UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-153486-99
RIVERVIEW FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania |
|
26-3853402 |
(State or Other
Jurisdiction of
|
|
(I.R.S. Employer
|
|
|
|
3
rd
and Market Streets
|
|
17032 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrants telephone number, including area code 717.896.3433
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer o |
Accelerated Filer o |
Non-accelerated Filer o |
Smaller Reporting Company x |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
The aggregate market value of the registrants voting and non-voting common equity held by non-affiliates, on June 30, 2008, the last business day of the registrants most recently completed second fiscal quarter, was approximately $27,888,000. The registrant was formed on December 31, 2008 from the consolidation of First Perry Bancorp, Inc. and HNB Bancorp, Inc. Therefore the calculation is based on the aggregate market value or First Perry Bancorp, Inc.s and HNB Bancorp, Inc.s voting and non-voting common equity held by non-affiliates on June 30, 2008.
As of March 31, 2009, the registrant had 1,750,003 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement to be used in connection with the 2009 Annual Meeting of Shareholders is incorporated herein by reference in partial response to Part III, hereof.
RIVERVIEW FINANCIAL CORPORATION
FORM 10-K
The disclosures set forth in this Item are qualified by the section captioned Special Cautionary Notice Regarding Forward-Looking Statements contained in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.
Riverview Financial Corporation
Riverview Financial Corporation is a one bank holding company, incorporated in the Commonwealth of Pennsylvania on December 31, 2008 and is headquartered in Halifax, Pennsylvania.
Riverview was formed upon the consolidation of First Perry Bancorp, Inc., Marysville, Pennsylvania, and HNB Bancorp, Inc., Halifax, Pennsylvania. Riverview is a registered bank holding company and its sole business is to act as a holding company for Riverview National Bank.
Riverview National Bank
Riverview National Bank was formed upon the consolidation of the charters of The First National Bank of Marysville and Halifax National Bank on December 31, 2008 and is headquartered in Marysville, Pennsylvania. However, after the consolidation, the branches of The First National Bank of Marysville and Halifax National Bank continue to operate under their current names as trade names of Riverview National Bank.
Riverview National Bank is a full service commercial bank providing a wide range of services to individuals and small to medium sized businesses in its Central Pennsylvania market area of Perry and Dauphin counties. Riverview National Banks commercial banking activities include accepting time, demand, and savings deposits and making secured and unsecured commercial, real estate and consumer loans.
Supervision and Regulation of Riverview
The Holding Company Act of 1956. Riverview is subject to the provisions of the Bank Holding Company Act of 1956, as amended, and to supervision by the Federal Reserve Board. The following restrictions apply:
· General Supervision by the Federal Reserve Board. As a bank holding company, Riverviews activities are limited to the business of banking and activities closely related or incidental to banking. Bank holding companies are required to file periodic reports with and are subject to examination by the Federal Reserve Board. The Federal Reserve Board has adopted a risk-focused supervision program for small shell bank holding companies that is tied to the examination results of the subsidiary bank. The Federal Reserve Board has issued regulations under the Holding Company Act that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve Board may require that Riverview stand ready to provide adequate capital funds to Riverview National Bank during periods of financial stress or adversity.
· Restrictions on Acquiring Control of other Banks and Companies. A bank holding company may not:
· acquire direct or indirect control of more than 5% of the outstanding shares of any class of voting stock, or substantially all of the assets of, any bank, or
1
· merge or consolidate with another bank holding company,
without prior approval of the Federal Reserve Board.
In addition, a bank holding company may not:
· engage in a non-banking business, or
· acquire ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a non-banking business,
unless the business is determined by the Federal Reserve Board to be so closely related to banking as to be a proper incident to banking. In making this determination, the Federal Reserve Board considers whether these activities offer benefits to the public that outweigh any possible adverse effects.
· Anti-Tie-In Provisions. A bank holding company and its subsidiaries may not engage in tie-in arrangements in connection with any extension of credit or provision of any property or services. These anti-tie-in provisions state generally that a bank may not:
· extend credit,
· lease or sell property, or
· furnish any service to a customer
on the condition that the customer provides additional credit or service to a bank or its affiliates, or on the condition that the customer not obtains other credit or service from a competitor of the bank.
· Restrictions on Extensions of Credit by Banks to their Holding Companies. Subsidiary banks of a bank holding company are also subject to restrictions imposed by the Federal Reserve Act on:
· any extensions of credit to the bank holding company or any of its subsidiaries,
· investments in the stock or other securities of Riverview, and
· taking these stock or securities as collateral for loans to any borrower.
· Risk-Based Capital Guidelines. Generally, bank holding companies must comply with the Federal Reserve Boards risk-based capital guidelines. However, small bank holding companies are sometimes eligible for certain exemptions. The required minimum ratio of total capital to risk-weighted assets, including some off-balance sheet activities, such as standby letters of credit, is 8%. At least half of the total capital is required to be Tier I Capital, consisting principally of common stockholders equity, less certain intangible assets. The remainder, Tier II Capital, may consist of:
· some types of preferred stock,
· a limited amount of subordinated debt,
· some hybrid capital instruments,
· other debt securities, and
· a limited amount of the general loan loss allowance.
2
The risk-based capital guidelines are required to take adequate account of interest rate risk, concentration of credit risk, and risks of nontraditional activities.
· Capital Leverage Ratio Requirements. The Federal Reserve Board requires a bank holding company to maintain a leverage ratio of a minimum level of Tier I capital, as determined under the risk-based capital guidelines, equal to 3% of average total consolidated assets for those bank holding companies that have the highest regulatory examination rating and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to maintain a ratio of at least 1% to 2% above the stated minimum. Riverview National Bank is subject to similar capital requirements pursuant to the Federal Deposit Insurance Act.
· Restrictions on Control Changes. The Change in Bank Control Act of 1978 requires persons seeking control of a bank or bank holding company to obtain approval from the appropriate federal banking agency before completing the transaction. The law contains a presumption that the power to vote 10% or more of voting stock confers control of a bank or bank holding company. The Federal Reserve Board is responsible for reviewing changes in control of bank holding companies. In doing so, the Federal Reserve Board reviews the financial position, experience and integrity of the acquiring person and the effect on the financial condition of Riverview, relevant markets and federal deposit insurance funds.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Principal Executive Officer and Principal Financial Officer of the reporting company; (iii) standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and (v) increased civil and criminal penalties for violations of the securities laws. Many of the provisions were effective immediately while other provisions become effective over a period of time and are subject to rulemaking by the SEC. Because neither First Perrys nor HNBs common stock was registered with the SEC, they were not currently subject to the 1934 Act. However, Riverview is subject to the 1934 Act.
Permitted Activities for Bank Holding Companies
The Federal Reserve Board permits bank holding companies to engage in activities so closely related to banking or managing or controlling banks as to be a proper incident of banking. In 1997, the Federal Reserve Board significantly expanded its list of permissible non-banking activities to improve the competitiveness of bank holding companies. The following list includes activities that a holding company may engage in, subject to change by the Federal Reserve Board:
· Making, acquiring or servicing loans and other extensions of credit for its own account or for the account of others.
· Any activity used in connection with making, acquiring, brokering, or servicing loans or other extensions of credit, as determined by the Federal Reserve Board. The Federal Reserve Board has determined that the following activities are permissible:
· real estate and personal property appraising;
· arranging commercial real estate equity financing;
· check-guaranty services;
· collection agency services;
· credit bureau services;
· asset management, servicing, and collection activities;
3
· acquiring debt in default, if a holding company divests shares or assets securing debt in default that are not permissible investments for bank holding companies within prescribed time periods, and meets various other conditions; and
· real estate settlement services.
· Leasing personal and real property or acting as agent, broker, or advisor in leasing property, provided that:
· the lease is a non-operating lease;
· the initial term of the lease is at least 90 days;
· if real property is being leased, the transaction will compensate the lessor for at least the lessors full investment in the property and costs, with various other conditions.
· Operating nonbank depository institutions, including an industrial bank or savings association.
· Performing functions or activities that may be performed by a trust company, including activities of a fiduciary, agency or custodial nature, in the manner authorized by federal or state law, so long as the holding company is not a bank.
· Acting as investment or financial advisor to any person, including:
· serving as investment advisor to an investment company registered under the Investment Company Act of 1940;
· furnishing general economic information and advice, general economic statistical forecasting services, and industry studies;
· providing advice in connection with mergers, acquisitions, divestitures, investments, joint ventures, capital structuring, financing transactions, and conducting financial feasibility studies;
· providing general information, statistical forecasting, and advice concerning any transaction in foreign exchange, swaps and similar transactions, commodities, and options, futures and similar instruments;
· providing educational courses and instructional materials to consumers on individual financial management matters; and
· providing tax planning and tax preparation services to any person.
· Agency transactional services for customer investments, including:
· Securities brokerageProviding securities brokerage services, whether alone or in combination with investment advisory services, and incidental activities, including related securities credit activities compliant with Federal Reserve Board Regulation T and custodial services, if the securities brokerage services are restricted to buying and selling securities solely as agent for the account of customers and do not include securities underwriting or dealing;
· Riskless-principal transactionsBuying and selling all types of securities in the secondary market on the order of customers as riskless principal;
· Private-placement servicesActing as agent for the private placement of securities in accordance with the requirements of the Securities Act of 1933 and the rules of the SEC; and
4
· Futures commission merchantActing as a futures commission merchant for unaffiliated persons in the execution and clearance of any futures contract and option on a futures contract traded on an exchange in the United States or abroad, if the activity is conducted through a separately incorporated subsidiary of the holding company and the company satisfies various other conditions.
· Investment transactions as principal:
· Underwriting and dealing in government obligations and money market instruments, including bankers acceptances and certificates of deposit, under the same limitations applicable if the activity were performed by a holding companys subsidiary member banks.
· Engaging as principal in:
· foreign exchanges, and
· forward contracts, options, futures, options on futures, swaps, and similar contracts, with various conditions.
· Buying and selling bullion, and related activities.
· Management consulting and counseling activities:
· Subject to various limitations, management consulting on any matter to unaffiliated depository institutions, or on any financial, economic, accounting, or audit matter to any other company; and
· Providing consulting services to employee benefit, compensation, and insurance plans, including designing plans, assisting in the implementation of plans, providing administrative services to plans, and developing employee communication programs for plans.
· Providing career counseling services to:
· a financial organization and individuals currently employed by, or recently displaced from, a financial organization;
· individuals who are seeking employment at a financial organization; and
· individuals who are currently employed in or who seek positions in the finance, accounting, and audit departments of any company.
· Support services:
· providing limited courier services; and
· printing and selling checks and related items requiring magnetic ink character recognition.
· Insurance agency and underwriting:
· Subject to various limitations, acting as principal, agent, or broker for credit life, accident health and unemployment insurance that is directly related to an extension of credit to a holding company or any of its subsidiaries;
· Engaging in any insurance agency activity in a place where Riverview or a subsidiary of Riverview has a lending office and that has a population not exceeding 5,000 or has inadequate insurance agency facilities, as determined by the Federal Reserve Board;
5
· Supervising, on behalf of insurance underwriters, the activities of retail insurance agents who sell fidelity insurance and property and casualty insurance on the real and personal property used in Riverviews operations or its subsidiaries, and group insurance that protects the employees of Riverview or its subsidiaries;
· Engaging in any insurance agency activities if Riverview has total consolidated assets of $50 million or less, with the sale of life insurance and annuities being limited to sales in small towns or as credit insurance.
· Making equity and debt investments in corporations or projects designed primarily to promote community welfare, and providing advisory services to these programs.
· Subject to various limitations, providing others financially oriented data processing or bookkeeping services.
· Issuing and selling money orders, travelers checks and United States savings bonds.
· Providing consumer financial counseling that involves counseling, educational courses and distribution of instructional materials to individuals on consumer-oriented financial management matters, including debt consolidation, mortgage applications, bankruptcy, budget management, real estate tax shelters, tax planning, retirement and estate planning, insurance and general investment management, so long as this activity does not include the sale of specific products or investments.
· Providing tax planning and preparation advice.
Permitted Activities for Financial Holding Companies
The Gramm-Leach-Bliley Financial Services Modernization Act, became law in November 1999, and amends the Holding Company Act of 1956 to create a new category of holding companythe financial holding company. To be designated as a financial holding company, a bank holding company must file an application with the Federal Reserve Board. In order to become a financial holding company, Riverview must be and remain well capitalized and well managed, as determined by Federal Reserve Board regulations and maintain at least a satisfactory examination rating under the Community Reinvestment Act. Once a bank holding company becomes a financial holding company, the holding company or its affiliates may engage in any financial activities that are financial in nature or incidental to financial activities. Furthermore, the Federal Reserve may approve a proposed activity if it is complementary to financial activities and does not threaten the safety and soundness of banking. The Act provides an initial list of activities that constitute activities that are financial in nature, including:
· lending and deposit activities,
· insurance activities, including underwriting, agency and brokerage,
· providing financial investment advisory services,
· underwriting in, and acting as a broker or dealer in, securities,
· merchant banking, and
· insurance company portfolio investment.
6
Supervision and Regulation of Riverview National Bank
General Overview
Banks operate in a highly regulated environment and are regularly examined by federal and state regulatory authorities. The following discussion concerns various federal and state laws and regulations and the potential impact of such laws and regulations on Riverview National Bank.
To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory or regulatory provisions themselves. Proposals to change laws and regulations are frequently introduced in Congress, the state legislatures, and before the various bank regulatory agencies. We cannot determine the likelihood or timing of any such proposals or legislation, or the impact they may have on Riverview National Bank. A change in law, regulations or regulatory policy may have a material effect on Riverview National Banks business.
The operations of Riverview National Bank are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System, and to banks whose deposits are insured by the FDIC. Riverview National Bank operations are subject to regulations of the OCC, the Board of Governors of the Federal Reserve System and the FDIC.
Safety and Soundness
The primary regulator for Riverview National Bank is the Office of the Comptroller of the Currency (OCC). The OCC has the authority under the Financial Institutions Supervisory Act and the Federal Deposit Insurance Act to prevent a national bank from engaging in any unsafe or unsound practice in conducting business or from otherwise conducting activities in violation of the law.
Federal and state banking laws and regulations govern, but are not limited to, the following:
· Scope of a banks business
· Investments a bank may make
· Reserves that must be maintained against certain deposits
· Loans a bank makes and collateral it takes
· Merger and consolidation activities
· Establishment of branches
Riverview National Bank is a member of the Federal Reserve System and, therefore, the policies and regulations of the Federal Reserve Board have a significant impact on many elements of Riverview National Banks operations including:
· Loan and deposit growth
· Rate of interest earned and paid
· Levels of liquidity
· Levels of required capital
7
Management cannot predict the effect of changes to such policies and regulations upon Riverview National Banks business model and the corresponding impact they may have on future earnings.
FDIC Insurance Assessments
The FDIC imposes a risk-related premium schedule for all insured depository institutions that results in the assessment of premiums based on a banks capital and supervisory measures. Under the risk-related premium schedule, the FDIC assigns, on a semiannual basis, each depository institution to one of three capital groups, the best of these being well capitalized. For purposes of calculating the insurance assessment, Riverview National Bank is expected to be well capitalized. The FDIC adjusts the insurance rates every six months and has indicated the possibility that all banks may again be required to pay deposit insurance premiums in the future if current trends related to insured deposits versus insurance funds continue.
Riverview National Bank is not expected to pay premiums for deposit insurance; however, it is subject to assessments to pay interest on Financing Corporation bonds. Congress created the Financing Corporation to issue bonds to finance the resolution of failed thrift institutions. These assessment rates are set quarterly.
Community Reinvestment Act
Under the Community Reinvestment Act (CRA), as amended, the OCC is required to assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs of the community that they serve. The Act focuses specifically on low and moderate-income neighborhoods. The OCC takes an institutions CRA record into account in its evaluation of any application made by any of such institutions for, among other things:
· Approval of a new branch or other deposit facility
· Closing of a branch or other deposit facility
· An office relocation or a merger
· Any acquisition of bank shares
The CRA, as amended, also requires that the OCC make publicly available the evaluation of a banks record of meeting the credit needs of its entire community, including low-and-moderate-income neighborhoods. This evaluation includes a descriptive rating of either outstanding, satisfactory, needs to improve, or substantial noncompliance, and a statement describing the basis for the rating. These ratings are publicly disclosed.
Capital Adequacy
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) institutions are classified in one of five defined categories as illustrated below.
Capital Category |
|
Total
|
|
Tier 1
|
|
Tier 1
|
|
Well capitalized |
|
> 10.0 |
|
> 6.0 |
|
> 5.0 |
|
Adequately capitalized |
|
> 8.0 |
|
> 4.0 |
|
> 4.0* |
|
Undercapitalized |
|
<8.0 |
|
<4.0 |
|
<4.0* |
|
Significantly undercapitalized |
|
<6.0 |
|
<3.0 |
|
<3.0 |
|
Critically undercapitalized |
|
|
|
|
|
< 2.0 |
|
* 3.0 for those banks having the highest available regulatory rating.
8
Riverview National Banks capital ratios exceed the regulatory requirements to be considered well capitalized for Total Risk-Based Capital, Tier 1 Risk-Based Capital, and Tier 1 Leverage Capital.
Prompt Corrective Action
In the event an institutions capital deteriorates to the undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including:
· Implementation of a capital restoration plan and a guarantee of the plan by a parent institution
· Placement of a hold on increases in assets, number of branches, or lines of business
If capital reaches the significantly or critically undercapitalized level, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management and (in critically undercapitalized situations) appointment of a receiver. For well-capitalized institutions, FDICIA provides authority for regulatory intervention where they deem the institution to be engaging in unsafe or unsound practices, or if the institution receives a less than satisfactory examination report rating for asset quality, management, earnings, liquidity, or sensitivity to market risk.
Legislation and Regulatory Changes
From time to time, legislation is enacted that has the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, and before various regulatory agencies. No prediction can be made as to the likelihood of any major changes or the impact such changes might have on Riverview National Banks operations. Certain changes of potential significance to Riverview National Bank that have been enacted recently and others, which are currently under consideration by Congress or various regulatory or professional agencies, are discussed below.
New Legislation and Regulations
USA Patriot Act
The USA Patriot Improvement and Reauthorization Act of 2005 became law on March 9, 2006. This enactment extended the requirements of the original act signed into law in October of 2001.
The rules, developed by the Secretary of the Treasury, require that banks have procedures in place to:
· Verify the identity of persons applying to open an account
· Ensure adequate maintenance of the records used to verify a persons identity, and
· Determine whether a person is on any US governmental agency list of known or suspected terrorists or a terrorist organization
The regulators continue to stress the importance of the Bank Secrecy Act. The OCC is enhancing the risk assessment requirements for banks. These include requiring banks to report risk assessments on bank products, customers, and geographies.
Riverview National Bank is implementing the required internal controls and continues to enhance the policies, procedures, and monitoring programs to ensure proper compliance. Many of the new provisions
9
added by the USA Patriot Act apply to accounts at or held by foreign banks, or accounts of, or transactions with foreign entities.
Multifactor Authentification
The bank regulatory agencies jointly published the Interagency Guidance on Authentification in an Internet Banking Environment . This guidance requires banks to implement enhanced security measures to authenticate customers using internet based services to process transactions that either access customer information or transfer funds to third parties. The principles of this guidance apply to telephone banking systems and call centers if the same level of access is available through these services.
FDIC Insurance Reform
The banking industry had pushed for reform beginning in 1999 with the top two goals of merging the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) and increasing the coverage levels. The banking industry was highly concerned about the fairness and efficiency of the fund. Specifically, a historical approach was utilized through which credits and dividends would be paid back to those banks that contributed on a historical basis if and when the reserve ratio reaches a cap. Importantly, the previous 23 basis point premium that was to be enforced when the fund dropped below 1.25% was addressed because the sharp increase of higher premiums would be impacting the industry when it could least afford to pay the higher premiums.
On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005. Included within that legislation, however, is the Deposit Insurance Reform Act of 2005. This new law makes the following changes:
· Merge the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)
· Index the insurance coverage level to account for inflation
· Provides $250,000 in coverage for retirement accounts, the first increase in coverage since 1980
· Removed the 23 basis point premium assessment required if the fund balance dropped below 1.25%
· Provide a credit pool of about $4.7 billion to offset premiums for banks that had paid into the funds before 1997
· Begin capping the fund and paying dividends when the reserve ratio is at 1.35%
· All FDIC logo and signage displayed must comply with the new information by November 2007.
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
The Bankruptcy Abuse and Consumer Protection Act of 2005 was passed by Congress on April 14, 2005 and signed into law by the President on April 20, 2005.
This Act amends both the Bankruptcy Code and the Truth in Lending Act. The Bankruptcy Code revisions became effective October 15, 2005. The Bankruptcy Code was amended, adding requirements to the process for filing for bankruptcy. The provisions related to the Truth in Lending did not become effective until October of 2006. It requires lenders to:
· Warn customers about the impact of making only the minimum payment under an open-end consumer credit plan
10
· Provide a toll free number for consumers to call for information regarding the consequences of making only minimum required payments
· Inform customers that interest attributed to the portion of a home secured loan that exceeds the propertys fair market value is not tax deductible
· Provide new disclosures on solicitations and applications for open-end credit plans containing an introductory rate
Ongoing Legislation
As a consequence of the extensive regulation of commercial banking activities in the United States, Riverview National Banks business is particularly susceptible to changes in the federal and state legislation and regulations. Over the course of time, various federal and state proposals for legislation could result in additional regulatory and legal requirements for Riverview National Bank. Riverview National Bank can predict neither if any such legislation will be adopted nor if adopted how it would affect the business of Riverview National Bank. Past history has demonstrated that new legislation or changes to existing legislation usually results in a heavier compliance burden and, therefore, generally increases the cost of doing business.
Recent Developments
The global and U.S. economies are experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial system during the past few months. Dramatic declines in the housing market during the past year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.
Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. The availability of credit, confidence in the financial sector, and the level of volatility in the financial markets have been significantly adversely affected as a result. Recently, volatility and disruption in the capital and credit markets has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers underlying financial strength.
In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) was signed into law. Pursuant to the EESA, the U.S. Treasury will have the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The EESA included a provision for a temporary increase in FDIC insurance from $100,000 to $250,000 per depositor through December 31, 2009.
On October 14, 2008, Secretary Paulson, after consulting with the Federal Reserve and the FDIC, announced that the Department of the Treasury will purchase equity stakes in a wide variety of banks and thrifts. Under this program, known as the Troubled Asset Relief Program (TARP) Capital Purchase Program, from the $700 billion authorized by the EESA, the Treasury will make $250 billion of capital available to U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the
11
Treasurys standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under TARP Capital Purchase Program.
Also on October 14, 2008, after receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Paulson signed the systemic risk exception to the FDIC Act, enabling the FDIC to temporarily provide a 100% guarantee of the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in non-interest bearing transaction deposit accounts under a Temporary Liquidity Guarantee Program. Coverage under the Temporary Liquidity Guarantee Program was available until November 12, 2008 without charge and thereafter at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for non-interest bearing transaction deposits. Management had decided not to participate in the program but is continually monitoring developments.
It is not clear at this time what impact the EESA, TARP Capital Purchase Program, the Temporary Liquidity Guarantee Program, other liquidity and funding initiatives of the Federal Reserve and other agencies that have been previously announced, and any additional programs that may be initiated in the future will have on the financial markets and the other difficulties described above, including the extreme levels of volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies. Further adverse effects could have an adverse effect on the Riverview and its business.
Available Information
Riverview Financial Corporation is subject to the informational requirements of Section 15(d) of the Exchange Act, and, accordingly, files reports, and other information with the Securities and Exchange Commission. The reports and other information filed with the SEC are available for inspection and copying at the SECs Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Riverview Financial Corporation is an electronic filer with the SEC. The SEC maintains an Internet site that contains reports and information statements, and other information regarding issuers that file electronically with the SEC. The SECs Internet site address is http://www.sec.gov.
Riverview Financial Corporations headquarters are located at 3 rd and Market Streets, Halifax, Pennsylvania 17032, and its telephone number is (717) 896-3433.
At December 31, 2008, Riverview Financial Corporation had 54 full time employees and 8 part time employees. In the opinion of management, Riverview Financial Corporation enjoys a satisfactory relationship with its employees. Riverview Financial Corporation is not a party to any collective bargaining agreement.
12
Riverview Is Subject To Interest Rate Risk
Riverviews earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond Riverviews control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, could influence not only the interest Riverview receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) Riverviews ability to originate loans and obtain deposits, (ii) the fair value of Riverviews financial assets and liabilities, and (iii) the average duration of Riverviews mortgage-backed securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, Riverviews net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
Although management believes it has implemented effective asset and liability management strategies, to reduce the potential effects of changes in interest rates on Riverviews results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on Riverviews financial condition and results of operations.
Riverview Is Subject To Lending Risk
Riverviews loan portfolio mainly consists of residential real estate loans. Other loan types included in the portfolio are commercial and industrial, construction and commercial real estate loans and consumer loans. The deterioration of one or a few of the loans in the portfolio could cause a significant increase in non-performing loans. An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for possible loan and lease losses and an increase in loan charge-offs, all of which could have a material adverse effect on Riverviews financial condition and results of operations.
Riverviews Allowance For Possible Loan Losses May Be Insufficient
Riverview maintains an allowance for possible loan losses, which is a reserve established through a provision for possible losses charged to expense, that represents managements best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects managements continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for possible loan losses inherently involves a high degree of subjectivity and requires Riverview to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem credits and other factors, both within and outside of Riverviews control, may require an increase in the allowance. In addition, bank regulatory agencies periodically review Riverview and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance, Riverview will need additional provisions to increase the allowance for possible loan losses. Any increases in the allowance will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on Riverviews financial condition and results of operations.
13
Riverview may fail to realize the cost savings and benefits it expects to achieve from the consolidation
On December 31, 2008, Riverview was formed upon the consolidation of First Perry and HNB. The success of the consolidation depends, in part, on Riverviews ability to realize the estimated cost savings and benefits from combining the businesses of First Perry and HNB. While we believe that the cost savings and benefit estimates are achievable, it is possible that the potential cost savings and benefits could be more difficult to achieve than we anticipated. Riverviews cost savings and benefits estimates also depend on its ability to combine the businesses of First Perry and HNB in a manner that permits those cost savings and benefits to be realized. If our estimates are incorrect or we are unable to combine the two companies successfully, the anticipated cost savings may not be realized fully or at all, or may take longer to realize than expected.
Competition from other financial institutions may adversely affect Riverviews profitability
Riverviews banking subsidiary faces substantial competition in originating, both commercial and consumer loans. This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders. Many of its competitors enjoy advantages, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce Riverviews net income by decreasing the number and size of loans that its banking subsidiary originates and the interest rates they may charge on these loans.
In attracting business and consumer deposits, Riverviews banking subsidiary faces substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of Riverviews competitors enjoy advantages, including greater financial resources, more aggressive marketing campaigns, better brand recognition and more convenient branch locations. These competitors may offer higher interest rates than Riverview, which could decrease the deposits that it attracts or require it to increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect Riverviews ability to generate the funds necessary for lending operations. As a result, it may need to seek other sources of funds that may be more expensive to obtain and could increase its cost of funds.
Riverviews banking subsidiary also competes with non-bank providers of financial services, such as brokerage firms, consumer finance companies, credit unions, insurance agencies and governmental organizations which may offer more favorable terms. Some of its non-bank competitors are not subject to the same extensive regulations that govern its banking operations. As a result, such non-bank competitors may have advantages over Riverviews banking subsidiary in providing certain products and services. This competition may reduce or limit its margins on banking services, reduce its market share and adversely affect its earnings and financial condition.
Riverviews Controls and Procedures May Fail or Be Circumvented
Management regularly reviews and updates Riverviews internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of Riverviews controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on Riverviews business, results of operations and financial condition.
14
Riverviews ability to pay dividends depends primarily on dividends from its banking subsidiary, which is subject to regulatory limits
Riverview is a bank holding company and its operations are conducted by its subsidiary. Its ability to pay dividends depends on its receipt of dividends from its subsidiary. Dividend payments from its banking subsidiary are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of its subsidiary to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. There is no assurance that its subsidiary will be able to pay dividends in the future or that Riverview will generate adequate cash flow to pay dividends in the future. Riverviews failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.
Riverview May Not Be Able To Attract and Retain Skilled People
Riverviews success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by Riverview can be intense and Riverview may not be able to hire people or to retain them. The unexpected loss of services of one or more of Riverviews key personnel could have a material adverse impact on Riverviews business because of their skills, knowledge of Riverviews market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. Riverview currently has employment agreements containing non-competition agreements with six of its executive officers.
Riverview Is Subject To Claims and Litigation Pertaining To Fiduciary Responsibility
From time to time, customers make claims and take legal action pertaining to Riverviews performance of its fiduciary responsibilities. Whether customer claims and legal action related to Riverviews performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to Riverview they may result in significant financial liability and/or adversely affect the market perception of Riverview and its products and services as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on Riverviews business, which, in turn, could have a material adverse effect on Riverviews financial condition and results of operations.
The Trading Volume In Riverviews Common Stock Is Less Than That Of Other Larger Financial Services Companies
Riverviews common stock is not listed for trading on any market or exchange. Instead, its common stock is traded in the local over-the-counter markets and privately negotiated transactions under the symbol RIVE. The trading volume in its common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of Riverviews common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which Riverview has no control. Given the lower trading volume of Riverviews common stock, significant sales of Riverviews common stock, or the expectation of these sales, could cause Riverviews stock price to fall.
Riverview operates in a highly regulated environment and may be adversely affected by changes in federal, state and local laws and regulations
Riverview is subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local legislation could have a substantial impact on Riverview and its operations. Additional legislation and regulations that could significantly affect Riverviews powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on its financial condition and results of operations. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and
15
enforcement duties. The exercise of regulatory authority may have a negative impact on Riverviews results of operations and financial condition.
Like other bank holding companies and financial institutions, Riverview must comply with significant anti-money laundering and anti-terrorism laws. Under these laws, Riverview is required, among other things, to enforce a customer identification program and file currency transaction and suspicious activity reports with the federal government. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws or make required reports.
ITEM 1B . UNRESOLVED STAFF COMMENTS .
None.
Riverview owns a parking lot located at 110 Verbeke Street, Marysville, Pennsylvania 17053, which is adjacent to the main office of Riverview National Bank. The table below sets forth the locations of the properties that are owned and leased in the name of Riverview National Bank, which include its main office, branch offices and certain parking facilities related to its banking offices. As for those properties that are owned, all are owned free and clear of any lien. The Banks main office and all branch offices are located in Pennsylvania.
Operating under the name The First National Bank of Marysville, a division of Riverview National Bank:
Office and Address
2040 Good Hope Road, Enola, Pennsylvania 17025 (leases)
1288 North Mountain Road, Harrisburg, Pennsylvania 17112 (leases)
55 South Main Street, Duncannon, Pennsylvania 17020 (leases)
200 Front Street, Marysville, Pennsylvania 17053 (owns)
500 South State Road, Marysville, Pennsylvania 17053 (owns)
Operating under the name Halifax National Bank, a division of Riverview National Bank:
Office and Address
Third and Market Streets, Halifax, Pennsylvania 17032 (owns)
311 South Market Street, Millersburg, Pennsylvania 17061 (owns)
Drive-through facility on 16 N. 3 rd Street, Halifax, Pennsylvania 17032 (owns)
15 N. 3 rd Street, Halifax, Pennsylvania 17032 (owns)
Parking Lot on N. 3 rd Street, Halifax, Pennsylvania 17032 (owns)
Market Street Main Building (owns)
34 South Market Street, Elizabethville, Pennsylvania 17023 (leases)
All of these properties are in good condition and are deemed by management to be adequate for Riverviews purposes.
16
Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position or results of operations of Riverview. There are no proceedings pending other than ordinary routine litigation incident to the business of Riverview and of the Riverview National Bank. In addition, management does not know of any material proceedings contemplated by governmental authorities against Riverview or the Riverview National Bank or any of its properties.
ITEM 4 . SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .
None.
ITEM 5 . MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .
As of March 31, 2009, there were 1,750,003 shares of Riverview common stock outstanding, which were held by approximately 340 holders of record. The number of shareholders does not reflect the number of individuals or institutional investors holding stock in nominee name through banks, brokerage firms, and others.
Additionally, a substantial source of Riverviews income from which it can pay dividends is the receipt of dividends from Riverview National Bank. The availability of dividends from Riverview National Bank is limited by various statutes and regulations. It also is possible, depending on the financial condition of Riverview National Bank, and other factors, that the applicable regulatory authorities could assert that payment of dividends or other payments is an unsafe or unsound banking practice. In the event that Riverview National Bank is unable to pay dividends to Riverview, Riverview may not be able to pay dividends on its common stock.
Riverview common stock is not listed or traded on any market or exchange but instead is traded in a local over-the-counter market and privately negotiated transactions under the symbol RIVE. Therefore, the stock is traded at irregular intervals.
ITEM 6 . SELECTED FINANCIAL DATA .
Not Required.
17
ITEM 7 . MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RIVERVIEW FINANCIAL CORPORATION .
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed below, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Riverview to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words expect, anticipate, intend, plan, believe, estimate, and similar expressions are intended to identify such forward-looking statements.
Riverviews actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:
· anticipated cost savings and synergies from the consolidation may not be realized;
· the effects of future economic conditions on Riverview and the Riverview National Banks customers;
· the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
· governmental monetary and fiscal policies, as well as legislative and regulatory changes;
· the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;
· the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;
· the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in Riverviews market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet;
· technological changes;
· acquisitions and integration of acquired businesses;
· the failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities; and
· acts of war or terrorism;
· volatilities in the securities market; and
· deteriorating economic conditions.
All written or oral forward-looking statements attributable to Riverview are expressly qualified in their entirety by these cautionary statements.
Managements Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of Riverviews consolidated financial statements and should be read in conjunction with the Consolidated Financial Statements of Riverview and Notes thereto and other detailed information appearing elsewhere in this Annual Report.
Critical Accounting Policies and Estimates
The consolidated financial statements include Riverview and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated.
18
The accounting and reporting policies followed by Riverview conform, in all material respects, to accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and results of operations for the periods indicated. Actual results could differ significantly from those estimates.
Riverviews accounting policies are fundamental to understanding Managements Discussion and Analysis of Financial Condition and Results of Operations. The most significant accounting policies followed by Riverview are presented in Note 1 of the consolidated financial statements. Note 1 lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of Riverview and its results of operations. Riverview has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loan losses, valuation of its securities and accounting for income taxes.
The allowance for loan losses is established through a charge to earnings for the provision for loan losses. In determining the balance in the allowance for loan losses, consideration is given to a variety of factors in establishing the estimate. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics and trends in actual and forecasted credit quality, results of internal loan reviews, borrowers perceived financial and managerial strengths , the adequacy of the underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. The use of different estimates and assumptions could produce different provisions for loan losses. Additional information is provided in the Provisions for Loan Losses, Allowance for Loan Losses and Credit Risk and Loan Quality sections.
Declines in the fair value of securities held to maturity and available for sale securities below their costs that are deemed to be other than temporarily impaired are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of Riverview to retain its investment in the issuer for a period of time sufficient to allow for any recovery in fair value. No securities were deemed to be other-than-temporarily impaired as of December 31, 2008.
Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. To the extent that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change. Riverview has deemed that its deferred tax assets will more likely than not be realized, and accordingly, has not established a valuation allowance on them.
OVERVIEW
Business Combination
On December 31, 2008 and pursuant to the Agreement and Plan of Consolidation (the Agreement), dated, June 18, 2008, as amended, by and between First Perry Bancorp, Inc. (First Perry) and HNB Bancorp,
19
Inc. (HNB), Riverview Financial Corporation (Riverview), a Pennsylvania Corporation, was formed upon the completion of the consolidation of First Perry and HNB under Pennsylvania law. Each outstanding share of common stock of First Perry and HNB was converted into 2.435 and 2.520 shares of Riverviews common stock, respectively. Further, the First National Bank of Marysville, the wholly owned subsidiary of First Perry, and Halifax National Bank, the wholly owned subsidiary of HNB, consolidated to form Riverview National Bank (the Bank), which is the wholly owned subsidiary of Riverview. Riverview issued 1,750,003 shares of common stock and incurred $299,000 in transaction costs. The primary reason for the combination was to pool resources to provide greater products and services to customers in the contiguous counties, and provide cost savings through the consolidation of operations.
As a community-focused financial institution, Riverview, through its wholly-owned banking subsidiary, generates the majority of its revenues from net interest income derived from its core banking activities. During 2008, Riverview continued to experience strong financial performance and achieving solid growth in assets, loans and deposits. Riverview was able to successfully grow while maintaining its commitment to ensure strong credit quality, retain and expand customer relationships and prudently manage interest rate risk. In addition, Riverview continues to be focused on business practices that not only provide value to its customers but to its shareholders as well.
Riverviews financial results reflect the business combination. The combined financial information reflects the impact of the consolidation of First Perrys and HNBs combined financial condition under the purchase method of accounting with First Perry treated as the acquirer from an accounting standpoint. Under this method of accounting, Riverview was formed and treated as a recapitalization of First Perry, with First Perrys assets and liabilities recorded at their historical values, and HNBs at their fair values on the date the consolidation was completed. In accordance with Financial Accounting Standards Board Statement No. 141, Business Combinations , the balance sheet includes the former HNB assets, however the income statement does not include their results of operations since the transaction was only consummated on December 31, 2008. Consolidated total assets were $231.9 million at December 31, 2008, an increase of 89.0% or $109.2 million over $122.7 million in total assets reported December 31, 2007. Asset growth was attributable to the acquisition. As a result, loans grew $94.3 million or 112.4%, to $178.2 million, while deposits increased $79.9 million or 84.6% to $174.4 million and short-term borrowings increased $20.1 million to $21.3 million. As of the effective date of the consolidation, HNB had $91.9 million in total assets, $67.6 in loans, $73.7 million in deposits and $3.4 million in short-term borrowings, which are included in the above totals.
Riverviews results of operations are primarily derived from the management of spread income generated between the interest received on its interest earning assets and the interest paid on its interest bearing liabilities. Changes in net interest income are not only affected by changes in interest rates, but are also impacted by changes in the make-up of the balance sheet as well as the level of yield generated from interest earning assets versus the costs associated with interest bearing liabilities. Riverview also generates non-interest income from fees associated with various products and services offered to customers, mortgage banking activities, bank owned life insurance (BOLI) and from the sale of assets, such as loans or investments. Offsetting these revenues are provisions for potential losses on loans, administrative expenses and income taxes.
As of the 2008 year end, Riverview achieved net income of $371,000, a decrease of 30.7% from net income of $535,000 for the 2007 year end. Basic earnings per share in 2008 were $0.39 per share, a decrease of 30.4% from $0.56 per share in 2007. The decrease in net income is attributable to the costs associated with the consolidation of HNB and its impact on operations. Return on average assets was 0.29% in 2008 compared to 0.47% in 2007. Return on average equity was 2.90% in 2008 compared to 4.34% in 2007. The decrease in the 2008 ratios for the return on average assets and the return on average equity was the result of increases in average assets and average equity coupled with lower net income as a result of higher provision for loan losses and bank shares tax expense, along with expenses associated with the consolidation of HNB.
20
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Net interest income is the most significant component of Riverviews net income as a result of its focus on traditional banking activities. It is the difference between interest income earned on interest earning assets and interest expense paid on interest bearing liabilities. The change in net interest income from year to year may be due to changes in interest rates, changes in volumes of interest-earning assets and liabilities as well as changes in the mix of such assets and liabilities. Riverviews principal interest-earning assets are loans to individuals and small businesses, with a secondary source of income earned from the investment securities portfolio and other interest earning deposits with banks. Interest-bearing liabilities consist primarily of time deposits, money market accounts, savings deposits, securities sold under agreement to repurchase and borrowings. Generally, changes in net interest income are portrayed by net interest rate spread and net interest margin. Net interest rate spread is equal to the difference between the average rate earned on interest-earning assets and the average rate incurred on interest-bearing liabilities. Net interest margin is the average yield on interest earning assets minus the average interest rate paid on interest bearing deposits. Net interest income growth is generally dependent upon balance sheet growth and maintaining or growing the net interest margin. For analysis purposes, net interest income is evaluated on a fully tax-equivalent (FTE) basis. The FTE basis is calculated by grossing up the yield on tax-exempt securities and loans by the Federal tax rate of 34% in order that the yield on tax-exempt assets may be comparable to interest earned on taxable assets.
2008 Compared to 2007
Total interest income increased on a fully tax equivalent basis (as adjusted for the tax benefit derived from tax exempt assets see Table 1 for calculation), by $692,000, or 10.4%, to $7,322,000 for 2008 from $6,630,000 for 2007. Total interest income increased in light of the fact that the yield on interest-earning assets decreased to 6.14% for 2008 as compared with 6.29% for 2007. Mitigating the impact of a lower yield was the 13.1% increase in average interest-earning assets, which grew to $119,246,000 during 2008, from $105,476,000 during 2007. The composition of Riverviews interest sensitive assets continued to shift, where the balance of the investment portfolio decreased due to reinvesting the cash flow into loans, which produce a higher interest yield. The growth in average interest-earning assets was attributable to a 23.7% increase in loans, which aided in producing a more profitable asset mix.
Total interest expense for 2008 was $3,044,000 compared with $3,258,000 in 2007. The decrease of $214,000, or 6.6%, in total interest expense is attributable to a decline in cost of funds, which decreased to 2.87% for 2008 from 3.49% for 2007. This decline in interest rates mitigated the impact of the 13.5% increase in total interest bearing liabilities, which increased to $106,069,000 for 2008 from $93,452,000 for 2007 as a result of increased borrowings. As the demand to fund interest earning assets increased and the growth in deposits was flat, the Bank utilized its borrowing facilities with the FHLB. While the borrowings carried a higher cost to fund as compared with deposits, total interest income outpaced this higher expense.
Net interest income on a fully tax equivalent basis increased by $906,000, or 26.9%, to $4,278,000 for the year ended December 31, 2008 from $3,372,000 for the year ended December 31, 2007. This increase was attributable to the growth in interest sensitive assets, in particular loans, and prime rate decreases which had the impact of reducing cost of funds. The net interest spread (on a fully tax equivalent basis) increased to 3.27% for 2008 from 2.80% for 2007, while the net interest margin (on a fully tax equivalent basis) increased to 3.58% for 2008 from 3.20% for 2007.
Riverviews ability to manage net interest income over a variety of interest rate and economic environments is important to its financial success. Growth in net interest income is generally dependent upon the growth of the balance sheet and maintaining or growing the net interest margin.
21
2007 Compared to 2006
Total interest income increased on a fully tax equivalent basis, by $426,000, or 6.9%, to $6,630,000 for the year ended December 31, 2007 from $6,204,000 for the year ended December 31, 2006. This increase was attributable to a shift in the composition of interest earning assets where the cash flow from investment securities was reinvested in loans and interest bearing deposits which generated higher yields than the securities portfolio.
Total interest expense increased $370,000, or 12.8%, to $3,258,000 in 2007 from $2,888,000 in 2006. While total interest bearing liabilities increased 0.02% to $93,452,000 by the 2007 year end, management was able to change its funding mix, shifting out of borrowings and migrating to lower costing deposits.
Net interest income on a fully tax equivalent basis increased by $56,000, or 1.7%, to $3,372,000 for the year ended December 31, 2007 from $3,316,000 for the year ended December 31, 2006. Riverviews net interest rate spread increased to 2.80% in 2007 from 2.75% in 2006, while the net interest margin increased to 3.20% in 2007 from 3.16% in 2006. Managements actions in proactively managing the composition of interest earning assets and interest bearing liabilities helped to protect the Banks interest rate spread and margin during a period of multiple yield curve swings and changes due to increasingly unstable economic conditions.
22
Table 1 presents a summary of Riverviews average balances, interest rates, interest income and expense, the interest rate spread and the net interest margin for the years ended December 31, 2008, 2007 and 2006.
TABLE 1
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
Year Ended December 31, |
|
2008 |
|
2007 |
|
2006 |
|
||||||||||||||||||
(Dollars in thousands) |
|
Average
|
|
Interest |
|
Yield/Rate |
|
Average
|
|
Interest |
|
Yield/Rate |
|
Average
|
|
Interest |
|
Yield/Rate |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Taxable securities (2) |
|
$ |
15,917 |
|
$ |
596 |
|
3.74 |
% |
$ |
17,187 |
|
$ |
664 |
|
3.86 |
% |
$ |
22,891 |
|
$ |
840 |
|
3.67 |
% |
Tax-exempt securities (1)(2) |
|
3,061 |
|
208 |
|
6.80 |
% |
5,045 |
|
344 |
|
6.82 |
% |
6,251 |
|
424 |
|
6.78 |
% |
||||||
Total securities |
|
18,978 |
|
804 |
|
4.24 |
% |
22,232 |
|
1,008 |
|
4.53 |
% |
29,142 |
|
1,264 |
|
4.34 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans (1)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consumer |
|
3,622 |
|
276 |
|
7.62 |
% |
4,440 |
|
348 |
|
7.84 |
% |
4,949 |
|
375 |
|
7.58 |
% |
||||||
Commercial |
|
9,030 |
|
626 |
|
6.93 |
% |
7,086 |
|
560 |
|
7.90 |
% |
6,394 |
|
478 |
|
7.48 |
% |
||||||
Real estate |
|
86,553 |
|
5,585 |
|
6.45 |
% |
68,703 |
|
4,575 |
|
6.66 |
% |
63,054 |
|
4,019 |
|
6.37 |
% |
||||||
Total loans |
|
99,205 |
|
6,487 |
|
6.54 |
% |
80,229 |
|
5,483 |
|
6.83 |
% |
74,397 |
|
4,872 |
|
6.55 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other interest earning assets |
|
1,063 |
|
31 |
|
2.92 |
% |
3,015 |
|
139 |
|
4.61 |
% |
1,364 |
|
68 |
|
4.99 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Interest Earning Assets |
|
119,246 |
|
7,322 |
|
6.14 |
% |
105,476 |
|
6,630 |
|
6.29 |
% |
104,903 |
|
6,204 |
|
5.91 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-interest earning assets |
|
10,007 |
|
|
|
|
|
9,450 |
|
|
|
|
|
7,452 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Assets |
|
$ |
129,253 |
|
|
|
|
|
$ |
114,926 |
|
|
|
|
|
$ |
112,355 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing demand deposits |
|
$ |
17,020 |
|
$ |
216 |
|
1.27 |
% |
$ |
16,759 |
|
$ |
436 |
|
2.60 |
% |
$ |
13,527 |
|
$ |
253 |
|
1.87 |
% |
Savings deposits |
|
15,067 |
|
137 |
|
0.91 |
% |
15,617 |
|
203 |
|
1.30 |
% |
15,032 |
|
125 |
|
0.83 |
% |
||||||
Time deposits |
|
51,059 |
|
1,942 |
|
3.80 |
% |
50,989 |
|
2,103 |
|
4.12 |
% |
50,635 |
|
1,945 |
|
3.84 |
% |
||||||
Total deposits |
|
83,146 |
|
2,295 |
|
2.76 |
% |
83,365 |
|
2,742 |
|
3.29 |
% |
79,194 |
|
2,323 |
|
2.93 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Short-term borrowings |
|
9,743 |
|
152 |
|
1.56 |
% |
3,579 |
|
190 |
|
5.31 |
% |
7,262 |
|
343 |
|
4.72 |
% |
||||||
Long-term borrowings |
|
13,180 |
|
597 |
|
4.53 |
% |
6,508 |
|
326 |
|
5.01 |
% |
5,018 |
|
222 |
|
4.42 |
% |
||||||
Total borrowings |
|
22,923 |
|
749 |
|
3.27 |
% |
10,087 |
|
516 |
|
5.12 |
% |
12,280 |
|
565 |
|
4.60 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Interest Bearing Liabilities |
|
106,069 |
|
3,044 |
|
2.87 |
% |
93,452 |
|
3,258 |
|
3.49 |
% |
91,474 |
|
2,888 |
|
3.16 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Demand deposits |
|
9,684 |
|
|
|
|
|
8,279 |
|
|
|
|
|
7,974 |
|
|
|
|
|
||||||
Other liabilities |
|
692 |
|
|
|
|
|
857 |
|
|
|
|
|
853 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Shareholders Equity |
|
12,808 |
|
|
|
|
|
12,338 |
|
|
|
|
|
12,054 |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Liabilities and Shareholders Equity |
|
$ |
129,253 |
|
|
|
|
|
$ |
114,926 |
|
|
|
|
|
$ |
112,355 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Income |
|
|
|
$ |
4,278 |
|
|
|
|
|
$ |
3,372 |
|
|
|
|
|
$ |
3,316 |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Spread |
|
|
|
|
|
3.27 |
% |
|
|
|
|
2.80 |
% |
|
|
|
|
2.75 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net Interest Margin |
|
|
|
|
|
3.58 |
% |
|
|
|
|
3.20 |
% |
|
|
|
|
3.16 |
% |
(1) Yields on tax-exempt assets have been calculated on a fully tax equivalent basis assuming a tax rate of 34%.
(2) Available for sale securities are reported at amortized cost for purposes of calculating yields.
(3) For yield calculation purposes, non-accruing loans are included in the average loan balances, and any income recognized on these loans is included in interest income.
23
Table 2 presents a summary of changes in interest income and interest expense resulting from changes in volumes (average balances) and changes in rates for the periods indicated.
TABLE 2
RATE VOLUME ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31,
|
|
2008 vs. 2007 |
|
2007 vs. 2006 |
|
||||||||||||||
|
|
Increase/(Decrease) |
|
Increase/(Decrease) |
|
||||||||||||||
(In thousands) |
|
Volume |
|
Rate |
|
Total |
|
Volume |
|
Rate |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest bearing due from banks and federal funds sold |
|
$ |
(53 |
) |
$ |
(57 |
) |
$ |
(108 |
) |
$ |
76 |
|
$ |
(5 |
) |
$ |
71 |
|
Securities, taxable (1) |
|
(47 |
) |
(21 |
) |
(68 |
) |
(219 |
) |
43 |
|
(176 |
) |
||||||
Securities, tax-exempt (1) |
|
(134 |
) |
(2 |
) |
(136 |
) |
(83 |
) |
3 |
|
(80 |
) |
||||||
Loans (1) |
|
1,237 |
|
(233 |
) |
1,004 |
|
403 |
|
208 |
|
611 |
|
||||||
Net Change in Interest Income |
|
1,003 |
|
(313 |
) |
692 |
|
177 |
|
249 |
|
426 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest bearing demand deposits |
|
3 |
|
(223 |
) |
(220 |
) |
84 |
|
99 |
|
183 |
|
||||||
Savings deposits |
|
(5 |
) |
(61 |
) |
(66 |
) |
7 |
|
71 |
|
78 |
|
||||||
Time deposits |
|
2 |
|
(163 |
) |
(161 |
) |
16 |
|
142 |
|
158 |
|
||||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Short-term borrowings |
|
97 |
|
(135 |
) |
(38 |
) |
(196 |
) |
43 |
|
(153 |
) |
||||||
Long-term borrowings |
|
302 |
|
(31 |
) |
271 |
|
74 |
|
30 |
|
104 |
|
||||||
Net Change in Interest Expense |
|
399 |
|
(613 |
) |
(214 |
) |
(15 |
) |
385 |
|
370 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CHANGE IN NET INTEREST INCOME: |
|
$ |
604 |
|
$ |
300 |
|
$ |
906 |
|
$ |
192 |
|
$ |
(136 |
) |
$ |
56 |
|
(1) Yields on tax-exempt assets have been computed on a fully tax-equivalent basis assuming a tax rate of 34%.
Provision for Loan Losses
Riverview provides for credit risk associated with lending activities through its provision for loan losses and allowance for loan losses. Although Riverview maintains sound credit practices, loan deterioration may occur resulting in the eventual charge off of certain loans as losses. The provision for loan losses, which is an expense that is recorded in the income statement, is used to increase the allowance for loan losses to an appropriate balance that is available to absorb estimated losses inherent in the portfolio. The determination of the appropriateness and adequacy of the allowance is based upon managements ongoing analysis of the loan portfolio, assessment of historical loan loss experience, and other relevant factors inherent in the loan portfolio. Since no single statistic or measurement is accurate enough to determine the adequacy of the allowance, such an estimate is based on a number of factors including:
· an ongoing review of delinquent, classified and non-accrual loans, large loans and overall portfolio quality and trends;
· analytical review of loan charge-off experience, delinquency rates and other relevant historical and peer statistical ratios;
· managements judgment with respect to the composition and nature of the portfolio, concentrations of credit, regulatory recommendations and current and projected economic and business conditions and their impact on the existing portfolio; and
24
· observations derived from examinations and reviews of the portfolio by regulatory examiners and independent loan reviewers.
The provision for loan losses was $380,000 for 2008 and $120,000 for 2007. The provision expense for 2008 was increased by 216.7% as compared with 2007. The increase in the provision for 2008 was primarily attributable to loan growth, as the credit quality of the portfolio continues to be solid as evidenced by the asset quality ratios. The consistency in the asset quality is a key factor considered by management in determining an appropriate level of the allowance for loan losses in light of the growth of the loan portfolio.
Non-Interest Income
Non-interest income continues to represent a considerable source of income for Riverview, representing 12.0% of the total revenues (comprised of net interest income and non-interest income) in 2008 and 12.3% in 2007. Non-interest income consists primarily of customer service fees and charges derived from deposit accounts, mortgage banking activities, the investment in bank owned life insurance (BOLI) and gains from the sale of loans and available for sale securities.
Non-interest income for the year ended December 31, 2008 increased $115,000, or 25.5%, to $566,000 from $451,000 for the year ended December 31, 2007. Service charges on deposit accounts grew 30.0% or $36,000 to $156,000 in 2008 from $120,000 in 2007. This growth in fees was attributable to increased core deposit activity. Earnings on the cash value of bank owned life insurance increased $4,000, or 4.2%, to $100,000 in 2008 from $96,000 in 2007. The Bank recorded $40,000 in gains from the sale of available for sale securities as compared with no gains recorded in 2007. During 2008, the Bank entered into an agreement with the FHLB to sell loans service released under the FHLB Mortgage Partnership Finance program (MPF). As a result, in 2008 the Bank recorded $50,000 in the gains from the sale of mortgage loans under the MPF program as compared to 2007 where no such gains were recorded. Offsetting these increases was a decrease in other service charges to $220,000 in 2008 from $235,000 in 2007. This was attributable to data processing service income, which declined as a result of managements decision to discontinue offering shared data processing services to other small financial institutions.
The following table presents the components of non-interest income and related fluctuations for the years ended December 31, 2008 and 2007.
Non-Interest Income
|
|
Years Ended December 31, |
|
|||||||||
|
|
(Dollars in thousands) |
|
|||||||||
|
|
2008 |
|
Increase
|
|
% |
|
2007 |
|
|||
Service charges on deposit accounts |
|
$ |
156 |
|
$ |
36 |
|
30.0 |
% |
$ |
120 |
|
Other service charges and fees |
|
220 |
|
(15 |
) |
(6.4 |
)% |
235 |
|
|||
Earnings on cash value of life insurance |
|
100 |
|
4 |
|
4.2 |
% |
96 |
|
|||
Gain on sale of available for sale securities |
|
40 |
|
40 |
|
100.0 |
% |
|
|
|||
Gain from sale of held for sale mortgage loans |
|
50 |
|
50 |
|
100.0 |
% |
|
|
|||
|
|
$ |
566 |
|
$ |
115 |
|
25.5 |
% |
$ |
451 |
|
Non-Interest Expenses
Non-interest expenses are a combination of general and administrative expenses that are the result of being in business. For the year ended December 31, 2008, total non-interest expenses increased $1,063,000, or 36.4%, to $3,983,000 from $2,920,000 for 2007. The following summarizes the changes in each of the expense categories:
· Salaries and employee benefits In the second quarter of 2008, an experienced commercial lender was hired to head up and manage the loan area. In addition, individuals were hired to staff new
25
branch offices opened in June 2008 and June 2007. Other personnel related expenses increased in conjunction with additional operations staff needed to support these strategic decisions;
· Occupancy expense Increased costs are associated with realizing a full years expense from the opening of a new branch office in June 2007 and a half of a years expense related to the opening of another new branch in June 2008 as well as the renovation of the operations area;
· Equipment expense Increases in depreciation expense attributable to expenses incurred in migrating to remote capture and acceptance of check images from branch locations and banking clients are the primary factors resulting in increased equipment expenses;
· Telecommunications and processing charges In 2007, the Bank established an MPLS network to replace a point-to-point frame relay network for the purpose of enhancing its disaster recovery plan. In addition, a new branch office was established in June of 2007 and another in June 2008. Full year expenses are being realized for these two items in 2008 versus only a partial period recognition in 2007;
· Bank shares tax This remains to be a significant expense for Riverview, with $104,000 expensed in 2008. The increase in this expense in 2008 as compared with the ($83,000) recorded for 2007 was due to the benefit of $216,000 out of a $250,000 tax credit relating to the Pennsylvania Enterprise Zone Tax Credit program, of which $133,000 was used to offset the Banks shares tax expense for 2007. In July 2008, the Pennsylvania Department of Revenue made a final determination that the Bank was entitled to the full $250,000 credit, and the remaining $34,000 was recognized in 2008, and will be used to offset 2009 shares tax liability;
· Professional services This is comprised of accounting, tax and audit expenses which increased 126.2% to $138,000 for the year ended 2008 from $61,000 for the 2007 year end. This increase is attributable to the due diligence process that was required in hiring and transitioning to a new independent registered public accounting firm and the resulting re-audit of the financial statements to register Riverview with the Securities and Exchange Commission; and
· Other expenses The Banks other expenses increased $127,000, or 34.8%, to $492,000 in 2008 from $365,000 in 2007 as a result of its growth and the change in its business plan to form Riverview and the consolidation of HNB. Also contributing to the increase in other expenses is the increase in the Banks FDIC assessment for 2008 as compared with 2007. Due to a change in the FDICs assessment methodology, this expense increased to $45,000 for 2008 from $10,000 in 2007 and is expected to be higher in 2009.
26
The following table presents the components of non-interest expenses and the related changes for the years ended 2008 and 2007:
Non-Interest Expenses
|
|
Years Ended December 31, |
|
|||||||||
|
|
(Dollars in thousands) |
|
|||||||||
|
|
2008 |
|
Increase
|
|
% |
|
2007 |
|
|||
Salaries and employee benefits |
|
$ |
2,205 |
|
$ |
564 |
|
34.4 |
% |
$ |
1,641 |
|
Occupancy expense |
|
449 |
|
84 |
|
23.0 |
% |
365 |
|
|||
Equipment expense |
|
213 |
|
36 |
|
20.3 |
% |
177 |
|
|||
Telecommunications and processing charges |
|
183 |
|
(22 |
) |
(10.7 |
)% |
205 |
|
|||
Postage and office supplies |
|
94 |
|
11 |
|
13.3 |
% |
83 |
|
|||
Bank shares tax expense (credit) |
|
104 |
|
187 |
|
225.3 |
% |
(83 |
) |
|||
Directors compensation |
|
105 |
|
(1 |
) |
(0.9 |
)% |
106 |
|
|||
Professional services |
|
138 |
|
77 |
|
126.2 |
% |
61 |
|
|||
Other expenses |
|
492 |
|
127 |
|
34.8 |
% |
365 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Total non-interest expenses |
|
$ |
3,983 |
|
$ |
1,063 |
|
36.4 |
% |
$ |
2,920 |
|
Income Taxes
The provision for federal income tax expense (benefit) was ($42,000) for the year ended December 31, 2008 as compared to $80,000 for the same period in 2007. The tax provision decreased $122,000, or 152.5%, as a result of a decline in pretax income that was negatively affected by higher level of loan losses, bank shares tax, FDIC premiums and non-recurring expenses recorded in the fourth quarter of 2008 that were associated with the consolidation of HNB.
The effective tax rate for the twelve months ended December 31, 2008 was a 13.0% benefit in 2008 versus a 13% expense in 2007 with the decrease a result of lower pre-tax income. The effective tax rate continues to be less than the statutory Federal tax rate of 34%. The difference between the statutory and effective tax rates reflects the tax-exempt status of interest income on loans and obligations of state and political subdivisions and the impact of the earnings from the cash surrender value of bank owned life insurance.
FINANCIAL CONDITION
Riverviews securities portfolio is comprised of securities, which not only provide interest income, including tax-exempt income, but also provide a source of liquidity, diversify the earning assets portfolio, allow for the management of risk and tax liability, and provide collateral for repurchase agreements and public fund deposits. Policies are in place to address various aspects of managing the portfolio, including but not limited to, concentrations, liquidity, credit quality, interest rate sensitivity and regulatory guidelines. Adherence to these policies is monitored by Riverviews Asset/Liability Committee (ALCO) on a monthly basis.
Because of the changing nature of the banking environment and the need to correspondingly position assets, all investment securities are characterized as available-for-sale and carried at fair value with net unrealized gains and losses, net of taxes, reported as a separate component of comprehensive income. Riverview invests in securities for the yield they produce and not to profit from trading. Riverview holds no trading securities in its portfolio, and the securities portfolio contained no high-risk securities or derivatives as of December 31, 2008.
The securities portfolio at December 31, 2008 was $28,120,000, compared to $20,290,000 at December 31, 2007, an increase of $7,830,000, or 38.6%. The increase is attributable to $13,124,000 in securities acquired
27
in the consolidation from HNB offset by a $5,294,000 decline attributable to the sale of $2,773,000 in securities and generic cash flow of principal repayments of $2,521,000.
Liquidity generated from the securities portfolio continues to be used to fund loan growth. Within the securities portfolio there has been a continuing shift out of U.S. Government agencies as well as state and municipal securities into mortgage-backed securities in order to structure cash flow over an extended period of time. State and municipal securities holdings have decreased as securities have been sold as a precaution against downgrades in insurer ratings within the bond insurer industry.
Included in the carrying values of investment securities at December 31, 2008 is a net unrealized gain of $56,000, compared to a net unrealized loss of ($40,000) at December 31, 2007. At December 31, 2008, the unrealized gain (loss) on securities available for sale, net of tax, included in shareholders equity totaled $37,000, compared to ($26,000) at December 31, 2007. The net increase in the carrying value of securities is reflective of declines in the interest rate environment and a shorter duration of the portfolio which will cause the securities to trade closer to par. No securities are deemed to be other-than-temporarily impaired based on managements evaluation of the individual securities, including the extent and length of the unrealized loss, and Riverviews ability to hold the security until maturity or until the fair value recovers.
Table 3 illustrates the composition of the securities portfolio for the periods presented.
TABLE 3
SECURITIES
|
|
December 31, |
|
|||||||
|
|
2008 |
|
2007 |
|
2006 |
|
|||
|
|
(In thousands) |
|
|||||||
Available for sale securities: |
|
|
|
|
|
|
|
|||
U.S. Government agencies |
|
$ |
7,264 |
|
$ |
4,092 |
|
$ |
7,509 |
|
State and municipal |
|
9,373 |
|
4,480 |
|
5,889 |
|
|||
Mortgage-backed securities |
|
11,181 |
|
11,718 |
|
11,235 |
|
|||
Corporate debt securities |
|
302 |
|
|
|
|
|
|||
|
|
$ |
28,120 |
|
$ |
20,290 |
|
$ |
24,633 |
|
28
Table 4 presents the maturities and average weighted yields of the securities portfolio at fair value as of December 31, 2008. Yields are based on amortized cost.
TABLE 4
MATURITIES AND WEIGHTED AVERAGE YIELDS OF SECURITIES
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 10 Years or |
|
|
|
|
|
||||||||
Due In: |
|
1 Year or Less |
|
1 to 5 Years |
|
5 to 10 Years |
|
No Maturity |
|
Total |
|
||||||||||||||||
|
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
Amount |
|
Yield |
|
||||||
U.S. Government agencies |
|
$ |
|
|
|
% |
$ |
5,218 |
|
3.59 |
% |
$ |
2,046 |
|
4.88 |
% |
$ |
|
|
|
|
$ |
7,264 |
|
3.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal |
|
386 |
|
5.22 |
% |
2,097 |
|
5.76 |
% |
3,174 |
|
6.16 |
% |
3,716 |
|
6.38 |
% |
9,373 |
|
6.12 |
% |
||||||
Mortgage-backed securities |
|
1,467 |
|
4.02 |
% |
1,525 |
|
3.97 |
% |
2,032 |
|
3.69 |
% |
6,157 |
|
4.10 |
% |
11,181 |
|
4.00 |
% |
||||||
Corporate debt securities |
|
|
|
|
% |
302 |
|
6.39 |
% |
|
|
|
|
|
|
|
|
302 |
|
6.39 |
% |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
1,853 |
|
4.27 |
% |
$ |
9,142 |
|
4.25 |
% |
$ |
7,252 |
|
5.11 |
% |
$ |
9,873 |
|
4.96 |
% |
$ |
28,120 |
|
4.72 |
% |
|
All securities are available for sale and are accounted for at fair value.
Weighted average yields are calculated on a fully taxable equivalent basis assuming a tax rate of 34%.
Loans
The loan portfolio comprises the major component of Riverviews earning assets and is the highest yielding asset category. At December 31, 2008, total loans receivable (net of the allowance for loan losses, unearned fees and origination costs) amounted to $176,469,000, an increase of $93,535,000, or 112.8%, as compared with $82,934,000 as of December 31, 2007. Loans receivable, net of the allowance for loan losses, represent 76.1% of total assets and 101.2% of total deposits as of December 31, 2008, as compared to 67.6% and 87.8%, respectively, at December 31, 2007. All of Riverviews loans are to domestic borrowers.
During 2008, the majority of the loan growth was attributable to the acquisition of $67,083,000 in net loans as part of the consolidation with HNB with the remaining increase of $26,452,000, or 31.9%, attributable to organic growth. This organic growth is due to continued lending opportunities that have resulted from growth in the area coupled with the hiring of a dedicated commercial lender. In addition, all areas of real estate secured lending have experienced significant increases in production. During 2008, the Bank entered into an agreement with the FHLB to sell loans service released under the FHLB Mortgage Partnership Finance program (MPF). The benefit of selling mortgage loans versus keeping them in the portfolio resulted in generating fee income while eliminating the interest rate risk associated with those loans. Going forward, the Bank will continue to evaluate its options regarding residential mortgage loans in consideration of its relationship with its customers, the interest rate environment and overall economic conditions. In general, management projects continued growth in the loan portfolio as additional staff has been hired and opportunities are identified in Riverviews market area.
During 2008, Riverview did not experience any substantial problems within its loan portfolio. Riverview manages risk associated with its loan portfolio by maintaining diversification within the portfolio, consistently applying prudent underwriting standards, ongoing monitoring efforts with attention to portfolio dynamics and mix, and procedures that are consistently applied and updated on an annual basis. Riverview conducts a semi-annual independent review of the loan portfolio to provide continual assessment of asset quality through an evaluation of the established underwriting criteria used in originating credits. Separately, every loan and loan turndown undergoes an internal audit review for conformity to established policies and a review for compliance with current regulatory lending laws. Riverview has not lessened its loan originating criteria during this time, and management believes the standards remain conservative, compared to its peer group.
29
Other than as described herein, management does not believe there are any trends, events, or uncertainties that are reasonably expected to have a materially adverse impact on future results of operations, liquidity, or capital resources.
Table 5 presents the composition of the total loan portfolio for the periods presented:
TABLE 5
TOTAL LOANS OUTSTANDING
|
|
December 31, |
|
|||||||||||||||||||||||
(Dollars in thousands) |
|
2008 |
|
% of
|
|
2007 |
|
% of
|
|
2006 |
|
% of
|
|
2005 |
|
% of
|
|
2004 |
|
% of
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial, financial, agricultural |
|
$ |
12,967 |
|
7.3 |
% |
$ |
8,845 |
|
10.5 |
% |
$ |
5,722 |
|
7.4 |
% |
$ |
6,822 |
|
9.9 |
% |
$ |
7,175 |
|
12.0 |
% |
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction |
|
18,173 |
|
10.2 |
% |
9,059 |
|
10.8 |
% |
3,936 |
|
5.1 |
% |
1,411 |
|
2.0 |
% |
2,590 |
|
4.4 |
% |
|||||
Mortgage |
|
94,322 |
|
52.8 |
% |
47,324 |
|
56.3 |
% |
47,082 |
|
60.6 |
% |
43,741 |
|
63.2 |
% |
37,511 |
|
63.0 |
% |
|||||
Commercial |
|
48,773 |
|
27.3 |
% |
15,352 |
|
18.2 |
% |
16,061 |
|
20.7 |
% |
12,213 |
|
17.7 |
% |
8,261 |
|
13.9 |
% |
|||||
Consumer installment |
|
4,210 |
|
2.4 |
% |
3,558 |
|
4.2 |
% |
4,795 |
|
6.2 |
% |
4,983 |
|
7.2 |
% |
3,995 |
|
6.7 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total loans |
|
178,445 |
|
100.0 |
% |
84,138 |
|
100.0 |
% |
77,596 |
|
100.0 |
% |
69,170 |
|
100.0 |
% |
59,532 |
|
100.0 |
% |
|||||
Deferred loan fees |
|
(266 |
) |
|
|
(234 |
) |
|
|
(248 |
) |
|
|
(236 |
) |
|
|
(191 |
) |
|
|
|||||
Total loans, net of fees |
|
178,179 |
|
|
|
83,904 |
|
|
|
77,348 |
|
|
|
68,934 |
|
|
|
59,341 |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for loan losses |
|
(1,710 |
) |
|
|
(970 |
) |
|
|
(867 |
) |
|
|
(591 |
) |
|
|
(466 |
) |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total loans, net |
|
$ |
176,469 |
|
|
|
$ |
82,934 |
|
|
|
$ |
76,481 |
|
|
|
$ |
68,343 |
|
|
|
$ |
58,875 |
|
|
|
Table 6 summarizes the loan maturities and interest sensitivity for a segment of the loan portfolio.
TABLE 6
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
COMMERCIAL AND CONSTRUCTION LOANS
December 31, 2008
(In thousands) |
|
Due Within
|
|
Due 1 - 5
|
|
Due Over 5
|
|
Total |
|
||||
Commercial, financial, agricultural |
|
$ |
5,337 |
|
$ |
4,779 |
|
$ |
2,851 |
|
$ |
12,967 |
|
Real estate, construction |
|
13,232 |
|
3,238 |
|
1,703 |
|
18,173 |
|
||||
Total |
|
$ |
18,569 |
|
$ |
8,017 |
|
$ |
4,554 |
|
$ |
31,140 |
|
|
|
|
|
|
|
|
|
|
|
||||
By interest rate structure: |
|
|
|
|
|
|
|
|
|
||||
Fixed rate |
|
7,683 |
|
5,649 |
|
4,157 |
|
17,489 |
|
||||
Variable rate |
|
10,886 |
|
2,368 |
|
397 |
|
13,651 |
|
||||
Total |
|
$ |
18,569 |
|
$ |
8,017 |
|
$ |
4,554 |
|
$ |
31,140 |
|
Credit Risk and Loan Quality
Riverview strives to proactively monitor credit risk and exposure to ensure and protect the high quality of its loan portfolio. Credit policy requires underwriting, loan documentation and credit analysis standards be met prior to the approval and funding of any loan. These practices have contributed to the strength and credit quality of the Riverviews loan portfolio and have protected the portfolio during economic periods of uncertainty.
Total nonperforming loans (comprised of non-accruing loans and loans past due for more than 90 days) as of December 31, 2008, decreased $862,000, to $280,000 as compared to $1,142,000 as of December 31, 2007, despite the consolidation of HNBs nonperforming assets into the amounts presented in 2008. The ultimate resolution and payoff of a significant amount of loans on non-accrual status has resulted in total non-performing
30
loans. Total nonperforming loans as a percentage of total loans were 0.16% at December 31, 2008 as compared to 1.36% at December 31, 2007. To minimize losses that may occur on non-accrual and delinquent loans, loan officers work with borrowers on an ongoing basis. Based on the repayment plan and collateral protection afforded these loans, management does not expect a materially adverse impact to the allowance for loan losses.
Riverview had $144,000 in foreclosed real estate acquired through foreclosure as of December 31, 2008 as compared with $327,000 as of December 31, 2007.
Loan concentrations are considered to exist when the total amount of loans to any one or a multiple number of borrowers engaged in similar activities or have similar economic characteristics, exceed 10% of loans outstanding in any one category. At December 31, 2008, loans to lessors of residential buildings and dwellings amounted to $18,068,000, or 10.2% of total loans as compared with $6,107,000 as of December 31, 2007. The increase in 2008 was attributable to the acquisition of $10,247,000 of loans in this category as a result of the consolidation with HNB. The balance of the remaining increase in this category year over year, which amounted to $1,714,000, was the result of generic growth. Although such loans were not made to any one particular borrower or industry, it is important to note that the quality of these loans could be affected by the regions economy and overall real estate market. Management does not believe such a concentration is an adverse trend to Riverview at this time.
Riverviews lending policy is executed through the assignment of tiered loan limit authorities to individual officers of Riverview and the Board of Directors. Although Riverview maintains sound credit policies, certain loans may deteriorate for a variety of reasons. Riverviews policy is to place all loans in a non-accrual status upon becoming 90 days delinquent in their payments, unless there is a documented, reasonable expectation of the collection of the delinquent amount. Loans are reviewed bi-monthly as to their status. Management is not aware of any materially potential loan problems that have not been disclosed in this report.
As a result of worsening local and national economic conditions and the softness in real estate in the market served by Riverview, management continues to be attentive to potential deterioration in credit quality due to economic pressures. Although management is proactive in identifying and dealing with credit issues that it can control, it anticipates that going forward, additional provisions to its loan loss allowance may be warranted as a result of those economic factors it cannot control.
31
Table 7 presents detailed information about Riverviews nonperforming loans and nonperforming assets for the periods presented.
TABLE 7
RISK ELEMENTS AND ASSET QUALITY RATIO
|
|
December 31, |
|
|||||||||||||
(Dollars in thousands) |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-accruing loans |
|
$ |
128 |
|
$ |
210 |
|
$ |
765 |
|
$ |
25 |
|
$ |
78 |
|
Accruing loans past due 90 days or more |
|
152 |
|
932 |
|
515 |
|
68 |
|
22 |
|
|||||
Total nonperforming loans |
|
280 |
|
1,142 |
|
1,280 |
|
93 |
|
100 |
|
|||||
Restructured loans |
|
|
|
|
|
|
|
|
|
|
|
|||||
Foreclosed real estate |
|
144 |
|
327 |
|
|
|
|
|
|
|
|||||
Total nonperforming assets |
|
$ |
424 |
|
$ |
1,469 |
|
1,280 |
|
$ |
93 |
|
100 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income that would have been recorded on non-accruing loans |
|
$ |
10 |
|
$ |
64 |
|
$ |
55 |
|
$ |
3 |
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income for above loans included in net income for the period |
|
$ |
8 |
|
$ |
51 |
|
$ |
34 |
|
$ |
1 |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Nonperforming loans to total loans |
|
0.16 |
% |
1.38 |
% |
1.67 |
% |
0.14 |
% |
0.17 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for loan losses to nonperforming loans |
|
610.71 |
% |
84.94 |
% |
67.73 |
% |
635.48 |
% |
466.00 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nonperforming assets to total assets |
|
0.18 |
% |
1.20 |
% |
1.12 |
% |
0.09 |
% |
0.09 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commitments to lend additional funds to nonperforming loan customers |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
Allowance for Loan Losses
The allowance for loan losses is a reserve established in the form of a provision expense for loan losses and is reduced by loan charge-offs net of recoveries. When loans are deemed to be uncollectible, they are charged off. Management has established a reserve that it believes is adequate for estimated losses in the loan portfolio. In conjunction with an external loan review function that operates independent of the lending function, management monitors the loan portfolio to identify risks on a timely basis so that an appropriate allowance is maintained. Based on an evaluation of the loan portfolio, management presents a quarterly review of the allowance for loan losses to the Banks audit committee detailing significant events that have occurred since the last review.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are
32
also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that Riverview will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, Riverview does not separately identify individual consumer and residential loans for impairment disclosures, unless the loans are the subject of a restructuring agreement.
33
The following Table 8 sets forth information as to the analysis of the allowance for loan losses and the allocation of the loan losses as of the dates indicated:
TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
|
|
December 31, |
|
|||||||||||||
(Dollars in thousands) |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance, beginning of year |
|
$ |
970 |
|
$ |
867 |
|
$ |
591 |
|
$ |
466 |
|
$ |
477 |
|
Provision for loan losses |
|
380 |
|
120 |
|
295 |
|
150 |
|
25 |
|
|||||
Allowance acquired from HNB |
|
496 |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans charged off: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial, financial, agricultural |
|
32 |
|
|
|
|
|
|
|
|
|
|||||
Real estate mortgage |
|
125 |
|
14 |
|
|
|
|
|
14 |
|
|||||
Installment |
|
2 |
|
15 |
|
26 |
|
26 |
|
22 |
|
|||||
Total charged-off |
|
159 |
|
29 |
|
26 |
|
26 |
|
36 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loan recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate mortgage |
|
23 |
|
4 |
|
2 |
|
|
|
|
|
|||||
Installment |
|
|
|
8 |
|
5 |
|
1 |
|
|
|
|||||
Total recoveries |
|
23 |
|
12 |
|
7 |
|
1 |
|
|
|
|||||
Net loans charged off |
|
136 |
|
17 |
|
19 |
|
25 |
|
36 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance, end of year |
|
$ |
1,710 |
|
$ |
970 |
|
$ |
867 |
|
$ |
591 |
|
$ |
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net charge-offs to average loans |
|
0.14 |
% |
0.02 |
% |
0.03 |
% |
0.04 |
% |
0.06 |
% |
|||||
Allowance for loan losses to total loans |
|
0.96 |
% |
1.16 |
% |
1.12 |
% |
0.86 |
% |
0.79 |
% |
For the year ended December 31, 2008, Riverview experienced an increase in loan charge-offs related to its established product lines due to changes in the financial condition of one borrower, in particular, and evaluations associated with other loans that the Bank foreclosed on. Management continues to assess the effects of potential declines in the local economy and the local real estate values when determining specific allocations related to loans rated substandard and below.
The following Table 9 details the allocation of the allowance for loan losses to the various loan categories at December 31, 2008, 2007, 2006, 2005 and 2004. The allocation is made for analytical purposes and is not necessarily indicative of the loan categories in which future credit losses may occur. The total allowance is available to absorb losses from any segment of loans.
TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|||||||||||||||
(Dollars in thousands) |
|
Amount |
|
% Gross
|
|
Amount |
|
% Gross
|
|
Amount |
|
% Gross
|
|
Amount |
|
% Gross
|
|
Amount |
|
% Gross
|
|
|||||
Commercial, financial and agricultural |
|
$ |
124 |
|
7.3 |
% |
$ |
165 |
|
10.5 |
% |
$ |
114 |
|
7.4 |
% |
$ |
139 |
|
9.9 |
% |
$ |
5 |
|
12.1 |
% |
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Construction |
|
77 |
|
10.2 |
% |
47 |
|
10.8 |
% |
50 |
|
5.0 |
% |
2 |
|
2.0 |
% |
1 |
|
4.3 |
% |
|||||
Mortgage |
|
403 |
|
52.8 |
% |
419 |
|
56.2 |
% |
427 |
|
60.7 |
% |
82 |
|
63.2 |
% |
23 |
|
63.0 |
% |
|||||
Commercial |
|
928 |
|
27.3 |
% |
216 |
|
18.3 |
% |
226 |
|
20.7 |
% |
359 |
|
17.7 |
% |
418 |
|
13.9 |
% |
|||||
Consumer loans |
|
116 |
|
2.4 |
% |
43 |
|
4.2 |
% |
36 |
|
6.2 |
% |
9 |
|
7.2 |
% |
6 |
|
6.7 |
% |
|||||
Unallocated |
|
62 |
|
n/a |
|
80 |
|
n/a |
|
14 |
|
n/a |
|
|
|
n/a |
|
13 |
|
n/a |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
1,710 |
|
100.0 |
% |
$ |
970 |
|
100.0 |
% |
$ |
867 |
|
100.0 |
% |
$ |
591 |
|
100.0 |
% |
$ |
466 |
|
100.0 |
% |
34
A greater percentage of the allocation of the allowance for loan losses shifted towards commercial real estate loans at December 31, 2008 versus December 31, 2007, which is consistent with the growth in this portfolio combined with weakening economic factors. With the inherently higher level of credit risk associated with commercial borrowings in general, the allocation to the allowance for loan losses for 2008 was appropriated to address the risk associated with this particular type of borrowing. However, consideration was also given to the consistent credit quality of the portfolio, which remained high as evidenced by the asset quality ratios. The unallocated portion of the reserve considers risk of error in the specific and general reserve allocation, and the imprecision associated with the estimate.
While mortgage loans increased 99.3% to $94,322,000 at December 31, 2008 from $47,324,000 at December 31, 2007 as a result of the HNB consolidation, there was a decline in the percentage of the allowance dedicated to mortgage loans. This was due to the fact the Bank has not experienced deterioration in the credit quality of its mortgage portfolio.
Management currently believes the allowance for loan losses at December 31, 2008 and 2007 is adequate to absorb losses inherent in the loan portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary, and the results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that material increases will not be necessary should the quality of the loans deteriorate as a result of factors discussed above.
Deposits
Riverview generates and services deposits through the Banks traditional branch banking delivery system. Deposits are Riverviews major source of funds available for lending and other investment purposes. Total deposits at December 31, 2008, were $174,353,000, an increase of $79,881,000, or 84.6%, over total deposits of $94,472,000 as of December 31, 2007. This increase was due to $73,706,000 in deposits acquired as part of the HNB consolidation and organic growth of $6,175,000. The trend during 2008 portrayed modest organic deposit growth of 6.5%. While non-interest bearing demand deposits and time deposits respectively increased 57.5% and 14.0% in 2008, interest bearing demand deposits decreased 25.2% with a drop of 25.2% in savings and money market accounts. The organic growth in deposits was attributable to the opening of two new branch offices.
Table 10 sets forth the average balance of the Banks deposits and the average rates paid on those deposits for the years ended December 31, 2008, 2007 and 2006. All deposits are domestic deposits.
TABLE 10
AVERAGE DEPOSITS BY MAJOR CLASSIFICATION
|
|
December 31, |
|
|||||||||||||
|
|
2008 |
|
2007 |
|
2006 |
|
|||||||||
(Dollars in thousands) |
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|
|||
Non-interest bearing demand |
|
$ |
9,684 |
|
0.00 |
% |
$ |
8,279 |
|
0.00 |
% |
$ |
7,974 |
|
0.00 |
% |
Interest-bearing demand |
|
17,020 |
|
1.27 |
% |
16,759 |
|
2.60 |
% |
13,527 |
|
1.87 |
% |
|||
Savings |
|
15,067 |
|
0.91 |
% |
15,617 |
|
1.30 |
% |
15,032 |
|
0.83 |
% |
|||
Time |
|
51,059 |
|
3.80 |
% |
50,989 |
|
4.12 |
% |
50,635 |
|
3.84 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total deposits |
|
$ |
92,830 |
|
|
|
$ |
91,644 |
|
|
|
$ |
87,168 |
|
|
|
35
Table 11 displays the remaining maturities and amounts of time certificates issued in denominations of $100,000 or more at December 31, 2008.
TABLE 11
DEPOSIT MATURITIES
(In thousands) |
|
Time
|
|
|
|
|
|
|
|
Three months or less |
|
$ |
5,009 |
|
Over three months but within six months |
|
3,677 |
|
|
Over six months but within twelve months |
|
8,730 |
|
|
Over twelve months |
|
13,640 |
|
|
Total |
|
$ |
31,056 |
|
Short-term borrowings are generally used to meet temporary funding needs and consist of federal funds purchased, securities sold under agreements to repurchase, and overnight and short-term borrowings from the Federal Home Loan Bank of Pittsburgh. Short-term borrowings increased $20,058,000 to $21,323,000 at December 31, 2008 as compared with $1,265,000 as of December 31, 2007. This increase is due to short-term borrowings of $3,436,000 acquired as part of the consolidation of HNB with the excess of $16,622,000 representing additional borrowings that the Bank utilized during 2008 to take advantage of the low interest rates and to make up for the modest growth in deposits in order to fund loan demand.
Long-term borrowings are generally utilized as a resource to fund growth. This strategy has helped Riverview to manage its cost of funds. Long-term borrowings are also utilized as a tool to control interest rate positions within the overall asset-liability management function. All borrowings of this nature have been provided through the Federal Home Loan Bank of Pittsburgh. Long-term borrowings as of December 31, 2008 decreased $3,378,000 from the prior year end to $10,033,000 as compared to $13,411,000 as of December 31, 2007 as a result of a shift from borrowing on a long term basis to short-term in order to take advantage of lower interest rates. While Riverview acquired $2,533,000 in long-term borrowings as part of the HNB consolidation, it paid off $5,911,000 during 2008
Additional information relating borrowings can be found in Note 11 of the Notes to the Consolidated Financial Statements contained herein this Report.
Shareholders Equity and Capital Requirements/Ratios
The net result of activity that affected shareholders equity during the year resulted in an increase of $11,450,000 in total shareholders equity to $24,205,000, at December 31, 2008, from $12,755,000, at December 31, 2007. A summary of the transactions include:
· As of December 31, 2008, Riverview was formed upon the completion of the consolidation of First Perry and HNB. Each outstanding share of common stock of First Perry and HNB was converted into 2.435 and 2.520 shares of Riverviews common stock, respectively. Riverview issued 1,750,003 shares of common stock in exchange for HNB common stock thus resulting in additional capital of $11,316,000;
36
· Net income of $371,000 generated in 2008;
· An increase of $63,000 in the change of accumulated other comprehensive income associated with the net unrealized gains on securities available for sale;
· The payment of quarterly cash dividends to shareholders totaling $300,000 in 2008 reduced shareholders equity.
Riverview places significant emphasis on maintaining strong capital levels. The goals for capital planning are to build a strong capital base to fund future growth, to support risks inherent in the banking industry, to retain earnings to meet regulatory requirements and to provide an adequate return to shareholders.
Riverview meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve Boards Small Bank Holding Company Policy Statement. Accordingly, Riverview is exempt from regulatory requirements administered by the federal banking agencies. However, the Bank is subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board. Current capital guidelines issued by federal regulatory authorities require the Bank to meet minimum risk-based capital ratios in an effort to make regulatory capital more responsive to possible risk exposure related to a corporations on and off-balance sheet items.
Risk-based capital provides the basis for which all companies are evaluated in terms of capital adequacy. Risk-based capital guidelines redefine the components of capital and establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet items. The components of risk-based capital are segregated as Tier I and Tier II capital. Tier I capital is composed of total stockholders equity reduced by goodwill and other intangible assets. Tier II capital is comprised of the allowance for loan losses and any qualifying debt obligations. The minimum risk-based capital standards require all banks to have Tier I capital of at least 4% and total capital (which includes Tier I capital) of at least 8% of risk-weighted assets.
The Bank is also subject to leverage capital requirements. This requirement compares capital (using the definition of Tier I capital) to quarterly average balance sheet assets and is intended to supplement the risk-based capital ratio in measuring capital adequacy. The guidelines set a minimum leverage ratio of 3% for institutions that are highly rated in terms of safety and soundness, and which are not experiencing or anticipating any significant growth. Other institutions are expected to maintain capital levels of at least 1% or 2% above that minimum. As of December 31, 2008, the Bank had a Tier I leverage ratio of 9.50%.
37
Table 13 provides a comparison of the Banks risk-based capital ratios and leverage ratios at December 31, 2008 and 2007, including the consolidation of Halifax National Bank at December 31, 2008:
TABLE 13
CAPITAL RATIOS
|
|
December 31, |
|
||||
(Dollars in thousands) |
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Tier I capital |
|
$ |
21,732 |
|
$ |
12,528 |
|
Tier II, allowable portion of: |
|
|
|
|
|
||
Allowance for loan losses |
|
1,710 |
|
970 |
|
||
|
|
|
|
|
|
||
Total capital |
|
$ |
23,442 |
|
$ |
13,498 |
|
|
|
|
|
|
|
||
Tier I risk-based capital ratio |
|
14.3 |
% |
17.3 |
% |
||
|
|
|
|
|
|
||
Total risk-based capital ratio |
|
13.2 |
% |
16.1 |
% |
||
|
|
|
|
|
|
||
Tier I leverage ratio |
|
9.5 |
% |
10.4 |
% |
Note: |
Unrealized gains or losses on securities available for sale and goodwill and intangible assets are excluded from regulatory capital components of risk-based capital and leverage ratios. |
At December 31, 2008 and 2007, the Bank exceeded the minimum regulatory capital requirements and were considered to be well capitalized under applicable federal regulations.
The maintenance of a solid capital foundation continues to be a primary goal for Riverview. An objective of the capital planning process is to balance effectively the retention of capital to support future growth, while at the same time, providing shareholders with an attractive long-term return on their investment. Management believes that Riverviews capital position is adequate to support current operations and growth, and anticipates earnings to grow in tandem with asset growth. However, management is conscious of the impact that either rapid expansion or lower than projected earnings may potentially have on deteriorating Riverviews capital position. Management proactively monitors the capital levels to ensure that they remain well in line with regulatory requirements, and is ever positioned to enact appropriate measures to ensure the strength of Riverviews capital position. While Riverview continues to look for growth opportunities, there are no other known events, trends or circumstances that would adversely impact capital.
Off-Balance Sheet Arrangements
Riverviews financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and letters of credit made under the same standards as on-balance sheet instruments. Unused commitments at December 31, 2008, were $17,825,000. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to Riverview. Refer to Note 12 of the consolidated financial statements for a discussion of the nature, business purpose and importance of Riverviews off-balance sheet arrangements.
Management believes that any amounts actually drawn upon can be funded in the normal course of operations. Riverview has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources.
38
Liquidity
Liquidity refers to Riverviews ability to generate adequate amounts of cash to meet financial obligations to its customers in order to fund loans, to respond to deposit outflows and to cover operating expenses. Maintaining a level of liquid funds through asset/liability management seeks to ensure that these needs are met at a reasonable cost. Liquidity is essential to compensate for fluctuations in the balance sheet and provide funds for growth and normal operating expenditures. Sources of liquidity are provided on a continuous basis through scheduled and unscheduled principal reductions and interest payments on outstanding loans and investment securities. Liquidity needs may also be met by converting assets into cash or obtaining sources of additional funding, whether through deposit growth, securities sold under agreements to repurchase or borrowings under lines of credit with correspondent banks.
Liquidity from the asset category is provided through cash, amounts due from banks, interest-bearing deposits with banks and federal funds sold, which totaled $6,968,000 at December 31, 2008 as compared to $9,083,000 at December 31, 2007. While liquidity sources generated from assets include scheduled and prepayments of principal and interest from securities and loans in Riverviews portfolios, longer-term liquidity needs may be met by selling securities available for sale, selling loans or raising additional capital. At December 31, 2008, unpledged available for sale securities with a carrying value of $11,362,000 were readily available for liquidity purposes, as compared with $4,688,000 at December 31, 2007. The increase of $6,674,000 in unpledged available for sale securities was the result of the available for sale securities acquired as part of the HNB consolidation.
On the liability side, the primary source of funds available to meet liquidity needs is to attract deposits at competitive rates. The Banks core deposits, which exclude certificates of deposit over $100,000, were $143,279,000 at December 31, 2008 as compared to $78,883,000 at December 31, 2007. The increase in core deposits is primarily the result of deposits acquired as part of the HNB consolidation. Core deposits have historically provided a source of relatively stable and low cost liquidity, as has also been the case for securities sold under agreements to repurchase. Short-term and long-term borrowings utilizing the federal funds line and credit facility established with a correspondent financial institution and the FHLB, are also considered to be reliable sources for funding. As of December 31, 2008, Riverview has access to two formal borrowing lines totaling $57,562,000 with the aggregate amount outstanding on these lines totaling $30,796,000.
There are a number of factors that may impact Riverviews liquidity position. Changes in interest rates, local economic conditions and the competitive marketplace can influence prepayments on investment securities, loan fundings and payments, and deposit flows. Management is of the opinion that its liquidity position at December 31, 2008 is adequate to respond to fluctuations on and off the balance sheet since it manages liquidity on a daily basis and expects to have sufficient funds to meet all of its funding requirements.
Except as discussed above, there are no known demands, trends, commitments, events or uncertainties that may result in, or that are reasonably likely to result in Riverviews inability to meet anticipated or unexpected needs.
Effects of Inflation
The impact of inflation upon financial institutions can affect assets and liabilities through the movement of interest rates. The exact impact of inflation on Riverview is difficult to measure. Inflation may cause operating expenses to change at a rate not matched by the change in earnings. Inflation may affect the borrowing needs and desires of consumer and commercial customers, in turn affecting the growth of Riverviews assets. Inflation may also affect the level of interest rates in the general market, which in turn can affect Riverviews profitability and the market value of assets held. Riverview actively manages its interest rate sensitive assets and liabilities countering the effects of inflation.
39
The following table presents ratios as of the dates presented:
|
|
December 31, |
|
||||
|
|
2008 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
Return on assets |
|
0.29 |
% |
0.47 |
% |
0.42 |
% |
Return on equity |
|
2.90 |
% |
4.34 |
% |
3.94 |
% |
Dividend payout ratio |
|
79.49 |
% |
55.36 |
% |
63.27 |
% |
Equity to assets ratio |
|
9.91 |
% |
10.74 |
% |
10.73 |
% |
New Financial Accounting Standards
Note 1 to the consolidated financial statements discusses the expected impact on Riverviews financial condition and results of operations for recently issued or proposed accounting standards that have not been adopted. To the extent we anticipate a significant impact to Riverviews financial condition or results of operations, appropriate discussion takes place in the applicable note to the consolidated financial statements.
ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .
Not Applicable.
40
ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA .
TABLE OF CONTENTS
December 31, 2008 and 2007
|
Page |
|
|
42 |
|
|
|
Consolidated Financial Statements |
|
|
|
43 |
|
44 |
|
45 |
|
46 |
|
47 |
41
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Shareholders
Riverview Financial Corporation
Halifax, Pennsylvania
We have audited the accompanying consolidated balance sheets of Riverview Financial Corporation and subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the years then ended. Riverview Financial Corporations management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporations internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Riverview Financial Corporation and subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
|
/s/ Beard Miller Company LLP |
Beard Miller Company LLP
Harrisburg, Pennsylvania
April 7, 2009
42
December 31, 2008 and 2007
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands, except share data) |
|
||||
Assets |
|
|
|
|
|
||
Cash and due from banks |
|
$ |
4,545 |
|
$ |
2,600 |
|
Federal funds sold |
|
1,034 |
|
6,403 |
|
||
Interest bearing deposits |
|
439 |
|
80 |
|
||
Cash and Cash Equivalents |
|
6,018 |
|
9,083 |
|
||
|
|
|
|
|
|
||
Interest bearing time deposits with banks |
|
950 |
|
|
|
||
Investment securities available for sale |
|
28,120 |
|
20,290 |
|
||
Mortgage loans held for sale |
|
1,124 |
|
|
|
||
Loans, net of allowance for loan losses of $1,710 and $970 |
|
176,469 |
|
82,934 |
|
||
Premises and equipment |
|
7,472 |
|
5,041 |
|
||
Accrued interest receivable |
|
812 |
|
485 |
|
||
Restricted investments in bank stocks |
|
2,075 |
|
949 |
|
||
Cash value of life insurance |
|
5,258 |
|
2,875 |
|
||
Foreclosed assets |
|
144 |
|
327 |
|
||
Goodwill |
|
1,785 |
|
|
|
||
Intangible assets |
|
173 |
|
|
|
||
Other assets |
|
1,511 |
|
696 |
|
||
|
|
|
|
|
|
||
Total Assets |
|
$ |
231,911 |
|
$ |
122,680 |
|
Liabilities and Shareholders Equity |
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
||
Demand, non-interest bearing |
|
$ |
19,614 |
|
$ |
7,546 |
|
Demand, interest bearing |
|
25,789 |
|
21,870 |
|
||
Savings and money market |
|
27,877 |
|
15,751 |
|
||
Time |
|
101,073 |
|
49,305 |
|
||
|
|
|
|
|
|
||
Total Deposits |
|
174,353 |
|
94,472 |
|
||
|
|
|
|
|
|
||
Short-term borrowings |
|
21,323 |
|
1,265 |
|
||
Long-term borrowings |
|
10,033 |
|
13,411 |
|
||
Accrued interest payable |
|
499 |
|
319 |
|
||
Other liabilities |
|
1,498 |
|
458 |
|
||
|
|
|
|
|
|
||
Total Liabilities |
|
207,706 |
|
109,925 |
|
||
|
|
|
|
|
|
||
Shareholders Equity |
|
|
|
|
|
||
Common stock, par value $0.50 per share; authorized 5,000,000 shares; issued and outstanding 1,750,003 and 962,585 shares |
|
875 |
|
481 |
|
||
Surplus |
|
11,239 |
|
317 |
|
||
Retained earnings |
|
12,054 |
|
11,983 |
|
||
Accumulated other comprehensive income (loss) |
|
37 |
|
(26 |
) |
||
|
|
|
|
|
|
||
Total Shareholders Equity |
|
24,205 |
|
12,755 |
|
||
|
|
|
|
|
|
||
Total Liabilities and Shareholders Equity |
|
$ |
231,911 |
|
$ |
122,680 |
|
See notes to consolidated financial statements.
43
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2008 and 2007
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands, except per share data) |
|
||||
Interest and Dividend Income |
|
|
|
|
|
||
Loans, including fees |
|
$ |
6,406 |
|
$ |
5,431 |
|
Investment securities - taxable |
|
558 |
|
617 |
|
||
Investment securities - tax exempt |
|
137 |
|
228 |
|
||
Federal funds sold |
|
28 |
|
125 |
|
||
Interest-bearing deposits |
|
3 |
|
14 |
|
||
Dividends |
|
38 |
|
47 |
|
||
|
|
|
|
|
|
||
Total Interest Income |
|
7,170 |
|
6,462 |
|
||
|
|
|
|
|
|
||
Interest Expense |
|
|
|
|
|
||
Deposits |
|
2,295 |
|
2,742 |
|
||
Short-term borrowings |
|
152 |
|
190 |
|
||
Long-term debt |
|
597 |
|
326 |
|
||
|
|
|
|
|
|
||
Total Interest Expense |
|
3,044 |
|
3,258 |
|
||
|
|
|
|
|
|
||
Net Interest Income |
|
4,126 |
|
3,204 |
|
||
|
|
|
|
|
|
||
Provision for Loan Losses |
|
380 |
|
120 |
|
||
|
|
|
|
|
|
||
Net Interest Income after Provision for Loan Losses |
|
3,746 |
|
3,084 |
|
||
|
|
|
|
|
|
||
Noninterest Income |
|
|
|
|
|
||
Service charges on deposit accounts |
|
156 |
|
120 |
|
||
Other service charges and fees |
|
220 |
|
235 |
|
||
Earnings on cash value of life insurance |
|
100 |
|
96 |
|
||
Gain on sale of available for sale securities |
|
40 |
|
|
|
||
Gain on sale of mortgage loans |
|
50 |
|
|
|
||
|
|
|
|
|
|
||
Total Noninterest Income |
|
566 |
|
451 |
|
||
|
|
|
|
|
|
||
Noninterest Expenses |
|
|
|
|
|
||
Salaries and employee benefits |
|
2,205 |
|
1,641 |
|
||
Occupancy expenses |
|
449 |
|
365 |
|
||
Equipment expenses |
|
213 |
|
177 |
|
||
Telecommunication and processing charges |
|
183 |
|
205 |
|
||
Postage and office supplies |
|
94 |
|
83 |
|
||
Bank shares tax expense (credit) |
|
104 |
|
(83 |
) |
||
Directors compensation |
|
105 |
|
106 |
|
||
Professional services |
|
138 |
|
61 |
|
||
Other expenses |
|
492 |
|
365 |
|
||
|
|
|
|
|
|
||
Total Noninterest Expenses |
|
3,983 |
|
2,920 |
|
||
|
|
|
|
|
|
||
Income before Income Taxes (Benefit) |
|
329 |
|
615 |
|
||
|
|
|
|
|
|
||
Applicable Federal Income Taxes (Benefit) |
|
(42 |
) |
80 |
|
||
|
|
|
|
|
|
||
Net Income |
|
$ |
371 |
|
$ |
535 |
|
|
|
|
|
|
|
||
Earnings Per Share - Basic |
|
$ |
0.39 |
|
$ |
0.56 |
|
See notes to consolidated financial statements.
44
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2008 and 2007
(In thousands, except per share data) |
|
Common
|
|
Surplus |
|
Retained
|
|
Accumulated
|
|
Total
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance - January 1, 2007 |
|
$ |
481 |
|
$ |
317 |
|
$ |
11,748 |
|
$ |
(166 |
) |
$ |
12,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
|
|
|
|
535 |
|
|
|
535 |
|
|||||
Other comprehensive income |
|
|
|
|
|
|
|
140 |
|
140 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
675 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash dividends, $0.31 per share |
|
|
|
|
|
(300 |
) |
|
|
(300 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance - December 31, 2007 |
|
481 |
|
317 |
|
11,983 |
|
(26 |
) |
12,755 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
|
|
|
|
371 |
|
|
|
371 |
|
|||||
Other comprehensive income |
|
|
|
|
|
|
|
63 |
|
63 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
434 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Issuance of common stock in exchange for HNB Bancorp, Inc. common stock |
|
394 |
|
10,922 |
|
|
|
|
|
11,316 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash dividends, $0.31 per share |
|
|
|
|
|
(300 |
) |
|
|
(300 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance - December 31, 2008 |
|
$ |
875 |
|
$ |
11,239 |
|
$ |
12,054 |
|
$ |
37 |
|
$ |
24,205 |
|
See notes to consolidated financial statements.
45
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2008 and 2007
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
Cash Flows from Operating Activities |
|
|
|
|
|
||
Net income |
|
$ |
371 |
|
$ |
535 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
Depreciation |
|
332 |
|
284 |
|
||
Provision for loan losses |
|
380 |
|
120 |
|
||
Net amortization of premiums on securities available for sale |
|
48 |
|
32 |
|
||
Net realized gain on sale of securities available for sale |
|
(40 |
) |
|
|
||
Deferred income taxes |
|
(147 |
) |
(11 |
) |
||
Proceeds from sale of mortgage loans |
|
3,715 |
|
|
|
||
Net gain on sale of mortgage loans |
|
(50 |
) |
|
|
||
Mortgage loans originated for sale |
|
(4,789 |
) |
|
|
||
Earnings on cash value of life insurance |
|
(100 |
) |
(96 |
) |
||
Increase in accrued interest receivable and other assets |
|
(458 |
) |
(324 |
) |
||
Increase in accrued interest payable and other liabilities |
|
330 |
|
82 |
|
||
|
|
|
|
|
|
||
Net Cash Provided by (Used in) Operating Activities |
|
(408 |
) |
622 |
|
||
|
|
|
|
|
|
||
Cash Flows from Investing Activities |
|
|
|
|
|
||
Securities available for sale: |
|
|
|
|
|
||
Proceeds from maturities, calls and principal repayments |
|
8,651 |
|
8,592 |
|
||
Proceeds from sales |
|
2,731 |
|
|
|
||
Purchases |
|
(6,001 |
) |
(4,070 |
) |
||
Net increase in restricted stock |
|
(566 |
) |
(24 |
) |
||
Net increase in loans |
|
(26,976 |
) |
(6,900 |
) |
||
Net cash acquired in business combination |
|
2,870 |
|
|
|
||
Purchases of premises and equipment |
|
(279 |
) |
(896 |
) |
||
Proceeds from sale of foreclosed assets |
|
327 |
|
|
|
||
|
|
|
|
|
|
||
Net Cash Used in Investing Activities |
|
(19,243 |
) |
(3,298 |
) |
||
|
|
|
|
|
|
||
Cash Flows from Financing Activities |
|
|
|
|
|
||
Net increase in deposits |
|
6,175 |
|
5,909 |
|
||
Net increase (decrease) in short-term borrowings |
|
16,622 |
|
(5,544 |
) |
||
Proceeds from long-term borrowings |
|
2,500 |
|
12,000 |
|
||
Payments on long-term borrowings |
|
(8,411 |
) |
(4,048 |
) |
||
Dividends paid |
|
(300 |
) |
(300 |
) |
||
|
|
|
|
|
|
||
Net Cash Provided by Financing Activities |
|
16,586 |
|
8,017 |
|
||
|
|
|
|
|
|
||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
(3,065 |
) |
5,341 |
|
||
|
|
|
|
|
|
||
Cash and Cash Equivalents - Beginning |
|
9,083 |
|
3,742 |
|
||
|
|
|
|
|
|
||
Cash and Cash Equivalents - Ending |
|
$ |
6,018 |
|
$ |
9,083 |
|
|
|
|
|
|
|
||
Supplementary Cash Flows Information |
|
|
|
|
|
||
|
|
|
|
|
|
||
Interest paid |
|
$ |
3,067 |
|
$ |
3,226 |
|
|
|
|
|
|
|
||
Income taxes paid |
|
$ |
58 |
|
$ |
113 |
|
|
|
|
|
|
|
||
Transfer of loans to foreclosed assets |
|
$ |
144 |
|
$ |
327 |
|
See notes to consolidated financial statements .
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2007
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
On December 31, 2008, Riverview Financial Corporation (the Corporation) was formed and effected the consolidation of First Perry Bancorp (First Perry), Inc. and its wholly-owned subsidiary, The First National Bank of Marysville, and HNB Bancorp (HNB), Inc. and its wholly owned subsidiary, Halifax National Bank. Immediately thereafter, The First National Bank of Marysville and Halifax National Bank were consolidated with and into Riverview National Bank (the Bank), the wholly owned subsidiary of the Corporation. The current branches of The First National Bank of Marysville and Halifax National Bank continue to operate under their current names as divisions of the Bank.
The Corporation and its wholly-owned bank subsidiary provide loan, deposit and other commercial banking services through four full service offices in Marysville, Duncannon and Enola, Perry County, Pennsylvania, one full service office in Hampden Township, Cumberland County, Pennsylvania and three full service and one drive-up office in Halifax, Millersburg and Elizabethville, Dauphin County, Pennsylvania. The Corporation competes with several other financial institutions to provide its services to individuals, businesses, municipalities and other organizations. The Corporation is subject to regulation and supervision by the Federal Reserve Board while the Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The accounting and reporting policies followed by the Corporation conform to generally accepted accounting principles and to general practices within the banking industry. The following paragraphs briefly describe the more significant accounting policies.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Riverview Financial Corporation and its wholly-owned subsidiary, Riverview National Bank. The Corporation was formed in 2008 and became operational upon its acquisition of First Perry, pursuant to an Agreement and Plan of Consolidation that was consummated on December 31, 2008. The combined financial information reflects the impact of the consolidation of First Perrys and HNBs combined financial condition under the purchase method of accounting with First Perry treated as the acquirer from an accounting standpoint. Under this method of accounting, Riverview was formed and treated as a recapitalization of First Perry, with First Perrys assets and liabilities recorded at their historical values, and HNBs at their fair values on the date the consolidation was completed. The financial information relating to the periods prior to December 31, 2008 of First Perry, the acquirer, are reported under the name of Riverview Financial Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
47
Note 1 - Summary of Significant Accounting Policies (Continued)
assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the potential impairment of goodwill and restricted stock, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities and the valuation of real estate acquired by foreclosure or in satisfaction of loans. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans and foreclosed real estate, management obtains independent appraisals for significant collateral.
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Cash and Cash Equivalents
Cash and cash equivalents, for purposes of the statement of cash flows, consists of cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Generally, federal funds are purchased and sold for one day periods.
Investment Securities
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates the classifications as of each balance sheet date.
Investment securities available for sale are those securities that the Corporation intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including movements in interest rates, changes in the maturity mix of the Corporations assets and liabilities, liquidity needs, regulatory considerations and other similar factors. Investment securities available for sale are carried at fair value. Unrealized gains or losses are reported as changes in other comprehensive income, net of the related deferred tax effect. Any realized gains or losses, based on the amortized cost of specific securities sold, are included in current operations. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
Declines in the fair value of individual securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and
48
Note 1 - Summary of Significant Accounting Policies (Continued)
ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Mortgage Loans Held for Sale
Mortgage loans originated and held for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. During 2008, the Bank entered into an agreement with the Federal Home Loan Bank of Pittsburgh (FHLB) to sell loans with servicing released, under the FHLB Mortgage Partnership Finance (MPF) program. Premiums and discounts and origination fees and costs, on loans held for sale are deferred and recognized as a component of the gain or loss on sale. Loan sales under the MPF program have been made on a recourse basis. Recourse obligations, if any, are determined based upon an estimate of probable credit losses over the term of the loan, and are not material to the consolidated financial statements.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at unpaid principal balances net of unearned income, deferred loan fees, and the allowance for loan losses. Interest is computed based on the principal balances outstanding and is credited to income as earned. Loan fees collected net of the costs of originating the loans are deferred and recognized as an adjustment of the yield over the contractual life of the related loan.
The accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to managements judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Purchased loans with evidence of credit quality deterioration for which it is probable at purchase that all contractually required payments will not be collected are accounted for under AICPA Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired at Transfer . SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 requires impaired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for loans acquired in a transfer, including loans acquired in a purchase business combination. Under SOP 03-3, the excess of cash flows expected at purchase over the purchase price is recognized as interest income over the life of the loans. Subsequent increases in cash flows expected to be collected are recognized prospectively through an adjustment of the loans yield over its remaining life. Decreases in expected cash flows are recognized as impairments.
49
Note 1 - Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method for financial reporting and the straight-line and accelerated methods for income tax purposes. When property is retired or disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or
50
Note 1 - Summary of Significant Accounting Policies (Continued)
loss is reflected in operations. Major additions or replacements are capitalized, while repairs and maintenance are charged to expense as incurred.
Accrued Interest
Accrued interest is interest that has accumulated over a period of time and has been recognized even though the obligation to receive or pay has not occurred. Accrued interest can either be income, such as the receipt of interest from loans or securities, or it can be an expense, such as the payment of interest on deposits and borrowings.
Restricted Investments in Bank Stocks
Restricted stock, which represents required investments in the common stock of correspondent banks, is carried at cost and as of December 31, 2008 and 2007, consists of the common stock of the Federal Reserve Bank, Federal Home Loan Bank of Pittsburgh (FHLB) and Atlantic Central Bankers Bank. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock.
Management evaluates the restricted stock for impairment in accordance with Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others . Managements determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.
Management believes no impairment charge is necessary related to the restricted stock as of December 31, 2008.
Transfers of Financial Assets
Transfers of financial assets, including loans and loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Cash Value of Life Insurance
The Corporation invests in bank owned life insurance (BOLI) as a source of funding employee benefit expenses. BOLI involves the purchase of life insurance by the Corporation on a chosen group of directors and executive officers. The Corporation is the owner and beneficiary of the policies. The life insurance investment is carried at the cash surrender value of the underlying policies. These amounts are immediately available to the Corporation upon surrender of the
51
Note 1 - Summary of Significant Accounting Policies (Continued)
policies. Income generated from the increase in the cash surrender value of the policies is included in other income on the income statement.
Foreclosed Assets
Real estate and other foreclosed assets acquired in settlement of loans are carried at fair value of the property at the date of acquisition. Subsequent to acquisition, foreclosed assets are carried at the lower of cost or estimated fair value of the property less selling costs. Any write-down, at or prior to the dates the assets are foreclosed on, is charged to the allowance for loan losses. Subsequent write-downs and expenses incurred in connection with holding such assets are reported in other expenses. Any gains or losses resulting from the sale of foreclosed assets are recorded in other income.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the tangible and identifiable intangible assets acquired. As a result of the adoption of Statement No. 142, Goodwill and Other Intangible Assets , business acquisition goodwill is no longer amortized into the income statement over an estimated life, but rather is tested at least annually for impairment.
Intangible Assets
Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. The Corporations intangible assets consist of a core deposit intangible, which has a finite life and is amortized over its estimated useful life. Intangible assets are also subject to impairment testing when an indication of impairment exists.
Federal Income Taxes
The provision for income taxes is based on income as reported in the financial statements. Certain items of income and expense are recognized in different periods for financial reporting purposes than for federal income tax purposes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between book and tax basis of the various balance sheet assets and liabilities given current recognition to changes in tax rates and laws. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for applicable income taxes.
On January 1, 2008, the Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. The adoption of FIN 48 did not have an impact on the Corporations financial statements. The Corporations policy is to recognize interest and penalties on unrecognized tax benefits, if any, in the income tax expense in the consolidated statements of income. The tax years subject to examination by the taxing authorities are the tax years ended December 2008, 2007, 2006 and 2005.
52
Note 1 - Summary of Significant Accounting Policies (Continued)
Advertising
Advertising costs are expensed as incurred and totaled $29,000 and $36,000 for the years ending December 31, 2008 and 2007, respectively.
Earnings and Dividends Per Share
Earnings per share are computed based upon the weighted average number of shares outstanding during each year. Weighted average shares outstanding were 962,585 in 2008 and in 2007. The Corporation has a simple capital structure in that they do not have any common stock equivalents. Earnings and dividends per share have been adjusted to reflect the additional shares exchanged to First Perry shareholders upon the formation of the Corporation.
Off Balance Sheet Financial Instruments
In the ordinary course of business, the Corporation has entered into off balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.
Segment Reporting
The Corporation operates in a single business segment consisting of traditional banking activities.
Comprehensive Income
Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains, and losses be included in net income. Changes in certain assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. Accumulated other comprehensive income (loss), which represents a component of shareholders equity, represents the net unrealized gain (loss) on securities available for sale, net of taxes.
The components of other comprehensive income and related tax effects for the years ended December 31, 2008 and 2007 are as follows:
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
||||
Unrealized holding gains on available for sale securities |
|
$ |
135 |
|
$ |
212 |
|
Less reclassification adjustment for gains realized in net income |
|
(40 |
) |
|
|
||
|
|
|
|
|
|
||
Net Unrealized Gains |
|
95 |
|
212 |
|
||
|
|
|
|
|
|
||
Tax effect |
|
32 |
|
72 |
|
||
|
|
|
|
|
|
||
Net of Tax Amount |
|
$ |
63 |
|
$ |
140 |
|
Reclassifications
For purposes of comparability, certain prior period amounts have been reclassified to conform with the 2008 presentation. Such reclassifications had no impact on net income.
53
Note 1 - Summary of Significant Accounting Policies (Continued)
New Accounting Standards
FASB Statement No. 141(R) Business Combinations was issued in December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The new pronouncement will impact the Corporations accounting for business combinations consummated after January 1, 2009.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 was effective for the Corporation on January 1, 2008. The Corporation has not elected to measure any financial instruments at fair value under this standard.
In September 2006, the FASBs Emerging Issues Task Force (EITF) issued EITF Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4). EITF 06-4 requires the recognition of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employees benefit during his or her retirement, then the liability recognized during the employees active service period should be based on the future cost of insurance to be incurred during the employees retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as appropriate. For transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented or (b) a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The adoption of EITF 06-04 on January 1, 2008 had no an impact on the Corporations consolidated financial condition or results of operations.
In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment of Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets , to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities , and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The
54
Note 1 - Summary of Significant Accounting Policies (Continued)
New Accounting Standards (Continued)
Adoption of FSP EITF 99-20-1 had no impact on the Corporations consolidated financial condition or results of operations.
Note 2 Business Combinations
Effective December 31, 2008, the Corporation completed its consolidation of First Perry and HNB in accordance with the Agreement and Plan of Consolidation dated June 18, 2008. As part of the transaction, The First National Bank of Marysville, the wholly-owned subsidiary of First Perry, and Halifax National Bank, the wholly owned subsidiary of HNB, consolidated with and into Riverview National Bank, the wholly owned subsidiary of the Corporation. The primary reason for the combination was to pool resources to provide greater products and services to customers in the contiguous counties, and provide cost savings through the consolidation of operations.
In the consolidation, the Corporation issued 1,750,003 shares of common stock with a par value of $0.50 per share. The shareholders of First Perry received 2.435 shares of the Corporations common stock for each share of First Perry common stock they owned on the effective date of the consolidation. HNB shareholders received 2.520 shares of the Corporations common stock for each share of HNB common stock they owned on the effective date of the consolidation. The shareholders of First Perry and HNB did not recognize gain or loss for federal income tax purposes on the shares that were exchanged for the Corporations common stock in the consolidation.
The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the effective date of the consolidation. This transaction was accounted for using the purchase method of accounting in accordance with SFAS No. 141, Business Combinations . Accordingly the purchase price was allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values as of the effective date of the consolidation.
|
|
At December 31, 2008 |
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
Assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
2,870 |
|
Investment securities |
|
13,124 |
|
|
Loans |
|
67,579 |
|
|
Less: Allowance for loan losses |
|
(496 |
) |
|
Net loans |
|
67,083 |
|
|
Other assets |
|
7,318 |
|
|
Total assets |
|
90,395 |
|
|
Liabilities: |
|
|
|
|
Noninterest-bearing deposits |
|
$ |
7,725 |
|
Interest-bearing deposits |
|
65,981 |
|
|
Short-term borrowings |
|
3,436 |
|
|
Long-term borrowings |
|
2,533 |
|
|
Other liabilities |
|
890 |
|
|
Total liabilities |
|
80,565 |
|
|
Net assets acquired |
|
$ |
9,830 |
|
55
Note 2 Business Combinations (Continued)
The excess of purchase price over the fair value of net assets acquired was recorded as goodwill. Goodwill of $1,785,000 was recorded in connection with the consolidation. The goodwill will not be amortized in accordance with SFAS No. 142 and is not deductible for tax purposes.
The following table provides the calculation of the goodwill (dollars in thousands, except per share data):
Purchase Price: |
|
|
|
|
|
||
HNB common shares outstanding |
|
312,500 |
|
|
|
||
Exchange ratio |
|
2.52 |
|
|
|
||
Riverview common stock issued |
|
787,478 |
|
|
|
||
Fair market value of Riverview common share |
|
$ |
14.37 |
|
|
|
|
Purchase price assigned to shares exchanged for stock |
|
|
|
$ |
11,316 |
|
|
Transaction costs |
|
|
|
299 |
|
||
Total Purchase Price |
|
|
|
11,615 |
|
||
|
|
|
|
|
|
||
Net Assets Acquired: |
|
|
|
|
|
||
HNB shareholders equity |
|
9,881 |
|
|
|
||
|
|
|
|
|
|
||
Increase (decrease) to reflect assets acquired at fair value: |
|
|
|
|
|
||
Loans (sum of the years method amortized over 13 years) |
|
(164 |
) |
|
|
||
Core deposit intangible (sum of the years method amortized over 8 years) |
|
173 |
|
|
|
||
Bank premises, furniture, fixtures and equipment (39 year weighted average life) |
|
71 |
|
|
|
||
Deferred tax asset |
|
26 |
|
|
|
||
|
|
|
|
|
|
||
Decrease to reflect liabilities acquired at fair value: |
|
|
|
|
|
||
Time deposits (level yield amortization method over 3 years) |
|
(124 |
) |
|
|
||
Borrowings (level yield amortization method over 3 years) |
|
(33 |
) |
|
|
||
Net assets acquired |
|
|
|
9,830 |
|
||
Goodwill resulting from consolidation |
|
|
|
$ |
1,785 |
|
|
The fair value of certain assets and certain liabilities were based on quoted prices from reliable market sources. When quoted market prices were not available, the estimated fair values were based upon the best information available, including obtaining prices for similar assets and liabilities, and the results of using other valuation techniques. The prominent other valuation techniques used were the present value technique and appraisal/third party valuations. When the present value technique was employed, the associated cash flow estimates incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Corporation assumed the historical book value of certain assets and liabilities represented a reasonable proxy of fair value. The Corporation determined that there were no other categories of identifiable intangible assets arising from the HNB consolidation other than the core deposit intangible.
56
Note 2 Business Combinations (Continued)
The following are the unaudited pro forma consolidated results of operations of the Corporation for the years ended December 31, 2008 and 2007 as though HNB had been consolidated on January 1, 2007:
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands, except per share data) |
|
||||
|
|
|
|
|
|
||
Total interest income |
|
$ |
12,285 |
|
$ |
11,148 |
|
Total interest expense |
|
5,184 |
|
5,361 |
|
||
Net interest income |
|
7,101 |
|
5,787 |
|
||
|
|
|
|
|
|
||
Provision for loan losses |
|
955 |
|
220 |
|
||
Net interest income after provision for loan losses |
|
6,146 |
|
5,567 |
|
||
|
|
|
|
|
|
||
Total noninterest income |
|
1,333 |
|
745 |
|
||
Total noninterest expense |
|
7,383 |
|
5,052 |
|
||
Income before taxes (benefit) |
|
96 |
|
1,260 |
|
||
Income tax expense (benefit) |
|
(201 |
) |
155 |
|
||
Net income |
|
$ |
297 |
|
$ |
1,105 |
|
|
|
|
|
|
|
||
Basic earnings per share |
|
$ |
0.17 |
|
$ |
0.63 |
|
The above 2008 pro forma amounts include HNBs pre-tax one time gain from the sale of real estate for $456,000, and pre-tax expenses associated with the merger of $455,000.
Note 3 - Restriction on Cash and Due from Banks
The Bank is required to maintain average reserve balances in cash or on deposit with the Federal Reserve Bank. T he required reserve at December 3 1, 2008 and 2007 approximated $581,000 and $614,000, respectively. In addition, the Banks other correspondents may require average compensating balances as part of their agreements to provide services.
57
Note 4 - Investment Securities Available for Sale
The amortized cost and estimated fair values of investment securities available for sale are reflected in the following schedules at December 31, 2008 and 2007:
|
|
2008 |
|
||||||||||
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
||||||||||
U.S. Government agencies |
|
$ |
7,236 |
|
$ |
28 |
|
$ |
|
|
$ |
7,264 |
|
State and municipal |
|
9,363 |
|
10 |
|
|
|
9,373 |
|
||||
Mortgaged-backed securities |
|
11,163 |
|
56 |
|
38 |
|
11,181 |
|
||||
Corporate debt securities |
|
302 |
|
|
|
|
|
302 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
28,064 |
|
$ |
94 |
|
$ |
38 |
|
$ |
28,120 |
|
|
|
2007 |
|
||||||||||
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
U.S. Government agencies |
|
$ |
4,100 |
|
$ |
|
|
$ |
8 |
|
$ |
4,092 |
|
State and municipal |
|
4,413 |
|
67 |
|
|
|
4,480 |
|
||||
Mortgaged-backed securities |
|
11,817 |
|
2 |
|
101 |
|
11,718 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
20,330 |
|
$ |
69 |
|
$ |
109 |
|
$ |
20,290 |
|
The amortized cost and fair value of debt securities available for sale at December 31, 2008, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without call or prepayment penalties:
|
|
Amortized
|
|
Fair
|
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Due in one year or less |
|
$ |
386 |
|
$ |
386 |
|
Due after one year through five years |
|
7,604 |
|
7,617 |
|
||
Due after five years through ten years |
|
5,195 |
|
5,220 |
|
||
Due after ten years |
|
3,716 |
|
3,716 |
|
||
|
|
|
|
|
|
||
|
|
16,901 |
|
16,939 |
|
||
Mortgage-backed securities |
|
11,163 |
|
11,181 |
|
||
|
|
|
|
|
|
||
|
|
$ |
28,064 |
|
$ |
28,120 |
|
58
Note 4 - Investment Securities Available for Sale (Continued)
Securities with an amortized cost of $16,702,000 and $15,642,000 and a fair value of $16,755,000 and $15,622,000 at December 31, 2008 and 2007, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.
Information pertaining to securities with gross unrealized losses at December 31, 2008 and 2007 aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:
|
|
Less Than 12 Months |
|
More Than 12 Months |
|
Total |
|
||||||||||||
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
||||||
|
|
(In thousands) |
|
||||||||||||||||
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage-backed securities |
|
$ |
4,980 |
|
$ |
37 |
|
$ |
99 |
|
$ |
1 |
|
$ |
5,079 |
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Government agencies |
|
$ |
|
|
$ |
|
|
$ |
2,992 |
|
$ |
8 |
|
$ |
2,992 |
|
$ |
8 |
|
Mortgage-backed securities |
|
3,812 |
|
19 |
|
7,347 |
|
82 |
|
11,159 |
|
101 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
$ |
3,812 |
|
$ |
19 |
|
$ |
10,339 |
|
$ |
90 |
|
$ |
14,151 |
|
$ |
109 |
|
Management evaluates securities for other-than-temporary impairment, at least on a quarterly basis, but managements intent is to hold all investments until maturity unless market, economic or specific investment concerns warrant a sale of securities. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2008, eight mortgage-backed securities have unrealized losses. At December 31, 2007, four U.S. Government agencies and fifteen mortgage-backed securities had unrealized losses. Management believes the unrealized losses relate to changes in interest rates since the individual securities were purchased and not to underlying credit issues. As management has both the ability and intent to hold these securities until maturity, or market price recovery, no declines are deemed to be other-than-temporary.
As part of the Banks strategy to reduce some of the risk inherent within the investment portfolio, the Corporation sold 12 available for sale securities during 2008 totaling $2,731,000. Gross realized gains amounted to $43,000, while gross realized losses amounted to $3,000, resulting in a $40,000 net gain on sale.
59
Note 5 - Loans Receivable and Allowance for Loan Losses
Loans receivable consist of the following at December 31:
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Commercial, financial, and agricultural |
|
$ |
12,967 |
|
$ |
8,845 |
|
Real estate secured: |
|
|
|
|
|
||
Construction |
|
18,173 |
|
9,059 |
|
||
Mortgage |
|
94,322 |
|
47,324 |
|
||
Commercial |
|
48,773 |
|
15,352 |
|
||
Consumer installment |
|
4,210 |
|
3,558 |
|
||
|
|
|
|
|
|
||
|
|
178,445 |
|
84,138 |
|
||
Deferred loan fees |
|
(266 |
) |
(234 |
) |
||
Allowance for loan losses |
|
(1,710 |
) |
(970 |
) |
||
|
|
|
|
|
|
||
|
|
$ |
176,469 |
|
$ |
82,934 |
|
Included within the loan portfolio are loans on which the Corporation has discontinued the accrual of interest. Such loans approximated $128,000 and $932,000 at December 31, 2008 and 2007, respectively. If interest income had been recorded on all non-accrual loans outstanding during 2008 and 2007, interest income would have increased by $2,000 and $13,000, respectively.
Loans 90 days or more past due but still accruing interest at December 31, 2008 and 2007 approximated $152,000 and $210,000, respectively.
At December 31, 2008 and 2007, the total recorded investment in impaired loans was approximately $3,203,000 and $932,000, respectively, of which $668,000 and $6,000 required a valuation allowance, which approximated $225,000 and $6,000, respectively. The average investment in impaired loans for 2008 and 2007 was approximately $1,395,000 and $1,046,000, respectively. Interest income recognized on impaired loans was approximately $122,000 in 2008 and $34,000 in 2007.
The Corporations assessment of loans acquired in the acquisition of HNB as of December 31, 2008 identified loans totaling $3,010,000 for which a $475,000 purchase accounting adjustment was netted against the loan balance in accordance with the provisions of SOP 03-3. As a result of the application of SOP 03-3, the Corporation recorded a purchase accounting adjustment of $475,000, which reduced loans and the allowance for loan losses. Management does not expect to recover any of the $475,000.
The Corporation, in the ordinary course of business, has loan, deposit and other routine transactions with its executive officers, directors and entities in which they have principal ownership. Loans are made to such related parties at substantially the same credit terms as other borrowers and do not represent more than the usual risk of collection.
60
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
Activity for these related party loans was as follows for the year ended December 31, 2008 (in thousands):
Balance - January 1 |
|
$ |
1,901 |
|
Advances |
|
573 |
|
|
Loans of new directors |
|
2,782 |
|
|
Payments |
|
(459 |
) |
|
|
|
|
|
|
Balance - December 31 |
|
$ |
4,797 |
|
An analysis of the changes in the allowance for loan losses is as follows for the years ended December 31:
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Balance January 1 |
|
$ |
970 |
|
$ |
867 |
|
Provision charged to operations |
|
380 |
|
120 |
|
||
Acquired from HNB acquisition |
|
496 |
|
|
|
||
Recoveries on charged off loans |
|
23 |
|
12 |
|
||
Loans charged off |
|
(159 |
) |
(29 |
) |
||
|
|
|
|
|
|
||
Balance - December 31 |
|
$ |
1,710 |
|
$ |
970 |
|
Note 6 - Premises and Equipment
Premises and equipment consisted of the following at December 31:
|
|
Estimated Useful
|
|
2008 |
|
2007 |
|
||
|
|
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
|
|
||
Land |
|
|
|
$ |
741 |
|
$ |
386 |
|
Bank premises |
|
7 - 50 years |
|
4,459 |
|
3,186 |
|
||
Leasehold improvements |
|
10 - 30 years |
|
1,899 |
|
1,499 |
|
||
Furnishings and equipment |
|
3 - 10 years |
|
1,910 |
|
1,228 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
9,009 |
|
6,299 |
|
||
Accumulated depreciation |
|
|
|
(1,537 |
) |
(1,359 |
) |
||
|
|
|
|
|
|
|
|
||
|
|
|
|
7,472 |
|
4,940 |
|
||
Construction in process |
|
|
|
|
|
101 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
$ |
7,472 |
|
$ |
5,041 |
|
61
Note 6 - Premises and Equipment (Continued)
Operating Leases
The Corporation entered into a fifteen year operating lease agreement in 2003 for the land on which the Duncannon office is located. In 2005, the Corporation entered into an agreement to lease an office on Good Hope Road in Hampden Township, Cumberland County, on which lease payments began in 2006 and extend through 2017. In January 2007, the Corporation entered into an agreement to lease office space in Linglestown, Dauphin County, on which lease payments began in 2007 and extend for a three year period. As part of the consolidation, the Corporation assumed the lease of HNBs branch in Elizabethville, Dauphin County, which began in 2008 and expires 2018. The Corporation is responsible for taxes, utilities and other expenses related to the properties. All of the lease agreements contain renewal options. Total expense for operating leases in 2008 and 2007 was $77,000 and $61,000, respectively.
At December 31, 2008, future minimum lease payments under non-cancelable lease arrangements are as follows (in thousands):
Years ending December 31, |
|
|
|
|
2009 |
|
$ |
122 |
|
2010 |
|
86 |
|
|
2011 |
|
86 |
|
|
2012 |
|
89 |
|
|
2013 |
|
92 |
|
|
Thereafter |
|
377 |
|
|
Note 7 Goodwill and Intangible Assets
Goodwill and intangible assets were $1,958,000 at December 31, 2008 and $0 at December 31, 2007.
The changes in the carrying amount of goodwill were as follows (in thousands):
Balance, January 1, 2008 |
|
$ |
|
|
Additions to goodwill from acquisition of HNB |
|
1,785 |
|
|
Balance, December 31, 2008 |
|
$ |
1,785 |
|
The gross carrying amount and accumulated amortization related to the core deposit intangible at December 31, 2008 and 2007 are presented below:
|
|
December 31, |
|
||||||||||
|
|
2008 |
|
2007 |
|
||||||||
|
|
Gross |
|
|
|
Gross |
|
|
|
||||
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Accumulated |
|
||||
|
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Core deposit intangible |
|
$ |
173 |
|
$ |
|
|
$ |
|
|
$ |
|
|
62
Note 7 Goodwill and Intangible Assets (Continued)
The amortization period of the core deposit intangible is based on the sum of the years method over an eight year period. The Corporation estimates the amortization expense for the core deposit intangible as follows (in thousands):
Years ending December 31, |
|
|
|
|
2009 |
|
$ |
31 |
|
2010 |
|
28 |
|
|
2011 |
|
25 |
|
|
2012 |
|
22 |
|
|
2013 |
|
19 |
|
|
Thereafter |
|
48 |
|
|
|
|
$ |
173 |
|
Note 8 - Deposits
Scheduled contractual maturities of time deposits at December 31, 2008 are as follows (in thousands):
Years ending December 31, |
|
|
|
|
2009 |
|
$ |
56,851 |
|
2010 |
|
25,523 |
|
|
2011 |
|
6,734 |
|
|
2012 |
|
4,476 |
|
|
2013 |
|
7,257 |
|
|
Thereafter |
|
232 |
|
|
|
|
|
|
|
|
|
$ |
101,073 |
|
Time deposits of $100,000 or more at December 31, 2008 and 2007 approximated $31,056,000 and $15,589,000, respectively.
Interest expense on time deposits of $100,000 or more , approximated $624,000 and $703,000 in 2008 and 2007, respectively.
The Corporation accepts deposits of its executive officers, directors, their immediate families, and affiliated companies on the same terms as those for comparable transactions of unrelated customers. The amount of these deposits totaled $2,365,000 and $1,003,000 at December 31, 2008 and 2007, respectively.
Note 9 - Pension and Other Benefit Plans
Defined Contribution Plan
The Corporation maintains a contributory 401(k) retirement plan for all eligible employees. Currently, the Corporations policy is to match 50% of the employees voluntary contributions to the plan up to a maximum payment of 3% of the employees compensation. Additionally, the Corporation may make discretionary contributions to the plan after considering current profits and business conditions. The amount charged to expense in 2008 and 2007 totaled $105,000 and
63
Note 9 - Pension and Other Benefit Plans (Continued)
$89,000, respectively. Of these amounts, discretionary contributions approximated $84,000 and $73,000, respectively.
Director Emeritus Plan
To promote orderly succession of the Corporations Board of Directors, the Corporation adopted the Director Emeritus Agreement in 2001. The agreement provides for a defined annual benefit based on the Directors final fee. The benefit can be offered to a Director upon termination of service on or after 65 years of age and with ten or more continuous years of service. Provisions of the agreement are contingent on the Director electing to become a Director Emeritus, being available to act in the capacity of consultant to the Board, continuing to act as a Goodwill Ambassador for the Corporation, and avoiding any competitive arrangements that are contrary to the best interests of the Corporation. The agreement also contains other general limitations and death benefit provisions. Expenses recorded under the terms of this agreement were $12,000 in 2008 and 2007, respectively.
Deferred Compensation Agreements
The Corporation maintains four Supplemental Executive Retirement Plan (SERP) agreements to provide specified benefits for key executives. The agreements were specifically designed to encourage key executives to remain as employees of the Corporation. The agreements are unfunded with benefits to be paid from the Corporations general assets. After normal retirement, benefits are payable to the executive or his or her beneficiary in equal monthly installments for a period of 20 years. There are provisions for death benefits should a participant die before his or her retirement date. These benefits are also subject to change of control and other provisions
The Corporation also maintains a Director Deferred Fee Agreement (DDFA) which allows electing directors to defer payment of their directors fees until a future date. The estimated present value of the future benefits is accrued over the effective dates of the agreement using an interest factor computed as a percent of the Corporations return on equity. The agreements are unfunded, with benefits to be paid from the Corporations general assets.
The accrued benefit obligations of the two plans of $357,000 at December 31, 2008 and $238,000 at December 31, 2007 are included in other liabilities. Expense related to these plans totaled $33,000 and $44,000 in the years ended December 31, 2008 and 2007, respectively.
Note 10 - Taxes
Income tax expense (benefit) and the related effective income tax rates are comprised of the following items for the years ended December 31:
(Dollars in thousands) |
|
2008 |
|
2007 |
|
||||||
|
|
|
|
|
|
|
|
|
|
||
Tax at statutory rates |
|
$ |
112 |
|
34 |
% |
$ |
209 |
|
34 |
% |
Tax-exempt interest income |
|
(101 |
) |
(31 |
) |
(111 |
) |
(18 |
) |
||
Life insurance income |
|
(34 |
) |
(10 |
) |
(33 |
) |
(5 |
) |
||
Interest disallowance |
|
10 |
|
3 |
|
14 |
|
2 |
|
||
Other |
|
(29 |
) |
(9 |
) |
1 |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
Federal Income Taxes (Benefit) |
|
$ |
(42 |
) |
(13 |
)% |
$ |
80 |
|
13 |
% |
64
Note 10 Taxes (Continued)
Deferred income taxes result from income and expense items which are recognized for financial statement purposes in different reporting periods than for federal income tax purposes. The current and deferred portions of applicable income taxes (benefit) for the years ended December 31 are as follows:
(In thousands) |
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Current tax |
|
$ |
105 |
|
$ |
91 |
|
Deferred tax benefit |
|
(147 |
) |
(11 |
) |
||
|
|
|
|
|
|
||
Applicable Federal Income Tax (Benefit) |
|
$ |
(42 |
) |
$ |
80 |
|
The Corporation provides deferred taxes, at the 34% tax rate, on cumulative temporary differences. Components of deferred tax assets and liabilities are as follows at December 31:
(In thousands) |
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Deferred tax assets: |
|
|
|
|
|
||
Allowance for loan losses |
|
$ |
665 |
|
$ |
284 |
|
Loans |
|
5 |
|
4 |
|
||
Unrealized loss on investment securities |
|
|
|
13 |
|
||
Deferred directors fees |
|
36 |
|
31 |
|
||
Deferred compensation |
|
238 |
|
50 |
|
||
Purchase accounting adjustments |
|
128 |
|
|
|
||
Alternative minimum tax |
|
90 |
|
49 |
|
||
Other |
|
5 |
|
|
|
||
|
|
1,167 |
|
431 |
|
||
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
||
Accumulated depreciation |
|
(362 |
) |
(180 |
) |
||
Unrealized gain on investment securities |
|
(19 |
) |
|
|
||
|
|
(381 |
) |
(180 |
) |
||
|
|
|
|
|
|
||
Net Deferred Tax Asset |
|
$ |
786 |
|
$ |
251 |
|
The Corporation has not recorded a valuation allowance for the deferred tax assets as management believes it is more likely than not that they will be ultimately realized.
The Corporation has alternative minimum tax carryforwards that expire through the year 2028.
The Corporation recorded a $40,000 net gain from the sale of available for sale securities during 2008, which was taxed at 34%, or $14,000.
Pennsylvania Corporate Tax Credit
In 2007, the Bank completed the construction of its new main office in Marysville. As part of this project, the Bank applied for a $250,000 tax credit under the Pennsylvania Enterprise Zone Tax Credit Program which authorizes tax credits to private companies that make qualified
65
Note 10 Taxes (Continued)
investments in designated enterprise zones by rehabilitating, expanding or improving buildings within an enterprise zone. The Corporation recorded a $216,000 credit in 2007, representing the amount of costs management initially estimated it was eligible to receive as a tax credit and included it in the Bank shares tax expense (credit) on the consolidated statement of income. In July 2008, the Pennsylvania Department of Revenue made a final determination that the Bank was entitled to the full $250,000 credit, and an additional $34,000 was recognized in 2008. The credit was used to offset the Banks 2008 Pennsylvania Bank Shares Tax liability, with the remainder available to offset the 2009 tax liability.
Note 11 - Borrowings
The Corporation has an unsecured line of credit agreement with Atlantic Central Bankers Bank in the amount of $6,250,000 at December 31, 2008 and $3,000,000 at December 31, 2007. Interest accrues based on the daily Federal Funds rate. There were no amounts outstanding on the line of credit at December 31, 2008 or 2007.
Repurchase agreements are treated as collateralized financing transactions and are carried on the consolidated balance sheets at the amount the securities will be subsequently sold or repurchased for, plus accrued interest. The Corporation requires investment securities to be held as collateral for the repurchase agreements. The securities underlying the agreements were under the Corporations control.
The Corporation has entered into agreements with the Federal Home Loan Bank (FHLB) which allow for borrowings up to a percentage of certain qualifying collateral assets. At December 31, 2008, the Bank had a maximum borrowing capacity of approximately $51,312,000. The borrowing capacity is collateralized by security agreements in certain residential real estate backed assets of the Corporation, including loans and investments. Borrowings from the FHLB include long-term borrowing agreements which are subject to restrictions and penalties for early repayment under certain circumstances and borrowings under repurchase advance agreements.
A summary of short-term borrowings is as follows at December 31:
|
|
2008 |
|
2007 |
|
||
|
|
(Dollars in thousands) |
|
||||
|
|
|
|
|
|
||
Repurchase agreements with customers |
|
$ |
527 |
|
$ |
1,265 |
|
FHLB short-term borrowings |
|
20,796 |
|
|
|
||
|
|
|
|
|
|
||
|
|
$ |
21,323 |
|
$ |
1,265 |
|
|
|
|
|
|
|
||
Weighted average rate at end of year |
|
0.54 |
% |
3.44 |
% |
||
Maximum amount outstanding at any end of month |
|
$ |
21,323 |
|
$ |
3,591 |
|
Daily average amount outstanding |
|
9,743 |
|
3,579 |
|
||
Approximate weighted average interest rate for year |
|
1.56 |
% |
5.31 |
% |
66
Note 11 - Borrowings (Continued)
FHLB borrowings under long-term arrangements are summarized as follows at December 31:
Maturity Date |
|
Interest Rate |
|
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
|
|
|
|
||
06/18/09 |
|
5.41 |
% |
Fixed rate |
|
$ |
5,000 |
|
$ |
5,000 |
|
11/30/09 |
|
3.99 |
|
Fixed rate |
|
|
|
7,000 |
|
||
04/09/18 |
|
2.90 |
|
Fixed rate until 04/09/11 |
|
5,033 |
|
|
|
||
01/26/26 |
|
4.88 |
|
Amortizing fixed rate |
|
|
|
1,411 |
|
||
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
$ |
10,033 |
|
$ |
13,411 |
|
Scheduled contractual maturities of FHLB borrowings are as follows at December 31, 2008 (in thousands):
2009 |
|
$ |
5,000 |
|
2018 |
|
5,033 |
|
|
|
|
|
|
|
|
|
$ |
10,033 |
|
Note 12 - Financial Instruments with Off Balance Sheet Risk
The Bank is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit, typically residential mortgage loans and commercial loans and, to a lesser extent, standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.
The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The Bank does not anticipate any material losses from those commitments.
Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extensions of credit, is based on managements credit evaluation of the customer. Collateral held varies but may include investments, property, plant and equipment, and income-producing commercial properties. On loans secured by real estate, the Bank generally requires loan to value ratios of no greater than 85%.
67
Note 12 - Financial Instruments with Off Balance Sheet Risk (Continued)
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary. The current amount of the liability as of December 31, 2008 for guarantees under standby letters of credit is not material.
The Banks exposure to credit loss for loan commitments (unfunded loans and unused lines of credit, including home equity lines of credit) and standby and performance letters of credit was as follows at December 31:
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Commitments to grant loans |
|
$ |
6,428 |
|
$ |
2,778 |
|
Unfunded commitments of existing loans |
|
10,334 |
|
11,384 |
|
||
Standby and performance letters of credit |
|
1,063 |
|
1,442 |
|
||
|
|
|
|
|
|
||
|
|
$ |
17,825 |
|
$ |
15,604 |
|
Note 13 - Concentrations of Credit Risk
Substantially all of the Corporations business activity, including loans and loan commitments, is with customers located within its trade area of the counties of Perry, Cumberland and Dauphin, Pennsylvania. The concentration of credit by type of loan is set forth in the Loans note to the financial statements.
Note 14 - Regulatory Matters and Shareholders Equity
Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. Regulatory approval is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits (as defined) for that year combined with the retained net profits for the two preceding years. At December 31, 2008, $84,000 of undistributed earnings of the Bank, included in consolidated shareholders equity, was available for distribution to the Corporation as dividends without prior regulatory approval.
The Bank is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that if undertaken, could have a direct material effect on the Corporation and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
68
Note 14 - Regulatory Matters and Shareholders Equity (Continued)
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier 1 capital to risk-weighted assets (as defined in the regulations), and Tier 1 capital to average total assets (as defined). Management believes, as of December 31, 2008, that the Bank meets all the capital adequacy requirements to which they are subject.
As of December 31, 2008, the most recent notification from the regulators, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as well capitalized, the Bank will have to maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events since the most recent notification that management believes have changed the Banks category.
The Federal Reserve Board approved a final rule in 2006 that expands the definition of a small bank holding company (BHC) under the Boards Small Bank Holding Company Policy Statement and the Boards risk-based and leverage capital guidelines for bank holding companies. Based on the ruling, the Corporation meets the eligibility criteria of a small BHC and is exempt from regulatory requirements administered by the federal banking agencies.
The Banks actual capital ratios, at December 31, 2008 and 2007 and the minimum ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are summarized below.
|
|
Actual |
|
For Capital Adequacy
|
|
To be Well Capitalized
|
|
|||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total risk-based capital (to risk-weighted assets) |
|
$ |
23,442 |
|
14.3 |
% |
$ |
³ 13,146 |
|
³ 8.0 |
% |
$ |
>16,433 |
|
>10.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
21,655 |
|
13.2 |
|
³ 6,573 |
|
³ 4.0 |
|
³ 9,860 |
|
³ 6.0 |
|
|||
Tier 1 capital (to average total assets) |
|
21,655 |
|
9.5 |
|
>9,150 |
|
>4.0 |
|
³ 11,437 |
|
³ 5.0 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total risk-based capital (to risk-weighted assets) |
|
$ |
13,498 |
|
17.3 |
% |
$ |
³ 6,243 |
|
³ 8.0 |
% |
$ |
>7,804 |
|
>10.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
12,530 |
|
16.1 |
|
³ 3,122 |
|
³ 4.0 |
|
³ 4,682 |
|
³ 6.0 |
|
|||
Tier 1 capital (to average total assets) |
|
12,530 |
|
10.4 |
|
>4,810 |
|
>4.0 |
|
³ 6,012 |
|
³ 5.0 |
|
Management uses its best judgment in estimating the fair value of the Corporations financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily
69
indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. The Corporation adopted SFAS 157 effective for its fiscal year beginning January 1, 2008.
In December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. As such, the Corporation only partially adopted the provisions of SFAS 157, and will begin to account and report for non-financial assets and liabilities in 2009. In October 2008, the FASB issued FASB Staff Position 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to the Corporations December 31, 2008 consolidated financial statements. The adoption of SFAS 157 and FSP 157-3 had no impact on the amounts reported in the financial statements .
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:
Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
70
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:
|
|
|
|
(Level 1) |
|
(Level 2) |
|
|
|
||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
(Level 3) |
|
||||
|
|
|
|
Active Markets |
|
Other |
|
Significant |
|
||||
|
|
December 31, |
|
for Identical |
|
Observable |
|
Unobservable |
|
||||
Description |
|
2008 |
|
Assets |
|
Inputs |
|
Inputs |
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Securities available for sale |
|
$ |
28,120 |
|
$ |
|
|
$ |
28,120 |
|
$ |
|
|
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:
Description |
|
December 31,
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Impaired loans |
|
$ |
443 |
|
$ |
|
|
$ |
|
|
$ |
443 |
|
The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporations assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporations disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Corporations financial instruments at December 31, 2008 and 2007.
Cash and cash equivalents (carried at cost):
The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets fair values.
Interest bearing time deposit (carried at cost):
Fair values for fixed-rate time certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Corporation generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.
71
Securities:
The fair value of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, managements best estimate is used. Managements best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.
Mortgage loans held for sale (carried at lower of cost or fair value):
The fair value of mortgages held for sale is determined, when possible, using quoted secondary market prices. If no such quoted prices exist, the fair value of the loan is determined using quoted market prices for a similar loan or loans, adjusted for the specific attributes of that loan.
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Impaired loans (generally carried at fair value):
Impaired loans are those that are accounted for under FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114) , in which the Corporation has measured impairment generally based on the fair value of the loans collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances of 668,000, net of a valuation allowance of $225,000. Additional provisions for loan losses of $225,000 were recorded during the period.
Restricted investment in Bank stocks (carried at cost):
The carrying amount of restricted investment in Bank stock approximates fair value, and considers the limited marketability of such securities.
Accrued interest receivable and payable (carried at cost):
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit liabilities (carried at cost):
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand
72
at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings (carried at cost):
The carrying amounts of short-term borrowings approximate their fair values.
Long-term borrowings (carried at cost):
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. The prices were obtained from an active market and represent a fair value that is deemed to represent the transfer price if the liability were assumed by a third party.
Off-balance sheet financial instruments (disclosed at cost):
Fair values for the Corporations off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties credit standing.
The estimated fair values of the Corporations financial instruments were as follows at December 31, 2008 and 2007.
|
|
2008 |
|
2007 |
|
||||||||
|
|
Carrying
|
|
Fair Value |
|
Carrying
|
|
Fair Value |
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
6,018 |
|
$ |
6,018 |
|
$ |
9,083 |
|
$ |
9,083 |
|
Interest bearing time deposits |
|
950 |
|
950 |
|
|
|
|
|
||||
Investment securities |
|
28,120 |
|
28,120 |
|
20,290 |
|
20,290 |
|
||||
Mortgage loans held for sale |
|
1,124 |
|
1,124 |
|
|
|
|
|
||||
Loans, net |
|
176,469 |
|
176,816 |
|
82,934 |
|
82,803 |
|
||||
Accrued interest receivable |
|
812 |
|
812 |
|
485 |
|
485 |
|
||||
Restricted investments in bank stocks |
|
2,075 |
|
2,075 |
|
949 |
|
949 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
174,353 |
|
175,173 |
|
94,472 |
|
94,550 |
|
||||
Short-term borrowings |
|
21,323 |
|
21,323 |
|
1,265 |
|
1,265 |
|
||||
Long-term borrowings |
|
10,033 |
|
10,137 |
|
13,411 |
|
13,318 |
|
||||
Accrued interest payable |
|
499 |
|
499 |
|
319 |
|
319 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Off balance sheet financial instruments |
|
|
|
|
|
|
|
|
|
||||
73
Note 16 - Commitments and Contingencies
The Corporation is subject to numerous claims and lawsuits which arise primarily in the normal course of business. At December 31, 2008, there were no such claims or lawsuits which, in the opinion of management, would have a material adverse effect on the financial position or results of operations of the Corporation.
Note 17 Riverview Financial Corporation (Parent Company Only) Financial Information
Balance Sheets
|
|
December 31, |
|
||||
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
||
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
579 |
|
$ |
179 |
|
Investment in bank subsidiary |
|
23,554 |
|
12,504 |
|
||
Real estate, net |
|
72 |
|
72 |
|
||
|
|
|
|
|
|
||
|
|
$ |
24,205 |
|
$ |
12,755 |
|
|
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shareholders equity |
|
$ |
24,205 |
|
$ |
12,755 |
|
Statements of Income
|
|
Years Ended
|
|
||||
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Income, dividends from bank subsidiary |
|
$ |
700 |
|
$ |
300 |
|
|
|
|
|
|
|
||
Expenses |
|
|
|
|
|
||
|
|
|
|
|
|
||
Income Before Equity in Undistributed (Distributions in Excess of) Net Income of Subsidiary |
|
700 |
|
300 |
|
||
|
|
|
|
|
|
||
Undistributed (distributions in excess of) net income of subsidiary |
|
(329 |
) |
235 |
|
||
|
|
|
|
|
|
||
Net Income |
|
$ |
371 |
|
$ |
535 |
|
74
Note 17 Riverview Financial Corporation (Parent Company Only) Financial Information (Continued)
Statements of Cash Flows
|
|
Years Ended
|
|
||||
|
|
2008 |
|
2007 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Net income |
|
$ |
371 |
|
$ |
535 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Undistributed (distributions in excess of) net income of subsidiary |
|
329 |
|
(235 |
) |
||
|
|
|
|
|
|
||
Net Cash Provided by Operating Activities |
|
700 |
|
300 |
|
||
|
|
|
|
|
|
||
Cash Flows from Financing Activities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Dividends paid |
|
(300 |
) |
(300 |
) |
||
|
|
|
|
|
|
||
Net Cash Used in Financing Activities |
|
(300 |
) |
(300 |
) |
||
|
|
|
|
|
|
||
Net Increase in Cash and Cash Equivalents |
|
400 |
|
|
|
||
|
|
|
|
|
|
||
Cash and Cash Equivalents - Beginning |
|
179 |
|
179 |
|
||
|
|
|
|
|
|
||
Cash and Cash Equivalents - Ending |
|
$ |
579 |
|
$ |
179 |
|
Note 18 Subsequent Events
In January 2009, the Corporation approved a non-qualified stock incentive plan for the issuance of up to 170,000 stock options that will be granted to management and members of the Board of Directors. The Corporation will account for these awards in accordance with Statement of Financial Accounting Standards No. 123(R), Share Based Payment , which requires that the fair values of the equity awards be recognized as compensation expense over the period during which the employee is required to provide service in exchange for such an award.
Subsequent to the approval of the plan, the Corporation awarded 155,000 options to management and members of the Board of Directors. Each award has a fair value of $0.86, based on the following: fair value of stock on date of grant $14.00; exercise price $16.00; life 8 years; volatility 12.22%; dividend yield 2.50%; discount rate 2.07%. The Corporation expects to recognize compensation expense over the vesting period, or 7 years.
75
ITEM 9 . CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .
None.
ITEM 9A . CONTROLS AND PROCEDURES .
Evaluation of Disclosure Controls and Procedures
Riverview carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of December 31, 2008. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, Riverviews disclosure controls and procedures are effective in timely alerting them to material information relating to Riverview (including its consolidated subsidiaries) required to be included in our periodic SEC filings.
Changes in Internal Controls Over Financial Reporting
There have been no material changes in Riverviews internal control over financial reporting during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect, Riverviews internal control over financial reporting.
Riverview Financial Corporation Management Report on Internal Controls Over Financial Reporting
This annual report does not include a report of managements assessment regarding internal control over financial reporting or an attestation report of the Corporations independent registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
None.
76
ITEM 10 . DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .
Information about Directors
Information as of March 1, 2009, concerning the thirteen nominees to the Board of Directors.
Name and Age |
|
Director
|
|
Principal Occupation for the Past Five Years and
|
William L. Hummel, 60 |
|
1998 |
|
Mr. Hummel is the former President and Chief Executive Officer of First Perry and Chief Executive Officer of The First National Bank of Marysville from 1997 until December 31, 2008. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 1998. |
John M. Schrantz, 58 |
|
1998 |
|
Mr. Schrantz is President of H.E. Rohrer, Inc. (Rohrer Bus Service). He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 1998. |
Roland R. Alexander, 58 |
|
2001 |
|
Mr. Alexander is Medical Oncologist with East Shore Oncology, P.C., Harrisburg, PA. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 2001. |
Arthur M. Feld, 66 |
|
1997 |
|
Mr. Feld is an Attorney-at-Law. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 1997. |
James G. Ford, II, 61 |
|
2006 |
|
Mr. Ford is President of the J. LeRue Hess Agency, Inc. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 2006. |
Robert M. Garst, 50 |
|
2008 |
|
Mr. Garst is Chief Executive Officer of Riverview Financial Corporation and Riverview National Bank. Prior to that Mr. Garst was Executive Vice President of First Perry and President of The First National Bank of Marysville from May 2006 to December 31, 2008. Prior to that, Mr. Garst was Executive Vice President and Chief Lending Officer of Pennsylvania State Bank. |
R. Keith Hite, 61 |
|
2006 |
|
Mr. Hite is Executive Director of the Pennsylvania State Association of Township Supervisors. He formerly served as a director of First Perry Bancorp, Inc. and The First National Bank of Marysville since 2006. |
Kirk D. Fox, 41 |
|
2007 |
|
Mr. Fox is President of Riverview Financial Corporation and Riverview National Bank. Mr. Fox had been Executive Vice President of HNB Bancorp, Inc. and Chief Lending Officer of Halifax National Bank since August 2004 to December 31, 2008. Prior to that he was Vice President and Commercial Loan Officer for another bank, where he worked since 1988. He formerly served as director of HNB Bancorp, Inc. and Halifax National Bank since 2007. |
David W. Hoover, 47 |
|
2006 |
|
Mr. Hoover is President of Hoover Financial Services, Inc., located in Halifax, Pennsylvania. He formerly served as a director of HNB Bancorp, Inc. and Halifax National Bank since 2006. |
77
Name and Age |
|
Director
|
|
Principal Occupation for the Past Five Years and
|
Joseph D. Kerwin, 44 |
|
2005 |
|
Mr. Kerwin is an attorney with the law firm of Kerwin & Kerwin located in Elizabethville, Pennsylvania. He formerly served as a director of HNB Bancorp, Inc. and Halifax National Bank since 2005. |
James M. Lebo, 63 |
|
1996 |
|
Mr. Lebo is President of the Lebo Agency and is a licensed insurance agent. He formerly served as a director of HNB Bancorp, Inc. and Halifax National Bank since 1996. |
Paul R. Reigle, 79 |
|
1995 |
|
Mr. Reigle is a retired banker. Mr. Reigle was Chairman of the Board of HNB Bancorp, Inc. and Halifax National Bank since 1995. Mr. Reigle served as Cashier for Halifax National Bank from 1960 through 1990. |
David A. Troutman, 52 |
|
2002 |
|
Mr. Troutman is President of A.W. Troutman, an automobile dealership in Millersburg, Pennsylvania. He formerly served as a director of Halifax National Bank since 2002. |
(*) Includes service as director of The First National Bank of Marysville and Halifax National Bank.
78
Executive Officers
The following table provides information, as of March 1, 2009, about the Corporations executive officers.
Name |
|
Age |
|
Principal
Occupation For the Past Five Years and Position
|
Robert M. Garst |
|
50 |
|
Mr. Garst is Chief Executive Officer of Riverview Financial Corporation and Riverview National Bank. Prior to that, Mr. Garst was Executive Vice President of First Perry and President of The First National Bank of Marysville from May 2006 to December 31, 2008. Prior to that, Mr. Garst was Executive Vice President and Chief Lending Officer of Pennsylvania State Bank. |
Kirk D. Fox |
|
41 |
|
Mr. Fox is President of Riverview Financial Corporation and Riverview National Bank. Mr. Fox had been Executive Vice President of HNB and Executive Vice President and Chief Lending Officer of Halifax National Bank from August 2004 until December 31, 2008. Prior to that, he was Vice President and Commercial Loan Officer for another bank, where he worked since 1988. He has served as director of Halifax National Bank since 2007. |
Theresa M. Wasko |
|
56 |
|
Ms. Wasko is Chief Financial Officer of Riverview Financial Corporation and Riverview National Bank beginning January 20, 2009. Prior to that, Ms. Wasko served as Chief Financial Officer of Great Bear Bank (a bank in organization) from 2007 to 2009 and Chief Financial Officer of East Penn Bank from 1998 to 2007. |
Robert B. Weidler |
|
38 |
|
Mr. Weidler is the Controller of Riverview Financial Corporation and Riverview National Bank. Prior to that, Mr. Weidler was the Chief Financial Officer of First Perry and The First National Bank of Marysville since 2002. Prior to that, Mr. Weidler was Controller of First Perry and The First National Bank of Marysville. |
Paul B. Zwally |
|
44 |
|
Mr. Zwally is an Executive Vice President and the Chief Lending Officer of Riverview Financial Corporation and Riverview National Bank. Prior to that, Mr. Zwally was a Senior Vice President and Chief Lending Officer of First Perry Bancorp, Inc. and The First National Bank of Marysville since March 2008. Prior to that, Mr. Zwally was a Vice President and commercial lending officer with PNC Banks and Community Banks since 1989. |
The Board of Directors of Riverview Financial Corporation has a separate Audit Committee comprised of independent directors. The members of the Audit Committee are R. Keith Hite, Chairman, Arthur M. Feld and Joseph D. Kerwin. There is no audit committee financial expert at this time. However, Riverview is in the process of evaluating its committee members to determine if any qualify under the definition of financial expert.
Riverview has adopted a Code of Ethics that applies to directors, officers and employees of Riverview and the Riverview National Bank. The Code of Ethics is attached as Exhibit 14.1 to this Form 10-K filed.
79
There have been no material changes to the procedures by which security holders may recommend nominees to Riverviews Board of Directors.
ITEM 11 . EXECUTIVE COMPENSATION .
Director Compensation
The Corporation was formed on December 31, 2008, and, therefore, no directors received compensation from the Corporation during 2008.
However, prior to December 31, 2008, the directors received compensation from either First Perry Bancorp, Inc. or HNB Bancorp, Inc. The table below sets forth the compensation received by the directors from those companies during 2008.
Name |
|
Fees Earned or
|
|
Total ($) |
|
||
Roland R. Alexander |
|
$ |
13,450 |
|
$ |
13,450 |
|
Arthur M. Feld |
|
14,050 |
|
14,050 |
|
||
James G. Ford, II |
|
13,000 |
|
13,000 |
|
||
R. Keith Hite |
|
12,150 |
|
12,150 |
|
||
David W. Hoover |
|
15,000 |
|
15,000 |
|
||
William L. Hummel |
|
13,700 |
|
13,700 |
|
||
Joseph D. Kerwin |
|
15,000 |
|
15,000 |
|
||
James M. Lebo |
|
15,000 |
|
15,000 |
|
||
Paul R. Reigle |
|
15,000 |
|
15,000 |
|
||
John M. Schrantz |
|
13,900 |
|
13,900 |
|
||
David A. Troutman |
|
15,000 |
|
15,000 |
|
||
80
Executive Compensation
Summary Compensation Table
The following table summarizes the total compensation for 2008 and 2007 for Robert M. Garst, Riverview Financial Corporations Chief Executive Officer, Kirk D. Fox, Riverview Financial Corporations President, and Robert B. Weidler, Riverview Financial Corporations Controller. All compensation paid in 2008 and 2007 to each executive officer was paid by either First Perry Bancorp, Inc. or HNB Bancorp, Inc. prior to their consolidation into Riverview Financial Corporation on December 31, 2008. These individuals are referred to as the Named Executive Officers.
Name and
|
|
Year |
|
Salary |
|
Bonus |
|
All Other
|
|
Total |
|
||||
Robert M. Garst, |
|
2008 |
|
$ |
132,600 |
|
$ |
30,000 |
|
$ |
73,444 |
(1) |
$ |
236,044 |
|
Chief Executive Officer |
|
2007 |
|
128,750 |
|
30,000 |
|
18,143 |
(2) |
176,893 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Robert B. Weidler, |
|
2008 |
|
97,000 |
|
|
|
37,098 |
(3) |
134,098 |
|
||||
Controller |
|
2007 |
|
77,250 |
|
15,000 |
|
9,038 |
(4) |
101,288 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Kirk D. Fox, |
|
2008 |
|
105,000 |
|
30,000 |
|
74,019 |
(5) |
209,019 |
|
||||
President |
|
2007 |
|
90,000 |
|
10,000 |
|
10,497 |
(6) |
110,497 |
|
||||
(1) Includes an automobile stipend of $6,000; 401(k) match of $3,210; life insurance premiums of $468; profit sharing of $13,766; and a one-time award for $50,000 in recognition of Mr. Garsts extraordinary service related to consolidation activity.
(2) Includes an automobile stipend of $6,000; 401(k) match of $2,021 for 2007; and profit sharing of $10,122.
(3) Includes a 401(k) match of $2,910; life insurance premiums of $468; profit sharing of $8,720; and a one-time award in 2008 for $25,000 in recognition of Mr. Weidlers extraordinary service related to consolidation activity.
(4) Includes a 401(k) match of $2,317; and profit sharing of $6,721.
(5) Includes life insurance premiums of $259; 401(k) match of $3,150; profit sharing of $5,038; change of $5,012 in pension value of supplemental retirement plan; automobile reimbursements of $560; and a one-time award for $60,000 in recognition of Mr. Foxs extraordinary service related to consolidation activity.
(6) Includes life insurance premiums of $268; 401(k) match of $2,708; profit sharing of $2,451; change of $4,475 in pension value of supplemental retirement plan; and automobile reimbursements of $595.
Mr. Garst was awarded a discretionary bonus of $30,000 for his services to First Perry and The First National Bank of Marysville for the year 2008 and 2007. For the year 2008, Mr. Fox received a discretionary bonus of $30,000 as compared to $10,000 in 2007 for his services to HNB and Halifax National Bank. Messrs. Garst and Fox are each parties to three-year term rolling employment agreements with Riverview Financial Corporation and Riverview National Bank, wherein on every anniversary date of the agreement, the agreement will be extended for another year unless notice of nonrenewal is given. The agreements provide that the executives may participate in those employee benefit plans in which they are eligible. It also provides that if the executives are terminated without cause or if after a change in control there is a reduction in salaries or benefits, or a change in their
81
reporting responsibilities, duties or titles, they will receive three times their Annual Compensation as defined in the agreement in 24 monthly installments. The executives will receive a continuation of all non-cash benefits for three years. If the payments are determined to be parachute payments and the executives are subject to excise taxes, they will receive an additional cash payment in an amount such that the after-tax proceeds of such payment will be equal to the amount of the excise tax.
Mr. Fox is a party to a supplemental executive retirement plan, wherein he will receive $44,000 per year for 15 years beginning upon his termination of employment after age 65. Upon his termination of employment, he shall become fully vested in the benefit.
ITEM 12 . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS .
Principal Holders
The following table shows, to the best of our knowledge, those persons or entities who owned of record or beneficially, on March 1, 2009, more than 5% of the outstanding Riverview Financial Corporation common stock.
Name and Address
|
|
Amount and Nature
|
|
Percent of Class |
|
|
|
|
|
|
|
Arlene G. Deckard
|
|
108,601 |
|
6.21 |
% |
Beneficial Ownership of Executive Officers, Directors and Nominees
The following table shows, as of December 31, 2008 the amount and percentage of Riverview Financial Corporation common stock beneficially owned by each director, each nominee, each named executive officer and all directors, nominees and executive officers of the Corporation as a group.
Beneficial ownership of shares of Riverview Financial Corporation common stock is determined in accordance with Securities and Exchange Commission Rule 13d-3, which provides that a person should be credited with the ownership of any stock held, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares:
· Voting power, which includes the power to vote or to direct the voting of the stock; or
· Investment power, which includes the power to dispose or direct the disposition of the stock; or
· The right to acquire beneficial ownership within 60 days after December 31, 2008.
82
Unless otherwise indicated in a footnote appearing below the table, all shares reported in the table below are owned directly by the reporting person. The number of shares owned by the directors, nominees and executive officers is rounded to the nearest whole share. The percentage of all Riverview Financial Corporation common stock owned by each director, nominee or executive officer is less than 1%.
Name of Individual or Identity of Group
Directors and Nominees |
|
Amount and
|
|
Percent of
|
|
|
|
|
|
|
|
Roland R. Alexander |
|
17,045 |
|
0.97 |
% |
Arthur M. Feld |
|
13,636 |
|
0.78 |
% |
James G. Ford, II |
|
9,925 |
|
0.57 |
% |
Kirk D. Fox |
|
660 |
|
0.04 |
% |
Robert M. Garst |
|
1,217 |
|
0.07 |
% |
R. Keith Hite |
|
14,731 |
|
0.84 |
% |
David W. Hoover |
|
5,418 |
|
0.31 |
% |
William L. Hummel |
|
11,444 |
|
0.65 |
% |
Joseph D. Kerwin |
|
9,513 |
|
0.54 |
% |
James M. Lebo |
|
3,225 |
|
0.18 |
% |
Paul R. Reigle |
|
15,120 |
|
0.86 |
% |
John M. Schrantz |
|
12,043 |
|
0.69 |
% |
David A. Troutman |
|
13,230 |
|
0.76 |
% |
|
|
|
|
|
|
Executive Officers |
|
|
|
|
|
Robert Weidler |
|
121 |
|
0.00 |
% |
|
|
|
|
|
|
All directors and executive officers as a group (16 persons) |
|
127,328 |
|
7.28 |
% |
ITEM 13 . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE .
Currently, the Board of Directors has thirteen members. Under the Nasdaq Stock Market standards for independence, the following directors meet the standards for independence: Messrs. Alexander, Feld, Ford, Hite, Hoover, Hummel, Kerwin, Lebo, Reigle, Schrantz and Troutman. This constitutes more than a majority of our Board of Directors. Only independent directors serve on our Audit Committee, Compensation Committee and Governance and Nominating Committee.
In determining the directors independence, the Board of Directors considered loan transactions between Riverview National Bank and the directors, their family members and
83
businesses with whom they are associated, as well as any contributions made to non-profit organizations with whom they are associated.
The table below includes a description of other categories or types of transactions, relationships or arrangements considered by the Board (in addition to those listed above and under the section entitled Transactions with Directors and Executive Officers below) in reaching its determination that the directors are independent.
Name |
|
Independent |
|
Other Transactions/Relationships/Arrangements |
Mr. Alexander |
|
Yes |
|
None |
Mr. Feld |
|
Yes |
|
Legal services collection work |
Mr. Ford |
|
Yes |
|
Insurance consulting |
Mr. Hite |
|
Yes |
|
None |
Mr. Hoover |
|
Yes |
|
Payroll processing services |
Mr. Hummel |
|
Yes |
|
None |
Mr. Kerwin |
|
Yes |
|
Legal services contracts |
Mr. Lebo |
|
Yes |
|
Insurance consulting |
Mr. Reigle |
|
Yes |
|
None |
Mr. Schrantz |
|
Yes |
|
None |
Mr. Troutman |
|
Yes |
|
None |
In each case, the Board determined that none of the transactions above impaired the independence of the director.
Some of Riverview Financial Corporations directors and executive officers and the companies with which they are associated were customers of, and had banking transactions with, Riverview Financial Corporations subsidiary bank, Riverview National Bank or predecessor banks, The First National Bank of Marysville and Halifax National Bank, during 2008. All loans and loan commitments made to them and to their companies were made in the ordinary course of bank business, on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with other customers of the bank, and did not involve more than a normal risk of collectability or present other unfavorable features. Riverview Financial Corporations subsidiary bank anticipates that they will enter into similar transactions in the future.
The Board of Directors must approve all related party transactions that are significant. The director in question is excused from the board meeting at the time the decision is made.
84
ITEM 14 . PRINCIPAL ACCOUNTANT FEES AND SERVICES .
Prior to the formation of Riverview Financial Corporation on December 31, 2008, Beard Miller Company LLP was the independent registered public accounting firm for First Perry Bancorp, Inc. and HNB Bancorp, Inc., individually. Aggregate fees billed by Beard Miller Company LLP, the independent registered public accounting firm for Riverview, for services rendered to First Perry Bancorp, Inc. and HNB Bancorp, Inc., in the aggregate during the year ended December 31, 2008 were as follows:
|
|
2008 |
|
|
Audit fees(1) |
|
$ |
228,823 |
|
Audit-related fees(2) |
|
6,238 |
|
|
Tax fees(3) |
|
2,845 |
|
|
All other fees |
|
|
|
|
Total |
|
$ |
237,906 |
|
(1) Includes professional services rendered for the audit of Riverviews 2008 consolidated financial statements, and First Perry Bancorp, Inc. and HNB Bancorp, Inc.s 2007 and 2006 consolidated financial statements, review of the interim consolidated financial statements included in Forms 10-Q and procedures associated with the registration statement on Form S-4, including out-of-pocket expenses.
(2) Includes certain review, analysis and consultations in regard certain accounting transactions.
(3) Includes review, analysis and consultations in regard to 280G compliance..
The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit related services, tax services and other services. The Audit Committee pre-approval process is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre-approve particular services on a case by case basis. For each proposed service, the independent auditor is required to provide detailed back-up documentation at the time of approval.
ITEM 15 . EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .
(a) |
1. |
Financial statements are incorporated by reference in Part II, Item 8 hereof. |
|
|
Report of Independent Registered Public Accounting Firm |
|
|
Consolidated Balance Sheets |
|
|
Consolidated Statements of Income |
|
|
Consolidated Statements of Changes in Shareholders Equity |
|
|
Consolidated Statements of Cash Flows |
|
|
Notes to Consolidated Financial Statements |
|
|
|
|
2. |
The financial statement schedules, required by Regulation S-X, are omitted because the information is either not applicable or is included elsewhere in the consolidated financial statements. |
|
|
|
|
3. |
The following Exhibits are filed as part of this filing on Form 10-K, or incorporated by reference hereto: |
85
|
3(i) |
The Registrants Articles of Incorporation. (Incorporated by reference to Annex B included in Riverviews Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-153486) filed November 4, 2008). |
|
|
|
|
3(ii) |
The Registrants By-laws. (Incorporated by reference to Annex C included in Riverviews Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-153486) filed November 4, 2008). |
|
|
|
|
10.1 |
Amended and Restated Executive Employment Agreement of Robert M. Garst. |
|
|
|
|
10.2 |
Amended and Restated Executive Employment Agreement of Kirk D. Fox. |
|
|
|
|
10.3 |
Employment Agreement of Theresa M. Wasko. |
|
|
|
|
10.4 |
Executive Employment Agreement of Paul B. Zwally. |
|
|
|
|
10.5 |
Employment Agreement of William L. Hummel. |
|
|
|
|
10.6 |
Acknowledgement and Release Agreement of William L. Hummel |
|
|
|
|
10.7 |
Form of Director Deferred Fee Agreements with Directors Roland R. Alexander, Robert M. Garst and Kirk D. Fox. |
|
|
|
|
10.8 |
2009 Stock Option Plan. |
|
|
|
|
14.1 |
Code of Ethics. |
|
|
|
|
21 |
Subsidiaries of Registrant. |
|
|
|
|
31.1 |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
|
|
|
|
31.2 |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
|
|
|
|
32.1 |
Chief Executive Officers §1350 Certification. |
|
|
|
|
32.2 |
Chief Financial Officers §1350 Certification. |
86
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/ Robert M. Garst |
|
|
|
|
Robert M. Garst |
|
|
|
|
Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
Date: |
April 9, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
DATE |
|
|
|
|
|
By: |
/s/ Robert M. Garst |
|
April 9, 2009 |
|
Robert
M. Garst
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
By: |
/s/ Theresa M. Wasko |
|
April 9, 2009 |
|
Theresa M. Wasko |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
By: |
/s/ Roland R. Alexander |
|
April 9, 2009 |
|
Roland R. Alexander, Director |
|
|
|
|
|
|
By: |
/s/ Arthur M. Feld |
|
April 9, 2009 |
|
Arthur M. Feld, Director |
|
|
|
|
|
|
By: |
/s/ James G. Ford, II |
|
April 9, 2009 |
|
James G. Ford, II, Director |
|
|
|
|
|
|
By: |
/s/ Kirk D. Fox |
|
April 9, 2009 |
|
Kirk D. Fox, President & Director |
|
|
|
|
|
|
By: |
/s/ R. Keith Hite |
|
April 9, 2009 |
|
R. Keith Hite, Director |
|
|
87
By: |
/s/ David W. Hoover |
|
April 9, 2009 |
|
David W. Hoover, Chairman of the Board |
|
|
|
and Director |
|
|
|
|
|
|
By: |
/s/ Joseph D. Kerwin |
|
April 9, 2009 |
|
Joseph D. Kerwin, Director |
|
|
|
|
|
|
By: |
/s/ James M. Lebo |
|
April 9, 2009 |
|
James M. Lebo, Director |
|
|
|
|
|
|
By: |
/s/ Paul R. Reigle |
|
April 9, 2009 |
|
Paul R. Reigle, Director |
|
|
|
|
|
|
By: |
/s/ John M. Schrantz |
|
April 9, 2009 |
|
John M. Schrantz, Vice Chairman of the Board |
|
|
|
and Director |
|
|
|
|
|
|
By: |
/s/ David A. Troutman |
|
April 9, 2009 |
|
David A. Troutman, Director |
|
|
88
3(i) |
The Registrants Articles of Incorporation. (Incorporated by reference to Annex B included in Riverviews Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-153486) filed November 4, 2008). |
|
|
3(ii) |
The Registrants By-laws. (Incorporated by reference to Annex C included in Riverviews Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-153486) filed November 4, 2008). |
|
|
10.1 |
Amended and Restated Executive Employment Agreement of Robert M. Garst. |
|
|
10.2 |
Amended and Restated Executive Employment Agreement of Kirk D. Fox. |
|
|
10.3 |
Employment Agreement of Theresa M. Wasko. |
|
|
10.4 |
Executive Employment Agreement of Paul B. Zwally. |
|
|
10.5 |
Employment Agreement of William L. Hummel. |
|
|
10.6 |
Acknowledgement and Release Agreement of William L. Hummel. |
|
|
10.7 |
Form of Director Deferred Fee Agreements with Directors Roland R. Alexander, Robert M. Garst and Kirk D. Fox. |
|
|
10.8 |
2009 Stock Option Plan. |
|
|
14.1 |
Code of Ethics. |
|
|
21 |
Subsidiaries of Registrant. |
|
|
31.1 |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
|
|
31.2 |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
|
|
32.1 |
Chief Executive Officers §1350 Certification. |
|
|
32.2 |
Chief Financial Officers §1350 Certification. |
89
EXHIBIT 10.1
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31 st day of December 2008, among Riverview Financial Corporation (Corporation), with principal offices at 3 rd and Market Streets Halifax, PA 17032, Riverview National Bank (Bank) with principal offices at 101 Lincoln Street, Marysville, Pennsylvania, 17053, and ROBERT M. GARST, 167 Timber Ridge Road, Hummelstown, Pennsylvania, 17036 (hereinafter referred to as EXECUTIVE).
WITNESSETH:
WHEREAS, the Executive was President of First Perry Bancorp, Inc. (First Perry);
WHEREAS, Executive entered into an Executive Employment Agreement with First Perrys subsidiary, The First National Bank of Marysville (Marysville) on December 3, 2006, as amended on June 18, 2008;
WHEREAS, Halifax National Bank (Halifax) is the wholly owned subsidiary of HNB Bancorp, Inc. (HNB);
WHEREAS, First Perry and HNB entered into an Agreement and Plan of Consolidation dated on or about June 18, 2008 (Consolidation Agreement) pursuant to which First Perry and HNB shall consolidate into Corporation and Marysville and Halifax shall consolidate into the Bank (Consolidation);
WHEREAS, Executive shall become the Chief Executive Officer of the Bank;
WHEREAS, the parties desire to amend and restate Executives employment agreement as a result of the Consolidation;
WHEREAS, this Amended and Restated Executive Employment Agreement shall become effective upon the Effective Date of the Consolidation as defined in the Consolidation Agreement;
NOW THEREFORE, in consideration of the mutual covenants set forth below and intending to be legally bound, the parties and the Executive agree as follows:
I. TERM OF EMPLOYMENT
1. The Bank hereby employs the Executive as Chief Executive Officer as set forth below, and Executive hereby accepts this employment and agrees to render such services to the Bank on the terms and conditions as set forth in this Agreement. This
1
Agreement shall be for a three (3) year period (the Employment Period) beginning on the Effective Date of the Consolidation, and if not previously terminated pursuant to the terms of this Agreement, shall end three years later (the Initial Term). The employment Period shall be extended automatically for one (1) additional year on the anniversary date of this Agreement (Renewal Date) and then on each anniversary of the Renewal Date of this Agreement thereafter, unless Bank or Executive gives contrary written notice to the other ninety (90) days prior to the anniversary date so that upon such anniversary of the Renewal Date if notice had not been previously given as provided in this Section I.1, the Employment Period shall continue for a three (3) year period thereafter. References in the Agreement to Employment Period shall refer to the Initial Term of this Agreement and any extensions to the Initial Term. It is the intention of the parties that this Agreement be Evergreen unless (i) either party gives written notice to the other party of his or its intention not to renew this Agreement as provided above or (ii) this Agreement is terminated pursuant to Section VI of this Agreement.
2. During the term of this Agreement the Executive shall perform such executive services for the Bank as are consistent with his title and as are assigned to him by the Banks Board of Directors.
3. During the term of this Agreement, the Executive shall devote his best efforts, including such portion of his time and effort to the affairs and business of the Bank as he has customarily provided to this date.
4. The services of Executive shall be rendered principally in Pennsylvania, but he shall do such traveling on behalf of the Bank as may be reasonably required.
II. COMPETITIVE ACTIVITIES
Executive agrees that during the term of his employment except with the express consent of the Board of Directors, he will not, directly or indirectly, engage or participate in, become a director of, or render advisory or other services for, or make any financial investment in any firm, corporation, business entity or business enterprise competitive with the Bank; provided, however, that Executive shall not thereby be precluded or prohibited from owning passive investments, including investments in the securities of other financial institutions, so long as such ownership does not require him to devote substantial time to management or control of the business or activities in which he has invested.
III. COMPENSATION
The Bank will compensate Executive for Executives services during the term of the Agreement at a minimum Annual Base Salary of $132,500 per year, payable at the same times as salaries are payable to other executive employees. Bank may from time to time increase Executives Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section to reflect the increased amounts.
2
IV. PARTICIPATION IN RETIREMENT AND MEDICAL PLANS,
LIFE INSURANCE AND DISABILITY
1. Executive shall be entitled to participate in any employee benefit plan of the Bank relating to pension, profit-sharing or other retirement benefits and health or medical coverage or reimbursement plans that the Bank may adopt for the benefit of its employees.
2. In the event the Executive suffers from a Disability as defined in Section IV.3, he shall nevertheless continue to receive an amount equal to and no greater than 100% of his annual base salary, less amounts payable under any disability plan of the Bank, for the first three months of his disability. Thereafter, he shall only be entitled to any amount provided for in the Banks long-term disability policy in effect at the time of the payments determined therein.
3. For purposes of this Agreement, Disability means the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. The Executive will be deemed disabled if the Social Security Administration has determined that he is disabled or if a carrier of any group disability insurance policy provided by the Bank or made available by the Bank to its employees and covering the Executive determines that he is disabled provided that the policys definition of disability complies with the definition of disability under IRC Section 409A.
V. ADDITIONAL COMPENSATION AND BENEFITS
1. During the term of the Agreement, Executive will be entitled to participate in and receive the benefits of any stock option, profit sharing, or other plan, benefit or privilege given to employees and executives of the Bank or its subsidiaries and affiliates which may come into existence hereafter, to the extent commensurate with his duties and responsibilities, as fixed by the Banks Board of Directors or any committee of such Board or of the Bank selected for such purpose. To the extent Executive is otherwise eligible and qualifies, he shall participate in and receive such benefits or privileges. The Bank shall not make any changes in such plans, benefits or privileges which would adversely affect Executives rights or benefits, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights or benefits to Executive as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section III.
2. For services performed by Executive under this Agreement, Bank has established a bonus program for Executive which is attached hereto as Exhibit A. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Bank to Executive provided for in this Agreement.
3
VI. TERMINATION
1. In the event Executives employment is terminated, Executives right to compensation and other benefits under this agreement shall be as set forth hereinafter in this Section VI. In the event the Executive is terminated in a manner which violates the provisions of this Agreement, as determined by a court of competent jurisdiction, Bank shall reimburse Executive for all reasonable costs, including attorneys fees in challenging such termination. Such reimbursement shall be in addition to all rights to which the Executive is otherwise entitled under this Agreement.
2. (a) If a change in control (hereinafter referred to as CIC) of the Bank shall occur, as defined in 2(b), and without Executives express written consent, thereafter, there shall be:
(i) an involuntary termination of Executive without Cause as defined in Section VI 8;
(ii) an assignment to Executive of duties inconsistent with Executives positions, duties, responsibilities and status with the Bank immediately prior to a CIC;
(iii) a change in Executives reporting responsibilities, titles or offices in effect immediately prior to a CIC of the Bank, including any removal of the Executive from, or any failure to reelect Executive to any of such positions, except in connection with a termination for disability or retirement;
(iv) a reduction by the Bank in Executives annual salary in effect immediately prior to a CIC or as the same may be increased from time to time; or
(v) the failure of the Bank to continue in effect any bonus, benefit or compensation plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating at the time of a CIC of the Bank, or the taking of any action by Bank which would adversely affect Executives participation in or materially reduce Executives benefits under any of such plans;
then at the option of the Executive, Executive shall within ninety (90) days of the occurrence of any of the foregoing events, provide notice to Bank of the existence of the condition and provide Bank thirty (30) days in which to cure such condition. In the event that Bank does not cure the condition within thirty (30)
4
days of such notice, Executive may resign from employment for Good Reason by delivering written notice (Notice of Termination) to Bank.
(b) For purposes of this Agreement, the definition of a Change in Control (CIC) of the Bank shall mean:
(1)(a) a merger, consolidation or division involving Bank or its parent company, (b) a sale, exchange, transfer or other disposition of substantially all of the assets of Bank, or (c) a purchase by Bank of substantially all of the assets of purchase or disposition a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and of the Board of Directors of such entitys parent corporation, if any, are former members of the Board of Directors of Bank; or
(2) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the Exchange Act), other than Bank or any person who on the date hereof is a director or officer of Bank is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bank or its parent company representing thirty five (35%) percent or more of the combined voting power of Banks or its parent companys then outstanding securities; or
(3) during any period of one (1) year during the term of Executives employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period.
Notwithstanding b(1), (2), or (3) or any other provision above, the consolidation of First Perry Bancorp, Inc. and HNB Bancorp, Inc, pursuant to the Agreement and Plan of Consolidation dated on or about June 18, 2008 between First Perry Bancorp, Inc. and HNB Bancorp, Inc. shall not constitute a Change in Control under this Section or this Agreement.
3. In the event that Executive delivers a Notice of Termination (as defined in Section VI 2 of this Agreement) to Bank, Executive shall be entitled to receive the compensation and benefits set forth below:
If a Change in Control (as defined in Section 2(b) of this Agreement) has also occurred, Bank shall pay Executive an amount equal to 3.0 times Executives Annual Compensation minus applicable taxes and withholdings, payable in twenty-four (24)
5
equal monthly installments. For purposes of this paragraph, Annual Compensation shall be defined as Executives Annual Base Salary plus the highest bonus received within the previous two years plus the amount which Bank pays for employee benefits (including automobile allowance) for Executive for a one year period. In addition, for three-years after the date of Executives termination, Bank shall provide Executive with continued participation in all noncash employee benefit plans, programs or arrangements (including, without limitation, pension and retirement plans and arrangements, stock option plans, life insurance and health and accident plans and arrangements, medical insurance plans, disability plans, and vacation plans) in which Executive was entitled to participate immediately prior to the date of termination of his employment provided Executive is eligible to participate in such plans. In the event that Executive is not eligible to participate, then Executive shall receive an amount necessary to reimburse Executive for the cost incurred by him to obtain substantially similarly benefits.
In the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, Bank will pay to Executive an additional cash payment (Gross-up Payment) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or Excise Tax on such Gross-up Payment) will be equal to the amount of the Excise Tax.
4. If Executives employment with Bank is terminated by Bank for any reason other than Cause as defined in Section VI 7, then Executive shall be entitled to an amount equal to 3.0 times Executives Annual Compensation minus applicable taxes and withholdings payable in twenty-four (24) equal monthly installments. For purposes of this paragraph, Annual Compensation shall be defined as Executives Annual Base Salary plus the highest bonus received within the previous two years plus the amount which Bank pays for employee benefits (including automobile allowance) for Executive for a one year period. In addition, for three-years after the date of Executives termination, Bank shall provide Executive with continued participation in all noncash employee benefit plans, programs or arrangements (including, without limitation, pension and retirement plans and arrangements, stock option plans, life insurance and health and accident plans and arrangements, medical insurance plans, disability plans, and vacation plans) in which Executive was entitled to participate immediately prior to the date of termination of his employment provided Executive is eligible to participate in such plans. In the event that Executive is not eligible to participate, then Executive shall receive an amount necessary to reimburse Executive for the cost incurred by him to obtain substantially similarly benefits.
5. Any termination of Executives employment by the Bank or by the Executive shall be communicated by written notice of termination to the other party by means of United States certified mail, return receipt requested, pursuant to Section VII 3 of this Agreement. For purposes of this Agreement, a notice of termination shall mean a dated notice which shall (i) indicate the specific termination provision in the Agreement relied upon; (ii) set forth in reasonable detail the facts and circumstances claimed to
6
provide a basis for termination of Executives employment under the provision so indicated; and (iii) specify a date of termination, which shall not be less than thirty nor more than ninety days after such notice of termination.
6. Executive shall not be required to mitigate the amount of any payment provided under this Agreement by seeking employment or otherwise.
7. Termination for Cause. The Board of Directors of the Bank may terminate Executives employment at any time for cause. For purposes of this agreement Cause includes,
(i) the Executives willful failure to perform or to comply with any term or provision of this Agreement;
(ii) the Executives willful failure to perform or to comply fully with any lawful directive of the Banks Board of Directors or of any duly constituted committee thereof after written notice and a failure to cure within thirty (30) days of such notice;
(iii) Executives violation of Banks EBO policy; or
(iv) Executives removal from office or permanently prohibited from participating in the conduct of the Banks affairs by a final order issued by an appropriate federal banking agency pursuant to Section 8(e) or 8(g) of the Federal Deposit Insurance Act or by the Comptroller of the Currency pursuant to national law.
8. In the event that Executive is terminated for cause as defined in Section VI 7, all obligations of Bank under this Agreement shall terminate.
9. Notwithstanding any other provision, in the event that Executive is determined to be a specified employee (key employee) as that term is defined in Section 409A of the Code, no payment that is determined to be deferred compensation subject to Section 409A of the Code shall be made until one day following six months from the date of separation of service as that term is defined in Section 409A of the Code.
VII. MISCELLANEOUS
1. Notwithstanding any other provision contained in this agreement, the payment or obligation to pay monies or granting of any rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that Executive now has under any plan or benefit presently outstanding.
2. This Agreement may not be modified, changed, amended, extended, or altered except in writing signed by the Executive or by his duly authorized representative, and by a duly authorized officer of the Bank.
7
3. All notices given or required to be given shall be in writing, sent by United States certified mail, return receipt requested, postage prepaid, to Executive (or to Executives spouse or estate upon Executives death) at Executives last known address, and to the Bank at its principal office. All such notices shall be effective when deposited in the mail in the manner specified in this Section VII 3. Either party by written notice may change or designate the place for receipt of all such notices.
4. This Agreement amends and supersedes all previous employment agreements between First Perry or The First National Bank of Marysville and Executive.
VIII. SUCCESSORS, ETC.
1. This Agreement shall inure to the benefit of and be binding upon Executive, and, to the extent applicable, his heirs, assigns, executors, and personal representatives and the Bank, its successors, and assigns, including, without limitation, any person, partnership, or corporation which may acquire all or substantially all of the Banks assets and business, or with or into which the Bank may be consolidated or merged. This provision shall apply in the event of any subsequent merger, consolidation, or transfer.
2. This Agreement is personal to each of the parties and neither party may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of the other party.
IX. APPLICABLE LAW
This Agreement shall be governed in all respects and be interpreted by and under the laws of the Commonwealth of Pennsylvania, except to the extent that such law may be preempted by applicable federal law, in which event this Agreement shall be governed and interpreted by and under federal law. This Agreement shall also be interpreted as is minimally required to qualify any payment hereunder as not triggering any penalty on the Executive or the Bank pursuant to Code Section 409A and the regulations promulgated thereunder.
X. SEVERABILITY
If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions nevertheless shall continue in full force and effect.
XI. ARBITRATION
Each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement (except the question of Executives disability which is governed in Section IV), are to be submitted for resolution, in Marysville, Pennsylvania,
8
to the American Arbitration Association (the Association) in accordance with the Associations National Rules for the Resolution of Employment Disputes or other applicable rules then in effect (Rules). Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Bank and Executive may, as a matter of right, mutually agree on the appointment of a particular arbitrator from the Associations pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.
Attest: |
|
Riverview Bancorp, Inc. |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ David W. Hoover |
|
|
|
|
|
|
Riverview National Bank |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ Kirk D. Fox |
|
|
|
|
Witness: |
|
Executive |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ Robert Garst |
|
|
|
Robert M Garst |
9
EXHIBIT 10.2
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31 st day of December 2008, among Riverview Financial Corporation (Corporation), with principal offices at 3 rd and Market Streets Halifax, PA 17032, Riverview National Bank (Bank) with principal offices at 101 Lincoln Street, Marysville, Pennsylvania, 17053, and Kirk D. Fox 1575 Shippen Dam Road, Millersburg, Pennsylvania (hereinafter referred to as EXECUTIVE).
WITNESSETH:
WHEREAS, Halifax National Bank (Halifax) is the wholly owned subsidiary of HNB Bancorp, Inc. (HNB);
WHEREAS, The First National Bank of Marysville (Marysville) is the wholly owned subsidiary of First Perry Bancorp, Inc. (First Perry);
WHEREAS, the Executive is Executive Vice President of Halifax;
WHEREAS, Executive entered into an Executive Employment Agreement with Halifax on December 1, 2006, as amended on June 18, 2008;
WHEREAS, First Perry and HNB entered into an Agreement and Plan of Consolidation dated on or about June 18, 2008 (Consolidation Agreement) pursuant to which First Perry and HNB shall consolidate into Corporation and Marysville and Halifax shall consolidate into the Bank (Consolidation);
WHEREAS, Executive shall become the President of the Bank;
WHEREAS, the parties desire to amend and restate Executives employment agreement as a result of the Consolidation;
WHEREAS, this Amended and Restated Executive Employment Agreement shall become effective upon the Effective Date of the Consolidation as defined in the Consolidation Agreement;
NOW THEREFORE, in consideration of the mutual covenants set forth below and intending to be legally bound, the parties agree as follows:
I. TERM OF EMPLOYMENT
1. The Bank hereby employs the Executive as President as set forth below, and Executive hereby accepts this employment and agrees to render such services to the
1
Bank on the terms and conditions as set forth in this Agreement. This Agreement shall be for a three (3) year period (the Employment Period) beginning on the Effective Date of the Consolidation, and if not previously terminated pursuant to the terms of this Agreement, shall end three years later (the Initial Term). The employment Period shall be extended automatically for one (1) additional year on the anniversary date of this Agreement (Renewal Date) and then on each anniversary of the Renewal Date of this Agreement thereafter, unless Bank or Executive gives contrary written notice to the other ninety (90) days prior to the anniversary date so that upon such anniversary of the Renewal Date if notice had not been previously given as provided in this Section I.1, the Employment Period shall continue for a three (3) year period thereafter. References in the Agreement to Employment Period shall refer to the Initial Term of this Agreement and any extensions to the Initial Term. It is the intention of the parties that this Agreement be Evergreen unless (i) either party gives written notice to the other party of his or its intention not to renew this Agreement as provided above or (ii) this Agreement is terminated pursuant to Section VI of this Agreement.
2. During the term of this Agreement the Executive shall perform such executive services for the Bank as are consistent with his title and as are assigned to him by the Banks Board of Directors.
3. During the term of this Agreement, the Executive shall devote his best efforts, including such portion of his time and effort to the affairs and business of the Bank as he has customarily provided to this date.
4. The services of Executive shall be rendered principally in Pennsylvania, but he shall do such traveling on behalf of the Bank as may be reasonably required.
II. COMPETITIVE ACTIVITIES
Executive agrees that during the term of his employment except with the express consent of the Board of Directors, he will not, directly or indirectly, engage or participate in, become a director of, or render advisory or other services for, or make any financial investment in any firm, corporation, business entity or business enterprise competitive with the Bank; provided, however, that Executive shall not thereby be precluded or prohibited from owning passive investments, including investments in the securities of other financial institutions, so long as such ownership does not require him to devote substantial time to management or control of the business or activities in which he has invested.
III. COMPENSATION
The Bank will compensate Executive for Executives services during the term of the Agreement at a minimum Annual Base Salary of $130,000 per year, payable at the same times as salaries are payable to other executive employees. Bank may from time to time increase Executives Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section to reflect the increased amounts.
2
IV. PARTICIPATION IN RETIREMENT AND MEDICAL PLANS,
LIFE INSURANCE AND DISABILITY
1. Executive shall be entitled to participate in any employee benefit plan of the Bank relating to pension, profit-sharing or other retirement benefits and health or medical coverage or reimbursement plans that the Bank may adopt for the benefit of its employees.
2. In the event the Executive suffers from a Disability as defined in Section IV.3, he shall nevertheless continue to receive an amount equal to and no greater than 100% of his annual base salary, less amounts payable under any disability plan of the Bank, for the first three months of his disability. Thereafter, he shall only be entitled to any amount provided for in the Banks long-term disability policy in effect at the time of the payments determined therein.
3. For purposes of this Agreement, Disability means the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. The Executive will be deemed disabled if the Social Security Administration has determined that he is disabled or if a carrier of any group disability insurance policy provided by the Bank or made available by the Bank to its employees and covering the Executive determines that he is disabled provided that the policys definition of disability complies with the definition of disability under IRC Section 409A.
V. ADDITIONAL COMPENSATION AND BENEFITS
1. During the term of the Agreement, Executive will be entitled to participate in and receive the benefits of any stock option, profit sharing, or other plan, benefit or privilege given to employees and executives of the Bank or its subsidiaries and affiliates which may come into existence hereafter, to the extent commensurate with his duties and responsibilities, as fixed by the Banks Board of Directors or any committee of such Board or of the Bank selected for such purpose. To the extent Executive is otherwise eligible and qualifies, he shall participate in and receive such benefits or privileges. The Bank shall not make any changes in such plans, benefits or privileges which would adversely affect Executives rights or benefits, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights or benefits to Executive as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section III.
2. For services performed by Executive under this Agreement, Bank has established a bonus program for Executive which is attached hereto as Exhibit A. The
3
payment of any such bonuses shall not reduce or otherwise affect any other obligation of Bank to Executive provided for in this Agreement.
VI. TERMINATION
1. In the event Executives employment is terminated, Executives right to compensation and other benefits under this agreement shall be as set forth hereinafter in this Section VI. In the event the Executive is terminated in a manner which violates the provisions of this Agreement, as determined by a court of competent jurisdiction, Bank shall reimburse Executive for all reasonable costs, including attorneys fees in challenging such termination. Such reimbursement shall be in addition to all rights to which the Executive is otherwise entitled under this Agreement.
2. (a) If a change in control (hereinafter referred to as CIC) of the Bank shall occur, as defined in 2(b), and without Executives express written consent, thereafter, there shall be:
(i) an involuntary termination of Executive without Cause as defined in Section VI 8;
(ii) an assignment to Executive of duties inconsistent with Executives positions, duties, responsibilities and status with the Bank immediately prior to a CIC;
(iii) a change in Executives reporting responsibilities, titles or offices in effect immediately prior to a CIC of the Bank, including any removal of the Executive from, or any failure to reelect Executive to any of such positions, except in connection with a termination for disability or retirement;
(iv) a reduction by the Bank in Executives annual salary in effect immediately prior to a CIC or as the same may be increased from time to time; or
(v) the failure of the Bank to continue in effect any bonus, benefit or compensation plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating at the time of a CIC of the Bank, or the taking of any action by Bank which would adversely affect Executives participation in or materially reduce Executives benefits under any of such plans;
then at the option of the Executive, Executive shall within ninety (90) days of the occurrence of any of the foregoing events, provide notice to Bank of the existence of the condition and provide Bank thirty (30) days in which to cure such condition. In the event that Bank does not cure the condition within thirty (30) days of such notice, Executive
4
may resign from employment for Good Reason by delivering written notice (Notice of Termination) to Bank.
(b) For purposes of this Agreement, the definition of a Change in Control (CIC) of the Bank shall mean:
(1)(a) a merger, consolidation or division involving Bank or its parent company, (b) a sale, exchange, transfer or other disposition of substantially all of the assets of Bank, or (c) a purchase by Bank of substantially all of the assets of purchase or disposition a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and of the Board of Directors of such entitys parent corporation, if any, are former members of the Board of Directors of Bank; or
(2) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the Exchange Act), other than Bank or any person who on the date hereof is a director or officer of Bank is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bank or its parent company representing thirty five (35%) percent or more of the combined voting power of Banks or its parent companys then outstanding securities; or
(3) during any period of one (1) year during the term of Executives employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period.
Notwithstanding b(1), (2), or (3) or any other provision above, the consolidation of First Perry Bancorp, Inc. and HNB Bancorp, Inc, pursuant to the Agreement and Plan of Consolidation dated on or about June 18, 2008 between First Perry Bancorp, Inc. and HNB Bancorp, Inc. shall not constitute a Change in Control under this Section or this Agreement.
3. In the event that Executive delivers a Notice of Termination (as defined in Section VI 2 of this Agreement) to Bank, Executive shall be entitled to receive the compensation and benefits set forth below:
If a Change in Control (as defined in Section 2(b) of this Agreement) has also occurred, Bank shall pay Executive an amount equal to 3.0 times Executives Annual Compensation minus applicable taxes and withholdings, payable in twenty-four (24) equal monthly installments. For purposes of this paragraph, Annual Compensation shall
5
be defined as Executives Annual Base Salary plus the highest bonus received within the previous two years plus the amount which Bank pays for employee benefits (including automobile allowance or the value of the use of a Bank automobile) for Executive for a one year period. In addition, for three-years after the date of Executives termination, Bank shall provide Executive with continued participation in all noncash employee benefit plans, programs or arrangements (including, without limitation, pension and retirement plans and arrangements, stock option plans, life insurance and health and accident plans and arrangements, medical insurance plans, disability plans, and vacation plans) in which Executive was entitled to participate immediately prior to the date of termination of his employment provided Executive is eligible to participate in such plans. In the event that Executive is not eligible to participate, then Executive shall receive an amount necessary to reimburse Executive for the cost incurred by him to obtain substantially similarly benefits.
In the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, Bank will pay to Executive an additional cash payment (Gross-up Payment) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or Excise Tax on such Gross-up Payment) will be equal to the amount of the Excise Tax.
4. If Executives employment with Bank is terminated by Bank for any reason other than Cause as defined in Section VI 7, then Executive shall be entitled to an amount equal to 3.0 times Executives Annual Compensation minus applicable taxes and withholdings payable in twenty-four (24) equal monthly installments. For purposes of this paragraph, Annual Compensation shall be defined as Executives Annual Base Salary plus the highest bonus received within the previous two years plus the amount which Bank pays for employee benefits (including automobile allowance) for Executive for a one year period. In addition, for three-years after the date of Executives termination, Bank shall provide Executive with continued participation in all noncash employee benefit plans, programs or arrangements (including, without limitation, pension and retirement plans and arrangements, stock option plans, life insurance and health and accident plans and arrangements, medical insurance plans, disability plans, and vacation plans) in which Executive was entitled to participate immediately prior to the date of termination of his employment provided Executive is eligible to participate in such plans. In the event that Executive is not eligible to participate, then Executive shall receive an amount necessary to reimburse Executive for the cost incurred by him to obtain substantially similarly benefits.
5. Any termination of Executives employment by the Bank or by the Executive shall be communicated by written notice of termination to the other party by means of United States certified mail, return receipt requested, pursuant to Section VII 3 of this Agreement. For purposes of this Agreement, a notice of termination shall mean a dated notice which shall (i) indicate the specific termination provision in the Agreement relied upon; (ii) set forth in reasonable detail the facts and circumstances claimed to
6
provide a basis for termination of Executives employment under the provision so indicated; and (iii) specify a date of termination, which shall not be less than thirty nor more than ninety days after such notice of termination.
6. Executive shall not be required to mitigate the amount of any payment provided under this Agreement by seeking employment or otherwise.
7. Termination for Cause. The Board of Directors of the Bank may terminate Executives employment at any time for cause. For purposes of this agreement Cause includes,
(i) the Executives willful failure to perform or to comply with any term or provision of this Agreement;
(ii) the Executives willful failure to perform or to comply fully with any lawful directive of the Banks Board of Directors or of any duly constituted committee thereof after written notice and a failure to cure within thirty (30) days of such notice;
(iii) Executives violation of Banks EBO policy; or
(iv) Executives removal from office or permanently prohibited from participating in the conduct of the Banks affairs by a final order issued by an appropriate federal banking agency pursuant to Section 8(e) or 8(g) of the Federal Deposit Insurance Act or by the Comptroller of the Currency pursuant to national law.
8. In the event that Executive is terminated for cause as defined in Section VI 7, all obligations of Bank under this Agreement shall terminate.
9. Notwithstanding any other provision, in the event that Executive is determined to be a specified employee (key employee) as that term is defined in Section 409A of the Code, no payment that is determined to be deferred compensation subject to Section 409A of the Code shall be made until one day following six months from the date of separation of service as that term is defined in Section 409A of the Code.
VII. MISCELLANEOUS
1. Notwithstanding any other provision contained in this agreement, the payment or obligation to pay monies or granting of any rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that Executive now has under any plan or benefit presently outstanding.
2. This Agreement may not be modified, changed, amended, extended, or altered except in writing signed by the Executive or by his duly authorized representative, and by a duly authorized officer of the Bank.
7
3. All notices given or required to be given shall be in writing, sent by United States certified mail, return receipt requested, postage prepaid, to Executive (or to Executives spouse or estate upon Executives death) at Executives last known address, and to the Bank at its principal office. All such notices shall be effective when deposited in the mail in the manner specified in this Section VII 3. Either party by written notice may change or designate the place for receipt of all such notices.
4. This Agreement amends and supersedes all previous employment agreements between HNB and Halifax and Executive.
VIII. SUCCESSORS, ETC.
1. This Agreement shall inure to the benefit of and be binding upon Executive, and, to the extent applicable, his heirs, assigns, executors, and personal representatives and the Bank, its successors, and assigns, including, without limitation, any person, partnership, or corporation which may acquire all or substantially all of the Banks assets and business, or with or into which the Bank may be consolidated or merged. This provision shall apply in the event of any subsequent merger, consolidation, or transfer.
2. This Agreement is personal to each of the parties and neither party may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of the other party.
IX. APPLICABLE LAW
This Agreement shall be governed in all respects and be interpreted by and under the laws of the Commonwealth of Pennsylvania, except to the extent that such law may be preempted by applicable federal law, in which event this Agreement shall be governed and interpreted by and under federal law. This Agreement shall also be interpreted as is minimally required to qualify any payment hereunder as not triggering any penalty on the Executive or the Bank pursuant to Code Section 409A and the regulations promulgated thereunder.
X. SEVERABILITY
If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions nevertheless shall continue in full force and effect.
XI. ARBITRATION
Each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement (except the question of Executives disability which is governed in Section IV), are to be submitted for resolution, in Marysville, Pennsylvania,
8
to the American Arbitration Association (the Association) in accordance with the Associations National Rules for the Resolution of Employment Disputes or other applicable rules then in effect (Rules). Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Bank and Executive may, as a matter of right, mutually agree on the appointment of a particular arbitrator from the Associations pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.
Attest: |
|
Riverview Bancorp, Inc. |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ David W. Hoover |
|
|
|
|
Witness: |
|
Riverview National Bank |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ Robert M. Garst |
|
|
|
|
Witness: |
|
EXECUTIVE |
|
|
|
|
|
/s/ Robert M. Garst |
|
/s/ Kirk D. Fox |
9
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT (Agreement) is made this January 27, 2009, between RIVERVIEW FINANCIAL CORPORATION (Corporation), a Bank having a place of business at Third and Market Streets, Halifax, Pennsylvania 17032, RIVERVIEW NATIONAL BANK (Bank), a bank having a place of business at 101 Lincoln Street, Marysville, Pennsylvania 17053; and Terry Wasko (Executive), an individual residing in Pennsylvania.
WITNESSETH :
WHEREAS , Bank is a subsidiary of Corporation;
WHEREAS , Bank desires to employ Executive as Chief Financial Officer of Corporation and Bank (CFO); and
WHEREAS , Executive desires to accept that assignment under the terms and conditions set forth herein.
AGREEMENT :
NOW, THEREFORE , the parties hereto intending to be legally bound hereby agree as follows:
1. Employment .
Corporation and Bank hereby employ Executive and Executive hereby accepts employment with Corporation and Bank on the terms and conditions set forth in this Agreement.
2. Duties and Positions of Employee .
(a) Executive shall perform and discharge well and faithfully such duties as CFO as may be assigned to Executive from time to time by the Chief Executive Officer (CEO) or President of Corporation or Bank. Executive shall devote her full time, attention and energies to the business of Corporation and Bank during the Employment Period (as defined in Section 3 of this Agreement);
(b) Provided however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments so long as such investment does not exceed 5% of the outstanding shares of any publicly held company, (b) devoting a reasonable amount of time to civic, charitable, trade association, political and similar activities with the prior approval of the CEO or
1
President of Bank, which approval will not be unreasonably withheld; or (c) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization, with the prior approval of the CEO or President of Bank, which approval will not be unreasonably withheld. The Executive shall not engage in any business or commercial activities, duties or pursuits that compete with the business or commercial activities of Corporation or Bank, or any of their subsidiaries or affiliates, nor may the Executive serve as a director or officer or in any other capacity in a company that competes with Corporation or Bank or any of their subsidiaries or affiliates.
3. Term of Agreement .
(a) This Agreement shall be for a one (1) year period (the Employment Period) beginning on the date first mentioned above and ending one (1) year later. On the first anniversary of the date of this Agreement, and on the same date of each subsequent year (each, a Renewal Date) the Employment Period shall be automatically extended for an additional year such that the Employment Period shall end one (1) year from each Renewal Date, unless either party shall give written notice of non-renewal to the other party at least ninety (90) days prior to that Renewal Date, in which event this Agreement shall terminate at the end of the then existing Employment Period.
(b) Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the CEO or President to Executive. As used in this Agreement, Cause shall mean any of the following:
(i) Executives conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive;
(ii) Executives willful failure to follow the good faith lawful instructions of the President or CEO with respect to the operations of Corporation and Bank;
(iii) Executives willful failure to perform Executives duties to Corporation or Bank (other than a failure resulting from Executives incapacity because of physical or mental illness, as provided in subsection (d) of this Section 3), which failure results in injury to Corporation or Bank, monetarily or otherwise;
(iv) Executives intentional violation of the provisions of this Agreement;
(v) dishonesty or gross negligence of the Executive in the performance of her duties;
(vi) conduct on the part of the Executive that brings public discredit to Corporation or Bank;
2
(vii) Executives breach of fiduciary duty involving personal gain;
(viii) Executives willful violation of any law, rule or regulation governing banks or bank officers or any final cease and desist order issued by a bank regulatory authority;
(ix) Executives unlawful discrimination, including harassment, against employees, customers, business associates, contractors or visitors of Corporation or Bank;
(x) Executives theft or abuse of Corporation or Banks property or the property of customers, employees, contractors, vendors or business associates of Corporation or Bank;
(xi) any final removal or prohibition order to which the Executive is subject, by a federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act; or
(xii) any act of fraud or misappropriation by Executive.
If this Agreement is terminated for Cause, Executives rights under this Agreement shall cease as of the effective date of such termination and Corporation and Bank shall have no further obligation under this Agreement.
(c) Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically upon Executives voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason. The term Good Reason shall mean (i) the assignment of duties and responsibilities inconsistent with Executives status as CFO or (ii) a reduction in salary or benefits, except such reductions that are the result of a national financial depression or national or bank emergency when such reduction has been implemented by the Board of Directors for Corporation or Banks senior management, then Executive shall within ninety (90) days of the occurrence of any of the foregoing events, provide notice to Corporation and Bank of the existence of the condition and provide Corporation and Bank thirty (30) days in which to cure such condition. In the event that Corporation and Bank does not cure the condition within thirty (30) days of such notice, Executive may resign from employment with Corporation and Bank and upon execution of a reasonable release satisfactory to Corporation and Bank, Corporation and Bank will provide Executive with the following pay and benefits: (i) a payment in an amount equal to 1.0 times the Executives then Annual Base Salary payable in twelve (12) equal monthly installments; and (ii) Corporation and Bank shall reimburse Executive in an amount equal to the monthly premium paid by her to obtain substantially similar employee benefits which she enjoyed prior to termination, which reimbursement shall continue until the expiration of 12 months following the date of termination of employment or until Executive secures substantially similar benefits through other employment, whichever
3
shall first occur, subject to Internal Revenue Code of 1986, as amended (Code) Section 409A if applicable.
However, in the event the payments described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with her termination of employment, would result in the imposition of an excise tax under Code Section 4999, the severance payments shall be retroactively (if necessary) reduced to the extent necessary to avoid such excise tax imposition. Upon written notice to Executive, together with calculations of Corporations and Banks independent auditors, Executive shall remit to Corporation and Bank the amount of the reduction plus such interest as may be necessary to avoid the imposition of such excise tax. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, if any portion of the amount herein payable to the Executive is determined to be non-deductible pursuant to the regulations promulgated under Code Section 280G, then Corporation and Bank shall be required only to pay to Executive the amount determined to be deductible under Section 280G.
If when the Executives employment terminates, the Executive is a specified employee, as defined in Code Section 409A(a)(2)(B)(i), then despite any provision of this Employment Agreement or other plan or agreement to the contrary, the Executive will not be entitled to the payments until the earliest of: (a) the date that is at least six months after the Executives separation from service (within the meaning of Code Section 409A) for reasons other than the Executives death, (b) the date of the Executives death, or (c) any earlier date that does not result in additional tax or interest to the Executive under Code Section 409A. As promptly as possible after the end of the period during which payments are delayed under this provision, the entire amount of the delayed payments shall be paid to the Executive in a single lump sum with any remaining payments to commence in accordance with the terms of this Agreement or other applicable plan or agreement.
The amounts payable pursuant to this Section 3(c) shall constitute Executives sole and exclusive remedy in the event Executive terminates employment for Good Reason and shall represent the maximum extent of liability that Executive can claim against Corporation or Bank.
(d) Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically upon Executives Disability and Executives rights under this Agreement shall cease as of the date of such termination; provided, however, that Executive shall be entitled to any benefits under any group disability plan if effect.
(e) Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically upon Executives death, and Executives rights under this Agreement (other than vested plan benefits) shall cease as of the date of such termination.
4
(f) Executive agrees that in the event her employment under this Agreement is terminated, Executive shall resign, and upon such event does hereby resign, as a director of Corporation and Bank, the Bank and any affiliate or subsidiary thereof, if she is then serving as a director of any such entities.
(g) Executive agrees that in the event that Bank provides notice of nonrenewal of this Agreement under Section 3(a), Bank shall have no further obligation under this Agreement, other than payment to Executive of her earned but unpaid Annual Base Salary under Section 4(a) and any employee benefits under Section 4(d), (e), or (f), as of the date of the expiration of this Agreement or until Executive voluntarily terminates her employment, whichever occurs earlier. In the event that Bank provides notice of nonrenewal of this Agreement under Section 3(a), Bank may terminate Executives employment and shall have no further obligation under this Agreement other than payment to Executive of the remaining balance of her Annual Base Salary as defined in Section 4(a) below and any employee benefits under Section 4(d) for the remainder of the then existing Employment Period. To the extent the Executive becomes entitled to the payments set forth in this Section 3(g), such payments shall constitute Executives sole and exclusive remedy under this Agreement, shall further constitute liquidated damages for any possible breach of this Agreement, and shall represent the maximum extent of liability that Executive can claim against Corporation or Bank.
4. Employment Period Compensation .
(a) Annual Base Salary . For services performed by Executive under this Agreement, Corporation and Bank shall pay Executive an Annual Base Salary in the aggregate during the Employment Period at the rate of $120,000 per year, payable at the same times as salaries are payable to other executives of the Corporation and Bank. Corporation and Bank shall review Executives performance and salary at least on an annual basis. Corporation and Bank may, from time to time, in its sole discretion, increase Executives Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the CEO or President of Corporation and Bank or any committee of such Board or the Chief Executive Officer with the approval of the Compensation Committee of the Board in the resolutions authorizing such increases.
(b) Bonuses . Executive shall be entitled to a $10,000 signing bonus; provided that Executive remains employed with Corporation and Bank for twelve months. In the event that within twelve months of the signing of this Agreement, Executive terminates employment for reasons other than Good Reason or if Executive is terminated by the Bank for Cause, then Executive shall refund, reimburse, return and pay Bank the signing bonus amount of $10,000. Executive hereby agrees that in the event that Executive does not pay Bank the $10,000 owed under this Section prior to Executive receiving her last payroll check, Executive hereby authorizes Bank to deduct from Executives last payroll check to the extent necessary any amount still owing to Bank.
5
In addition, Corporation or Bank may, from time to time, pay a bonus or bonuses to Executive as Corporation or Bank or an affiliate thereof, in their sole discretion, deems appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Corporation or Bank to Executive provided for in this Agreement.
(c) Vacations . During the term of this Agreement, Executive shall be entitled to twenty-five (25) days paid time off in accordance with the policies as established from time to time by the CEO or President of Corporation and Bank. Bank shall allow Executive to work from home one day per week and shall allow Executive to work from home in the event of inclement weather without such absences from the office reducing Executives accrued paid time off balance.
(d) Employee Benefit Plans . During the term of this Agreement, Executive may participate in and receive the benefits of any employee benefit plan currently in effect at Bank subject to the terms of such plans, until such time that the Board of Directors of the Bank and Corporation authorizes a change in such benefits. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 4(a) hereof.
5. Termination of Employment Following Change in Control .
(a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall occur, and if thereafter at any time during the term of this Agreement there shall be:
(i) any involuntary termination of Executives employment (other than for the reasons set forth in Section 3(b) or 3(d) of this Agreement);
(ii) any reduction in Executives title, responsibilities, including reporting responsibilities, or authority, including such title, responsibilities or authority as such title, responsibilities or authority may be increased from time to time during the term of this Agreement;
(iii) the assignment to Executive of duties inconsistent with Executives office on the date of the Change in Control or as the same may be increased from time to time after the Change in Control;
(iv) any reassignment of Executive to a location greater than seventy-five (75) miles from the location of Executives office on the date of the Change in Control;
(v) any reduction in Executives Annual Base Salary in effect on the date of the Change in Control or as the same may be increased from time to time after the Change in Control; or
6
(vi) any failure to provide Executive with benefits at least as favorable as those enjoyed by Executive under any of Corporation or Banks retirement or pension, life insurance, medical, health and accident, disability or other employee plans in which Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control; or any requirement that Executive travel in performance of her duties on behalf of the Corporation or Bank or any of its subsidiaries or affiliates for a significantly greater period of time during any year than was required of Executive during the year preceding the year in which the Change in Control occurred; then, at the option of Executive, Executive shall within ninety (90) days of the occurrence of any of the foregoing events, provide notice to Corporation and Bank of the existence of the condition and provide Corporation and Bank thirty (30) days in which to cure such condition. In the event that Corporation and Bank does not cure the condition within thirty (30) days of such notice, Executive may resign from employment with Corporation and Bank (or, if involuntarily terminated, give notice of intention to collect benefits under this Agreement) by delivering such notice in writing (the Notice of Termination) to Corporation and Bank and the provisions of Section 6 of this Agreement shall apply.
(b) As used in this Agreement, Change in Control shall mean a change in the ownership or effective control of the Corporation or the Bank as described in Code Section 409A(a)(2)(A) and the regulations thereunder.
6. Rights in Event of Termination of Employment Following Change in Control .
In the event that Executive delivers a Notice of Termination (as defined in Section 5(a) of this Agreement) after a Change in Control (as defined in Section 5(b) of this Agreement) to Corporation and Bank, Executive shall be entitled to receive (i) a payment in an amount equal to and no greater than 1.0 times the Executives then Annual Base Salary, which amount shall be payable in twelve (12) equal monthly installments commencing within thirty (30) days of receiving an executed release subject to the requirements of Code Section 409A; and (ii) Corporation and Bank shall reimburse Executive in an amount equal to the monthly premium paid by her to obtain substantially similar employee benefits which she enjoyed prior to termination, which reimbursement shall continue until the expiration of 12 months following the date of termination of employment or until Executive secures substantially similar benefits through other employment, whichever shall first occur, subject to Code Section 409A if applicable.
However, in the event the payments described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with her termination of employment, would result in the imposition of an excise tax under Code Section 4999, the severance payments shall be retroactively (if necessary) reduced to the extent necessary to avoid such excise tax imposition. Upon written notice to Executive, together with calculations of Corporation and Banks independent auditors, Executive shall remit to Corporation and Bank the amount of the reduction plus such interest as maybe necessary to avoid the imposition of such excise tax. Notwithstanding the
7
foregoing or any other provision of this Agreement to the contrary, if any portion of the amount herein payable to the Executive is determined to be non-deductible pursuant to the regulations promulgated under Section 280G of the Code, then Corporation and Bank shall be required only to pay to Executive the amount determined to be deductible under Section 280G.
If when the Executives employment terminates, the Executive is a specified employee, as defined in Code Section 409A(a)(2)(B)(i), then despite any provision of this Employment Agreement or other plan or agreement to the contrary, the Executive will not be entitled to the payments until the earliest of: (a) the date that is at least six months after the Executives separation from service (within the meaning of Code Section 409A) for reasons other than the Executives death, (b) the date of the Executives death, or (c) any earlier date that does not result in additional tax or interest to the Executive under Code Section 409A. As promptly as possible after the end of the period during which payments are delayed under this provision, the entire amount of the delayed payments shall be paid to the Executive in a single lump sum with any remaining payments to commence in accordance with the terms of this Agreement or other applicable plan or agreement.
(b) Executive shall not be required to mitigate the amount of any payment provided for in this Section 6 by seeking other employment or otherwise. Unless otherwise agreed to in writing, the amount of payment or the benefit provided for in this Section 6 shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executives receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise.
(c) The amounts payable pursuant to this Section 6 shall constitute Executives sole and exclusive remedy in the event Executive delivers a Notice of Termination after a change in control and shall represent the maximum extent of liability that Executive can claim against Corporation and Bank.
7. Rights in Event of Termination of Employment Absent Change in Control .
(a) In the event that Executives employment is involuntarily terminated by Corporation and Bank without Cause and no Change in Control shall have occurred as of the date of such termination, upon execution of a reasonable release satisfactory to Corporation and Bank, Corporation and Bank will provide Executive with the following pay and benefits: (i) a payment in an amount equal to 1.0 times the Executives then Annual Base Salary payable in twelve (12) equal monthly installments; and (ii) Corporation and Bank shall reimburse Executive in an amount equal to the monthly premium paid by her to obtain substantially similar employee benefits which she enjoyed prior to termination, which reimbursement shall continue until the expiration of 12 months following the date of termination of employment or until Executive secures substantially similar benefits through other employment, whichever shall first occur, subject to Code Section 409A if applicable.
8
However, in the event the payments described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with her termination of employment, would result in the imposition of an excise tax under Code Section 4999, the severance payments shall be retroactively (if necessary) reduced to the extent necessary to avoid such imposition. Upon written notice to Executive, together with calculations of Corporation and Banks independent auditors, Executive shall remit to Corporation and Bank the amount of the reduction plus such interest as may be necessary to avoid the imposition of such excise tax. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, if any portion of the amount herein payable to the Executive is determined to be non-deductible pursuant to the regulations promulgated under Section 280G of the Code, then Corporation and Bank shall be required only to pay to Executive the amount determined to be deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise. The amount of payment or the benefit provided for in this Section 7 shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executives receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise.
(c) The amounts payable pursuant to this Section 7 shall constitute Executives sole and exclusive remedy in the event of involuntary termination of Executives employment by Corporation and Bank without cause in the absence of a Change in Control and shall represent the maximum extent of liability that Executive can claim against Corporation and Bank.
(d) This Section 7 shall not apply if the Executive is terminated in connection with nonrenewal as provided in Section 3 of this Agreement.
8. Covenant Not to Compete
(a) Executive hereby acknowledges and recognizes the highly competitive nature of the business of Corporation and Bank and accordingly agrees that, during her employment and for one year following the date of termination of Executives employment, regardless of the reason for termination, Executive shall not:
(i) in any county in which, at any time during the Employment Period or as of the date of termination of the Executives employment, a branch, office or other facility of Corporation and Bank or any of its subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the Non-Competition Area) be engaged, directly or indirectly, either for her own account or as agent consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company and not exercising management discretion) or otherwise of any
9
person, firm, Bank or enterprise engaged in the banking (including bank and financial holding company) or financial services industry, or any other activity in which Corporation and Bank or any of its subsidiaries are engaged during the Employment Period; or
(ii) in the Non-Competition area provide financial or other assistance to any person, firm, Bank, or enterprise engaged in the banking (including bank and financial holding company) or financial services industry, or any other activity in which Corporation and Bank or any of its subsidiaries are engaged during the Employment Period; or
(iii) directly or indirectly contact, solicit or attempt to induce any person, Bank or other entity who or which is a customer or referral source of Corporation and Bank, or any of its subsidiaries or affiliates, during the term of Executives employment or on the date of termination of Executives employment, to become a customer or referral source of any person or entity other than Corporation and Bank or one of its subsidiaries or affiliates; or
(iv) directly or indirectly solicit, induce or encourage any employee of Corporation and Bank or any of its subsidiaries or affiliates, who is employed during the term of Executives employment or on the date of termination of Executives employment, to leave the employ of Corporation and Bank or any of its subsidiaries or affiliates, or to seek, obtain or accept employment with any person or entity other than Corporation and Bank or any of their subsidiaries or affiliates.
(b) It is expressly understood and agreed that, although Executive and Corporation and Bank consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Corporation and Bank and its subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable.
9. Unauthorized Disclosure . During the term of her employment hereunder, or at any later time, the Executive shall not, without the written consent of the Board of Directors of Corporation and Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of the Corporation and Bank, Corporation and Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of her duties as CFO of Corporation and Bank, any material confidential information obtained by her while in the employ of Corporation and Bank with respect to any of Corporation and Banks services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to Corporation and Bank; provided, however, that confidential information shall not include any information known
10
generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by Corporation and Bank or any information that must be disclosed as required by law.
10. Work Made for Hire . Any work performed by the Executive under this Agreement should be considered a Work Made for Hire as that phrase is defined by the U.S. patent laws. In the event it should be established that such work does not qualify as a Work Made for Hire, the Executive agrees to and does hereby assign to Corporation and Bank and its affiliates and subsidiaries, all of her rights, title, and/or interest in such work product, including, but not limited to, all copyrights, patents, trademarks, and property rights.
11. Return of Company Property and Documents. The Executive agrees that, at the time of termination of her employment, regardless of the reason for termination, she will deliver to Corporation and Bank, any and all Corporation and Bank property, including, but not limited to, automobiles, keys, security codes or passes, mobile telephones, pagers, computers, devices, confidential information, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, software programs, equipment, other documents or property, or reproductions of any of the aforementioned items developed or obtained by the Executive during the course of her employment.
12. Liability Insurance . Corporation and Bank shall use its best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of Corporation and Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however nothing herein shall be construed to require Corporation and Bank to obtain such insurance, if the President or CEO of Corporation and Bank determines that such coverage cannot be obtained at a reasonable price.
13. Notices . Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executives residence, in the case of notices to Executive; to the principal executive offices of the Bank, in the case of notices to the Bank and to the principal executive offices of Corporation, in the case of notices to Corporation.
14. Waiver . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and the Board of Directors designee. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
11
15. Assignment . This Agreement shall not be assignable by any party, except by Corporation and Bank to any successor in interest to its respective businesses.
16. Entire Agreement . This Agreement contains the entire agreement of the parties and supersedes all other agreements, written or oral, between the parties relating to the subject matter of this Agreement.
17. Successors, Binding Agreement .
(a) Corporation and Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of Corporation and Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Corporation and Bank would be required to perform it if no such succession had taken place. Failure by Corporation and Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 6 of this Agreement shall apply. As used in this Agreement Corporation and Bank shall mean Corporation and Bank, as defined previously and any successor to its respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
(a) This Agreement shall inure to the benefit of and be enforceable by Executives personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If Executive should die after she has delivered a Notice of Termination to Bank pursuant to Section 5 above, or following Corporation and Banks termination of Executives employment without Cause, such amounts that would have been payable to Executive under this Agreement if Executive had continued to live, shall be paid in accordance with the terms of this Agreement to Executives devisee, legatee, or other designee, or, if there is no such designee, to Executives estate.
18. Arbitration . Corporation and Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement (except for any enforcement sought with respect to Sections 8, 9, 10 or 11, which maybe litigated in court through an action for an injunction or other relief) are to be submitted for resolution, in Cumberland County, Pennsylvania, to the American Arbitration Association (the Association) in accordance with the Associations National Rules for the Resolution of Employment Disputes or other applicable rules then in effect (Rules). Corporation and Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Corporation and Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Associations pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator,
12
absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Corporation and Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein or any enforcement sought with respect to Sections 8, 9, 10 or 11, which may be litigated through an action for injunction or other relief.
19. Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
20. Applicable Law . This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles.
21. Headings . The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.
ATTEST: |
|
RIVERVIEW FINANCIAL CORPORATION |
||
|
|
|
||
|
|
|
||
By: |
/s/ Kandi Lopp |
|
By: |
/s/ Robert E. Garst |
|
|
|
Robert E. Garst |
|
|
|
|
Chief Executive Officer |
|
|
|
|
||
|
|
RIVERVIEW NATIONAL BANK |
||
|
|
|
||
|
|
|
||
By: |
/s/ Kandi Lopp |
|
By: |
/s/ Robert E. Garst |
|
|
|
Robert E. Garst |
|
|
|
|
Chief Executive Officer |
|
|
|
|
||
|
|
|
||
WITNESS: |
|
EXECUTIVE |
||
|
|
|
||
|
|
|
||
/s/ Kandi Lopp |
|
/s/ Terry Wasko |
||
|
|
Terry Wasko |
13
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 31 st day of December 2008, among Riverview Financial Corporation (Corporation), with principal offices at 3 rd and Market Streets Halifax, PA 17032, Riverview National Bank (Bank) with principal offices at 101 Lincoln Street, Marysville, Pennsylvania, 17053, and PAUL B. ZWALLY, a Pennsylvania resident residing at 4439 Augusta Drive, Harrisburg, Pennsylvania 17112 (hereinafter referred to as EXECUTIVE).
WITNESSETH:
WHEREAS, The First National Bank of Marysville (Marysville) is the wholly owned subsidiary of First Perry Bancorp, Inc. (First Perry);
WHEREAS, Halifax National Bank (Halifax) is the wholly owned subsidiary of HNB Bancorp, Inc. (HNB);
WHEREAS, the Executive is Senior Vice President, Chief Loan Officer;
WHEREAS, Executive entered into an Executive Employment Agreement with Marysville on or about June 18, 2008;
WHEREAS, First Perry and HNB entered into an Agreement and Plan of Consolidation dated on or about June 18, 2008 (Consolidation Agreement) pursuant to which First Perry and HNB shall consolidate into Corporation and Marysville and Halifax shall consolidate into the Bank (Consolidation);
WHEREAS, the parties desire to amend and restate Executives employment agreement as a result of the Consolidation;
WHEREAS, this Executive Employment Agreement shall become effective upon the Effective Date of the Consolidation as defined in the Consolidation Agreement;
NOW THEREFORE, in consideration of the mutual covenants set forth below, and intending to be legally bound, the Bank and the Executive agree as follows:
I. TERM OF EMPLOYMENT
1. The Bank hereby employs the Executive as Senior Vice President, Chief Loan Officer as set forth below, and Executive hereby accepts this employment and agrees to render such services to the Bank on the terms and conditions as set forth in this Agreement. This Agreement shall be for a one (1) year period (the Employment Period) beginning on the Effective Date of the Consolidation (the Initial Term). The
1
Employment Period shall be extended automatically for one (1) additional year on the first anniversary date of this agreement (Renewal Date), and then on each anniversary of the Renewal Date of this Agreement thereafter, unless Bank or Executive gives contrary written notice to the other sixty (60) days before the anniversary of the Renewal Date. If notice had not been previously given as provided in this Section I.1, the Employment Period shall continue for a one (1) year period thereafter. References in the Agreement to Employment Period shall refer to the Initial Term of this Agreement and any extensions to the Initial Term. It is the intention of the parties that this Agreement be Evergreen unless (i) either party gives written notice to the other party of his or its intention not to renew this Agreement as provided above or (ii) this Agreement is terminated pursuant to Section VI of this Agreement.
2. During the term of this Agreement the Executive shall perform such executive services for the Bank as are consistent with his title and as are assigned to him by the Banks Chief Executive Officer or the President of the Bank.
3. During the term of this Agreement, the Executive shall devote his best efforts, including such portion of his time and effort to the affairs and business of the Bank.
4. The services of Executive shall be rendered principally in Pennsylvania, but he shall do such traveling on behalf of the Bank as may be reasonably required.
II. COMPETITIVE ACTIVITIES
Executive agrees that during the term of his employment except with the express consent of the Chief Executive Officer or the President, he will not, directly or indirectly, engage or participate in, become a director of, or render advisory or other services for, or make any financial investment in any firm, corporation, business entity or business enterprise competitive with the Bank or its parent or any of their successors; provided, however, that Executive shall not thereby be precluded or prohibited from owning passive investments, including investments in the securities of other financial institutions, so long as such ownership does not require him to devote substantial time to management or control of the business or activities in which he has invested.
III. COMPENSATION
The Bank will compensate Executive for Executives services during the term of the Agreement at an Annual Base Salary of One Hundred Eighteen Thousand Four Hundred and Fifty Dollars ($118,450.00) per year, payable at the same times as salaries are payable to other executive employees. Bank may from time to time increase Executives Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section to reflect the increased amounts.
2
IV. PARTICIPATION IN RETIREMENT
AND MEDICAL PLANS,
LIFE INSURANCE AND DISABILITY
1. Executive shall be entitled to participate in any employee benefit plan of the Bank relating to pension, profit-sharing or other retirement benefits and health or medical coverage or reimbursement plans that the Bank may adopt for the benefit of its employees.
2. In the event the Executive suffers from a Disability as defined in Section IV.3, he shall nevertheless continue to receive an amount equal to and no greater than 100% of his annual base salary, less amounts payable under any disability plan of the Bank, for the first three months of his disability. Thereafter, he shall only be entitled to any amount provided for in the Banks long-term disability policy in effect at the time of the payments determined therein.
3. For purposes of this Agreement, Disability means the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. The Executive will be deemed disabled if the Social Security Administration has determined that he is disabled or if a carrier of any group disability insurance policy provided by the Bank or made available by the Bank to its employees and covering the Executive determines that he is disabled provided that the policys definition of disability complies with the definition of disability under Internal Revenue Code (Code) Section 409A.
V. ADDITIONAL COMPENSATION AND BENEFITS
1. During the term of the Agreement, Executive will be entitled to participate in and receive the benefits of any stock option, profit sharing, or other plan, benefit or privilege given to employees and executives of the Bank or its subsidiaries and affiliates which may come into existence hereafter, to the extent commensurate with his duties and responsibilities, as fixed by the Banks Board of Directors or any committee of such Board or of the Bank selected for such purpose. To the extent Executive is otherwise eligible and qualifies, he shall participate in and receive such benefits or privileges. The Bank shall not make any changes in such plans, benefits or privileges which would adversely affect Executives rights or benefits, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights or benefits to Executive as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section III.
2. For services performed by Executive under this Agreement, Bank has established a bonus program for Executive which is attached hereto as Exhibit A. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Bank to Executive provided for in this Agreement.
3
3. During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for his monthly membership dues to a country club of his choice in the approximate annual amount of $5,000.
VI. TERMINATION
1. In the event Executives employment is terminated, Executives right to compensation and other benefits under this agreement shall be as set forth hereinafter in this Section VI. In the event the Executive is terminated in a manner which violates the provisions of this Agreement, as determined by a court of competent jurisdiction, Bank shall reimburse Executive for all reasonable costs, including attorneys fees in challenging such termination. Such reimbursement shall be in addition to all rights to which the Executive is otherwise entitled under this Agreement.
2. Executive may terminate his employment upon thirty (30) days prior written notice to the Board of Directors.
3. (a) If a change in control (hereinafter referred to as CIC) of the Bank shall occur, as defined in VI.3 (b), and without Executives express written consent, thereafter, there shall be:
(1) an involuntary termination of Executive without Cause as defined in Section VI.8;
(2) an assignment to Executive of duties inconsistent with Executives position, duties, responsibilities and status with the Bank immediately prior to a CIC;
(3) a change in Executives reporting responsibilities, titles or offices in effect immediately prior to a CIC of the Bank, including any removal of the Executive from, or any failure to reelect Executive to any of such positions, except in connection with a termination for disability or retirement;
(4) a reduction by the Bank in Executives annual salary in effect immediately prior to a CIC or as the same may be increased from time to time; or
(5) the failure of the Bank to continue in effect any bonus, benefit or compensation plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating at the time of a CIC of the Bank, or the taking of any action by Bank which would adversely affect Executives participation in or materially reduce Executives benefits under any of such plans;
then at the option of the Executive, exercisable by Executive within twelve (12) months of the Change in Control or occurrence of the foregoing events, Executive may resign from employment with Bank ( or in the case of an involuntary termination), give notice (Notice of Termination) to collect benefits under this Agreement by delivering written notice to Bank and the provisions of Section VI.4 of this Agreement shall apply.
4
(b) For purposes of this Agreement, the definition of a CIC of the Bank shall mean
(1)(a) a merger, consolidation or division involving Bank or its parent company, (b) a sale, exchange, transfer or other disposition of substantially all of the assets of Bank, or (c) a purchase by Bank of substantially all of the assets of another entity, unless such merger, consolidation, division, sale, exchange, transfer, purchase or disposition a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction and of the Board of Directors of such entitys parent corporation, if any, are former members of the Board of Directors of Bank; or
(2) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the Exchange Act)), other than Bank or any person who on the date hereof is a director or officer of Bank is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bank or its parent company representing thirty five (35%) percent or more of the combined voting power of Banks or its parent companys then outstanding securities; or
(3) during any period of one (1) year during the term of Executives employment under this Agreement, individuals who at the beginning of such period constitute the Board of Directors of Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period.
Notwithstanding b(1), (2), or (3) or any other provision above, the consolidation of First Perry Bancorp, Inc. and HNB Bancorp, Inc, pursuant to the Agreement and Plan of Consolidation dated on or about June 18, 2008 between First Perry Bancorp, Inc. and HNB Bancorp, Inc. shall not constitute a change in control under this Section or this Agreement.
4. In the event that Executive delivers a Notice of Termination (as defined in Section VI.3 of this Agreement) to Bank, Executive shall be entitled to receive the compensation and benefits set forth below:
If a Change in Control (as defined in Section VI.3.(b) of this Agreement) has also occurred, Bank shall pay Executive a lump sum amount equal to 1.0 times Executives Annual Compensation minus applicable taxes and withholdings. For purposes of this paragraph, Annual Compensation shall be defined as Executives Annual Base Salary plus the highest bonus received within the previous two years plus the amount which Bank pays for employee benefits for Executive for a one year period. In addition, Bank shall reimburse Executive for his and his familys COBRA premiums until the earlier of (a) Executive is no longer eligible for COBRA benefits or (b) one year.
5
However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, Bank will pay to Executive an additional cash payment (Gross-up Payment) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or Excise Tax on such Gross-up Payment) will be equal to the amount of the Excise Tax.
5. If Executives employment with Bank is terminated by Bank for any reason other than Cause as defined in Section VI.8, then Executive shall be entitled to an amount equal to a lump sum amount equal to 1.0 times Executives Annual Compensation minus applicable taxes and withholdings. For purposes of this paragraph, Annual Compensation shall be defined as Executives Annual Base Salary plus the highest bonus received within the previous two years plus the amount which Bank pays for employee benefits for Executive for a one year period. In addition, Bank shall reimburse Executive for his and his familys COBRA premiums until the earlier of (a) Executive is no longer eligible for COBRA benefits or (b) one year. However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, Bank will pay to Executive an additional cash payment (Gross-up Payment) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or Excise Tax on such Gross-up Payment) will be equal to the amount of the Excise Tax.
6. If Executives employment with Bank is terminated pursuant to the nonrenewal provisions of Section I.1 of this Agreement, then Executive shall be entitled to an amount equal to a lump sum amount equal to six (6) months of Executives Annual Compensation as defined in Section VI.5 minus applicable taxes and withholdings.
7. Any termination of Executives employment by the Bank or by the Executive shall be communicated by written notice of termination to the other party by means of United States certified mail return receipt requested pursuant to Section VII.3 of this Agreement. For purposes of this Agreement, a notice of termination shall mean a dated notice which shall (i) indicate the specific termination provision in the Agreement relied upon; (ii) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated; and (iii) specify a date of termination, which shall not be less than thirty nor more than ninety days after such notice of termination.
8. Executive shall not be required to mitigate the amount of any payment period provided for in Sections VI.4 or VI.5 if he is seeking other employment.
9. Termination for Cause. The Board of Directors of the Bank may terminate Executives employment at any time for cause. For purposes of this agreement cause includes,
6
(a) the Executives failure to perform or to comply with any term or provision of this Agreement;
(b) the Executives failure to perform or to comply fully with any lawful directive of the Banks Board of Directors or of any duly constituted committee thereof;
(c) Executives violation of Banks EBO policy; or
(d) Executives removal from office or permanently prohibited from participating in the conduct of the Banks affairs by a final order issued by an appropriate federal banking agency pursuant to Section 8(e) or 8(g) of the Federal Deposit Insurance Act or by the Comptroller of the Currency pursuant to national law.
10. In the event that Executive is terminated for Cause as defined in Section VI.8, all obligations of Bank under this Agreement shall terminate.
11. Notwithstanding any other provision, in the event that Executive is determined to be a specified employee (key employee) as that term is defined in Section 409A of the Code, no payment that is determined to be deferred compensation subject to Section 409A of the Code shall be made until one day following six months from the date of separation of service as that term is defined in Section 409A of the Code.
VII MISCELLANEOUS
1. Notwithstanding any other provision contained in this agreement, the payment or obligation to pay monies or granting of any rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that Executive now has under any plan or benefit presently outstanding.
2. This Agreement may not be modified, changed, amended, extended, or altered except in writing signed by the Executive or by his duly authorized representative, and by a duly authorized officer of the Bank.
3. All notices given or required to be given shall be in writing, sent by United States certified mail return receipt requested, postage prepaid, to Executive (or to Executives spouse or estate upon Executives death) at Executives last known address, and to the Bank at its principal office. All such notices shall be effective when deposited in the mail in the manner specified in this Section VII.3. Either party by written notice may change or designate the place for receipt of all such notices.
4. This Agreement amends and supersedes all previous employment agreements between First Perry and Marysville and Executive.
7
VIII. SUCCESSORS, ETC.
1. This Agreement shall inure to the benefit of and be binding upon Executive, and, to the extent applicable, his heirs, assigns, executors, and personal representatives and the Bank, its successors, and assigns, including, without limitation, any person, partnership, or corporation which may acquire all or substantially all of the Banks assets and business, or with or into which the Bank or its parent may be consolidated or merged. This provision shall apply in the event of any subsequent merger, consolidation, or transfer.
2. This Agreement is personal to each of the parties and neither party may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of the other party, except this provision will not apply to the Bank or its parent in the event of a change in control.
IX APPLICABLE LAW.
This Agreement shall be governed in all respects and be interpreted by and under the laws of the Commonwealth of Pennsylvania, except to the extent that such law may be preempted by applicable federal law, in which event this Agreement shall be governed and interpreted by and under federal law. This Agreement shall also be interpreted as is minimally required to qualify any payment hereunder as not triggering any penalty on the Executive or the Bank pursuant to Code Section 409A and the regulations promulgated thereunder.
X. SEVERABILITY
If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions nevertheless shall continue in full force and effect.
XI ARBITRATION
Each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement (except the question of Executives disability which is governed in Section IV), are to be submitted for resolution, in Marysville, Pennsylvania, to the American Arbitration Association (the Association) in accordance with the Associations National Rules for the Resolution of Employment Disputes or other applicable rules then in effect (Rules). Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules. Bank and Executive may, as a matter of right, mutually agree on the appointment of a particular arbitrator from the Associations pool. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but
8
shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.
Attest: |
|
Riverview Bancorp, Inc. |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ David W. Hoover |
|
|
|
|
Witness: |
|
Riverview National Bank |
|
|
|
|
|
/s/ David A. Troutman |
|
By: |
/s/ Robert M. Garst |
|
|
|
|
Witness: |
|
Executive |
|
|
|
|
|
/s/ Robert M. Garst |
|
/s/ Paul B. Zwally |
|
Witness: |
|
Paul B. Zwally |
9
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 18 th day of June 2008, among First Perry Bancorp, Inc. (First Perry), with principal offices at 101 Lincoln Street, Marysville, Pennsylvania, 17053, HNB Bancorp, Inc. (HNB), with principal offices at 3 rd and Market Streets Halifax, PA 17032, and William Hummel (Executive).
WITNESSETH :
WHEREAS , First Perry and HNB intend to enter into an Agreement and Plan of Consolidation dated on or about June 18, 2008 (Consolidation Agreement) pursuant to which First Perry and HNB shall consolidate into a new holding company (Holding Company) which is a Pennsylvania business corporation (the Consolidation);
WHEREAS, Executive is the Chief Executive Officer of First Perry;
WHEREAS , as inducement for First Perry to enter into the Consolidation Agreement, Executive has agreed to be employed by the Holding Company for a four year period commencing on the Effective Date (as defined in the Consolidation Agreement) and terminating four years later;
WHEREAS, Executive desires to serve the Holding Company under the terms and conditions set forth herein;
AGREEMENT :
NOW THEREFORE , in consideration of the foregoing and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, it is agreed as follows:
1. Relationship . On the effective date of this Agreement, the Holding Company engages Executive and Executive hereby agrees to serve the Holding Company, under the terms and conditions set forth in this Agreement.
2 . Duties of Executive . Executive shall perform and discharge well and faithfully such duties as necessary to assist the Holding Company with the consolidation of First Perry and HNB and perform such other reasonable duties and meet such reasonable performance goals as assigned to him by the Chief Executive Officer of the Holding Company. The Chief Executive Officer of the Holding Company shall develop reasonable performance goals for Executive which will be provided to the Executive on at least an annual basis.
1
3. Term of Agreement . This Agreement shall commence on the Effective Date (as defined in the Consolidation Agreement) and shall expire four (4) years later (Term). The Effective Date of this Agreement shall be the Effective Date as defined in the Consolidation Agreement.
4. Compensation . For his services under this Agreement, the Holding Company shall pay Executive an annual salary equal to $40,000, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees.
5. Benefits.
(a) The Holding Company shall arrange for Executive to receive health insurance coverage for the Term of this Agreement.
(b) The Holding Company shall also provide Executive with a Holding Company or bank owned vehicle for his use during the term of this Agreement.
6. Termination of Employment .
(a) The Holding Company may terminate Executives employment at any time for Cause. Cause is defined as failing to meet the mutually agreed upon goals and standards set by the Holding Company or his removal from office or permanently prohibited from participating in the conduct of the Holding Companys affairs by a final order issued by an appropriate federal banking agency pursuant to Section 8(e) or 8(g) of the Federal Deposit Insurance Act or by the Comptroller of the Currency pursuant to national law. In the event Executives employment is terminated for Cause, all obligations of the Holding Company shall terminate.
(b) In the event Executives employment is terminated by the Holding Company for any reason other than Cause prior to the expiration of this Agreement, then Executive shall be entitled to his annual salary for the remainder of the Term of this Agreement.
7. Unauthorized Disclosure . During the Term, or at any later time, the Executive shall not, without the written consent of the President or Chief Executive Officer of the Holding Company or a person authorized thereby, knowingly disclose to any person, other than an employee of the Holding Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties, any material confidential information obtained while performing services for the Holding Company with respect to any of the Holding Companys services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to the Holding Company; provided, however, that confidential information shall not include any
2
information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Holding Company; and provided further that nothing contained herein shall prevent Executive, with or without the consent referenced above, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law.
8. Work Made for Hire. Any work performed by the Executive under this Agreement should be considered a Work Made for Hire as the phrase is defined by the U.S. patent laws and shall be owned by and for the express benefit of the Holding Company and their subsidiaries and affiliates. In the event it should be established that such work does not qualify as a Work Made for Hire, Executive agrees to and does hereby assign to the Holding Company, and its affiliates and subsidiaries, all of his rights, title, and/or interest in such work product, including, but not limited to, all copyrights, patents, trademarks, and propriety rights.
9. Return of Company Property and Documents. Executive agrees that, at the time of termination of this Agreement, regardless of the reason for termination, he will deliver to the Holding Company and their subsidiaries and affiliates, any and all company property, including, but not limited to, keys, security codes or passes, mobile telephones, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, software programs, equipment, other documents or property, or reproductions of any of the aforementioned items developed or obtained by the Executive during the course of this Agreement.
10. Notices . Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executives residence, in the case of notices to Executive, and to the principal executive offices of the Holding Company, in the case of notices to the Holding Company.
11. Waiver . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and the President or Chief Executive Officer of the Holding Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
12. Assignment . This Agreement shall not be assignable by any party, except by the Holding Company to any successor in interest to its respective business.
3
13. Entire Agreement . This Agreement supersedes any and all agreements, either oral or in writing, between the parties regarding Executives services and contains all the covenants and agreements between the parties with respect to his employment by the Holding Company. This Agreement does not supersede the Acknowledgment and Release entered into among First Perry Bancorp, Inc., the First National Bank of Marysville, HNB Bancorp, Inc., Halifax National Bank, and William Hummel.
14. Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
15. Applicable Law . This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles.
16. Headings . The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
ATTEST: |
|
HNB BANCORP, INC. |
|
|
|
|
|
|
|
|
|
/s/ Robert M. Garst |
|
By: |
/s/ Kirk D. Fox |
|
|
|
|
|
|
|
|
|
|
FIRST PERRY BANCORP, INC. |
|
|
|
|
|
|
|
|
|
/s/ Dorothy A. Taylor |
|
By: |
/s/ Robert Garst |
|
|
|
|
|
|
|
|
|
|
EXECUTIVE |
|
|
|
|
|
/s/ Dorothy A. Taylor |
|
/s/ William Hummel |
|
|
|
William Hummel |
4
EXHIBIT 10.6
ACKNOWLEDGEMENT
AND RELEASE AGREEMENT
READ IT CAREFULLY
NOTICE TO WILLIAM HUMMEL
This is a very important legal document, and you should carefully review and understand the terms and effect of this document before signing it. By signing this Acknowledgement and Release (Release Agreement), you are agreeing to completely release First Perry Bancorp, Inc., the First National Bank of Marysville, HNB Bancorp, Inc., Halifax National Bank, and the holding company created under the Agreement and Plan of Consolidation between First Perry Bancorp, Inc. and HNB Bancorp, Inc. dated on or about June 18, 2008 currently referred to as Riverview Financial Corporation, and their subsidiaries, affiliates, directors and officers. Therefore, you should consult with an attorney before signing this Agreement. You have twenty-one (21) days from the day of receipt of this document to consider the Agreement. The twenty-one (21) days will begin to run on the day after receipt. If you choose to sign the Agreement, you will have an additional seven (7) days following the date of your signature to revoke the Agreement, and the Agreement shall not become effective or enforceable until the revocation period has expired.
This Acknowledgement and Release Agreement (the Release Agreement) is entered into as of June 18, 2008, by and among First Perry Bancorp, Inc. (First Perry), the First National Bank of Marysville (Marysville), HNB Bancorp, Inc. (HNB), Halifax National Bank (Halifax), the holding company created under the Agreement and Plan of Consolidation between First Perry Bancorp, Inc. and HNB Bancorp, Inc. dated June 18, 2008 currently referred to as Riverview Financial Corporation (Holding Company), and William Hummel (Executive).
WHEREAS, Executive is the Chief Executive Officer of First Perry and Marysville;
WHEREAS, First Perry and HNB will enter into an Agreement and Plan of Consolidation dated June 18, 2008 (Consolidation Agreement) pursuant to which First Perry and HNB shall consolidate into the new Holding Company which is a Pennsylvania business corporation (the Consolidation);
1
WHEREAS, pursuant to the Consolidation Agreement, Marysville has agreed to make the payments set forth herein in exchange for the execution of this Release Agreement and an employment agreement between the Holding Company and Executive (Hummel Employment Agreement);
WHEREAS, First Perry and HNB are only willing to enter into the Consolidation Agreement on the condition that Executive provides the inducements set forth in this Agreement by executing this Release Agreement and entering into the Hummel Employment Agreement.
NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, it is agreed as follows:
1. Retirement . Executive, First Perry, Marysville, HNB, and Halifax hereby mutually agree that the Executive shall retire from the position of Chief Executive Officer of First Perry and Marysville absolutely at the effective time of the Consolidation, as defined in the Consolidation Agreement.
2. Consideration . Beginning on the effective date of the Consolidation, as defined in the Consolidation Agreement, in consideration of signing this Release Agreement, First Perry shall pay Executive the equivalent to one years salary in twenty-four equal monthly installments.
3. Release and Waiver .
Executive, on behalf of himself, his heirs and assigns, irrevocably and unconditionally releases First Perry, Marysville, HNB, Halifax, Holding Company and their respective predecessors, successors, affiliates, subsidiaries, parents, partners, shareholders, directors, officers, agents, employees, attorneys, and all other persons or entities who could be said to be jointly or severally liable with them from all claims, controversies, liabilities, demands, causes of action, debts, obligations, promises, acts, agreements, and damages of whatever kind or nature, whether known or unknown, suspected or unsuspected, foreseen or unforeseen, liquidated or contingent, related to Executives employment, termination of employment, including but not limited to, any and all claims for breach of express or implied contract or covenant of good faith and fair dealing (whether written or oral), all claims for retaliation or violation of public policy, breach of promise, detrimental reliance or tort (e.g. intentional infliction of emotional distress, defamation, wrongful termination, interference with contractual or advantageous relationship, etc), whether based on common law or otherwise; all claims arising under Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act; the Federal Older Workers Benefit Protection Act, the Family and Medical Leave Act, any Whistleblower provision of any statute or law, the Americans with Disabilities Act; the Employee Retirement Income Security Act of 1974, any other statute, regulation or law or amendments thereto, claims for emotional distress, mental anguish, personal injury, loss of consortium; any and all claims that may be asserted on
2
Executives behalf by others (including the Equal Employment Opportunity Commission); or any other federal, state or local laws or regulations relating to employment or benefits associated with Executives employment.
EXECUTIVE ACKNOWLEDGES AND AGREES THAT THIS RELEASE IS A FULL AND FINAL BAR TO ANY AND ALL CLAIM(S) OF ANY TYPE THAT HE MAY NOW HAVE AGAINST FIRST PERRY, MARYSVILLE, HNB, HALIFAX, AND HOLDING COMPANY TO THE EXTENT PROVIDED ABOVE BUT THAT IT DOES NOT RELASE ANY CLAIMS THAT MAY ARISE AFTER THE DATE OF THIS AGREEMENT.
4. Acceptance Period .
The following notice is included in this Release Agreement as required by the Older Workers Benefit Protection Act:
You have up to twenty-one (21) days from the date of receipt of this release to accept the terms of this release, although you may accept it at any time within those twenty-one (21) days. You are advised to consult with an attorney regarding this release.
The twenty-one (21) day period will begin to run on the day after Executive receives this Release Agreement. It will then run for a full twenty-one (21) calendar days and expire at the end of the twenty-first day (the Acceptance Period). In order to accept this Release Agreement, Executive must sign his name and date his signature at the end of this letter and return it to HNB and First Perry via Renee Lieux, Bybel Rutledge LLP, 1017 Mumma Road, Suite 302, Lemoyne, Pennsylvania 17043. If the twenty-first day of the Acceptance Period falls on a Saturday, a Sunday, or a legal holiday, Ms. Lieuxs receipt of his acceptance by the close of business on the next business day immediately following such Saturday, Sunday or legal holiday will be sufficient to effect a timely acceptance of this Release Agreement.
5. Revocation Period . Executive has the right to revoke this Release Agreement at any time within seven (7) days from the date Executive signs and delivers this Agreement to First Perry and HNB (the Revocation Period), and this Agreement will not become effective and enforceable until the Revocation Period has expired. (NOTE: The Revocation Period will begin on the day after the day on which Executive has signed this Agreement and delivered it to First Perry and HNB and, as indicated by the date Executive affixes to his signature at the end of this Agreement. It will then run for seven calendar days and expire at the end of the seventh day.) In order to revoke this Agreement, Executive must notify First Perry and HNB in writing of his decision to revoke the Agreement. Executive must ensure that First Perry and HNB (via Ms. Lieux, at the address indicated in Paragraph 4 above) receives his written notice of revocation at her office in Lemoyne, Pennsylvania within the aforementioned Revocation Period. If the seventh day of the
3
Revocation Period falls on a Saturday, a Sunday, or a legal holiday, First Perry and HNBs receipt of his notice of revocation by the close of business on the next business day immediately following such Saturday, Sunday or legal holiday will be sufficient to effect a timely revocation of this Agreement. Provided that the Revocation Period expires without Executive having revoked this Agreement, this Agreement shall take effect on the next day following the Revocation Period, and such next day shall constitute the Effective Date hereof.
Executive further agrees that the consideration described in this Release Agreement shall be in full satisfaction of any and all claims for payments or benefits, whether expressed or implied, that Executive may have arising out of his employment relationship, or his service as an employee or officer of HNB or Halifax, the termination of such employment relationship.
6. Cooperation and Non-Disparagement . Executive agrees that he will not disparage or make derogatory comments about First Perry, Marysville, HNB, Halifax, Holding Company or any of their subsidiaries or affiliates and including their present and former officers, directors, employees, agents, or attorneys, or their business practices.
7. Confidential Information; Nonsolicitation and Noncompetition .
a. Executive agrees that he will not communicate the terms and conditions of this Agreement or the negotiations preceding it to any persons other than his spouse, attorneys and tax advisors.
b. Executive hereby acknowledges that as a result of his employment, he has had access to, obtained, or developed certain confidential, nonpublic, and/or legally privileged information, which includes, but is not limited to: information relating to First Perrys, Marysvilles, HNBs, Halifaxs, and Holding Companys past, present or future business activities; trade secrets; financial information; technical systems; new product development; acquisition prospects and strategies; compliance matters; information contained in personnel files and medical files; the business operations; the internal structure of First Perry, Marysville, HNB, Halifax, and Holding Company; the names of and any and all information, including personal consumer information requiring protection under federal financial privacy laws, respecting the past, present and prospective customers or clients of First Perry, Marysville, HNB, Halifax, and Holding Company; target customers or markets; past, present or future research done by Corporation respecting the business or operations of First Perry, Marysville, HNB, Halifax, and Holding Company; financial information; vendor or provider contracting arrangements; funding sources, services; systems; methods of operation; sales and marketing information; methods; procedures; referral sources, referral source information, or referral lists; revenues; costs; expenses; operating data; reimbursements; contracts; contract forms; arrangements; plans; prospects; correspondence; memoranda and office records; electronic and data
4
processing files and records; identities, addresses, telephone numbers, electronic mail addresses, or other methods of contacting persons who might use or currently use the services of or who have been customers of First Perry, Marysville, HNB, Halifax, and Holding Company (Information). All such Information, marketing methods, supplies, files (closed or pending), literature, policies and procedure manuals, as well as any information regarding any and all aspects of First Perry, Marysville, HNB, Halifax, and Holding Company, or being used by First Perry, Marysville, HNB, Halifax, and Holding Company, are the sole and confidential property of First Perry, Marysville, HNB, Halifax, and Holding Company and shall be treated as confidential. Executive agrees to hold inviolate, not to disclose, and to keep secret all such Information and will not for any reason or purpose use, permit to be used, or disclose to any party any Information.
c. Executive hereby acknowledges and recognizes the highly competitive nature of the business of Holding Company and accordingly agrees that, for two years from the effective date as defined in the Consolidation Agreement, Executive shall not, except as otherwise permitted in writing by the Holding Company (i) be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in the banking (including bank holding company) or financial services industry in Perry, Cumberland or Dauphin County (Non-Competition Area) or (ii) directly or indirectly solicit persons or entities who were customers or referral sources of First Perry, Marysville, HNB, Halifax, and Holding Company or their subsidiaries to become a customer or referral source of a person or entity other than First Perry, Marysville, HNB, Halifax, and Holding Company or their subsidiaries.
8. First Perry, Marysville, HNB, Halifax, or Holding Company Not Executives Advisor . First Perry, Marysville, HNB, Halifax, and Holding Company make no representation or warranty, express or implied, to Executive regarding the treatment of this Release Agreement or any payments Executive may receive by virtue of or in connection with any provision of this Release Agreement, under state, federal, or local laws pertaining to income or other taxation, nor do they provide to Executive any advice regarding the financial, investment, or legal desirability of his entering into this Release Agreement or making any elections or granting any releases referred to herein; and Executive acknowledges that it is and has been his sole and entire responsibility to explore any such aspects of this Release Agreement with attorneys and/or other advisors of his own selection, in connection with both his decision to enter into this Agreement and any decisions or elections which Executive may subsequently make in relation to any of the subject matter of this Release Agreement.
9. Agreement Freely and Voluntarily Entered Into . Executive warrants and represents that he has signed this Release Agreement after review and consultation
5
with legal counsel of his choice and that he understands this Release Agreement and signs it freely, knowingly and voluntarily, without any legal reservation and fully intending to be legally bound hereby.
10. Executives Representations . In connection with his entering into this Release Agreement, and as an inducement for First Perry, Marysville, HNB, and Halifax to enter into this Release Agreement as well as the Consolidation Agreement, Executive hereby represents the following matters:
a. That Executive has carefully read and fully understands all of the provisions of this Release Agreement which sets forth the entire agreement between Executive and First Perry, Marysville, HNB, and Halifax regarding the termination of Executives employment and Executives releasing First Perry, Marysville, HNB, Halifax, and Holding Company, and that Executive has not relied upon any representations or statements, written or oral, not set forth in this document; and
b. That Executive has had such time as Executive deemed necessary to review, consider, and deliberate as to the terms of this Release Agreement.
11. Severability . Should any provision(s) of this Agreement be determined, in a proceeding to enforce or interpret this Agreement, to be invalid or unenforceable, then, provided that the provision(s) deemed to be invalid or unenforceable do not constitute all or substantially all of the undertakings by either Executive or First Perry, Marysville, HNB, Halifax, and the Holding Company, the remainder of this Release Agreement shall continue in full force and effect.
12. Notices . Unless otherwise provided in this Release Agreement, any notice required or permitted to be given under this Release Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executives residence, in the case of notices to Executive, and to the principal executive offices of First Perry, Marysville, HNB, and Halifax in the case of notices to First Perry, Marysville, HNB, and Halifax.
13. Choice of Law . This Agreement shall be governed by, construed under and enforced pursuant to the laws of the Commonwealth of Pennsylvania.
14. Complete Written Settlement . This Release Agreement expresses a full and complete settlement of all disputes between Executive and First Perry, Marysville, HNB, Halifax, and the Holding Company and their subsidiaries. Executive agrees that there are absolutely no agreements or reservations relating to termination of Executives employment and Executives release of First Perry, Marysville, HNB, Halifax, and the
6
Holding Company that are not clearly expressed in writing herein. This Agreement may not be modified except in writing signed by all parties hereto.
15. Binding on Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns.
16. Counterparts . This Agreement may be executed in multiple counterparts, and shall be fully valid, legally binding and enforceable whether executed in a single document or in such counterparts.
17. Termination . This Agreement shall terminate and be null and void upon a termination of the Consolidation Agreement in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
ATTEST: |
|
HNB BANCORP, INC. |
|
|
|
|
|
|
|
|
|
/s/ Robert M. Garst |
|
By: |
/s/ Kirk D. Fox |
|
|
|
|
|
|
|
|
|
|
HALIFAX NATIONAL BANK |
|
|
|
|
|
/s/ Robert M. Garst |
|
By: |
/s/ Kirk D. Fox |
|
|
|
|
|
|
FIRST PERRY BANCORP, INC. |
|
|
|
|
|
/s/ Dorothy A. Taylor |
|
By: |
/s/ Robert M. Garst |
|
|
|
|
|
|
THE FIRST NATIONAL BANK OF MARYSVILLE |
|
|
|
|
|
/s/ Dorothy A. Taylor |
|
By: |
/s/ Robert M. Garst |
|
|
|
|
|
|
EXECUTIVE |
|
|
|
|
|
/s/ Robert M. Garst |
|
/s/ William Hummel |
|
|
|
William Hummel |
7
EXHIBIT 10.7
RIVERVIEW NATIONAL BANK
DIRECTOR DEFERRED FEE AGREEMENT
THIS AGREEMENT is made this 31 st day of December, 2008, by RIVERVIEW NATIONAL BANK, a national bank located in Marysville, Pennsylvania (the Bank), and , (the Director).
INTRODUCTION
To encourage the Director to remain a member of the Banks Board of Directors, the Bank is willing to provide to the Director a deferred fee opportunity. The Bank will pay the benefits from its general assets.
AGREEMENT
The Director and the Bank agree as follows:
Article 1
Definitions
1.1 Definitions . Whenever used in this Agreement, the following words and phrases shall have the meanings specified:
1.1.1 Change in Control means a change in the ownership or effective control of the Corporation or the Bank as described in Section 409A(a)(2)(A)(v) of the Code .
Notwithstanding anything else to the contrary set forth in this Agreement, if (i) an agreement is executed by the Corporation or the Bank providing for any of the transactions or events constituting a Change in Control as defined herein, and the agreement subsequently expires or is terminated without the transaction or event being consummated, and (ii) Directors service did not terminate during the period after the agreement and prior to such expiration or termination, for purposes of this agreement it shall be as though such agreement was never executed and no Change in Control event shall be deemed to have occurred as a result of the execution of such Agreement.
1.1.2 Code means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
1.1.3 Corporation means Riverview Financial Corporation.
1
1.1.4 Disability means the Directors inability to perform substantially all normal duties of a director, provided such disability complies with the definition provided under Code Section 409A. As a condition to receiving any benefits, the Bank may require the Director to submit to such physical or mental evaluations and tests as the Board of Directors deems appropriate.
1.1.5 Election Form means the Form attached as Exhibit A.
1.1.6 Fees means the total amount earned by the Director for serving on the Banks Board.
1.1.7 Normal Benefit Age means the benefit distribution age specified by the Director in Exhibit A.
1.1.8 Plan Year means each twelve (12) month period commencing with the month deferrals commence under this Agreement.
1.1.9 Termination of Service means the Directors ceasing to be a member of the Banks Board of Directors for any reason other than death, provided such termination of service complies with the definition of termination of service under Code Section 409A.
Article 2
Deferral Election
2.1 Initial Election . The Director shall make an initial deferral election under this Agreement by filing with the Bank a signed Election Form within thirty (30) days after the date of this Agreement. The Election Form shall set forth the amount of Fees to be deferred, provided such deferral opportunity shall be limited to Fees earned during the ten-year period ending December 31, 2018 unless an extension is approved in writing by the Bank. The Election Form shall be effective to defer only Fees earned after the date the Election Form is received by the Bank.
2.2 Election Changes . The Director may modify the amount of Fees to be deferred annually by filing a new Election Form with the Bank. The modified deferral shall not be effective until the calendar year following the year in which the subsequent Election Form is received by the Bank. Any changes to the form of benefit payment must be in accordance with Exhibit A.
Article 3
Deferral Account
3.1 Establishing and Crediting . The Bank shall establish a Deferral Account on its books for the Director, and shall credit to the Deferral Account the following amounts:
2
3.1.1 Deferrals . The fees deferred by the Director as of the time the Fees would have otherwise been paid to the Director.
3.1.2 Interest. Interest at an annual rate of 70% of R.O.E. R.O.E. is to be calculated by a daily quarterly average.
3.2 Statement of Accounts . The Bank shall provide to the Director, within one hundred twenty (120) days after each Plan Year, a statement setting forth the Deferral Account balance.
3.3 Accounting Device Only . The Deferral Account is solely a device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind. The Director is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent the mere Bank promise to pay such benefits. The Directors rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by the Directors creditors.
Article 4
Lifetime Benefits
4.1 Normal Benefit Age . If the Director terminates service as a Director on or after Normal Benefit Age, the Bank shall pay to the Director the benefit described in this Section 4.1 in lieu of any other benefit under this Agreement.
4.1.1 Amount of Benefit . The benefit under this Section 4.1 is the Deferral Account balance at the date specified in Exhibit A.
4.1.2 Payment of Benefit . The Bank shall pay the benefit to the Director in the form specified in Exhibit A. If installment payments are elected, the Bank shall continue to credit interest at an annual rate as defined in Section 3.1.2 above, on the undistributed account balance during any applicable installment period.
4.2 Early Termination Benefit . If the Director terminates service as a Director before the Normal Benefit Age for reasons other than death, disability or following a Change in Control, the Bank shall pay to the Director the benefit described in this Section 4.2 in lieu of any other benefit under this Agreement.
4.2.1 Amount of Benefit . The Benefit under this Section 4.2 is the Deferral Account balance at the Directors Termination of Service.
4.2.2 Payment of Benefit . The Bank shall pay the benefit to the Director in the form specified in Exhibit A. If installment payments are elected, the Bank shall continue to credit interest at an annual rate as
3
defined in Section 3.1.2 above, on the undistributed account balance during any applicable installment period.
4.3 Disability Benefit . Upon Termination of Service for disability prior to the Normal Benefit Age, the Bank shall pay to the Director the benefit described in this Section 4.3 in lieu of any other benefit under this Agreement.
4.3.1 Amount of Benefit . The benefit under this Section 4.3 is the Deferral Account balance at the date specified in Exhibit A. If applicable, the Bank shall continue to credit interest to the Deferral Account balance at a rate as defined in Section 3.1.2 above, during the period from Termination of Service until payments commence.
4.3.2 Payment of Benefit . The Bank shall pay the benefit to the Director in the form specified in Exhibit A. If installment payments are elected, the Bank shall continue to credit interest at an annual rate as defined in Section 3.1.2 above, on the undistributed account balance during any applicable installment period.
4.4 Change of Control Benefit . If the Director is in the active service of the Bank when the change occurs, the Bank shall pay to the Director the benefit described in this Section 4.4 in lieu of any other benefit under this Agreement.
4.4.1 Amount of Benefit . The benefit under this Section 4.4 is the Deferral Account balance at the date specified in Exhibit A. If applicable, the Bank shall continue to credit interest to the Deferral Account balance at a rate as defined in Section 3.1.2 above, during the period from Termination of Service until payments commence.
4.4.2 Payment of Benefit . The Bank shall pay the benefit to the Director in the form specified in Exhibit A. If installment payments are elected, the Bank shall continue to credit interest at an annual rate as defined in Section 3.1.2 above, on the undistributed account balance during any applicable installment period.
4.5 Hardship Distribution . If an unforeseeable financial emergency arising from the death of a family member, divorce, sickness, injury, catastrophe or similar event outside the control of the Director occurs, provided such emergency qualifies as an unforeseeable emergency under Code Section 409A, the Director may petition the Board for early payout of his Deferral Account. If the Board determines that the Directors request constitutes an unforeseeable financial emergency as provided under Code 409A, the Bank shall distribute to the Director all or a portion of the Deferral Account balance as determined by the Bank, but in no event shall the distribution be greater than is necessary to relieve the financial hardship.
4
Article 5
Death Benefits
5.1 Death Prior to Commencement of Benefit Payments . If the Director dies prior to commencement of benefit payments, the Bank shall pay to the Directors beneficiary the benefit described in this Section 5.1 in lieu of any other benefit under this Agreement.
5.1.1 Amount of Benefit . The benefit amount under Section 5.1 is the Deferral Account balance.
5.1.2 Payment of Benefit . The Bank shall pay the benefit to the beneficiary in the form specified in Exhibit A, with payment made or commencing on the first day of January following the Directors death. If installment payments are elected, the Bank shall continue to credit interest at an annual rate as defined in Section 3.1.2 above, compounded monthly, on the undistributed account balance during any applicable installment period.
5.2 Death During Benefit Period. If the Director dies after benefit payments have commenced under this Agreement but before receiving all such payments, the Bank shall pay the remaining benefits to the Directors beneficiary at the same time and in the same amounts they would have been paid to the Director had the Director survived.
Article 6
Beneficiaries
6.1 Beneficiary Designations . The Director shall designate a beneficiary by filing a written designation with the Bank. The Director may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Director and accepted by the Bank during the Directors lifetime. The Directors beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Director, or if the Director names a spouse as beneficiary and the marriage is subsequently dissolved. If the Director dies without a valid beneficiary designation, all payments shall be made to the Directors estate.
6.2 Facility of Payment . If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.
5
Article 7
General Limitations
Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement that is attributable to the interest earned on such contributions:
7.1 Termination for Cause . If the Bank terminates the Directors service for:
7.2.1 Gross negligence or gross neglect of duties;
7.2.2 Commission of a felony or of a gross misdemeanor involving moral turpitude; or
7.2.3 Fraud, disloyalty, dishonesty or willful violation of any law or significant Bank policy committed in connection with the Directors service and resulting in an adverse effect on the Bank.
7.2 Removal . If the Director is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.
7.3 Suicide. If the Director commits suicide within two years after the date of this Agreement, or if the Director has made any material misstatement of fact on any application for life insurance purchased by the Bank.
Article 8
Claims and Review Procedures
8.1 Claims Procedure . The Bank shall notify any person or entity that makes a claim against the Agreement (the Claimant) in writing, within ninety (90) days of Claimants written application for benefits, of Claimants eligibility or ineligibility for benefits under the Agreement. If the Bank determines that the Claimant is not eligible for benefits or full benefits, the notice shall set forth (l) the specific reasons for such denial, (2) a specific reference to the provisions of the Agreement on which the denial is based, (3) a description of any additional information or material necessary for the Claimant to perfect Claimants claim, and a description of why it is needed, and (4) an explanation of the Agreements claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Bank determines that there are special circumstances requiring additional time to make a decision, the Bank shall notify the Claimant of the special circumstances and the date by
6
which a decision is expected to be made, and may extend the time for up to an additional ninety-day period.
8.2 Review Procedure . If the Claimant is determined by the Bank not to be eligible for benefits, or if the claimant believes that claimant is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty (60) days after receipt of the notice issued by the Bank. Said petition shall state the specific reasons which the Claimant believes entitle Claimant to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Bank of the petition, the Bank shall afford the claimant (and counsel, if any) an opportunity to present Claimants position to the Bank orally or in writing, and the Claimant (and counsel) shall have the right to review the pertinent documents. The Bank shall notify the Claimant of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of the Agreement on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Bank, but notice of this deferral shall be given to the Claimant.
Article 9
Amendments and Termination
This Agreement may be amended or terminated only by a written agreement signed by the Bank and the Director, except as specified in Article 7.
Article 10
Miscellaneous
10.1 Binding Effect . This Agreement shall bind the Director and the Bank, and their beneficiaries, survivors, executors, successors, administrators and transferees.
10.2 No Guarantee of Service . This Agreement is not a contract for services. It does not give the Director the right to remain a director of the Bank, nor does it interfere with the shareholders rights to replace the Director. It also does not require the Director to remain a director nor interfere with the Directors right to terminate service at any time.
10.3 Non-Transferability . Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.
10.4 Tax Withholding . The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
10.5 Applicable Law . The Agreement and all rights hereunder shall be governed by the laws of the Commonwealth of Pennsylvania, except to the extent preempted by the laws of the United States of America. This Agreement shall also be
7
interpreted as is minimally required to qualify any payment hereunder as not triggering any penalty on the Director pursuant to Code Section 409A and the regulations promulgated thereunder.
10.6 Unfunded Arrangement . The Director and beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors. Any insurance on the Directors life is a general asset of the Bank to which the Director and beneficiary have no preferred or secured claim.
10.7 Recovery of Estate Taxes . If the Directors gross estate for federal estate tax purposes includes any amount determined by reference to and on account of this Agreement, and if the beneficiary is other than the Directors estate, then the Directors estate shall be entitled to recover from the beneficiary receiving such benefit under the terms of the Agreement, an amount by which the total estate tax due by the Directors estate, exceeds the total estate tax which would have been payable if the value of such benefit had not been included in the Directors gross estate. If there is more than one person receiving such benefit, the right of recovery shall be against each such person. In the event the beneficiary has a liability hereunder, the beneficiary may petition the Bank for a lump sum payment in an amount not to exceed the beneficiarys liability hereunder.
10.8 Entire Agreement . This Agreement constitutes the entire agreement between the Bank and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.
10.9 Reorganization . The Bank shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Bank.
10.10 Administration . The Bank shall have powers which are necessary to administer this Agreement, including but not limited to:
10.10.1 Interpreting the provisions of this Agreement;
10.10.2 Establishing and revising the method of accounting for the Agreement.
10.10.3 Maintaining a record of benefit payments; and
10.10.4 Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.
8
10.11 Named Fiduciary . The Bank shall be the named fiduciary and plan administrator under this Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the service of advisors and the delegation of ministerial duties to qualified individuals.
IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have signed this Agreement.
|
|
BANK: |
|
ATTEST: |
|
RIVERVIEW NATIONAL BANK |
|
|
|
|
|
|
|
By |
|
|
|
|
|
|
|
Title |
|
|
|
|
|
|
|
Date |
|
By execution hereof, Riverview Financial Corporation, consents to and agrees to be bound by the terms and conditions of this Agreement.
ATTEST: |
|
CORPORATION: |
|
|
|
RIVERVIEW FINANCIAL CORPORATION |
|
|
|
|
|
|
|
By |
|
|
|
|
|
|
|
Title |
|
|
|
|
|
|
|
Date |
|
|
|
|
|
|
|
|
|
WITNESS: |
|
DIRECTOR: |
|
|
|
|
|
|
|
|
|
|
|
|
9
EXHIBIT A
RIVERVIEW NATIONAL BANK
DIRECTOR DEFERRED FEE AGREEMENT
Election Form
Deferral Election (Initial and Complete One):
o |
|
I elect to defer % of my fees for months, increasing or decreasing to % commencing in . |
|
|
|
(mo./yr.) |
|
|
|
|
|
o |
|
I elect to defer $ per month for months, increasing or decreasing to $ per month commencing in . |
|
|
|
|
(mo./yr.) |
Benefit Age:
I elect a Normal Benefit Age of .
Timing of Payout:
If I terminate service after Normal Benefit Age, I elect to have my benefits distributed commencing within 30 days of (Initial One).
o |
|
Normal Benefit Age |
|
|
|
o |
|
Termination of Service |
If I terminate service before Normal Benefit Age due to Disability, I elect to have my benefits distributed commencing within 30 days of (Initial One):
o |
|
Normal Benefit Age |
|
|
|
o |
|
Termination of Service |
10
If a Change in Control occurs prior to Normal Benefit Age, I elect to have my benefits distributed commencing within 30 days of (Initial One):
o |
|
Normal Benefit Age |
|
|
|
o |
|
Termination of Service |
|
|
|
o |
|
The date the Change in Control occurs |
Form of Payment:
I elect to have my benefits paid in the following form (initial (a) or (b) for each category):
Section |
|
Triggering |
|
|
|
Annuitized over |
Reference |
|
Event |
|
Lump Sum |
|
120 Months |
|
|
|
|
|
|
|
4.1.2 |
|
Normal Benefit Age |
|
(a) |
|
(b) |
|
|
|
|
|
|
|
4.2.2 |
|
Early Termination |
|
(a) |
|
(b) |
|
|
|
|
|
|
|
4.3.2 |
|
Disability |
|
(a) |
|
(b) |
|
|
|
|
|
|
|
4.4.2 |
|
Change in Control |
|
(a) |
|
(b) |
|
|
|
|
|
|
|
5.1.2 |
|
Death |
|
(a) |
|
(b) |
I understand that I may change the form of benefit elected provided such change is made at least 12 months prior to the date the payment becomes due.
Signature: |
|
|
||
|
|
|
||
Date: |
|
|
||
Accepted by the Bank this day of , 20 .
RIVERVIEW NATIONAL BANK
By: |
|
|
|
|
|
|
|
Title: |
|
|
|
11
RIVERVIEW NATIONAL BANK
DIRECTOR DEFERRED FEE AGREEMENT
Beneficiary Designation
I designate the following as beneficiary of benefits under the Director Deferred Fee Agreement payable following my death:
Primary Beneficiary :
Name: |
|
|
Relationship: |
|
|
|
|
|
|
||
Address: |
|
||||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
Contingent Beneficiary : (to receive the benefits if there is no surviving Primary Beneficiary or should the Primary Beneficiary die before receiving all benefit payments under Article 5) |
|||||
|
|||||
Name: |
|
|
Relationship: |
|
|
|
|
|
|
||
Address: |
|
||||
|
|
|
|
||
|
|||||
Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.
I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary, in the event of the dissolution of our marriage.
Signature: |
|
|
|
||
|
|
|
|
||
Date: |
|
|
|
||
Accepted by the Bank this day of , 20 .
By: |
|
|
|
||
|
|
|
|
||
Title: |
|
|
|
||
12
EXHIBIT 10.8
2009 STOCK OPTION PLAN
1. Purpose. The purpose of the 2009 Stock Option Plan (the Plan) is to advance the development, growth and financial condition of Riverview Financial Corporation (the Company), by providing incentives through participation in the appreciation of the common stock of the Company to secure, retain and motivate Company directors, officers and key employees who may be responsible for the operation and for management of the affairs of the Company and to align such persons interests with those of the Companys shareholders.
2. Term. The Plan will become effective on January 7, 2009, provided that if incentive stock options shall be awarded, the Plan shall be subject to the approval of the Companys shareholders at the Companys meeting of shareholders (Effective Date). Any and all incentive stock options and rights awarded under the Plan (the Awards) before it is approved by the Companys shareholders shall be conditioned upon, and may not be exercised before, receipt of shareholder approval, and shall lapse upon failure to receive such approval. Unless previously terminated by the Board, the Plan shall terminate on, and no options shall be granted after, the tenth anniversary of the effective date of the Plan.
3. Stock. Shares of the Companys common stock (the Stock) that may be issued or transferred under this Plan shall not exceed, in the aggregate, 170,000 shares, as may be adjusted pursuant to Section 19 hereof. Shares may be either authorized and unissued shares, authorized shares, issued by and subsequently reacquired by the Company as treasury stock or shares purchased in the open market. Under no circumstances shall any fractional shares be awarded under the Plan. Except as may be otherwise provided in the Plan, any Stock subject to an Award that, for any reason, lapses or terminates prior to exercise, shall again become available for grant under the Plan. While the Plan is in effect, the Company shall reserve and keep available the number of shares of Stock needed to satisfy the requirements of the Plan. The Company shall apply for any requisite governmental authority to issue shares of stock under the Plan. The Companys failure to obtain any such governmental authority, deemed necessary by the Companys legal counsel for the lawful issuance and sale of Stock under the Plan, shall relieve the Company of any duty, or liability, for the failure to issue or sell the Stock.
4. Administration. The ability to control and manage the operation and administration of the Plan shall be vested in the Board or in a committee of two or more members of the Board, selected by the Board (the Committee). The Committee shall have the authority and discretion to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made pursuant to the Plan, and to make any and all determinations that may be necessary or advisable for the administration of the Plan. Any interpretations of the Plan by the Committee and any decisions made by the Committee under the Plan are final
1
and binding upon all participants and any person claiming through a participant, unless otherwise determined by a majority of the disinterested members of the Board.
The Committee shall be responsible and shall have full, absolute and final power of authority to determine what, to whom, when and under what facts and circumstances Awards shall be made, the form, number, terms, conditions and duration thereof, including but not limited to when exercisable, the number of shares of Stock subject thereto, and the stock option exercise prices. Notwithstanding the foregoing, however, the Committee shall not set the exercise price of any stock option at any price below the fair market price of the Stock on the date of grant. The date of grant shall be for all purposes the date on which the Board or Committee makes the determination granting such Option. The Board, in the exercise of its discretion under Section 12, shall have approved the methodology of establishing the fair market value of the Stock, and the Committee or the Board, at or prior to the time the grant is approved, shall also have approved a written description of the rationale and methodology by which the fair market value is being determined. The Committee shall make all other determinations and decisions, take all actions and do all things necessary or appropriate in and for the administration of the Plan. No member of the Committee or of the Board shall be liable for any decision, determination or action made or taken in good faith by such person under or with respect to the Plan or its administration. The Committee may delegate ministerial duties to any other person or persons, however it may not delegate the grant of an Award.
5. Awards. Awards may be made under the Plan in the form of: (a) Qualified Options to purchase Stock, which are intended to qualify for certain tax treatment as incentive stock options under Sections 421 and 422 of the Internal Revenue Code of 1986, as amended and the regulations and guidance promulgated thereunder (Code) or (b) Non-Qualified Options to purchase Stock, which are not intended to qualify under Sections 421 through 424 of the Code (collectively Stock Options). More than one Award may be granted to an eligible person, and the grant of any Award shall not prohibit the grant of another Award, either to the same person or otherwise, or impose any obligation to exercise on the participant. All Awards and the terms and conditions thereof shall be set forth in written agreements, in such form and content as approved by the Committee from time to time (either at a meeting or by unanimous written consent), and shall be subject to the provisions of this Plan whether or not contained in such agreements (Award Agreement). Multiple Awards for a particular person may be set forth in a single Award Agreement or in multiple Award Agreements, as determined by the Committee, but in all cases each agreement for one or more Awards shall identify each of the Awards thereby represented as a Qualified Option or Non-Qualified Option.
Execution of an Award Agreement shall constitute the participants irrevocable agreement to, and acceptance of, the terms and conditions of the Award set forth in such agreement and of the terms and conditions of the Plan applicable to such Award. Award Agreements may differ from time to time and from participant to participant.
2
6. Eligibility. Persons eligible to receive Awards shall be the directors, key officers and other employees of the Company, as determined by the Committee. An individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding Stock of the Company shall not be eligible for the grant of a Qualified Option, unless the option price is one hundred ten percent (110%) of the fair market value of the stock subject to the option and the option by its terms is not exercisable after the expiration of five (5) years from the date such option is granted. A persons eligibility to receive an Award shall not confer upon him or her any right to receive an Award. Except as otherwise provided, a persons eligibility to receive, or actual receipt of an Award under the Plan shall not limit or affect his or her benefits under or eligibility to participate in any other incentive or benefit plan or program of the Company or any of its affiliates.
7. Qualified Options. In addition to other applicable provisions of the Plan, all Qualified Options and Awards thereof shall be under and subject to the following terms and conditions:
(a) No Qualified Option shall be awarded more than ten (10) years after the date the Plan is adopted by the Board or the date the Plan is approved by the Companys shareholders, whichever is earlier;
(b) The time period during which any Qualified Option is exercisable, as determined by the Committee, shall not commence before the expiration of six (6) months or continue beyond the expiration of ten (10) years after the date the Qualified Option is awarded;
(c) At the time a Qualified Option is awarded, the aggregate fair market value of the Stock subject thereto and of any Stock or other capital stock with respect to which incentive stock options qualifying under Sections 421 and 422 of the Code are exercisable for the first time by the participant during any calendar year under the Plan and any other plans of the Company or its affiliates, shall not exceed $100,000.00;
(d) No Qualified Option shall be awarded to any person if, at the time of the Award, the person owns shares of the stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its affiliates, unless, at the time the Qualified Option is awarded, the exercise price of the Qualified Option is at least one hundred and ten percent (110%) of the fair market value of the Stock on the date of grant and the option, by its terms, is not exercisable after the expiration of five (5) years from the date it is awarded;
(e) If a participant, who was awarded a Qualified Option, ceases to be employed by the Company for any reason other than his or her death, the Committee may permit, but is not obligated to permit, the participant thereafter to
3
exercise the option during its remaining term for a period of not more than three (3) months after cessation of employment to the extent that the Qualified Option was then and remains exercisable, unless such employment cessation was due to the participants disability, as defined in Section 409A of the Code, in which case the three (3) month period shall be twelve (12) months; if the participant dies while employed by the Company, the Committee may permit the participants qualified personal representatives, or any persons who acquire the Qualified Option pursuant to his or her Will or laws of descent and distribution, to exercise the Qualified Option during its remaining term for a period of not more than twelve (12) months after the participants death to the extent that the Qualified Option was then and remains exercisable; the Committee may impose terms and conditions upon and for the exercise of a Qualified Option after the cessation of the participants employment or his or her death;
(f) The purchase price of Stock subject to any Qualified Option shall not be less than the Stocks fair market value at the time the Qualified Option is awarded and shall not be less than the Stocks par value; and
(g) Qualified Options may not be sold, transferred or assigned by the participant, except as designated by the participant by Will and the laws of descent and distribution, and such Option shall only be exercisable during the participants lifetime by him or her.
8. Non-Qualified Options. In addition to other applicable provisions of the Plan, all Non-Qualified Options and Awards thereof shall be under and subject to the following terms and conditions:
(a) The time period during which any Non-Qualified Option is exercisable, as determined by the Committee shall not commence before the expiration of six (6) months or continue beyond the expiration of ten (10) years after the date the Non-Qualified Option is awarded;
(b) If a participant, who was awarded a Non-Qualified Option, ceases to be eligible under the Plan, before lapse or full exercise of the option, the Committee may permit, but is not obligated to permit, the participant to exercise the option during its remaining term, to the extent that the option was then and remains exercisable, or for such time period and under such terms and conditions as may be prescribed by the Committee;
(c) The purchase price of a share of Stock subject to any Non-Qualified Option shall not be less than the Stocks fair market value at the time the non-qualified option is awarded and shall not be less than the Stocks par value; and
(d) Except as otherwise provided by the Committee, Non-Qualified Stock Options granted under the Plan are not transferable, except as determined
4
by the Committee or as designated by the participant by Will and the laws of descent and distribution.
9. Vesting. Stock Options, or portions thereof, are exercisable at such time or times as determined by the Committee in its discretion at or after grant. The Committee may provide that a vesting schedule shall be specified in an Award Agreement. If the Committee provides that any Stock Option becomes vested over a period of time or upon performance events, in full or in installments, the Committee may waive or accelerate such vesting provisions at any time. Unless otherwise determined by the Committee in connection with the grant and set forth in the Award Agreement, all unvested Stock Options shall immediately vest upon the death or disability of the participant or upon a change in ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company as defined in Code Section 409A.
10. Exercise. Except as otherwise provided in the Plan, vested Awards may be exercised in whole or in part by giving written notice thereof to the Secretary of the Company, or his or her designee, identifying the Award to be exercised, the number of shares of Stock with respect thereto, and other information pertinent to exercise of the Award. The purchase price of the shares of Stock with respect to which an Award is exercised shall be paid with the written notice of exercise, either in cash or in securities of the Company, (including securities issuable hereunder), at its then current fair market value, or in any combination thereof, as the Committee shall determine or by another method permitted by law and affirmatively approved by the Committee; further provided however, that no such manner of exercise shall be permitted if such exercise would violate Section 402 of the Sarbanes-Oxley Act of 2002.
The Committee may withhold its approval for any method of payment for any reason, in its sole discretion, including but not limited to concerns that the proposed method of payment will result in adverse financial accounting treatment, adverse tax treatment for the Company or a participant or a violation of any law applicable to the Company from time to time, and related regulations and guidance.
Stock acquired pursuant to the exercise of an Qualified Option may not be tendered as payment unless the holding period requirements of Code Section 422 have been satisfied, and Stock not acquired pursuant to the exercise of an Qualified Option may not be tendered as payment unless it has been held, beneficially and of record, for at least six (6) months (or such longer time as may be required by applicable securities laws or accounting principles to avoid adverse consequences to the Company or the participant).
Funds received by the Company from the exercise of any Award shall be used for its general corporate purposes.
5
The number of shares of Stock subject to an Award shall be reduced by the number of shares of Stock with respect to which the participant has exercised rights under the Award.
11. Special Limitations on Stock Option Awards . Unless an Award Agreement approved by the Committee provides otherwise, Stock Options awarded under this Plan are intended to meet the requirements for exclusion from coverage under Code Section 409A and applicable Treasury regulations and all Awards shall be construed and administered accordingly.
12. Right of First Refusal. Each written agreement for an Award may contain a provision that requires as a condition to exercising a Qualified Option or a Non Qualified Option that the participant agree prior to selling, transferring or otherwise disposing of any shares of Stock obtained through the exercise of the Award to first offer the shares of Stock to the Company for purchase. The terms and conditions of such right of first refusal shall be determined by the Committee in its sole and absolute discretion, provided that the purchase price shall be at least equal to the Stocks fair market value as determined under Paragraph 14 below, and shall be subject to all applicable federal and state laws, rules and regulations.
13. Withholding. When a participant exercises a stock option awarded under the Plan, the Company, in its discretion and as required by law, may require the participant to remit to the Company an amount sufficient to satisfy fully any federal, state and other jurisdictions income and other tax withholding requirements prior to the delivery of any certificates for shares of Stock. At the Committees discretion, remittance may be made in cash, shares already held by the participant or by the withholding by the Company of sufficient shares issuable pursuant to the option to satisfy the participants withholding obligation.
14. Fair Market Value .
(a) If the Stock is listed on an established stock exchange or exchanges, the fair market value per share of the Stock shall be the composite closing sale price for such a share on the relevant day. If no sale of Stock has occurred on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred.
(b) In the event that the Stock is not traded on an established stock exchange, then the fair market value per share of Stock will be the price established by the Committee in good faith and in compliance with all applicable federal regulations.
15. Amendment. To the extent permitted by applicable law, the Board may amend, suspend, or terminate the Plan at any time. The amendment or termination of this Plan shall not, without the consent of the participants, alter or impair any rights or obligations under any Award previously granted hereunder.
6
From time to time, the Committee may rescind, revise and add to any of the terms, conditions and provisions of the Plan or of an Award as necessary, or appropriate to have the Plan and any Awards thereunder be or remain qualified and in compliance with all applicable laws, rules and regulations, and the Committee may delete, omit or waive any of the terms conditions or provisions that are no longer required by reason of changes of applicable laws, rules or regulations, including but not limited to, the provisions of Sections 421 and 422 of the Code, Section 16 of the Securities Exchange Act of 1934, as amended, (the 1934 Act) and the rules and regulations promulgated by the Securities and Exchange Commission. Without limiting the generality of the preceding sentence, each Qualified Option shall be subject to such other and additional terms, conditions and provisions as the Committee may deem necessary or appropriate in order to qualify as a incentive stock option under Section 422 of the Code.
16. Continued Employment. Nothing in the Plan or any Award shall confer upon any participant or other persons any right to continue in the employ of, or maintain any particular relationship with, the Company or its affiliates, or limit or affect any rights, powers or privileges that the Company or its affiliates may have to supervise, discipline and terminate the participant. However, the Committee may require, as a condition of making and/or exercising any Award, that a participant agree to, and in fact provide services, either as an employee or in another capacity, to or for the Company for such time period as the Committee may prescribe. The immediately preceding sentence shall not apply to any Qualified Option, to the extent such application would result in disqualification of the option under Sections 421 and 422 of the Code.
17. General Restrictions. If the Committee or Board determines that it is necessary or desirable to: (a) list, register or qualify the Stock subject to the Award, or the Award itself, upon any securities exchange or under any federal or state securities or other laws, (b) obtain the approval of any governmental authority, or (c) enter into an agreement with the participant with respect to disposition of any Stock (including, without limitation, an agreement that, at the time of the participants exercise of the Award, any Stock thereby acquired is and will be acquired solely for investment purposes and without any intention to sell or distribute the Stock), then such Award shall not be consummated, in whole or in part, unless the listing, registration, qualification, approval or agreement, as the case may be, shall have been appropriately effected or obtained to the satisfaction of the Committee and legal counsel for the Company.
18. Rights. Except as otherwise provided in the Plan, participants shall have no rights as a holder of the Stock unless and until one or more certificates for the shares of Stock are issued and delivered to the participant. To the extent the shares of Stock are uncertificated, references in the Plan to certificates shall be deemed to include references to any book-entry evidencing such shares.
19. Adjustments. In the event that the shares of common stock of the Company, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of common stock or other securities of the Company or of
7
another Company (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such shares of common stock shall be increased through the payment of a stock dividend, stock split or similar transaction, then, there shall be substituted for or added to each share of common stock of the Company that was theretofore appropriated, or which thereafter may become subject to an option under the Plan, the number and kind of shares of common stock or other securities into which each outstanding share of the common stock of the Company shall be so changed or for which each such share shall be exchanged or to which each such shares shall be entitled, as the case may be. Each outstanding Award shall be appropriately amended as to price and other terms, as may be necessary to reflect the foregoing events.
If there shall be any other change in the number or kind of the outstanding shares of the common stock of the Company, or of any common stock or other securities in which such common stock shall have been changed, or for which it shall have been exchanged, and if a majority of the disinterested members of the Committee shall, in its sole discretion, determine that such change equitably requires an adjustment in any Award that was theretofore granted or that may thereafter be granted under the Plan, then such adjustment shall be made in accordance with such determination.
The grant of an Award under the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, to consolidate, to dissolve, to liquidate or to sell or transfer all or any part of its business or assets.
Fractional shares resulting from any adjustment in Awards pursuant to this Section 19 may be settled as a majority of the members of the Board or of the Committee, as the case may be, shall determine.
To the extent that the foregoing adjustments relate to common stock or securities of the Company, such adjustments shall be made by a majority of the members of the Board or of the Committee, as the case may be, whose determination in that respect shall be final, binding and conclusive. The Company shall give notice of any adjustment to each holder of an Award that is so adjusted.
Notwithstanding the foregoing, the foregoing adjustments shall be made in compliance with: (i) Sections 422 and 424 of the Code with respect to incentive stock options (ii) Treasury Department Regulation Section 1.424-1 (and any successor) with respect to non-statutory, non-incentive stock options applied as if the non-statutory, non-incentive stock options were incentive stock options; and (iii) Section 409 A of the Code, to the extent necessary to avoid its application or avoid adverse tax consequences thereunder.
20. Forfeiture. Notwithstanding anything to the contrary in this Plan, if the Committee finds, after full consideration of the facts presented on behalf of the Company and the involved participant, that he or she has been engaged in fraud, embezzlement,
8
theft, commission of a felony, or dishonesty in the course of his or her employment by the Company and such action has damaged the Company, as the case may be, or that the participant has disclosed trade secrets or confidential information of the Company or its affiliates (Cause), the participant shall forfeit all rights under and to all unexercised Awards, and under and to all exercised Awards under which the Company has not yet delivered payment or certificates for shares of Stock (as the case may be), all of which Awards and rights shall be automatically canceled. The decision of the Committee as to the cause of the participants discharge from employment with the Company and the damage thereby suffered shall be final for purposes of the Plan, but shall not affect the finality of the participants discharge by the Company for any other purposes. The preceding provisions of this paragraph shall not apply to any Qualified Option to the extent such application would result in disqualification of the option as an incentive stock option under Sections 421 and 422 of the Code.
21. Indemnification. In and with respect to the administration of the Plan, the Company shall indemnify each member of the Committee and/or of the Board, each of whom shall be entitled, without further action on his or her part, to indemnification from the Company for all damages, losses, judgments, settlement amounts, punitive damages, excise taxes, fines, penalties, costs and expenses (including without limitation attorneys fees and disbursements) incurred by the member in connection with any threatened, pending or completed action, suit or other proceedings of any nature, whether civil, administrative, investigative or criminal, whether formal or informal, and whether by or in the right or name of the Company, any class of its security holders, or otherwise, in which the member may be or may have been involved, as a party or otherwise, by reason of his or her being or having been a member of the Committee and/or of the Board, whether or not he or she continues to be a member of the Committee or of the Board. The provisions, protection and benefits of this Section shall apply and exist to the fullest extent permitted by applicable law to and for the benefit of all present and future members of the Committee and/or of the Board and their respective heirs, personal and legal representatives, successors and assigns, in addition to all other rights that they may have as a matter of law, by contract, or otherwise, except (a) to the extent there is entitlement to insurance proceeds under insurance coverages provided by the Company on account of the same matter or proceeding for which indemnification hereunder is claimed, or (b) to the extent there is entitlement to indemnification from the Company, other than under this Section, on account of the same matter or proceeding for which indemnification hereunder is claimed.
22. Taxes. The issuance of shares of common stock under the Plan shall be subject to any applicable taxes or other laws or regulations of the United States of America and any state or local authority having jurisdiction there over.
23. Rule 16b-3 Compliance . The Plan is intended to comply with all applicable conditions of Rule 16b-3 of the Exchange Act, as such rule may be amended from time to time (Rule 16b-3). All transactions involving any participant subject to Section 16(a) of the Exchange Act shall be subject to the conditions set forth in Rule 16b-3,
9
regardless of whether such conditions are expressly set forth in this Plan. Any provision of this Plan that is contrary to Rule 16b-3 does not apply to such participants.
24. Successors . All obligations of the Company with respect to Awards granted under this Plan are binding on any successor to the Company, whether as a result of a direct or indirect purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of the Company.
25. Severability . In the event any provision of this Plan, or the application thereof to any person or circumstances, is held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, or other applications, and this Plan is to be construed and enforced as if the illegal or invalid provision had not been included.
26. Governing Law . To the extent not preempted by Federal law, this Plan and all Award Agreements pursuant thereto are construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. This Plan is not intended to be governed by the Employee Retirement Income Security Act and shall be so construed and administered.
27. Legal Requirements . No Awards shall be granted and the Company shall have no obligation to make any payment under the Plan, whether in Shares, cash, or a combination thereof, unless such payment is, without further action by the Committee, in compliance with all applicable Federal and state laws and regulations, including, without limitation, the Code and Federal and state securities laws.
28. Miscellaneous.
(a) Any reference contained in this Plan to particular section or provision of law, rule or regulation, including but not limited to the Code and the 1934 Act, shall include any subsequently enacted or promulgated section or provision of law, rule or regulation, as the case may be. With respect to persons subject to Section 16 of the 1934 Act, transactions under this Plan are intended to comply with all applicable conditions of Section 16 and the rules and regulations promulgated thereunder, or any successor rules and regulations that may be promulgated by the Securities and Exchange Commission, and to the extent any provision of this Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by applicable law and deemed advisable by the Committee.
(b) Where used in this Plan, the plural shall include the singular, and unless the context otherwise clearly requires, the singular shall include the plural; and the term affiliates shall mean each and every subsidiary and any parent of the Company.
10
(c) The captions of the numbered Sections contained in this Plan are for convenience only, and shall not limit or affect the meaning, interpretation or construction of any of the provisions of the Plan.
11
EXHIBIT 14.1
The maintenance of extremely high standards of honesty, integrity, impartiality and conduct is essential to ensure the proper performance of the banks business and to ensure the publics trust. The preservation of the trust and the banks reputation requires close observance of these standards on the part of the bank directors, officers and employees. The Federal Bribery Law (18 U.S.C. Section 215) provides that whoever:
(1) corruptly gives, offers, or promises anything of value to any person, with intent to influence or reward an officer, director, employee, agent or attorney of a financial institution in connection with any business transaction of such institution; or
(2) an officer, director, employee, agent or attorney of a financial institution, corruptly solicits or demands for the benefit of any person, or corruptly accepts or agrees to accept anything of value from any person, intending to be influenced or rewarded in connection with any business or transaction of such institution shall be (guilty of an offense).
The penalty provision of this statute provides that if the value of the bribe offered or received exceeds $100.00, the offense is a felony punishable up to five (5) years in prison and a fine of $5,000.00, or three (3) times the value of the bribe or gratuity, whichever is greater.
Riverview National Bank and its operating divisions, First National Bank of Marysville and Halifax National Bank, requires that its directors, officers, employees and other representatives avoid possible misconduct and conflicts of interest through informed judgment. In addition, careful regard is required for the standards of conduct and responsibilities as set forth. In all situations, including those where there are no legal principles applicable or the law is unsettled, directors, officers and employees are expected to conduct themselves in such a manner that can be supported by the bank and to exercise good judgment in the discharge of their responsibilities. Compliance with this Code of Ethics will be the responsibility of every representative of the bank. The needs of the community are to be given consideration in making business decisions.
The Board of Directors of Riverview National Bank and its operating divisions, First National Bank of Marysville and Halifax National Bank, has adopted this Code of Ethics and delegated the CEOs the responsibility for its administration throughout the bank. It is the CEOs responsibility to be familiar with this code of conduct and to abide by the letter and spirit of its provisions at all times. All employees are expected to make every reasonable effort to ensure that their staff complies with the provisions of this Code on a continuing basis.
Employees must not discuss or otherwise use information obtained in the course of their work at the bank relating to customers, other employees or bank operations for any
1
purpose other than to conduct the banks business. Discussing or acting on inside information violates the trust that customers place in the bank and that the bank places in its employees. For example, an employee may be terminated for breach of trust in discussing a customers financial affairs outside of work or for disclosing to an outside party any information about the companys financial affairs or other internal matters not previously a matter of public record, except as permitted by law.
No employees shall make or approve loans to any bank, partnership, estate, trust, association or other entity or person in which they have an interest directly or indirectly (whether as a director, officer, shareholder, manager, lender, joint venture or other otherwise controlling investor), or in which a member of their immediate family or business associate has such an interest. Any such request for credit extension is to be referred to another bank officer with no connection or affiliation to the potential borrower. All transactions are to arms-length transactions. It is the policy of the bank that all directors, officers, employees and other representatives of the bank must avoid potential conflicts of interest. A potential conflict of interest exists whenever a director, officer or employee has an outside interest, directly or indirectly, which conflicts with the individuals duty to the bank or adversely affects the individuals judgment in the discharge of his or her responsibilities.
The appearance of a conflict of interest may be just as harmful to the banks reputation as an actual conflict of interest. Employees are prohibited from self-dealing or otherwise trading on their positions with the bank from seeking a business opportunity not available to other persons or that is made available because of such employees positions with the bank. The banks name is not to be used as leverage by directors, officers or employees to enhance their own opportunities, when dealing with others, in their political, investment or retail purchasing activities. All officers and employees must report any violations or suspected violations of Federal Criminal Law as soon as it is discovered to the CEO who must investigate and report the matter through legal counsel to the F.B.I., the U.S. Attorneys Office, the F.D.I.C., the Pa. Department of Banking and to the bonding company. If a potential conflict of interest does arise involving an officer or employee, its nature and extent should be fully disclosed immediately to the CEO who, after making a thorough review of the circumstances, will report to the board of directors to determine the appropriate course of action to be taken.
Officers and employees must disclose all potential and actual conflicts of interest including those in which they have been inadvertently placed due to business or personal relationships with customers, suppliers, business associates or competitors of the bank. In the event a potential or actual conflict of interest arises in connection with a member of the board of directors, its nature and extent should immediately and fully be disclosed to Management and to other members of the board of directors. Lending officers are not permitted to process loan applications or to extend credit to members of their immediate family. Immediate family is defined as spouses, parents, children and siblings. Any such
2
loan application must be referred to another lending officer. Extending credit to companies in which the lending officer has an interest as a director, officer, controlling person or in which a member of the lending officers immediate family has such an interest is not permitted. No loans to directors or officers will be made under terms and conditions different than those stated in the lending policy.
Employee Indebtedness
Borrowing by an employee from an individual or business customer of the bank should always be avoided (unless the customer is a recognized lending institution). The approval or denial of such a request imposes a wrongful burden on the customer and can impair the judgment of the employee when making business decisions involving the customer.
Executive officers of the bank are reminded of the reporting requirements of Regulation O. If you are unclear about these requirements, please contact the CEO.
Personal Finances
Because of our position of trust in the community, personal finances should be managed with prudence. Personal financial affairs should be conducted in such a manner as to be above regulatory or auditing criticisms or concerns. Officers and employees should discuss any financial emergency with the CEO.
In the event an employee files bankruptcy, the Human Resource Department must be notified within three (3) business days of the filing.
All employees should assume the position of a regular customer when handling their personal bank business. All transactions should be handled in the normal over-the-counter procedure. No employees will be permitted to transact their own or a relatives bank business. Avoid direct or indirect financial interest with competitors, customers, and suppliers.
Gifts and Fees
The bank expects all directors, officers and employees to render efficient and courteous service to its customers at all times without expectation of reward. To avoid even the appearance of impropriety, it is important that each staff member decline any cash or gifts the acceptance of which would raise the slightest doubt of improper influence. If an officer or employee is offered or receives something of value from a customer, the same officer or employee must disclose that fact to the CEO. Such disclosures shall be kept at the bank in written reports. Management will review the disclosures to determine whether what is offered or accepted is reasonable and not harmful to the integrity of the bank.
It is recognized, however, that certain gift giving may occur without the intent to influence or reward an officer corruptly in connection with the business of the bank. Exceptions to the general
3
prohibition of accepting things of value in connection with the business of the bank may include acceptance of: (a) Gifts, gratuities, amenities or favors based on obvious family or personal relationships (such as those between parents, children or spouse of a financial institution official) where the circumstances make it clear that it is those relationships rather than the business of the bank which are the motivating factors; (b) meals, refreshments, entertainment, accommodations or travel arrangements, all of reasonable value, in the course of a meeting or other occasion, the purpose of which is to hold bona fide business discussions or to foster better business relations, provided the expense would be paid by the bank as a reasonable business expense if not paid by the other party; (c) Loans from other financial institutions on customary terms to finance proper and usual activities of bank officials such as home mortgage loans except where prohibited by law; (d) Advertising or promotional material of reasonable value such as pens, pencils, note pads, key chains, calendars and similar items; (e) Discounts or rebates on merchandise or services that do not exceed those available to other customers; (f) Gifts of reasonable value that are related to commonly recognized events or occasions such as a promotion, new job, wedding, retirement, holiday or birthday. The limit set by the bank would be thirty ($30) dollars; (g) Civic, charitable, educational or religious organization awards for service and accomplishment. The maximum limit set by the bank would be thirty ($30) dollars.
Political Contributions and Activities
Individual participation in political and civic activities is encouraged, including the making of personal contributions to political candidates or activities. The bank, or anyone acting on its behalf, is prohibited from making an expenditure or contribution either directly or indirectly in connection with an election to political office.
Therefore, the bank will not make political contributions to individual candidates or political parties. Employees who wish to donate money or services to a candidate or party may do so as individuals, and not as representatives of the bank. To avoid any interpretation of bank sponsorship or endorsement, neither the banks name nor its address should be used. Do not use the bank name in or associated with any political advertisements or literature. The Federal Elections Commission, however, does permit the use of bank funds and assets for limited political purposes such as establishing political action committees and implementing non-partisan voter registration or get out the vote campaigns.
Officers and employees must be constantly aware when considering election or appointment to corporate boards, public offices or commissions such that serving in such capacity will not place them in a position where a potential conflict of interest may arise. Unless specifically approved by the CEO or the banks board of directors, no director, officer or employee shall serve on the board of directors of any bank entity which is in direct competition with the bank. If a conflict develops, the bank reserves the right to request the person involved to divest him or herself of one of the conflicting interests. Similarly, no director, officer, employee or director, officer or employee who is also a substantial shareholder of another company shall serve as a director of any bank entity where such circumstances exist.
Business Conduct
In the conduct of the banks business, no bribe, kickback, or similar remuneration or consideration of any kind is to be given or offered to any individual or organization. The activities of the bank must always be in full compliance with all applicable laws and regulations.
4
The bank expects its staff to comply fully with the letter, spirit, and intent of all laws and regulations.
It is the policy of the bank to comply fully with the antibribery provisions. It is a criminal offense for any U.S. enterprise to offer a bribe to an official, political party, party official, or candidate for political office for the purpose of obtaining, retaining, or directing business to any person, regardless of whether that person is the one making the bribe. A bribe may take the form of an offer, payment, promise to pay, or authorization of the payment of any money or anything of value.
It is commonly recognized that there is a direct correlation between illegal or improper payments and inaccurate records. To guarantee the accuracy of the banks books and records, the following principles should be observed: 1. All transactions or conduct of the banks business must be properly reflected in the banks books; 2. No secret or unrecorded fund, bank money or other assets shall be established or maintained; 3. Any payment is prohibited if no record of its disbursement is entered in the banks accounting records and 4. Making false and fictitious entries in the books or records of the bank or issuing false or misleading documents is prohibited and will, most likely, result in a criminal offense.
Customer Referral
Bank employees may be requested by bank customers and the general public to provide a referral to professional services, such as attorneys, securities brokers, certified public accountants, insurance agents, and real estate agents. Employees shall, when approved by management, recommend several qualified sources from which the customer can select. Bank employees should not make any adverse or negative comments regarding any outside professional. If an employee cannot give a positive recommendation regarding the outside professional, the employee should indicate to the customer that the employee has no recommendation to give regarding the particular professional. If you do make a positive referral, it should be limited to a statement that you have heard good comments regarding the professional but you or the bank cannot make any specific referrals or endorsements. The employee should exercise extreme caution not to make any statement that could subject either the employee or the bank, or both, to an action for libel or slander.
In several instances, discussions with customers may lead to a request that the employee give an opinion or statement about the legality of a particular transaction. Employees are not qualified to give legal advice. The bank also does not engage in the business of giving investment or tax advice. These are areas that are best left to the professional in that particular field. Extreme care must be exercised in discussions with customers, and nothing should be said that could be construed as the giving of legal advice, tax advice, or investment advice.
Fiduciary Appointment
Without specific approval, employees are not to act as agent or deputy in any signing capacity on any account (except for members of their families) held in the bank. Further, employees may not act as executor, administrator, trustee, guardian, custodian, or in any fiduciary capacity without authority granted by the bank. This would normally be granted only to act for spouse, mother, father, brother, sister, son, daughter, or dependent.
There may be instances wherein a bank employee is requested to accept an appointment as a fiduciary or co-fiduciary (personal representative, trustee, administrator, guardian, executor, or
5
custodian) with the bank, another person, or a firm or corporation. Except where the request is for a member of the immediate family, all employees must obtain prior approval of the banks board of directors before acceptance of the positions. Employees are reminded to consult senior management because federal or state regulations govern the acceptance of fees as a fiduciary. Except for a member of an officers or employees immediate family, prior approval by the CEO is required before acceptance by an officer or employee of appointment as fiduciary or co-fiduciary (executor, administrator, guardian or trustee) of customers of the bank, either with the bank or with another person, firm or corporation. The CEO must obtain the approval of the Board of Directors. Any acceptance of these dating prior to the date of this document does not require approval by the CEO or the Board of Directors. Immediate family is defined as spouses, parents, children and/or siblings. To avoid even the appearance of impropriety, directors should exercise reasonable caution in accepting appointment as a fiduciary or co-fiduciary.
Beneficiary under a Will or Trust
Officers and employees must report any gift of a beneficial interest or legacy under wills or trusts of customers of the bank, other than a relative, at such time as the officer or employee learns of the designation. The object of such a notification is to allow for consideration of all facts in each case to make certain there are no conflicts of interest. Also, that a disinterested, reasonable third party could not allege a conflict of interest upon the officer or employee in receipt of the benefit. If these reporting requirements results in a decision that a real or apparent conflict exists, the officer or employee will be expected to make every effort to be relieved of the benefit and, in all likelihood, will be required to renounce the gift.
ACKNOWLEDGMENT STATEMENT
The policies stated in the Code of Ethics are intended to give an employee an indication of how most ethical situations are normally handled.
Statement
I have read the policies and programs outlined in this Code of Ethics. I understand I must adhere to these policies.
I further understand that the bank reserves the right to unilaterally modify, amend, or eliminate policies.
I also understand that the information in this Code of Ethics is confidential and for the use of our employees only. It will, at all times, remain the property of the bank. Should employment be terminated for any reason, I will return this Code of Ethics to the bank.
I acknowledge that the bank may withhold from my final paycheck the cost of any items that are not returned prior to my last day of employment.
I further understand:
Policies and the Code of Ethics may be updated from time to time as described herein.
6
By signing this statement, I acknowledge that I have received and read, not necessarily agree with, our employee Code of Ethics and this statement.
|
|
|
Employee Name (Please Print) |
|
(Date) |
|
|
|
|
|
|
|
|
|
Employee Signature |
|
Note: This page should be signed, removed from the Code of Ethics, and returned to the Human Resource Department.
7
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name |
|
State of Incorporation |
Riverview National Bank |
|
Pennsylvania |
EXHIBIT 31.1
CERTIFICATION
I, Robert M. Garst certify that:
1. I have reviewed this annual report on Form 10-K of Riverview Financial Corporation;
2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and
(c) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
April 9, 2009 |
|
By: |
/s/ Robert M . Garst |
|
|
|
Robert M. Garst |
|
|
|
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Theresa M. Wasko certify that:
1. I have reviewed this annual report on Form 10-K of Riverview Financial Corporation;
2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and
(c) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
April 9, 2009 |
|
By: |
/s/ Theresa M. Wasko |
|
|
|
Theresa M. Wasko |
|
|
|
|
Chief Financial Officer |
EXHIBIT 32.1
CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, Robert M. Garst, Chief Executive Officer of Riverview Financial Corporation (the Company), hereby certify that, to the best of my knowledge, the Companys Annual Report on Form 10-K for the period ended December 31, 2008 (the Report):
1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2008.
Date: |
April 9, 2009 |
|
By: |
/s/ Robert M. Garst |
|
|
|
Robert M. Garst |
|
|
|
|
Chief Executive Officer |
EXHIBIT 32.2
CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), I, Theresa M. Wasko, Chief Financial Officer of Riverview Financial Corporation (the Company), hereby certify that, to the best of my knowledge, the Companys Annual Report on Form 10-K for the period ended December 31, 2008 (the Report):
1. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2008.
Date: |
April 9, 2009 |
|
By: |
/s/ Theresa M. Wasko |
|
|
|
Theresa M. Wasko |
|
|
|
|
Chief Financial Officer |
:35355