UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form10-Q
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended September 30, 2017March 31, 2018
or
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from
333-201017
(Commission File Number)
RIVERVIEW FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania | 38-3917371 | |
(State of incorporation) | (IRS Employer Identification Number) | |
3901 North Front Street, Harrisburg, PA | 17110 | |
(Address of principal executive offices) | (Zip code) |
(717)957-2196
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company as defined in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company as defined in Rule12b-2 of the Exchange Act. Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 9,026,3959,084,373 at OctoberApril 30, 2017.2018.
RIVERVIEW FINANCIAL CORPORATION
FORM10-Q
For the Quarter Ended September 30, 2017March 31, 2018
Contents | Page No. | ||||||
PART I. | FINANCIAL INFORMATION: | ||||||
Item 1. | Financial Statements (Unaudited) | ||||||
Consolidated Balance Sheets at | 3 | ||||||
4 | |||||||
5 | |||||||
Consolidated Statements of Cash Flows for the | 6 | ||||||
Notes to Consolidated Financial Statements | 7 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
Item 3. | |||||||
Item 4. | |||||||
PART II | |||||||
Item 1. | |||||||
Item 1A. | |||||||
Item 2. | |||||||
Item 3. | |||||||
Item 4. | |||||||
Item 5. | |||||||
Item 6. | |||||||
Signatures |
Riverview Financial Corporation
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Assets: | ||||||||||||||||
Cash and due from banks | $ | 8,425 | $ | 7,783 | $ | 14,396 | $ | 9,413 | ||||||||
Interest-bearing deposits in other banks | 10,741 | 11,337 | 40,724 | 16,373 | ||||||||||||
Federal funds sold | 4,729 | |||||||||||||||
Investment securitiesavailable-for-sale | 56,874 | 73,113 | 88,773 | 93,201 | ||||||||||||
Loans held for sale | 519 | 652 | 610 | 254 | ||||||||||||
Loans, net | 560,187 | 409,343 | 934,190 | 955,971 | ||||||||||||
Less: allowance for loan losses | 5,404 | 3,732 | 6,515 | 6,306 | ||||||||||||
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Net loans | 554,783 | 405,611 | 927,675 | 949,665 | ||||||||||||
Premises and equipment, net | 12,163 | 12,201 | 18,714 | 18,631 | ||||||||||||
Accrued interest receivable | 1,995 | 1,726 | 2,865 | 3,237 | ||||||||||||
Goodwill | 5,079 | 5,408 | 24,754 | 24,754 | ||||||||||||
Intangible assets | 1,099 | 1,405 | 4,155 | 4,376 | ||||||||||||
Other assets | 29,701 | 23,812 | 43,771 | 43,703 | ||||||||||||
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Total assets | $ | 681,379 | $ | 543,048 | $ | 1,171,166 | $ | 1,163,607 | ||||||||
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Liabilities: | ||||||||||||||||
Deposits: | ||||||||||||||||
Noninterest-bearing | $ | 76,214 | $ | 73,932 | $ | 157,011 | $ | 155,895 | ||||||||
Interest-bearing | 498,736 | 378,628 | 881,594 | 870,585 | ||||||||||||
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Total deposits | 574,950 | 452,560 | 1,038,605 | 1,026,480 | ||||||||||||
Short-term borrowings | 37,250 | 31,500 | 6,000 | |||||||||||||
Long-term debt | 6,503 | 11,154 | 13,160 | 13,233 | ||||||||||||
Accrued interest payable | 213 | 192 | 466 | 468 | ||||||||||||
Other liabilities | 5,084 | 5,722 | 10,535 | 11,170 | ||||||||||||
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Total liabilities | 624,000 | 501,128 | 1,062,766 | 1,057,351 | ||||||||||||
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Stockholders’ equity: | ||||||||||||||||
Preferred stock: no par value, authorized 3,000,000 shares; Series A convertible perpetual preferred stock | ||||||||||||||||
Common stock: no par value, authorized 20,000,000 shares; September 30, 2017, issued and outstanding 4,892,143 shares; December 31, 2016, issued and outstanding 3,237,859 shares | 45,427 | 29,052 | ||||||||||||||
Common stock: no par value, authorized 20,000,000 shares; March 31, 2018, issued and outstanding 9,084,277 shares; December 31, 2017, issued and outstanding 9,069,363 shares | 100,660 | 100,476 | ||||||||||||||
Capital surplus | 243 | 220 | 422 | 423 | ||||||||||||
Retained earnings | 12,848 | 14,845 | 9,747 | 6,936 | ||||||||||||
Accumulated other comprehensive loss | (1,139 | ) | (2,197 | ) | (2,429 | ) | (1,579 | ) | ||||||||
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Total stockholders’ equity | 57,379 | 41,920 | 108,400 | 106,256 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 681,379 | $ | 543,048 | $ | 1,171,166 | $ | 1,163,607 | ||||||||
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See notes to consolidated financial statements.
Riverview Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
For the three months ended March 31, | 2018 | 2017 | ||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Interest and fees on loans: | ||||||||||||||||||||||||
Taxable | $ | 5,717 | $ | 4,598 | $ | 14,991 | $ | 13,362 | $ | 12,241 | $ | 4,285 | ||||||||||||
Tax-exempt | 146 | 87 | 361 | 261 | 234 | 108 | ||||||||||||||||||
Interest and dividends on investment securitiesavailable-for-sale: | ||||||||||||||||||||||||
Taxable | 477 | 539 | 1,607 | 1,375 | 523 | 564 | ||||||||||||||||||
Tax-exempt | 47 | 53 | 140 | 280 | 82 | 47 | ||||||||||||||||||
Dividends | 1 | 3 | 8 | 3 | ||||||||||||||||||||
Interest on interest-bearing deposits in other banks | 31 | 13 | 78 | 41 | 79 | 23 | ||||||||||||||||||
Interest on federal funds sold | 2 | 12 | 2 | 10 | 6 | |||||||||||||||||||
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Total interest income | 6,420 | 5,291 | 17,192 | 15,329 | 13,169 | 5,036 | ||||||||||||||||||
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Interest expense: | ||||||||||||||||||||||||
Interest on deposits | 821 | 447 | 2,021 | 1,375 | 1,554 | 532 | ||||||||||||||||||
Interest on short-term borrowings | 112 | 3 | 197 | 59 | 30 | 22 | ||||||||||||||||||
Interest on long-term debt | 75 | 77 | 228 | 214 | 176 | 75 | ||||||||||||||||||
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Total interest expense | 1,008 | 527 | 2,446 | 1,648 | 1,760 | 629 | ||||||||||||||||||
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Net interest income | 5,412 | 4,764 | 14,746 | 13,681 | 11,409 | 4,407 | ||||||||||||||||||
Provision for loan losses | 610 | 29 | 1,734 | 284 | 390 | 605 | ||||||||||||||||||
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Net interest income after provision for loan losses | 4,802 | 4,735 | 13,012 | 13,397 | 11,019 | 3,802 | ||||||||||||||||||
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Noninterest income: | ||||||||||||||||||||||||
Service charges, fees and commissions | 270 | 315 | 899 | 933 | 1,228 | 337 | ||||||||||||||||||
Commission and fees on fiduciary activities | 31 | 34 | 92 | 88 | 210 | 30 | ||||||||||||||||||
Wealth management income | 179 | 194 | 631 | 531 | 154 | 258 | ||||||||||||||||||
Mortgage banking income | 205 | 210 | 434 | 401 | 170 | 82 | ||||||||||||||||||
Bank owned life insurance investment income | 107 | 118 | 254 | 276 | 191 | 73 | ||||||||||||||||||
Net gain on sale of investment securitiesavailable-for-sale | 43 | 152 | 106 | 484 | ||||||||||||||||||||
Net loss on sale of investment securitiesavailable-for-sale | (1 | ) | ||||||||||||||||||||||
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Total noninterest income | 835 | 1,023 | 2,416 | 2,713 | 1,953 | 779 | ||||||||||||||||||
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Noninterest expense: | ||||||||||||||||||||||||
Salaries and employee benefits expense | 2,928 | 2,334 | 8,521 | 6,611 | 5,322 | 2,836 | ||||||||||||||||||
Net occupancy and equipment expense | 615 | 538 | 1,895 | 1,617 | 1,122 | 646 | ||||||||||||||||||
Amortization of intangible assets | 71 | 95 | 306 | 247 | 221 | 164 | ||||||||||||||||||
Net cost of operation of other real estate owned | (13 | ) | 83 | 161 | 214 | (1 | ) | 36 | ||||||||||||||||
Other expenses | 1,566 | 1,283 | 4,488 | 4,004 | 2,872 | 1,481 | ||||||||||||||||||
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Total noninterest expense | 5,167 | 4,333 | 15,371 | 12,693 | 9,536 | 5,163 | ||||||||||||||||||
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Income (loss) before income taxes | 470 | 1,425 | 57 | 3,417 | 3,436 | (582 | ) | |||||||||||||||||
Income tax expense (benefit) | 69 | 454 | 44 | 838 | 625 | (15 | ) | |||||||||||||||||
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Net income (loss) | 401 | 971 | 13 | 2,579 | 2,811 | (567 | ) | |||||||||||||||||
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Other comprehensive income: | ||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Unrealized gain (loss) on investment securitiesavailable-for-sale | (50 | ) | (148 | ) | 1,708 | 940 | $ | (1,075 | ) | $ | 512 | |||||||||||||
Reclassification adjustment for net (gain) loss on sale of investment securitiesavailable-for-sale included in net income (loss) | (43 | ) | (152 | ) | (106 | ) | (484 | ) | ||||||||||||||||
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Other comprehensive income (loss) | (93 | ) | (300 | ) | 1,602 | 456 | ||||||||||||||||||
Reclassification adjustment for net loss on sale of investment securitiesavailable-for-sale included in net income | 1 | |||||||||||||||||||||||
Income tax expense (benefit) related to other comprehensive income | (32 | ) | (102 | ) | 544 | 155 | (225 | ) | 174 | |||||||||||||||
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Other comprehensive income (loss), net of income taxes | (61 | ) | (198 | ) | 1,058 | 301 | (850 | ) | 339 | |||||||||||||||
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Comprehensive income | $ | 340 | $ | 773 | $ | 1,071 | $ | 2,880 | ||||||||||||||||
Comprehensive income (loss) | $ | 1,961 | $ | (228 | ) | |||||||||||||||||||
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Per share data: | ||||||||||||||||||||||||
Net income: | ||||||||||||||||||||||||
Basic | $ | 0.08 | $ | 0.30 | $ | 0.03 | $ | 0.80 | $ | 0.31 | $ | (0.12 | ) | |||||||||||
Diluted | $ | 0.08 | $ | 0.30 | $ | 0.03 | $ | 0.80 | $ | 0.31 | $ | (0.12 | ) | |||||||||||
Average common shares outstanding: | ||||||||||||||||||||||||
Basic | 4,880,676 | 3,224,053 | 4,002,165 | 3,214,967 | 9,079,043 | 3,454,704 | ||||||||||||||||||
Diluted | 4,945,456 | 3,244,688 | 4,060,813 | 3,237,553 | 9,137,706 | 3,454,704 | ||||||||||||||||||
Dividends declared | $ | 0.14 | $ | 0.14 | $ | 0.41 | $ | 0.41 | $ | $ | 0.14 |
See notes to consolidated financial statements.
Riverview Financial Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(Dollars in thousands, except per share data)
Preferred Stock | Common Stock | Capital Surplus | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||
Balance, January 1, 2016 | $ | 28,681 | $ | 180 | $ | 13,550 | $ | (108 | ) | $ | 42,303 | |||||||||||||
Net income | 2,579 | 2,579 | ||||||||||||||||||||||
Other comprehensive income, net of income taxes | 301 | 301 | ||||||||||||||||||||||
Compensation cost of option grants | 31 | 31 | ||||||||||||||||||||||
Issuance under ESPP, 401k and Dividend Reinvestment plans: 23,923 shares | 274 | 274 | ||||||||||||||||||||||
Dividends declared, $0.41 per share | (1,327 | ) | (1,327 | ) | ||||||||||||||||||||
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Balance, September 30, 2016 | $ | 28,955 | $ | 211 | $ | 14,802 | $ | 193 | $ | 44,161 | ||||||||||||||
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Balance, January 1, 2017 | $ | 29,052 | $ | 220 | $ | 14,845 | $ | (2,197 | ) | $ | 41,920 | |||||||||||||
Net income | 13 | 13 | ||||||||||||||||||||||
Other comprehensive income, net of income taxes | 1,058 | 1,058 | ||||||||||||||||||||||
Compensation cost of option grants | 23 | 23 | ||||||||||||||||||||||
Issuance of 269,885 common shares | 2,658 | 2,658 | ||||||||||||||||||||||
Issuance of 1,348,809 preferred shares | $ | 13,283 | 13,283 | |||||||||||||||||||||
Preferred shares converted into common shares | (13,283 | ) | 13,283 | |||||||||||||||||||||
Issuance under ESPP, 401k and Dividend Reinvestment plans: 29,840 shares | 373 | 373 | ||||||||||||||||||||||
Exercise of stock options: 5,750 shares | 61 | 61 | ||||||||||||||||||||||
Dividends declared: $0.41 per share | (2,010 | ) | (2,010 | ) | ||||||||||||||||||||
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Balance, September 30, 2017 | $ | $ | 45,427 | $ | 243 | $ | 12,848 | $ | (1,139 | ) | $ | 57,379 | ||||||||||||
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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 | (567 | ) | (567 | ) | ||||||||||||||||||||
Other comprehensive income (loss), net of income | 339 | 339 | ||||||||||||||||||||||
Compensation cost of option grants | 4 | 4 | ||||||||||||||||||||||
Issuance of 269,885 common shares | 2,658 | 2,658 | ||||||||||||||||||||||
Issuance of 1,348,809 preferred shares | $ | 13,283 | 13,283 | |||||||||||||||||||||
Issuance under ESPP, 401k and Dividend Reinvestment plans: 10,607 shares | 123 | 123 | ||||||||||||||||||||||
Dividends declared, $0.14 per share | (669 | ) | (669 | ) | ||||||||||||||||||||
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Balance, March 31, 2017 | $ | 13,283 | $ | 31,833 | $ | 224 | $ | 13,609 | $ | (1,858 | ) | $ | 57,091 | |||||||||||
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Balance, January 1, 2018 | $ | $ | 100,476 | $ | 423 | $ | 6,936 | $ | (1,579 | ) | $ | 106,256 | ||||||||||||
Net income | 2,811 | 2,811 | ||||||||||||||||||||||
Other comprehensive income (loss), net of income | (850 | ) | (850 | ) | ||||||||||||||||||||
Compensation cost of option grants | (1 | ) | (1 | ) | ||||||||||||||||||||
Issuance under ESPP, 401k and Dividend Reinvestment plans: 10,153 shares | 135 | 135 | ||||||||||||||||||||||
Exercise of stock options: 4,761 shares | 49 | 49 | ||||||||||||||||||||||
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Balance, March 31, 2018 | $ | $ | 100,660 | $ | 422 | $ | 9,747 | $ | (2,429 | ) | $ | 108,400 | ||||||||||||
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See notes to consolidated financial statements.
Riverview Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands, except per share data)
For the Nine Months Ended September 30, | 2017 | 2016 | ||||||||||||||
For the Three Months Ended March 31, | 2018 | 2017 | ||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 13 | $ | 2,579 | $ | 2,811 | $ | (567 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation of premises and equipment | 586 | 533 | ||||||||||||||
Depreciation and amortization of premises and equipment | 286 | 195 | ||||||||||||||
Provision for loan losses | 1,734 | 284 | 390 | 605 | ||||||||||||
Stock based compensation | 23 | 31 | (1 | ) | 4 | |||||||||||
Net amortization of investment securitiesavailable-for-sale | 315 | 389 | 207 | 103 | ||||||||||||
Net cost of operation of other real estate owned | 161 | 214 | (1 | ) | 36 | |||||||||||
Net gain on sale of investment securitiesavailable-for-sale | (106 | ) | (484 | ) | ||||||||||||
Net loss on sale of investment securitiesavailable-for-sale | 1 | |||||||||||||||
Amortization of purchase adjustment on loans | (127 | ) | (704 | ) | (1,873 | ) | (43 | ) | ||||||||
Amortization of intangible assets | 306 | 247 | 221 | 164 | ||||||||||||
Deferred income taxes | (47 | ) | 384 | 687 | (48 | ) | ||||||||||
Proceeds from sale of loans originated for sale | 20,733 | 18,329 | 5,827 | 4,558 | ||||||||||||
Net gain on sale of loans originated for sale | (434 | ) | (401 | ) | (170 | ) | (82 | ) | ||||||||
Loans originated for sale | (20,166 | ) | (17,654 | ) | (6,013 | ) | (4,346 | ) | ||||||||
Bank owned life insurance investment income | (254 | ) | (276 | ) | (191 | ) | (73 | ) | ||||||||
Net change in: | ||||||||||||||||
Accrued interest receivable | (269 | ) | (107 | ) | 372 | (155 | ) | |||||||||
Other assets | (1,255 | ) | (208 | ) | (691 | ) | (603 | ) | ||||||||
Accrued interest payable | 21 | (16 | ) | (2 | ) | 11 | ||||||||||
Other liabilities | (638 | ) | (196 | ) | (635 | ) | (223 | ) | ||||||||
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Net cash provided by (used in) operating activities | 596 | 2,944 | 1,224 | (463 | ) | |||||||||||
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Cash flows from investing activities: | ||||||||||||||||
Investment securitiesavailable-for-sale: | ||||||||||||||||
Purchases | (40,916 | ) | ||||||||||||||
Proceeds from repayments | 1,805 | 7,420 | 3,146 | 782 | ||||||||||||
Proceeds from sales | 15,827 | 37,526 | ||||||||||||||
Proceeds from the sale of other real estate owned | 613 | 1,129 | 145 | 215 | ||||||||||||
Net decrease in restricted equity securities | (341 | ) | 1,489 | 208 | 60 | |||||||||||
Net (increase) decrease in loans | (151,072 | ) | 9,996 | |||||||||||||
Business disposition (acquisition), net of cash | 329 | (894 | ) | |||||||||||||
Net decrease (increase) decrease in loans | 23,473 | (55,290 | ) | |||||||||||||
Purchases of premises and equipment | (548 | ) | (447 | ) | (369 | ) | (110 | ) | ||||||||
Purchases of bank owned life insurance | (5,017 | ) | (27 | ) | ||||||||||||
Proceeds from bank owned life insurance | 279 | |||||||||||||||
Business disposition, net of cash | 329 | |||||||||||||||
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Net cash provided by (used in) investing activities | (138,404 | ) | 15,555 | 26,603 | (54,014 | ) | ||||||||||
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Cash flows from financing activities: | ||||||||||||||||
Net increase in deposits | 122,390 | 10,651 | 12,125 | 43,947 | ||||||||||||
Net increase (decrease) in short-term borrowings | 5,750 | (36,575 | ) | (6,000 | ) | (1,500 | ) | |||||||||
Repayment of long-term debt | (5,251 | ) | (143 | ) | (73 | ) | (81 | ) | ||||||||
Proceeds from long-term debt | 600 | 2,050 | ||||||||||||||
Issuance under ESPP, 401k and DRP plans | 373 | 274 | 135 | 123 | ||||||||||||
Issuance of common stock | 15,941 | 2,658 | ||||||||||||||
Issuance of preferred stock | 13,283 | |||||||||||||||
Proceeds from exercise of stock options | 61 | 49 | ||||||||||||||
Cash dividends paid | (2,010 | ) | (1,327 | ) | (669 | ) | ||||||||||
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Net cash provided by (used in) financing activities | 137,854 | (25,070 | ) | 6,236 | 57,761 | |||||||||||
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Net increase (decrease) in cash and cash equivalents | 46 | (6,571 | ) | 34,063 | 3,284 | |||||||||||
Cash and cash equivalents - beginning | 19,120 | 22,688 | ||||||||||||||
Cash and cash equivalents—beginning | 25,786 | 19,120 | ||||||||||||||
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Cash and cash equivalents - ending | $ | 19,166 | $ | 16,117 | ||||||||||||
Cash and cash equivalents—ending | $ | 59,849 | $ | 22,404 | ||||||||||||
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Supplemental disclosures: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 2,425 | $ | 1,664 | $ | 1,762 | $ | 927 | ||||||||
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Income taxes | $ | $ | ||||||||||||||
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Noncash items from investing activities: | ||||||||||||||||
Other real estate acquired in settlement of loans | $ | 293 | $ | 1,348 | $ | 187 | ||||||||||
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See notes to consolidated financial statements.
Riverview Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Summary of significant accounting policies:
Nature of Operations
Riverview Financial Corporation, (the “Company” 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 services its retailtreated as the acquirer from accounting and commercial customers through 17 community bankingreporting purposes. As a result, the historical financial information included in the Company’s consolidated financial statements and related notes as reported in this Form10-Q is that of Riverview.
Riverview Bank, with 30 full service offices and three limited purpose offices, located withinis 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, Blaire, Centre, Clearfield, Dauphin, Huntingdon, Lebanon, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties in Pennsylvania.
Basis of presentation:
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP’) for interim financial information and with the instructions to Form10-Q and Article 8 ofRegulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year’s presentation. These reclassifications did not have any effect on the operating results or financial position of the Company. The operating results and financial position of the Company for the three and nine months ended and as of September 30, 2017,March 31, 2018, are not necessarily indicative of the results of operations and financial position that may be expected in the future. The condensed consolidated balance sheet at December 31, 20162017 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 20162017 Annual Report on Form10-K, filed on March 29, 2017.23, 2018.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, the determination of other-than-temporary impairment losses on securities and impairment of goodwill. Actual results could differ from those estimates.
Recent Accounting Standards
In January 2016, the FASBFinancial Accounting Standards Board, (“FASB”) issued ASUNo. 2016-01, “Financial Instruments - Overall (Subtopic825-10): Recognition“Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments inThis ASU2016-01, among other things: addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (i) require equity investments, (exceptexcept those accounted for under the equity method of accounting or those that result in consolidation of the investee)investee, to be measured at fair value with changes in fair value recognized in net income; require public business entitiesincome. However, an entity may choose to usemeasure 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 exit price notion when measuringidentical 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 disclosure purposes; require separate presentation of financial assets and liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); andentities 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. The amendmentscost 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 this ASU are effectiveother 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 public companiesfinancial 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 fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.a valuation allowance on a deferred tax asset related toavailable-for-sale securities in combination with the entity’s other deferred tax assets. The Company is currently assessingmeasured the impact thatfair value of its loan portfolio as of March 31, 2018 using an exit price notion. The adoption of ASU2016-01 will have on its consolidated financial statements. The Company doesdid not expect the adoption of the new accounting guidance to have a material effect on itsour consolidated financial statements, and expects the fair values of financial instruments disclosed in the footnotes to conform to a market participant’s view for measurement and disclosure purposes.statements.
In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842)”. Among other things, in the amendments in ASU2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any
transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASUNo. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting”. The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on astep-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. In addition, the amendments in this ASU require that an entity that has anavailable-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments were effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The adoption of ASUNo. 2016-07 did not have a material effect on our consolidated financial statements.
In March 2016, the FASB issued ASUNo. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting”. The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: income tax consequences; classification of awards as either equity or liabilities; and classification on the statement of cash flows. The amendments were effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASUNo. 2016-09 did not have a material effect on our consolidated financial statements.
In June 2016, the FASB ASUNo. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU2016-13 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. ASU2016-13 also requires new disclosures for financial assets measured at amortized cost, loans andavailable-for-sale debt securities. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We have dedicated staff and resources in place evaluatingto evaluate the Company’s options including evaluating the appropriate model options and collecting and reviewing loan data for use in these models. The Company is currently still assessing the impact that this new guidance will have on its consolidated financial statements.
In August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019. The Company does not expect the adoption of the new accounting guidance to have a material effect on the statement of cash flow.
In December 2016, the FASB issued ASUNo. 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 fromASU 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. OurSince the guidance does not apply to revenue is comprised of netassociated 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 financial assets and financial liabilities,this assessment, the Company concluded that ASU2014-09 did not materially change the method in which is explicitly excluded from the scope ofCompany currently recognizes revenue for these revenue streams. The Company adopted ASUASU 2014-09 andnon-interest income.ASU 2016-20 and2014-09 could require us to change how we recognize certain revenue streams withinnon-interest its related amendments on its required effective date of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income however, we do not expect these changes to have a significant impact on our financial statements. We continue to evaluateupon adoption of the impact ofASU 2016-20 and2014-09 on our Company and expect to adopt the standard in the first quarter of 2018 withnew guidance, a cumulative effect adjustment to opening retained earnings if such adjustment iswas not deemed to be significant.necessary. The adoption ofASU 2016-20 and2014-09 did not have a material effect on our consolidated financial statements. See Note 8 Revenue Recognition for more information.
In January 2017, FASB issued ASUNo. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The ASU clarifies the definition of a business to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The guidance isadoption of ASUNo. 2017-01 did not expected to have a significant impactmaterial effect on the Company’sour consolidated financial positions, results of operations or disclosures.statements.
In January 2017, the FASB issued ASUNo. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the 2015 22, 2016 and November 17, 2016 EITF Meetings”. The ASU adds an SEC paragraph to ASUs2014-09,2016-02 and2016-13 which specifies the SEC staff view that a registrant should evaluate ASUs that have not yet been adopted to determine the appropriate disclosure about the potential material effects of those ASUs on the financial statements when adopted. The guidance also specifies the SEC staff view on financial statement disclosures when the company does not know or cannot reasonably estimate the impact that adoption of the ASUs will have on the financial statements. The ASU also conforms to SEC guidance on accounting for tax benefits resulting from investments in affordable housing projects to the guidance in ASU2014-01, Investments - Investments—Equity Method and Joint Ventures (Topic 323). The amendments in this update are effective upon issuance. The guidance did not have a significant impact on our consolidated financial statements.
In January 2017, FASB issued ASUNo. 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 ASUNo. 2017-05, “Other Income - Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”. The amendments clarify that a financial asset is within the scope of Topic 610 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Topic 610 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Topic 610 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The guidance is effective for public business entities for annual periods beginning after December 15, 2017 and interim periods therein. Entities may use either a full or modified approach to adopt the ASU. The Company is assessingadoption of ASUNo. 2017-05 and doesdid not expect it to have a material impacteffect on its accounting and disclosures.our consolidated financial statements.
In March 2017, the FASB issued ASUNo. 2017-07, “Compensation - “Compensation—Retirement Benefits (Topic 715)”, which requires employers that offer or maintain defined benefit plans to disaggregate the service component from the other components of net benefit cost and provides guidance on presentation of the service component and the other components of net benefit cost in the statement of operations. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the potential impactadoption of this standardASUNo. 2017-07 did not have a material effect on itsour consolidated financial statements.
In March 2017, FASB issued ASUNo. 2017-08, “Receivables - “Receivables—Nonrefundable Fees and Other Costs (Topic 310), Premium Amortization on Purchased Callable Debt Securities”. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is assessing the impact of ASU2017-08 on its accounting and disclosures.
In May 2017, the FASB issued ASUNo. 2017-09, “Compensation - “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. This ASU clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting
conditions, and classification of the awards are the same immediately before and after the modification. This ASU is effective for fiscal years beginning after December 15, 2017, and interims periods within those fiscal years. The Company does not expect the adoption of the guidance toASUNo. 2017-09 did not have a material impacteffect on our consolidated financial statements.
In August 2017, FASB issued ASUNo. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”Activities”. The amendments in the Update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.
In September 2017, the FASB issued ASUNo. 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 UpdatesNo. 2014-09, Revenue from Contracts with Customers (Topic 606), andNo. 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 ASU2017-13 did not have a material effect on our consolidated financial statements.
In November 2017, the FASB issued ASUNo. 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 ReleaseNo. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of ASUNo. 2017-14 did not have a material effect on our consolidated financial statements.
In February 2018, the FASB issued ASUNo. 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 ASUNo. 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 ASUNo. 2018-03, “Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which makes minor changes to the ASUNo. 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 ASUNo. 2018-03 did not have a material effect on our consolidated financial statements.
In March 2018, the FASB has issued ASUNo. 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 ASUNo. 2018-05 did not have a material effect on our consolidated financial statements.
2. Other comprehensive income (loss):
The components of other comprehensive income (loss) and their related tax effects are reported in the Consolidated Statements of Income and Comprehensive Income (Loss). The accumulated other comprehensive income (loss) included in the Consolidated Balance Sheets relates to net unrealized gains and losses on investment securitiesavailable-for-sale and benefit plan adjustments.
The components of accumulated other comprehensive income (loss) included in stockholders’ equity at September 30, 2017March 31, 2018 and December 31, 20162017 is as follows:
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Net unrealized loss on investment securitiesavailable-for-sale | $ | (911 | ) | $ | (2,513 | ) | $ | (2,206 | ) | $ | (1,131 | ) | ||||
Related income taxes | (310 | ) | (854 | ) | (463 | ) | (238 | ) | ||||||||
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Net of income taxes | (601 | ) | (1,659 | ) | (1,743 | ) | (893 | ) | ||||||||
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Benefit plan adjustments | (815 | ) | (815 | ) | (869 | ) | (869 | ) | ||||||||
Related income taxes | (277 | ) | (277 | ) | (183 | ) | (183 | ) | ||||||||
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Net of income taxes | (538 | ) | (538 | ) | (686 | ) | (686 | ) | ||||||||
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Accumulated other comprehensive income (loss) | $ | (1,139 | ) | $ | (2,197 | ) | $ | (2,429 | ) | $ | (1,579 | ) | ||||
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Other comprehensive income (loss) and related tax effects for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 is as follows:
Three months ended September 30, | 2017 | 2016 | ||||||||||||||
Three months ended March 31, | 2018 | 2017 | ||||||||||||||
Unrealized loss on investment securitiesavailable-for-sale | $ | (50 | ) | $ | (148 | ) | $ | (1,075 | ) | $ | 512 | |||||
Net gain on the sale of investment securitiesavailable-for-sale (1) | (43 | ) | (152 | ) | 1 | |||||||||||
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Other comprehensive loss before taxes | (93 | ) | (300 | ) | (1,075 | ) | 513 | |||||||||
Income tax expense (benefit) | (32 | ) | (102 | ) | (225 | ) | 174 | |||||||||
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Other comprehensive loss | $ | (61 | ) | $ | (198 | ) | $ | (850 | ) | $ | 339 | |||||
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Nine months ended September 30, | 2017 | 2016 | ||||||||||||||
Unrealized gain on investment securitiesavailable-for-sale | $ | 1,708 | $ | 940 | ||||||||||||
Net gain on the sale of investment securitiesavailable-for-sale (1) | (106 | ) | (484 | ) | ||||||||||||
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Other comprehensive income before taxes | 1,602 | 456 | ||||||||||||||
Income tax expense (benefit) | 544 | 155 | ||||||||||||||
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Other comprehensive income | $ | 1,058 | $ | 301 | ||||||||||||
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(1) | Represents amounts reclassified out of accumulated other comprehensive income and included in gains on sale of investment securities on the consolidated statements of income and comprehensive income. |
3. Earnings per share:
Basic earnings per share is computed by dividing net income (loss) allocated to common stockholders divided by the weighted-average number of common shares outstanding during the period. Net income (loss) allocated to common stockholders is net income (loss) adjusted for preferred stock dividends including dividends declared, less income (loss) allocated to participating securities. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.
The following table provides a reconciliation between the computation of basic earnings per share and diluted earnings per share for the three and nine months ended September 30, 2017March 31, 2018 and 2016:2017:
Three months ended September 30, | 2017 | 2016 | ||||||||||||||
Three months ended March 31, | 2018 | 2017 | ||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 401 | $ | 971 | $ | 2,811 | $ | (567 | ) | |||||||
Dividends on preferred stock | (185 | ) | ||||||||||||||
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Net income (loss) available to common stockholders | $ | 401 | $ | 971 | $ | 2,811 | $ | (752 | ) | |||||||
Undistributed loss allocated to preferred stockholders | 347 | |||||||||||||||
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Income (loss) allocated to common stockholders | $ | 401 | $ | 971 | $ | 2,811 | $ | (405 | ) | |||||||
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Denominator: | ||||||||||||||||
Basic | 4,880,676 | 3,224,053 | 9,079,043 | 3,454,704 | ||||||||||||
Dilutive options | 64,780 | 20,635 | 58,663 | |||||||||||||
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Diluted | 4,945,456 | 3,244,688 | 9,137,706 | 3,454,704 | ||||||||||||
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Earnings per share: | ||||||||||||||||
Basic | $ | 0.08 | $ | 0.30 | $ | 0.31 | $ | (0.12 | ) | |||||||
Diluted | $ | 0.08 | $ | 0.30 | $ | 0.31 | $ | (0.12 | ) | |||||||
Nine months ended September 30, | 2017 | 2016 | ||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 13 | $ | 2,579 | ||||||||||||
Dividends on preferred stock | (371 | ) | ||||||||||||||
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Net income (loss) available to common stockholders | $ | (358 | ) | $ | 2,579 | |||||||||||
Undistributed loss allocated to preferred stockholders | 475 | |||||||||||||||
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Income (loss) allocated to common stockholders | $ | 117 | $ | 2,579 | ||||||||||||
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Denominator: | ||||||||||||||||
Basic | 4,002,165 | 3,214,967 | ||||||||||||||
Dilutive options | 58,648 | 22,586 | ||||||||||||||
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Diluted | 4,060,813 | 3,237,553 | ||||||||||||||
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Earnings per share: | ||||||||||||||||
Basic | $ | 0.03 | $ | 0.80 | ||||||||||||
Diluted | $ | 0.03 | $ | 0.80 |
For the three months ended March 31, 2018, there were no outstanding stock options that were excluded from the dilutive earnings per share calculation. There were 25,30043,000 outstanding stock options for the three and nine months ended September 30, 2016March 31, 2017 that were excluded from the diluted earnings per share calculation because of their antidilutive effect.
On January 20, 2017, Riverview announced that it entered into agreements with accredited investors and qualified institutional buyers to raise approximately $17.0 million in common and preferred equity, before expenses, through the private placement of 269,885 shares of its no par value common stock at a price of $10.50 per share and 1,348,809 shares of a newly created Series A convertible, perpetual preferred stock (the “Series A preferred stock”) at a price of $10.50 per share.
Effective as of the close of business on June 22, 2017, the Company filed an amendment to the Articles of Incorporation to authorize a class ofnon-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 ofnon-voting common stock as of the effective date. Thenon-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 ofnon-voting common stock do not have voting rights.
The additional capital allowed Riverview to acquire CBT Financial Corp, Clearfield, Pennsylvania, in a stock transaction valued at approximately $54.6 million effective October 1, 2017. This merger created a community banking franchise with approximately $1.2 billion of assets and provides enhanced products and services through 33 banking locations covering 12 Pennsylvania counties.
4. Investment securities:
The amortized cost and fair value of investment securitiesavailable-for-sale aggregated by investment category at September 30, 2017March 31, 2018 and December 31, 20162017 are summarized as follows:
September 30, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
March 31, 2018 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
State and municipals: | ||||||||||||||||||||||||||||||||
Taxable | $ | 35,424 | $ | 392 | $ | 684 | $ | 35,132 | $ | 35,153 | $ | 219 | $ | 1,271 | $ | 34,101 | ||||||||||||||||
Tax-exempt | 5,746 | 55 | 5,801 | 15,141 | 5 | 235 | 14,911 | |||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||
U.S. Government agencies | 1,567 | 31 | 1,536 | 21,291 | 50 | 54 | 21,287 | |||||||||||||||||||||||||
U.S. Government-sponsored enterprises | 5,516 | 12 | 105 | 5,423 | 9,868 | 12 | 327 | 9,553 | ||||||||||||||||||||||||
Corporate debt obligations | 9,532 | 550 | 8,982 | 9,526 | 605 | 8,921 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | $ | 57,785 | $ | 459 | $ | 1,370 | $ | 56,874 | $ | 90,979 | $ | 286 | $ | 2,492 | $ | 88,773 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
December 31, 2016 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 5,088 | $ | 67 | $ | 5,021 | ||||||||||||||||||||||||||
December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||
State and municipals: | ||||||||||||||||||||||||||||||||
Taxable | 44,045 | $ | 234 | 1,885 | 42,394 | $ | 35,352 | $ | 334 | $ | 684 | $ | 35,002 | |||||||||||||||||||
Tax-exempt | 5,748 | 3 | 77 | 5,674 | 16,325 | 47 | 64 | 16,308 | ||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||
U.S. Government agencies | 1,905 | 15 | 1,890 | 22,908 | 3 | 94 | 22,817 | |||||||||||||||||||||||||
U.S. Government-sponsored enterprises | 9,115 | 28 | 247 | 8,896 | 10,218 | 19 | 148 | 10,089 | ||||||||||||||||||||||||
Corporate debt obligations | 9,542 | 492 | 9,050 | 9,529 | 544 | 8,985 | ||||||||||||||||||||||||||
Equity securities, financial services | 183 | 5 | 188 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | $ | 75,626 | $ | 270 | $ | 2,783 | $ | 73,113 | $ | 94,332 | $ | 403 | $ | 1,534 | $ | 93,201 | ||||||||||||||||
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|
|
|
|
|
|
|
The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified asavailable-for-sale at September 30, 2017,March 31, 2018, is summarized as follows:
September 30, 2017 | Fair Value | |||||||
March 31, 2018 | Fair Value | |||||||
Within one year | $ | 173 | $ | 2,823 | ||||
After one but within five years | 2,281 | 6,203 | ||||||
After five but within ten years | 9,316 | 12,566 | ||||||
After ten years | 38,146 | 36,341 | ||||||
|
| |||||||
49,916 | 57,933 | |||||||
Mortgage-backed securities | 6,958 | 30,840 | ||||||
|
| |||||||
Total | $ | 56,874 | $ | 88,773 | ||||
|
|
Securities with a carrying value of $56,874$52,729 and $47,576$93,201 at September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.
Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on acase-by-case basis. At September 30, 2017March 31, 2018 and December 31, 2016,2017, 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 September 30, 2017March 31, 2018 and December 31, 2016,2017, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:
March 31, 2018 State and municipals: Taxable Tax-exempt Mortgage-backed securities: U.S. Government agencies U.S. Government-sponsored enterprises Corporate debt obligation Total Less Than 12 Months 12 Months or More Total Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses $ 6,699 $ 97 $ 19,628 $ 1,174 $ 26,327 $ 1,271 13,835 235 13,835 235 3,095 48 158 6 3,253 54 4,042 92 3,952 235 7,994 327 8,921 605 8,921 605 $ 27,671 $ 472 $ 32,659 $ 2,020 $ 60,330 $ 2,492
Less Than 12 Months | 12 Months or More | Total | Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
State and municipals: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | $ | 10,533 | $ | 227 | $ | 13,463 | $ | 457 | $ | 23,996 | $ | 684 | ||||||||||||||||||||||||||||||||||||
Tax-exempt | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agencies | 1,536 | 31 | 1,536 | 31 | ||||||||||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises | 3,317 | 58 | 1,757 | 47 | 5,074 | 105 | ||||||||||||||||||||||||||||||||||||||||||
Corporate debt obligation | 3,761 | 239 | 5,221 | 311 | 8,982 | 550 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 19,147 | $ | 555 | $ | 20,441 | $ | 815 | $ | 39,588 | $ | 1,370 | ||||||||||||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 5,021 | $ | 67 | $ | 5,021 | $ | 67 | ||||||||||||||||||||||||||||||||||||||||
December 31, 2017 | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises | ||||||||||||||||||||||||||||||||||||||||||||||||
State and municipals: | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 30,895 | 1,876 | $ | 282 | $ | 9 | 31,177 | 1,885 | $ | 4,757 | $ | 30 | $ | 20,185 | $ | 654 | $ | 24,942 | $ | 684 | ||||||||||||||||||||||||||||
Tax-exempt | 3,998 | 77 | 3,998 | 77 | 10,506 | 64 | 10,506 | 64 | ||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Government agencies | 1,891 | 15 | 1,891 | 15 | 16,746 | 87 | 193 | 7 | 16,939 | 94 | ||||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises | 7,412 | 247 | 7,412 | 247 | 4,294 | 23 | 4,174 | 125 | 8,468 | 148 | ||||||||||||||||||||||||||||||||||||||
Corporate debt obligation | 9,050 | 492 | 9,050 | 492 | 3,800 | 200 | 5,185 | 344 | 8,985 | 544 | ||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | $ | 58,267 | $ | 2,774 | $ | 282 | $ | 9 | $ | 58,549 | $ | 2,783 | $ | 40,103 | $ | 404 | $ | 29,737 | $ | 1,130 | $ | 69,840 | $ | 1,534 | ||||||||||||||||||||||||
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|
|
|
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|
|
|
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|
|
The Company had 4587 investment securities, consisting of 3068 taxable state and municipal obligations, 1115 mortgage-backed securities, and four corporate debt obligations that were in unrealized loss positions at September 30, 2017.March 31, 2018. Of these securities, 1625 taxable state and municipal obligation, twofive mortgage-backed securities and twofour corporate debt obligations were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at September 30, 2017.March 31, 2018. There was no OTTI recognized for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017.
The Company had 8088 investment securities, consisting of three U.S. Treasury notes, 4934 taxable state and municipal obligations, seven21tax-exempt state and municipal obligations, 1729 mortgage-backed securities and four corporate debt obligations that were in unrealized loss positions at December 31, 2016.2017. Of these securities, one25 taxable state and municipal obligation wasobligations, five mortgage-backed securities and two corporate debt obligations 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 September 30, 2017March 31, 2018 and December 31, 20162017 are summarized as follows. Net deferred loan costs were $781$891 and $1,077$863 at September 30, 2017March 31, 2018 and December 31, 2016.2017.
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Commercial | $ | 74,389 | $ | 51,166 | $ | 135,049 | $ | 140,116 | ||||||||
Real estate: | ||||||||||||||||
Construction | 9,754 | 8,605 | 33,209 | 34,405 | ||||||||||||
Commercial | 337,688 | 212,550 | 516,333 | 526,230 | ||||||||||||
Residential | 131,741 | 130,874 | 236,390 | 240,626 | ||||||||||||
Consumer | 6,615 | 6,148 | 13,209 | 14,594 | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 560,187 | $ | 409,343 | $ | 934,190 | $ | 955,971 | ||||||||
|
|
|
|
The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 are summarized as follows:
Real Estate | Real Estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2018 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning Balance July 1, 2017 | $ | 757 | $ | 192 | $ | 2,965 | $ | 828 | $ | 49 | $ | 43 | $ | 4,834 | ||||||||||||||||||||||||||||||||||||||||||
Beginning Balance January 1, 2018 | $ | 1,206 | $ | 379 | $ | 2,963 | $ | 1,340 | $ | 37 | $ | 381 | $ | 6,306 | ||||||||||||||||||||||||||||||||||||||||||
Charge-offs | (24 | ) | (18 | ) | (42 | ) | (77 | ) | (50 | ) | (99 | ) | (226 | ) | ||||||||||||||||||||||||||||||||||||||||||
Recoveries | 1 | 1 | 2 | 3 | 22 | 1 | 39 | 45 | ||||||||||||||||||||||||||||||||||||||||||||||||
Provisions | 421 | (3 | ) | (56 | ) | 127 | (4 | ) | 125 | 610 | (316 | ) | 5 | 493 | (112 | ) | 55 | 265 | 390 | |||||||||||||||||||||||||||||||||||||
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|
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|
| |||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 1,155 | $ | 189 | $ | 2,909 | $ | 937 | $ | 46 | $ | 168 | $ | 5,404 | $ | 816 | $ | 384 | $ | 3,458 | $ | 1,179 | $ | 32 | $ | 646 | $ | 6,515 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning Balance January 1, 2017 | $ | 629 | $ | 160 | $ | 2,110 | $ | 789 | $ | 44 | $ | 3,732 | ||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | (34 | ) | (34 | ) | (7 | ) | (75 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Recoveries | 1 | 3 | 7 | 2 | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions | 559 | 29 | 796 | 175 | 7 | $ | 168 | 1,734 | ||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 1,155 | $ | 189 | $ | 2,909 | $ | 937 | $ | 46 | $ | 168 | $ | 5,404 | ||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2016 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning Balance July 1, 2016 | $ | 558 | $ | 170 | $ | 2,100 | $ | 745 | $ | 36 | $ | 3,609 | ||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | (1 | ) | (1 | ) | (25 | ) | (8 | ) | (35 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Recoveries | 25 | 1 | 1 | 7 | 34 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions | (72 | ) | (13 | ) | 38 | 69 | 5 | $ | 2 | 29 | ||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 510 | $ | 157 | $ | 2,138 | $ | 790 | $ | 40 | $ | 2 | $ | 3,637 | ||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
Real Estate | ||||||||||||||||||||||||||||
March 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 | (7 | ) | (5 | ) | (12 | ) | ||||||||||||||||||||||
Recoveries | 3 2 | 1 | 4 | |||||||||||||||||||||||||
Provisions | (4 | ) | 432 | 38 | 15 | $ | 124 | 605 | ||||||||||||||||||||
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|
|
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| |||||||||||||||
Ending balance | $ | 625 | $ | 160 | $ | 2,545 | $ | 821 | $ | 54 | $ | 124 | $ | 4,329 | ||||||||||||||
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September 30, 2016 Allowance for loan losses: Beginning Balance January 1, 2016 Charge-offs Recoveries Provisions Ending balance Real Estate Commercial Construction Commercial Residential Consumer Unallocated Total $ 1,298 $ 202 $ 2,227 $ 613 $ 25 $ 4,365 (724 ) (250 ) (65 ) (33 ) (24 ) (1,096 ) 70 1 3 10 84 (134 ) 204 (24 ) 207 29 $ 2 284 $ 510 $ 157 $ 2,138 $ 790 $ 40 $ 2 $ 3,637
The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2017March 31, 2018 and December 31, 20162017 is summarized as follows:
Real Estate | Real Estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2018 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 1,155 | $ | 189 | $ | 2,909 | $ | 937 | $ | 46 | $ | 168 | $ | 5,404 | $ | 816 | $ | 384 | $ | 3,458 | $ | 1,179 | $ | 32 | $ | 646 | $ | 6,515 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | 25 | 194 | 54 | 273 | 69 | 78 | 47 | 194 | ||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 1,130 | $ | 189 | $ | 2,715 | $ | 884 | $ | 45 | $ | 168 | $ | 5,131 | 747 | 384 | 3,380 | 1,132 | 32 | 646 | 6,321 | |||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance: purchased credit impaired loans | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 74,389 | $ | 9,754 | $ | 337,688 | $ | 131,741 | $ | 6,615 | $ | 560,187 | $ | 135,049 | $ | 33,209 | $ | 516,333 | $ | 236,390 | $ | 13,209 | $ | $ | 934,190 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | 799 | 3,671 | 2,462 | 6,932 | 1,693 | 2,919 | 2,414 | 7,026 | ||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 73,590 | $ | 9,754 | $ | 334,017 | $ | 129,279 | $ | 6,615 | $ | 553,255 | 132,912 | 33,209 | 507,714 | 233,052 | 13,209 | 920,096 | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Ending balance: purchased credit impaired loans | $ | 444 | $ | $ | 5,700 | $ | 924 | $ | $ | $ | 7,068 | |||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | Commercial | Construction | Commercial | Residential | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 629 | $ | 160 | $ | 2,110 | $ | 789 | $ | 44 | $ | 3,732 | ||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | 8 | 140 | 148 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
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|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 621 | $ | 160 | $ | 1,970 | $ | 789 | $ | 44 | $ | 3,584 | ||||||||||||||||||||||||||||||||||||||||||||
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|
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 51,166 | $ | 8,605 | $ | 212,550 | $ | 130,874 | $ | 6,148 | $ | 409,343 | ||||||||||||||||||||||||||||||||||||||||||||
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|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance: individually evaluated for impairment | 966 | 3,924 | 2,515 | 7,405 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance: collectively evaluated for impairment | $ | 50,200 | $ | 8,605 | $ | 208,626 | $ | 128,359 | $ | 6,148 | $ | 401,938 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
December 31, 2017 Allowance for loan losses: Ending balance Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Ending balance: purchased credit impaired loans Loans receivable: Ending balance Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Ending balance: purchased credit impaired loans Real Estate Commercial Construction Commercial Residential Consumer Unallocated Total $ 1,206 $ 379 $ 2,963 $ 1,340 $ 37 $ 381 $ 6,306 56 76 92 224 1,150 379 2,887 1,248 37 381 6,082 $ $ $ $ $ $ $ $ 140,116 $ 34,405 $ 526,230 $ 240,626 $ 14,594 $ $ 955,971 777 2,988 2,482 6,247 138,824 34,405 516,300 237,089 14,594 941,212 $ 515 $ $ 6,942 $ 1,055 $ $ $ 8,512
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:
The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at September 30, 2017March 31, 2018 and December 31, 2016:2017:
September 30, 2017 | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
Commercial | $ | 70,549 | $ | 2,277 | $ | 1,563 | $ | 74,389 | ||||||||||||
Real estate: | ||||||||||||||||||||
Construction | 9,344 | 410 | 9,754 | |||||||||||||||||
Commercial | 326,203 | 7,753 | 3,732 | 337,688 | ||||||||||||||||
Residential | 130,001 | 28 | 1,712 | 131,741 | ||||||||||||||||
Consumer | 6,615 | 6,615 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 542,712 | $ | 10,468 | $ | 7,007 | $ | 560,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
December 31, 2016: | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
Commercial | $ | 47,765 | $ | 1,604 | $ | 1,797 | $ | 51,166 | ||||||||||||
Real estate: | ||||||||||||||||||||
Construction | 8,605 | 8,605 | ||||||||||||||||||
Commercial | 200,636 | 8,063 | 3,851 | 212,550 | ||||||||||||||||
Residential | 129,320 | 28 | 1,526 | 130,874 | ||||||||||||||||
Consumer | 6,148 | 6,148 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 392,474 | $ | 9,695 | $ | 7,174 | $ | 409,343 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
March 31, 2018 | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
Commercial | $ | 121,929 | $ | 8,623 | $ | 4,497 | $ | 135,049 | ||||||||||||
Real estate: | ||||||||||||||||||||
Construction | 32,028 | 1,058 | 123 | 33,209 | ||||||||||||||||
Commercial | 489,204 | 11,724 | 15,405 | 516,333 | ||||||||||||||||
Residential | 230,320 | 2,187 | 3,883 | 236,390 | ||||||||||||||||
Consumer | 13,111 | 98 | 13,209 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 886,592 | $ | 23,690 | $ | 23,908 | $ | 934,190 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
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 | ||||||||||||
|
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|
|
|
|
|
|
|
|
Information concerningThe following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans by major loan classification at September 30, 2017as of March 31, 2018 and December 31, 2016 is summarized as follows:2017. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules.
September 30, 2017 | December 31, 2016 | |||||||
Commercial | $ | 199 | $ | 356 | ||||
Real estate: | ||||||||
Construction | ||||||||
Commercial | 704 | 359 | ||||||
Residential | 862 | 671 | ||||||
Consumer | ||||||||
|
|
|
| |||||
Total | $ | 1,765 | $ | 1,386 | ||||
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|
|
March 31, 2018 Commercial Real estate: Construction Commercial Residential Consumer Total Purchased credit impaired loans Total Loans The major classifications of loans by past due status at September 30, 2017 and December 31, 2016 are summarized as follows: Accrual Loans 30-59 Days
Past Due 60-89 Days
Past Due 90 or More
Days Past
Due Total Past
Due Current Nonaccrual
Loans Total Loans $ 864 $ 23 $ 887 $ 132,723 $ 995 $ 134,605 14 14 33,195 33,209 1,767 60 $ 150 1,977 508,309 347 510,633 2,121 231 234 2,586 231,598 1,282 235,466 125 19 9 153 13,056 13,209 $ 4,891 $ 333 $ 393 $ 5,617 $ 918,881 $ 2,624 $ 927,122 7,068 $ 934,190
September 30, 2017 | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loans | Loans > 90 Days and Accruing | |||||||||||||||||||||
Commercial | $ | 1,603 | $ | 24 | $ | 11 | $ | 1,638 | $ | 72,751 | $ | 74,389 | ||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||
Construction | 9,754 | 9,754 | ||||||||||||||||||||||||||
Commercial | 569 | 235 | 804 | 336,884 | 337,688 | |||||||||||||||||||||||
Residential | 818 | 297 | 440 | 1,555 | 130,186 | 131,741 | ||||||||||||||||||||||
Consumer | 3 | 1 | 4 | 6,611 | 6,615 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 2,993 | $ | 322 | $ | 686 | $ | 4,001 | $ | 556,186 | $ | 560,187 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2016 | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days | Total Past Due | Current | Total Loans | Loans > 90 Days and Accruing | |||||||||||||||||||||
Commercial | $ | 580 | $ | $ | 214 | $ | 794 | $ | 50,372 | $ | 51,166 | |||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||
Construction | 22 | 22 | 8,583 | 8,605 | ||||||||||||||||||||||||
Commercial | 784 | 97 | 11 | 892 | 211,658 | 212,550 | ||||||||||||||||||||||
Residential | 905 | 256 | 592 | 1,753 | 129,121 | 130,874 | $ | 357 | ||||||||||||||||||||
Consumer | 6 | 2 | 8 | 6,140 | 6,148 | 2 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 2,297 | $ | 353 | $ | 819 | $ | 3,469 | $ | 405,874 | $ | 409,343 | $ | 359 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 Commercial Real estate: Construction Commercial Residential Consumer Total Purchased credit impaired loans Total Loans Accrual Loans 30-59 Days
Past Due 60-89 Days
Past Due 90 or More
Days Past
Due Total Past
Due Current Nonaccrual
Loans Total Loans $ 1,829 $ 85 $ 1,914 $ 137,612 $ 75 $ 139,601 8 8 34,397 34,405 2,213 152 $ 150 2,515 516,410 363 519,288 2,110 551 533 3,194 235,070 1,307 239,571 149 60 9 218 14,376 14,594 $ 6,309 $ 848 $ 692 $ 7,849 $ 937,865 $ 1,745 $ 947,459 8,512 $ 955,971
The following tables summarize information concerning impaired loans as of and for the three and nine months ended September 30,March 31, 2018 and 2017, and September 30, 2016, and as of and for the year ended, December 31, 20162017 by major loan classification:
This Quarter | Year-to-Date | This Quarter | ||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||||||||||||||||||
March 31, 2018 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||||||||||||||||||||
With no related allowance: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 724 | $ | 724 | $ | 798 | $ | 8 | $ | 803 | $ | 23 | $ | 1,033 | $ | 1,033 | $ | 1,119 | $ | 353 | ||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 2,753 | 2,753 | 2,760 | 32 | 2,992 | 90 | 8,084 | 8,084 | 8,736 | 1,035 | ||||||||||||||||||||||||||||||||||||||
Residential | 2,274 | 2,292 | 2,304 | 28 | 2,408 | 87 | 3,152 | 3,170 | 3,252 | 79 | ||||||||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | 5,751 | 5,769 | 5,862 | 68 | 6,203 | 200 | 12,269 | 12,287 | 13,107 | 1,467 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 75 | 75 | $ | 25 | 78 | 76 | 1 | 1,105 | 1,105 | $ | 69 | 442 | 2 | |||||||||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 918 | 918 | 194 | 820 | 8 | 798 | 20 | 534 | �� | 534 | 78 | 535 | 6 | |||||||||||||||||||||||||||||||||||
Residential | 188 | 326 | 54 | 189 | 2 | 126 | 6 | 186 | 324 | 47 | 187 | 2 | ||||||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | 1,181 | 1,319 | 273 | 1,087 | 10 | 1,000 | 27 | 1,825 | 1,963 | 194 | 1,164 | 10 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Commercial | 799 | 799 | 25 | 876 | 8 | 879 | 24 | 2,138 | 2,138 | 69 | 1,561 | 355 | ||||||||||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 3,671 | 3,671 | 194 | 3,580 | 40 | 3,790 | 110 | 8,618 | 8,618 | 78 | 9,271 | 1,041 | ||||||||||||||||||||||||||||||||||||
Residential | 2,462 | 2,618 | 54 | 2,493 | 30 | 2,534 | 93 | 3,338 | 3,494 | 47 | 3,439 | 81 | ||||||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total | $ | 6,932 | $ | 7,088 | $ | 273 | $ | 6,949 | $ | 78 | $ | 7,203 | $ | 227 | $ | 14,094 | $ | 14,250 | $ | 194 | $ | 14,271 | $ | 1,477 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 With no related allowance: Commercial Real estate: Construction Commercial Residential Consumer Total With an allowance recorded: Commercial Real estate: Construction Commercial Residential Consumer Total Commercial Real estate: Construction Commercial Residential Consumer Total For the Year Ended Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized $ 1,107 $ 1,107 $ 1,210 $ 77 9,399 9,399 10,164 340 3,197 3,215 2,896 149 13,703 13,721 14,270 566 185 185 $ 56 186 1 531 531 76 532 23 340 478 92 339 12 1,056 1,194 224 1,057 36 1,292 1,292 56 1,396 78 9,930 9,930 76 10,696 363 3,537 3,693 92 3,235 161 $ 14,759 $ 14,915 $ 224 $ 15,327 $ 602
For the Year Ended | This Quarter | |||||||||||||||||||||||||||||||||||||||
December 31, 2016 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||||||||||||
March 31, 2017 | Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||||||||||||||||||||||
With no related allowance: | ||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 225 | $ | 225 | $ | 225 | $ | 730 | $ | 730 | $ | $ | 767 | $ | 8 | |||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||||||||||
Commercial | 3,094 | 3,094 | 3,168 | 147 | 3,165 | 3,165 | 3,230 | 36 | ||||||||||||||||||||||||||||||||
Residential | 2,515 | 2,652 | 2,747 | 130 | 2,447 | 2,585 | 2,641 | 33 | ||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 5,834 | 5,971 | 6,140 | 277 | 6,342 | 6,480 | 6,638 | 77 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
With an allowance recorded: | ||||||||||||||||||||||||||||||||||||||||
Commercial | 741 | 741 | $ | 8 | 761 | 30 | 120 | 120 | 1 | 122 | ||||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||||||||||
Commercial | 830 | 830 | 140 | 840 | 867 | 867 | 160 | 709 | 6 | |||||||||||||||||||||||||||||||
Residential | ||||||||||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 1,571 | 1,571 | 148 | 1,601 | 30 | 987 | 987 | 161 | 831 | 6 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Commercial | 966 | 966 | 8 | 986 | 30 | 850 | 850 | 1 | 889 | 8 | ||||||||||||||||||||||||||||||
Real estate: | ||||||||||||||||||||||||||||||||||||||||
Construction | ||||||||||||||||||||||||||||||||||||||||
Commercial | 3,924 | 3,924 | 140 | 4,008 | 147 | 4,032 | 4,032 | 160 | 3,939 | 42 | ||||||||||||||||||||||||||||||
Residential | 2,515 | 2,652 | 2,747 | 130 | 2,447 | 2,585 | 2,641 | 33 | ||||||||||||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | $ | 7,405 | $ | 7,542 | $ | 148 | $ | 7,741 | $ | 307 | $ | 7,329 | $ | 7,467 | $ | 161 | $ | 7,469 | $ | 83 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
September 30, 2016 With no related allowance: Commercial Real estate: Construction Commercial Residential Consumer Total With an allowance recorded: Commercial Real estate: Construction Commercial Residential Consumer Total Commercial Real estate: Construction Commercial Residential Consumer Total This Quarter Year-to-Date Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized $ 838 $ 838 $ 843 $ 8 $ 849 $ 22 3,438 3,438 3,455 20 3,823 110 2,709 2,846 2,907 34 2,942 102 6,985 7,122 7,205 62 7,614 234 126 126 $ 2 128 132 298 298 55 269 231 119 119 33 119 2 120 4 543 543 90 516 2 483 4 964 964 2 971 8 981 22 3,736 3,736 55 3,724 20 4,054 110 2,828 2,965 33 3,026 36 3,062 106 $ 7,528 $ 7,665 $ 90 $ 7,721 $ 64 $ 8,097 $ 238
For the three and nine months ended September 30,March 31, interest income, related to impaired loans, would have been $23$47 in 2018 and $77$26 in 2017 and $90 and $317 in 2016 had the loans been current and the terms of the loans not been modified.
Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $5,593 at September 30, 2017, $6,208 at December 31, 2016 and $6,342 at September 30, 2016.
Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:
Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $5,429 at March 31, 2018, $5,606 at December 31, 2017 and $6,021 at March 31, 2017.
The following tables present the number of loans and recorded investment in loans restructured and identified as troubled debt restructurings for the three months ended March 31, 2017, as well as the number and recorded investment in these loans that subsequently defaulted. Defaulted loans are those which are 30 days or more past due for payment under the modified terms. There were no loans modifiedrestructured as troubled debt restructuring for the three months ended September 30, 2017 and two loans modified as troubled debt restructuring for the nine months ended September 30, 2017 in the amount of $138. These loans are residential real estate loans. One loan was modified by court order in a confirmed Chapter 13 bankruptcy plan to reduce the principal balance, with payments to be received through the plan on the lower balance at a reduced rate of interest. One loan was matured with payments to date although financial information indicated questionable repayment ability. An extension was granted under a forbearance agreement at an increase rate of interest due to past due real estate taxes. There were no loans modified as troubled debt restructuring for the three and nine months ending September 30, 2016. There were no commitments to extend additional funds to borrowers
having loans considered troubled debt restructurings at September 30, 2017. There were two residential real estate properties held in other real estate owned totaling $144 at September 30, 2017. There were 12 residential real estate properties in the process of foreclosure totaling $682 at September 30, 2017.
March 31, 2017 | Number of Contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Recorded Investment | ||||||||||||
Troubled Debt Restructurings: | ||||||||||||||||
Residential real estate | 1 | $ | 59 | $ | 29 | $ | 29 |
During the three months ending September 30, 2017, there was one default on loans restructured within the last 12 months. During the nine months ending September 30, 2017, there were five defaults on loans restructured within the last twelve months totaling $1,374. These loans were comprised of four residential real estate loans and one commercial real estate loan. As of September 30, 2017, the defaults were cured on three of the four residential real estate loans with one residential real estate loan remaining past due in the30-69 day category. During the three months and nine months ended September 30, 2016,2018, there were no defaults on loans restructured within the last 12 months.and four defaults on loans restructured totaling $1,229 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 ASC310-30, “LoanLoan and Debt Securities Acquired with Deteriorated Credit Quality”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 ten purchased credit impaired (“PCI”)10 PCI loans. As parta result of the consolidation with Union, effective November 1, 2013, the Bank identified fourteen14 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 thenon-accretable discount. Thenon-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 thenon-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 thenon-accretable discount.
For purchased loans that are not deemed impaired at acquisition, credit discounts representing principal losses expected over the life of the loans are a component of the initial fair value, and the discount is accreted to interest income over the life of the asset. Subsequent to the purchase date, the method used to evaluate the sufficiency of the credit discount is similar to originated loans, and if necessary, additional reserves are recognized in the allowance for loan losses.
The following is a summary of the loans acquired in the Union and Citizens mergers, as of the dates of the consolidation:
Purchased Credit Impaired Loans | Purchased Non- Impaired Loans | Total Purchased Loans | ||||||||||
Contractually required principal and interest at acquisition | $ | 11,184 | $ | 174,484 | $ | 185,668 | ||||||
Contractual cash flows not expected to be collected | (5,724 | ) | (23,009 | ) | (28,733 | ) | ||||||
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|
|
|
|
| |||||||
Expected cash flows at acquisition | 5,460 | 151,475 | 156,935 | |||||||||
Interest component of expected cash flows | (603 | ) | (23,119 | ) | (23,722 | ) | ||||||
|
|
|
|
|
| |||||||
Basis in acquired loans at acquisition - estimated fair value | $ | 4,857 | $ | 128,356 | $ | 133,213 | ||||||
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|
|
|
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The unpaid principal balances and the related carrying amount of Union and Citizens acquired loans as of September 30, 2017March 31, 2018 and December 31, 20162017 were as follows:
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Credit impaired purchased loans evaluated individually for incurred credit losses | ||||||||||||||||
Credit impaired purchased loans evaluated individually for incurred credit losses: | ||||||||||||||||
Outstanding balance | $ | 1,216 | $ | 1,401 | $ | 13,861 | $ | 16,803 | ||||||||
Carrying Amount | 730 | 887 | 7,068 | 8,512 | ||||||||||||
Other purchased loans evaluated collectively for incurred credit losses | ||||||||||||||||
Other purchased loans evaluated collectively for incurred credit losses: | ||||||||||||||||
Outstanding balance | 72,449 | 84,743 | 405,063 | 421,620 | ||||||||||||
Carrying Amount | 71,864 | 83,670 | 402,084 | 418,146 | ||||||||||||
Total Purchased Loans | ||||||||||||||||
Total Purchased Loans: | ||||||||||||||||
Outstanding balance | 73,665 | 86,144 | 418,924 | 438,423 | ||||||||||||
Carrying Amount | $ | 72,594 | $ | 84,557 | $ | 409,152 | $ | 426,658 |
As of the indicated dates, the changes in the accretable discount related to the purchased credit impaired loans were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Quarter Ended March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | |||||||||||||||||||
Balance - beginning of period | $ | 313 | $ | 457 | $ | 370 | $ | 524 | ||||||||||||||||
Balance—beginning of period | $ | 2,129 | $ | 370 | ||||||||||||||||||||
Additions | ||||||||||||||||||||||||
Accretion recognized during the period | (32 | ) | (410 | ) | (76 | ) | (539 | ) | (1,443 | ) | (23 | ) | ||||||||||||
Net reclassification fromnon-accretable to accretable | (2 | ) | 326 | (15 | ) | 388 | 969 | (24 | ) | |||||||||||||||
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Balance - end of period | $ | 279 | $ | 373 | $ | 279 | $ | 373 | ||||||||||||||||
Balance—end of period | $ | 1,655 | $ | 323 | ||||||||||||||||||||
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The Company is a party to financial instruments withoff-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused portions of lines of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.
Unused commitments at September 30, 2017,March 31, 2018, totaled $86,876,$123,691, consisting of $48,695$47,834 in commitments to extend credit, $34,521$71,162 in unused portions of lines of credit and $3,660$4,695 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments, at December 31, 2016,2017, totaled $58,475,$129,734, consisting of $27,829$52,706 in commitments to extend credit, $26,729$72,157 in unused portions of lines of credit and $3,917$4,871 in standby letters of credit.
6. Other assets:
The components of other assets at September 30, 2017March 31, 2018 and December 31, 20162017 are summarized as follows:
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Other real estate owned | $ | 144 | $ | 625 | $ | 92 | $ | 236 | ||||||||
Bank owned life insurance | 17,128 | 11,857 | 29,256 | 29,065 | ||||||||||||
Restricted equity securities | 2,186 | 1,845 | 1,098 | 1,306 | ||||||||||||
Deferred tax assets | 6,904 | 7,402 | 7,487 | 7,949 | ||||||||||||
Other assets | 3,339 | 2,083 | 5,838 | 5,147 | ||||||||||||
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Total | $ | 29,701 | $ | 23,812 | $ | 43,771 | $ | 43,703 | ||||||||
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7. Fair value estimates:
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.
Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:
An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.
The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:
Cashassets and cash equivalents: The carrying values of cash and cash equivalents as reportedliabilities measured at fair value on the balance sheet approximate fair value.a recurring basis:
Investment securities:The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.
Loans held for sale: The carrying value of loans held for sale as reported on the balance sheet approximate fair value.
Net loans: For adjustable-rate loans thatre-price frequently and with no significant credit risk, fair values are based on carrying values. The fair values of othernon-impaired loans are estimated using discounted cash flow analysis, using interest rates currently offered in the market for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.
Accrued interest receivable: The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value.
Restricted equity securities:The carrying values of restricted equity securities approximate fair value, due to the lack of marketability for these securities.
Deposits: The fair values of noninterest-bearing deposits and savings, NOW and money market accounts are the amounts payable on demand at the reporting date. The fair value estimates do not include the benefit that results from suchlow-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair values. The discount rates used are the current rates offered for time deposits with similar maturities.
Short-term borrowings: The carrying values of short-term borrowings approximate fair value.
Long-term debt: The fair value of fixed-rate long-term debt is based on the present value of future cash flows. The discount rate used is the current rate offered for long-term debt with the same maturity.
Accrued interest payable: The carrying value of accrued interest payable as reported on the balance sheet approximates fair value.
Off-balance sheet financial instruments:
The majority of commitments to extend credit, unused portions of lines of credit and standby letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values ofoff-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 ofoff-balance sheet financial instruments was not material at September 30, 2017 and December 31, 2016.
Assets and liabilities measured at fair value on a recurring basis at September 30, 2017March 31, 2018 and December 31, 20162017 are summarized as follows:
Fair Value Measurement Using | ||||||||||||||||
September 30, 2017 | Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
State and Municipals: | ||||||||||||||||
Taxable | $ | 35,132 | $ | 35,132 | ||||||||||||
Tax-exempt | 5,801 | 5,801 | ||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
U.S. Government agencies | 1,536 | 1,536 | ||||||||||||||
U.S. Government-sponsored enterprises | 5,423 | 5,423 | ||||||||||||||
Corporate debt obligations | 8,982 | 8,982 | ||||||||||||||
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Total | $ | 56,874 | $ | $ | 56,874 | |||||||||||
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Fair Value Measurement Using | ||||||||||||||||
December 31, 2016 | Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
U.S. Treasury securities | $ | 5,021 | $ | 5,021 | ||||||||||||
State and municipals: | ||||||||||||||||
Taxable | 42,394 | 42,394 | ||||||||||||||
Tax-exempt | 5,674 | 5,674 | ||||||||||||||
Mortgage-backed securities: | ||||||||||||||||
U.S. Government agencies | 1,890 | 1,890 | ||||||||||||||
U.S. Government-sponsored enterprises | 8,896 | 8,896 | ||||||||||||||
Corporate debt obligations | 9,050 | 9,050 | ||||||||||||||
Equity securities, financial services | 188 | $ | 188 | |||||||||||||
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Total | $ | 73,113 | $ | 188 | $ | 72,925 | ||||||||||
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March 31, 2018 State and Municipals: Taxable Tax-exempt Mortgage-backed securities: U.S. Government agencies U.S. Government-sponsored enterprises Corporate debt obligations Total December 31, 2017 State and municipals: Taxable Tax-exempt Mortgage-backed securities: U.S. Government agencies U.S. Government-sponsored enterprises Corporate debt obligations Total Fair Value Measurement Using Amount Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 34,101 $ 34,101 14,911 14,911 21,287 21,287 9,553 9,553 8,921 8,921 $ 88,773 $ 88,773 Fair Value Measurement Using Amount Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 35,002 $ 35,002 16,308 16,308 22,817 22,817 10,089 10,089 8,985 8,985 $ 93,201 $ 93,201
Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2017March 31, 2018 and December 31, 20162017 are summarized as follows:
Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
September 30, 2017 | Amount | (Level 1) Quoted Prices in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | ||||||||||||||||||||||||||||
Loans held for sale | $ | 519 | $ | 519 | ||||||||||||||||||||||||||||
March 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 | 144 | $ | 144 | $ | 92 | $ | 92 | |||||||||||||||||||||||||
Impaired loans, net of related allowance | 908 | 908 | 1,631 | 1,631 | ||||||||||||||||||||||||||||
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Total | $ | 1,571 | $ | 519 | $ | 1,052 | $ | 1,723 | $ | 1,723 | ||||||||||||||||||||||
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Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
December 31, 2016 | Amount | (Level 1) Quoted Prices in Active Markets for Identical Assets | (Level 2) Significant Other Observable Inputs | (Level 3) Significant Unobservable Inputs | ||||||||||||||||||||||||||||
Loans held for sale | $ | 652 | $ | 652 | ||||||||||||||||||||||||||||
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 | 625 | $ | 625 | $ | 236 | $ | 236 | |||||||||||||||||||||||||
Impaired loans, net of related allowance | 1,424 | 1,424 | 832 | 832 | ||||||||||||||||||||||||||||
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Total | $ | 2,701 | $ | 652 | $ | 2,049 | $ | 1,068 | $ | 1,068 | ||||||||||||||||||||||
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Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.
Fair value of other real estate owned is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company utilized Level 3 inputs to determine fair value at September 30, 2017March 31, 2018 and December 31, 2016:2017:
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Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
March 31, 2018 | Fair Value Estimate | Valuation Techniques | Unobservable Input | Range (Weighted Average) | ||||||
Other real estate owned | $ | 92 | Appraisal of collateral | Appraisal adjustments | 0.0% to 69.0% (33.0)% | |||||
Liquidation expenses | 0.0% to 7.0% (7.0)% | |||||||||
Impaired loans | $ | 1,631 | Appraisal of collateral | Appraisal adjustments | 0.0% to 0.0% (0.0)% | |||||
Liquidation expenses | 7.0% to 20.0% (11.0)% | |||||||||
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 September 30, 2017March 31, 2018 and December 31, 20162017 and their placement within the fair value hierarchy are as follows:
Fair Value Hierarchy | Fair Value Hierarchy | |||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Carrying Amount | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||||||||
March 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 | $ | 8,425 | $ | 8,425 | $ | 8,425 | $ | 59,849 | $ | 59,849 | $ | 59,849 | ||||||||||||||||||||||||||||
Investment securities | 56,874 | 56,874 | $ | 56,874 | 88,773 | 88,773 | $ | 88,773 | ||||||||||||||||||||||||||||||||
Loans held for sale | 519 | 519 | 519 | 610 | 610 | 610 | ||||||||||||||||||||||||||||||||||
Net loans | 554,783 | 553,818 | $ | 553,818 | ||||||||||||||||||||||||||||||||||||
Net loans (1) | 927,675 | 911,930 | $ | 911,930 | ||||||||||||||||||||||||||||||||||||
Accrued interest receivable | 2,865 | 2,865 | 729 | 2,136 | ||||||||||||||||||||||||||||||||||||
Restricted equity securities | 1,098 | 1,098 | 1,098 | |||||||||||||||||||||||||||||||||||||
Financial liabilities: | �� | |||||||||||||||||||||||||||||||||||||||
Deposits | $ | 1,038,605 | $ | 1,000,954 | $ | 1,000,954 | ||||||||||||||||||||||||||||||||||
Long-term debt | 13,160 | 13,356 | 13,356 | |||||||||||||||||||||||||||||||||||||
Accrued interest payable | 466 | 466 | 466 | |||||||||||||||||||||||||||||||||||||
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 securitiesavailable-for-sale | 93,201 | 93,201 | $ | 93,201 | ||||||||||||||||||||||||||||||||||||
Loans held for sale | 254 | 254 | 254 | |||||||||||||||||||||||||||||||||||||
Net loans(1) | 949,665 | 954,876 | $ | 954,876 | ||||||||||||||||||||||||||||||||||||
Accrued interest receivable | 1,995 | 1,995 | 1,995 | 3,237 | 3,237 | 640 | 2,597 | |||||||||||||||||||||||||||||||||
Restricted equity securities | 2,186 | 2,186 | 2,186 | 1,306 | 1,306 | 1,306 | ||||||||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 574,950 | $ | 562,256 | $ | 562,256 | $ | 1,026,480 | $ | 1,022,068 | $ | 1,022,068 | ||||||||||||||||||||||||||||
Short-term borrowings | 37,250 | 37,250 | 37,250 | 6,000 | 6,000 | 6,000 | ||||||||||||||||||||||||||||||||||
Long-term debt | 6,503 | 6,503 | 6,503 | 13,233 | 14,634 | 14,634 | ||||||||||||||||||||||||||||||||||
Accrued interest payable | 213 | 213 | 213 | 468 | 468 | 468 | ||||||||||||||||||||||||||||||||||
Fair Value Hierarchy | ||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | Carrying Amount | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 19,120 | $ | 19,120 | $ | 19,120 | ||||||||||||||||||||||||||||||||||
Investment securitiesavailable-for-sale | 73,113 | 73,113 | 188 | $ | 72,925 | |||||||||||||||||||||||||||||||||||
Loans held for sale | 652 | 652 | 652 | |||||||||||||||||||||||||||||||||||||
Net loans | 405,611 | 407,561 | $ | 407,561 | ||||||||||||||||||||||||||||||||||||
Accrued interest receivable | 1,726 | 1,726 | 1,726 | |||||||||||||||||||||||||||||||||||||
Restricted equity securities | 1,845 | 1,845 | 1,845 | |||||||||||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 452,560 | $ | 438,744 | $ | 438,744 | ||||||||||||||||||||||||||||||||||
Short-term borrowings | 31,500 | 31,500 | 31,500 | |||||||||||||||||||||||||||||||||||||
Long-term debt | 11,154 | 11,148 | 11,148 | |||||||||||||||||||||||||||||||||||||
Accrued interest payable | 192 | 192 | 192 |
(1) | The carrying amount is net of unearned income and the allowance for loan losses in accordance with the adoption of ASU No. 2016-01where the fair value of loans as of March 31, 2018 was measured using an exit price notion. The fair value of loans at December 31, 2017 was measured using an entry price notion. |
Note 8. Revenue recognition:
On January 1, 2018, the Company adopted ASUNo. 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 streamsin-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 anon-Company ATM or anon-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 themonth-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 streamsin-scope andout-of-scope of Topic 606, for the three months ended March 31, 2018 and 2017.
March 31, | 2018 | 2017 | ||||||
Noninterest Income: | ||||||||
In-scope of Topic 606: | ||||||||
Service charges, fees and commissions | $ | 1,228 | $ | 337 | ||||
Trust and asset management | 364 | 288 | ||||||
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Noninterest income(in-scope of Topic 606) | 1,592 | 625 | ||||||
Noninterest income(out-of-scope of Topic 606) | 361 | 154 | ||||||
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Total noninterest income | $ | 1,953 | $ | 779 | ||||
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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 standardmonth-end revenue accruals such as asset management fees based onmonth-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 March 31, 2018 and December 31, 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.
Riverview Financial Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form10-K for the year ended December 31, 2016.2017.
Cautionary Note Regarding Forward-Looking Statements:
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Riverview Financial Corporation and its direct and indirect subsidiaries. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: our ability to achieve the intended benefits of acquisitions and integration of previously acquired businesses; restructuring initiatives; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; and inability of third party service providers to perform.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Riverview Financial Corporation does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are incorporated by reference into the MD&A. Certain prior period amounts have been reclassified to conform with the current year’s presentation and did not have any effect on the operating results or financial position of the Company.
Critical Accounting Policies:
Disclosure of our significant accounting policies are included in Note 1 to the consolidated financial statements of the Annual Report on Form10-K for the year ended December 31, 2016.2017. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 20162017, as filed with the Securities and Exchange Commission on March 29, 2017.23, 2018.
Operating Environment:
The United States economy grew at a stronger pace in the thirdfirst quarter of 20172018 compared to the same period last year but declined slightly from the secondfourth quarter of 2017. The gross domestic product (“GDP”), the value of all goods and services produced in the United States, increased at an annualized rate of 3.0%2.3% in the thirdfirst quarter of 2018 compared to 1.2% in the first quarter of 2017 compared to 2.8%and 2.9% in the third quarter of 2016 and 3.1% in the secondfourth quarter of 2017. The consumer price index for the last 12 months rose 2.2%2.4% ending September, 2017. This inflation measure has been accelerating since June, 2017 when itMarch 31, 2018. Excluding the food and energy components, core consumer price index increased 2.1% over the latest twelve months which was 1.6%. Theabove the Federal Open Market Committee (“FOMC”) last changed rates on June 14, 2017 where itinflation benchmark of 2.0%. As a result, the FOMC increased the federal funds target rate on March 21, 2018 for the secondfourth time insince the beginning of 2017 to a range of 1.00%1.50% to 1.25%1.75%. The FOMC has continued to take the stance that the current target range is accommodative and it may take additional monetary policy actions in the near term to increase general market rates. Accordingly, these interest rate increases may have an adverse impact on our loan growth, asset quality and fund costs.
Review of Financial Position:
Total assets increased $138,331, or 25.5%,$7,559, to $681,379$1,171,166 at September 30, 2017,March 31, 2018, from $543,048$1,163,607 at December 31, 2016.2017. Loans, net increaseddecreased to $560,187$934,190 at September 30, 2017,March 31, 2018, compared to $409,343$955,971 at December 31, 2016, an increase2017, a decrease of $150,844, or 36.9%.$21,781. The increasedecrease in net loans during 2017the first three months of 2018 was attributable to the hiringprimary a result of multiple teams of seasoned lenders having established customer relationships in newpayments and existing markets.repayments on commercial real estate loans. Investment securities decreased $16,239,$4,428, or 22.2%4.8%, in the ninethree months ended September 30, 2017.March 31, 2018. Noninterest-bearing deposits increased $2,282,$1,116, while interest-bearing deposits increased $120,108$11,009 in the ninethree months ended September 30, 2017.March 31, 2018. Total stockholders’ equity increased $15,459,$2,144, or 36.9%2.0%, to $57,379$108,400 at September 30, 2017March 31, 2018 from $41,920$106,256 atyear-end 2016.2017. On January 20, 2017, the Company announced the successful completion of a $17.0 million private placement of common and preferred securities. The additional capital not only afforded the Company the ability to significantly grow its loan portfolio but more notably the capital raise allowed us to acquire CBT Financial Corp., the parent company of CBT Bank, in a stock transaction valued at approximately $54,568 effective October 1, 2017. This action formed a community banking franchise with approximately $1.2 billion in assets and provides enhanced products and services through 33 banking locations covering 12 Pennsylvania counties. For the ninethree months ended September 30, 2017,March 31, 2018, total assets averaged $611,477,$1,163,242, an increase of $75,143$605,181 from $536,334$558,061 for the same period in 2016.2017. For the thirdfirst quarter of 2017, total assets, loans, net and deposits increased $55,761, $62,753$57,325, $55,138 and $48,994, respectively, compared to the prior quarter.$43,947, respectively.
Investment Portfolio:
The Company’s entire investment portfolio is held asavailable-for-sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. Investment securitiesavailable-for-sale totaled $56,874$88,773 at September 30, 2017,March 31, 2018, a decrease of $16,239,$4,428, or 22.2%4.8%, from $73,113$93,201 at December 31, 2016.2017. The reduction was a result of payments and prepayments on investments as no securities were acquired in the first quarter of 2018.
For the ninethree months ended September 30, 2017,March 31, 2018, the investment portfolio averaged $71,251, a decrease$92,788, an increase of $814$17,787 compared to $72,065$75,001 for the same period last year. The increase was primarily attributable to assets acquired from the merger. Thetax-equivalent yield on the investment portfolio increased seven basis pointsdecreased to 3.42%2.74% for the ninethree months ended September 30, 2017,March 31, 2018, from 3.35%3.45% for the comparable period of 2016. Moreover, the2017. Thetax-equivalent yield on the investment portfolio for the thirdfirst quarter of 2017 decreased 142018 increased three basis points from 3.47%2.71% for the secondfourth quarter of 2017.
Securitiesavailable-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. We reported a net unrealized holding loss, included as a separate component of stockholders’ equity of $601,$1,743, net of deferred income taxes of $310,$463, at September 30, 2017,March 31, 2018, and $1,659,$893, net of deferred income taxes of $854,$138, at December 31, 2016.2017.
The Asset/Liability Committee (“ALCO”) reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.
Loan Portfolio:
Loan growth increased significantly in 2017. Loans, net, increaseddecreased to $560,187$934,190 at September 30, 2017March 31, 2018 from $409,343$955,971 at December 31, 2016, an increase2017, a decrease of $150,844,$21,781, or 36.9%2.3%. We experienced growthdeclines in all major sectors of loans. Business loans, including commercial, construction and commercial real estate loans, increased $149,510,decreased $16,160, or 54.9%2.3%, to $421,831$684,591 at September 30, 2017March 31, 2018 from $272,321$700,751 at December 31, 2016.2017. Retail loans, including residential real estate and consumer loans, increased $1,334,decreased $5,621, or 1.0%2.2%, to $138,356$249,599 at September 30, 2017March 31, 2018 from $137,022$255,220 atyear-end 2016.
2017. For the thirdfirst quarter of 2017, loans, net grew $55,438,$55,138, or 11.0%13.5%. The decline in loans in the first quarter of 2018 was a result of payoffs of certain loans acquired in the merger with CBT and normal payments exceeding loan originations. Business loans increased $50,191,$56,851, while retail loans increased $5,247decreased $1,713 during the thirdfirst quarter of 2017.
For the ninethree months ended September 30, 2017,March 31, 2018, loans, net averaged $478,033,$945,727, an increase of $75,155, or 18.7%$525,647 compared to $402,878$420,080 for the same period of 2016.2017. Thetax-equivalent yield on the loan portfolio was 4.35%5.38% for the ninethree months ended September 30, 2017,March 31, 2018, a 21108 basis point decreaseincrease from the comparable period last year. Loan accretion included in loan interest income in the first quarter of 2018 related to loans acquired in the fourth quarter of 2017 was $1,819. Thetax-equivalent yield excluding the loan accretion would have been 4.30% in the first three months of 2018 which was the same yield as recorded for the same period last year. Thetax-equivalent yield on the loan portfolio increase threeincreased 44 basis points during the thirdfirst quarter of 20172018 to 5.38% from the 4.35%tax-equivalent yield4.94% in the secondfourth quarter of 2017.
In addition to the risks inherent in our loan portfolio in the normal course of business, we are also a party to financial instruments withoff-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards ason-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk (“IRR”) in excess of the amount recognized in the consolidated financial statements.
Off-balance sheet commitments at September 30, 2017,March 31, 2018, totaled $86,876,$123,691, consisting of $48,695$47,834 in commitments to extend credit, $34,521$71,162 in unused portions of lines of credit and $3,660$4,695 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison,off-balance sheet commitments, at December 31, 2016,2017, totaled $58,475,$129,734, consisting of $27,829$52,706 in commitments to extend credit, $26,729$72,157 in unused portions of lines of credit and $3,917$4,871 in standby letters of credit.
Asset Quality:
National, Pennsylvania and market area unemployment rates at September 30,March 31, 2018 and 2017 and 2016 are summarized as follows:
September 30, 2017 | September 30, 2016 | 2018 | 2017 | |||||||||
United States | 4.2% | 4.9% | 4.1 | % | 4.5 | % | ||||||
Pennsylvania (statewide) | 4.8% | 5.5% | ||||||||||
Pennsylvania | 4.6 | 5.2 | ||||||||||
Berks County | 4.8% | 5.0% | 5.0 | 4.8 | ||||||||
Blair County | 5.0 | 5.2 | ||||||||||
Centre County | 3.8 | 3.7 | ||||||||||
Clearfield County | 6.7 | 7.1 | ||||||||||
Dauphin County | 4.7% | 4.8% | 4.7 | 4.6 | ||||||||
Lebanon | 4.4% | 4.4% | ||||||||||
Lycoming | 5.5% | 6.3% | ||||||||||
Huntingdon County | 7.6 | 7.3 | ||||||||||
Lebanon County | 4.6 | 4.3 | ||||||||||
Lycoming County | 6.2 | 6.4 | ||||||||||
Northumberland County | 5.3% | 5.9% | 6.6 | 6.5 | ||||||||
Perry County | 4.4% | 4.6% | 4.8 | 4.7 | ||||||||
Schuylkill County | 5.9% | 6.1% | 6.4 | 6.5 | ||||||||
Somerset County | 5.8% | 6.3% | 7.1 | 7.2 |
Employment conditions in 20172018 improved for the United States, Commonwealth of Pennsylvania and allfive of the Counties in which we have branch locations. The remainder of our Counties only increased slightly with respect to higher unemployment comparing March 31, 2018 and 2017. The average unemployment rate for all of our Counties remained the same at 5.7% comparing March 31, 2018 and 2017. The lowest unemployment rate in 20172018 for all the Counties we serve was 4.4%3.8% which was in Lebanon and Perry Counties. The decreaseCentre County with the highest recorded rate being 7.6% in Huntingdon County. An increase in unemployment rates may have a positivenegative impact on economic growth within these areas and could have a corresponding effect on our business by increasingdecreasing loan demand and improvingweakening asset quality.
Our asset quality improvedweakened slightly in the ninethree months ended September 30, 2017.March 31, 2018. Nonperforming assets decreased $1,098,increased $268, or 13.4%3.3% to $7,077$8,419 at September 30, 2017,March 31, 2018, from $8,175$8,151 at December 31, 2016.2017. We experienced a decreasedecreases in accruing restructured loans, accruing loans past due 90 days or more and foreclosed assets,other real estate owned which were more than offset theby an increase in nonaccrual loans. As a percentage of loans, net and foreclosed assets, nonperforming assets equaled 1.3%0.90% at September 30, 2017March 31, 2018 compared to 2.0%0.85% at December 31, 2016.2017.
Loans on nonaccrual status increased $379$879 to $1,765$2,624 at September 30, 2017March 31, 2018 from $1,386$1,745 at December 31, 2016.2017. The increase in nonaccrual loans was due to increasesan increase of $345$920 in commercial loans partially offset by decreases of $16 in commercial real estate loans and $191$25 in residential real estate loans partially offset by a $157 decrease in commercial loans. Accruing troubled debt restructured loans declined $637, or 11.0%,$168, to $5,168$5,310 at September 30, 2017March 31, 2018 from $5,805$5,478 at December 31, 2016.2017. Accruing loans past due 90 days or more declined $359,$299, while other real estate owned decreased $481$144 during the nine months ended September 30, 2017.
For the three months ended September 30,March 31, 2018.
In addition, compared to the end of the first quarter of 2017, nonperforming assets improved to $7,077, a decrease of $64increased $347, from $7,141$8,072 at September 30, 2016. There were decreasesMarch 31, 2017. Decreases in accruing troubled debt restructured loans and other real estate owned, partially offset increases in nonaccrual loans and accruing loans past due 90 days or more and other real estate owned, partially offset by an increase in nonaccrual loans.more.
Generally, maintaining a high loan to deposit ratio is our primary goal in order to maximize profitability. However, this objective is superseded by our attempts to ensure that asset quality remains strong. We continue to focus our efforts on maintaining sound underwriting standards for both commercial and consumer credit.
We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred loan losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses is based on past events and current economic conditions. We employ the Federal Financial Institutions Examination Council Interagency Policy Statement, as amended December 13, 2006, and GAAP in assessing the adequacy of the allowance account. Under GAAP, the adequacy of the allowance account is determined based on the provisions of FASB Accounting Standards Codification (“ASC”) 310, “Receivables”, for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, “Contingencies”, for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.
We follow our systematic methodology in accordance with procedural discipline by applying it in the same manner regardless of whether the allowance is being determined at a high point or a low point in the economic cycle. Each quarter, the Chief Credit Officer identifies those loans to be individually evaluated for impairment and those loans collectively evaluated for impairment utilizing a standard criteria. Grades are assigned quarterly to loans identified to be individually evaluated. A loan’s grade may differ from period to period based on current conditions and events. However, we consistently utilize the same grading system each quarter. We consistently use loss experience from the latest eight quarters in determining the historical loss factor for each pool collectively evaluated for impairment. Qualitative factors are evaluated in the same manner each quarter and are adjusted within a relevant range of values based on current conditions. For additional disclosure related to the allowance for loan losses refer to the note entitled, “Loans, net and Allowance for Loan Losses”, in the Notes to Consolidated Financial Statements to this Quarterly Report.
The allowance for loan losses increased $1,672$209 to $5,404$6,515 at September 30, 2017,March 31, 2018, from $3,732$6,306 at the end of 2016.2017. The increase in the allowance was primarily attributable toa result of the significantprovision for loan growth in 2017.losses of $390 for the first quarter of 2018 exceeding net charge-offs for the period. For the ninethree months ended September 30, 2017,March 31, 2018, net charge-offs were $62,$181, or 0.02%0.8%, of average loans outstanding, a $950 decrease$173 increase compared to $1,012,$8, or 0.34%0.01% of average loans outstanding in the same period of 2016. Net charge-offs totaled $40 in the third quarter of 2017 as compared to $1 for the same period last year.2017.
Deposits:
We attract the majority of our deposits from within our eighttwelve county market area that stretches from Schuylkill County in the eastern part of Pennsylvania to Somerset County in the southwestern part of Pennsylvania by offering various deposit products including demand deposit accounts, NOW accounts, business checking accounts, money market deposit accounts, savings accounts, club accounts and time deposits, including certificates of deposit and IRA’s. For the ninethree months ended September 30, 2017,March 31, 2018, total deposits increased to $574,950$1,038,605 from $452,560$1,026,480 at December 31, 2016.2017. Noninterest-bearing accounts increased $2,282,$1,116, while interest-bearing accounts increased $120,108$11,009 in the ninethree months ended September 30, 2017.March 31, 2018. Interest-bearing transaction accounts, including NOW, money market and savings accounts, increased $104,949, or 40.7%,$2,762, to $362,611$566,162 at September 30, 2017March 31, 2018 from $257,662$563,400 at December 31, 2016.2017. Total time deposits increased $15,159$8,247 to $136,125$315,432 at September 30, 2017March 31, 2018 from $120,966$307,185 at December 31, 2016.2017. Time deposits less than $100 increased $6,768,$6,348, or 9.2%3.3%, while time deposits of $100 or more increased $8,391,$1,899, or 17.6%1.7%.
For the three months ended September 30, 2017, total deposits increased $51,055 with growth in all categories except savings accounts.
For the nine months ended September 30,March 31, interest-bearing deposits averaged $440,638$875,985 in 20172018 compared to $391,990$402,339 in 2016.2017. The cost of interest-bearing deposits was 0.61%0.72% in 20172018 compared to 0.47%0.54% in 2016.2017. For the ninethree months ended September 30,March 31, the overall cost of interest-bearing liabilities including the cost of borrowed funds, was 0.69%0.80% in 20172018 compared to 0.53%0.60% in 2016.2017. The cost of interest-bearing liabilities increased seven6 basis points when comparing the thirdfirst quarter of 20172018 with the secondfourth quarter of 2017.
Corresponding with recent FOMC actions, interest rates have increased from historic lows that existed for an extended period. All deposit rates have increased and as such, customers have continued to be attracted to interest-bearingnon-maturity deposits to provide flexibility in the event of additional increases in general market rates in the near term.
Borrowings:
The Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the Federal Home Loan Bank of Pittsburgh (“FHLB”) provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB.
Short-term borrowings are generally used to meet temporary funding needs and consist of federal funds purchased, securities sold under agreements to repurchase, and overnight and short-term borrowings from the Atlantic Community Bankers Bank (“ACBB”) and the FHLB. At September 30, 2017,March 31, 2018, we did not have any short-term borrowings totaled $37,250outstanding at March 31, 2018 compared to $31,500$6,000 at December 31, 2016,2017, all of which were borrowed under the Bank’s Open Repo Plus line with the FHLB. For the three months ended March 31, short-term borrowings averaged $7,297 in 2018 and $10,324 in 2017. The average cost of short-term borrowings was 118 basis points
1.67% in the nine months ended September 30, 2017first quarter of 2018 and 58 basis points during0.86% for the same period last year. Long-term debt totaled $6,503$13,160 at September 30, 2017March 31, 2018 as compared to $11,154$13,233 at December 31, 2016.2017. The average cost of long-term debt was 3.11%5.41% in the ninethree months ended September 30, 2017March 31, 2018 and 2.67%2.73% for the same period last year.
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 5.13% and 4.55% on March 31, 2018 and December 31, 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 3.66% and 3.13% on March 31, 2018 and December 31, 2017.
Interest payments on the debentures may be deferred at any time at the election of the Company for up to 20 consecutive quarters. 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.
Market Risk Sensitivity:
Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”) associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities andoff-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.
As a result of economic uncertainty and a prolonged era of historically low market rates, it has become challenging to manage IRR. Due to these factors, IRR and effectively managing it are very important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by the Board of Directors and senior management, which involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in a bank’s risk management process or high risk exposure relative to capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of a bank’s risk management process is a determining factor when evaluating capital adequacy.
The Asset Liability committee (“ALCO”), comprised of members of our Board of Directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by a RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by a RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.
Our cumulativeone-year RSA/RSL ratio equaled 0.791.50 at September 30, 2017.March 31, 2018. Given the recent actions of the FOMC and the potential for rates to increase in the future, the focus of ALCO has been to move towards a positive static gap position.
The current position at September 30, 2017,March 31, 2018, indicates that the amount of RSLRSA repricing within one year would exceed that of RSA,RSL, thereby causing increases in market rates, to slightly decreaseincrease net interest income. However, these forward-looking statements are qualified in the aforementioned section entitled “Forward-Looking Discussion” in this Management’s Discussion and Analysis.
Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually reprice within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity table presents aone-day position. Variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such a table.
As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Model results at September 30, 2017,March 31, 2018, produced similar results from those indicated by theone-year static gap position. Given an instantaneous and parallel shift in interest rates of plus 100 basis points, our projected net interest income for the 12 months ending September 30, 2018,March 31, 2019, would decrease 1.23%increase 2.0% from model results using current interest rates. We will continue to monitor our IRR through employing deposit and loan pricing strategies and directing the reinvestment of loan and investment repayments in order to manage our IRR position.
Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us, however we believe that our exposure to inflation can be mitigated through asset/liability management.
Liquidity:
Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:
These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.
Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale. We believe liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.
We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after September 30, 2017.March 31, 2018. Our noncore funds at September 30, 2017,March 31, 2018, were comprised of time deposits in denominations of $250 or more and other borrowings. These funds are not considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly volatile. At September 30, 2017,March 31, 2018, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 6.80%0.26%, while our net short-term noncore funding ratio, noncore funds maturing withinone-year, less short-term investments to assets equaled 6.54%1.94%. Comparatively, our overall noncore dependence ratio improved fromyear-end 20162017 when it was 6.85%3.73%. Similarly, our net short-term noncore funding ratio was 7.36%1.96% atyear-end, indicating that our reliance on noncore funds has decreased.
The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, increased $46$34,063 during the ninethree months ended September 30, 2017.March 31, 2018. Cash and cash equivalents decreased $6,571increased $3,284 for the same period last year. For the ninethree months ended September 30, 2017,March 31, 2018, we realized net cash inflows of $596$1,224 from operating activities, $26,603 from investing activities and $137,854$6,236 from financing activities were partially offset by a net cash outflow of $138,404 from investing activities. For the same period of 2016,2017, net cash inflowsoutflows of $2,944$463 from operating activities and $15,555$54,014 from investing activities were more than offset by a net cash outflowinflow of $25,070$57,761 from financing activities.
Operating activities provided net cash of $596$1,224 for the ninethree months ended September 30, 2017 and providedMarch 31, 2018 compared to a use of net cash of $2,944$463 for the same period last year. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation, amortization and the provision for loan losses, is the primary source of funds from operations.
Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities usedprovided net cash of $138,404$26,603 for the ninethree months ended September 30, 2017.March 31, 2018. For the comparable period in 2016,2017, investing activities providedused net cash of $15,555.$54,014. In 2017,2018, payments and prepayments on loans exceeding loan originations was the primary factor causing the net cash inflow from investing activities. Conversely, an increase in lending activities was the primary factor causing the net cash outflow from investing activities. Investment portfolio activities along with a decrease in lending were the predominant factors causing the net cash inflow from investing activities in 2016.first quarter of 2017.
Financing activities provided net cash of $137,854$6,236 for the ninethree months ended September 30, 2017March 31, 2018 and used net cash of $25,070$57,761 for the same period last year. Deposit gathering is a predominant financing activity. During the ninethree months ended September 30,March 31, 2018 and 2017, and 2016, deposits increased $122,390$12,125 and $10,651,$43,947, respectively. Also impacting financing activitiesThe repayment of short-term borrowing of $6,000 in the first quarter of 2018 partially offset the increase in net cash from deposit activities. Adding to the net cash inflow from deposits gathering in 2017 was a capital issuance which accounted for a netan increase in cash inflow of $15,941.
We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. The current sources of funds are expected to enable us to meet all cash obligations as they come due.
Capital:
Stockholders’ equity totaled $57,379,$108,400, or $11.73$11.93 per common share, at September 30, 2017,March 31, 2018, and $41,920,$106,256, or $12.95$11.72 per common share, at December 31, 2016.2017. The increase in stockholders’ equity in the ninethree months ended September 30, 2017March 31, 2018 was a result of the completionretention of the sale of approximately $17.0 million, before expenses, in common and preferred equity to accredited investors and qualified institutional buyers through the private placement of 269,885 shares of common stock and 1,348,809 shares of a newly created series of convertible, perpetual preferred stock. All shares of convertible, perpetual preferred stock were subsequently converted to common nonvoting shares at an exchange ratio of 1:1. Stockholders’ equity was also affected by recognizing earnings of $13, cash dividend payments of $2,010,$2,811, compensation costs of $23$1 relating to option grants, the issuance of common stock to Riverview’s ESPP, 401k and dividend reinvestment plans of $373,$135, the issuance of common stock related to the exercise of stock options exercised of $61,$49 and the recognition of a change in the other comprehensive incomeloss of $1,058,$850, resulting from increase in the net unrealized gains inloss on the investment portfolio.
Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary supervisory actions for noncompliance. The Bank’s Tier IAs a result of the merger with CBT, the Company exceeded the asset threshold limitation at year end 2017 and totalbecame subject to risk-based capital ratios are strong and have consistently exceeded the well capitalized regulatoryleverage rules.
The Company’s and Bank’s capital ratios of 8.0% and 10.0% required for well capitalized institutions. The ratio of Tier 1 capital to risk-weighted assets andoff-balance sheet items was 9.8% at September 30, 2017 and 9.9% at December 31, 2016. The total risk-based capital ratio was 10.7% at September 30, 2017 and 10.9% at December 31, 2016. In addition, the Bank is required to maintain a minimum common equity Tier 1 capital to risk-weighted assets of 5.75% for the calendar year of 2017. The Bank’s common equity Tier I capital to risk-weighted assets ratio was 9.8% at September 30, 2017 and 9.9% at December 31, 2016. The Bank’s Leverage ratio, which equaled 8.3% at September 30, 2017 and 7.7% at December 31, 2016, exceeded the minimum of 4.0%ratios required for capital adequacy purposes. purposes and to be considered well capitalized under the prompt corrective action provisions are summarized below for the year ended March 31, 2018 and December 31, 2017:
Actual | Minimum Regulatory Capital Ratios under Basel III (with 1.875% capital conservation buffer phase-in) | Well Capitalized under Basel III | ||||||||||||||||||||||
March 31, 2018: | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total risk-based capital (to risk-weighted assets): | ||||||||||||||||||||||||
Riverview | $ | 91,928 | 10.1 | % | $ | 90,251 | ³ | 9.875 | % | |||||||||||||||
Riverview Bank | 98,090 | 10.7 | 90,265 | ³ | 9.875 | $ | 91,408 | ³ | 10.0 | % | ||||||||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||||||
Riverview | 85,343 | 9.3 | 71,972 | ³ | 7.875 | |||||||||||||||||||
Riverview Bank | 91,505 | 10.0 | 71,894 | ³ | 7.875 | 73,126 | ³ | 8.0 | ||||||||||||||||
Tier 1 capital (to average total assets): | ||||||||||||||||||||||||
Riverview | 85,343 | 7.4 | 46,530 | ³ | 4.00 | |||||||||||||||||||
Riverview Bank | 91,505 | 8.1 | 45,318 | ³ | 4.00 | 56,647 | ³ | 5.0 | ||||||||||||||||
Common equity tier 1 risk based capital (to risk-weighted assets): | ||||||||||||||||||||||||
Riverview | 78,507 | 8.6 | 58,263 | ³ | 6.375 | |||||||||||||||||||
Riverview Bank | $ | 91,505 | 10.0 | $ | 58,273 | ³ | 6.375 | $ | 59,415 | ³ | 6.5 | |||||||||||||
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 | $ | 90,703 | 9.8 | % | $ | 85,946 | ³ | 9.25 | % | |||||||||||||||
Riverview Bank | 96,926 | 10.4 | 85,963 | ³ | 9.25 | $ | 92,933 | ³ | 10.0 | % | ||||||||||||||
Tier 1 capital (to risk-weighted assets): | ||||||||||||||||||||||||
Riverview | 84,330 | 9.1 | 67,363 | ³ | 7.25 | |||||||||||||||||||
Riverview Bank | 90,553 | 9.7 | 67,376 | ³ | 7.25 | 74,346 | ³ | 8.0 | ||||||||||||||||
Tier 1 capital (to average total assets): | ||||||||||||||||||||||||
Riverview | 84,330 | 7.4 | 45,583 | ³ | 4.00 | |||||||||||||||||||
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 | 77,996 | 8.4 | 53,426 | ³ | 5.75 | |||||||||||||||||||
Riverview Bank | $ | 90,553 | 9.7 | $ | 53,437 | ³ | 5.75 | $ | 60,407 | ³ | 6.5 |
Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized under regulatory capital guidelines.at March 31, 2018 and December 31, 2017. There are no conditions or negative events since this notification that we believe have changed the Bank’s category.
On March 14, 2018, the Board of Directors of Riverview announced the suspension of the payment of its first quarter 2018 dividend in order to conserve capital as a result of recognizing certain material nonrecurring fourth quarter expenses in 2017. The Company recognizednon-recurring merger relatedpre-tax costs of $3,674 in 2017. In addition, in the fourth quarter of 2017, Riverview recognized a $3,888, or $(0.43) per share, charge to income tax expense related to there-measurement of net deferred tax assets resulting from the new 21% federal corporate income tax rate established by the Tax Cuts and Jobs Act, enacted in December 2017.
Review of Financial Performance:
The Company reported net earnings of $13$2,811 or $0.03$0.31 per basic and diluted weighted average common share for the ninethree months ended September 30, 2017,March 31, 2018, compared to net incomeloss of $2,579$567 or $0.80$(0.12) per basic and diluted weighted average common share, for the comparable period of 2016.2017. The return on average assets and return on average stockholders’ equity were 0.98% and 10.59% for the three months ended March 31, 2018. The improvement in net earningsincome recognized in the ninethree months ended September 30, 2017March 31, 2018 was directly affected from incurringattributable to the merger with CBT and the implementation of certain costs involved in implementingother strategic initiatives to enhance shareholder value through organic asset growth provided by organic and inorganic opportunities. On January 20,growth. In the first quarter of 2017, Riverview announced the successful completion ofCompany successfully completed a $17.0 million private placement of common and preferred securities. The additional capital affordedallowed Riverview to acquire CBT and provided it with the ability to significantly grow its loan portfolio throughby hiring multiple teams of experienced and established lenders to serve new and existing markets. More notablyThe results for the capital raise allowed Riverview to announce on April 20, 2017, the execution of a definitive business combination agreement to form a strategic partnership with CBT Financial Corp, which was effective October 1, 2017. This action created a community banking franchise with approximately $1.2 billion of assets and provides enhanced products and services through 33 banking locations covering 12 Pennsylvania counties. Mergerfirst quarter ended March 31, 2018 includepre-tax merger related costs included in noninterest expense totaled $375 for the nine months ended September 30, 2017.of $433.
Net Interest Income:
Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income can have the greatest impact on net profits. Net interest income is defined as the difference between interest revenue, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings comprise interest-bearing liabilities. Net interest income is impacted by:
Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-
bearinginterest-bearing liabilities.Tax-exempt loans and investments carrypre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable,tax-exempt income and yields are reported herein on atax-equivalent basis using the prevailing federal statutory tax rate of 34.0%21% in 20172018 and 2016.34% in 2017.
For the three months ended September 30,March 31, 2018,tax-equivalent net interest income increased $675$7,006 to $5,511$11,493 in 20172018 from $4,836$4,487 in 2016.2017. The net interest spread decreased to 3.46% for the three months ended September 30, 2017 from 3.92% for the three months ended September 30, 2016. Theincrease intax-equivalent net interest margin decreasedincome was primarily attributable to 3.57% for the third quarternet growth in average earning assets from the merger and organic loan growth along with an improvement in the tax equivalent net interest margin. Average earning assets grew $83,001 more than the growth of 2017 from 3.99% foraverage interest-bearing liabilities comparing the comparable periodfirst quarters of 2016.2018 and 2017. Thetax-equivalent net interest margin for the second quarter of 2017 was 3.58%.
For the three months ended September 30,tax-equivalentMarch 31, was 4.38% in 2018 compared to 3.57% in 2017. The net interest income on earning assetsspread increased $1,156 to $6,519 in 2017 from $5,363 in 2016. The yield on earning assets, on a fullytax-equivalent basis, declined 21 basis points4.25% for the three months ended September 30, 2017 at 4.22% as compared to 4.43%March 31, 2018 from 3.48% for the three months ended September 30, 2016. Thetax-equivalent yield onMarch 31, 2017. Loan accretion included in loan interest income in the first quarter of 2018 related to loans decreased 32 basis points foracquired in the thirdfourth quarter of 2017 to 4.38% from 4.70% for the third quarter of 2016. Average loans increased to $537,740 for the quarter ended September 30, 2017 compared to $400,427 for the same periodwas $1,819, resulting in 2016. Thetax-equivalent interest earned on loans was $5,938 for the three month period ended September 30, 2017 compared to $4,730 for the same period in 2016, an increase of $1,208. Comparing the third quarters of 2017 and 2016, tax equivalent interest income on investments decreased $72 as average volumes declined $6,292 andtax-equivalent yield decreased 11 basis points.
Total interest expense increased $481 to $1,008 for the three months ended September 30, 2017 from $527 for the three months ended September 30, 2016. Deposit costs increased to 0.67% in the third quarter of 2017 from 0.45% in the third quarter of 2016. The average volume of interest bearing liabilities increased to $524,506 for the three months ended September 30, 2017 as compared to $408,670 for the three months ended September 30, 2016. The cost of funds increased to 0.76% for the third quarter of 2017 as compared to 0.51% for the same period in 2016.
For the nine months ended September 30,tax-equivalent net interest income increased $1,045 to $15,004 in 2017 from $13,959 in 2016. A favorable volume variancemargin of $2,500 from average earning asset growth exceeding average growth in interest bearing liabilities more than offset an unfavorable rate variance of $1,455 from a decline in the net interest margin. The net interest spread decreased 3069 basis points for the nine months ended September 30, 2017 to 3.47% from 3.77% for the nine months ended September 30, 2016.points. Thetax-equivalent net interest margin for the nine months ended September 30fourth quarter of 2017 was 3.58% in 2017 compared to 3.85% in 2016.4.05%.
For the ninethree months ended September 30, 2017,March 31, 2018,tax-equivalent interest income increased $1,843$8,137, to $17,450 as compared to $15,607$13,253 from $5,116 for the ninethree months ended September 30, 2016.March 31, 2017. A positive volume variance in interest income of $2,673$7,451 attributable to changes in the average balance of earning assets was offsetaided by a negative$686 favorable rate variance of $830 due to a reductionan improvement in the yield on earning assets. Average volumesSpecifically, the increase was primarily due to the growth in average earning assets which increased $555,703 to $1,064,739 for the first quarter of 2018 from $509,036 for the same period in 2017. The overall yield on earning assets, on a fullytax-equivalent basis, increased for the three months ended March 31, 2018 to 5.05% as compared to 4.08% for the three months ended March 31, 2017. This improvement was a result of the combined impact of the merger along with the associated effects of applying purchase accounting and reporting a higher concentration of loans as a percentage of earning assetsassets. Average loans increased $76,137$525,647 comparing the nine months ended September 30,first quarters of 2018 and 2017 and 2016.which causedtax-equivalent interest income to increase $6,890. Thetax-equivalent yield on earning assetsthe loan portfolio was 5.38% for the three months ended March 31, 2018 compared to 4.29% for the same period last year. This increase caused a positive impact ontax-equivalent interest income of $1,199 comparing the three months ended March 31, 2018 and 2017. Thetax-equivalent yield excluding loan accretion from acquired loans would have been 4.30% in the first three months of 2018 which was the same yield as recorded for the first three months of 2017. The yield earned on investments decreased 1471 basis points for the first quarter of 2018 to 2.74% from 3.45% for the first quarter of 2017 and resulted in lowertax-equivalent interest income of $542. Average investments increased to $92,788 for the quarter ended March 31, 2018 compared to $75,001 for the same period in 2017 resulting in an increase intax-equivalent interest income of $531. Overalltax-equivalent interest earned on investments was $627 for the three month period ended March 31, 2018 compared to 2016.$638 for the same period in 2017.
Total interest expense increased $798$1,131 to $2,446$1,760 for the ninethree months ended September 30, 2017March 31, 2018 from $1,648$629 for the ninethree months ended September 30, 2016. A change in theMarch 31, 2017. An unfavorable volume of average interest bearing liabilitiesvariance caused interest expenseexpenses to increase $173.$838. In addition, an unfavorable rate variance resulted in a $293 increase in fund costs. The average volume of interest bearing liabilities increased to $472,805$896,487 for the ninethree months ended September 30, 2017, as compared to $416,363March 31, 2018, from $423,785 for the ninethree months ended September 30, 2016. In addition, we recognized an unfavorable rate varianceMarch 31, 2017. Average interest-bearing deposits increased $473,646 to $875,985 for the first quarter of $6252018 from a 16 basis point increase in$402,339 for the overallsame period last year. The cost of funds. Cost of funds increased to 0.69%0.80% for the ninethree months ended September 30, 2017March 31, 2018 as compared to 0.53%0.60% for the same period in 2016.2017.
The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Average balances were calculated using average daily balances. Averages for earning assets include nonaccrual loans. Loan fees are included in interest income on loans. Investment averages includeavailable-for-sale securities at amortized cost. Income on investment securities and loans is adjusted to a tax equivalent basis using the prevailing federal statutory tax rate of 34%.rate.
Nine months ended | Three months ended | |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | March 31, 2018 | March 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | Average Balance | Interest | Yield/ Rate | |||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | $ | 459,703 | $ | 14,991 | 4.36 | % | $ | 390,602 | $ | 13,362 | 4.57 | % | $ | 908,574 | $ | 12,241 | 5.46 | % | $ | 403,684 | $ | 4,285 | 4.30 | % | ||||||||||||||||||||||||
Tax exempt | 18,330 | 547 | 3.99 | % | 12,276 | 395 | 4.30 | % | 37,153 | 296 | 3.23 | % | 16,396 | 164 | 4.06 | % | ||||||||||||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | 65,504 | 1,610 | 3.29 | % | 59,430 | 1,383 | 3.11 | % | 76,952 | 523 | 2.76 | % | 69,253 | 567 | 3.32 | % | ||||||||||||||||||||||||||||||||
Tax exempt | 5,747 | 212 | 4.93 | % | 12,635 | 424 | 4.48 | % | 15,836 | 104 | 2.66 | % | 5,748 | 71 | 5.01 | % | ||||||||||||||||||||||||||||||||
Interest bearing deposits | 9,975 | 78 | 1.05 | % | 9,348 | 41 | 0.59 | % | 23,607 | 79 | 1.36 | % | 10,662 | 23 | 0.87 | % | ||||||||||||||||||||||||||||||||
Federal funds sold | 1,812 | 12 | 0.89 | % | 643 | 2 | 0.42 | % | 2,617 | 10 | 1.55 | % | 3,293 | 6 | 0.74 | % | ||||||||||||||||||||||||||||||||
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Total earning assets | 561,071 | 17,450 | 4.16 | % | 484,934 | 15,607 | 4.30 | % | 1,064,739 | 13,253 | 5.05 | % | 509,036 | 5,116 | 4.08 | % | ||||||||||||||||||||||||||||||||
Less: allowance for loan losses | 4,409 | 3,928 | 6,474 | 3,811 | ||||||||||||||||||||||||||||||||||||||||||||
Other assets | 54,815 | 55,328 | 104,977 | 52,836 | ||||||||||||||||||||||||||||||||||||||||||||
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Total assets | $ | 611,477 | $ | 536,334 | $ | 1,163,242 | $ | 558,061 | ||||||||||||||||||||||||||||||||||||||||
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Liabilities and Stockholders’ Equity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Money market accounts | $ | 92,860 | $ | 548 | 0.79 | % | $ | 45,263 | $ | 127 | 0.37 | % | 131,678 | 269 | 0.83 | % | $ | 73,592 | $ | 117 | 0.64 | % | ||||||||||||||||||||||||||
NOW accounts | 140,186 | 409 | 0.39 | % | 139,267 | 313 | 0.30 | % | 246,762 | 347 | 0.57 | % | 126,778 | 89 | 0.28 | % | ||||||||||||||||||||||||||||||||
Savings accounts | 80,836 | 85 | 0.14 | % | 73,660 | 103 | 0.19 | % | 188,358 | 32 | 0.07 | % | 79,368 | 29 | 0.15 | % | ||||||||||||||||||||||||||||||||
Time deposits less than $100 | 76,244 | 538 | 0.94 | % | 78,740 | 466 | 0.79 | % | 196,599 | 543 | 1.12 | % | 73,510 | 163 | 0.90 | % | ||||||||||||||||||||||||||||||||
Time deposits $100 or more | 50,512 | 441 | 1.17 | % | 55,060 | 366 | 0.89 | % | 112,588 | 363 | 1.31 | % | 49,091 | 134 | 1.11 | % | ||||||||||||||||||||||||||||||||
Short term borrowings | 22,375 | 197 | 1.18 | % | 13,676 | 59 | 0.58 | % | 7,297 | 30 | 1.67 | % | 10,324 | 22 | 0.86 | % | ||||||||||||||||||||||||||||||||
Long-term debt | 9,792 | 228 | 3.11 | % | 10,697 | 214 | 2.67 | % | 13,205 | 176 | 5.41 | % | 11,122 | 75 | 2.73 | % | ||||||||||||||||||||||||||||||||
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Total interest bearing liabilities | 472,805 | 2,446 | 0.69 | % | 416,363 | 1,648 | 0.53 | % | 896,487 | 1,760 | 0.80 | % | 423,785 | 629 | 0.60 | % | ||||||||||||||||||||||||||||||||
Non-interest bearing demand deposits | 76,166 | 69,862 | 149,123 | 73,188 | ||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 5,975 | 6,614 | 9,996 | 6,325 | ||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 56,531 | 43,495 | 107,636 | 54,763 | ||||||||||||||||||||||||||||||||||||||||||||
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Total liabilities and stockholders’ equity | $ | 611,477 | $ | 536,334 | $ | 1,163,242 | $ | 558,061 | ||||||||||||||||||||||||||||||||||||||||
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Net interest income/spread | $ | 15,004 | 3.47 | % | $ | 13,959 | 3.77 | % | $ | 11,493 | 4.25 | % | $ | 4,487 | 3.48 | % | ||||||||||||||||||||||||||||||||
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Net interest margin | 3.58 | % | 3.85 | % | 4.38 | % | 3.57 | % | ||||||||||||||||||||||||||||||||||||||||
Tax-equivalent adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Loans | $ | 186 | $ | 134 | $ | 62 | $ | 56 | ||||||||||||||||||||||||||||||||||||||||
Investments | 72 | 144 | 22 | 24 | ||||||||||||||||||||||||||||||||||||||||||||
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Total adjustments | $ | 258 | $ | 278 | $ | 84 | $ | 80 | ||||||||||||||||||||||||||||||||||||||||
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Provision for Loan Losses:
We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of September 30, 2017.March 31, 2018.
For the three and nine months ended September 30,March 31, the provision for loan losses totaled $610$390 in 2018 and $1,734$605 in 2017, and $29 and $284 in 2016.2017. The increasedecrease in the provision in 20172018 was a direct result of slower loan growth.growth as compared to 2017 and the continuation of positive trends in asset quality.
Noninterest Income:
NoninterestFor the quarter ended March 31, noninterest income for the third quarter decreased $188, or 18.4%, to $835totaled $1,953 in 20172018, an increase of $1,174 from $1,023$779 in 2016. The primary cause2017. All major categories of noninterest income improved as a result of the decrease was a $109 reduction in net gains frommerger with the saleexception of investment securitiesavailable-for-sale to $43 in the third quarterretail wealth management component of 2017 from $152 in the third quarter of 2016.
For the nine months ended September 30, noninterest income amounted to $2,416 in 2017, a decrease of $297 from $2,713 in 2016. The most significant factor for the decrease was a $378 decrease in net gains recognized on the sale ofavailable-for-sale investment securities. Partially offsetting this decrease were improvements of $100 inour wealth management division. Retail wealth management income, excluding Trust, decreased $104 comparing the first quarters of 2018 and $332017 due to the dissolution of a business acquired in mortgage2016. Service charges, fees and commissions and trust income improved $891and $180, respectively, comparing the first quarters of 2018 and 2017. Commission and fees on fiduciary activities increased $180 comparing the three months ended March 31, 2018 and 2017. Mortgage banking income.income in 2018 improved to $170 compared to $82 in 2017. Income from bank owned life insurance increased to $191 in the first quarter of 2018 compared to $73 for the comparable quarter of 2017.
Noninterest Expenses:
In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, lease expense and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, other taxes and supplies. Several of these costs and expenses are variable, while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.
Noninterest expense increased $834,$4,373 or 19.2%84.7%, to $5,167$9,536 for the three months ended September 30, 2017,March 31, 2018, from $4,333$5,163 for the same period last year. The majority of thethis increase was associated with an increase in salaries and employee benefits expense of $594relates to $2,928 for the third quarter of 2017 from $2,334 for the third quarter of 2016. Net occupancy expense and other expenses increased $77 and $163 in the third quarter of 2017 as compared with the same period in 2016.
Noninterest expense increased $2,678, or 21.1%, to $15,371 for the nine months ended September 30, 2017, from $12,693 for the same period last year. The majority of the increase in salaries and employee benefit expense, which was a result of implementing the lending team lift out initiativemerger with CBT and related costs, as well as staffing two full service offices in Berks and Lycoming Counties, respectively.costs. Additions to leased facilities for this newly opened community banking officeas a result of the CBT merger along with offices to support the lending teams were primarily responsible for the $278,$476 or 17.2%73.6%, increase in occupancy and equipment costs. The majority of the $1,391 increase in other expenses comparing the nine months ended September 30,first quarters of 2018 and 2017 and 2016 was a result of incurring merger related expenses related to the business combination with CBT Financial Corp.CBT. Other expenses for the first quarter ended March 31, 2018 includepre-tax merger related costs of $433.
Income Taxes:
We recorded income tax expense of $69$625 for the three months ended September 30, 2017,March 31, 2018, and an income tax expensebenefit of $454$15 for the same period last year. For the nine months ended September 30, incomeOur effective tax expense of $44rate was recorded, as compared to an income tax expense of $83818.2% for the comparable periodfirst quarter of 2016.2018. The Company benefitted from the enactment of the Tax Cuts and Jobs Act legislation in the fourth quarter of 2017 which reduced the corporate federal tax rate from a maximum of 35% to a flat rate of 21% effective January 1, 2018.
Riverview Financial Corporation
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK
Not applicable to a smaller reporting company.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
At September 30, 2017,March 31, 2018, the end of the period covered by this Quarterly Report on Form10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined inRule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at September 30, 2017,March 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.
(b) Changes in internal control.
There were no changes made in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - II—OTHER INFORMATION
In the opinion of the Company, after review with legal counsel, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would have a material effect on the consolidated results of operations or financial condition. There are no proceedings pending other than ordinary, routine litigation incident to the business of the Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by governmental authorities.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
The following Exhibits are incorporated by reference hereto:
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: | /s/ Kirk D. Fox | |
Kirk D. Fox | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: | May 11, 2018 | |
By: | /s/ Scott A. Seasock | |
Scott A. Seasock | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
Date: | May 11, 2018 |
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