x |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
|
|
For the quarterly period ended September 30, 2009 |
|
|
|
or |
|
|
o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
333-153486-99
Commission File Number
(Exact name of registrant as specified in its charter)
Pennsylvania |
|
26-3853402 |
(State or other jurisdiction of |
|
(IRS Employer Identification Number) |
incorporation or organization) |
|
|
3 rd and Market Streets, Halifax, PA 17032
(Address of principal executive offices)
Registrants telephone number: 717-896-3433
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. 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 |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 1,750,003 shares of Common Stock, par value $0.50 per share, outstanding as of October 30, 2009.
RIVERVIEW FINANCIAL CORPORATION
|
|
PAGE |
|
|
|
|
||
|
|
|
|
||
|
|
|
|
Consolidated Balance Sheets at September 30, 2009 (unaudited) and December 31, 2008 |
3 |
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
6 |
|
|
|
|
|
8 |
|
|
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
20 |
|
|
|
|
34 |
||
|
|
|
34 |
||
|
|
|
|
||
|
|
|
34 |
||
|
|
|
35 |
||
|
|
|
35 |
||
|
|
|
35 |
||
|
|
|
35 |
||
|
|
|
35 |
||
|
|
|
35 |
||
|
|
|
|
37 |
|
|
|
|
|
38 |
2
RIVERVIEW FINANCIAL CORPORATION
|
|
September 30, |
|
December 31, |
|
||
(In thousands, except share data) |
|
2009 |
|
2008 |
|
||
|
|
(Unaudited) |
|
|
|
||
Assets |
|||||||
Cash and due from banks |
|
$ |
4,076 |
|
$ |
4,545 |
|
Federal funds sold |
|
|
|
1,034 |
|
||
Interest bearing deposits |
|
15,109 |
|
439 |
|
||
Cash and cash equivalents |
|
19,185 |
|
6,018 |
|
||
Interest bearing time deposits with banks |
|
6,980 |
|
950 |
|
||
Investment securities available for sale |
|
29,588 |
|
28,120 |
|
||
Mortgage loans held for sale |
|
768 |
|
1,124 |
|
||
Loans, net of allowance for loan losses of $2,186 - 2009; $1,710 - 2008 |
|
171,942 |
|
176,469 |
|
||
Premises and equipment |
|
7,360 |
|
7,472 |
|
||
Accrued interest receivable |
|
845 |
|
812 |
|
||
Restricted investments in bank stocks |
|
2,410 |
|
2,075 |
|
||
Cash value of life insurance |
|
5,503 |
|
5,258 |
|
||
Foreclosed assets |
|
|
|
144 |
|
||
Goodwill |
|
1,796 |
|
1,785 |
|
||
Intangible assets |
|
149 |
|
173 |
|
||
Other assets |
|
1,058 |
|
1,511 |
|
||
Total Assets |
|
$ |
247,584 |
|
$ |
231,911 |
|
|
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|||||||
Liabilities |
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
||
Demand, non-interest bearing |
|
$ |
18,909 |
|
$ |
19,614 |
|
Demand, interest bearing |
|
51,392 |
|
25,789 |
|
||
Savings and money market |
|
28,353 |
|
27,877 |
|
||
Time |
|
109,890 |
|
101,073 |
|
||
Total deposits |
|
208,544 |
|
174,353 |
|
||
Short-term borrowings |
|
1,021 |
|
21,323 |
|
||
Long-term borrowings |
|
10,951 |
|
10,033 |
|
||
Accrued interest payable |
|
513 |
|
499 |
|
||
Other liabilities |
|
1,545 |
|
1,498 |
|
||
Total Liabilities |
|
222,574 |
|
207,706 |
|
||
|
|
|
|
|
|
||
Shareholders Equity |
|
|
|
|
|
||
Common stock, par value $0.50 per share; authorized 5,000,000 shares; issued and outstanding 1,750,003 shares - 2009 and 2008 |
|
875 |
|
875 |
|
||
Surplus |
|
11,252 |
|
11,239 |
|
||
Retained earnings |
|
12,648 |
|
12,054 |
|
||
Accumulated other comprehensive income (loss) |
|
235 |
|
37 |
|
||
Total Shareholders Equity |
|
25,010 |
|
24,205 |
|
||
Total Liabilities and Shareholders Equity |
|
$ |
247,584 |
|
$ |
231,911 |
|
See notes to consolidated financial statements.
3
RIVERVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
(In thousands, except share data) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Interest and Dividend Income |
|
|
|
|
|
|
|
|
|
||||
Loans, including fees |
|
$ |
2,715 |
|
$ |
1,659 |
|
$ |
8,319 |
|
$ |
4,647 |
|
Investment securities - taxable |
|
96 |
|
138 |
|
381 |
|
426 |
|
||||
Investment securities - tax exempt |
|
136 |
|
30 |
|
322 |
|
111 |
|
||||
Federal funds sold |
|
|
|
2 |
|
4 |
|
27 |
|
||||
Interest-bearing deposits |
|
42 |
|
1 |
|
106 |
|
2 |
|
||||
Dividends |
|
|
|
10 |
|
7 |
|
36 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Interest Income |
|
2,989 |
|
1,840 |
|
9,139 |
|
5,249 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest Expense |
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
1,152 |
|
546 |
|
3,355 |
|
1,717 |
|
||||
Short-term borrowings |
|
1 |
|
61 |
|
48 |
|
111 |
|
||||
Long-term debt |
|
69 |
|
171 |
|
266 |
|
500 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Interest Expense |
|
1,222 |
|
778 |
|
3,669 |
|
2,328 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net Interest Income |
|
1,767 |
|
1,062 |
|
5,470 |
|
2,921 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Provision for Loan Losses |
|
200 |
|
100 |
|
475 |
|
160 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net Interest Income after Provision for Loan Losses |
|
1,567 |
|
962 |
|
4,995 |
|
2,761 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Noninterest Income |
|
|
|
|
|
|
|
|
|
||||
Service charges on deposit accounts |
|
73 |
|
41 |
|
216 |
|
117 |
|
||||
Other service charges and fees |
|
88 |
|
58 |
|
265 |
|
183 |
|
||||
Earnings on cash value of life insurance |
|
55 |
|
33 |
|
191 |
|
97 |
|
||||
Gain on sale of available for sale securities |
|
102 |
|
|
|
290 |
|
42 |
|
||||
Gain on sale of mortgage loans |
|
44 |
|
|
|
297 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Noninterest Income |
|
362 |
|
132 |
|
1,259 |
|
439 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
||||
Salaries and employee benefits |
|
709 |
|
486 |
|
2,237 |
|
1,383 |
|
||||
Occupancy expenses |
|
162 |
|
113 |
|
507 |
|
331 |
|
||||
Equipment expenses |
|
106 |
|
54 |
|
312 |
|
156 |
|
||||
Telecommunication and processing charges |
|
124 |
|
61 |
|
355 |
|
177 |
|
||||
Postage and office supplies |
|
46 |
|
20 |
|
172 |
|
66 |
|
||||
FDIC premiums |
|
85 |
|
20 |
|
343 |
|
25 |
|
||||
Bank shares tax expense |
|
66 |
|
17 |
|
197 |
|
86 |
|
||||
Directors compensation |
|
55 |
|
23 |
|
165 |
|
75 |
|
||||
Professional services |
|
75 |
|
20 |
|
178 |
|
70 |
|
||||
Other expenses |
|
119 |
|
108 |
|
376 |
|
261 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total Noninterest Expenses |
|
1,547 |
|
922 |
|
4,842 |
|
2,630 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income before Income Taxes |
|
382 |
|
172 |
|
1,412 |
|
570 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Applicable Federal Income Taxes |
|
67 |
|
20 |
|
291 |
|
92 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net Income |
|
$ |
315 |
|
$ |
152 |
|
$ |
1,121 |
|
$ |
478 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings Per Share Basic and Diluted |
|
$ |
0.18 |
|
$ |
0.16 |
|
$ |
0.64 |
|
$ |
0.50 |
|
See notes to consolidated financial statements.
4
RIVERVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Nine Months Ended September 30, 2009 and 2008
(Unaudited)
(In thousands, except share data) |
|
Common
|
|
Surplus |
|
Retained
|
|
Accumulated
|
|
Total
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance January 1, 2008 |
|
$ |
481 |
|
$ |
317 |
|
$ |
11,983 |
|
$ |
(26 |
) |
$ |
12,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
|
|
|
|
478 |
|
|
|
478 |
|
|||||
Other comprehensive income |
|
|
|
|
|
|
|
19 |
|
19 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
497 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash dividends, $0.24 per share |
|
|
|
|
|
(225 |
) |
|
|
(225 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance September 30, 2008 |
|
$ |
481 |
|
$ |
317 |
|
$ |
12,236 |
|
$ |
(7 |
) |
$ |
13,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance January 1, 2009 |
|
$ |
875 |
|
$ |
11,239 |
|
$ |
12,054 |
|
$ |
37 |
|
$ |
24,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
|
|
|
|
1,121 |
|
|
|
1,121 |
|
|||||
Other comprehensive income |
|
|
|
|
|
|
|
198 |
|
198 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
1,319 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Compensation cost of option grants |
|
|
|
13 |
|
|
|
|
|
13 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash dividends, $0.30 per share |
|
|
|
|
|
(527 |
) |
|
|
(527 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance September 30, 2009 |
|
$ |
875 |
|
$ |
11,252 |
|
$ |
12,648 |
|
$ |
235 |
|
$ |
25,010 |
|
See notes to consolidated financial statements.
5
RIVERVIEW FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
||||
|
|
2009 |
|
2008 |
|
||
|
|
(In thousands) |
|
||||
Cash Flows from Operating Activities |
|
|
|
|
|
||
Net income |
|
$ |
1,121 |
|
$ |
478 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
Depreciation |
|
423 |
|
246 |
|
||
Provision for loan losses |
|
475 |
|
160 |
|
||
Granting of stock options |
|
13 |
|
|
|
||
Net amortization of premiums on securities available for sale |
|
65 |
|
44 |
|
||
Net realized gain on sale of securities available for sale |
|
(290 |
) |
(42 |
) |
||
Amortization of intangible assets |
|
24 |
|
|
|
||
Deferred income taxes |
|
(482 |
) |
|
|
||
Proceeds from sale of mortgage loans |
|
24,463 |
|
|
|
||
Net gain on sale of mortgage loans |
|
(297 |
) |
|
|
||
Mortgage loans originated for sale |
|
(23,810 |
) |
|
|
||
Earnings on cash value of life insurance, net |
|
(165 |
) |
(75 |
) |
||
Decrease in accrued interest receivable and other assets |
|
800 |
|
152 |
|
||
Increase (decrease) in accrued interest payable and other liabilities |
|
61 |
|
(10 |
) |
||
|
|
|
|
|
|
||
Net Cash Provided by Operating Activities |
|
2,401 |
|
953 |
|
||
|
|
|
|
|
|
||
Cash Flows from Investing Activities |
|
|
|
|
|
||
Net purchases of interest bearing time deposits with banks |
|
(6,030 |
) |
|
|
||
Securities available for sale: |
|
|
|
|
|
||
Purchases |
|
(17,796 |
) |
(6,001 |
) |
||
Proceeds from maturities, calls and principal repayments |
|
11,647 |
|
7,762 |
|
||
Proceeds from sales |
|
5,206 |
|
1,915 |
|
||
Net increase in restricted investments in bank stock |
|
(335 |
) |
(342 |
) |
||
Proceeds from the sale of other real estate owned |
|
144 |
|
|
|
||
Net (increase) decrease in loans |
|
4,052 |
|
(23,325 |
) |
||
Purchases of premises and equipment |
|
(311 |
) |
(246 |
) |
||
Capitalized business combination transaction costs |
|
(11 |
) |
|
|
||
Purchase of life insurance |
|
(249 |
) |
|
|
||
Proceeds from life insurance |
|
169 |
|
|
|
||
|
|
|
|
|
|
||
Net Cash Used in Investing Activities |
|
(3,514 |
) |
(20,237 |
) |
||
|
|
|
|
|
|
||
Cash Flows from Financing Activities |
|
|
|
|
|
||
Net increase in deposits |
|
34,191 |
|
115 |
|
||
Net increase in securities sold under agreements to repurchase |
|
494 |
|
|
|
||
Net increase (decrease) in short-term borrowings |
|
(20,796 |
) |
16,674 |
|
||
Proceeds from long-term borrowings |
|
5,678 |
|
2,500 |
|
||
Payments on long-term borrowings |
|
(4,760 |
) |
(7,037 |
) |
||
Dividends paid |
|
(527 |
) |
(225 |
) |
||
|
|
|
|
|
|
||
Net Cash Provided by Financing Activities |
|
14,280 |
|
12,027 |
|
||
6
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
|
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
||||
|
|
2009 |
|
2008 |
|
||
|
|
(In thousands) |
|
||||
|
|
|
|
|
|
||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
13,167 |
|
(7,257 |
) |
||
|
|
|
|
|
|
||
Cash and Cash Equivalents - Beginning |
|
6,018 |
|
9,083 |
|
||
|
|
|
|
|
|
||
Cash and Cash Equivalents - Ending |
|
$ |
19,185 |
|
$ |
1,826 |
|
|
|
|
|
|
|
||
Supplemental Disclosures of Cash Flows Information |
|
|
|
|
|
||
Interest paid |
|
$ |
4,681 |
|
$ |
2,864 |
|
Income taxes paid |
|
195 |
|
33 |
|
||
|
|
|
|
|
|
||
Supplemental Schedule of Noncash Investing and Financing Activities |
|
|
|
|
|
||
Other real estate acquired in settlement of loans |
|
|
|
314 |
|
See notes to consolidated financial statements.
7
RIVERVIEW FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
On December 31, 2008, Riverview Financial Corporation (Riverview) was formed and effected the consolidation of First Perry Bancorp, Inc. (First Perry) and its wholly-owned subsidiary, The First National Bank of Marysville, and HNB Bancorp, Inc. (HNB) 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.
Riverview and its wholly-owned bank subsidiary provide loan, deposit and other commercial banking services through three full service offices in Marysville and Duncannon, Perry County, Pennsylvania, one full service office in Hampden Township, Cumberland County, Pennsylvania and four full service and one drive-up office in Halifax, Millersburg, Elizabethville and Harrisburg, Dauphin County, Pennsylvania. Riverview competes with several other financial institutions to provide its services to individuals, businesses, municipalities and other organizations. The primary reason for the combination was to pool resources to provide greater products, services and efficiencies to customers in the contiguous counties, and provide cost savings through the consolidation of operations. Riverview 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.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Riverview and its wholly-owned bank subsidiary. Riverview 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, is reported under the name of Riverview Financial Corporation.
The consolidated financial statements include the accounts of Riverview, and its wholly owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and are presented in accordance with instructions for Form 10-Q and Rule 10-01 of the Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation are of a normal and recurring nature and have been included.
8
Operating results for the nine-months ended September 30, 2009, are not necessarily indicative of the results that may be expected for the year ended December 31, 2009. The consolidated financial statements presented in this report should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2008, included in Riverviews Form 10-K filed with the Securities and Exchange Commission on April 10, 2009.
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 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 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 and foreclosed real estate, further reductions in the carrying amounts of loans and foreclosed real estate 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 and foreclosed real estate. Such agencies may require Riverview 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 and foreclosed real estate may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Accounting Policies
The accounting policies of Riverview as applied in the interim financial statements presented, are substantially the same as those followed on an annual basis as presented in Riverviews Form 10-K.
Reclassifications
Certain amounts in the 2008 consolidated financial statements have been reclassified to conform to the 2009 presentation. Such reclassification had no effect on net income.
Subsequent Events
Generally accepted accounting principles establish general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. In preparing these consolidated financial statements, Riverview evaluated the events and transactions that occurred between October 1, 2009 and November 12, 2009, the date the financial statements were issued, and has not identified any events that require recognition or disclosure in the consolidated financial statements.
Note 2 Business Combinations
Effective December 31, 2008, Riverview 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
9
Halifax National Bank, the wholly owned subsidiary of HNB, consolidated with and into Riverview National Bank, the wholly owned subsidiary of Riverview. 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, Riverview 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 Riverviews 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 Riverviews 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 Riverviews common stock in the consolidation.
The following are the unaudited combined results of operations of Riverview for the three and nine months ended September 30, 2009 and compared with the three and nine months ended September 30, 2008 as though HNB had been consolidated on January 1, 2008:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
(In thousands, except per share data) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total interest income |
|
$ |
2,989 |
|
$ |
3,151 |
|
$ |
9,139 |
|
$ |
9,029 |
|
Total interest expense |
|
1,222 |
|
1,335 |
|
3,669 |
|
4,056 |
|
||||
Net interest income |
|
1,767 |
|
1,816 |
|
5,470 |
|
4,973 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Provision for loan losses |
|
200 |
|
125 |
|
475 |
|
235 |
|
||||
Net interest income after provision for loan losses |
|
1,567 |
|
1,691 |
|
4,995 |
|
4,738 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total noninterest income |
|
362 |
|
217 |
|
1,259 |
|
1,136 |
|
||||
Total noninterest expense |
|
1,547 |
|
1,483 |
|
4,842 |
|
4,237 |
|
||||
Income before taxes |
|
382 |
|
425 |
|
1,412 |
|
1,637 |
|
||||
Income tax expense |
|
67 |
|
68 |
|
291 |
|
348 |
|
||||
Net income |
|
$ |
315 |
|
$ |
357 |
|
$ |
1,121 |
|
$ |
1,289 |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted earnings per share |
|
$ |
0.18 |
|
$ |
0.20 |
|
$ |
0.64 |
|
$ |
0.74 |
|
Included in the 2008 combined net income presented in the table above for the nine months ended September 30, 2008 is a pre-tax one time gain from the sale of real estate for $456,000 recorded by HNB.
Note 3 - 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 loss, which represents a component of shareholders equity, represents the net unrealized losses on securities available for sale, net of taxes.
10
The only comprehensive income item that Riverview presently has is unrealized gains on securities available for sale. The components of the change in unrealized gains are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
(In thousands) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Unrealized holding gains arising during the period |
|
$ |
544 |
|
$ |
87 |
|
$ |
590 |
|
$ |
70 |
|
Reclassification of gains realized in net income |
|
(102 |
) |
|
|
(290 |
) |
(42 |
) |
||||
|
|
442 |
|
87 |
|
300 |
|
28 |
|
||||
Deferred income tax effect |
|
(150 |
) |
(29 |
) |
(102 |
) |
(9 |
) |
||||
Change in accumulated other comprehensive income |
|
$ |
292 |
|
$ |
58 |
|
$ |
198 |
|
$ |
19 |
|
Note 4 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
(In thousands, except share data) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Net income applicable to common stock |
|
$ |
315 |
|
$ |
152 |
|
$ |
1,121 |
|
$ |
478 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding |
|
1,750,003 |
|
962,585 |
|
1,750,003 |
|
962,585 |
|
||||
Effect of dilutive securities, stock options |
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding used to calculate diluted earnings per share |
|
1,750,003 |
|
962,585 |
|
1,750,003 |
|
962,585 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted earnings per share |
|
$ |
0.18 |
|
$ |
0.16 |
|
$ |
0.64 |
|
$ |
0.50 |
|
Note 5 - Investment Securities Available for Sale
In April 2009, a new accounting standard was released relating to the Recognition and Presentation of Other-Than-Temporary Impairments. This standard clarified the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.
In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the accounting standards dictates the presentation and the amount of the other-than-temporary impairment that should be recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.
11
This accounting standard was effective for Riverview for reporting periods June 30, 2009 and after. The adoption of this standard did not have a material impact on Riverviews consolidated financial statements.
The amortized cost and estimated fair values of investment securities available for sale are reflected in the following schedules at September 30, 2009:
|
|
2009 |
|
||||||||||
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
||||
|
|
(In thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
U.S. Government agencies |
|
$ |
2,364 |
|
$ |
30 |
|
$ |
|
|
$ |
2,394 |
|
State and municipal |
|
13,064 |
|
268 |
|
(6 |
) |
13,326 |
|
||||
Mortgaged-backed securities |
|
13,804 |
|
84 |
|
(20 |
) |
13,868 |
|
||||
|
|
$ |
29,232 |
|
$ |
382 |
|
$ |
(26 |
) |
$ |
29,588 |
|
Securities with an amortized cost of $16,035,000 and a fair value of $16,299,000 September 30, 2009 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 September 30, 2009 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) |
|
||||||||||||||||
September 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Government agencies |
|
$ |
3,589 |
|
$ |
(20 |
) |
$ |
|
|
$ |
|
|
$ |
3,589 |
|
$ |
(20 |
) |
State and municipal |
|
614 |
|
(6 |
) |
|
|
|
|
614 |
|
(6 |
) |
||||||
|
|
$ |
4,203 |
|
$ |
(26 |
) |
$ |
|
|
$ |
|
|
$ |
4,203 |
|
$ |
(26 |
) |
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Government agencies |
|
$ |
4,980 |
|
$ |
(37 |
) |
$ |
99 |
|
$ |
(1 |
) |
$ |
5,079 |
|
$ |
(38 |
) |
Management evaluates securities for other-than-temporary impairment, at least on a quarterly basis. In making its other-than-temporary impairment evaluation, management determined whether the expected cash flows are affected by underlying collateral or concerns regarding the issuer. Additional 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 Riverview to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Managements intent is to hold all investments until maturity unless market, economic or specific investment concerns warrant a sale of the securities.
At September 30, 2009, four securities have unrealized losses. Management believes the unrealized losses relate to changes in interest rates since the individual securities were purchased as
12
opposed 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, Riverview sold 19 available for sale securities during 2009 and received proceeds of $5,206,000. Gross realized gains amounted to $291,000 and gross realized losses of $1,000, resulting in a $290,000 net gain on sale.
Note 6 - Stock Option Plan
In January 2009, Riverview 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. Riverview will account for these awards in accordance with generally accepted accounting principles related to 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.
Riverview awarded 155,000 options to management and members of the Board of Directors on January 7, 2009. Each award had 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%. During the second quarter of 2009, 7,000 options were forfeited and reduced the outstanding option grants to 148,000 options. On September 16, 2009, Riverview awarded the remaining 22,000 options to management and the Board of Directors. Each of these awards had 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 3.31%; discount rate 3.07%. Riverview is amortizing compensation expense over the vesting period, or 7 years. Compensation expense relating to the options that was recognized during the third quarter of 2009 was $1,000 and $13,000 for the nine months ended September 30, 2009. The remaining unrecognized compensation expense as of September 30, 2009 was $133,000.
Note 7 Guarantees
In the ordinary course of business, the Bank is party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank does not issue any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit that are written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments. The Bank had $1,067,000 in financial and performance letters of credit as of September 30, 2009. Management believes that the proceeds obtained through liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of September 30, 2009 for guarantees under letters of credit is not material.
Note 8 - Fair Value Measurements and Fair Values of Financial Instruments
Management uses its best judgment in estimating the fair value of Riverviews financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for
13
substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts Riverview 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, a new accounting standard was released relating to Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. The standard establishes a fair value hierarchy regarding the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard was effective for Riverview as of January 1, 2008. However, in February 2008 the effective date of this standard for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) was extended to the fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of this standard did not have a material effect on Riverviews consolidated financial statements upon adoption on January 1, 2009.
In October 2008, a new accounting standard was issued related to Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active to clarify the application of the provisions of Fair Value measurements in an active market and how an entity would determine fair value in an inactive market. This standard was effective immediately and applied to Riverviews December 31, 2008 and later consolidated financial statements.
In April 2009, a new accounting standard with regard to Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly was issued. The standard for Fair Value Measurements defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The new standard provides additional guidance for determining when the volume and level of activity for the asset or liability has significantly decreased. The standard also includes guidance on identifying circumstances when a transaction may not be considered orderly. This standard also provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with the Fair Value Measurements standard. This standard clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The standard provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value. This standard is effective for Riverview for interim and annual reporting periods ending June 30, 2009 and after. Adoption of this pronouncement did not have a material impact on Riverviews financial statements.
The Fair Value Measurements standard establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are as follows:
14
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. At September 30, 2009, Riverview had no liabilities subject to fair value reporting requirements. For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2009 and December 31, 2008 are as follows:
Description |
|
Balance |
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
||||
|
|
(In thousands) |
|
||||||||||
September 30, 2009: |
|
|
|
|
|
|
|
|
|
||||
Securities available for sale |
|
$ |
29,588 |
|
$ |
|
|
$ |
29,588 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2008: |
|
|
|
|
|
|
|
|
|
||||
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 September 30, 2009 and December 31, 2008 are as follows:
Description |
|
Balance |
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
||||
|
|
(In thousands) |
|
||||||||||
September 30, 2009: |
|
|
|
|
|
|
|
|
|
||||
Impaired loans |
|
$ |
4,797 |
|
$ |
|
|
$ |
|
|
$ |
4,797 |
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2008: |
|
|
|
|
|
|
|
|
|
||||
Impaired loans |
|
$ |
443 |
|
$ |
|
|
$ |
|
|
$ |
443 |
|
In April 2009, the FASB issued a new standard related to Interim Disclosures about Fair Value of Financial Instruments). This standard amends the Disclosures about Fair Value of Financial Instruments standard, to require disclosure about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This standard also amends the Interim Financial Reporting standards, to require those disclosures in summarized financial information at interim reporting periods.
This standard is effective for Riverview for reporting periods June 30, 2009 and after. The adoption of this standard did not have a material impact on Riverviews consolidated financial statements.
15
The following information should not be interpreted as an estimate of the fair value of Riverview since a fair value calculation is only provided for a limited portion of Riverviews assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between Riverviews disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of Riverviews financial instruments at September 30, 2009.
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. Riverview generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.
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 generally accepted accounting principles related to Accounting by Creditors for Impairment of a Loan in which Riverview 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.
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.
16
Accrued interest receivable and payable (carried at cost):
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit liabilities (carried at cost):
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
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 Riverviews 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 Riverviews financial instruments were as follows:
|
|
September 30, 2009 |
|
December 31, 2008 |
|
||||||||
(In thousands) |
|
Carrying
|
|
Fair Value |
|
Carrying
|
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
19,185 |
|
$ |
19,185 |
|
$ |
6,018 |
|
$ |
6,018 |
|
Interest bearing time deposits |
|
6,980 |
|
6,980 |
|
950 |
|
950 |
|
||||
Investment securities |
|
29,588 |
|
29,588 |
|
28,120 |
|
28,120 |
|
||||
Mortgage loans held for sale |
|
768 |
|
768 |
|
1,124 |
|
1,124 |
|
||||
Loans, net |
|
171,942 |
|
175,850 |
|
176,469 |
|
176,816 |
|
||||
Accrued interest receivable |
|
845 |
|
845 |
|
812 |
|
812 |
|
||||
Restricted investments in bank stocks |
|
2,410 |
|
2,410 |
|
2,075 |
|
2,075 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
||||
Deposits |
|
208,544 |
|
210,278 |
|
174,353 |
|
175,173 |
|
||||
Short-term borrowings |
|
1,021 |
|
1,021 |
|
21,323 |
|
21,323 |
|
||||
Long-term borrowings |
|
10,951 |
|
10,546 |
|
10,033 |
|
10,137 |
|
||||
Accrued interest payable |
|
513 |
|
513 |
|
499 |
|
499 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Off balance sheet financial instruments |
|
|
|
|
|
|
|
|
|
||||
Note 9 New Accounting Pronouncements
In December 2007, a new standard relating to Business Combinations was released. The standard significantly changed the financial accounting and reporting of business combination
17
transactions. It establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This standard is effective for acquisition dates on or after the beginning of an entitys first year that begins after December 15, 2008. This pronouncement will impact Riverviews accounting for business combinations consummated after January 1, 2009.
In April 2009, a new accounting standard was issued relating to Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This standard amends and clarifies the Business Combination standard to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This new standard is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Riverview does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amended and replaced SAB Topic 5.M. in the SAB Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staffs previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. Riverview does not expect the implementation of SAB 111 to have a material impact on its consolidated financial statements.
In June 2009, a new standard was released regarding Accounting for Transfers of Financial Assets, an amendment to the Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities standard. This statement prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferors continuing involvement in transferred financial assets. Specifically, among other aspects, this standard also amends the previous standard by removing the concept of a qualifying special-purpose entity and removes the exception from applying generally accepted accounting principles related to variable interest entities that are qualifying special-purpose entities. It also modifies the financial-components approach previously used in accordance with the original standard. This new standard is effective for fiscal years beginning after November 15, 2009. Riverview has not determined the effect that the adoption of this new standard will have on its financial position or results of operations.
In June 2009, a new standard relating to The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles replacement of FASB Statement No. 162 was issued. This standard establishes the FASB Accounting Standards Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. This standard is effective immediately. The adoption of this standard did not have an impact on Riverviews financial position or results of operations.
In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. Riverview does not expect the adoption of SAB 112 to have a material impact on its (consolidated) financial statements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value. ASU 2009-05 amends Subtopic 820-10, Fair Value Measurements and Disclosures Overall, and provides
18
clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. Riverview does not expect the adoption of ASU 2009-05 to have a material impact on its (consolidated) financial statements.
In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. Riverview does not expect the adoption of ASU 2009-12 to have a material impact on its (consolidated) financial statements.
In October 2009, the Securities and Exchange Commission issued Release No. 33-99072, Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers. Release No. 33-99072 delays the requirement for non-accelerated filers to include an attestation report of their independent auditor on internal control over financial reporting with their annual report until the fiscal year ending on or after June 15, 2010.
19
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following is managements discussion and analysis of the significant changes in the consolidated financial condition, results of operations, capital resources and liquidity presented in the accompanying unaudited financial statements for Riverview Financial Corporation (Riverview) and its wholly-owned bank subsidiary, Riverview National Bank (the Bank). Riverviews consolidated financial condition and results of operations consist almost entirely of the Banks financial condition and results of operations. This discussion should be read in conjunction with the preceding consolidated financial statements and related footnotes, as well as Riverviews December 31, 2008 Annual Report on Form 10-K. Current performance does not guarantee and may not be indicative of similar performance in the future.
Forward-Looking Statements
Except for historical information, this report may be deemed to contain forward-looking statements regarding Riverview. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure and other financial terms, (b) statements of plans and objectives of management or the board of directors, and (c) statements of assumptions, such as economic conditions in Riverviews market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as believes, expects, may, intends, will, should, anticipates, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.
No assurance can be given that the future results covered by forward-looking statements will be achieved. Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could impact Riverviews operating results include, but are not limited to, (i) the effects of changing economic conditions in Riverviews market areas and nationally, (ii) credit risks of commercial, real estate, consumer and other lending activities, (iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could impact Riverviews operations, (v) funding costs, (vi) volatilities in the securities markets, (vii) ineffective business strategy, (viii) effects of deteriorating market conditions, specifically the effect on loan customers to repay loans, (ix) inability to achieve merger related cost savings, and (x) other external developments which could materially affect Riverviews business and operations.
Critical Accounting Policies
Riverviews consolidated financial statements are prepared based on the application of certain accounting policies. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or are subject to variations which may significantly affect Riverviews reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas can have a material impact on future financial condition and 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 securities, goodwill and other intangible asset impairment and accounting for income taxes.
Riverview performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability. The level of the allowance for loan losses reflects the estimate of the losses inherent in the loan portfolio at any point in time. While these estimates are based on substantiated methods for determining allowance requirements, actual outcomes may differ significantly from estimated results, especially when determining allowances for business, construction, and commercial real estate loans. These loans are normally
20
larger and more complex, and their collection rates are harder to predict. Personal loans, including personal mortgage and other consumer loans, are individually smaller and perform in a more homogenous manner, making loss estimates more predictable. The Notes to the Consolidated Financial Statements describe the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this report.
Riverview records its available for sale securities at fair value. Fair value of these securities is determined based on methodologies in accordance with generally accepted accounting principles. Fair values are volatile and may be influenced by a number of factors, including market conditions, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are used based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.
When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists. Available for sale securities are analyzed quarterly for possible other than temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on Riverviews results of operations and financial condition.
Goodwill and other intangible assets are reviewed for potential impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment in accordance with generally accepted accounting principles related to Goodwill and Other Intangible Assets, and Accounting for Impairment or Disposal of Long-Lived Assets. Goodwill is tested for impairment and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Riverview employs general industry practices in evaluating the fair value of its goodwill and other intangible assets. No assurance can be given that future impairment tests will not result in a charge to earnings.
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
Net income for the nine months ended September 30, 2009 was $1,121,000 (or $0.64 per share), an increase of $643,000 over net income of $478,000 (or $0.50 per share) for the nine months ended September 30, 2008. The increase is primarily due to the fact that 2009 net income reflects the combined earnings of the combination of First Perry Bancorp, Inc. and HNB Bancorp, Inc. and their wholly-owned subsidiaries, The First National Bank of Marysville and Halifax National Bank (the consolidation), which were consolidated on December 31, 2008 to form Riverview Financial Corporation, as compared with the 2008 net income, which only represents the earnings of First Perry Bancorp, Inc., the holding company of The First National Bank of
21
Marysville. Further impacting the increase in net income was the growth of assets as a result of the consolidation, and Riverviews management of its net interest margin during a period in which short-term interest rates declined 200 basis points. The annualized return on average assets was 0.64% for the nine months ended September 30, 2009 as compared with 0.50% for the comparable period in 2008. Annualized return on average equity was 6.15% for the first nine months of 2009 as compared with 4.88% for the same period in 2008. The increase in both ratios is attributable to the increase in net income during 2009.
In comparing Riverviews assets of $247,584,000 as of September 30, 2009 with assets of $135,194,000 as of September 30, 2008, the increase of $112,390,000 was primarily attributable to the consolidation. During the first nine months of 2009, Riverviews assets increased 6.8% since the 2008 year end, and was attributable to the increase in cash and cash equivalents and interest bearing time deposits with banks. The source of funds used to support the increase in assets was from the growth in deposits, which increased $34,191,000, or 19.6% from year end. In addition, a portion of the proceeds from the deposit growth was used to pay off short-term borrowings, which were reduced by $20,302,000 from the 2008 year end.
22
Results of Operations
Net Interest Income and Net Interest Margin
The following table presents the Banks average balances, interest rates, interest income and expense, interest rate spread and net interest margin, adjusted to a fully-tax equivalent basis, for the three months ended September 30, 2009 and 2008.
Average Balances and Average Interest Rates (Bank only)
(Dollars in thousands)
|
|
For the Three Months Ended |
|
||||||||||||||
|
|
September 30, |
|
||||||||||||||
|
|
2009 |
|
2008 |
|
||||||||||||
|
|
Average
|
|
Interest |
|
Average
|
|
Average
|
|
Interest |
|
Average
|
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Taxable |
|
$ |
11,477 |
|
$ |
96 |
|
3.32 |
% |
$ |
14,418 |
|
138 |
|
3.83 |
% |
|
Tax-exempt |
|
14,024 |
|
206 |
|
5.83 |
% |
2,662 |
|
45 |
|
6.83 |
% |
||||
Total securities |
|
25,501 |
|
302 |
|
4.70 |
% |
17,080 |
|
184 |
|
4.30 |
% |
||||
Other interest earning assets |
|
20,853 |
|
42 |
|
0.80 |
% |
1,938 |
|
13 |
|
2.68 |
% |
||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer |
|
4,003 |
|
68 |
|
6.74 |
% |
3,500 |
|
66 |
|
7.54 |
% |
||||
Commercial |
|
12,549 |
|
189 |
|
5.98 |
% |
8,387 |
|
144 |
|
6.87 |
% |
||||
Real estate |
|
155,823 |
|
2,475 |
|
6.30 |
% |
92,339 |
|
1,469 |
|
6.36 |
% |
||||
Total loans |
|
172,375 |
|
2,732 |
|
6.29 |
% |
104,226 |
|
1,679 |
|
6.44 |
% |
||||
Total earning assets |
|
218,729 |
|
3,076 |
|
5.58 |
% |
123,244 |
|
1,875 |
|
6.09 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-interest earning assets |
|
21,976 |
|
|
|
|
|
10,477 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
240,705 |
|
|
|
|
|
$ |
133,721 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deposit accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing demand |
|
$ |
42,385 |
|
$ |
169 |
|
1.58 |
% |
$ |
17,441 |
|
48 |
|
1.10 |
% |
|
Savings |
|
28,823 |
|
76 |
|
1.05 |
% |
15,249 |
|
33 |
|
0.87 |
% |
||||
Time deposits |
|
111,490 |
|
907 |
|
3.23 |
% |
50,163 |
|
465 |
|
3.71 |
% |
||||
Total deposits |
|
182,698 |
|
1,152 |
|
2.50 |
% |
82,853 |
|
546 |
|
2.64 |
% |
||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
|
872 |
|
1 |
|
0.45 |
% |
11,002 |
|
61 |
|
2.22 |
% |
||||
Long-term borrowings |
|
10,703 |
|
69 |
|
2.56 |
% |
15,425 |
|
171 |
|
4.43 |
% |
||||
Total borrowings |
|
11,575 |
|
70 |
|
2.40 |
% |
26,427 |
|
232 |
|
3.51 |
% |
||||
Total interest bearing liabilities |
|
194,273 |
|
1,222 |
|
2.50 |
% |
109,280 |
|
778 |
|
2.85 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Demand deposits |
|
19,817 |
|
|
|
|
|
10,640 |
|
|
|
|
|
||||
Other liabilities |
|
1,912 |
|
|
|
|
|
684 |
|
|
|
|
|
||||
Shareholders equity |
|
24,703 |
|
|
|
|
|
13,117 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities and shareholders equity |
|
$ |
240,705 |
|
|
|
|
|
$ |
133,721 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
$ |
1,854 |
|
|
|
|
|
$ |
1,097 |
|
|
|
||
Net interest spread |
|
|
|
|
|
3.08 |
% |
|
|
|
|
3.24 |
% |
||||
Net interest margin |
|
|
|
|
|
3.36 |
% |
|
|
|
|
3.56 |
% |
||||
Tax-exempt income is presented on a fully tax-equivalent basis assuming a tax rate of 34%.
For yield computation purposes, non-accruing loans are included in average loan balances and any income recognized on these loans is included in interest income.
Securities held as available-for-sale are carried at amortized cost for purposes of calculating average yield.
23
For the three months ended September 30, 2009, total interest income increased on a fully tax equivalent basis (as adjusted for the tax benefit derived from tax-exempt assets) by $1,201,000, or 64.1%, to $3,076,000 from $1,875,000 for the three months ended September 30, 2008. This increase was due to the growth in the volume of average interest earning assets to $218,729,000 for the third quarter of 2009 as compared to $123,244,000 for the third quarter of 2008, as a result of the consolidation. This increase was offset by a decline in the yields (calculated on a fully tax-equivalent basis) to 5.58% for the third quarter of 2009 as compared with 6.09% for the third quarter of 2008.
Total interest expense increased $444,000, or 57.1% to $1,222,000 for the three months ended September 30, 2009 from $778,000 for the three months ended September 30, 2008. This was attributable to an increase of $84,993,000 in average interest bearing liabilities as a result of the consolidation. However, cost of funds decreased to 2.50% for the third quarter of 2009 from 2.85% for the same period in 2008. The decline in the cost of funds offset the increase in the volume of average interest bearing liabilities.
Net interest income calculated on a fully tax equivalent basis increased $757,000, or 69%, to $1,854,000 for the three months ended September 30, 2009 from $1,097,000 for the three months ended September 30, 2008. However, Riverviews net interest spread decreased to 3.08% for the three months ended September 30, 2009 from 3.24% for the three months ended September 30, 2008, while its net interest margin decreased to 3.36% for the three months ended September 30, 2009 from 3.56% for the three months ended September 30, 2008.
24
The following table presents the Banks average balances, interest rates, interest income and expense, interest rate spread and net interest margin, adjusted to a fully-tax equivalent basis, for the nine months ended September 30, 2009 and 2008.
Average Balances and Average Interest Rates (Bank only)
(Dollars in thousands)
|
|
For the Nine Months Ended |
|
||||||||||||||
|
|
September 30, |
|
||||||||||||||
|
|
2009 |
|
2008 |
|
||||||||||||
|
|
Average
|
|
Interest |
|
Average
|
|
Average
|
|
Interest |
|
Average
|
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Taxable |
|
$ |
14,254 |
|
$ |
381 |
|
3.57 |
% |
$ |
14,970 |
|
426 |
|
3.79 |
% |
|
Tax-exempt |
|
10,837 |
|
488 |
|
6.02 |
% |
3,297 |
|
168 |
|
6.80 |
% |
||||
Total securities |
|
25,091 |
|
869 |
|
4.63 |
% |
18,267 |
|
594 |
|
4.34 |
% |
||||
Other interest earning assets |
|
16,812 |
|
117 |
|
0.93 |
% |
2,270 |
|
65 |
|
3.82 |
% |
||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer |
|
5,473 |
|
225 |
|
5.50 |
% |
3,660 |
|
211 |
|
7.69 |
% |
||||
Commercial |
|
11,546 |
|
575 |
|
6.66 |
% |
9,295 |
|
486 |
|
6.97 |
% |
||||
Real estate |
|
159,216 |
|
7,573 |
|
6.36 |
% |
82,648 |
|
4,011 |
|
6.47 |
% |
||||
Total loans |
|
176,235 |
|
8,373 |
|
6.35 |
% |
95,603 |
|
4,708 |
|
6.57 |
% |
||||
Total earning assets |
|
218,138 |
|
9,359 |
|
5.74 |
% |
116,140 |
|
5,367 |
|
6.16 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-interest earning assets |
|
21,224 |
|
|
|
|
|
10,192 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
239,362 |
|
|
|
|
|
$ |
126,332 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deposit accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest-bearing demand |
|
$ |
33,060 |
|
339 |
|
1.37 |
% |
$ |
17,399 |
|
174 |
|
1.33 |
% |
||
Savings |
|
28,862 |
|
232 |
|
1.07 |
% |
15,129 |
|
108 |
|
0.95 |
% |
||||
Time deposits |
|
110,105 |
|
2,784 |
|
3.38 |
% |
49,662 |
|
1,435 |
|
3.85 |
% |
||||
Total deposits |
|
172,027 |
|
3,355 |
|
2.61 |
% |
82,190 |
|
1,717 |
|
2.79 |
% |
||||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
|
10,478 |
|
48 |
|
0.61 |
% |
6,617 |
|
111 |
|
2.24 |
% |
||||
Long-term borrowings |
|
10,287 |
|
266 |
|
3.46 |
% |
14,837 |
|
500 |
|
4.49 |
% |
||||
Total borrowings |
|
20,765 |
|
314 |
|
2.02 |
% |
21,454 |
|
611 |
|
3.80 |
% |
||||
Total interest bearing liabilities |
|
192,792 |
|
3,669 |
|
2.54 |
% |
103,644 |
|
2,328 |
|
2.99 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Demand deposits |
|
20,322 |
|
|
|
|
|
8,958 |
|
|
|
|
|
||||
Other liabilities |
|
1,882 |
|
|
|
|
|
639 |
|
|
|
|
|
||||
Shareholders equity |
|
24,366 |
|
|
|
|
|
13,091 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities and shareholders equity |
|
$ |
239,362 |
|
|
|
|
|
$ |
126,332 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
$ |
5,690 |
|
|
|
|
|
$ |
3,039 |
|
|
|
||
Net interest spread |
|
|
|
|
|
3.19 |
% |
|
|
|
|
3.17 |
% |
||||
Net interest margin |
|
|
|
|
|
3.49 |
% |
|
|
|
|
3.49 |
% |
||||
Tax-exempt income is presented on a fully tax-equivalent basis assuming a tax rate of 34%.
For yield computation purposes, non-accruing loans are included in average loan balances and any income recognized on these loans is included in interest income.
Securities held as available-for-sale are carried at amortized cost for purposes of calculating average yield.
For the nine months ended September 30, 2009, total interest income increased on a fully tax equivalent basis (as adjusted for the tax benefit derived from tax-exempt assets) by $3,992,000 or 74.3%, to $9,359,000 from $5,367,000 for the nine months ended September 30, 2008. This increase was due to the consolidation which contributed to the growth in the volume of average interest earning assets to $218,138,000 for the first nine months of 2009 as compared to $116,140,000 for the first nine months of 2008. The increased volume offset the
25
decline in yields (calculated on a fully tax-equivalent basis) to 5.74% for the first nine months of 2009 as compared with 6.16% for the first nine months of 2008.
Total interest expense increased $1,341,000, or 57.6% to $3,669,000 for the nine months ended September 30, 2009 from $2,328,000 for the nine months ended September 30, 2008. Cost of funds decreased to 2.54% at the end of the third quarter of 2009 from 2.99% for the same period in 2008. The decline in the cost of funds offset the increase in the volume of average interest bearing liabilities. While average interest bearing liabilities increased primarily due to deposit growth, Riverview also took advantage of declining interest rates and secured more cost effective funding through borrowings primarily from the Federal Home Loan Bank of Pittsburgh (FHLB).
Net interest income calculated on a fully tax equivalent basis increased $2,651,000, or 87.2%, to $5,690,000 for the nine months ended September 30, 2009 from $3,039,000 for the nine months ended September 30, 2008. Riverviews net interest spread increased to 3.19% at September 30, 2009 from 3.17% at September 30, 2008, while its net interest margin remained at 3.49% at September 30, 2009 which was the same at September 30, 2008. In consideration of the increased volume of interest earning assets and interest bearing liabilities, management proactively managed the cost associated with interest bearing liabilities and was able to improve its net interest spread and margin even though the yields from interest earning assets declined.
Provision for Loan Losses
Provisions for loan losses are charged to operations in order to maintain the allowance for loan losses at a level management considers adequate to absorb credit losses inherent in the loan portfolio. Credit exposures deemed uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off loans are credited to the allowance for loan losses. The Bank performs periodic evaluations of the allowance for loan losses with consideration given to historical, internal and external factors. In evaluating the adequacy of the allowance for loan losses, management considers historical loss experience, delinquency trends and charge-off activity, status of past due and non-performing loans, growth within the portfolio, the amount and types of loans comprising the loan portfolio, adverse situations that may affect a borrowers ability to pay, the estimated value of underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are caused to undergo interpretation and possible revision as events occur or as more information becomes available. Loans are also reviewed for impairment based on discounted cash flows using the loans initial effective interest rates or the fair value of the collateral for certain collateral dependent loans as provided under the accounting standard relating to Accounting by Creditors for Impairment of a Loan. After an evaluation of these factors, t he provision recorded for the third quarter of 2009 was $200,000 as compared with $100,000 for the third quarter of 2008, and $475,000 for the nine months ended September 30, 2008 as compared with $160,000 for the nine months ended September 30, 2008. A higher provision was made to the allowance for loan losses in 2009 due to an increase in criticized loans and the deterioration of underlying collateral and economic factors relating to two particular commercial loans. Specific reserves on impaired loans increased as a result of these two commercial loans, which were placed in a higher risk category. The allowance for loan losses was $2,186,000 or 1.25% of total loans outstanding at September 30, 2009 as compared to $1,023,000, or 0.96% of total loans at September 30, 2008.
Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses, if necessary, in order to maintain the adequacy of the allowance. Management believes the reserve for loan losses at September 30, 2009 is maintained at a level that is adequate to absorb probable and potential losses inherent in the loan portfolio. At the same time, management continues to allocate dedicated resources to continue to manage at-risk credits.
26
Non-Interest Income
The following table sets forth non-interest income for the three months ended September 30, 2009 and 2008.
Non-Interest Income
(Dollars in thousands)
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
|
|
Increase/(Decrease) |
|
|
|
|||||
|
|
2009 |
|
Amount |
|
% |
|
2008 |
|
|||
Service charges on deposit accounts |
|
$ |
73 |
|
$ |
32 |
|
78.0 |
% |
$ |
41 |
|
Other service charges and fees |
|
88 |
|
30 |
|
51.7 |
% |
58 |
|
|||
Earnings on cash value of life insurance |
|
55 |
|
22 |
|
66.7 |
% |
33 |
|
|||
Gain on sale of available for sale securities |
|
102 |
|
102 |
|
100.0 |
% |
|
|
|||
Gain from the sale of mortgage loans |
|
44 |
|
44 |
|
100.0 |
% |
|
|
|||
|
|
$ |
362 |
|
$ |
230 |
|
174.2 |
% |
$ |
132 |
|
The increases in service charges on deposits, other service charges and fees and earnings on the cash value of life insurance for the third quarter of 2009 are primarily attributable to the consolidation. During the third quarter of 2009 the Bank sold securities available for sale resulting in a gain of $102,000 as compared with a no such gain during the third quarter of 2008. Further contributing to the increase in non-interest income was $44,000 in income generated from the sale of mortgage loans service released under the FHLB Mortgage Partnership Finance program (MPF program). There were no such gains in the third quarter of 2008 since the Bank entered into the MPF agreement towards the latter part of 2008.
The following table sets forth non-interest income for the nine months ended September 30, 2009 and 2008.
Non-Interest Income
(Dollars in thousands)
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
|
|
Increase/(Decrease) |
|
|
|
|||||
|
|
2009 |
|
Amount |
|
% |
|
2008 |
|
|||
Service charges on deposit accounts |
|
$ |
216 |
|
$ |
99 |
|
84.6 |
% |
$ |
117 |
|
Other service charges and fees |
|
265 |
|
82 |
|
44.8 |
% |
183 |
|
|||
Earnings on cash value of life insurance |
|
191 |
|
94 |
|
96.9 |
% |
97 |
|
|||
Gain on sale of available for sale securities |
|
290 |
|
248 |
|
590.5 |
% |
42 |
|
|||
Gain from the sale of mortgage loans |
|
297 |
|
297 |
|
100.0 |
% |
|
|
|||
|
|
$ |
1,259 |
|
$ |
820 |
|
186.8 |
% |
$ |
439 |
|
Non-interest income continues to be a considerable source of income for Riverview, representing 18.7% of total revenues (comprised of net interest income and non-interest income) for the first nine months of 2009 as compared with 13.1% for the first nine months of 2008. While the increases in service charges and other income for 2009 are generally attributable to the consolidation, the Bank recorded $297,000 in income generated from the sale of mortgage loans service released under the MPF program. There were no such gains in the first nine months of 2008 since the Bank entered into the MPF agreement towards the latter part of 2008. In 2009, the Bank realized a gain of $290,000 from the sale of available for sale securities, which was $248,000 higher than the $42,000 gain on sale recorded in 2008. Also contributing to the increase in the 2009 non-interest income were earnings from the cash value of life insurance which not only increased as a result of the consolidation but also increased as a result of a gain of $26,000 from the proceeds of bank owned life insurance paid as a result of the death of a former director.
27
Non-Interest Expense
The following table presents the components of non-interest expense for the third quarters of 2009 and 2008.
Non-Interest Expense
(Dollars in thousands)
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
|
|
Increase/(Decrease) |
|
|
|
|||||
|
|
2009 |
|
Amount |
|
% |
|
2008 |
|
|||
Salaries and employee benefits |
|
$ |
709 |
|
$ |
223 |
|
45.9 |
% |
$ |
486 |
|
Occupancy expense |
|
162 |
|
49 |
|
43.4 |
% |
113 |
|
|||
Equipment expense |
|
106 |
|
52 |
|
96.3 |
% |
54 |
|
|||
Telecommunications and processing charges |
|
124 |
|
63 |
|
103.3 |
% |
61 |
|
|||
Postage and office supplies |
|
46 |
|
26 |
|
130.0 |
% |
20 |
|
|||
FDIC premium |
|
85 |
|
65 |
|
325.0 |
% |
20 |
|
|||
Bank shares tax expense |
|
66 |
|
49 |
|
288.2 |
% |
17 |
|
|||
Directors compensation |
|
55 |
|
32 |
|
139.1 |
% |
23 |
|
|||
Professional services |
|
75 |
|
55 |
|
275.0 |
% |
20 |
|
|||
Other expenses |
|
119 |
|
11 |
|
10.2 |
% |
108 |
|
|||
|
|
$ |
1,547 |
|
$ |
625 |
|
67.8 |
% |
$ |
922 |
|
The increase of $625,000 or 67.8% in non-interest expenses is primarily attributable to the consolidation.
The following table presents the components of non-interest expense for the first nine months of 2009 and 2008.
Non-Interest Expense
(Dollars in thousands)
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
|
|
Increase/(Decrease) |
|
|
|
|||||
|
|
2009 |
|
Amount |
|
% |
|
2008 |
|
|||
Salaries and employee benefits |
|
$ |
2,237 |
|
$ |
854 |
|
61.7 |
% |
$ |
1,383 |
|
Occupancy expense |
|
507 |
|
176 |
|
53.2 |
% |
331 |
|
|||
Equipment expense |
|
312 |
|
156 |
|
100.0 |
% |
156 |
|
|||
Telecommunications and processing charges |
|
355 |
|
178 |
|
100.6 |
% |
177 |
|
|||
Postage and office supplies |
|
172 |
|
106 |
|
160.6 |
% |
66 |
|
|||
FDIC premium |
|
343 |
|
318 |
|
1272.0 |
% |
25 |
|
|||
Bank shares tax expense |
|
197 |
|
111 |
|
129.1 |
% |
86 |
|
|||
Directors compensation |
|
165 |
|
90 |
|
120.0 |
% |
75 |
|
|||
Professional services |
|
178 |
|
108 |
|
154.3 |
% |
70 |
|
|||
Other expenses |
|
376 |
|
115 |
|
44.1 |
% |
261 |
|
|||
|
|
$ |
4,842 |
|
$ |
2,212 |
|
84.1 |
% |
$ |
2,630 |
|
The increase of $2,212,000 or 84.1% in non-interest expenses is primarily attributable to the consolidation, increased professional fees related to the consolidation and costs associated with the merger of systems and processes to expedite the union of First Perry Bancorp, Inc. and HNB Bancorp, Inc. and their wholly-owned subsidiaries, The First National Bank of Marysville and Halifax National Bank. With regard to the FDIC premium, the 2009 expenditure is higher because of the expense incurred to record a special FDIC assessment that was required to be accrued during the second quarter but paid at the end of the third quarter of 2009. All FDIC insured financial institutions were required to pay the special assessment. In addition, there was a higher expense associated with the regular FDIC assessment as compared with the 2008 assessment, at which time the Bank received a one-time credit.
During the second quarter of 2009, the Bank updated its standard costs relating to the origination of all types of loans. Generally accepted accounting principles related to Accounting for Nonrefundable Fees and Costs Associated with Originating of Acquiring Loans and Initial Direct Costs of Leases establish the accounting treatment for fees and initial direct costs associated with the origination of a loan, where direct loan costs may be deferred and capitalized. These costs will be expensed over the life of the related loan as a reduction of the loan yield. Direct loan costs capitalized during the nine months ended September 30, 2009 increased $236,000 over 2008 as a result of the updated cost structure, the consolidation of the loan portfolios of the two merged banks,
28
and strong loan originations. In recording the deferral of these direct loan costs, it had the immediate impact of reducing salary expense by $271,000 during the first nine months of 2009.
On September 29, 2009, the Board of Directors of the FDIC adopted a notice of proposed rulemaking that would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011. Each institution would record the entire amount of its prepaid assessment as a prepaid expense (asset) as of December 31, 2009. As of December 31, 2009, and each quarter thereafter, each institution would record an expense (charge to earnings) for its regular quarterly assessment for the quarter and an offsetting credit to the prepaid assessment until the asset is exhausted. Once the asset is exhausted, the institution would record an accrued expense payable each quarter for the assessment payment, which would be paid in arrears to the FDIC at the end of the following quarter. If the prepaid assessment is not exhausted by December 31, 2014, any remaining amount would be returned to the depository institution.
Provision for Federal Income Taxes
The income tax expense was $67,000 for the third quarter of 2009, an increase of $47,000, or 235%, compared to $20,000 for the third quarter of 2008. The increase in the tax expense is attributable to an increased level of net income in 2009.
For the nine months ended September 30, 2009, the tax provision was $291,000 compared to $92,000 for the nine months ended September 30, 2008. Respectively, these provisions reflect effective tax rates of approximately 20.6% for 2009 and 16.1% for 2008. The effective tax rate increased consistent with higher levels of taxable income and lower levels of tax-free income. Tax-exempt income declined due to Riverviews decision to sell municipal bonds available for sale in its investment portfolio during the latter part of 2008 as well as bond calls initiated by certain municipalities. Riverviews effective tax rate differs from the statutory rate of 34% due to tax-exempt interest income and non-taxable bank owned life insurance.
Financial Condition
Securities
The following table sets forth the composition of the investment security portfolio as of September 30, 2009 and December 31, 2008.
Investment Securities
(In thousands)
|
|
September 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
Available for Sale Securities (at Fair Value): |
|
|
|
|
|
||
U.S. Government agencies |
|
$ |
2,394 |
|
$ |
7,264 |
|
State and municipal |
|
13,326 |
|
9,373 |
|
||
Mortgage-backed securities |
|
13,868 |
|
11,181 |
|
||
Corporate debt securities |
|
|
|
302 |
|
||
Total |
|
$ |
29,588 |
|
$ |
28,120 |
|
Since the year end, U.S. Government agencies declined as a result of investment maturities, prepayments and calls. The balance of state and municipal bonds increased over year end due to the Banks need to generate more tax-exempt income to complement a forecasted increase in its net income. In addition, mortgage-backed securities increased during the first nine months of 2009. During the third quarter of 2009, management decided to sell most of its mortgage-backed securities that were issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The reason for doing this was to alleviate some of the credit risk associated with these particular U.S. Government agencies in light of the fact that they do not carry a full-faith credit guaranty by the government. The proceeds of the sale of these securities plus additional funds that were on deposit with banks were reinvested in mortgage backed securities issued by the Government National Mortgage Association (GNMA), which is a government owned corporation and carries
29
the full-faith credit guarantee of the United States federal government.
No securities are considered other-than-temporarily-impaired based on managements evaluation of the individual securities, including the extent and length of the unrealized loss, and Riverviews ability to hold the security until maturity or until the fair value recovers, and managements opinion that it will not have to sell the securities prior to recovery of value. Riverview invests in securities for the cash flow and yields they produce and not to profit from trading. Riverview holds no trading securities in its portfolio, and the portfolio does not contain high risk securities or derivatives as of September 30, 2009.
Investment in stock of the FHLB is required for membership in the organization and is carried at cost since there is no market value available. The amount that Riverview is required to invest is based upon a formula which weighs a dependence upon the relative size of outstanding borrowings that it has with the FHLB. Excess stock was typically repurchased at par by the FHLB from Riverview if borrowings declined to a predetermined level. Throughout most of 2008, Riverview earned a return or dividend based upon the amount invested. In late December 2008, the FHLB announced that it had suspended the payment of dividends and the repurchase of excess capital stock to preserve its capital level. That decision was based on FHLBs analysis and consideration of certain negative market trends and the impact those trends had on its financial condition. The FHLB has not violated its agreement with its member banks by not repurchasing excess capital stock in that it is not generally required to redeem membership stock until five years after the membership has terminated. Based on the financial results of the FHLB for the year ended December 31, 2008 and for the nine months ended September 30, 2009, management believes that the suspension of both the dividend payment and excess capital stock repurchase is temporary in nature. Management further believes that the FHLB will continue to be a primary source of wholesale liquidity for both short- and long-term funding and has concluded that its investment in FHLB stock is not other-than-temporarily impaired. Riverview will continue to monitor the financial condition of the FHLB quarterly to assess its ability to resume these activities in the future.
Loans
The loan portfolio comprises the major component of Riverviews earning assets and is the highest yielding asset category. Total loans, net of unearned income decreased $4,051,000, or 2.3%, to $174,128,000 at September 30, 2009 from $178,179,000 at December 31, 2008. The decline in loans is attributable to an increase in the sale of loan participations. In addition, less mortgage loans have been recorded in the portfolio during 2009 since the Bank has been selling a greater number of mortgage loans service released to Freddie Mac and to the FHLB under its MPF program. This strategy has allowed management to more effectively manage long-term interest rate risk and credit risk inherent in the portfolio.
Credit Risk and Loan Quality
The following table presents non-performing loans and assets as of September 30, 2009 and December 31, 2008:
Non-Performing Assets
(Dollars in thousands)
|
|
September 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
Accruing loans past due 90 days |
|
$ |
242 |
|
$ |
152 |
|
Non-accrual loans |
|
3,583 |
|
128 |
|
||
Total non-performing loans |
|
3,825 |
|
280 |
|
||
|
|
|
|
|
|
||
Foreclosed real estate |
|
|
|
144 |
|
||
Total non-performing assets |
|
$ |
3,825 |
|
$ |
424 |
|
|
|
|
|
|
|
||
Non-performing loans to total loans |
|
2.21 |
% |
0.16 |
% |
||
Non-performing assets to total assets |
|
1.54 |
% |
0.18 |
% |
||
Allowance to non-performing loans |
|
57.15 |
% |
610.71 |
% |
30
The non-performing asset ratios presented in the above table reflect deterioration in the credit quality of the loan portfolio. Through the first nine months of 2009, the Bank experienced an increase in non-performing loans due to an increase of $3,455,000 in non-accrual loans, which totaled $3,583,000 at September 30, 2009 as compared to $128,000 at December 31, 2008. The increase in non-accrual loans at the end of the third quarter of 2009 as compared with the 2008 year end is largely attributable to two particular commercial borrowers, whose businesses were negatively affected by the downturn in the economy. At September 30, 2009, the loans to these two borrowers were deemed impaired, evaluated in accordance with the accounting standard relating to Accounting by Creditors for Impairment of a Loan and appropriate additions to the loan loss reserve were made. Management continues to be vigilant in its efforts to minimize, identify and evaluate credit risk and potential losses. Management is proactive in addressing and managing risk appropriate to the increasing level of loan volume and delinquencies in the loan portfolio through its implementation of an enhanced credit administration process - including a more structured loan collection process and close monitoring of compliance with underwriting and loan to value guidelines.
Riverview had no real estate acquired through foreclosure as of September 30, 2009 as compared with $144,000 as of December 31, 2008. The property was sold during the third quarter of 2009 and the Bank incurred a net loss of $1,000 as a result of the sale. Riverviews residential loan portfolio is centered in properties at price points which have held up well locally as evidenced by appraisals. Loan-to-value ratios in this portfolio continue to provide adequate collateral support and management does not anticipate any material decline in the Banks ability to collect on these loans.
A loan concentration is considered to exist when the total amount of loans to any one or multiple number of borrowers engaged in similar activities or have similar economic characteristics, exceed 10% of loans outstanding in any one category. The following table presents loan concentrations as of September 30, 2009 and December 31, 2008.
(Dollars in
|
|
September 30,
|
|
December 31,
|
|
||
Loans to Lessors of: |
|
|
|
|
|
||
Residential buildings and dwellings |
|
$ |
31,917 |
|
$ |
18,068 |
|
Nonresidential buildings |
|
22,086 |
|
13,344 |
|
||
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 has stress tested this portfolio by applying a 25% vacancy factor to the properties securing these loans and determined that the loans can still generally perform as agreed. It is noted that the actual vacancy factor in Riverviews market area is increasing, but remains in single digits. As such, management does not believe that this concentration is an adverse trend to Riverview at this time.
31
Allowance for Loan Losses
In consideration of the risks and trends associated with the loan portfolio and the increase in non-performing loans, management allocated a $200,000 provision to the allowance for loan losses during the third quarter of 2009, which resulted in a total allowance of $2,186,000 as of September 30, 2009 as compared with $1,023,000 as of September 30, 2008.
Analysis of the Allowance for Loan Losses
(Dollars in thousands)
|
|
September 30, |
|
||||
|
|
2009 |
|
2008 |
|
||
Beginning balance |
|
$ |
1,710 |
|
$ |
970 |
|
Provision for loan losses |
|
475 |
|
160 |
|
||
|
|
|
|
|
|
||
Charge-offs: |
|
|
|
|
|
||
Commercial, financial, agricultural |
|
|
|
32 |
|
||
Real estate mortgage |
|
|
|
96 |
|
||
Installments |
|
|
|
2 |
|
||
Total charge-offs |
|
|
|
130 |
|
||
|
|
|
|
|
|
||
Recoveries: |
|
|
|
|
|
||
Real estate mortgage |
|
|
|
23 |
|
||
Installments |
|
1 |
|
|
|
||
Total recoveries |
|
1 |
|
23 |
|
||
|
|
|
|
|
|
||
Net charge-offs |
|
1 |
|
(107 |
) |
||
|
|
|
|
|
|
||
Ending balance |
|
$ |
2,186 |
|
$ |
1,023 |
|
|
|
|
|
|
|
||
Net charge-offs to average loans (annualized) |
|
0.00 |
% |
0.15 |
% |
||
Allowance for loan losses to total loans |
|
1.25 |
% |
0.96 |
% |
Management continues to be attentive to potential deterioration in credit quality due to economic pressures, the result of worsening economic conditions and the softness in real estate prices in the market served by Riverview. Although management is proactive in identifying and dealing with credit issues that it can control, it anticipates that going forward, additional provisions to its allowance for loan losses may be warranted as a result of economic factors it cannot control.
Deposits
Deposits are the major source of Riverviews funds for lending and investing purposes. Total deposits at September 30, 2009 were $208,544,000, an increase of $34,191,000, or 19.6%, from total deposits of $174,353,000 at December 31, 2008. While growth was seen in almost all of the deposit categories, interest bearing demand deposits experienced the highest growth of 99.3 % at September 30, 2009 since the 2008 year end. The increase is attributable to customer demand for the Banks Hometown Checking demand deposit product.
Shareholders Equity and Capital Adequacy
At September 30, 2009, shareholders equity for Riverview totaled $25,010,000, an increase of $805,000, or 3.3%, over December 31, 2008. The increase was due to net income of $1,121,000, less the payment of dividends for $527,000, an increase of $13,000 to surplus to reflect the compensation cost associated with option grants and an increase in the net unrealized gains on securities available for sale, which net of tax, affected equity by $198,000.
Banks are evaluated for capital adequacy through regulatory review of capital ratios. The following table presents the Banks capital ratios as determined and reported to its regulator. Tier 1 capital includes common stock, surplus, and retained earnings less disallowed goodwill and other intangible assets. Total capital consists of tier 1 capital and the allowance for loan losses. The Bank exceeds both the regulatory minimums and the requirements necessary for designation as a well-capitalized institution.
32
Capital Ratios (of Bank)
|
|
September 30,
|
|
December 31,
|
|
Regulatory
|
|
Well
|
|
Tier 1 capital (to average assets) |
|
9.6 |
% |
9.5 |
% |
4.0 |
% |
5.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
14.6 |
% |
13.2 |
% |
4.0 |
% |
6.0 |
% |
Total risk-based capital (to risk-weighted assets) |
|
15.8 |
% |
14.3 |
% |
8.0 |
% |
10.0 |
% |
Certain restrictions exist regarding the ability of the Bank to transfer funds to Riverview 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 September 30, 2009, $500,000 of undistributed earnings of the Bank, included in consolidated shareholders equity, was available for distribution to Riverview as dividends without prior regulatory approval.
The following presents the details of the regular and special quarterly dividends paid to shareholders during the nine months ended September 30, 2009, which reduced retained earnings by $527,000:
Declaration
|
|
Record Date |
|
Date of
|
|
Dividend Type |
|
Dividend Payment
|
|
3/18/2009 |
|
4/1/2009 |
|
4/15/2009 |
|
Regular |
|
$0.08/share |
|
3/18/2009 |
|
4/1/2009 |
|
4/15/2009 |
|
Special |
|
$0.02/share |
|
6/17/2009 |
|
6/29/2009 |
|
7/13/2009 |
|
Regular |
|
$0.08/share |
|
6/17/2009 |
|
6/29/2009 |
|
7/13/2009 |
|
Special |
|
$0.02/share |
|
9/16/2009 |
|
9/30/2009 |
|
10/5/2009 |
|
Regular |
|
$0.08/share |
|
9/16/2009 |
|
9/30/2009 |
|
10/5//2009 |
|
Special |
|
$0.02/share |
|
Off-Balance Sheet Arrangements
Riverview is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and to a lesser extent, letters of credit. At September 30, 2009, Riverview had unfunded outstanding commitments to extend credit of $18,915,000 and outstanding letters of credit of $1,067,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. Refer to Note 12 of the 2008 Consolidated Financial Statement for a discussion of the nature, business purpose and importance of Riverviews off-balance sheet arrangements.
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 $19,185,000 at September 30, 2009 as compared to $6,018,000 at December 31, 2008. 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 September 30, 2009, unpledged available for sale securities with a carrying value of $16,035,000 were readily available for liquidity purposes, as compared with $11,362,000 at December 31, 2008.
33
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 $173,530,000 at September 30, 2009 as compared to $143,279,000 at December 31, 2008. 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 September 30, 2009, Riverview has access to two formal borrowing lines totaling $95,038,000 with the aggregate amount outstanding on these lines totaling $10,951,000.
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 September 30, 2009 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.
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 the 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information relating to this item.
I TEM 4T. CONTROLS AND PROCEDURES
Riverviews Chief Executive Officer and Chief Financial Officer (Principal Accounting Officer) carried out an evaluation of the effectiveness of the design and the operation of Riverviews disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2009, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer (Principal Accounting Officer) concluded that Riverviews disclosure controls and procedures as of September 30, 2009, are effective in timely alerting them to material information relating to Riverview that is required to be in Riverviews periodic filings under the Exchange Act.
There have been no changes in Riverviews internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect Riverviews internal control over financial reporting.
In the opinion of Riverview, after review with legal counsel, there are no proceedings pending to which Riverview is a party or to which its property is subject, which, if determined adversely to Riverview, would be material in relation to Riverviews consolidated financial condition. There
34
are no proceedings pending other than ordinary, routine litigation incident to the business of Riverview. In addition, no material proceedings are pending or are known to be threatened or contemplated against Riverview by governmental authorities.
If we conclude that the decline in value of any of our investment securities is other than temporary, we are required to write down the value of that security through a charge to earnings. We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether the decline is other than temporary. If we conclude that the decline is other than temporary, we are required to write down the value of that security through a charge to earnings. Changes in the expected cash flows of these securities and/or prolonged price declines may result in our concluding in future periods that the impairment of these securities is other than temporary, which would require a charge to earnings to write down theses securities to their fair value. Due to the complexity of the calculations and assumptions used in determining whether an asset is impaired, the impairment disclosed may not accurately reflect the actual impairment in the future.
Other than the above, there have been no material changes from those disclosed in the Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Nothing to report.
Item 3. Defaults upon Senior Securities
Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to report.
Nothing to report.
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. (Incorporated by reference to Exhibit 10.1 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
35
10.2 |
Amended and Restated Executive Employment Agreement of Kirk D. Fox. (Incorporated by reference to Exhibit 10.2 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.3 |
Employment Agreement of Theresa M. Wasko. (Incorporated by reference to Exhibit 10.3 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.4 |
Executive Employment Agreement of Paul B. Zwally. (Incorporated by reference to Exhibit 10.4 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.5 |
Employment Agreement of William L. Hummel. (Incorporated by reference to Exhibit 10.5 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.6 |
Acknowledgement and Release Agreement of William L. Hummel. (Incorporated by reference to Exhibit 10.6 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.7 |
Form of Director Deferred Fee Agreements with Directors Roland R. Alexander, Robert M. Garst and Kirk D. Fox. (Incorporated by reference to Exhibit 10.7 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.8 |
2009 Stock Option Plan. (Incorporated by reference to Exhibit 10.8 to Registrants Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on April 10, 2009.) |
|
|
10.9 |
Release Agreement of Thomas N. Wasson. (Incorporated by reference to Exhibit 99.1 of Registrants Form 8-K as filed with the Securities and Exchange Commission on April 30, 2009.) |
|
|
10.10 |
Consulting Agreement of Thomas N. Wasson. (Incorporated by reference to Exhibit 99.2 of Registrants Form 8-K as filed with the Securities and Exchange Commission on April 30, 2009.) |
|
|
10.11 |
Second Amendment to the Supplemental Executive Retirement Agreement Plan Agreement for Kirk D. Fox dated March 29, 2007, amended June 18, 2008 and entered into between Kirk D. Fox and Riverview National Bank on September 2, 2009 is incorporated by reference herein. |
|
|
31.1 |
Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). |
|
|
31.2 |
Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). |
|
|
32.1 |
Chief Executive Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). |
|
|
32.2 |
Chief Financial Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). |
36
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: |
November 12, 2009 |
|
|
|
|
|
|
|
By: |
/s/ Theresa M. Wasko |
|
|
Theresa M. Wasko |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
|
|
Date: |
November 12, 2009 |
37
38
31.1 |
Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). |
|
|
31.2 |
Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)). |
|
|
32.1 |
Chief Executive Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). |
|
|
32.2 |
Chief Financial Officers §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)). |
39
EXHIBIT 10.11
SECOND AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AGREEMENT FOR KIRK D. FOX
This Second Amendment to the Supplemental Executive Retirement Plan Agreement for Kirk D. Fox entered into between Kirk D. Fox and Halifax National Bank dated March 29, 2007, and amended on June 18, 2008, is entered into between Kirk D. Fox (Executive) and Riverview National Bank (Bank) and made this 2nd day of September, 2009.
WHEREAS , Halifax National Bank and Fox entered into a Supplemental Executive Retirement Agreement dated March 29, 2007, and amended on June 18, 2008 (SERP Agreement);
WHEREAS , Halifax National Bank and The First National Bank of Marysville consolidated into Bank on December 31, 2008;
WHEREAS , Section 10.1 of the SERP Agreement requires a reduction in the payment under the SERP Agreement to the extent necessary to avoid the imposition of an excise tax under Code Section 4999;
WHEREAS , Executive entered into an Amended and Restated Employment Agreement with Riverview Financial Corporation and Bank dated December 31, 2008 (Employment Agreement);
WHEREAS , paragraph VI. 3 of the Employment Agreement provides that if an excise tax is imposed under Code Section 4999, then the Executive would receive an additional payment such that the after tax amount will be equivalent to the excise tax imposed; and
WHEREAS , the parties wish to amend Section 10.1 of the SERP Agreement to correct the inconsistency between the SERP Agreement and Employment Agreement.
NOW, THEREFORE, in consideration of the covenants hereinafter set forth, and intending to be legally bound hereby, the parties agree, effective the date hereof, as follows:
1. Section 10.1 of the SERP Agreement shall be amended in its entirety to provide:
10.1 Excess Parachute or Golden Parachute Payment . Notwithstanding any provision of this Agreement to the contrary, in the event that any benefit provided under this Agreement 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, the 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.
IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have caused this Amendment to be duly executed in their respective names or by their authorized representative, on the day and year first above written.
ATTEST: |
|
RIVERVIEW NATIONAL BANK |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Robert M. Garst |
|
|
|
Robert M. Garst |
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
EXECUTIVE |
|
|
|
|
|
|
|
|
|
|
|
/s/ Kirk D. Fox |
|
|
|
Kirk D. Fox |
EXHIBIT 31.1
CERTIFICATION
I, Robert M. Garst certify that:
1. I have reviewed this quarterly report on Form 10-Q of Riverview Financial Corporation;
2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) 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: |
November 12, 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 quarterly report on Form 10-Q of Riverview Financial Corporation;
2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
(d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) 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: |
November 12, 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 Form 10-Q for the quarter ended September 30, 2009 (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 quarter ended September 30, 2009.
Date: |
November 12, 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 Form 10-Q for the quarter ended September 30, 2009 (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 quarter ended September 30, 2009.
Date: |
November 12, 2009 |
|
By: |
/s/ Theresa M. Wasko |
|
|
|
|
Theresa M. Wasko |
|
|
|
|
Chief Financial Officer |