UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form10-Q

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

for the quarterly period ended ~~March 31,~~June 30, 2019

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

for the transition period from

001-38627

(Commission File Number)

RIVERVIEW FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

(717)957-2196

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company as defined in Rule12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company as defined in Rule12b-2 of the Exchange Act. Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

RIVE

Nasdaq Global Market

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: ~~9,154,982~~9,167,700 at ~~April 29,~~July 30, 2019.

RIVERVIEW FINANCIAL CORPORATION

FORM10-Q

For the Quarter Ended ~~March 31,~~June 30, 2019


Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at ~~March 31,~~June 30, 2019 and December 31, 2018		3
	Consolidated Statements of Income and Comprehensive Income ~~(Loss)~~ for the Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018		4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2019 and 2018		5
	Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2019 and 2018		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2627
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3637
Item 4.	Controls and Procedures		3637
PART II	OTHER INFORMATION:
Item 1.	Legal Proceedings		3637
Item 1A.	Risk Factors		3637
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
~~Item 3.~~	~~Defaults upon Senior Securities~~		36
~~Item 4.~~	~~Mine Safety Disclosures~~		36
~~Item 5.~~	~~Other Information~~		36
~~Item 6.~~	~~Exhibits~~		37
Item 3.	~~Signatures~~Defaults upon Senior Securities		37
Item 4.	Mine Safety Disclosures		37
Item 5.	Other Information		37
Item 6.	Exhibits		38
	Signatures		39

Riverview Financial Corporation

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except per share data)


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Assets:
Cash and due from banks	$	12,278		$	16,708		$	11,354		$	16,708
Interest-bearing deposits in other banks		55,823			37,108			29,621			37,108
Investment securitiesavailable-for-sale		100,684			104,677			100,254			104,677
Loans held for sale		695			637			170			637
Loans, net		878,070			893,184			889,305			893,184
Less: allowance for loan losses		6,486			6,348			7,002			6,348

Net loans		871,584			886,836			882,303			886,836
Premises and equipment, net		18,355			18,208			18,144			18,208
Accrued interest receivable		3,018			3,010			2,870			3,010
Goodwill		24,754			24,754			24,754			24,754
Intangible assets		3,315			3,509			3,121			3,509
Other assets		48,206			42,156			47,607			42,156

Total assets	$	1,138,712		$	1,137,603		$	1,120,198		$	1,137,603

Liabilities:
Deposits:
Noninterest-bearing	$	164,880		$	162,574		$	160,407		$	162,574
Interest-bearing		836,149			842,019			819,293			842,019

Total deposits		1,001,029			1,004,593			979,700			1,004,593
Short-term borrowings
Long-term debt		6,912			6,892			6,932			6,892
Accrued interest payable		475			484			445			484
Other liabilities		16,806			11,724			17,443			11,724

Total liabilities		1,025,222			1,023,693			1,004,520			1,023,693

Stockholders’ equity:
Common stock: no par value, authorized 20,000,000 shares; March 31, 2019, issued and outstanding 9,154,599 shares; December 31, 2018, issued and outstanding 9,121,555 shares		101,500			101,134
Common stock: no par value, authorized 20,000,000 shares; June 30, 2019, issued and outstanding 9,167,670 shares; December 31, 2018, issued and outstanding 9,121,555 shares								101,644			101,134
Capital surplus		307			332			304			332
Retained earnings		13,461			15,063			13,978			15,063
Accumulated other comprehensive loss		(1,778	)		(2,619	)		(248	)		(2,619	)

Total stockholders’ equity		113,490			113,910			115,678			113,910

Total liabilities and stockholders’ equity	$	1,138,712		$	1,137,603		$	1,120,198		$	1,137,603

See notes to consolidated financial statements.

Riverview Financial Corporation

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

(Dollars in thousands, except per share data)


For the three months ended March 31,	2019			2018
							Three Months Ended						Six Months Ended
June 30,							2019			2018			2019			2018
Interest income:
Interest and fees on loans:
Taxable	$	10,688		$	12,241		$	11,680		$	11,226		$	22,368		$	23,467
Tax-exempt		230			234			233			235			463			469
Interest and dividends on investment securitiesavailable-for-sale:
Taxable		740			523			732			542			1,472			1,065
Tax-exempt		69			82			47			81			116			163
Dividends
Interest on interest-bearing deposits in other banks		231			79			216			101			447			180
Interest on federal funds sold					10						10						20

Total interest income		11,958			13,169			12,908			12,195			24,866			25,364

Interest expense:
Interest on deposits		2,073			1,554			2,099			1,723			4,172			3,277
Interest on short-term borrowings					30												30
Interest on long-term debt		134			176			131			192			265			368

Total interest expense		2,207			1,760			2,230			1,915			4,437			3,675

Net interest income		9,751			11,409			10,678			10,280			20,429			21,689
Provision for loan losses		583			390			618						1,201			390

Net interest income after provision for loan losses		9,168			11,019			10,060			10,280			19,228			21,299

Noninterest income:
Service charges, fees and commissions		1,053			1,228			1,315			1,651			2,368			2,879
Commission and fees on fiduciary activities		260			210			281			235			541			445
Wealth management income		247			154			236			219			483			373
Mortgage banking income		106			170			100			189			206			359
Bank owned life insurance investment income		187			191			194			199			381			390
Net loss on sale of investment securitiesavailable-for-sale		(42	)
Net gain (loss) on sale of investment securitiesavailable-for-sale											40			(42	)		40

Total noninterest income		1,811			1,953			2,126			2,533			3,937			4,486

Noninterest expense:
Salaries and employee benefits expense		7,510			5,322			5,830			5,221			13,340			10,543
Net occupancy and equipment expense		1,089			1,122			1,044			1,012			2,133			2,134
Amortization of intangible assets		194			221			194			220			388			441
Net cost (benefit) of operation of other real estate owned		127			(1	)		(92	)		2			35			1
Other expenses		3,044			2,872			3,508			2,953			6,552			5,825

Total noninterest expense		11,964			9,536			10,484			9,408			22,448			18,944

Income (loss) before income taxes		(985	)		3,436
Income before income taxes								1,702			3,405			717			6,841
Income tax expense (benefit)		(298	)		625			268			618			(30	)		1,243

Net income (loss)		(687	)		2,811
Net income								1,434			2,787			747			5,598

Other comprehensive income (loss):
Other comprehensive income:
Unrealized gain (loss) on investment securitiesavailable-for-sale	$	1,023		$	(1,075	)		1,936			112			2,959			(963	)
Reclassification adjustment for net loss on sale of investment securitiesavailable-for-sale included in net income		42
Reclassification adjustment for net (gain) loss on sale of investment securitiesavailable-for-sale included in net income (loss)											(40	)		42			(40	)

Other comprehensive income (loss)								1,936			72			3,001			(1,003	)
Income tax expense (benefit) related to other comprehensive income		224			(225	)		406			15			630			(210	)

Other comprehensive income (loss), net of income taxes		841			(850	)		1,530			57			2,371			(793	)

Comprehensive income (loss)	$	154		$	1,961
Comprehensive income							$	2,964		$	2,844		$	3,118		$	4,805

Per share data:
Net income:
Basic	$	(0.08	)	$	0.31		$	0.16		$	0.31		$	0.08		$	0.62
Diluted	$	(0.08	)	$	0.31		$	0.16		$	0.31		$	0.08		$	0.62
Average common shares outstanding:
Basic		9,143,316			9,079,043			9,160,290			9,089,011			9,151,850			9,084,054
Diluted		9,143,316			9,137,706			9,172,992			9,134,248			9,167,409			9,136,004
Dividends declared	$	0.10		$

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)


	Common Stock		Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
For the six months ended June 30,															Common Stock		Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2019	$	101,134	$	332		$	15,063		$	(2,619	)	$	113,910		$	101,134	$	332		$	15,063		$	(2,619	)	$	113,910
Net income (loss)							(687	)					(687	)
Net income																					747						747
Other comprehensive income, net of income taxes										841			841											2,371			2,371
Compensation cost of option grants
Issuance under ESPP, 401k and Dividend Reinvestment plans: 15,223 shares		175											175
Exercise of stock options: 17,821 shares		191		(25	)								166
Dividends declared, $0.10 per share							(915	)					(915	)
Issuance under ESPP, 401k and Dividend Reinvestment plans: 27,984 shares																316											316
Exercise of stock options: 18,131 shares																194		(28	)								166
Dividends declared, $0.20 per share																					(1,832	)					(1,832	)

Balance, March 31, 2019	$	101,500	$	307		$	13,461		$	(1,778	)	$	113,490
Balance, June 30, 2019															$	101,644	$	304		$	13,978		$	(248	)	$	115,678

Balance, January 1, 2018	$	100,476	$	423		$	6,936		$	(1,579	)	$	106,256		$	100,476	$	423		$	6,936		$	(1,579	)	$	106,256
Net income							2,811						2,811								5,598						5,598
Other comprehensive income (loss), net of income taxes										(850	)		(850	)										(793	)		(793	)
Compensation cost of option grants				(1	)								(1	)				1									1
Issuance under ESPP, 401k and Dividend Reinvestment plans: 10,153 shares		135											135
Issuance under ESPP, 401k and Dividend Reinvestment plans: 20,862 shares																265											265
Exercise of stock options: 4,761 shares		49											49			49											49
Dividends declared, $0.10 per shares																					(909	)					(909	)

Balance, March 31, 2018	$	100,660	$	422		$	9,747		$	(2,429	)	$	108,400
Balance, June 30, 2018															$	100,790	$	424		$	11,625		$	(2,372	)	$	110,467


For the three months ended June 30,															Common Stock		Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, April 1, 2019															$	101,500	$	307		$	13,461		$	(1,778	)	$	113,490
Net income																					1,434						1,434
Other comprehensive income, net of income taxes																								1,530			1,530
Compensation cost of option grants
Issuance under ESPP, 401k and Dividend Reinvestment plans: 12,761 shares																141											141
Exercise of stock options: 310 shares																3		(3	)
Dividends declared, $0.10 per share																					(917	)					(917	)

Balance, June 30, 2019															$	101,644	$	304		$	13,978		$	(248	)	$	115,678

Balance, April 1, 2018															$	100,660	$	422		$	9,747		$	(2,429	)	$	108,400
Net income																					2,787						2,787
Other comprehensive income (loss), net of income taxes																								57			57
Compensation cost of option grants																		2									2
Issuance under ESPP, 401k and Dividend Reinvestment plans: 10,709 shares																130											130
Exercise of stock options:
Dividends declared, $0.10 per shares																					(909	)					(909	)

Balance, June 30, 2018															$	100,790	$	424		$	11,625		$	(2,372	)	$	110,467

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)


For the Three Months Ended March 31,	2019			2018
For the Six Months Ended June 30,							2019			2018
Cash flows from operating activities:
Net income (loss)	$	(687	)	$	2,811
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income							$	747		$	5,598
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment		300			286			589			619
Provision for loan losses		583			390			1,201			390
Stock based compensation					(1	)					1
Net amortization of investment securitiesavailable-for-sale		216			207			399			402
Net cost (benefit) of operation of other real estate owned		127			(1	)
Net loss on sale of investment securitiesavailable-for-sale		42
Net cost of operation of other real estate owned								35			1
Net (gain) loss on sale of investment securitiesavailable-for-sale								42			(40	)
Amortization of purchase adjustment on loans		(439	)		(1,873	)		(1,495	)		(2,613	)
Amortization of intangible assets		194			221			388			441
Deferred income taxes		(61	)		687			(111	)		1,072
Proceeds from sale of loans originated for sale		4,443			5,827			7,599			13,337
Net gain on sale of loans originated for sale		(106	)		(170	)		(206	)		(359	)
Loans originated for sale		(4,395	)		(6,013	)		(6,926	)		(13,597	)
Bank owned life insurance investment income		(187	)		(191	)		(381	)		(390	)
Net change in:
Accrued interest receivable		(8	)		372			140			451
Other assets		(2,613	)		(691	)		(1,169	)		60
Accrued interest payable		(9	)		(2	)		(39	)		(19	)
Other liabilities		1,363			(635	)		1,107			(1,095	)

Net cash provided by (used in) operating activities		(1,237	)		1,224
Net cash provided by operating activities								1,920			4,259

Cash flows from investing activities:
Investment securitiesavailable-for-sale:
Purchases		(7,647	)					(10,485	)		(6,839	)
Proceeds from repayments		3,707			3,146			8,728			5,942
Proceeds from sales		8,740						8,740			4,825
Proceeds from the sale of other real estate owned		133			145			627			196
Net decrease in restricted equity securities		46			208			119			146
Net decrease in loans		15,108			23,473
Net decrease (increase) in loans								4,800			18,351
Purchases of premises and equipment		(447	)		(369	)		(1,065	)		(530	)
Purchase of bank owned life insurance								(22	)		(21	)

Net cash provided by investing activities		19,640			26,603			11,442			22,070

Cash flows from financing activities:
Net increase (decrease) in deposits		(3,564	)		12,125
Net decrease in deposits								(24,893	)		(8,758	)
Net decrease in short-term borrowings					(6,000	)					(6,000	)
Repayment of long-term debt					(73	)					(142	)
Proceeds from long-term debt		20						40
Issuance under ESPP, 401k and DRP plans		175			135			316			265
Proceeds from exercise of stock options		166			49			166			49
Cash dividends paid		(915	)					(1,832	)		(909	)

Net cash provided by (used in) financing activities		(4,118	)		6,236
Net cash used in financing activities								(26,203	)		(15,495	)

Net increase in cash and cash equivalents		14,285			34,063
Net increase (decrease) in cash and cash equivalents								(12,841	)		10,834
Cash and cash equivalents—beginning		53,816			25,786			53,816			25,786

Cash and cash equivalents—ending	$	68,101		$	59,849		$	40,975		$	36,620

Supplemental disclosures:
Cash paid during the period for:
Interest	$	2,216		$	1,762		$	4,476		$	3,694

Income taxes							$			$

Noncash items from operating activities:
Operating leaseright-of-use assets and liabilities	$	3,719					$	4,612		$

Noncash items from investing activities:
Transfer of owned properties to available for sale							$	540		$

Noncash items from financing activities:
Other real estate acquired in settlement of loans							$	27		$	51

See notes to consolidated financial statements.

Riverview Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of Operations

Riverview Financial Corporation, (the “Company” or “Riverview”), a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Riverview Bank (the “Bank”).

Riverview Bank, with 2830 full service offices and ~~four~~three limited purpose offices, is a full service commercial bank offering a wide range of traditional banking services and financial advisory, insurance and investment services to individuals, municipalities andsmall-to-medium sized businesses in the Pennsylvania market areas of Berks, Blaire, Centre, Clearfield, Cumberland, Dauphin, Huntingdon, Lebanon, Lehigh, Lycoming, Northumberland, Perry, Schuylkill and Somerset Counties in Pennsylvania.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP’) for interim financial information and with the instructions toForm 10-Q and Article 8 ofRegulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform towith the current year’s presentation. These reclassifications did not have any effect on the operating results or financial position of the Company. The operating results and financial position of the Company for the three and six months ended as of ~~March 31,~~June 30, 2019, are not necessarily indicative of the results of operations and financial position that may be expected in the future. The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2018 Annual Report onForm 10-K, filed on March 14, 2019.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual results could differ from those estimates.

Accounting Standards Adopted in 2019

In February 2016, the FASB issued an update ASU2016-02, “Leases”, which requires lessees to record most leases on their balance sheet and recognize leasing expenses in the income statement. Operating leases, except for short-term leases that are subject to an accounting policy election, will be recorded on the balance sheet for lessees by establishing a lease liability and correspondingright-of-use asset. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. As the Company elected the transition option provided in ASUNo. 2018-11, the modified retrospective approach was applied on January 1, 2019 (as opposed to January 1, 2017). The Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment ofright-of-use assets. The guidance in this ASU became effective January 1, 2019 at which time the Company recorded on the Consolidated Balance Sheet aright-of-use asset and lease liability of $3,719. For further detail, see Note 7 – Leases.

In March 2017, the FASB issued ASUNo. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Topic 310), Premium Amortization on Purchased Callable Debt Securities”. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of ASUNo. 2017-08 on January 1, 2019, did not have a material effect on our consolidated financial statements.

In August 2017, the FASB issued ASUNo. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The amendments in the Update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of ASUNo. 2017-12 on January 1. 2019, did not have a material effect on our consolidated financial statements.

Recent Accounting Standards

In June 2016, the FASB issued ASUNo. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU2016-13 also requires new disclosures for financial assets measured at amortized cost, loans andavailable-for-sale debt securities. In November 2018, the FASB issued ASU No.2018-19—Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments clarify that receivables arising from operating leases are not within the scope of Subtopic326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In May 2019, the FASB issued ASU2019-05 “Financial Instruments-Credit Losses (Topic 326)-Targeted Transition Relief” which amends ASU2016-13 to allow companies to irrevocably elect, upon adoption of ASU2016-13, the fair value option on financial instruments that were previously recorded at amortized cost and are within the scope of ASC326-20 if the instruments are eligible for the fair value option under ASC825-10.The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company currently expects as of January 1, 2020fair value option election does not apply to ~~recognize aone-time~~held-to-maturity ~~cumulative effect adjustment~~debt securities. Entities are required to ~~increase the ALLL with~~make this election on an ~~offsetting reduction to the retained earnings component of equity.~~instrument-by-instrument basis. In December 2018, the federal bank regulatory agencies approved a final rule that modifies their regulatory capital rules and provides institutions the option to phase in over a three-year period anyday-one regulatory capital effects of the new accounting standard. The Company has formed an internal management committee and engaged a third party vendor to assist with the transition to the guidance set forth in this update. The committee is currently evaluating the impact of this update on the Company’s Consolidated Financial Statements, but the ALLL is expected to increase upon adoption since the allowance will be required to cover the full expected life of the portfolio. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of the loan and lease portfolio at the time of adoption. Management is currently evaluating the preliminary modeling results, including a qualitative framework to account for the drivers of credit losses that are not captured by the quantitative model. In July 2019, the FASB tentatively decided to delay the effective date for small reporting public companies to interim and annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company currently expects as of January 1, 2023 to recognize aone-time cumulative effect adjustment to increase the ALLL with an offsetting reduction to the retained earnings component of equity. The effective date is subject to final approval by FASB.

In August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This new accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019. The Company does not expect the adoption of the new accounting guidance to have a material effect on the statement of cash flows.

In January 2017, the FASB issued ASUNo. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

In August 2018, the FASB issued ASU2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this Update improve the effectiveness of fair value measurement disclosures by modifying the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

In August 2018, the FASB issued ASUNo. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General(Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”.Subtopic 715-20 addresses the disclosure of other accounting and reporting requirements related to single-employer defined benefit pension or other

postretirement benefit plans. The amendments in this Update remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the Board’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments in this Update apply to all employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for all entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

In August 2018, the FASB issued ASUNo. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This guidance aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaininginternal-use software. Common examples of hosting arrangements include software as a service, platform or infrastructure as a service and other similar types of hosting arrangements. While capitalized costs related tointernal-use software is generally considered an intangible asset, costs incurred to implement a cloud computing arrangement that is a service contract would typically be characterized in the company’s financial statements in the same manner as other service costs (e.g., prepaid expense). The new guidance provides that an entity would be required to amortize capitalized implementation costs over the term of the hosting arrangement on a straight-line basis unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from access to the hosted software. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with earlier adoption permitted in any annual or interim period for which financial statements have not yet been issued or made available for issuance. The guidance is not expected to have a significant impact on the Company’s financial positions, results of operations or disclosures.

2. Other comprehensive income (loss):

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

The components of accumulated other comprehensive income (loss) included in stockholders’ equity at ~~March 31,~~June 30, 2019 and December 31, 2018 is as follows:


	March 31, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Net unrealized loss on investment securitiesavailable-for-sale	$	(1,118	)	$	(2,183	)
Income tax benefit		(234	)		(458	)
Net unrealized gain (loss) on investment securitiesavailable-for-sale							$	818		$	(2,183	)
Income tax expense (benefit)								172			(458	)

Net of income taxes		(884	)		(1,725	)		646			(1,725	)

Benefit plan adjustments		(1,132	)		(1,132	)		(1,132	)		(1,132	)
Income tax benefit		(238	)		(238	)		(238	)		(238	)

Net of income taxes		(894	)		(894	)		(894	)		(894	)

Accumulated other comprehensive loss	$	(1,778	)	$	(2,619	)	$	(248	)	$	(2,619	)

Other comprehensive income (loss) and related tax effects for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 is as follows:

Three months ended March 31,
   2019    2018
Unrealized gain (loss) on investment securitiesavailable-for-sale
   $ 1,023    $ (1,075 )
Net loss (gain) on the sale of investment securitiesavailable-for-sale ⁽¹⁾
   42




Other comprehensive gain (loss) before taxes
   1,065    (1,075 )
Income tax expense (benefit)
   224    (225 )




Other comprehensive gain (loss)
   $ 841    $ (850 )


Three months ended June 30,	2019		2018
Unrealized gain on investment securitiesavailable-for-sale	$	1,936	$	112
Net gain on the sale of investment securitiesavailable-for-sale⁽¹⁾				(40	)

Other comprehensive income before taxes		1,936		72
Income tax expense		406		15

Other comprehensive income	$	1,530	$	57


Six months ended June 30,	2019		2018
Unrealized gain (loss) on investment securitiesavailable-for-sale	$	2,959	$	(963	)
Net (gain) loss on the sale of investment securitiesavailable-for-sale⁽¹⁾		42		(40	)

Other comprehensive income (loss) before taxes		3,001		(1,003	)
Income tax expense (benefit)		630		(210	)

Other comprehensive income (loss)	$	2,371	$	(793	)

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

3. Earnings per share:

Basic earnings per share is computed by dividing net income (loss) divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The following table provides a reconciliation between the computation of basic earnings per share and diluted earnings per share for the three and six months ended ~~March 31,~~June 30, 2019 and 2018:


Three months ended March 31,	2019			2018
Three months ended June 30,						2019		2018
Numerator:
Net income (loss)	$	(687	)	$	2,811	$	1,434	$	2,787

Denominator:
Basic		9,143,316			9,079,043		9,160,290		9,089,011
Dilutive options					58,663		12,702		45,237

Diluted		9,143,316			9,137,706		9,172,992		9,134,248

Earnings per share:
Basic	$	(0.08	)	$	0.31	$	0.16	$	0.31
Diluted	$	(0.08	)	$	0.31	$	0.16	$	0.31

Because the Company had a net loss, there were no outstanding stock options for the three months ended March 31, 2019 that were included in the diluted earnings per share calculation because of their antidilutive effect. Had the Company not recognized a net loss for the three months ended March 31, 2019, there would have been 43,350 stock options excluded from the dilutive earnings per share calculation.


Six months ended June 30,	2019		2018
Numerator:
Net income (loss)	$	747	$	5,598

Denominator:
Basic		9,151,850		9,084,054
Dilutive options		15,559		51,950

Diluted		9,167,409		9,136,004

Earnings per share:
Basic	$	0.08	$	0.62
Diluted	$	0.08	$	0.62

For the three and six months ended ~~March 31, 2018,~~June 30, 2019, there were no43,350 outstanding stock options that were excluded from the dilutive earnings per share calculation. None of the outstanding stock options for the three and six months ended June 30, 2018 were excluded from the diluted earnings per share calculation because their effect was antidilutive.

4. Investment securities:

The amortized cost and fair value of investment securitiesavailable-for-sale aggregated by investment category at ~~March 31,~~June 30, 2019 and December 31, 2018 are summarized as follows:

March 31, 2019
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair
Value
State and municipals:

Taxable
   $ 30,811    $ 129    $ 497    $ 30,443
Tax-exempt
   7,639    34    5    7,668
Mortgage-backed securities:

U.S. Government agencies
   27,208    101    27    27,282
U.S. Government-sponsored enterprises
   26,632    12    214    26,430
Corporate debt obligations
   9,512       651    8,861








Total
   $ 101,802    $ 276    $ 1,394    $ 100,684








December 31, 2018
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair
Value
State and municipals:

Taxable
   $ 34,025    $ 145    $ 892    $ 33,278
Tax-exempt
   12,970    2    196    12,776
Mortgage-backed securities:

U.S. Government agencies
   23,715    61    106    23,670
U.S. Government-sponsored enterprises
   26,635    11    451    26,195
Corporate debt obligations
   9,515       757    8,758








Total
   $ 106,860    $ 219    $ 2,402    $ 104,677


June 30, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and municipals:
Taxable	$	30,754	$	590	$	11	$	31,333
Tax-exempt		5,370		64				5,434
Mortgage-backed securities:
U.S. Government agencies		28,669		449		3		29,115
U.S. Government-sponsored enterprises		25,135		280		78		25,337
Corporate debt obligations		9,508		31		504		9,035

Total	$	99,436	$	1,414	$	596	$	100,254


December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and municipals:
Taxable	$	34,025	$	145	$	892	$	33,278
Tax-exempt		12,970		2		196		12,776
Mortgage-backed securities:
U.S. Government agencies		23,715		61		106		23,670
U.S. Government-sponsored enterprises		26,635		11		451		26,195
Corporate debt obligations		9,515				757		8,758

Total	$	106,860	$	219	$	2,402	$	104,677

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified asavailable-for-sale at ~~March 31,~~June 30, 2019, is summarized as follows:


March 31, 2019	Fair Value
June 30, 2019			Fair Value
Within one year	$	2,386	$	116
After one but within five years		757		1,859
After five but within ten years		11,164		12,267
After ten years		32,665		31,560

		46,972		45,802
Mortgage-backed securities		53,712		54,452

Total	$	100,684	$	100,254

Securities with a fair value of ~~$68,184~~$68,975 and $71,797 at ~~March 31,~~June 30, 2019 and December 31, 2018, respectively, were pledged to secure public deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on acase-by-case basis. At ~~March 31,~~June 30, 2019 and December 31, 2018, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. Government agencies and sponsored enterprises that exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an other-than-temporary impairment (“OTTI”) has not been recognized at ~~March 31,~~June 30, 2019 and December 31, 2018, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:


	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
March 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2019													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value			Unrealized Losses
State and municipals:
Taxable	$	2,210	$	15	$	19,456	$	482	$	21,666	$	497	$		$		$	3,471	$	11	$	3,471	��	$	11
Tax-exempt						3,697		5		3,697		5
Mortgage-backed securities:
U.S. Government agencies		478		1		1,133		26		1,611		27		451		1		785		2		1,236			3
U.S. Government-sponsored enterprises		11,284		35		6,954		179		18,238		214						4,082		78		4,082			78
Corporate debt obligation						8,861		651		8,861		651						6,996		504		6,996			504

Total	$	13,972	$	51	$	40,101	$	1,343	$	54,073	$	1,394	$	451	$	1	$	15,334	$	595	$	15,785		$	596


	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
December 31, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value			Unrealized Losses
State and municipals:
Taxable	$	2,300	$	4	$	22,943	$	888	$	25,243	$	892	$	2,300	$	4	$	22,943	$	888	$	25,243		$	892
Tax-exempt		1,950		32		9,556		164		11,506		196		1,950		32		9,556		164		11,506			196
Mortgage-backed securities:
U.S. Government agencies		7,862		66		1,216		40		9,078		106		7,862		66		1,216		40		9,078			106
U.S. Government-sponsored enterprises		18,110		163		7,133		288		25,243		451		18,110		163		7,133		288		25,243			451
Corporate debt obligation						8,758		757		8,758		757						8,758		757		8,758			757

Total	$	30,222	$	265	$	49,606	$	2,137	$	79,828	$	2,402	$	30,222	$	265	$	49,606	$	2,137	$	79,828		$	2,402

The Company had 5618 investment securities, consisting of 26five taxable state and municipal obligations, ~~sixtax-exempt~~ ~~state and municipal obligations, 20~~10 mortgage-backed securities, and ~~four~~three corporate debt obligations that were in unrealized loss positions at ~~March 31,~~June 30, 2019. Of these securities, 24five taxable state and municipal obligation, ~~sixtax-exempt~~ ~~state and municipal obligations, 13~~nine mortgage-backed securities and ~~four~~three corporate debt obligations were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and

management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at ~~March 31,~~June 30, 2019. There was no OTTI recognized for the three and six months ended ~~March 31,~~June 30, 2019 and 2018.

The Company had 92 investment securities, consisting of 39 taxable state and municipal obligations, 22tax-exempt municipal obligations, four corporate obligations and 27 mortgage-backed securities that were in unrealized loss positions at December 31, 2018. Of these securities, 35 taxable state and municipal obligations, 19tax-exempt municipal obligations, four corporate obligations and 13 mortgage-backed securities were in a continuous unrealized loss position for twelve months or more.

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at ~~March 31,~~June 30, 2019 and December 31, 2018 are summarized as follows. Net deferred loan costs were ~~$1,018~~$1,069 and $1,026 at ~~March 31,~~June 30, 2019 and December 31, 2018.


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Commercial	$	117,324	$	122,919	$	113,844	$	122,919
Real estate:
Construction		43,291		39,556		48,978		39,556
Commercial		491,650		497,597		504,553		497,597
Residential		214,501		221,115		212,053		221,115
Consumer		11,304		11,997		9,877		11,997

Total	$	878,070	$	893,184	$	889,305	$	893,184

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended ~~March 31,~~June 30, 2019 and 2018 are summarized as follows:


				Real Estate
March 31, 2019	Commercial			Construction			Commercial		Residential			Consumer			Unallocated			Total
June 30, 2019																					Commercial			Construction			Commercial		Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance January 1, 2019	$	1,162		$	404		$	3,298	$	1,286		$	50		$	148		$	6,348
Beginning Balance, April 1, 2019																					$	1,023		$	281		$	3,459	$	1,566		$	157		$			$	6,486
Charge-offs		(376	)										(144	)					(520	)		(13	)							(20	)		(109	)					(142	)
Recoveries		5						1		1			68						75			6						1		2			31						40
Provisions		232			(123	)		160		279			183			(148	)		583			101			210			131		101			75						618

Ending balance	$	1,023		$	281		$	3,459	$	1,566		$	157		$			$	6,486		$	1,117		$	491		$	3,591	$	1,649		$	154		$			$	7,002


				Real Estate																				Real Estate
March 31, 2018	Commercial			Construction			Commercial		Residential			Consumer			Unallocated			Total
June 30, 2019																					Commercial			Construction			Commercial		Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance January 1, 2018	$	1,206		$	379		$	2,963	$	1,340		$	37		$	381		$	6,306
Beginning Balance, January 1, 2019																					$	1,162		$	404		$	3,298	$	1,286		$	50		$	148		$	6,348
Charge-offs		(77	)							(50	)		(99	)					(226	)		(389	)							(20	)		(253	)					(662	)
Recoveries		3						2		1			39						45			11						2		3			99						115
Provisions		(316	)		5			493		(112	)		55			265			390			333			87			291		380			258			(148	)		1,201

Ending balance	$	816		$	384		$	3,458	$	1,179		$	32		$	646		$	6,515		$	1,117		$	491		$	3,591	$	1,649		$	154		$			$	7,002


																								Real Estate
June 30, 2018																					Commercial			Construction			Commercial		Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance, April 1, 2018																					$	816		$	384		$	3,458	$	1,179		$	32		$	646		$	6,515
Charge-off																						(93	)							(10	)		(63	)					(166	)
Recoveries																						5						2		20			25						52
Provisions																						298			(135	)		146		106			42			(457	)

Ending balance																					$	1,026		$	249		$	3,606	$	1,295		$	36		$	189		$	6,401


																								Real Estate
June 30, 2018																					Commercial			Construction			Commercial		Residential			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance, January 1, 2018																					$	1,206		$	379		$	2,963	$	1,340		$	37		$	381		$	6,306
Charge-offs																						(170	)							(60	)		(162	)					(392	)
Recoveries																						8						4		21			64						97
Provisions																						(18	)		(130	)		639		(6	)		97			(192	)		390

Ending balance																					$	1,026		$	249		$	3,606	$	1,295		$	36		$	189		$	6,401

The allocation of the allowance for loan losses and the related loans by major classifications of loans at ~~March 31,~~June 30, 2019 and December 31, 2018 is summarized as follows:


			Real Estate														Real Estate
March 31, 2019	Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
June 30, 2019															Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	1,023	$	281	$	3,459	$	1,566	$	157	$		$	6,486	$	1,117	$	491	$	3,591	$	1,649	$	154	$		$	7,002

Ending balance:
individually evaluated for impairment		77				91		55						223		103				92		50						245

Ending balance:
collectively evaluated for impairment		946		281		3,368		1,511		157				6,263		1,014		491		3,499		1,599		154				6,757

Ending balance:
purchased credit impaired loans	$		$		$		$		$		$		$		$		$		$		$		$		$		$

Loans receivable:
Ending balance	$	117,324	$	43,291	$	491,650	$	214,501	$	11,304	$		$	878,070	$	113,844	$	48,978	$	504,553	$	212,053	$	9,877	$		$	889,305

Ending balance:
individually evaluated for impairment		946		85		1,475		2,147						4,653		879				1,474		2,132						4,485

Ending balance:
collectively evaluated for impairment		116,294		43,206		487,022		212,104		11,304				869,930		112,944		48,978		499,958		209,675		9,877				881,432

Ending balance:
purchased credit impaired loans	$	84	$		$	3,153	$	250	$		$		$	3,487	$	21	$		$	3,121	$	246	$		$		$	3,388


			Real Estate														Real Estate
December 31, 2018	Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total		Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	1,162	$	404	$	3,298	$	1,286	$	50	$	148	$	6,348	$	1,162	$	404	$	3,298	$	1,286	$	50	$	148	$	6,348

Ending balance:
individually evaluated for impairment		382				78		28						488		382				78		28						488

Ending balance:
collectively evaluated for impairment		780		404		3,220		1,258		50		148		5,680		780		404		3,220		1,258		50		148		5,680

Ending balance:
purchased credit impaired loans	$		$		$		$		$		$		$		$		$		$		$		$		$		$

Loans receivable:
Ending balance	$	122,919	$	39,556	$	497,597	$	221,115	$	11,997	$		$	893,184	$	122,919	$	39,556	$	497,597	$	221,115	$	11,997	$		$	893,184

Ending balance:
individually evaluated for impairment		1,249				1,643		2,146						5,038		1,249				1,643		2,146						5,038

Ending balance:
collectively evaluated for impairment		121,521		39,556		492,779		218,468		11,997				884,321		121,521		39,556		492,779		218,468		11,997				884,321

Ending balance:
purchased credit impaired loans	$	149	$		$	3,175	$	501	$		$		$	3,825	$	149	$		$	3,175	$	501	$		$		$	3,825

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

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

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

Substandard—A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

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

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

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at ~~March 31,~~June 30, 2019 and December 31, 2018:


March 31, 2019	Pass		Special Mention		Substandard		Doubtful	Total
June 30, 2019										Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	104,705	$	9,043	$	3,576		$	117,324	$	101,234	$	7,981	$	4,629		$	113,844
Real estate:
Construction		43,043		163		85			43,291		48,814		164					48,978
Commercial		458,865		19,076		13,709			491,650		476,590		9,678		18,285			504,553
Residential		210,296		2,084		2,121			214,501		207,925		2,036		2,092			212,053
Consumer		11,304							11,304		9,877							9,877

Total	$	828,213	$	30,366	$	19,491		$	878,070	$	844,440	$	19,859	$	25,006		$	889,305


December 31, 2018	Pass		Special Mention		Substandard		Doubtful	Total		Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	109,609	$	9,123	$	4,187		$	122,919	$	109,609	$	9,123	$	4,187		$	122,919
Real estate:
Construction		39,265				291			39,556		39,265				291			39,556
Commercial		471,364		13,106		13,127			497,597		471,364		13,106		13,127			497,597
Residential		216,218		2,126		2,771			221,115		216,218		2,126		2,771			221,115
Consumer		11,997							11,997		11,997							11,997

Total	$	848,453	$	24,355	$	20,376		$	893,184	$	848,453	$	24,355	$	20,376		$	893,184

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of ~~March 31,~~June 30, 2019 and December 31, 2018. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules.


	Accrual Loans														Accrual Loans
March 31, 2019	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
June 30, 2019															30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
Commercial	$	56	$		$		$	56	$	116,343	$	841	$	117,240	$	199	$		$		$	199	$	112,849	$	775	$	113,823
Real estate:
Construction		250						250		42,957		84		43,291		10						10		48,968				48,978
Commercial		1,244		4		81		1,329		486,471		697		488,497		1,044						1,044		499,694		694		501,432
Residential		1,668		249		20		1,937		211,293		1,021		214,251		1,097		141		25		1,263		209,848		696		211,807
Consumer		65		27		21		113		11,191				11,304		43		11		27		81		9,796				9,877

Total	$	3,283	$	280	$	122	$	3,685	$	868,255	$	2,643	$	874,583	$	2,393	$	152	$	52	$	2,597	$	881,155	$	2,165	$	885,917

Purchased credit impaired loans														3,487														3,388

Total Loans													$	878,070													$	889,305


	Accrual Loans														Accrual Loans
December 31, 2018	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans		30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
Commercial	$	69	$	128	$	82	$	279	$	121,350	$	1,141	$	122,770	$	69	$	128	$	82	$	279	$	121,350	$	1,141	$	122,770
Real estate:
Construction		11		655		247		913		38,643				39,556		11		655		247		913		38,643				39,556
Commercial		467		538		170		1,175		492,545		702		494,422		467		538		170		1,175		492,545		702		494,422
Residential		4,537		1,322		290		6,149		213,579		886		220,614		4,537		1,322		290		6,149		213,579		886		220,614
Consumer		124		57		50		231		11,766				11,997		124		57		50		231		11,766				11,997

Total	$	5,208	$	2,700	$	839	$	8,747	$	877,883	$	2,729	$	889,359	$	5,208	$	2,700	$	839	$	8,747	$	877,883	$	2,729	$	889,359

Purchased credit impaired loans														3,825														3,825

Total Loans													$	893,184													$	893,184

The following tables summarize information concerning impaired loans as of and for the three and six months ended ~~March 31,~~June 30, 2019 and 2018, and as of and for the year ended, December 31, 2018 by major loan classification:


							This Quarter										This Quarter				Year-to-Date
March 31, 2019	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
June 30, 2019											Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	189	$	189			$	169	$	23	$	125	$	125	$		$	157	$	485	$	163	$	508
Real estate:
Construction		85		85				43										43				43
Commercial		4,257		4,257				4,271		100		4,222		4,222				4,240		104		4,255		204
Residential		2,217		2,217				2,342		91		2,201		2,201				2,209		34		2,276		125
Consumer

Total		6,748		6,748				6,825		214		6,548		6,548				6,649		623		6,737		837

With an allowance recorded:
Commercial		841		841	$	77		1,045				774		774		103		808				926
Real estate:
Construction
Commercial		371		371		91		453		4		373		373		92		372		4		413		8
Residential		180		318		55		181		1		178		316		50		179		2		180		3
Consumer

Total		1,392		1,530		223		1,679		5		1,325		1,463		245		1,359		6		1,519		11

Commercial		1,030		1,030		77		1,214		23		899		899		103		965		485		1,089		508
Real estate:
Construction		85		85				43										43				43
Commercial		4,628		4,628		91		4,724		104		4,595		4,595		92		4,612		108		4,668		212
Residential		2,397		2,535		55		2,523		92		2,379		2,517		50		2,388		36		2,456		128
Consumer

Total	$	8,140	$	8,278	$	223	$	8,504	$	219	$	7,873	$	8,011	$	245	$	8,008	$	629	$	8,256	$	848


							For the Year Ended
December 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	149	$	149			$	459	$	564
Real estate:
Construction
Commercial		4,284		4,284				6,382		2,846
Residential		2,466		2,466				2,875		460
Consumer

Total		6,899		6,899				9,716		3,870

With an allowance recorded:
Commercial		1,249		1,249	$	382		1,117		7
Real estate:
Construction
Commercial		534		534		78		676		17
Residential		181		319		28		184		3
Consumer

Total		1,964		2,102		488		1,977		27

Commercial		1,398		1,398		382		1,576		571
Real estate:
Construction
Commercial		4,818		4,818		78		7,058		2,863
Residential		2,647		2,785		28		3,059		463
Consumer

Total	$	8,863	$	9,001	$	488	$	11,693	$	3,897

            For the Year Ended
December 31, 2018
   Recorded
Investment    Unpaid
Principal
Balance    Related
Allowance    Average
Recorded
Investment    Interest
Income
Recognized
With no related allowance:

Commercial
   $ 149    $ 149       $ 459    $ 564
Real estate:

Construction

Commercial
   4,284    4,284       6,382    2,846
Residential
   2,466    2,466       2,875    460
Consumer











Total
   6,899    6,899       9,716    3,870










With an allowance recorded:

Commercial
   1,249    1,249    $ 382    1,117    7
Real estate:

Construction

Commercial
   534    534    78    676    17
Residential
   181    319    28    184    3
Consumer











Total
   1,964    2,102    488    1,977    27










Commercial
   1,398    1,398    382    1,576    571
Real estate:

Construction

Commercial
   4,818    4,818    78    7,058    2,863
Residential
   2,647    2,785    28    3,059    463
Consumer











Total
   $ 8,863    $ 9,001    $ 488    $ 11,693    $ 3,897










            This Quarter
March 31, 2018
   Recorded
Investment    Unpaid
Principal
Balance    Related
Allowance    Average
Recorded
Investment    Interest
Income
Recognized
With no related allowance:

Commercial
   $ 1,033    $ 1,033       $ 1,119    $ 353
Real estate:

Construction

Commercial
   8,084    8,084       8,736    1,035
Residential
   3,152    3,170       3,252    79
Consumer











Total
   12,269    12,287       13,107    1,467










With an allowance recorded:

Commercial
   1,105    1,105    $ 69    442    2
Real estate:

Construction

Commercial
   534    534    78    535    6
Residential
   186    324    47    187    2
Consumer











Total
   1,825    1,963    194    1,164    10










Commercial
   2,138    2,138    69    1,561    355
Real estate:

Construction

Commercial
   8,618    8,618    78    9,271    1,041
Residential
   3,338    3,494    47    3,439    81
Consumer











Total
   $ 14,094    $ 14,250    $ 194    $ 14,271    $ 1,477


							This Quarter				Year-to-Date
June 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Commercial	$	366	$	366	$		$	700	$	19	$	909	$	372
Real estate:
Construction
Commercial		6,978		6,978				7,531		335		8,134		1,370
Residential		3,017		3,085				3,085		58		3,168		137
Consumer

Total		10,361		10,429				11,316		412		12,211		1,879

With an allowance recorded:
Commercial		832		832		58		969		1		705		3
Real estate:
Construction
Commercial		531		531		76		533		1		534		7
Residential		185		323		42		186		1		186		3
Consumer

Total		1,548		1,686		176		1,688		3		1,425		13

Commercial		1,198		1,198		58		1,669		20		1,614		375
Real estate:
Construction
Commercial		7,509		7,509		76		8,064		336		8,668		1,377
Residential		3,202		3,408		42		3,271		59		3,354		140
Consumer

Total	$	11,909	$	12,115	$	176	$	13,004	$	415	$	13,636	$	1,892

For the three and six months ended ~~March 31,~~June 30, interest income related to impaired loans, would have been ~~$60~~$25 and $85 in 2019 and ~~$47~~$9 and $56 in 2018 had the loans been current and the terms of the loans not been modified.

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

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

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

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

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

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

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled ~~$2,765~~$2,753 at ~~March 31,~~June 30, 2019, $2,925 at December 31, 2018 and ~~$5,429~~$4,804 at ~~March 31,~~June 30, 2018.

There ~~was one loan~~were no loans modified as troubled debt restructuring ~~for~~during the ~~three~~second quarter of 2019 and one loan modified during the six months ended ~~March 31,~~June 30, 2019. There were no loans modified as troubled debt restructuring for the three and six months ended ~~March 31,~~June 30, 2018.

During the three months ended ~~March 31,~~June 30, 2019, ~~there was one default on a residential loan restructured. In 2018,~~ there were no defaults on loans ~~restructured.~~restructured and one default on a restructured loan totaling $223 during the six months ended June 30, 2019. During the three months ended June 30, 2018, there was one default on loans restructured totaling $228 and six defaults on loans restructured totaling $1,474 during the six months ended June 30, 2018.

Purchased loans are initially recorded at their acquisition date fair values. The carryover of the allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for purchased loans are based on a cash flow methodology that involves assumptions and judgments as to credit risk, default rates, loss severity, collateral values, discount rates, payment speeds, and prepayment risk.

As part of its acquisition due diligence process, the Bank reviews the acquired institution’s loan grading system and the associated risk rating for loans. In performing this review, the Bank considers cash flows, debt service coverage, delinquency status, accrual status, and collateral for the loan. This process allows the Bank to clearly identify the population of acquired loans that had evidence of deterioration in credit quality since origination and for which it was probable, at acquisition, that the Bank would be unable to collect all contractually required payments. All such loans identified by the Bank are considered to be within the scope of ASC310-30, Loan and Debt Securities Acquired with Deteriorated Credit Quality and are identified as “Purchased Credit Impaired Loans”.

As a result of the merger with CBT, effective October 1, 2017, the Bank identified 37 PCI loans. As part of the merger with Citizens, effective December 31, 2015, the Bank identified 10 PCI loans. As a result of the consolidation with Union effective November 1, 2013, the Bank identified 14 PCI loans. For all PCI loans, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as thenon-accretable discount. Thenon-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require the Bank to evaluate the need for an allowance for loan losses on these loans. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of thenon-accretable discount which the Bank then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loan. The Bank’s evaluation of the amount of future cash flows that it expects to collect is based on a cash flow methodology that involves assumptions and judgments as to credit risk, collateral values, discount rates, payment speeds, and prepayment risk. Charge-offs of the principal amount on purchased impaired loans are first applied to thenon-accretable discount.

For purchased loans that are not deemed impaired at acquisition, credit discounts representing principal losses expected over the life of the loans are a component of the initial fair value, and the discount is accreted to interest income over the life of the asset. Subsequent to the purchase date, the method used to evaluate the sufficiency of the credit discount is similar to originated loans, and if necessary, additional reserves are recognized in the allowance for loan losses.

The unpaid principal balances and the related carrying amount of acquired loans as of ~~March 31,~~June 30, 2019 and December 31, 2018 were as follows:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Credit impaired purchased loans evaluated individually for incurred credit losses:
Outstanding balance	$	6,970	$	7,491	$	5,850	$	7,491
Carrying Amount		3,487		3,825		3,388		3,825
Other purchased loans evaluated collectively for incurred credit losses:
Outstanding balance		297,987		315,013		279,003		315,013
Carrying Amount		297,522		314,328		278,869		314,328
Total Purchased Loans:
Outstanding balance		304,957		322,504		284,853		322,504
Carrying Amount	$	301,009	$	318,153	$	282,257	$	318,153

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


	Quarter Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Balance—beginning of period	$	579		$	2,129		$	430		$	1,655		$	579		$	2,129
Additions
Accretion recognized during the period		(183	)		(1,443	)		(591	)		(411	)		(774	)		(1,854	)
Net reclassification fromnon-accretable to accretable		34			969			466			195			500			1,164

Balance—end of period	$	430		$	1,655		$	305		$	1,439		$	305		$	1,439

The Company is a party to financial instruments withoff-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused portions of lines of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

Unused commitments at ~~March 31,~~June 30, 2019, totaled ~~$139,086~~$179,115 consisting of ~~$71,867~~$98,651 in commitments to extend credit, ~~$61,488~~$74,498 in unused portions of lines of credit and ~~$5,731~~$5,966 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments, at December 31, 2018, totaled $161,732, consisting of $96,431 in commitments to extend credit, $59,512 in unused portions of lines of credit and $5,789 in standby letters of credit.

6. Other assets:

The components of other assets at ~~March 31,~~June 30, 2019 and December 31, 2018 are summarized as follows:


	March 31, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Other real estate owned	$	461	$	721	$	86	$	721
Bank owned life insurance		30,049		29,862		30,265		29,862
Restricted equity securities		1,008		1,054		935		1,054
Deferred tax assets		5,721		5,884		5,365		5,884
Leaseright-to-use assets		3,606
Leaseright-of-use assets						4,205
Other assets		7,361		4,635		6,751		4,635

Total	$	48,206	$	42,156	$	47,607	$	42,156

As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”) and Atlantic Community Bankers Bank (“ACBB”), the Company is required to purchase and hold stock in these entities to satisfy membership and borrowing requirements. These restricted

equity securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records thesenon-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers thesenon-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

7. Leases:

On January 1, 2019, the Company adopted ASU2016-02, Leases, as further explained in Note 1, Summary of Significant Accounting Policies. The Company’s primary leasing activities relate to certain real estate leases entered into in support of the Company’s branch ~~operations~~ and back office operations. On January 1, 2019, the Company leased 12 of its 32 locations. The Company’s branch locations operating under lease agreements have all been designated as operating leases. In addition, the Company leases certain equipment under operating leases. The Company does not have leases designated as finance leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease~~right-of-~~right-of-use

~~use~~ (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any leasepre-payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease andnon-lease components, which the Company has elected to account for separately as thenon-lease component amounts are readily determinable under most leases.

AsOn June 30, 2019, the Company leased 14 of ~~March 31, 2019 the~~its 33 locations. The Company’s lease ROU assets and related lease liabilities were ~~$3,606~~$4,205 and ~~$3,616,~~$4,223, respectively, and have remaining terms ranging from 1 to 35 years, including extension options that the Company is reasonably certain will be exercised. For the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2019, operating lease cost totaled ~~$147.~~$188 and $335, respectively.

The table below summarizes other information related to our operating leases:


	Three Months Ended March 31, 2019			Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	136		$	273
ROU assets obtained in exchange for lease liabilities	$	3,719		$	4,612
Weighted average remaining lease term—operating leases, in years		12.10			10.65
Weighted average discount rate—operating leases		3.29	%		3.07	%

The following table outlines lease payment obligations as outlined in the Company’s lease agreements for each of the next five years and thereafter in addition to a reconcilement to the Company’s current lease liability.


2019	$	410		$	384
2020		530			742
2021		531			715
2022		496			635
2023		352			445
Thereafter		2,239			2,232

Total lease payments		4,558			5,153
Less imputed interest		(942	)		(930	)

	$	3,616		$	4,223

As of ~~March 31,~~June 30, 2019, , the Company ~~had not~~ entered into ~~any material leases that have not yet commenced.~~two new lease arrangements. The combined lease ROU assets and related lease liabilities were respectively, $893.

8. Fair value estimates:

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

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument. Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

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

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

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

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

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

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of assets and liabilities measured at fair value on a recurring basis:

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

Assets and liabilities measured at fair value on a recurring basis at ~~March 31,~~June 30, 2019 and December 31, 2018 are summarized as follows:

   Fair Value Measurement Using
March 31, 2019
   Amount    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)    Significant
Other Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
State and Municipals:

Taxable
   $ 30,443       $ 30,443
Tax-exempt
   7,668       7,668
Mortgage-backed securities:

U.S. Government agencies
   27,282       27,282
U.S. Government-sponsored enterprises
   26,430       26,430
Corporate debt obligations
   8,861                            8,861








Total
   $ 100,684       $ 100,684


	Fair Value Measurement Using
June 30, 2019	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
State and Municipals:
Taxable	$	31,333		$	31,333
Tax-exempt		5,434			5,434
Mortgage-backed securities:
U.S. Government agencies		29,115			29,115
U.S. Government-sponsored enterprises		25,337			25,337
Corporate debt obligations		9,035			9,035

Total	$	100,254		$	100,254


	Fair Value Measurement Using
December 31, 2018	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
State and municipals:
Taxable	$	33,278		$	33,278
Tax-exempt		12,776			12,776
Mortgage-backed securities:
U.S. Government agencies		23,670			23,670
U.S. Government-sponsored enterprises		26,195			26,195
Corporate debt obligations		8,758			8,758

Total	$	104,677		$	104,677

Other real estate owned: Assets acquired through loan foreclosure are recorded at fair value less costs to sell, with any difference between the fair value of the property and the carrying value of the loan recorded as acharge-off. If the fair value is higher than the carrying amount of the loan, the excess is recognized first as a recovery and then as noninterest income. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in noninterest expense. The carrying value of other real estate owned is notre-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value differs from the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. The Company classifies other real estate owned in level 3 of the fair value hierarchy.

Impaired loans: The fair value of impaired loans is specifically reviewed for purposes of determining the appropriate amount of impairment to be allocated to the ALLL. Fair value is generally measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed third-party appraiser (Level 3). The value of business equipment is based on an outside appraisal, if deemed significant, or the net book value on the applicable borrower financial statements. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Impaired loans are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan and lease losses on the Consolidated Statements of Income (Loss).

Assets and liabilities measured at fair value on a nonrecurring basis at ~~March 31,~~June 30, 2019 and December 31, 2018 are summarized as follows:

   Fair Value Measurement Using
March 31, 2019
   Amount    (Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets    (Level 2)
Significant
Other
Observable
Inputs    (Level 3)
Significant
Unobservable
Inputs
Other real estate owned
   $ 461          $ 461
Impaired loans, net of related allowance
   1,169                                        1,169








Total
   $ 1,630          $ 1,630








   Fair Value Measurement Using
December 31, 2018
   Amount    (Level 1)
Quoted Prices
in Active
Markets for
Identical
Assets    (Level 2)
Significant
Other
Observable
Inputs    (Level 3)
Significant
Unobservable
Inputs
Other real estate owned
   $ 721          $ 721
Impaired loans, net of related allowance
   1,476          1,476








Total
   $ 2,197          $ 2,197


	Fair Value Measurement Using
June 30, 2019	Amount		(Level 1) Quoted Prices in Active Markets for Identical Assets	(Level 2) Significant Other Observable Inputs	(Level 3) Significant Unobservable Inputs
Other real estate owned	$	86			$	86
Impaired loans, net of related allowance		1,080				1,080

Total	$	1,166			$	1,166


	Fair Value Measurement Using
December 31, 2018	Amount		(Level 1) Quoted Prices in Active Markets for Identical Assets	(Level 2) Significant Other Observable Inputs	(Level 3) Significant Unobservable Inputs
Other real estate owned	$	721			$	721
Impaired loans, net of related allowance		1,476				1,476

Total	$	2,197			$	2,197

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company utilized Level 3 inputs to determine fair value at ~~March 31,~~June 30, 2019 and December 31, 2018

Quantitative Information about Level 3 Fair Value Measurements

March 31, 2019

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

June 30, 2019

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Other real estate owned

461

Appraisal of collateral

Appraisal adjustments

8.0% to 69.0% (33.1)%

Appraisal of collateral

Appraisal adjustments

0.0% to 31.5% (31.1)%

Liquidation expenses

7.0% to 7.0% (7.0)%

Liquidation expenses

0.0% to 10.0% (7.6)%

Impaired loans

1,169

Appraisal of collateral

Appraisal adjustments

0.0% to 0.0% (0.0)%

1,080

Appraisal of collateral

Appraisal adjustments

0.0% to 10.0% (1.9)%

Liquidation expenses

6.0% to 25.0% (12.3)%

Liquidation expenses

0.0% to 25.0% (11.2)%

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2018

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Other real estate owned

721

Appraisal of collateral

Appraisal adjustments

0.0% to 69.0% (28.4)%

721

Appraisal of collateral

Appraisal adjustments

0.0% to 69.0% (28.4)%

Liquidation expenses

0.0% to 7.0% (7.0)%

Liquidation expenses

0.0% to 7.0% (7.0)%

Impaired loans

1,476

Appraisal of collateral

Appraisal adjustments

0.0% to 0.0% (0.0)%

1,476

Appraisal of collateral

Appraisal adjustments

0.0% to 0.0% (0.0)%

Liquidation expenses

7.0% to 25.0% (10.3)%

Liquidation expenses

7.0% to 25.0% (10.3)%

The carrying and fair values of the Company’s financial instruments at ~~March 31,~~June 30, 2019 and December 31, 2018 and their placement within the fair value hierarchy are as follows:

      Fair Value Hierarchy
March 31, 2019
   Carrying
Amount    Fair Value    Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
Financial assets:

Cash and cash equivalents
   $ 68,101    $ 68,101    $ 68,101
Investment securities
   100,684    100,684       $ 100,684
Loans held for sale
   695    695       695
Net loans ⁽¹⁾
   871,584    857,801          $ 857,801
Accrued interest receivable
   3,018    3,018       737    2,281
Financial liabilities:

Deposits
   $ 1,001,029    $ 998,430       $ 998,430
Long-term debt
   6,912    6,912       6,912
Accrued interest payable
   475    475       475
      Fair Value Hierarchy
December 31, 2018
   Carrying
Amount    Fair Value    Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
Financial assets:

Cash and cash equivalents
   $ 53,816    $ 53,816    $ 53,816
Investment securitiesavailable-for-sale
   104,677    104,677       $ 104,677
Loans held for sale
   637    637       637
Net loans ⁽¹⁾
   886,836    872,455          $ 872,455
Accrued interest receivable
   3,010    3,010       663    2,347
Financial liabilities:

Deposits
   $ 1,004,593    $ 999,929       $ 999,929
Long-term debt
   6,892    6,892       6,892
Accrued interest payable
   484    484       484


			Fair Value Hierarchy
June 30, 2019	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	40,975	$	40,975	$	40,975
Investment securities		100,254		100,254			$	100,254
Loans held for sale		170		170				170
Net loans⁽¹⁾		882,303		868,262					$	868,262
Accrued interest receivable		2,870		2,870				549		2,321
Financial liabilities:
Deposits	$	979,700	$	980,040			$	980,040
Long-term debt		6,932		6,932				6,932
Accrued interest payable		445		445				445

			Fair Value Hierarchy
December 31, 2018	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	53,816	$	53,816	$	53,816
Investment securitiesavailable-for-sale		104,677		104,677			$	104,677
Loans held for sale		637		637				637
Net loans⁽¹⁾		886,836		872,455					$	872,455
Accrued interest receivable		3,010		3,010				663		2,347
Financial liabilities:
Deposits	$	1,004,593	$	999,929			$	999,929
Long-term debt		6,892		6,892				6,892
Accrued interest payable		484		484				484

⁽¹⁾	The carrying amount is net of unearned income and the allowance for loan losses in accordance with the adoption of ASUNo. 2016-01 where the fair value of loans as of ~~March 31,~~June 30, 2019 and December 31, 2018 was measured using an exit price notion.

Note 9. Revenue recognition:

On January 1, 2018, the Company adopted ASUNo. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and other fees. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streamsin-scope of Topic 606 are discussed below.

Service Charges, Fees and Commissions

Service charges on deposit accounts consist of monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. Such income is presented net of network expenses as the Company acts as an agent in these transactions. ATM fees are primarily generated when a Company cardholder uses anon-Company ATM, or anon-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Other noninterest income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, investment advisor fees from wealth management products, ~~safety~~safe deposit box rental fees, and other miscellaneous revenue streams. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees or trailers from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. Investment advisor fees from wealth management products is earned over time and based on an annual percentage rate of the net asset value. The investment advisor fees are charged to the customer’s account in advance on the first month of the quarter, and the revenue is recognized over the following three-month period. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Trust and Asset Management

Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon themonth-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

The following presents noninterest income, segregated by revenue streamsin-scope andout-of-scope of Topic 606, for the three and six months ended ~~March 31,~~June 30, 2019 and 2018.


March 31,	2019		2018
					Three Months Ended				Six Months Ended
June 30,					2019		2018		2019		2018
Noninterest Income:
In-scope of Topic 606:
Service charges, fees and commissions	$	1,053	$	1,228	$	1,315	$	1,651	$	2,368	$	2,879
Trust and asset management		507		364		517		454		1,024		818

Noninterest income(in-scope of Topic 606)		1,560		1,592		1,832		2,105		3,392		3,697
Noninterest income(out-of-scope of Topic 606)		251		361		294		428		545		789

Total noninterest income	$	1,811	$	1,953	$	2,126	$	2,533	$	3,937	$	4,486

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration, resulting in a contract receivable, or before payment is due, resulting in a contract asset. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standardmonth-end revenue accruals such as asset management fees based onmonth-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of ~~March 31,~~June 30, 2019 and December 31, 2018, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained, for example, sales commission. The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

Riverview Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

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

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report onForm 10-K for the year ended December 31, 2018.

Cautionary Note Regarding Forward-Looking Statements:

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

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

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

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

Critical Accounting Policies:

Disclosure of our significant accounting policies are included in Note 1 to the consolidated financial statements of the Annual Report onForm 10-K for the year ended December 31, 2018. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in Note 1 to the consolidated financial statements in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 14, 2019.

Operating Environment:

Growth increased in the first quarter of 2019 from 2.2% recorded in the fourth quarter of 2018, reflecting positive contributions from personal consumption expenditures, private inventory investment, exports, state and local government spending and nonresidential fixed investment. TheEconomic growth measured as gross domestic product (“GDP”), the value of all goods and services produced in the United States, increased at an annualized rate of ~~3.2%~~2.1% in the second quarter of 2019. This represents a decrease from 3.1% recorded in the first quarter of ~~2019.~~2019, reflecting negative contributions from business investment, exports, and both residential and nonresidential investment, but was partially offset by increases in personal consumption expenditures and government spending. The consumer price index for the last 12 months rose ~~1.9%~~1.6% ending ~~March 31,~~June 30, 2019. Excluding the food and energy components, core consumer price index increased ~~2.0%~~2.1% over the latest twelve months, ~~which~~

~~equaled~~slightly above the Federal Open Market Committee (“FOMC”) inflation benchmark of 2.0%. ~~Based on previous trends of higher inflation followed by current trends toward price stability and slower growth,~~On July 31, 2019 the FOMC ~~held~~lowered the federal funds target rate range ~~on March 20, 2019 at~~by 25 basis points to a range of 2.00% to 2.25% ~~to 2.50%. The FOMC is expected to hold course on rate changes until there are more indications regarding future~~, citing global risk and soft business spending as the catalyst for the decision, while also acknowledging strength in the labor market and moderate growth in economic activity. Signals are mixed in regard to future rate changes. Accordingly, additional interest rate ~~increases~~decreases may have an adverse impact on our ~~loan growth, asset quality and fund costs.~~net interest margin.

Review of Financial Position:

Total assets ~~increased $1,109~~decreased $17,405 to ~~$1,138,712~~$1,120,198 at ~~March 31,~~June 30, 2019, from $1,137,603 at December 31, 2018. Loans, net, decreased to ~~$878,070~~$889,305 at ~~March 31,~~June 30, 2019, compared to $893,184 at December 31, 2018, a decrease of ~~$15,114.~~$3,879. Business lending, including commercial and commercial real estate loans, decreased ~~$11,542,~~$2,119, retail lending, including residential mortgages and consumer loans, decreased ~~$7,307,~~$11,182, while construction lending ~~increase $3,735~~increased $9,422 during the ~~three~~six months ended ~~March 31,~~June 30, 2019. Investment securities decreased ~~$3,993,~~$4,423, or ~~3.8%~~4.2%, in the ~~three~~six months ended ~~March 31,~~June 30, 2019. Noninterest-bearing deposits ~~increased $2,306,~~decreased $2,167, while interest-bearing deposits decreased ~~$5,870 in~~$22,726 during the ~~three~~six months ended ~~March 31,~~June 30, 2019. Total stockholders’ equity ~~decreased $420,~~increased $1,768, or ~~0.4%~~1.6%, to ~~$113,490~~$115,678 at ~~March 31,~~June 30, 2019 from $113,910 atyear-end 2018. For the ~~three~~six months ended ~~March 31,~~June 30, 2019, total assets averaged ~~$1,129,650,~~$1,128,258, a decrease of ~~$33,592~~$30,554 from ~~$1,163,242~~$1,158,812 for the same period in 2018.

Investment Portfolio:

The Company’s entire investment portfolio is held asavailable-for-sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. Investment securitiesavailable-for-sale totaled ~~$100,684~~$100,254 at ~~March 31,~~June 30, 2019, a decrease of ~~$3,993,~~$4,423, or ~~3.8%~~4.2%, from $104,677 at December 31, 2018. The decrease was a result of payments, prepayments, and sales onof investments, partially offset by ~~$7,647~~$10,485 securities acquired induring the ~~three~~six months ended ~~March 31,~~June 30, 2019.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019, the investment portfolio averaged ~~$108,256,~~$105,179, an increase of ~~$15,468,~~$12,865, compared to ~~$92,788~~$92,314 for the same period last year. Thetax-equivalent yield on the investment portfolio increased to 3.10% for the ~~three~~six months ended ~~March 31,~~June 30, 2019, from ~~2.74%~~2.78% for the comparable period of 2018. Thetax-equivalent yield on the investment portfolio for the ~~first~~second quarter of 2019 increased 11one basis ~~points~~point to ~~3.10%~~3.11% from ~~2.99%~~3.10% for the ~~fourth~~first quarter of ~~2018.~~2019.

Securitiesavailable-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. We reported a net unrealized holding ~~loss,~~gain, included as a separate component of stockholders’ equity of ~~$884,~~$646, net of deferred income taxes of ~~$234 at March 31, 2019, and~~$172 June 30, 2019. This compares with a net unrealized holding loss of $1,725, net of deferred income taxes of $458, at December 31, 2018. The ~~decrease in the net~~change from an unrealized holding loss to an unrealized holding gain was a result of reductions in general market rates.

Loan Portfolio:

Loans, net, decreased to ~~$878,070~~$889,305 at ~~March 31,~~June 30, 2019 from $893,184 at December 31, 2018, a decrease of ~~$15,114,~~$3,879, or ~~1.7%~~0.4%. Business loans, including commercial and commercial real estate loans, decreased ~~$11,542,~~$2,119, or ~~1.9%~~0.3%, to ~~$608,974~~$618,397 at ~~March 31,~~June 30, 2019 from $620,516 at December 31, 2018. Retail loans, including residential real estate and consumer loans, decreased ~~$7,307,~~$11,182, or ~~3.1%~~4.8%, to ~~$225,805~~$221,930 at ~~March 31,~~June 30, 2019 from $233,112 at December 31, 2018. Construction lending increased ~~$3,735~~$9,422, or ~~9.4%~~23.8%, to ~~43,291~~$48,978 at ~~March 31,~~June 30, 2019 from $39,556 at December 31, 2018. ~~Loan originations~~Net loan repayments in the first ~~three~~six months of 2019 represented a more moderate pace as compared to the same period of 2018. The reduction in loan growth was a result of management’s decision to focus on improving margins on loan originations through employing prudent pricing practices and maintaining strong underwriting standards.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019, loans, net averaged ~~$886,813,~~$887,431, a decrease of ~~$58,914~~$52,128 compared to ~~$945,727~~$939,559 for the same period ofin 2018. Thetax-equivalent yield on the loan portfolio was ~~5.02%~~5.22% for the ~~three~~six months ended ~~March 31,~~June 30, 2019, a 36six basis point ~~decrease~~increase from the comparable period last year. Loan accretion included in loan interest income in the first ~~three~~six months of 2019 related to acquired loans was ~~$439.~~$1,495. Thetax-equivalent yield on the loan portfolio ~~decreased 49~~increased 39 basis points during the ~~first~~second quarter of 2019 to ~~5.02%~~5.41% from ~~5.51%~~5.02% in the ~~fourth~~first quarter of ~~2018.~~2019. The primary cause offor the ~~decrease~~increase in thetax-equivalent yield was ~~the realization of lower~~primarily due to accretion on ~~purchased loans.~~purchase loans with $1,056 realized in the second quarter of 2019 versus $439 for first quarter of 2019.

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

Off-balance sheet commitments at ~~March 31,~~June 30, 2019, totaled ~~$139,086,~~$179,115, consisting of ~~$71,867~~$98,651 in commitments to extend credit, ~~$61,488~~$74,498 in unused portions of lines of credit and ~~$5,731~~$5,966 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison,off-balance sheet commitments, at December 31, 2018, totaled $161,732, consisting of $96,431 in commitments to extend credit, $59,512 in unused portions of lines of credit and $5,789 in standby letters of credit.

Asset Quality:

National, Pennsylvania and market area unemployment rates at ~~March 31,~~June 30, 2019 and 2018 are summarized as follows:


	2019			2018			2019			2018
United States		3.8	%		4.0	%		3.7	%		4.0	%
Pennsylvania		3.9	%		4.4	%		4.0	%		4.6	%
Berks County		4.1	%		4.3	%		3.8	%		4.5	%
Blair County		4.2	%		4.3	%		3.5	%		4.8	%
Centre County		3.1	%		3.1	%		3.0	%		3.9	%
Clearfield County		5.5	%		5.7	%		3.9	%		5.1	%
Cumberland County								3.0	%		3.8	%
Dauphin County		3.7	%		4.0	%		3.5	%		4.4	%
Huntingdon County		6.4	%		6.3	%		4.2	%		5.2	%
Lebanon County		3.7	%		3.8	%		3.3	%		4.1	%
Lehigh County								4.0	%		4.9	%
Lycoming County		5.0	%		5.5	%		4.0	%		4.9	%
Northumberland County		5.8	%		5.8	%		4.7	%		5.1	%
Perry County		3.8	%		3.9	%		3.0	%		4.1	%
Schuylkill County		5.4	%		5.5	%		4.5	%		5.4	%
Somerset County		5.8	%		6.1	%		4.0	%		5.2	%

Employment conditions in 2019 improved for the United States, ~~and~~the Commonwealth of Pennsylvania, and ~~either improved or remained the same~~ for all of the ~~Counties~~counties in which we have branch ~~locations with the exception of Huntingdon County.~~locations. The average unemployment rate for all of our ~~Counties~~counties improved to ~~4.7%~~3.7% in 2019 from ~~4.9%~~4.7% in 2018. The lowest unemployment rate in 2019 for all the ~~Counties~~counties we serve was ~~3.1%~~3.0% which was in Perry County, Centre County ~~with~~and Cumberland County and the highest recorded rate being ~~6.4%~~4.7% in ~~Huntingdon~~Northumberland County. An increase in unemployment rates may have a negative impact on economic growth within these areas and could have a corresponding effect on our business by decreasing loan demand and weakening asset quality.

Our asset quality improved in the ~~three~~six months ended ~~March 31,~~June 30, 2019. Nonperforming assets decreased ~~$1,245,~~$2,184, or ~~17.3%~~30.3%, to ~~$5,957~~$5,018 at ~~March 31,~~June 30, 2019, from $7,202 at December 31, 2018. We experienced decreases in nonaccrual loans, other real estate owned, accruing loans past due 90 days or more and accruing restructured loans. As a percentage of loans, net and foreclosed assets, nonperforming assets equaled ~~0.68%~~0.56% at ~~March 31,~~June 30, 2019 compared to 0.81% at December 31, 2018.

Loans on nonaccrual status decreased ~~$86~~$564 to ~~$2,643~~$2,165 at ~~March 31,~~June 30, 2019 from $2,729 at December 31, 2018. The decrease in nonaccrual loans was due to decreases of ~~$300~~$366 in commercial loans, ~~partially offset by increases of $79~~$8 in commercial real estate loans and ~~$135~~$190 in residential real estate loans. Accruing troubled debt restructured loans declined ~~$182,~~$198, to ~~$2,731~~$2,715 at ~~March 31,~~June 30, 2019 from $2,913 at December 31, 2018. Accruing loans past due 90 days or more decreased ~~$717,~~$787, while other real estate owned decreased ~~$260~~$635 during the ~~three~~six months ended ~~March 31,~~June 30, 2019.

Nonperforming assets decreased ~~$2,467~~$3,371 to ~~$5,957~~$5,018 at ~~March 31,~~June 30, 2019 from ~~$8,424~~$8,389 at ~~March 31,~~June 30, 2018. Decreases in accruing troubled debt restructured loans, ~~and~~ accruing loans past due 90 days or more and other real estate owned were partially offset by ~~increases~~a slight increase in nonaccrual ~~loans and other real estate owned.~~loans.

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

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred loan losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses is based on past events and current economic conditions. We employ the Federal Financial Institutions Examination Council Interagency Policy Statement, as amended, and GAAP in assessing the adequacy of the allowance account. Under GAAP, the adequacy of the allowance account is determined based on the provisions of FASB Accounting Standards

Codification (“ASC”) 310, “Receivables”, for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, “Contingencies”, for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.

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

The allowance for loan losses increased ~~$138~~$654 to ~~$6,486~~$7,002 at ~~March 31,~~June 30, 2019, from $6,348 at the end of 2018. The increase in the allowance was a result of the provision for loan losses of ~~$583~~$1,201 for the first ~~three~~six months of 2019 exceeding net charge-offs for the period. For the ~~three~~six months ended ~~March 31,~~June 30, net charge-offs were ~~$445~~$547, or ~~0.20%~~0.12%, of average loans outstanding in 2019 compared to ~~$181,~~$295, or ~~0.08%~~0.06%, of average loans outstanding for the same period in 2018.

Deposits:

We attract the majority of our deposits from within our ~~twelve-county~~14-county market area by offering various deposit products including demand deposit accounts, NOW accounts, business checking accounts, money market deposit accounts, savings accounts, club accounts and time deposits, including certificates of deposit and IRA’s. For the ~~three~~six months ended ~~March 31,~~June 30, 2019, total deposits decreased to ~~$1,001,029~~$979,700 from $1,004,593 at December 31, 2018. Noninterest-bearing transaction accounts ~~increased $2,306,~~decreased $2,167, while interest-bearing transaction accounts decreased ~~$3,926~~$13,913 and time deposits decreased ~~$1,944~~$8,813 in the ~~three~~six months ended ~~March 31,~~June 30, 2019.

For the ~~three~~six months ended ~~March 31,~~June 30, interest-bearing deposits averaged ~~$835,687~~$832,327 in 2019 compared to ~~$875,985~~$864,925 in 2018. The cost of interest-bearing deposits was 1.01% in 2019 compared to ~~0.72%~~0.76% in 2018. The cost of interest-bearing deposits increased ~~six~~one basis ~~points~~point comparing the ~~first~~second quarter of 2019 with the ~~fourth~~first quarter of ~~2018.~~2019. Corresponding with recent FOMC actions, interest rates have increased from historic lows that existed for an extended period. All deposit rates have increased, ~~and as such,~~although we anticipate ~~further increases~~a general stagnation in ~~our cost of deposits.~~rates based on the most recent indications by the FOMC.

Borrowings:

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

Short-term borrowings are generally used to meet temporary funding needs and consist of federal funds purchased, securities sold under agreements to repurchase, and overnight and short-term borrowings from the Atlantic Community Bankers Bank (“ACBB”), Pacific Community Bankers Bank and the FHLB. At ~~March 31,~~June 30, 2019 and December 31, 2018, we did not have any short-term borrowings outstanding. For the ~~three~~six months ended ~~March 31,~~June 30, we did not utilize short-term borrowings in 2019, while short-term borrowings ~~averages $7,297~~averaged $3,628 in 2018. The average cost of short-term borrowings was 1.67% in the ~~three~~six months ended ~~March 31,~~June 30, 2018.

Long-term debt totaled ~~$6,912~~$6,932 at ~~March 31,~~June 30, 2019 as compared to $6,892 at December 31, 2018. For the ~~three~~six months ended ~~March 31,~~June 30, long-term debt averaged ~~$6,902~~$6,912 in 2019 and ~~$13,205~~$13,164 in 2018. The reduction in the average balance was due to the paydown of $6,085 in borrowings in December of 2018. The average cost of long-term debt was ~~7.87%~~7.73% in the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~5.41%~~5.64% for the same period last year.

Market Risk Sensitivity:

Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”) associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities andoff-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves,

change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

As a result of FOMC actions not to ~~raise~~lower short-term interest rates at a time when the yield curve is inverted, it has become challenging to manage IRR. IRR and effectively managing it are very important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by the Board of Directors and senior management, which involves a comprehensive risk management process in order to effectively identify, measure, monitor and control

risk. Should bank regulatory agencies identify a material weakness in a bank’s risk management process or high-risk exposure relative to capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of a bank’s risk management process is a determining factor when evaluating capital adequacy.

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

Our cumulativeone-year RSA/RSL ratio equaled ~~1.66~~1.58 at ~~March 31,~~June 30, 2019. Given the recent ~~actions~~posture of the FOMC and the potential for rates to ~~increase~~decrease in the future, the focus of ALCO has been to ~~maintain a positive static gap position.~~lower our exposure to the effect of repricing assets.

The current position at ~~March 31,~~June 30, 2019, indicates that the amount of RSA repricing within one year would exceed that of RSL, ~~thereby~~with declining rates causing ~~increases~~a decrease in ~~market rates, to increase~~ net interest income. However, these forward-looking statements are qualified in the aforementioned section entitled “Forward-Looking Discussion” in this Management’s Discussion and Analysis.

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

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. ~~Model results at March 31, 2019, produced similar results from those indicated by theone-year~~ ~~static gap position.~~ Given an instantaneous and parallel shift in interest rates of plus and minus 100 basis points, our projected net interest income for the 12 months ending ~~March 31, 2019,~~June 30, 2020, would increase ~~5.2%~~4.77% and decrease 6.49% from model results using current interest rates. We will continue to monitor our IRR through employing deposit and loan pricing strategies and directing the reinvestment of loan and investment repayments in order to manage our IRR position.

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

Liquidity:

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

Funding new and existing loan commitments;

Payment of deposits on demand or at their contractual maturity;

Repayment of borrowings as they mature;

Payment of lease obligations; and

Payment of operating expenses.

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

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

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after ~~March 31,~~June 30, 2019. Our noncore funds at ~~March 31,~~June 30, 2019, were comprised of time deposits in denominations of $250 or more and other borrowings. These funds are not considered to be a strong source of liquidity since they are very interest rate sensitive and are considered to be highly volatile. At ~~March 31,~~June 30, 2019, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was ~~(1.89)%~~0.97%, while our net short-term noncore funding ratio, noncore funds maturing withinone-year, less short-term investments to assets equaled ~~1.72%~~1.61%. Comparatively, our net noncore dependence ratio ~~improved fromyear-end~~ ~~2018 when it~~ was 0.65%~~. Similarly,~~ while our net short-term noncore funding ratio was 1.73% at~~year-end,~~year-end. ~~indicating that~~Comparative to peer levels our reliance on short-term noncore funds ~~decreased slightly fromyear-end~~ ~~2018.~~remains low.

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, ~~increased $14,285~~decreased $12,841 during the ~~three~~six months ended ~~March 31,~~June 30, 2019. Cash and cash equivalents increased ~~$34,063~~$10,834 for the same period last year. For the ~~three~~six months ended ~~March 31,~~June 30, 2019, we realized net cash ~~outflows~~inflows of ~~$1,237~~$1,920 and ~~$4,118~~$11,442 from operating and ~~financing~~investing activities, ~~respectively,~~ and net cash ~~inflows~~outflows of ~~$19,640~~$26,203 from ~~investing~~financing activities. For the same period of 2018, we recognized net cash inflows of ~~$1,224~~$4,259 from operating activities ~~$26,603~~and $22,070 from investing activities, ~~and $6,236~~offset by net cash outflows of $15,495 from financing activities.

Operating activities ~~used~~provided net cash of ~~$1,237~~$1,920 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 compared to providing ~~$1,224~~$4,259 for the same period last year. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation, amortization and the provision for loan losses, is the primary source of funds from operations.

Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities provided net cash of ~~$19,640~~$11,442 for the ~~three~~six months ended ~~March 31,~~June 30, 2019. For the comparable period in 2018, investing activities provided net cash of ~~$26,603.~~$22,070. For the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018, payments and prepayments on loans exceeding loan originations was the primary factor causing the net cash inflow from investing ~~activities~~activities. Additional positive cash flow was generated in the investment portfolio by proceeds from repayments and sales being greater than purchases.

Financing activities utilized net cash of ~~$4,118~~$26,203 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~provided $6,236~~$15,495 for the same period last year. Deposit gathering is a predominant financing activity. ~~During~~However, during the ~~three~~six months ended ~~March 31, 2019~~June 30, deposits decreased ~~$3,564~~$24,893 in 2019 and ~~increased $12,125 for the same period~~$8,758 in 2018. The payment of a cash dividends of ~~$915~~$1,832 also impacted net cash from financing activities in 2019. The repayment of short-term borrowings of $6,000 inincreased the amount of the net cash utilized from financing activities for the first ~~quarter~~six months of ~~2018 partially offset the increase in net cash from deposit activities.~~2018.

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

Capital:

Stockholders’ equity totaled ~~$113,490,~~$115,678, or ~~$12.40~~$12.62 per common share, at ~~March 31,~~June 30, 2019, and $113,910, or $12.49 per common share, at December 31, 2018. The net ~~decrease~~increase in stockholders’ equity in the ~~three~~six months ended ~~March 31,~~June 30, 2019 was a result of the recognition of net ~~loss~~income of ~~$687 and the payout of cash dividends of $915, partially offset by~~$747, the issuance of common stock tothrough Riverview’s ESPP, 401k and dividend reinvestment plans of ~~$175,~~$316, the issuance of common stock related to the stock options exercised of $166 and the recognition of a change in other comprehensive income of ~~$841.~~$2,371, offset by the payout of cash dividends of $1,832.

Bank regulatory agencies consider capital to be a significant factor in ensuring the safety of a depositor’s accounts. These agencies have adopted minimum capital adequacy requirements that include mandatory and discretionary supervisory actions for noncompliance.

The Bank’s capital ratios and the minimum ratios required for capital adequacy purposes and to be considered well capitalized under the prompt corrective action provisions are summarized below for the periods ended ~~March 31,~~June 30, 2019 and December 31, 2018:


	Actual					Minimum Regulatory Capital Ratios under Basel III (with 2.5% capital conservation buffer phase-in)					Well Capitalized under Basel III					Actual					Minimum Regulatory Capital Ratios under Basel III (with 2.5% capital conservation buffer phase-in)					Well Capitalized under Basel III
March 31, 2019:	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2019:																Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)	$	99,185		11.4	%	$	91,021	³	10.50	%	$	86,687	³	10.0	%	$	100,597		11.36	%	$	92,971	³	10.50	%	$	88,544	³	10.00	%
Tier 1 capital (to risk-weighted assets)		92,626		10.7			73,684	³	8.50			69,350	³	8.0			93,522		10.56			75,262	³	8.50			70,835	³	8.00
Common equity tier 1 risk-based capital (to risk-weighted assets)		92,626		10.7			60,681	³	7.00			56,347	³	6.5			93,522		10.56			61,980	³	7.00			57,553	³	6.50
Tier 1 capital (to average total assets)		92,626		8.4			44,114	³	4.00			55,143	³	5.0			93,522		8.51			43,975	³	4.00			54,969	³	5.00

	Actual					Minimum Regulatory Capital Ratios under Basel III (with 1.875% capital conservation buffer phase-in)					Well Capitalized under Basel III					Actual					Minimum Regulatory Capital Ratios under Basel III (with 1.875% capital conservation buffer phase-in)					Well Capitalized under Basel III
December 31, 2018:	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)	$	100,001		11.4	%	$	86,443	³	9.875	%	$	87,538	³	10.0	%	$	100,001		11.42	%	$	86,443	³	9.875	%	$	87,538	³	10.00	%
Tier 1 capital (to risk-weighted assets)		93,580		10.7			68,936	³	7.875			70,030	³	8.0			93,580		10.69			68,936	³	7.875			70,030	³	8.00
Common equity tier 1 risk-based capital (to risk-weighted assets)		93,580		10.7			55,805	³	6.375			56,900	³	6.5			93,580		10.69			55,805	³	6.375			56,900	³	6.50
Tier 1 capital (to average total assets)		93,580		8.4			44,733	³	4.000			55,916	³	5.0			93,580		8.37			44,733	³	4.000			55,916	³	5.00

Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized at ~~March 31,~~June 30, 2019 and December 31, 2018. There are no conditions or negative events since this notification that we believe have changed the Bank’s category.

Review of Financial Performance:

We reported a net ~~loss~~income of ~~$687,~~$747, or ~~$(0.08)~~$0.08 per basic and diluted weighted average common share, for the ~~three~~six months ended ~~March 31,~~June 30, 2019, compared to net income of ~~$2,811,~~$5,598, or ~~$0.31~~$0.62 per basic and diluted weighted average common share, for the comparable period of 2018. The return on average assets and return on average stockholders’ equity were ~~(0.25)%~~0.13% and ~~(2.46)%~~1.32% for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The reduction in net income recognized in 2019 was ~~directly~~primarily attributable to recording apre-tax expense of $2,218 related to ana nonrecurring executive separation of service agreement charge and $456 of severance expense payable to employees that either retired or were separated from service due to branch network consolidations. In addition, in 2019 we recognized $1,118 less of accretion on acquired loans as compared to 2018 and recorded reduced interest income ~~related~~relating to lower loan ~~levels.~~volumes. The decline in loan volumes was largely due to merger related attrition, including payoffs on acquired purchase credit impaired loans, and steadfast adherence to both credit quality underwriting standards and prudent pricing discipline.

Net Interest Income:

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

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

Changes in general market rates; and

The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more

comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-bearing liabilities.Tax-exempt loans and investments carrypre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable,tax-exempt income and yields are reported herein on atax-equivalent basis using the prevailing federal statutory tax rate of 21% in 2019 and ~~21% in 2018.~~2018, respectively.

For the ~~three~~six months ended ~~March 31,~~June 30,tax-equivalent net interest income decreased ~~$1,663~~$1,274 to ~~$9,830~~$20,583 in 2019 from ~~$11,493~~$21,857 in 2018. The decrease intax-equivalent net interest income was primarily attributable to a net decline in average loans of ~~$58,914.~~$52,128. Overall, average earning assets decreased ~~$21,181~~$12,142 less than the decline in average interest-bearing liabilities in comparing the first ~~quarters~~six months of 2019 ~~and~~with 2018. Thetax-equivalent net interest margin for the ~~three~~six months ended ~~March 31,~~June 30, was ~~3.86%~~4.03% in 2019 compared to ~~4.38%~~4.16% in 2018. The net interest spread decreased to ~~3.67%~~3.83% for the ~~three~~six months ended ~~March 31,~~June 30, 2019 from ~~4.25%~~4.02% for the ~~three~~six months ended ~~March 31,~~June 30, 2018. Loan accretion included in loan interest income in the first ~~quarter~~half of 2019 related to loans acquired from mergers was ~~$439~~$1,495 resulting in an increase in thetax-equivalent loan interest yield of 2034 basis points. For the same period in 2018 loan accretion income was ~~$1,873,~~$2,613, resulting in an increase in thetax-equivalent loan interest yield of 8156 basis points.

For the ~~three~~six months ended ~~March 31,~~June 30, 2019,tax-equivalent interest income decreased ~~$1,216,~~$512, to ~~$12,037~~$25,020 from ~~$13,253~~$25,532 for the ~~three~~six months ended ~~March 31,~~June 30, 2018. A negative volume variance in interest income of ~~$706~~$1,553 attributable to changes in the average balance of earning assets was ~~further magnified~~offset by a ~~$510 unfavorable~~$1,041 favorable rate variance due to ~~reductions in the yield~~increased yields on earning assets. Specifically, the decrease in interest income was primarily due to a reduction in average earning assets, which decreased ~~$32,717~~$30,336 to ~~$1,032,022~~$1,029,476 for the first ~~quarter~~six months of 2019 from ~~$1,064,739~~$1,059,812 for the same period in 2018. The overall yield on earning assets, on a fullytax-equivalent basis, increased for the ~~three~~six months ended ~~March 31,~~June 30, 2019 to ~~4.73%~~4.90% as compared to ~~5.05%~~4.86% for the ~~three~~six months ended ~~March 31,~~June 30, 2018. This ~~decrease~~increase was a result of the impact of ~~the lower accretion of purchase accounting marks from previous merger activity.~~increased yields on all interest earning assets. Average loans decreased ~~$58,914~~$52,128 comparing the first ~~quarters~~six months of 2019 and 2018, which caused the decrease intax-equivalent interest ~~income to decrease $799. The~~income. However, thetax-equivalent yield on the loan portfolio ~~was 5.02%~~increased to 5.22% for the ~~three~~six months ended ~~March 31,~~June 30, 2019 compared to ~~5.38%~~5.16% for the same period last year. ~~This decrease caused~~The increased yield was more than offset by a ~~negative impact on~~decline in loan volume causingtax-equivalent loan interest income ~~of $759~~to decline $1,107 comparing the ~~three~~six months ended ~~March 31,~~June 30, 2019 and ~~2018. Thetax-equivalent~~ ~~yield excluding loan accretion from acquired loans would have been 4.82% in the first three months of 2019 as compared to 4.57% for the first three months of~~ 2018. The yield earned on investments increased 3632 basis points for the first ~~quarter~~half of 2019 to 3.10% from ~~2.74%~~2.78% for the first ~~quarter~~half of 2018 and resulted in highertax-equivalent interest income of ~~$157.~~$222. Average investments increased to ~~$108,256~~$105,179 for the ~~quarter~~six months ended ~~March 31,~~June 30, 2019 compared to ~~$92,788~~$92,314 for the same period in ~~2018 resulting in an increase intax-equivalent~~ ~~interest income of $43.~~2018. Overalltax-equivalent interest earned on investments was ~~$827~~$1,619 for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2019 compared to ~~$627~~$1,271 for the same period in 2018.

Total interest expense increased ~~$447~~$762 to ~~$2,207~~$4,437 for the ~~three~~six months ended ~~March 31,~~June 30, 2019 from ~~$1,760~~$3,675 for the ~~three~~six months ended ~~March 31,~~June 30, 2018. AWhile there was a favorable volume variance, an unfavorable rate variance caused interest expenses to ~~decrease $554, while an unfavorable rate variance resulted~~increase more as the cost of funds grew to 1.07% in ~~a $1,001 increase~~2019 from 0.84% in ~~fund costs.~~2018. The average volume of interest-bearing liabilities decreased to ~~$842,589~~$839,239 for the ~~three~~six months ended ~~March 31,~~June 30, 2019, from ~~$896,487~~$881,717 for the ~~three~~six months ended ~~March 31,~~June 30, 2018. Average interest-bearing deposits decreased ~~$40,298~~$32,598 to ~~$835,687~~$832,327 for the first ~~quarter~~half of 2019 from ~~$875,985~~$864,925 for the same period last year. The cost of interest-bearing deposits increased 2925 basis points when comparing the first six months of 2019 and 2018.

For the three months ended June 30,tax-equivalent net interest income increased $389 to $10,753 in 2019 from $10,364 in 2018. The increase intax-equivalent net interest income was primarily attributable to an improvement in the tax equivalent net interest margin. Average earning assets declined $3,204 less than the decline in average interest-bearing liabilities comparing the second quarters of 2019 and 2018. The ~~total cost of funds increased to 1.06%~~tax-equivalent net interest margin for the three months ended ~~March 31,~~June 30, was 4.20% in 2019 compared to 3.94% in 2018. The net interest spread increased to 4.00% for the three months ended June 30, 2019 from 3.78% for the three months ended June 30, 2018. Loan accretion included in loan interest income in the second quarter of 2019 related to acquired loans was $1,056, resulting in an increase in thetax-equivalent net interest margin of 30 basis points.

For the three months ended June 30,tax-equivalent interest income increased $704, to $12,983 in 2019 from $12,279 in 2018. A rate variance in interest income of $3,510 was attributable to an improvement in the yield on earning assets. The overall yield on earning assets, on a fullytax-equivalent basis, increased for the three months ended June 30, 2019 to 5.07% as compared to ~~0.80%~~4.67% for the three months ended June 30, 2018. This improvement was a result of the combined impact of higher interest rates and the effects of accretion on purchased loans. Average loans decreased $45,416 comparing the second quarters of 2019 and 2018. Thetax-equivalent yield on the loan portfolio was 5.41% for the three months ended June 30, 2019 compared to 4.95% for the same period last year resulting in an increase of $451 intax-equivalent interest income. The yield earned on investments increased 30 basis points for the second quarter of 2019 to 3.11% from 2.81% for the second quarter of 2018. This coupled with average investments increasing to $102,135 for the quarter ended June 30, 2019 compared to $91,845 for the same period in 2018, resulted in an increase intax-equivalent interest income of $148. Overalltax-equivalent interest earned on investments was $792 for the three-month period ended June 30, 2019 compared to $644 for the same period in 2018.

Total interest expense increased $315 to $2,230 for the three months ended June 30, 2019 from $1,915 for the three months ended June 30, 2018. An unfavorable rate variance partially offset by a favorable volume variance caused interest expenses to increase. The average volume of interest bearing liabilities decreased to $835,925 for the three months ended June 30, 2019, from $867,110 for the three months ended June 30, 2018. Average interest-bearing deposits decreased $24,983 to $829,003 for the second quarter of 2019 from $853,986 for the same period last year. The cost of funds increased to 1.07% for the three months ended June 30, 2019 as compared to 0.89% for the same period in 2018.

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


	Three months ended														Six months ended
	March 31, 2019							March 31, 2018							June 30, 2019							June 30, 2018
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
Assets:
Earning assets:
Loans
Taxable	$	851,515	$	10,688		5.09	%	$	908,574	$	12,241		5.46	%	$	852,427	$	22,368		5.29	%	$	902,798	$	23,467		5.24	%
Tax exempt		35,298		291		3.34	%		37,153		296		3.23	%		35,004		586		3.38	%		36,761		594		3.26	%
Investments
Taxable		97,041		740		3.09	%		76,952		523		2.76	%		96,305		1,472		3.08	%		77,007		1,065		2.79	%
Tax exempt		11,215		87		3.15	%		15,836		104		2.66	%		8,874		147		3.34	%		15,307		206		2.71	%
Interest bearing deposits		36,953		231		2.54	%		23,607		79		1.36	%		36,866		447		2.45	%		25,347		180		1.43	%
Federal funds sold									2,617		10		1.55	%									2,592		20		1.56	%

Total earning assets		1,032,022		12,037		4.73	%		1,064,739		13,253		5.05	%		1,029,476		25,020		4.90	%		1,059,812		25,532		4.86	%
Less: allowance for loan losses		6,377							6,474							6,457							6,483
Other assets		104,005							104,977							105,239							105,483

Total assets	$	1,129,650						$	1,163,242						$	1,128,258						$	1,158,812

Liabilities and Stockholders’ Equity:
Interest bearing liabilities:
Money market accounts	$	113,602	$	293		1.05	%	$	131,678	$	269		0.83	%	$	113,159	$	566		1.01	%	$	121,988	$	527		0.87	%
NOW accounts		281,052		505		0.73	%		246,762		347		0.57	%		276,036		978		0.71	%		262,185		738		0.57	%
Savings accounts		129,259		30		0.09	%		188,358		32		0.07	%		131,797		66		0.10	%		165,467		66		0.08	%
Time deposits		311,774		1,245		1.62	%		309,187		906		1.19	%		311,335		2,562		1.66	%		315,285		1,946		1.24	%
Short term borrowings									7,297		30		1.67	%									3,628		30		1.67	%
Long-term debt		6,902		134		7.87	%		13,205		176		5.41	%		6,912		265		7.73	%		13,164		368		5.64	%

Total interest bearing liabilities		842,589		2,207		1.06	%		896,487		1,760		0.80	%
Non-interest bearing demand deposits		156,735							149,123
Total interest-bearing liabilities																839,239		4,437		1.07	%		881,717		3,675		0.84	%
Non-interest-bearing demand deposits																157,908							158,024
Other liabilities		17,006							9,996							16,975							10,287
Stockholders’ equity		113,320							107,636							114,136							108,784

Total liabilities and stockholders’ equity	$	1,129,650						$	1,163,242						$	1,128,258						$	1,158,812

Net interest income/spread			$	9,830		3.67	%			$	11,493		4.25	%			$	20,583		3.83	%			$	21,857		4.02	%

Net interest margin						3.86	%						4.38	%						4.03	%						4.16	%
Tax-equivalent adjustments:
Loans			$	61						$	62						$	123						$	125
Investments				18							22							31							43

Total adjustments			$	79						$	84						$	154						$	168

Provision for Loan Losses:

We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of ~~March 31,~~June 30, 2019.

The provision for loan losses totaled ~~$583~~$1,201 for the ~~three~~six months ended ~~March 31,~~June 30, 2019, compared to $390 ~~for the same period~~ in 2018. The increase in the provision for loan losses in 2019 was due to ~~recognition of net charge-offs and~~increasing qualitative factors related to changes in ~~local~~ economic conditions. For the quarter ended June 30, the provision for loan losses was $618 in 2019 compared to no provision for the same period in 2018.

Noninterest Income:

For the ~~quarter~~six months ended ~~March 31,~~June 30, noninterest income totaled ~~$1,811~~$3,937 in 2019, a decrease of ~~$142~~$549 from ~~$1,953~~$4,486 in 2018. The overall reduction was primarily driven by decreases in service charges, fees and commission of ~~$175, and~~$511, mortgage banking income of ~~$64.~~$153, and life insurance investment income of $9. Service charge income experienced a decrease in NSF and overdraft income, while mortgage banking income decreased due to lower ~~volume caused by higher mortgage~~ origination ~~rates and normal seasonal stagnation.~~volume. Positive increases were made in both trust and wealth management as income for the first ~~quarter~~half of 2019 increased by ~~$50~~$96 and ~~$93,~~$110, respectively, when compared against the first ~~quarter~~six months of 2018. Additionally, net losses on the sale of investment securities of $42 were recognized in the first ~~quarter~~half of 2019 in order to dispose of certain investments with low yields and higher risk characteristics. This compares with a $40 net gain on the sale of investment securities recorded during the first six months of 2018.

For the quarter ended June 30, noninterest income totaled $2,126 in 2019, a decrease of $407 from $2,533 in 2018. The decrease in noninterest income for the quarter was due primarily to decreases in services charges, fees and commissions of $336, mortgage banking income of $89 and bank owned life insurance investment income of $5, offset by increases in wealth management income of $46 and trust income of $17. Also adding to the decrease for the quarter ended June 30 was a $40 gain from the sale of investment securities recorded in 2018 as compared with no gain recorded in 2019.

Noninterest Expenses:

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

Noninterest expense increased ~~$2,428,~~$3,504, or ~~25.5%~~18.5%, to ~~$11,964~~$22,448 for the ~~three~~six months ended ~~March 31,~~June 30, 2019, from ~~$9,536~~$18,944 for the same period last year. The majority of this increase ~~relates~~is attributable to expenses related to an executive separation of service ~~agreement.~~agreement and contractual payments due to retirements and severance. The net cost of operation of other real estate owned was ~~$127~~$35 for the first ~~quarter~~half of 2019 versus ~~a credit of~~ $1 infor the ~~first quarter of~~same period in 2018 as the Company continues to reduce its holdings in other real estate owned. Other expenses increased ~~$172,~~$727, or ~~6.0%~~12.5% to ~~$3,044~~$6,552 for the first ~~quarter~~six months of 2019 from ~~$2,872~~$5,825 for the same period last year. Offsets to the overall increase in noninterest expense were realized through reduced costs in net occupancy and equipment of ~~$33,~~$1, and in the amortization expense of intangible assets of ~~$27~~$53 when comparing the first ~~quarter~~six months of 2019 to the first six months of 2018.

For the three months ended June 30, 2019, noninterest expense increased $1,076, to $10,484 from $9,408 for the same period last year. Salaries and employee benefit expense was $5,830 for the quarter ended June 30, 2019, an increase of $609 over the same period in 2018 and was caused by recognizing a nonrecurring expense of $456 for retirement and severance payments associate with staff eliminations related to planned branch closures. For the second quarter, other expenses increased to $3,508 in 2019 from $2,953 in 2018.

Income Taxes:

We recorded an income tax benefit of ~~$298~~$30 for the six months ended June 30, 2019 as compared to a tax expense of $1,243 for the six months ended June 30, 2018. For the three months ended ~~March 31, 2019, and income~~June 30, we recorded a tax expense of ~~$625 for the three months ended March 31,~~$268 in 2019 as compared with $618 in 2018.

Riverview Financial Corporation

Item 3. Quantitative And Qualitative Disclosures about Market Risk

Not applicable to a smaller reporting company.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At ~~March 31,~~June 30, 2019, the end of the period covered by this Quarterly Report on Form10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined inRule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at ~~March 31,~~June 30, 2019, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control.

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

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not required for smaller reporting companies.

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

None.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits.

The following Exhibits are incorporated by reference hereto:


31.1		Section 302 Certification of the Chief Executive Officer (Pursuant to Rule13a-14(a)/15d-14(a)).

31.2		Section 302 Certification of the Chief Financial Officer (Pursuant to Rule13a-14(a)/15d-14(a)).

32.1		Chief Executive Officer’s §1350 Certification (Pursuant to Rule13a-14(b)/15d-14(b)).

32.2		Chief Financial Officer’s §1350 Certification (Pursuant to Rule13a-14(b)/15d-14(b)).

101		Interactive Data File (XBRL).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



By:		/s/ Brett D. Fulk
		Brett D. Fulk
		President and Chief Executive Officer
		(Principal Executive Officer)



Date:				~~May 9,~~ August 8, 2019



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



Date:				~~May 9,~~ August 8, 2019

3839

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company