citizens [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Discount rate | 3.60% | 4.14% |
| Expected long-term rate of return on plan assets | 7.00% | 7.00% |
| Postretirement Life [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Discount rate | 4.25% | 3.75% |
Employee Benefit Plans - Schedule of Expected Benefit Payments (Detail) $ in Thousands |
Dec. 31, 2018
USD ($)
|
|---|---|
| Pension Plan [Member] | |
| Defined Benefit Plan Disclosure [Line Items] | |
| 2019 | $ 528 |
| 2020 | 522 |
| 2021 | 513 |
| 2022 | 513 |
| 2023 | 502 |
| 2024 - 2028 | 2,362 |
| Total | 4,940 |
| Postretirement Life Insurance [Member] | |
| Defined Benefit Plan Disclosure [Line Items] | |
| 2019 | 5 |
| 2020 | 5 |
| 2021 | 5 |
| 2022 | 4 |
| 2023 | 4 |
| 2024 - 2028 | 16 |
| Total | $ 39 |
Employee Benefit Plans - Schedule of Company's Pension Plan Asset Allocations, by Asset Category (Detail) - Pension Plan [Member] |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Defined Benefit Plan Disclosure [Line Items] | ||
| Pension plan asset allocations | 100.00% | 100.00% |
| Cash and Cash Equivalents [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Pension plan asset allocations | 0.70% | 0.76% |
| Equity Securities, Financial Services [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Pension plan asset allocations | 34.53% | 40.19% |
| Fixed Income Securities [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Pension plan asset allocations | 64.77% | 59.05% |
Income Taxes - Summary of Current and Deferred Amounts of Provision for Income Taxes Expense (Benefit) (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Income Tax Disclosure [Abstract] | ||
| Current tax expense (benefit) | $ 31 | |
| Deferred tax expense (benefit) | 2,340 | $ 3,501 |
| Applicable Federal Income Tax Expense (Benefit) | $ 2,371 | $ 3,501 |
Income Taxes - Components of Net Deferred Tax Asset (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Deferred tax assets: | ||
| Allowance for loan losses | $ 1,121 | $ 991 |
| Deferred compensation | 1,007 | 949 |
| Purchase accounting adjustments | 827 | 1,863 |
| Alternate minimum tax credit carryforwards | 608 | 608 |
| Benefit plans | 238 | 183 |
| Accrued expenses | 242 | 231 |
| Unrealized loss on investment securities available-for-sale | 458 | 238 |
| Low income housing credit carryforwards | 1,063 | 1,063 |
| Net operating loss carryforwards | 761 | 1,827 |
| Other | 133 | 571 |
| Total | 6,458 | 8,524 |
| Deferred tax liabilities: | ||
| Premises and equipment, net | (574) | (575) |
| Total | (574) | (575) |
| Net deferred tax asset | $ 5,884 | $ 7,949 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Income Tax Disclosure [Line Items] | ||
| Federal statutory rate | 21.00% | 34.00% |
| income tax expense | $ 3,888 | |
| Scenario, Plan [Member] | ||
| Income Tax Disclosure [Line Items] | ||
| Federal statutory rate | 21.00% | |
| Maximum [Member] | ||
| Income Tax Disclosure [Line Items] | ||
| Federal statutory rate | 35.00% | |
Income Taxes - Reconciliation Between Amount of Effective Income Tax Expense and Income Tax Expense (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Income Tax Disclosure [Abstract] | ||
| Federal income tax at statutory rate | $ 2,778 | $ (479) |
| Tax exempt interest | (248) | (282) |
| Bank owned life insurance income | (163) | (153) |
| Tax Cuts and Jobs Act legislation | 3,888 | |
| Disallowed merger related costs | 225 | |
| Other, net | 4 | 302 |
| Applicable Federal Income Tax Expense (Benefit) | $ 2,371 | $ 3,501 |
Parent Company Financial Statements - Condensed Balance Sheets (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|---|---|---|---|
| Assets | |||
| Cash and cash equivalents | $ 53,816 | $ 25,786 | $ 19,120 |
| Other assets | 42,156 | 43,703 | |
| Total assets | 1,137,603 | 1,163,607 | |
| Liabilities and stockholders' equity | |||
| Long-term borrowings | 6,892 | 13,233 | |
| Other liabilities | 11,724 | 11,170 | |
| Total liabilities | 1,023,693 | 1,057,351 | |
| Stockholders' equity | 113,910 | 106,256 | 41,920 |
| Total Liabilities and stockholders' equity | 1,137,603 | 1,163,607 | |
| Riverview Financial Corporation [Member] | |||
| Assets | |||
| Cash and cash equivalents | 249 | 426 | $ 24 |
| Investment in bank subsidiary | 120,607 | 119,297 | |
| Premises, net | 73 | 73 | |
| Other assets | 336 | 201 | |
| Total assets | 121,265 | 119,997 | |
| Liabilities and stockholders' equity | |||
| Long-term borrowings | 6,892 | 13,233 | |
| Other liabilities | 463 | 508 | |
| Total liabilities | 7,355 | 13,741 | |
| Stockholders' equity | 113,910 | 106,256 | |
| Total Liabilities and stockholders' equity | $ 121,265 | $ 119,997 |
Parent Company Financial Statements - Condensed Statements of Income and Comprehensive Income (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Condensed Income Statements, Captions [Line Items] | ||
| Income, dividends from bank subsidiary | $ 51,854 | $ 29,593 |
| Interest expense | 7,965 | 4,120 |
| Noninterest expense | 38,925 | 28,560 |
| Income (loss) before income taxes | 13,229 | (1,410) |
| Income tax benefit | 2,371 | 3,501 |
| Net income (loss) | 10,858 | (4,911) |
| Total comprehensive income (loss) | 9,818 | (4,034) |
| Riverview Financial Corporation [Member] | ||
| Condensed Income Statements, Captions [Line Items] | ||
| Income, dividends from bank subsidiary | 9,229 | 2,090 |
| Interest expense | 747 | 379 |
| Income before equity in undistributed net income of subsidiary | 8,482 | 1,711 |
| Undistributed net income (loss) of subsidiary | 2,350 | (7,019) |
| Noninterest expense | 164 | 21 |
| Income (loss) before income taxes | 10,668 | (5,329) |
| Income tax benefit | (190) | (418) |
| Net income (loss) | 10,858 | (4,911) |
| Total comprehensive income (loss) | $ 9,818 | $ (4,034) |
Regulatory Matters - Additional Information (Detail) - USD ($) |
12 Months Ended | ||||
|---|---|---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
| Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |||||
| Maximum percentage of capital and surplus transferable under Federal Regulation | 10.00% | ||||
| Maximum amount available for transfer from bank to company | $ 12,607,000 | ||||
| Loans outstanding | 0 | $ 0 | |||
| Advances made during period | 0 | 0 | |||
| Small bank holding company asset threshold limit | $ 3,000,000,000 | $ 1,000,000,000 | |||
| Capital conservation buffer period | 4 years | ||||
| Maximum [Member] | |||||
| Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |||||
| Capital conservation buffer phase-in ratio in excess of minimum capital ratio | 1.875% | 1.25% | 0.625% | ||
| Scenario, Forecast [Member] | Maximum [Member] | |||||
| Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |||||
| Capital conservation buffer phase-in ratio in excess of minimum capital ratio | 2.50% | ||||
Regulatory Matters - Schedule of the Company's and Bank's Capital Ratios and Minimum Ratios Required for Capital Adequacy Purposes (Parenthetical) (Detail) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Banking and Thrift [Abstract] | ||
| Capital conservation buffer phase-in ratio | 1.875% | 1.25% |
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