UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form

10-Q

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

for the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐	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 pursuant to Rule 405 of Regulation

S-T

during the preceding 12 months or for such shorter period that the registrant was required to submit such

files.

Yes

☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, ~~or a~~ smaller reporting company, ~~as defined~~or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒☐

Non-accelerated filer	☐☒	Smaller reporting company	☒


		Emerging growth company	☐

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

Act. ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule

12b-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: ~~9,281,015~~9,350,961 at ~~October~~

April 29,

~~, 2020.~~ 2021.

Riverview Financial Corporation

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands, except per share data)


	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Assets:
Cash and due from banks	$	10,646		$	11,838		$	9,496		$	13,511
Interest-bearing deposits in other banks		21,312			38,510			53,668			36,270
Investment securities available-for-sale		98,846			91,247			155,863			103,695
Loans held for sale		4,547			81			2,502			4,338
Loans, net		1,163,442			852,109			1,091,824			1,139,239
Less: allowance for loan losses		11,624			7,516			12,140			12,200

Net loans		1,151,818			844,593			1,079,684			1,127,039
Premises and equipment, net		18,419			17,852			17,991			18,147
Accrued interest receivable		3,218			2,414			4,189			4,216
Goodwill					24,754
Intangible assets		2,227			2,736			1,786			1,918
Other assets		45,739			45,929			49,661			48,420

Total assets	$	1,356,772		$	1,079,954		$	1,374,840		$	1,357,554

Liabilities:
Deposits:
Noninterest-bearing	$	178,168		$	147,405		$	197,360		$	173,600
Interest-bearing		853,145			793,075			883,568			841,860

Total deposits		1,031,313			940,480			1,080,928			1,015,460
Short-term borrowings
Long-term debt		217,031			6,971			180,644			228,765
Accrued interest payable		591			435			1,347			1,038
Other liabilities		12,413			13,958			13,298			14,859

Total liabilities		1,261,348			961,844			1,276,217			1,260,122

Stockholders’ equity:
Common stock: 0 par value, authorized 20,000,000 shares; September 30, 2020, issued and outstanding 9,279,503 shares; December 31, 2019, issued and outstanding 9,216,616 shares		102,672			102,206
Common stock: 0 par value, authorized 20,000,000 shares; March 31, 2021, issued and outstanding 9,348,831 shares; December 31, 2020, issued and outstanding 9,306,442 shares								102,861			102,662
Capital surplus		190			112			292			292
Retained earnings (accumulated deficit)		(8,040	)		16,140			(3,397	)		(6,457	)
Accumulated other comprehensive income (loss)		602			(348	)		(1,133	)		935

Total stockholders’ equity		95,424			118,110			98,623			97,432

Total liabilities and stockholders’ equity	$	1,356,772		$	1,079,954		$	1,374,840		$	1,357,554

See notes to consolidated financial statements.

Riverview Financial Corporation

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

(Dollars in thousands, except per share data)


	Three Months Ended					Nine Months Ended
September 30,	2020		2019			2020			2019
For the three months ended March 31,												2021			2020
Interest income:
Interest and fees on loans:
Taxable	$	11,265	$	12,283		$	31,649		$	34,651		$	10,348		$	9,782
Tax-exempt		223		259			704			722			176			245
Interest and dividends on investment securities available-for-sale:
Interest on investment securities available-for-sale:
Taxable		360		641			1,291			2,113			494			535
Tax-exempt		71		43			176			159			152			37
Interest on interest-bearing deposits in other banks		11		200			112			647			9			89

Total interest income		11,930		13,426			33,932			38,292			11,179			10,688

Interest expense:
Interest on deposits		1,200		2,027			4,384			6,199			923			1,789
Interest on short-term borrowings							28									5
Interest on long-term debt		304		127			652			392			646			123

Total interest expense		1,504		2,154			5,064			6,591			1,569			1,917

Net interest income		10,426		11,272			28,868			31,701			9,610			8,771
Provision for loan losses		1,844		1,049			5,656			2,250						1,800

Net interest income after provision for loan losses		8,582		10,223			23,212			29,451			9,610			6,971

Noninterest income:
Service charges, fees and commissions		1,099		1,129			3,491			3,497			1,474			1,381
Commission and fees on fiduciary activities		246		314			669			855			260			213
Wealth management income		220		226			636			709			214			220
Mortgage banking income		401		151			900			357			151			108
Bank owned life insurance investment income		192		193			578			574			178			193
Net gain (loss) on sale of investment securities available-for-sale				(53	)		815			(95	)		246			815

Total noninterest income		2,158		1,960			7,089			5,897			2,523			2,930

Noninterest expense:
Salaries and employee benefits expense		5,411		5,232			15,452			18,572			4,467			5,056
Net occupancy and equipment expense		1,428		1,041			3,676			3,174			1,190			1,180
Amortization of intangible assets		170		194			509			582			132			170
Goodwill impairment							24,754
Net cost (benefit) of operation of other real estate owned		51		(15	)		40			20			(29	)		(11	)
Other expenses		2,918		2,979			8,713			9,531			2,627			2,817

Total noninterest expense		9,978		9,431			53,144			31,879			8,387			9,212

Income (loss) before income taxes		762		2,752			(22,843	)		3,469
Income tax expense (benefit)		67		486			(49	)		456
Income before income taxes													3,746			689
Income tax expense													686			56

Net income (loss)		695		2,266			(22,794	)		3,013
Net income													3,060			633

Other comprehensive income (loss):
Unrealized (gain) loss on investment securities available-for-sale		114		(256	)		2,007			2,703
Reclassification adjustment for net (gain) loss on sale of investment securities available-for-sale included in net income (loss)				53			(815	)		95
Net change in derivative fair value		49					11

Other comprehensive income (loss)		163		(203	)		1,203			2,798
Unrealized gain (loss) on investment securities available-for-sale												$	(3,029	)	$	1,053
Reclassification adjustment for net gain on sale of investment securities available-for-sale included in net income													(246	)		(815	)
Change in cash flow hedge													657
Income tax expense (benefit) related to other comprehensive income		35		(42	)		253			588			(550	)		50

Other comprehensive income (loss), net of income taxes		128		(161	)		950			2,210			(2,068	)		188

Comprehensive income (loss)	$	823	$	2,105		$	(21,844	)	$	5,223
Comprehensive income												$	992		$	821

Per share data:
Net income (loss):
Net income:
Basic	$	0.08	$	0.25		$	(2.46	)	$	0.33		$	0.33		$	0.07
Diluted	$	0.08	$	0.25		$	(2.46	)	$	0.33		$	0.33		$	0.07
Average common shares outstanding:
Basic		9,273,666		9,173,901			9,248,856			9,159,281			9,341,291			9,223,445
Diluted		9,273,666		9,181,076			9,248,856			9,172,015			9,341,533			9,233,060
Dividends declared												$	0.00		$	0.08

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

For the nine months ended September 30,

Common
Stock

Capital
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance, January 1, 2020
   $ 102,206    $ 112 $ 16,140 $ (348 ) $ 118,110
Net income
(loss)
      (22,794 ) (22,794 )
Other comprehensive income
(loss)
,
net of income taxes
      950 950
Issuance under ESPP, 401k and Dividend Reinvestment plans: 62,887 shares
   466    466
Stock based compensation
      78 78
Dividends declared, $0.15 per share
      (1,386 ) (1,386 )




Balance, September 30, 2020
   $ 102,672    $ 190 $ (8,040 ) $ 602 $ 95,424




Balance, January 1, 2019
   $ 101,134    $ 332 $ 15,063 $ (2,619 ) $ 113,910
Net income
(loss)
      3,013 3,013
Other comprehensive income (loss), net of income taxes
      2,210 2,210
Issuance under ESPP, 401k and Dividend Reinvestment plans: 42,518 shares
   474    474
Exercise of stock options: 18,492 shares
   199    (32 ) 167
Dividends declared, $0.28 per shares
      (2,519 ) (2,519 )




Balance, September 30, 2019
   $ 101,807    $ 300 $ 15,557 $ (409 ) $ 117,255




For the three months ended September 30,

Common
Stock

Capital
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance, July 1, 2020
   $ 102,552    $ 161 $ (8,735 ) $ 474 $ 94,452
Net income
(loss)
      695 695
Other comprehensive income
(loss)
,
net of income taxes
      128 128
Issuance under ESPP, 401k and Dividend Reinvestment plans: 15,806 shares
   120    120
Stock based compensation
      29 29
Dividends declared, $0.00 per share





Balance, September 30, 2020
   $ 102,672    $ 190 $ (8,040 ) $ 602 $ 95,424




Balance, July 1, 2019
   $ 101,644    $ 304 $ 13,978 $ (248 ) $ 115,678
Net income
(loss)
      2,266 2,266
Other comprehensive income (loss), net of income taxes
      (161 ) (161 )
Issuance under ESPP, 401k and Dividend Reinvestment plans: 14,534 shares
   159    159
Exercise of stock options: 361 shares
   4    (4 )
Dividends declared, $0.08 per shares
      (687 ) (687 )




Balance, September 30, 2019
   $ 101,807    $ 300 $ 15,557 $ (409 ) $ 117,255


	Common Stock		Capital Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2021	$	102,662	$	292	$	(6,457	)	$	935		$	97,432
Net income						3,060						3,060
Other comprehensive income, net of income taxes									(2,068	)		(2,068	)
Issuance under ESPP, 401k and Dividend Reinvestment plans		134										134
Stock based compensation		65										65
Dividends declared, $0.00 per share

Balance, March 31, 2021	$	102,861	$	292	$	(3,397	)	$	(1,133	)	$	98,623

Balance, January 1, 2020 shares	$	102,206	$	112	$	16,140		$	(348	)	$	118,110
Net income						633						633
Other comprehensive income, net of income taxes									188			188
Issuance under ESPP, 401k and Dividend Reinvestment plans		180										180
Stock based compensation				22								22
Dividends declared, $0.08 per share						(692	)					(692	)

Balance, March 31, 2020	$	102,386	$	134	$	16,081		$	(160	)	$	118,441

See notes to consolidated financial statements.

Riverview Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)


For the Nine Months Ended September 30,	2020			2019
For the Three Months Ended March 31,							2021			2020
Cash flows from operating activities:
Net income (loss)	$	(22,794	)	$	3,013
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income							$	3,060		$	633
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment		952			874			340			320
Provision for loan losses		5,656			2,250						1,800
Stock based compensation		78						65			22
Net amortization of investment securities available-for-sale		559			576			411			169
Net cost (benefit) of operation of other real estate owned		40			20			(29	)		(11	)
Net (gain) loss on sale of investment securities available-for-sale		(815	)		95
Amortization of purchase adjustment on loans		(592	)		(2,868	)
Net gain on sale of investment securities available-for-sale								(246	)		(815	)
Accretion of purchase adjustment on loans								(22	)		(132	)
Amortization of intangible assets		509			582			132			170
Amortization of assumed discount on long-term debt		63			59			22			21
Impairment of goodwill		24,754
Amortization of long-term debt issuance costs								25
Deferred income taxes		(779	)		273			391			53
Proceeds from sale of loans originated for sale		26,921			10,335			5,928			2,791
Net gain on sale of loans originated for sale		(900	)		(357	)		(151	)		(108	)
Loans originated for sale		(30,487	)		(9,677	)		(3,941	)		(2,874	)
Bank owned life insurance investment income		(578	)		(574	)		(178	)		(193	)
Net change in:
Accrued interest receivable		(804	)		259			27			(175	)
Other assets		2,107			(1,651	)		(435	)		(2	)
Accrued interest payable		156			(52	)		309			(11	)
Other liabilities		(1,545	)		(715	)		(1,561	)		(1,275	)

Net cash provided by (used in) operating activities		2,501			2,442
Net cash provided operating activities								4,147			383

Cash flows from investing activities:
Investment securities available-for-sale:
Purchases		(42,151	)		(32,058	)		(68,371	)		(7,317	)
Proceeds from repayments		8,832			12,458			2,865			3,878
Proceeds from sales		27,168			19,767			9,898			27,168
Proceeds from the sale of other real estate owned		355			728			232			68
Net (increase) decrease in restricted equity securities		(837	)		(12	)		(15	)		(867	)
Net (increase) decrease in loans		(312,627	)		10,931			47,377			(36,594	)
Purchases of premises and equipment		(1,519	)		(1,321	)		(184	)		(1,343	)
Premium paid on bank owned life insurance		(22	)		(22	)

Net cash provided by (used in) investing activities		(320,801	)		10,471
Net cash used in investing activities								(8,198	)		(15,007	)

Cash flows from financing activities:
Net increase (decrease) in deposits		90,833			(35,010	)
Net increase in deposits								65,468			18,023
Repayment of long-term debt								(48,168	)
Proceeds from long-term debt		209,997									20,000
Issuance under ESPP, 401k and DRP plans		466			474			134			180
Proceeds from exercise of stock options					167
Cash dividends paid		(1,386	)		(2,519	)					(692	)

Net cash provided by (used in) financing activities		299,910			(36,888	)
Net cash provided by financing activities								17,434			37,511

Net increase in cash and cash equivalents		(18,390	)		(23,975	)		13,383			22,887
Cash and cash equivalents—beginning		50,348			53,816			49,781			50,348

Cash and cash equivalents—ending	$	31,958		$	29,841		$	63,164		$	73,235

Supplemental disclosures:
Cash paid during the period for:
Interest	$	4,908		$	6,643		$	1,260		$	1,928

Noncash items from operating activities:
Operating lease right-of-use assets and liabilities				$	4,529

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

Supplemental schedule of noncash investing and financing activities:
Other real estate acquired in settlement of loans	$	338		$	114		$			$	321

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 ~~twenty seven (27) full service~~25

full-service offices and ~~three~~

3 (3)

limited purpose offices, is a full service commercial bank offering a wide range of traditional banking services and financial advisory, insurance and investment services to individuals, municipalities, and

small-to-medium

sized businesses in the Pennsylvania market areas of Berks, Blair, Bucks, Centre, Clearfield, ~~Cumberland,~~ Dauphin, Huntingdon, Lebanon, Lehigh, Lycoming, Perry, Schuylkill, and Somerset Counties. The Wealth and Trust Management divisions of the Bank provide trust and investment advisory services to the general public and businesses.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP’) for interim financial information and with the instructions to

Form 10-Q

and Article 8 of

Regulation 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 with the current year’s presentation. These reclassifications did not have any effect on the operating results or financial position of the Company. The condensed consolidated balance sheet at December 31, ~~2019~~2020 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 ~~2019~~2020 Annual Report on

Form 10-K,

filed on March ~~16, 2020.~~11, 2021.

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.

The operating results and financial position of the Company for the three ~~and nine~~ months ended as of ~~September 30, 2020,~~March 31, 2021, are not necessarily indicative of the results of operations and financial position that may be expected in the future. This is especially true given the outbreak of the Coronavirus

(“COVID-19”)

pandemic which may adversely affect the Company’s business results of operations and financial condition for an indefinite period.

~~Beginning in the first quarter of 2020, the~~

~~COVID-19~~

~~pandemic caused disruption in economic and social activity, both globally and in the United States. The spread of~~

~~COVID-19~~

and the related government actions to mandate or encourage quarantines and social distancing, have caused severe disruptions in the U.S. economy, which has and will likely continue to disrupt the business, activities, and operations of our customers, as well as our own business and operations.

~~The national public health crisis arising from the~~

~~COVID-19~~

~~pandemic and public expectations about it, combined with certain~~

~~pre-existing~~

factors, including, but not limited to, international trade disputes, inflation risks, and oil price volatility, could further destabilize the financial markets and the markets in which Riverview operates. The resulting impacts of the pandemic on consumers, including the sudden significant increase in the unemployment rate, is expected to cause changes in consumer and business spending, borrowing needs and saving habits, which will likely affect the demand for loans and other products and services Riverview offers, as well as the creditworthiness of potential and current borrowers. The significant decrease in commercial activity associated with the pandemic, both nationally and in Riverview’s markets, may cause customers, vendors, and counterparties to be unable to meet existing payments or other obligations to Riverview and the Bank.

Riverview’s business is dependent upon the willingness and ability of its customers to conduct banking and other financial transactions. Riverview expects the pandemic to limit, at least for a period of time, customer demand for many banking activities. Many companies and residents in our market area are subject to mandatory

~~“non-essential~~

~~business” shut-downs and “stay at home” orders, which have reduced banking activity across our market area. In response to these mandates, Riverview has temporarily limited~~

~~some~~

~~locations to~~

~~drive-up~~

~~and ATM services, with lobby access available by appointment only, reduced hours of operation at some~~

~~Table of Contents~~

locations and encouraged our customers to use electronic banking platforms. We expect these measures to remain in place for an undetermined period of time. In addition, the use of quarantines and social distancing methods to curtail the spread of

~~COVID-19~~

—whether mandated by governmental authorities or recommended as a public health practice — may adversely affect Riverview’s operations as key personnel, employees and customers avoid physical interaction. The continued spread of

~~COVID-19~~

could also negatively impact the business and operations of third-party service providers who perform critical services for Riverview’s business. It is not yet known what impact these operational changes may have on Riverview’s financial performance.

~~There continues to be broad concerns related to the potential effects of the~~

~~COVID-19~~

pandemic. The pandemic continues to have an adverse effect on, among other things, (i) our ability to attract customer deposits, (ii) the ability of our borrowers to satisfy their obligations to us, (iii) the demand for our loans or our other products and services and/or (iv) unemployment rates, financial markets, real estate markets or economic growth.

~~The outbreak of~~

~~COVID-19~~

has significantly affected the financial markets and has resulted in a number of responses by the U.S. government, including a reduction in interest rates by the Federal Reserve. These reductions in interest rates, especially if prolonged, could adversely affect our net interest income, margins and our profitability.

~~The~~

~~COVID-19~~

pandemic and its impact on the economy heighten the risks related to economic conditions in our market areas, interest rates, loan losses and reliance on our executives and third-party service providers. For example, borrower loan defaults that adversely affect Riverview’s earnings correlate with deteriorating economic conditions, which in turn, may impact borrowers’ creditworthiness. If our borrowers are unable to meet their payment obligations to us, we will be required to increase our allowance for the losses through provisions for credit losses. In addition, loan programs adopted by the federal government, such as the Paycheck Protection Program (“PPP”), while intended to lessen the impact of the pandemic on businesses, may result in a decreased demand for Riverview’s loan products.

The impact of the pandemic on Riverview’s financial results is evolving and uncertain. ~~The Company expects its net~~Net interest income and

non-interest

income ~~to decline~~may decrease, and credit-related losses tomay increase ~~for an uncertain period given~~in the ~~decline in~~future if economic activity ~~occurring~~slows due to

~~COVID-19~~COVID-19.

~~and the actions by the Federal Reserve with respect to interest rates.~~ We believe that we may experience a material adverse effect on our business, results of operations and financial condition as a result of the

COVID-19

pandemic for an indefinite period. Material adverse impacts may include all or a combination of valuation impairments on Riverview’s intangible assets, investments, loans, or deferred taxes.

~~The Company determined a triggering event occurred as a result of the onset of the~~

~~COVID-19~~

pandemic causing management to evaluate goodwill for impairment as of June 30, 2020. The result of the quantitative testing concluded that the Company recognized an impairment charge of $24,754 at June 30, 2020. The impairment expense is a noncash charge and has no impact on tangible book value, regulatory capital ratios, liquidity and the Company’s cash balances. It is uncertain whether a prolonged effect of the

~~COVID-19~~

~~pandemic will result in future impairment charges related to intangible assets, long-lived assets, right of use assets or available for sale investment securities.~~

Accounting Standards Adopted in ~~2020~~2021

In August ~~2016,~~2018, the FASB issued ASU

No. ~~2016-15,~~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

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 adoption of ~~Cash Flows (Topic 230): Classification~~the guidance did not have a material effect on the Company’s financial position, results of ~~Certain Cash Receipts~~operations or disclosures.

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In December 2019, the FASB issued ASU

No. 2019-12,

“Income Taxes”, an update to simplify the accounting for income taxes by removing certain exceptions in Topic 740 Income Taxes. In addition, ASU

No. 2019-12

improves consistent application of other areas of guidance within Topic 740 by clarifying and ~~Cash Payments”.~~amending existing guidance. The ~~update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This accounting~~new guidance ~~became~~is effective ~~on January 1,~~fiscal years beginning after December 15, 2020. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations or disclosures.

~~In January 2017, the FASB issued ASU~~

~~No. 2017-04,~~

“Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of the new guidance on January 1, 2020 did not have a material effect on the Company’s financial position, results of operations or disclosures.

~~In August 2018, the FASB issued ASU~~

~~2018-13,~~

“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this Update improve the effectiveness of fair value measurement disclosures by modifying the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The ASU became effective on January 1, 2020. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations or disclosures.

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~~In August 2018, the FASB issued ASU~~

~~No. 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 obtaining

~~internal-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 to

~~internal-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 became effective on January 1, 2020. The adoption of the guidance did not have a material effect on the Company’s financial position, results of operations or disclosures.

Recent Accounting Standards

In June 2016, the FASB issued ASU

No. 2016-13,

“Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU No.

2016-13 requires

an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. ASU

No. 2016-13

also requires new disclosures for financial assets measured at amortized cost, loans, and

available-for-sale

debt securities. In November 2018, the FASB issued ASU No.

2018-19—Codification

Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments clarify that receivables arising from operating leases are not within the scope of Subtopic

326-20.

Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. In May 2019, the FASB issued ASU

No. 2019-05

“Financial Instruments-Credit Losses (Topic 326)-Targeted Transition Relief” which amends ASU

No. 2016-13

to allow companies to irrevocably elect, upon adoption of ASU No,

2016-13,

the fair value option on financial instruments that were previously recorded at amortized cost and are within the scope of ASC

326-20

if the instruments are eligible for the fair value option under ASC

825-10.

The fair value option election does not apply to

held-to-maturity

debt securities. Entities are required to make this election on an

instrument-by-instrument

basis. In November 2019, the FASB issued ASU

No. 2019-11,

“Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, which provides specific improvements and clarifications to the guidance in Topic 326. Addresses expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, financial assets secured by collateral maintenance provisions, and conforming cross-references to Subtopic

805-20.

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 any

day-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~~allowance for credit losses (“ACL”) 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 October 2019, the FASB affirmed its previously proposed amendment 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 a

one-time

cumulative effect adjustment to increase the ~~ALLL~~ACL with an offsetting reduction to the retained earnings component of equity.

~~In August 2018, the FASB issued ASU~~

~~No. 2018-14,~~

~~“Compensation—Retirement Benefits—Defined Benefit Plans—General~~

~~(Subtopic 715-20)~~

~~— Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans”.~~

~~Subtopic 715-20~~

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

~~In December 2019, the FASB issued ASU~~

~~No. 2019-12,~~

~~“Income Taxes”, an update to simplify the accounting for income taxes by removing certain exceptions in Topic 740 Income Taxes. In addition, ASU~~

~~No. 2019-12~~

improves consistent application of other areas of guidance within Topic 740 by clarifying and amending existing guidance. The new guidance is effective fiscal years beginning after December 15, 2020. The adoption of the new guidance is not expected to have a material effect on the Company’s financial position, results of operations or disclosures.

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In March 2020, the FASB issued ASU

No. 2020-04,

“Reference Rate Reform (Topic 848)”. In response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The amendments in this Update provide optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. ASU

2020-04

provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU

2020-04

also provides numerous optional expedients for derivative accounting. ASU

2020-04

is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU

2020-04

for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. WeIn

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January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are ~~evaluating~~affected by the ~~impacts~~discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of ~~this~~the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and ~~have~~generally can be applied through December 31, 2022. The adoption of the guidance is not ~~yet determined whether LIBOR transition and this ASU will~~expected to have a material effect on ~~our business~~the Company’s financial position, results of operations ~~and consolidated financial statements.~~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 securities

available-for-sale

and benefit plan and derivative adjustments.

The components of accumulated other comprehensive income (loss) included in stockholders’ equity at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is as follows:

September 30,
2020

December 31,
2019

Net unrealized
gain (
loss
)
on investment securities
available-for-sale
   $ 1,868    $ 676
Income tax expense
   392    142




Net of income taxes
   1,476    534




Benefit plan adjustments
   (1,117 )    (1,117 )
Income tax benefit
   (235 )    (235 )




Net of income taxes
   (882 )    (882 )




Derivative fair value adjustment
   11
Income tax benefit
   3




Net of income taxes
   8




Accumulated other comprehensive income (loss)
   $ 602    $ (348 )

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	March 31, 2021			December 31, 2020
Net unrealized gain (loss) on investment securities available-for-sale	$	(1,313	)	$	1,962
Income tax expense (benefit)		(276	)		412

Net of income taxes		(1,037	)		1,550

Benefit plan adjustments		(951	)		(951	)
Income tax expense (benefit)		(200	)		(200	)

Net of income taxes		(751	)		(751	)

Derivative fair value adjustment		829			172
Income tax expense (benefit)		174			36

Net of income taxes		655			136

Accumulated other comprehensive income (loss)	$	(1,133	)	$	935

Other comprehensive income (loss) and related tax effects for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ is as follows:

Three months ended September 30,

2020

2019

Unrealized gain (loss) on investment securities
available-for-sale
   $ 114    $ (256 )
Net (gain) loss on the sale of investment securities
available-for-sale
(1)
      53
Net change in derivative fair value
   49




Other comprehensive income (loss) before taxes
   163    (203 )
Income tax expense (benefit)
   35    (42 )




Other comprehensive income (loss)
   $ 128    $ (161 )

Nine months ended September 30,

2020

2019

Unrealized gain on investment securities
available-for-sale
   $ 2,007    $ 2,703
Net (gain) loss on the sale of investment securities
available-for-sale
(1)
   (815 )    95
Net change in derivative fair value
   11




Other comprehensive income before taxes
   1,203    2,798
Income tax expense
   253    588




Other comprehensive income
   $ 950    $ 2,210


Three months ended March 31,	2021			2020

Unrealized gain (loss) on investment securities available-for-sale	$	(3,029	)	$	1,053
Net (gain) loss on the sale of investment securities available-for-sale (1)		(246	)		(815	)
Net change in cash flow hedge		657

Other comprehensive income (loss) before taxes		(2,618	)		238
Income tax expense (benefit)		(550	)		50

Other comprehensive income (loss)	$	(2,068	)	$	188

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

3. Earnings per share:

Basic earnings per share is computed by dividing net income (loss) 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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three months ended September 30,

2020

2019

Numerator:

Net income
   $ 695    $ 2,266




Denominator:

Basic
   9,273,666    9,173,901
Dilutive options
      7,175




Diluted
   9,273,666    9,181,076




Earnings per share:

Basic
   $ 0.08    $ 0.25
Diluted
   $ 0.08    $ 0.25

Nine months ended September 30,

2020

2019

Numerator:

Net income (loss)
   $ (22,794 )    $ 3,013




Denominator:

Basic
   9,248,856    9,159,281
Dilutive options
      12,734




Diluted
   9,248,856    9,172,015




Earnings per share:

Basic
   $ (2.46 )    $ 0.33
Diluted
   $ (2.46 )    $ 0.33


Three months ended March 31,	2021		2020
Numerator:
Net income	$	3,060	$	633

Denominator:
Basic		9,341,291		9,223,445
Dilutive options		242		9,615

Diluted		9,341,533		9,233,060

Earnings per share:
Basic	$	0.33	$	0.07
Diluted	$	0.33	$	0.07

For the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 there were ~~172,964~~

151,300 outstanding

stock

options that were excluded from the dilutive earnings per share calculation because their effect was antidilutive. For the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, there were ~~59,350~~37,200 outstanding stock options that were excluded from the dilutive earnings per share calculation because their effect was antidilutive.

4. Investment securities:

The amortized cost and fair value of investment securities

available-for-sale

aggregated by investment category at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:


March 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	19,396			$	418	$	18,978
State and municipals:
Taxable		23,779	$	238		959		23,058
Tax-exempt		44,599		84		1,131		43,552
Mortgage-backed securities:
U.S. Government agencies		35,693		929		237		36,385
U.S. Government-sponsored enterprises		20,459		280		42		20,697
Corporate debt obligations		13,250		29		86		13,193

Total	$	157,176	$	1,560	$	2,873	$	155,863

September 30, 2020

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

State and municipals:

Taxable
   $ 20,483    $ 392    $ 34    $ 20,841
Tax-exempt
   20,523    358    44    20,837
Mortgage-backed securities:

U.S. Government agencies
   26,792    835       27,627
U.S. Government-sponsored enterprises
   23,180    505    20    23,665
Corporate debt obligations
   6,000    9    133    5,876








Total
   $ 96,978    $ 2,099    $ 231    $ 98,846


December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2020									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State and municipals:
Taxable	$	24,365	$	466	$	7	$	24,824	$	22,317	$	400	$	143	$	22,574
Tax-exempt		4,260		73				4,333		17,988		423		16		18,395
Mortgage-backed securities:
U.S. Government agencies		36,024		294		184		36,134		26,051		940				26,991
U.S. Government-sponsored enterprises		22,422		265		42		22,645		24,627		442		17		25,052
Corporate debt obligations		3,500				189		3,311		10,750		56		123		10,683

Total	$	90,571	$	1,098	$	422	$	91,247	$	101,733	$	2,261	$	299	$	103,695

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as

available-for-sale

at ~~September 30, 2020,~~March 31, 2021, is summarized as follows:


September 30, 2020	Fair Value
March 31, 2021			Fair Value
Within one year	$	543	$	56
After one but within five years		5,623		933
After five but within ten years		11,290		40,219
After ten years		30,099		57,573

		47,555		98,781
Mortgage-backed securities		51,291		57,082

Total	$	98,846	$	155,863

Securities with a fair value of ~~$68,604~~$99,013 and ~~$63,389~~$71,676 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, were pledged to secure public deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a

case-by-case

basis. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. Government agencies and sponsored enterprises that exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an other-than-temporary impairment (“OTTI”) has not been recognized at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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
September 30, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2021													Fair Value		Unrealized Losses		Fair Value	Unrealized Losses	Fair Value		Unrealized Losses
U.S. Treasury securities													$	18,978	$	418			$	18,978	$	418
State and municipals:
Taxable	$	6,082	$	33	$	280	$	1	$	6,362	$	34		16,261		959				16,261		959
Tax-exempt		9,040		44						9,040		44		39,131		1,131				39,131		1,131
Mortgage-backed securities:
U.S. Government agencies														10,182		237				10,182		237
U.S. Government-sponsored enterprises		5,312		20						5,312		20		5,758		42				5,758		42
Corporate debt obligations						3,367		133		3,367		133		6,664		86				6,664		86

Total	$	20,434	$	97	$	3,647	$	134	$	24,081	$	231	$	96,974	$	2,873			$	96,974	$	2,873


	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2020													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State and municipals:
Taxable	$	1,280	$	7	$		$		$	1,280	$	7	$	11,586	$	143	$		$		$	11,586	$	143
Tax-exempt														1,737		16						1,737		16
Mortgage-backed securities:
U.S. Government agencies		15,799		184						15,799		184		5,960		17						5.960		17
U.S. Government-sponsored enterprises						3,245		42		3,245		42
Corporate debt obligations						3,311		189		3,311		189						3,378		123		3,378		123

Total	$	17,079	$	191	$	6,556	$	231	$	23,635	$	422	$	19,283	$	176	$	3,378	$	123	$	22,661	$	299

The Company had 2266 investment securities, consisting of 5three U.S. Treasury securities, 15 taxable state and municipal obligations, 38

tax-exempt

~~13 tax-exempt~~ state and municipal obligations,

3 2 U.S. Government

~~-sponsored~~ agencies, 4 U.S. Government-sponsored enterprises

and 14 corporate debt obligation that were in unrealized loss positions at ~~September 30, 2020.~~March 31, 2021. Of these securities, ~~1 taxable~~

~~state and~~

~~municipal~~

~~obligations~~

~~and 1 corporate debt obligation~~none of the securities were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, resulting from changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is

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recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at ~~September 30, 2020.~~March 31, 2021. There was no OTTI recognized for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

The Company had 2216 investment securities, consisting of 29 taxable state ~~and~~ municipal obligations, 193

tax-exempt

state municipal obligations, 3 mortgage-backed securities and 1 corporate obligation that were in unrealized loss positions at December 31, ~~2019.~~2020. Of these securities, ~~4 mortgage-backed securities and 1~~one corporate obligation ~~were~~was in a continuous unrealized loss position for twelve months or more.

5. Loans, net

and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows. Net deferred

loan ~~fees~~costs were ~~$5,264~~

$649 at ~~September 30, 2020~~March 31, 2021 and net deferred loan costs were ~~$1,129~~$701 at December 31, ~~2019.~~2020.

September 30,

2020

December 31,

2019

Commercial
   $ 382,518    $ 118,658
Real estate:

Construction
   64,322    61,831
Commercial
   507,795    455,901
Residential
   202,132    207,354
Consumer
   6,675    8,365




Total
   $ 1,163,442    $ 852,109

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	March 31, 2021		December 31, 2020
Commercial	$	327,191	$	359,080
Real estate:
Construction		78,277		73,402
Commercial		489,652		502,495
Residential		190,857		197,596
Consumer		5,847		6,666

Total	$	1,091,824	$	1,139,239

The Company participated in the

Coronavirus

Aid, Relief and Economic Security Act (“CARES Act”), Paycheck Protection Program (“PPP”), a multi-billion dollar specialized

low-interest

loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration. The PPP provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related business operating costs. As of ~~September 30, 2020,~~March 31, 2021, the Company

had

~~1,274~~ PPP loans totaling $

~~273,813~~$214,365, net of unearned loan fees of $4,974, included in commercial loans.

.PPP loans totaled $251,810, net of unearned fees of $5,075 as of December 31, 2020. The Company is utilizing the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) to meet the funding needs of its borrowers of PPP loans.

The change in the allowance for loan losses account by major loan classifications for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ is summarized as follows:


				Real Estate																		Real Estate
September 30, 2020	Commercial			Construction		Commercial			Residential			Consumer			Unallocated	Total
March 31, 2021																			Commercial			Construction			Commercial		Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance, July 1, 2020	$	1,685		$	741	$	5,078		$	2,070		$	162		$	$	9,736
Beginning Balance, January 1, 2021																			$	1,705		$	1,117		$	6,494	$	2,427		$	142		$	315	$	12,200
Charge-offs													(42	)			(42	)		(9	)		(37	)							(48	)				(94	)
Recoveries		2					57						27				86									1		2			31					34
Provisions		173			145		1,015			490			21				1,844			(303	)		54			298		(193	)		2		$	142

Ending balance	$	1,860		$	886	$	6,150		$	2,560		$	168		$	$	11,624		$	1,393		$	1,134		$	6,793	$	2,236		$	127		$	457	$	12,140


				Real Estate
September 30, 2020	Commercial			Construction		Commercial			Residential			Consumer			Unallocated	Total
Allowance for loan losses:
Beginning Balance, January 1, 2020	$	1,953		$	473	$	3,115		$	1,820		$	155		$	$	7,516
Charge-offs		(899	)				(595	)		(2	)		(243	)			(1,739	)
Recoveries		11					59			1			120				191
Provisions		795			413		3,571			741			136				5,656

Ending balance	$	1,860		$	886	$	6,150		$	2,560		$	168		$	$	11,624

Real Estate

September 30, 2019

Commercial

Construction

Commercial

Residential

Consumer

Unallocated

Total

Allowance for loan losses:

Beginning Balance, July 1, 2019
   $ 1,117 $ 491    $ 3,591 $ 1,649 $ 154 $    $

7,002
Charge-off
   (759 )    (110 ) (5 ) (111 )    (985 )
Recoveries
   1    2 28    31
Provisions
   876 30    95 (28 ) 74 2    1,049






Ending balance
   $ 1,235 $ 521    $ 3,578 $ 1,616 $ 145 $ 2    $ 7,097

Real Estate

September 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
Charge-offs
   (1,148 )    (110 ) (25 ) (364 ) (1,647 )
Recoveries
   12    4 4 126 146
Provisions
   1,209 117    386 351 333 (146 ) 2,250




Ending balance
   $ 1,235 $ 521    $ 3,578 $ 1,616 $ 145 $ 2 $ 7,097


				Real Estate
March 31, 2020	Commercial			Construction		Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance, January 1, 2020	$	1,953		$	473	$	3,115		$	1,820		$	155				$	7,516
Charge-offs		(899	)				(95	)					(130	)				(1,124	)
Recoveries		2					1						56					59
Provisions		615			222		896			(107	)		71		$	103		1,800

Ending balance	$	1,671		$	695	$	3,917		$	1,713		$	152		$	103	$	8,251

1412

Table of Contents

The allocation of the allowance for loan losses and related loans by classifications of loans at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is summarized as follows:


			Real Estate													Real Estate
September 30, 2020	Commercial		Construction		Commercial		Residential		Consumer		Unallocated	Total
March 31, 2021														Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	1,860	$	886	$	6,150	$	2,560	$	168	$	$	11,624	$	1,393	$	1,134	$	6,793	$	2,236	$	127	$	457	$	12,140

Ending balance:
individually evaluated for impairment		32				1							33						724								724

Ending balance:
collectively evaluated for impairment		1,828		886		6,149		2,560		168			11,591		1,393		1,134		6,069		2,236		127		457		11,416

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

Loans receivable:
Ending balance	$	382,518	$	64,322	$	507,795	$	202,132	$	6,675	$	$	1,163,442	$	327,191	$	78,277	$	489,652	$	190,857	$	5,847	$		$	1,091,824

Ending balance:
individually evaluated for impairment		1,853				7,545		2,480					11,878		1,677		970		6,546		2,386						11,579

Ending balance:
collectively evaluated for impairment		380,665		64,322		498,902		199,480		6,675			1,150,044		325,514		77,307		482,768		188,317		5,847				1,079,753

Ending balance:
purchased credit impaired loans	$		$		$	1,348	$	172	$		$	$	1,520	$		$		$	338	$	154	$		$		$	492

1513

Table of Contents

Real Estate

December 31, 2019

Commercial

Construction

Commercial

Residential

Consumer

Unallocated

Total

Allowance for loan losses:

Ending balance
   $ 1,953    $ 473    $ 3,115    $ 1,820    $ 155    $    $ 7,516














Ending balance:

individually evaluated for impairment
   712       218             930














Ending balance:

collectively evaluated for impairment
   1,241    473    2,897    1,820    155       6,586














Ending balance:

purchased credit impaired loans
   $    $    $    $    $    $    $














Loans receivable:

Ending balance
   $ 118,658    $ 61,831    $ 455,901    $ 207,354    $ 8,365    $    $ 852,109














Ending balance:

individually evaluated for impairment
   2,260       1,224    2,085          5,569














Ending balance:

collectively evaluated for impairment
   116,390    61,831    453,156    205,026    8,365       844,768














Ending balance:

purchased credit impaired loans
   $ 8    $    $ 1,521    $ 243    $    $    $ 1,772


			Real Estate
December 31, 2020	Commercial		Construction		Commercial		Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Ending balance	$	1,705	$	1,117	$	6,494	$	2,427	$	142	$	315	$	12,200

Ending balance:
individually evaluated for impairment

Ending balance:
collectively evaluated for impairment		1,705		1,117		6,494		2,427		142		315		12,200

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

Loans receivable:
Ending balance	$	359,080	$	73,402	$	502,495	$	197,596	$	6,666	$		$	1,139,239

Ending balance:
individually evaluated for impairment		1,565				6,444		2,494						10,503

Ending balance:
collectively evaluated for impairment		357,515		73,402		495,674		194,939		6,666				1,128,196

Ending balance:
purchased credit impaired loans	$		$		$	377	$	163	$		$		$	540

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.

Non-homogeneous

loans are individually analyzed fo

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. Homogeneous loans not meeting the criteria above are considered pass rated loans and evaluated based on delinquency performance.

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.

16Special 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.

Table of Contents

The following tables present the major classifications of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


September 30, 2020	Pass		Special Mention		Substandard		Doubtful	Total
March 31, 2021										Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	374,721	$	3,319	$	4,478	$	$	382,518	$	322,223	$	2,957	$	2,011	$	$	327,191
Real estate:
Construction		55,072		8,252		998			64,322		68,818		129		9,330			78,277
Commercial		452,958		30,048		24,789			507,795		435,173		26,608		27,871			489,652
Residential		197,405		1,570		3,157			202,132		185,630		1,136		4,091			190,857
Consumer		6,675							6,675		5,847							5,847

Total	$	1,086,831	$	43,189	$	33,422	$	$	1,163,442	$	1,017,691	$	30,830	$	43,303	$	$	1,091,824


December 31, 2019	Pass		Special Mention		Substandard		Doubtful	Total
December 31, 2020										Pass		Special Mention		Substandard		Doubtful	Total
Commercial	$	109,190	$	5,992	$	3,476	$	$	118,658	$	353,758	$	3,147	$	2,175	$	$	359,080
Real estate:
Construction		61,678		153					61,831		63,838		1,817		7,747			73,402
Commercial		430,771		9,271		15,859			455,901		451,190		29,180		22,125			502,495
Residential		203,381		1,437		2,536			207,354		191,775		2,670		3,151			197,596
Consumer		8,365							8,365		6,666							6,666

Total	$	813,385	$	16,853	$	21,871	$	$	852,109	$	1,067,227	$	36,814	$	35,198	$	$	1,139,239

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules.


	Accrual Loans														Accrual Loans
September 30, 2020	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
March 31, 2021															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	$	20	$	78	$	108	$	206	$	381,521	$	791	$	382,518	$	34	$	21	$		$	55	$	326,325	$	811	$	327,191
Real estate:
Construction				208				208		64,114				64,322		34						34		77,272		971		78,277
Commercial										505,216		1,231		506,447		252						252		489,033		29		489,314
Residential		650		219				869		199,888		1,203		201,960		881		21		161		1,063		188,623		1,017		190,703
Consumer		20		1				21		6,654				6,675		14		6		4		24		5,823				5,847

Total	$	690	$	506	$	108	$	1,304	$	1,157,393	$	3,225	$	1,161,922	$	1,215	$	48	$	165	$	1,428	$	1,087,076	$	2,828	$	1,091,332

Purchased credit impaired loans														1,520														492

Total Loans													$	1,163,442													$	1,091,824


	Accrual Loans														Accrual Loans
December 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
December 31, 2020															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	$	137	$		$		$	137	$	117,354	$	1,159	$	118,650	$	64	$	1	$		$	65	$	358,496	$	519	$	359,080
Real estate:
Construction		9						9		61,822				61,831										73,402				73,402
Commercial		147						147		453,774		459		454,380		1,238		4,063				5,301		496,785		32		502,118
Residential		3,402		820		18		4,240		202,202		669		207,111		2,125		2,993		146		5,264		191,299		870		197,433
Consumer		84		14		27		125		8,240				8,365		22		20		10		52		6,614				6,666

Total	$	3,779	$	834	$	45	$	4,658	$	843,392	$	2,287	$	850,337	$	3,449	$	7,077	$	156	$	10,682	$	1,126,596	$	1,421	$	1,138,699

Purchased credit impaired loans														1,772														540

Total Loans													$	852,109													$	1,139,239

Table of Contents

The following tables summarize information concerning impaired loans as of and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ and as of and for the year ended, December 31, ~~2019~~2020, by major loan classification:


							This Quarter				Year-to-Date											This Quarter
September 30, 2020	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
March 31, 2021																Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:															��
Commercial	$	1,732	$	1,842			$	1,896	$	154	$	1,630	$	354		$	1,677	$	1,787			$	1,621	$	41
Real estate:
Construction																	970		970				485
Commercial		3,124		3,510				6,141		10		4,944		76			914		914				3,868		34
Residential		2,652		2,782				2,700		12		2,564		118			2,540		2,670				2,599		33
Consumer

Total		7,508		8,134				10,737		176		9,138		548			6,101		6,341				8,573		108

With an allowance recorded:
Commercial		121		121	$	32		121				121
Real estate:
Construction
Commercial		5,769		5,769		1		2,885		61		2,045		65			5,970		5,970	$	724		2,985		48
Residential
Consumer

Total		5,890		5,890		33		3,006		61		2,166		65			5,970		5,970		724		2,985		48

Commercial		1,853		1,963		32		2,017		154		1,751		354			1,677		1,787				1,621		41
Real estate:
Construction																	970		970				485
Commercial		8,893		9,279		1		9,026		71		6,989		141			6,884		6,884		724		6,853		82
Residential		2,652		2,782				2,700		12		2,564		118			2,540		2,670				2,599		33
Consumer

Total	$	13,398	$	14,024	$	33	$	13,743	$	237	$	11,304	$	613		$	12,071	$	12,311	$	724	$	11,558	$	156



																Recorded Investment		Unpaid Principal Balance		Related Allowance		For the Year Ended
December 31, 2020																Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:


Commercial																$	1,565	$	1,675			$	1,356	$	416
Real estate:
Construction
Commercial																	6,821		6,821				4,392		311
Residential																	2,657		2,787				2,493		146
Consumer

Total																	11,043		11,283				8,241		873

With an allowance recorded:
Commercial																							561
Real estate:
Construction
Commercial																							391		65
Residential
Consumer

Total																							952		65

Commercial																	1,565		1,675				1,917		416
Real estate:
Construction
Commercial																	6,821		6,821				4,783		376
Residential																	2,657		2,787				2,493		146
Consumer

Total																$	11,043	$	11,283			$	9,193	$	938

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

For the Year Ended

December 31, 2019

Average
Recorded
Investment

Interest
Income
Recognized

With no related allowance:

Commercial
   $ 1,147    $ 1,257       $ 648    $ 660
Real estate:

Construction

Commercial
   1,963    1,963       3,124    1,456
Residential
   2,329    2,467       2,397    173
Consumer











Total
   5,439    5,687       6,169    2,289










With an allowance recorded:

Commercial
   1,121    1,121    $ 712    685
Real estate:

Construction

Commercial
   782    936    218    658    17
Residential
            91
Consumer











Total
   1,903    2,057    930    1,434    17










Commercial
   2,268    2,378    712    1,333    660
Real estate:

Construction

Commercial
   2,745    2,899    218    3,782    1,473
Residential
   2,329    2,467       2,488    173
Consumer











Total
   $ 7,342    $ 7,744    $ 930    $ 7,603    $ 2,306

Table of Contents


March 31, 2020	Recorded Investment			Unpaid Principal Balance		Related Allowance		This Quarter
March 31, 2020	Recorded Investment			Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:

Commercial	$	1,098		$	1,208			$	873	$	68
Real estate:
Construction
Commercial		2,550			2,550				2,837		47
Residential		2,292			2,422				2,345		25
Consumer

Total		5,940			6,180				6,055		140

With an allowance recorded:
Commercial		121			121	$	29		653
Real estate:
Construction
Commercial		367			367		87		513		4
Residential									45
Consumer
			��
Total		488			488		116		1,211		4

Commercial		1,219			1,329		29		1,526		68
Real estate:
Construction
Commercial		2,917			2,917		87		3,350		51
Residential		2,292			2,422				2,390		25
Consumer

Total	$	6,428		$	6,668	$	116	$	7,266	$	144

This Quarter

Year-to-Date

September 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
   $ 1,617    $ 2,256       $ 871    $ 96    $ 399    $ 604
Real estate:

Construction
                  29
Commercial
   2,048    2,048       3,135    1,204    3,882    1,408
Residential
   2,178    2,178       2,189    33    2,247    158
Consumer















Total
   5,843    6,482       6,195    1,333    6,557    2,170














With an allowance recorded:

Commercial
   121    121    $ 29    448       767
Real estate:

Construction

Commercial
   785    939    251    579    4    468    12
Residential
   177    315    45    178    2    179    5
Consumer















Total
   1,083    1,375    325    1,205    6    1,414    17














Commercial
   1,738    2,377    29    1,319    96    1,166    604
Real estate:

Construction
                  29
Commercial
   2,833    2,987    251    3,714    1,208    4,350    1,420
Residential
   2,355    2,493    45    2,367    35    2,426    163
Consumer















Total
   $ 6,926    $ 7,857    $ 325    $ 7,400    $ 1,339    $ 7,971    $ 2,187

For the three ~~and nine~~ months ended ~~September 30,~~March 31, interest income related to impaired loans, would have been ~~$33~~$28 in 2021 and ~~$89~~$21 in 2020 ~~and $48 and $133 in 2019~~ 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 restructures that are classified as impaired. Troubled debt restructures totaled ~~$9,893~~$9,960 at ~~September 30, 2020, $2,701~~March 31, 2021, $9,985 at December 31, ~~2019~~2020 and ~~$2,729~~$2,680 at ~~September 30, 2019.~~March 31, 2020.

There were 0 loans modified as troubled debt restructures during the ~~third quarter of 2020 and 9 loans modified during the nine~~

three

months ended ~~September 30, 2020 totaling $7,817. There were 0 loans modified as troubled debt restructures during the third quarter of 2019~~March 31, 2021 and ~~1 loan modified during the nine months ended September 30, 2019.~~2020.

During the three months ended ~~September 30, 2020,~~March 31, 2021, there were

defaults on ~~loans~~ restructured ~~and 1 default on a restructured loan totaling $368 during the nine months ended September 30, 2020.~~loans. During the three months ended ~~September 30, 2019,~~March 31, 2020, there ~~were 0 defaults~~was

default for a commercial real estate loan totaling $368 on loans ~~restructured and 1 default on a restructured loan totaling $222 during the nine months ended September 30, 2019.~~restructured.

~~Table of Contents~~

The Company is a party to financial instruments with

off-balance

sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused portions of lines of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk over and above the amount recognized in the consolidated balance sheets.

Table of Contents

Distribution of

off-balance

sheet commitments


	September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Unused portions of lines of credit	$	93,694	$	81,665
Unused portion of lines of credit					$	100,153	$	92,848
Construction loans		26,216		41,168		14,906		24,751
Commitments to extend credit		13,086		24,954		5,740		10,275
Deposit overdraft protection		22,231		23,730		17,909		18,117
Standby and performance letters of credit		3,973		4,726		7,313		6,577

Total	$	159,200	$	176,243	$	146,021	$	152,568

The Company’s exposure to credit loss in the event of nonperformance by the other party to the off-balance sheet financial instruments is represented by the contractual amounts of those instruments. The Company follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. We record a valuation allowance for

off-balance

sheet credit losses, if deemed necessary, separately as a liability. The valuation allowance amounted to ~~$95~~

at ~~September 30, 2020~~March 31, 2021 and ~~$89 at~~ December 31, ~~2019.~~2020, respectively. We do not anticipate that losses, if any, that may occur as a result of funding

off-balance

sheet commitments, would have a material adverse effect on our operating results or financial position.

6. Other assets:

The components of other assets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:

September 30,
2020

December 31,
2019

Other real estate owned
   $ 25    $ 82
Bank owned life insurance
   31,247    30,647
Restricted equity securities
   1,827    990
Deferred tax assets
   4,798    4,272
Lease
right-of-use
assets
   3,336    3,856
Other assets
   4,506    6,082




Total
   $ 45,739    $ 45,929


	March 31, 2021		December 31, 2020

Other real estate owned	$	219	$	422
Bank owned life insurance		31,603		31,425
Restricted equity securities		1,774		1,759
Deferred tax assets		4,066		3,907
Lease right-of-use assets		2,133		2,278
Other assets		9,866		8,629

Total	$	49,661	$	48,420

~~7. Leases:~~

~~On September 30, 2020, the Company leased 13 locations. The Company’s operating lease~~

~~right-of-use~~

(“ROU”) assets and related lease liabilities were $3,336 and $3,397, respectively, and have remaining terms ranging from 1 to 33 years, including extension options that the Company is reasonably certain will be exercised. For the three and nine months ended September 30, 2020, operating lease cost totaled $346 and $954, respectively. On September 30, 2019 the Company’s lease ROU assets and related lease liabilities were $4,136 and $4,165, respectively. For the three and nine months ended September 30, 2019, operating lease cost totaled $203 and $538, respectively.

~~Table of Contents~~

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

Nine Months Ended
September 30, 2020

Nine Months Ended
September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
$ 584 $ 465
ROU assets obtained in exchange for lease liabilities
$ 4,529
Weighted average remaining lease term—operating leases, in years
9.12 10.46
Weighted average discount rate—operating leases
3.04 % 3.06 %

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.

2020
   $ 187
2021
   754
2022
   697
2023
   485
2024
   317
Thereafter
   1,568


Total lease payments
   4,008
Less imputed interest
   611



$3,397

~~For the nine months ended September 30, 2020, the Company did not enter into any new lease arrangements.~~

8.7. Fair value estimates:

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

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

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

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.

~~Table of Contents~~

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.~~for 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.

Interest rate swap hedges

: The fair value of interest rate swaps is based on an external derivative model using input data of the valuation date.

Assets and liabilities measured at fair value on a recurring basis at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:

Fair Value Measurement Using

September 30, 2020

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
   $ 20,841       $ 20,841
Tax-exempt
   20,837       20,837
Mortgage-backed securities:

U.S. Government agencies
   27,627       27,627
U.S. Government-sponsored enterprises
   23,665       23,665
Corporate debt obligations
   5,876       3,876    $ 2,000








Total
   $ 98,846       $ 96,846    $ 2,000

Fair Value Measurement Using

December 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
   $ 24,824       $ 24,824
Tax-exempt
   4,333       4,333
Mortgage-backed securities:

U.S. Government agencies
   36,134       36,134
U.S. Government-sponsored enterprises
   22,645       22,645
Corporate debt obligations
   3,311       3,311








Total
   $ 91,247       $ 91,247


	Fair Value Measurement Using
March 31, 2021	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. Treasury securities	$	18,978	$	18,978
State and Municipals:
Taxable		23,058			$	23,058
Tax-exempt		43,552				43,552
Mortgage-backed securities:
U.S. Government agencies		36,385				36,385
U.S. Government-sponsored enterprises		20,697				20,697
Corporate debt obligations		13,193				13,193

Total	$	155,863	$	18,978	$	136,885

Interest rate swap hedg e	$	829			$	829


December 31, 2020	Fair Value Measurement Using
December 31, 2020	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	$	22,574		$	22,574
Tax-exempt		18,395			18,395
Mortgage-backed securities:
U.S. Government agencies		26,991			26,991
U.S. Government-sponsored enterprises		25,052			25,052
Corporate debt obligations		10,683			10,683

Total	$	103,695		$	103,695

Interest rate swap hedg e	$	172		$	172

Other real estate owned

: Assets acquired through loan foreclosure are recorded at fair value less estimated costs to sell, with any difference between the fair value of the property and the carrying value of the loan recorded as a

charge-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 not

re-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, current sale value assessments by real estate agents or pending offers to acquire by independent buyers 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 include but is not necessarily limited to real estate, personal or business assets including vehicles, equipment, inventory, accounts receivable or marketable securities. 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, accounts receivable or marketable security collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate or custodian account statements (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).~~Income.

Assets and liabilities measured at fair value on a nonrecurring basis at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:

Fair Value Measurement Using

September 30, 2020

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
   $ 25          $ 25
Impaired loans, net of related allowance
   5,857          5,857








Total
   $ 5,882          $ 5,882









Fair Value Measurement Using

December 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
   $ 82          $ 82
Impaired loans, net of related allowance
   973          973








Total
   $ 1,055          $ 1,055


	Fair Value Measurement Using
March 31, 2021	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	$	219			$	219
Impaired loans, net of related allowance		5,246				5,246

Total	$	5,465			$	5,465

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December 31, 2020	Fair Value Measurement Using
December 31, 2020	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	$	422			$	422

Total	$	422			$	422

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company utilized Level 3 inputs to determine fair value at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Quantitative Information about Level 3 Fair Value Measurements

September 30, 2020

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Other real estate owned
   $ 25    Appraisal of collateral    Appraisal adjustments    60.0% to 60.0% (60.0)%
         Liquidation expenses    10.0% to 10.0% (10.0)%
Impaired loans
   $ 5,857    Appraisal of collateral    Appraisal adjustments    15.0% to 20.0% (15.0)%
         Liquidation expenses    7.0% to 7.0% (7.0)%

Quantitative Information about Level 3 Fair Value Measurements

March 31, 2021

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Other real estate owned

219

Appraisal of collateral

Appraisal adjustments

0.0% to 3.0% (3.0%)

Liquidation expenses

10.0% to 10.0% (10.0%)

Impaired loans

5,246

Appraisal of collateral

Appraisal adjustments

0.0% to 0.0% (0.0%)

Liquidation expenses

7.0% to 7.0% (7.0%)

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2020

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Other real estate owned

422

Appraisal of collateral

Appraisal adjustments

20.0% to 14.0% (8.4%)

Liquidation expenses

10.0% to 10.0% (10.0%)

Quantitative Information about Level 3 Fair Value Measurements

December 31, 2019

Fair Value
Estimate

Valuation Techniques

Unobservable Input

Range
(Weighted Average)

Other real estate owned
   $ 82    Appraisal of collateral    Appraisal adjustments    42.0% to 60.0% (52.0)%
         Liquidation expenses    10.0% to 10.0% (10.0)%
Impaired loans
   $ 973    Appraisal of collateral    Appraisal adjustments    10.0% to 50.0% (22.0)%
         Liquidation expenses    9.5% to 12.3% (8.8)%

~~Table of Contents~~

The carrying and fair values of the Company’s financial instruments at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 and their placement within the fair value hierarchy are as follows:


	Carrying Amount		Fair Value Hierarchy								Carrying Amount		Fair Value Hierarchy
September 30, 2020	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)		Carrying Amount
March 31, 2021											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:											Carrying Amount
Cash and cash equivalents	$	31,958	$	31,958	$	31,958					$	63,164	$	63,164	$	63,164
Investment securities		98,846		98,846			$	96,846	$	2,000		155,863		155,863		18,978	$	136,885
Loans held for sale		4,547		4,547				4,547				2,502		2,502				2,502
Net loans (1)		1,151,818		1,142,187						1,142,187		1,079,684		1,061,911					$	1,061,911
Accrued interest receivable		3,218		3,218				406		2,812		4,189		4,189				572		3,617
Restricted equity securities												1,774		1,774
Financial liabilities:
Deposits	$	1,031,313	$	989,122			$	989,122			$	1,080,928	$	1,083,439			$	1,083,439
Long-term debt		217,031		218,150				218,150				180,644		183,561				183,561
Accrued interest payable		591		591				591				1,347		1,347				1,347
Interest rate swap hedges												829		829				829

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	Carrying Amount		Fair Value Hierarchy
December 31, 2020	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	$	49,781	$	49,781	$	49,781
Investment securities available-for-sale		103,695		103,695			$	103,695
Loans held for sale		4,338		4,338				4,338
Net loans (1)		1,127,039		1,116,618					$	1,116,618
Accrued interest receivable		4,216		4,216				578		3,638
Restricted equity securities		1,759		1,759
Financial liabilities:
Deposits	$	1,015,460	$	1,018,529			$	1,018,529
Long-term debt		228,765		231,748				231,748
Accrued interest payable		1,038		1,038				1,038
Interest rate swap hedges		172		172				172

Carrying
Amount

Fair Value Hierarchy

December 31, 2019

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
   $ 50,348    $ 50,348    $ 50,348
Investment securities
available-for-sale
   91,247    91,247       $ 91,247
Loans held for sale
   81    81       81
Net loans
(1)
   844,593    836,074          $ 836,074
Accrued interest receivable
   2,414    2,414       461    1,953
Financial liabilities:

Deposits
   $

940,480    $

940,546       $ 940,546
Long-term debt
   6,971    6,971       6,971
Accrued interest payable
   435    435       435

(1)

The carrying amount is net of unearned income and the allowance for loan losses in accordance with the adoption of ASU

No. 2016-01

where the fair value of loans as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2021 was measured using an exit price ~~notion~~notion.

~~9. Goodwill~~

8. Subsequent Events:

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred from the date of the financial statements through the date these consolidated financial statements were issued and has not identified any events that require recognition or disclosure in the consolidated financial statements. On January 15, 2021, the Company announced the execution of a definitive agreement whereby AmeriServ Financial, Inc. will acquire Citizens Neighborhood Bank’s (“CNB”), an operating division of Riverview Bank, branch and deposit customers in Meyersdale, Pennsylvania, as well as the deposit customers of CNB’s leased branch in the Borough of Somerset. The ~~following table summarizes activity~~transaction is scheduled to close on May 21, 2021. At March 31, 2021, the related ~~to the carrying value of goodwill~~deposits totaled $44,713 million and will be acquired for ~~the nine months ended September 30, 2020:~~a 3.71% deposit premium and are considered as held for assumption within total deposits.

Balance, January 1, 2020
   $ 24,754
Less: Goodwill impairment
   24,754


Balance, September 30, 2020
   $

Accounting guidance requires the Company to test its goodwill impairment at least annually, or more frequently, if an event occurs or circumstances change which are considered to be a triggering event that would more likely than not reduce the fair value of its goodwill below the carrying value of the reporting unit, Riverview Bank. The Company noted that at the end of the first quarter of 2020, as a result of the onset of the

~~COVID-19~~

pandemic, the market price of its common shares decreased significantly below the carrying value of its equity per share and that it did not recover during the second quarter. This decrease prompted the Company to assess its goodwill utilizing a quantitative test to determine whether it was

~~more-likely-than-not~~

~~the fair value of the Company was less than the carrying amount as of the end of the second quarter of 2020.~~

The Company utilized multiple valuations approaches, including discounted income, change in control premium to parent market price and change in control premium to peer market price to determine the fair value of its goodwill. Each approach was assigned a

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weight to arrive at the fair value of the reporting unit. Based on the results of the quantitative test, it was determined the carrying amount of a reporting unit exceeded its fair value and that an impairment loss must be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Based on the results of the quantitative test, the Company recognized an impairment charge equal to the entire amount of its recorded goodwill on the balance sheet at June 30, 2020 totaling $24,754.

~~10. Subsequent Events:~~

~~On October 6,~~

~~2020,~~

~~the Company announced the completion of its private placement of~~

~~25 million of~~

~~its~~

~~5.75%~~

Fixed to Floating Rate Subordinated Notes to certain qualified institutional buyers and accredited institutional investors. The Notes will have a maturity date of October 15, 2030 and initially bear interest, payable semi-annually, at a fixed annual rate of 5.75% per annum until

~~October 15, 2025~~

. Commencing on that date, the interest rate applicable to the outstanding principal amount due will be reset quarterly to an interest rate per annum equal to the then current three-month secured overnight financing rate (“SOFR”) plus

~~563 basis points~~

~~, payable quarterly until maturity. The Company may redeem the Notes at par, in whole or in part, at its option, anytime beginning on October 15, 2025.~~

~~Table of Contents~~

Riverview Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on

Form 10-K

for the year ended December 31, ~~2019.~~2020.

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. Most recently, the risk factors associated with the onset of

COVID-19

could continue to have a material adverse effect on significant estimates, operations, and business results of Riverview. ~~For a discussion of the risks and potential impacts of the~~

~~COVID-19~~

~~refer to Note 1 entitled “Summary of Significant Accounting Policies-Basis of presentation” in the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report.~~

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

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

Critical Accounting Policies:

Disclosure of our significant accounting policies are included in Note 1 to the Consolidated Financial Statements of the Annual Report on

Form 10-K

for the year ended December 31, ~~2019.~~2020. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in Note 1 to the consolidated financial statements in the Company’s Annual Report on

Form 10-K

for the fiscal year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission on March ~~16, 2020.~~11, 2021.

Operating Environment:

Economic 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 ~~33.1%~~6.4% in the ~~third~~first quarter of ~~2020.~~2021. This ~~more than offset~~was an increase over the ~~decline~~4.3% growth realized in the ~~second~~fourth quarter ~~when the economy decreased at an annualized rate~~ of ~~31.4%. The strong bounce back~~2020 and shows a continued recovery from COVID-19 related contractions indicating government stimulus programs continue to provide forward momentum. Increases were seen in ~~GDP was~~personal consumption expenditures, nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by decreases in ~~dimension~~private inventory investment and ~~character much as~~

exports.

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expected. The strongest rebounds were in business equipment spending, residential investment and consumer spending, while government spending and nonresidential structures investment declined. A cessation of inventory reduction resulted in a strong addition to output growth, while overall growth was tempered by a deterioration in the trade deficit. The annualized rate of growth declined only 2.9% over the past twelve month ended September 30, 2020 despite the major headwinds caused by the onset of the pandemic.

The impact of the virus has been felt nationally and within our primary market area as unemployment rates have been elevated. The unemployment rate declined sharply in the United States to ~~7.9%~~6.0% in ~~the third quarter of 2020~~March 2021 from ~~11.1%~~6.7% in ~~the second quarter of~~December 2020 but was still elevated compared to ~~3.5%~~4.4% in ~~the third quarter of 2019. With respect to the markets we serve, the unemployment rate decreased in all the counties in which we have office locations comparing the third and second quarters of~~March 2020. The average unemployment rate for counties in our market area ~~improved~~increased to ~~6.8%~~7.1% in ~~September 2020~~March 2021 compared to ~~12.0%~~6.5% in ~~June~~December 2020. The resulting impacts of the pandemic on consumer and business customers, including the sudden significant increase in the unemployment rate, has ~~cause~~caused changes in consumer and business spending, borrowing needs and saving habits, which has affected the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers and delinquency rates. Our business and consumer customers are experiencing varying degrees of financial distress ~~which is expected to increase over coming months~~ and will likely adversely affect borrowers’ ability to timely pay interest and principal on their loans and the value of the collateral securing their obligations. This in turn may influence the recognition of credit losses in our loan portfolios and has increased our allowance for loan losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. Disruptions to our customers’ businesses has also resulted in declines in, among other things, trust and wealth management revenue. These developments, as a consequence of the pandemic, are materially impacting our business, the businesses of our customers and are expected to have a material adverse effect on our financial results for 2020, as evidenced by our quarterly results.portfolios.

Inflationary pressure ~~has increased,~~continues to increase as ~~reflected by~~Federal stimulus programs continue to provide funds to the personal and business sectors. The Personal Consumption Expenditures (“PCE”) ~~Price Index,~~

~~increasing at a rate of 3.7% in the third quarter of 2020, as compared with a decrease of 1.6% in the second quarter. Excluding food and energy prices, the PCE price~~ index increased ~~3.5 percent in the third quarter of 2020, in contrast to a decrease of 0.8 percent in the prior quarter. The Consumer Price Index~~

~~(“CPI-U”)~~

~~increased 0.2% in September on a seasonally adjusted basis after increasing 0.4% in the prior month. Over the last 12 months, the~~

~~CPI-U~~

~~increased 1.4% as prices have recovered after sharp declines~~3.5% in the first quarter of 2021 compared to an increase of 1.5% in the fourth quarter of 2020. ~~Concerns about~~While supply-side limitations will reduce consumption and increase inflationary pressure in the ~~spread~~short-term, limitations to and/or cessation of ~~the virus~~supplemental unemployment programs and ~~its anticipated negative~~PPP loans will have a larger impact on ~~economic activity, severely disrupted domestic financial markets prompting the~~future Federal Open Market Committee of(“FOMC”) actions related to short-term interest rates. Prior year monetary policy actions by the ~~Federal Reserve Board~~FOMC to ~~aggressively cut~~decrease the target Federal Funds rate to a range of 0% to 0.25%~~, including a~~

~~50-basis~~

~~point reduction on March 3, 2020 and an additional 100 basis point reduction on March 15, 2020. Accordingly, these monetary policy actions~~ have ~~already~~ adversely impacted ~~and may continue to impact our~~the Company’s net interest margin ~~if we are unable~~and will continue to ~~reduce fund costs at the same magnitude or pace as repricing~~compress earnings on earning assets. ~~Based on the aforementioned economic conditions, we believe that we may experience a material adverse effect in our business, results of operations and financial condition as a result of the~~

~~COVID-19~~

~~pandemic for an indefinite period.~~

Review of Financial Position:

Total assets increased ~~$276,818~~$17,286 to ~~$1,356,772~~$1,374,840 at ~~September 30, 2020,~~March 31, 2021, from ~~$1,079,954~~$1,357,554 at December 31, ~~2019.~~2020. Loans, net, ~~increased~~decreased to ~~$1,163,442~~$1,091,824 at ~~September 30, 2020,~~March 31, 2021, compared to ~~$852,109~~$1,139,239 at December 31, ~~2019, an increase~~2020, a decrease of ~~$311,333.~~$47,415. The ~~origination of $273,813 under the~~decrease in loans was due primarily to SBA forgiveness on PPP ~~was primarily responsible for the increase in~~ loans. Business lending, including commercial and commercial real estate loans, ~~increased $~~

~~315,754~~

,decreased $44,732, retail lending, including residential mortgages and consumer loans, decreased ~~$6,912,~~$7,558, and construction lending increased $

~~2,491~~

$4,875 during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Investment securities increased ~~$7,599,~~$52,168, or ~~8.3%~~50.3%, in the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Noninterest-bearing deposits increased ~~$30,763,~~$23,760, while interest-bearing deposits increased ~~$60,070~~$41,708 during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Total stockholders’ equity ~~decreased $22,686,~~increased $1,191, to ~~$95,424~~$98,623 at ~~September 30, 2020~~March 31, 2021 from ~~$118,110~~$97,432 at

year-end

~~2019.~~2020. The ~~decrease~~increase in stockholders’ equity was caused primarily by the recognition of net income offset partially by a ~~goodwill impairment charge of $24,754 at the end of the second quarter 2020.~~change in accumulated other comprehensive income. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, total assets averaged ~~$1,244,576,~~$1,364,225, an increase of ~~$122,066~~$278,880 from ~~$1,122,510~~$1,085,345 for the same period in ~~2019.~~2020.

Investment Portfolio:

The Company’s entire investment portfolio is held as

available-for-sale,

which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when favorable market opportunities exist. Investment securities

available-for-sale

totaled ~~$98,846~~$155,863 at ~~September 30, 2020,~~March 31, 2021, an increase of ~~$7,599,~~$52,168, or ~~8.3%~~50.3%, from ~~$91,247~~$103,695 at December 31, ~~2019. The onset~~2020. Activity in the investment portfolio during the first quarter of

~~COVID-19~~

~~caused~~ 2021, included purchases of $68,371, sales of $9,898 and repayments of $2,865. As a ~~marked reduction~~result of modest loan demand in ~~general market rates which increased~~ the ~~value~~first quarter of ~~fixed rate~~2021 excess funds from SBA forgiveness were utilized to increase the investment portfolio. Purchases consisted of $19,391 of U.S. Treasury securities, $6,000 of corporate bonds, and $10,420 of U. S. Government mortgage-backed securities and ~~lowered the~~ $32,560 of state and municipal obligations. The

tax-equivalent

yield on ~~adjustable rate securities. This provided~~ the ~~opportunity~~bonds purchased in the first quarter of 2021 was 1.72%. In an effort to ~~aid in funding loan demand and~~ reduce ~~exposure to falling interest rates through the sale of investment securities at a net gain. Accordingly,~~cash flow timing risk, we sold ~~$27,168 in investment securities~~

~~available-for-sale~~

~~which consisted~~$3,483 of ~~equal portions~~corporate bonds, $4,335 of ~~longer-term~~

tax-exempt

state and municipal obligations and ~~adjustable rate US Government mortgage backed securities.~~$2,080 of U.S. Government-sponsored enterprises. The net gain on the sale amounted to ~~$815~~

$246 in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to a net ~~loss~~gain of ~~$95~~

~~Table of Contents~~

$815 recognized for the same period last year. ~~In order to employ excess funds and meet pledging requirements, we purchased $42,151 in investment securities~~

~~available-for-sale~~

~~in 2020. These purchases consisted of $11,506 of taxable state and municipal obligations, $16,925 of~~

~~tax-exempt~~

~~state and municipal obligations, $2,500 of corporate debt obligations and $11,220 of U.S. Government agencies and U.S. Government-sponsored enterprise mortgage-backed securities. The weighted average~~

~~tax-equivalent~~

~~yield was 2.06% on these purchases.~~

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the investment portfolio averaged ~~$75,193, a decrease~~$132,992, an increase of ~~$25,885~~$50,964 compared to ~~$101,078~~$82,028 for the same period last year. The

tax-equivalent

yield on the investment portfolio decreased 3776 basis points to ~~2.69%~~2.09% for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, from ~~3.06%~~2.85% for the comparable period of ~~2019.~~2020.

Securities

available-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 net unrealized ~~gains~~losses of ~~$1,868,~~$1,313, net of deferred income tax of ~~$392, and accumulated comprehensive income of $1,476~~$276 at ~~September 30, 2020.~~March 31, 2021. This compares with net unrealized gains of ~~$676,~~$1,962, net of deferred income taxes of ~~$142, and accumulated comprehensive income of $534~~$412 at December 31, ~~2019.~~2020. The ~~increase~~change in the unrealized holding gain was the result of ~~reductions~~increases in general market rates.

Loan Portfolio:

Loans, net, ~~increased~~decreased to ~~$1,163,442~~$1,091,824 at ~~September 30, 2020~~March 31, 2021 from ~~$852,109~~$1,139,239 at December 31, ~~2019, an increase~~2020, a decrease of ~~$311,333,~~$47,415, or ~~36.5%~~4.2%. The decrease in the loan portfolio was attributable to the forgiveness of PPP loans totaling $55,903 and a decrease in organic loan growth of $9,970, offset partially by the origination of PPP loans of $18,458. Business loans, including commercial and commercial real

estate loans, ~~increased $315,754,~~decreased $44,732, or ~~55.0%~~5.2%, to ~~$890,313~~$816,843 at ~~September 30, 2020~~March 31, 2021 from ~~$574,559~~$861,575 at December 31, ~~2019.~~2020. Retail loans, including residential real estate and consumer loans, decreased ~~$6,912,~~$7,558, or ~~3.2%~~3.7%, to ~~$208,807~~$196,704 at ~~September 30, 2020~~March 31, 2021 from ~~$215,719~~$204,262 at December 31, ~~2019.~~2020. Construction lending increased ~~$2,491,~~$4,875, or ~~4.0%~~6.6%, to ~~$64,322~~$78,277 at ~~September 30, 2020~~March 31, 2021 from ~~$61,831~~$73,402 at December 31, ~~2019. The increase in the loan portfolio was attributable to the origination of~~2020. PPP loans, ~~along with the remainder generated primarily from new markets.~~net of unearned loan fees, totaled $214,365 at March 31, 2021 and $251,810 at December 31, 2020.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, loans averaged ~~$1,039,258,~~$1,122,546, an increase of ~~$153,446~~$248,126 compared to ~~$885,812~~$874,420 for the same period in ~~2019.~~2020. The

tax-equivalent

yield on the loan portfolio was ~~4.18%~~3.82% for the ~~nine~~three months ended ~~September 30, 2020, a 119 basis~~ March 31, 2021, an

82-basis

point decrease from ~~5.37%~~4.64% for the comparable period last year. The decrease in loan yield was caused by declines in general market rates, reductions in loan accretion and lower ~~yield on originated~~yielding PPP loans. Concerns about the spread of ~~the disease~~

COVID-19

and its anticipated negative impact on economic activity, severely disrupted domestic financial markets prompting the Federal Open Market Committee of the Federal Reserve Board to aggressively cut the target Federal Funds rate by

150-basis

points in the first half of 2020. Loan accretion included in loan interest income in the first ~~nine~~three months of ~~2020~~2021 related to acquired loans was ~~$592~~$22 compared to ~~$2,868~~$132 for the same period in ~~2019.~~2020. The yield earned on PPP loans from interest and fees was ~~2.46%~~2.65% for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

The economic slowdown associated with

COVID-19

may have an adverse impact on the growth and asset quality of our loan portfolio, especially those industry segments being severely impacted by the pandemic. Specifically, we have identified the following industries, by the amount of aggregate loans and percentage of total loans as of ~~September 30, 2020~~March 31, 2021 in our loan portfolio that may have increased exposure to this pandemic event:


	September 30, 2020					March 31, 2021
Industry:	Amount		% of Total Loans			Amount		% of Total Loans
Mining, Quarry, Oil and Gas	$	4,214		0.40	%	$	2,482		0.23	%
Construction-Land Subdivision		23,316		2.00	%		20,004		1.83	%
Manufacturing		13,163		1.10	%		18,064		1.65	%
Wholesale Trade		4,767		0.40	%		3,916		0.36	%
Automobile Dealers		7,062		0.60	%		1,975		0.18	%
Non-Residential Rentals and Leasing		261,575		22.50	%		254,703		23.33	%
Residential Rental and Leasing		114,451		9.80	%		113,388		10.39	%
Health Care		15,897		1.40	%		17,145		1.57	%
Arts, Entertainment and Recreation		5,229		0.40	%		6,288		0.58	%
Hospitality		65,968		5.70	%		66,914		6.13	%
Restaurants		8,374		0.70	%		8,168		0.75	%

	$	524,016		45.04	%	$	513,047		47.00	%

There have been a number of initiatives recently instituted by the Federal Government that may help offset the adverse impact on the growth and asset quality of our loan portfolio. In response to the economic slowdown caused by

~~COVID-19,~~

~~President Donald Trump signed into law the CARES Act on March 27, 2020, which included numerous provisions including the institution of the establishment~~

~~Table of Contents~~

~~of the PPP. The PPP was created to provide funding to small business owners who may have had to temporarily close or scale back production due to the~~

~~COVID-19~~

pandemic. The PPP provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employment-sustaining payroll costs and benefits, as well as other significant costs including the small businesses’ rent, mortgage, and utilities. There has been considerable demand for PPP loans implemented by the CARES Act. As a U.S. Small Business Administration (“SBA”) lender, we have been participating in the PPP and as of September 30, 2020 had originated 1,274 loans totaling $273,813. The FDIC, Federal Reserve and OCC created the PPPLF to bolster the effectiveness of the PPP by providing liquidity to and neutralizing the regulatory capital effects on participating financial institutions. We have utilized the liquidity relief offered by the PPPLF to the extent needed and as a result, do not expect our participation in the PPP to have a negative impact on our liquidity position, capital resources, financial condition or results of operations. Offsetting the positive influence offered by the PPP is the fact that most states, including the Commonwealth of Pennsylvania, have placed significant restrictions on

~~non-essential~~

businesses as well as enforcing social distancing. The longer these restrictions are in place the more severe the effects of the economic slowdown will be and the greater the negative consequences for our loan customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.

In addition to the risks inherent in our loan portfolio in the normal course of business, we are also a party to financial instruments with

off-balance

sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as

on-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. With the onset of the

COVID-19

pandemic, we are continually monitoring draws on unused portions of lines of credit and construction loans.

The contractual amounts of

off-balance

sheet commitments at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:


	September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Unused portions of lines of credit	$	93,694	$	81,665
Unused portion of lines of credit					$	100,153	$	92,848
Construction loans		26,216		41,168		14,906		24,751
Commitments to extend credit		13,086		24,954		5,740		10,275
Deposit overdraft protection		22,231		23,730		17,909		18,117
Standby and performance letters of credit		3,973		4,726		7,313		6,577

Total	$	159,200	$	176,243	$	146,021	$	152,568

Asset Quality:

National, Pennsylvania and our market area unemployment rates at ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ are summarized as follows:


	2020			2019			2021			2020
United States		7.9	%		3.5	%		6.0	%		4.4	%
Pennsylvania		7.7	%		3.9	%		7.3	%		5.6	%
Berks County		7.5	%		4.2	%		7.6	%		5.5	%
Blair County		6.6	%		4.2	%		6.7	%		5.7	%
Bucks County		7.1	%		3.7	%		6.1	%		4.8	%
Centre County		4.5	%		3.3	%		4.9	%		4.1	%
Clearfield County		6.9	%		4.6	%		8.0	%		7.4	%
Cumberland County		5.4	%		3.3	%
Dauphin County		7.5	%		4.1	%		7.2	%		4.9	%
Huntingdon County		8.3	%		5.1	%		8.8	%		8.7	%
Lebanon County		6.5	%		3.8	%		6.3	%		4.8	%
Lehigh County		8.1	%		4.4	%		7.3	%		5.6	%
Lycoming County		7.5	%		4.5	%		7.8	%		6.8	%
Perry County		5.2	%		3.3	%		5.5	%		4.7	%
Schuylkill County		7.5	%		5.1	%		7.8	%		6.5	%
Somerset County		7.1	%		4.5	%		7.9	%		7.7	%

~~Employment conditions deteriorated in 2020~~Unemployment rates despite improving since the onset of the pandemic were still higher at the end of the first quarter of 2021 compared to the end of first quarter of 2021 for the Nation, Commonwealth of Pennsylvania and within every county in which we have branch locations. The average unemployment rate for all our counties increased to ~~6.8%~~7.1% in ~~2020~~March 2021 from ~~4.2%~~5.9% in ~~2019.~~March 2020. The lowest unemployment rate in ~~2020~~2021 for all the counties we serve was ~~4.5%~~4.9% which was in Centre County, and the highest recorded rate being ~~8.3%~~8.8% in Huntingdon County. High levels or increases 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.

~~Table of Contents~~

~~Our asset quality deteriorated in the nine months ended September 30, 2020.~~ Nonperforming assets increased ~~$7,926~~$1,189 to ~~$13,006~~$13,151 at ~~September 30, 2020,~~March 31, 2021 from ~~$5,080~~$11,962 at December 31, ~~2019. We experienced increases in all major categories of nonperforming assets in the nine months of 2020 with the~~2020. The majority of ~~this~~the increase ~~coming~~resulted from a commercial real estate loan totaling $971 and two commercial loans totaling $314 moved to

non-accrual

status. This was partially offset by a reduction in ~~the form~~other real estate owned of ~~accruing troubled debt restructured loans.~~$203. As a percentage of loans, net and foreclosed assets, nonperforming assets equaled ~~1.12%~~1.20% at ~~September 30, 2020~~March 31, 2021 compared to ~~0.60%~~1.05% at December 31, ~~2019.~~

2020.

Loans on nonaccrual status increased ~~$938~~$1,407 to ~~$3,225~~$2,828 at ~~September 30, 2020~~March 31, 2021 from ~~$2,287~~$1,421 at December 31, ~~2019.~~2020. The increase in nonaccrual loans was due to increases of ~~$772~~$968 in commercial real estate loans, ~~and $534~~$147 in residential loans ~~partially offset by decreases of $368~~and $292 in commercial loans. Accruing loans past due 90 days or more increased ~~$63,~~$9 and ~~other real estate owned~~accruing restructured loans decreased ~~$57~~$24 during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

In response to the

COVID-19

pandemic and its economic impact to our customers, we implemented short-term modification programs that comply with regulatory and accounting guidance to provide temporary payment relief to those borrowers directly impacted by

COVID-19

who were not more than 30 days past due at the time we implemented our modification programs. These programs allow for a deferral of principal, or principal and interest payments for a maximum of 180 days on a cumulative and successive basis. The deferred payments, including interest accrued during the deferral period, if applicable, result in the extension of the loan due date by the number of months deferred.

In March 2020, a joint statement was issued by federal and state regulatory agencies to clarify that short-term loan modifications are not troubled debt restructurings (“TDR”) if made on a good-faith basis in response to

~~COVID-19~~

to borrowers who were current prior to the implementation of our deferral programs. Under this guidance, six months is provided as an example of short-term, and current is defined as less than 30 days past due at the time the modification programs were implemented. The guidance also provides that these modified loans generally will not be classified as nonaccrual during the term of the modification. For all borrowers who enroll in these loan modification programs offered as a result of

~~COVID-19,~~

the delinquency status of the borrowers is frozen, resulting in a static delinquency metric during the deferral period. Upon exiting the deferral program, the measurement of loan delinquency will resume where it had left off upon entry into the program, and the modifications will not impact a borrower’s repayment history for credit repayment reporting purposes. The Company reevaluates these credit` granted deferrals under this guidance each quarter under its existing TDR framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR. As a result of this reevaluation, accruing troubled debt restructured loans increased $6,982, to $9,648 at September 30, 2020 from $2,666 at December 31, 2019.

~~Table of Contents~~

As of ~~September 30, 2020, 204~~March 31, 2021, 15 loans with outstanding balances totaling ~~$130,682,~~$18,611, or ~~11.2%,~~1.7% of total loans were currently deferring loan ~~payments.~~payments compared to 19 loans with outstanding balances totaling $21,854, or 1.9% of total loans at December 31, 2020. Depending on the circumstances and request from the borrower, modifications were made to defer all payments for loans requiring principal and interest payments, or to defer principal payments only and continue to collect interest payments, or to defer all interest payments for loans requiring interest only payments. The following table summarizes loans actively deferring payments under the above described modification program as of ~~September 30, 2020,~~March 31, 2021, by loan classification:

Number
of
Loans

Amount

% of
Outstanding
Including
PPP Loans

% of
Outstanding

Excluding
PPP Loans

Weighted Average

Loan to Value

Aggregate Deferred Payments

% of Total
Loan
Classification

% of
Loans
Modified

Principal

Interest

Commercial
   23    $ 11,764    3.08 % 10.25 % $ 270    $ 249
Construction:

Commercial
   2    246    0.67 % 66.26 % 74.08 % 3    8
Hospitality
   4    19,788    71.23 % 67.07 % 70.23 % 55    527








Total
   6    20,034    31.15 % 58    535








Commercial Real Estate:

Multi Family
   5    7,965    13.85 % 66.28 % 75.68 % 99    143
Owner Occupied
   21    10,809    8.74 % 78.63 % 60.12 % 319    133
Non-Owner
Occupied
   16    33,507    12.67 % 63.14 % 64.39 % 1,855    452
Hospitality
   6    16,554    51.75 % 66.17 % 65.01 % 336    367
Agricultural
   19    11,332    37.59 % 53.62 % 60.29 % 234    274








Total
   67    80,167    15.79 % 2,843    1,369








Residential Real Estate
   95    18,666    9.23 % 273    393
Consumer
   13    51    7.60 % 10    3








Total
   204    $ 130,682    11.23 % 14.59 % $ 3,454    $ 2,549

Table of Contents

~~The following table summarizes information concerning loan modifications as of the latest practicable date October 23, 2020 by loan classification:~~


	Number of Loans		Amount		% of Outstanding Including PPP Loans			% of Outstanding Excluding PPP Loans			Weighted Average Loan to Value						Aggregate Deferred Payments
	Number of Loans		Amount		% of Outstanding Including PPP Loans			% of Outstanding Excluding PPP Loans			% of Total Loan Classification			% of Loans Modified			Principal		Interest
Commercial
Construction:
Commercial		1	$	973		1.96	%										$	30	$	49
Hospitality		1		1,501		5.26	%					69.04	%		75,28	%				33

Total		2		2,474		3.16	%											30		82

Commercial Real Estate:
Multi Family
Owner Occupied.
Non-Owner Occupied		2		2,032		0.80	%											85		29
Hospitality		3		13,479		37.77	%					68.07	%		65.71	%		604		358
Agricultural		1		154		0.58	%											103		10

Total		6		15,665		3.20	%											792		397

Residential Real Estate		7		473		0.25	%											16		16
Consumer

Total		15	$	18,612		1.70	%		2.12	%							$	838	$	495

Number of
Loans Amount % of
Outstanding
Including
PPP Loans % of
Outstanding
Excluding
PPP Loans Aggregate Deferred Payments Loans with Second Deferrals
Principal Interest Number of
Loans Amount % of
Outstanding
Including
PPP Loans % of
Outstanding
Excluding
PPP Loans
Commercial
10 $ 3,003 0.78 % 2.61 % $ 141 $ 77
Construction:

Commercial
2 246 0.64 % 3 8
Hospitality
2 13,468 48.42 % 55 398 1 6,755 24.29 %

Total
4 13,714 20.65 % 58 406 1 6,755 10.17 %

Commercial Real Estate:

Multi Family
3 7,709 13.43 % 95 136 1 1,053 1.84 %
Owner Occupied
9 4,745 3.77 % 204 95 1 1,088 0.86 %
Non-Owner
Occupied
5 24,962 9.46 % 1,681 334 1 1,541 0.58 %
Hospitality
5 14,232 46.07 % 325 226 2 3,998 12.94 %
Agricultural
16 10,133 35.02 % 210 248

Total
38 61,781 12.19 % 2,.515 1,039 5 7,680 1.51 %
1

Residential Real Estate
40 4,813 2.37 % 119 135 4 1.660 0.82 %
Consumer
5 10 0.15 % 4 1

Total
97 $ 83,321 7.14 % 9.28 % $ 2,837 $ 1,658 10 $ 16,095 1.38 % 1.79 %

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. We continue to evaluate risks which may impact our loan portfolios. As a result of the coronavirus pandemic and resultant business shutdowns and unemployment spikes, we reviewed our loan portfolio segments, assessing the likely impact of

COVID-19

on each segment and established specific qualitative adjustment factors. As we weigh additional information on the potential impact of this event on our overall economic prospects coupled with our loan officers’ further assessments of the impact on individual borrowers, our delinquencies and loss estimates will be revised as needed, and these revisions could have a material impact on future provisions to the allowance for loan losses and results of operations. 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 $4,108~~decreased $60 to ~~$11,624~~$12,140 at ~~September 30, 2020,~~March 31, 2021, from ~~$7,516~~$12,200 at the end of ~~2019.~~2020. The ~~increase~~Company did not recognize a charge in the ~~allowance was~~form of a ~~result of the~~ provision for loan losses in the first quarter of ~~$5,656~~2021 based on the results from its adequacy modeling of the allowance for loan loss account at March 31, 2021. Exclusive of PPP loans, the ~~nine months ended September 30, 2020 exceeding net charge-offs for the period. The~~portfolio declined this quarter which, along with decreased qualitative factors stemming primarily from improved economic conditions, resulted in no provision for loan losses ~~totaled $1,844 for the quarter ended September 30, 2020, compared to $1,049 for the same period in 2019. The increase~~being recognized in the ~~provision for loan losses was the combined result~~first quarter of ~~loan growth, increases in historical loss factors and changes in qualitative factors related to the reserve build associated with the effects of~~

~~COVID-19~~

~~as of the balance sheet date.~~2021. For the ~~nine~~three months ended ~~September 30,~~March 31, net charge offs were ~~$1,548,~~$60, or ~~0.20%~~0.02%, of average loans outstanding in ~~2020~~2021 compared to ~~$1,501,~~$1,065, or ~~0.23%~~0.49%, of average loans outstanding for the same period in ~~2019.~~2020.

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Deposits:

We attract the majority of our deposits from within our

~~14-county~~13-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 ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, total deposits increased ~~$90,833~~$65,468 to ~~$1,031,313~~$1,080,928 from ~~$940,480~~$1,015,460 at December 31, ~~2019.~~2020. Approximately

two-thirds

of the increase was due to the successful acquisition of a municipal relationship in the first quarter of 2021. Noninterest-bearing transaction accounts increased ~~$30,763,~~$23,760, while interest-bearing accounts increased ~~$60,070.~~$41,708. Specifically, interest-bearing transaction accounts, including money market, NOW and savings, ~~increase d $94,045~~increased $45,411 and time deposits, including certificates of deposit and individual retirement accounts decreased ~~$33,975~~$3,703 for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

For the ~~nine~~three months ended ~~September 30,~~March 31, interest-bearing deposits averaged ~~$828,884~~$863,765 in ~~2020~~2021 compared to ~~$824,948~~$795,084 in ~~2019.~~2020. The cost of interest-bearing deposits was ~~0.71%~~0.43% in ~~2020~~2021 compared to ~~1.00%~~0.90% in ~~2019.~~2020. Consistent with recent FOMC actions to lower short-term rates due to the onset of

COVID-19,

we also took action to lower deposit rates to fend off net interest margin contraction due to changes in yields on floating and ~~adjustable rate~~adjustable-rate loans. We anticipate deposit costs to continue to decrease in the short term based on the continued market rate impact of FOMC actions to lower its target federal funds rate in the latter part of March 2020.

~~Core deposits may decrease~~On January 15, 2021, the Company announced the execution of a definitive agreement whereby AmeriServ Financial, Inc. will acquire Citizens Neighborhood Bank’s (“CNB”), an operating division of Riverview Bank, branch and deposit customers in Meyersdale, Pennsylvania, as well as the deposit customers of CNB’s leased branch in the ~~coming months~~Borough of Somerset. The transaction is scheduled to close on May 21, 2021. At March 31, 2021, the related deposits totaled $44,713 million and will be acquired for a 3.71% deposit premium and are considered as unemployment benefits, PPP funds, and loan deferrals come to an end. Many consumers are working from home or temporarily unemployed but still receiving income through unemployment insurance programs that have provided liquidityheld for ongoing expenses. Additional liquidity that was created through the advancement of funds through the PPP program should enter the end of their lifespan at the same time companies that deferred loan payments begin making monthly payments again, which may lead to reductions in accumulated funds and our deposit volumes.assumption within total deposits.

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 Atlantic Community Bankers Bank (“ACBB”), Pacific Community Bankers Bank (“PCBB”) and the FHLB. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we did not have any short-term borrowings outstanding.

Long-term debt totaled ~~$217,031~~$180,644 at ~~September 30, 2020~~March 31, 2021 as compared to ~~$6,971~~$228,765 at December 31, ~~2019.~~2020. For the ~~nine~~three months ended ~~September 30th,~~March 31, long-term debt averaged ~~$117,602~~$209,781 in ~~2020~~2021 and ~~$6,922~~$11,817 in ~~2019.~~2020. The large increase in average long-term debt is attributable to advances taken through the Federal Reserve’s PPPLF, whereby loans originated through the PPP program can be pledged as security to facilitate advancements made through the program. As of ~~September 30, 2020,~~March 31, 2021, we had outstanding ~~borrowing~~borrowings through the program of ~~$189,719~~$128,736 at a rate of 0.35%~~. At the end~~, compared to outstanding borrowings of March 2020, we borrowed $20,000 of term debt from the FHLB to take advantage of reductions in general market rates. These funds were used to bolster our liquidity position and provide necessary funding for new loans. The amount of the term debt was spread equally over three, five and seven-year maturities. The FHLB borrowing had$176,904 at a ~~weighted average~~ rate of 0.90% and weighted average life of five years. As a FHLB member, we are required to buy a portion of stock in FHLB for each advance. The adjusted weighted average cost of the borrowing decreases to 0.57% considering the addition of the dividend rate on the FHLB stock0.35% at ~~the time the borrowing was granted.~~December 31, 2020. The average cost of long-term debt was ~~0.74%~~1.25% for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, a decrease from ~~7.57%~~4.19% for the same period last year. As a result of the significant reduction in market rates during the first nine months of 2020, the Company took advantage of the historically low interest rate environment by entering into a fixed interest rate swap on $9,279 of trust preferred securities at a

~~10-year~~

~~weighted average rate of 2.99%.~~

On October 6, 2020, the Company announced the completion of its private placement of $25 million of its 5.75% Fixed to Floating Rate Subordinated Notes to certain qualified institutional buyers and accredited institutional investors. The Notes will have a maturity date of October 15, 2030 and initially bear interest, payable semi-annually, at a fixed annual rate of 5.75% per annum until October 15, 2025. Commencing on that date, the interest rate applicable to the outstanding principal amount due will be reset quarterly to an interest rate per annum equal to the then current three-month secured overnight financing rate (“SOFR”) plus 563 basis points, payable quarterly until maturity. The Company may redeem the Notes at par, in whole or in part, at its option, anytime beginning on October 15, 2025. The primary purpose of the offering is to enhance the safety and soundness of the Bank’s capital position given the uncertain impact of the

~~COVID-19~~

~~pandemic and to support growth, for general corporate purposes and to take advantage of potential strategic opportunities.~~

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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, and

off-balance

sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. 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.

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As a result of the FOMC’s recent actions to lower short-term interest rates in order to mitigate the impact of the

COVID-19

pandemic on the economy, it has become increasing more 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 that is overseen by the Board of Directors and senior management, which involves a comprehensive risk management process 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. Conversely, 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 cumulative

one-year

RSA/RSL ratio equaled ~~1.45~~1.50 at ~~September 30, 2020.~~March 31, 2021. Given the recent monetary policy actions of the FOMC based on uncertainty surrounding the timing of the recovery from the pandemic and the potential for rates to remain at these low levels, the focus of ALCO has been to reduce our exposure to the effects of repricing assets.

The current position at ~~September 30, 2020,~~March 31, 2021, indicates that the amount of RSA repricing within one year would exceed that of RSL, with declining rates causing a slight decrease in 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 a

one-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. 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 ~~September 30,~~March 31, 2021, would increase ~~7.9%~~2.7% and decrease ~~4.8%~~5.1% 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 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.

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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.

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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, when compared to other types of funding sources. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both ~~available for sale~~

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.

As a result of the onset of the

COVID-19

pandemic, we have placed increased emphasis on solidifying, monitoring, and managing our liquidity position. We believe our liquidity position is strong. At ~~September 30, 2020,~~March 31, 2021, we had available liquidity of ~~$31,958~~$63,164 from cash and interest-bearing balances with other banks. Our investment securities portfolio is comprised primarily of highly liquid U.S. Government and Government-Sponsored Enterprises and high credit quality municipal securities. At ~~September 30, 2020,~~March 31, 2021,

available-for-sale

investment securities totaled ~~$98,846, and had a net unrealized holding gain of $1,868.~~$155,863. Our secondary sources of liquidity consist of the available borrowing capacity at the Federal Home Loan Bank (“FHLB”), Atlantic Community Bankers Bank (“ACBB”), and Pacific Coast Bankers Bank (“PCBB”)~~, and through a relationship with StoneCastle Partners, LLC, a third party financial institution who provides cash management services to institutional investors.~~. At ~~September 30, 2020,~~March 31, 2021, our available borrowing capacity was ~~$426,045~~$395,535 at the FHLB, ~~and was~~ $10,000 ~~each~~ at ACBB and $50,000 at PCBB. StoneCastle provides deposits to community banks up to 15% of their total assets, which would amount to additional liquidity of $203,509 for us based on September 30, 2020. As aforementioned, the issuance of $25 million of Subordinated Notes subsequent to the end of the third quarter of 2020 will further strengthen the Company’s liquidity position.

With respect to monitoring and managing our liquidity, in addition to our normal quarterly liquidity reporting to the Risk Committee that includes stress testing under moderate, severe, and extreme scenarios, we have instituted a formalized monthly presentation using various metrics to assist the Board of Directors in assessing our liquidity position. With the changes in the industry related to

COVID-19,

we have focused on maintaining greater liquidity. We believe liquidity needs should be greater during this volatile time within the industry and markets. Based upon this volatility, we took steps to maintain a greater balance of cash and cash equivalents on the balance sheet through the sale of investment securities

~~available-for-sale~~

~~and borrowing from the FHLB.~~

We employ several analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after ~~September 30, 2020.~~March 31, 2021. Our noncore funds at ~~September 30, 2020~~March 31, 2021 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 highly volatile. At ~~September 30, 2020,~~March 31, 2021, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was ~~16.47%~~11.81%, while our net short-term noncore funding ratio, noncore funds maturing within

one-year,

less short-term investments to assets equaled ~~0.85%~~(0.74)%. Comparatively, our net noncore dependence ratio was ~~(1.03)%~~14.6% while our net short-term noncore funding ratio was ~~1.54%~~0.94% at

year-end.

The ~~increase~~decrease in the ~~net~~ noncore funding dependence ~~ratio~~ratios is associated with lower borrowing to fund investment in PPP loans ~~and~~which is anticipated to reduce substantially as these loans continue to enter the forgiveness stage. In addition, as compared to peer levels, our reliance on short-term noncore funds 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, ~~decreased $18,390~~increased $13,383 during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared with ~~a decrease~~an increase of ~~$23,975~~$22,887 for the same period last year. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we realized a net cash ~~outflow~~inflows of ~~$320,801~~$4,147 from ~~investing~~operating activities and $17,434 from financing activities offset partially by net cash outflows of $8,198. For the three months ended March 31, 2020, we realized net cash inflows of ~~$2,501~~$383 from operating activities and ~~$299,910~~$37,511 from financing ~~activities. For the same period of 2019, we recognized~~activities offset partially by net cash ~~inflows~~outflows of ~~$2,442 from operating activities and $10,471~~$15,007 from investing ~~activities, offset by a net cash outflow of $36,888 from financing~~ activities.

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Operating activities provided net cash of ~~$2,501~~$4,147 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$2,442~~$383 for the same period last year. Net income, adjusted for the effects of gains and losses along with noncash transactions such as ~~goodwill impairment,~~ 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 used net cash of ~~$320,801~~$8,198 for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. For the comparable period in ~~2019,~~2020, investing activities ~~provided~~used net cash of ~~$10,471.~~$15,007. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, loan ~~originations of $273,813~~forgiveness from PPP loans offset by purchases of investment securities

available-for-sale

were the primary ~~factor~~factors for the net ~~increase~~cash used in ~~loans of $312,627.~~investing activities. For the comparable period of ~~2019, payments and prepayments on loans exceeding~~2020, loan originations ~~was~~more than offset net proceeds received on the ~~primary factor causing the net cash inflow from investing activities.~~sale of investment securities

available-for-sale.

Financing activities provided net cash of ~~$299,910~~$17,434 for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~used~~ net cash of ~~$36,888~~$37,511 for the same period last year. Liquidity was generated through funds from deposit gathering ~~and through~~offset by repayments on long-term debt ~~which primarily utilized~~from the ~~Fed’s~~Federal Reserve Bank’s PPPLF secured borrowing arrangement ~~to borrow $189,713~~ for the purpose of financing PPP loans. During the ~~nine~~three months ended ~~September 30,~~March 31, deposits increased ~~$90,833~~$65,468 in ~~2020 versus a decrease of $35,010~~2021 and $18,023 in ~~2019.~~2020.

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.

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Capital:

Stockholders’ equity totaled ~~$95,424,~~$98,623, or ~~$10.28~~$10.55 per share, at ~~September 30, 2020,~~March 31, 2021, and ~~$118,110,~~$97,432, or ~~$12.81~~$10.47 per share, at December 31, ~~2019.~~2020. The net ~~decrease~~increase in stockholders’ equity in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was primarily a result of the recognition of a net ~~loss of $22,794 and the payout of cash dividends of $1,386,~~income offset by ~~the issuance of common stock through Riverview’s ESPP, 401k and dividend reinvestment plans of $466, stock-based compensation of $78 and the recognition of~~ a change in other accumulated comprehensive ~~income of $950.~~income.

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.

On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The ~~Bank’s capital ratios and~~intent of the ~~minimum ratios required for~~CBLR is to provide a simple alternative measure of capital adequacy ~~purposes~~for electing qualifying depository institutions as directed under the Economic Growth, Regulatory Relief, and Consumer Protection Act. Under the CBLR, if a qualifying depository institution elects to use such measure, such institutions will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds a 9.0% threshold, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold and will not be required to calculate and report risk-based capital ratios.

In April 2020, under the ~~prompt corrective action provisions are summarized below~~CARES Act, the 9.0% leverage ratio threshold was temporarily reduced to 8.0% in response to the

COVID-19

pandemic. The threshold increased to 8.5% in 2021 and will return to 9.0% in 2022. The Bank elected to begin using the CBLR for the ~~periods ended September 30, 2020~~first quarter of 2021 and intends to utilize this measure for the foreseeable future. Eligibility criteria to utilize the CBLR includes the following:

Total assets of less than $10 billion,

Total trading assets plus liabilities of 5.0% or less of consolidated assets,

Total

off-balance

sheet exposures of 25.0% or less of consolidated assets,

Cannot be an advanced approaches banking organization, and

Leverage ratio greater than 9.0%, or temporarily prescribed threshold established in response to

COVID-19.

As of March 31, 2021 and December 31, ~~2019:~~2020, the Bank was categorized as well capitalized. Listed in the table below is a comparison of the Bank’s actual capital amounts with the minimum requirements for well capitalized banks, as defined above.


	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					Well Capitalized under Basel III
September 30, 2020:	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2021:																Amount		Ratio			Amount		Ratio			Amount		Ratio
CBLR Framework
Tier 1 capital (to average total assets): (i.e., leverage ratio)																$	118,560		9.9	%		(1)		(1)		$	102,214	³	8.5	%

																Actual					Minimum Regulatory Capital Ratios under Basel III					Well Capitalized under Basel III
December 31, 2020:																Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets)	$	108,601		12.4	%	$	92,065	³	10.5	%	$	87,681	³	10.0	%	$	126,108		14.2	%	$	93,462	³	10.5	%	$	89,011	³	10.0	%
Tier 1 capital (to risk-weighted assets)		97,631		11.1			74,529	³	8.5			70,145	³	8.0			114,967		12.9			75,659	³	8	.5		71,209	³	8	.0
Common equity tier 1 risk-based capital (to risk-weighted assets)		97,631		11.1			61,377	³	7.0			56,993	³	6.5			114,967		12.9			62,308	³	7	.0		57,857	³	6	.5
Tier 1 capital (to average total assets)		97,631		8.4			46,419	³	4.0			58,024	³	5.0			114,967		9.8			47,102	³	4	.0		58,877	³	5	.0

Actual

Minimum Regulatory
Capital Ratios under
Basel III (with 2.5%
capital conservation
buffer phase-in)

Well Capitalized under
Basel III

December 31, 2019:

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total risk-based capital (to risk-weighted assets)
   $ 104,010    12.4 % $ 88,132    ³ 10.5 % $ 83,936    ³ 10.0 %
Tier 1 capital (to risk-weighted assets)
   96,405    11.5 71,345    ³ 8.5 67,148    ³ 8.0
Common equity tier 1 risk-based capital (to risk-weighted assets)
   96,405    11.5 58,755    ³ 7.0 54,558    ³ 6.5
Tier 1 capital (to average total assets)
   96,405    9.1 42,489    ³ 4.0 53,112    ³ 5.0

(1)	Under the CBLR Framework, capital adequacy amounts and ratios are not applicable as qualifying depositary institutions are evaluated solely on whether or not they are well capitalized.

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In light of the recent pandemic crisis and its potential adverse impact on capital adequacy within the financial industry, maintaining a high level of capital is of extreme importance to federal regulators as well as our management and Board of Directors. Our asset liability committee continually reviews our capital position. As part of its review, the ALCO considers:

The current and expected capital requirements, including the maintenance of capital ratios in excess of minimum regulatory guidelines;

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The market value of our securities and the resulting effect on capital;

Nonperforming asset levels and the effect deterioration in asset quality will have on capital;

Any planned asset growth;

The anticipated level of net earnings and capital position, taking into account the projected asset/liability position and exposure to changes in interest rates;

The source and timing of additional funds to fulfill future capital requirements.

Based on the heightened level of stress on capital caused by ~~the~~ recent events, management maintains a capital plan approved by the Board of Directors. Our capital plan consists of the following areas of focus, among others:

Comprehensive risk assessment including consideration of the following risk elements, among others: credit; liquidity; earnings; economic value of equity; concentration; and economic, both national and local;

Assessing current regulatory capital adequacy levels;

Monitoring procedures consisting of stress testing, using both scenarios of previous historic data of financial crisis periods and the Federal Reserve Board’s Supervisory Capital Assessment Program (“SCAP”), and certain triggering events that would call into question the need to raise additional capital;

Identifying realistic and readily available alternative sources for augmenting capital if higher capital levels are required;

Evaluating dividend levels, and;

Providing a

ten-year

financial projection for analyzing capital adequacy.

Regulatory bodies recently issued guidance reminding bank management of the importance of taking capital preservation actions in these uncertain economic times and encouraging management to remain vigilant on how the current environment impacts their organization’s financial performance, need for capital, and ability to serve customers and communities throughout this crisis. In response to this guidance, the Board of Directors of Riverview decided on July 23, 2020, to suspend the payment of dividends in order to conserve capital. In concert with this guidance, on October 6, 2020, the Company completed the issuance of $25 million in subordinated debt at the bank holding company, which will be used to support the Bank on an

as-needed

basis. Subsequent to the issuance in the fourth quarter of 2020, management determined to downstream $15 million of the available $25 million from the bank holding company to the Bank in the form of additional capital.

Based on the most recent notification from the FDIC, the Bank was categorized as well capitalized at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. There are no conditions or negative events since this notification that we believe have changed the Bank’s well capitalized status.

Review of Financial Performance:

We reported a net ~~loss~~income of ~~$22,794,~~$3,060, or ~~$2.46~~$0.33 per basic and diluted weighted average common share, for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to net income of ~~$3,013,~~$633, or ~~$0.33~~$0.07 per basic and diluted weighted average common share, for the same period last year. For the third quarter ended September 30, net income was $695 or $0.08 per basic and diluted weighted average common share in 2020 and $2,266 or $0.25 per basic and diluted weighted average common share in 2019.

The ~~major factor impacting earnings in 2020 was the recognition of goodwill impairment of $24,754~~increase in the ~~second quarter of 2020. The impairment expense is a noncash charge and has no impact on tangible book value, regulatory capital ratios, liquidity or the~~ Company’s ~~cash balances. Also impacting net income~~earnings for the ~~nine~~three months ended ~~September 30, 2020 was a provision for loan losses of $5,656, an increase of $3,406~~March 31, 2021 as compared to the same period ~~last year. The increase~~ in 2020 was the ~~year over year provision for loan losses is the combined~~ result of year to date 2020 organic loan growth, excluding 100% SBA guaranteed PPP Loans, and changes in qualitative factors used in our ALLL model, accounting for increased economic risks and the direct impact on our customers resulting from the

~~COVID-19~~

pandemic as of September 30, 2020. As the Company weighs additional information on the potential impact of this event on our overall economic prospects, coupled with our loan officers’ further assessments of the impact ~~on individual borrowers, our delinquencies and loss estimates will be revised, as needed. These revisions could have a material impact on future provisions to the allowance for~~of ongoing efficiency initiatives, including branch office consolidations, an increase in loan ~~losses and results of operations. Another factor influencing the level of earnings in the nine months of 2020 was~~income from the recognition of ~~$2,311 less net accretion on acquired assets and assumed liabilities as compared to the nine months of 2019.~~

~~Table of Contents~~

Partially offsetting the impact of these reductions to income was the recognition of an $815 net gain on the sale of investment securities in order to provide liquidity to fund loan demand and limit exposure to falling rates through the disposition of adjustable rate securities. The Company also recognized interest and fees earned on ~~origination of~~PPP loans ~~pursuant to the PPP of $2,776 during the nine months ended September 30, 2020.~~

and lower deposit costs. The Company ~~began~~ implemented cost reduction strategies beginning in 2019, and those efforts continued ~~subsequent to~~through the end of the ~~second~~fourth quarter of 2020 by implementing additional efficiency initiatives aimed at substantially lowering operating costs. ~~This action implemented~~The

COVID-19

pandemic continues to place additional pressure on ~~September 1, 2020 is expected~~the Bank’s earnings, causing increased emphasis on the need to ~~lower salaries~~improve operational efficiency to help mitigate margin compression and ~~benefits expense by $3.4 million annually on~~noninterest income reductions. As a

~~pre-tax~~

~~basis. The results for~~ result, Riverview closed two branch offices in January 2021 and will be completing the ~~nine months ended September 30, included $637~~sale of two additional branches in ~~nonrecurring severance expense in 2020 compared to $2,218 in nonrecurring executive separation expenses and $456 in severance charges in 2019 related to these actions.~~May of 2021.

If the

COVID-19

pandemic persists, it will continue to have a severe effect on economic activity and may cause greater negative consequences for our customers which, in turn, could adversely affect the Company’s financial condition, liquidity and results of operations.

Table of Contents

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, which is 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 carry

pre-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 a

tax-equivalent

basis using the prevailing federal statutory tax rate of 21% in ~~2020~~2021 and ~~2019,~~2020, respectively.

For the ~~nine~~three months ended ~~September 30,~~March 31,

tax-equivalent

net interest income increased $851 to $9,697 in 2021 from $8,846 in 2020. For the quarter ended March 31,

tax-equivalent

interest income increased $503 while interest expense decreased ~~$2,833~~$348.

Tax-equivalent

interest income increased to ~~$29,102~~$11,266 in 2021 from $10,763 in 2020 ~~from $31,935~~caused by an increase in ~~2019. The~~average earning assets of $304,701, offset partially by a decrease in

~~tax-equivalent~~

~~net interest income was primarily attributable to a decline~~ in the

tax-equivalent

~~loan~~ yield ~~due to reductions in market rates, the addition~~on earning assets of ~~lower yielding~~85 basis points. Net interest income generated from PPP loans ~~and~~amounted to $1,412 in the ~~realization~~first quarter of ~~lower levels~~2021. Interest expense decreased to $1,569 in 2021 from $1,917 in 2020 as a result of ~~loan accretion~~a 36 basis point decrease in the cost of funds offset partially by an increase in average interest-bearing liabilities of $265,656. Interest expense on deposits decreased $866 to $923 for the three months ended March 31, 2021 from ~~purchase accounting marks.~~$1,789 for the same period last year. The

tax-equivalent

net interest margin for the ~~nine~~three months ended ~~September 30~~March 31 was ~~3.37%~~3.04% in ~~2020~~2021 compared to ~~4.18%~~3.60% in ~~2019.~~2020. The net interest spread decreased to ~~3.25%~~2.95% for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 from ~~3.98%~~3.44% for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The

tax-equivalent

yield on the loan portfolio decreased to ~~4.18%~~3.82% in ~~2020~~2021 compared to ~~5.37%~~4.64% in ~~2019. The~~2020. Th actions taken by the Federal Open Market Committee in March 2020 to reduce its target federal funds rate by 150 basis points impacted the loan portfolio yield as it had a corresponding adverse effect on our floating and adjustable rate loans and yields obtained on new loan originations. Also influencing the decline was recognizing the lower yield of ~~2.46%~~2.65% earned on the addition of PPP loans in 2020. Loan accretion recognized from merger related purchase accounting marks declined $2,276 in 2020. Partially offsetting the negative impact of the reduction in the net interest margin was a net increase in the volume of average earning assets as compared to the increase in average interest-bearing liabilities. Overall, average earning assets increased $130,549 while average interest-bearing liabilities increased $124,382 comparing the nine months ended September 30, 2020loans. Excluding income and ~~2019.~~

~~For the nine months ended September 30,~~

~~tax-equivalent~~

~~interest income decreased $4,360, to $34,166 in 2020 from $38,526 in 2019. An unfavorable rate variance due to reductions in market rates, lower yield~~fees earned on PPP loans, ~~and decreases~~the

tax-equivalent

net interest margin would have been 3.19% in ~~loan accretion income more than offset a favorable volume variance primarily caused by~~ the ~~addition~~first quarter of ~~PPP loans. Interest and fee accretion generated from~~2021. Comparing the ~~PPP program was $2,776 while loan accretion income was $592 for the nine~~first three months of ~~2020 compared to $2,868 for the same period in 2019. Specifically, the overall yield on earning assets, on a fully~~

~~tax-equivalent~~

basis, decreased for the nine months ended September 30, to 3.96% in 2020 from 5.04% in 2019. With respect to the volume variance, average earning assets increased $130,549 to $1,153,448 in 2020 from $1,022,899 in 2019.

~~Tax-equivalent~~

loan income decreased $3,025 in 2020. The increase in average loans of $153,446 was more than offset by a 119 basis point decline in yield. The decrease in average investments of $25,885 in 2020 was the primary cause of the $800 reduction in

~~tax-equivalent~~

~~interest income on investments.~~

~~Table of Contents~~

Total interest expense decreased $1,527 to $5,064 for the nine months ended September 30, 2020 from $6,591 for the nine months ended September 30, 2019. Reductions in fund costs more than offset increases in average volumes on interest-bearing liabilities. Comparing the nine months of 20202021 and ~~2019,~~2020, the weighted average cost of funds decreased 3536 basis points to ~~0.71%~~0.59% from ~~1.06% while the average volume of interest-bearing liabilities increased $124,382 to $956,252 from $831,870.~~0.95%. Money market, ~~and~~ NOW account and time deposit costs declined 630.55%, 0.36% and ~~43 basis points~~0.40%, respectively, and were the major cause in lowering interest expense on deposits. ~~The average volume and~~In addition, the weighted average ~~yield for~~fund cost on long-term debt ~~for the nine months ended September 30, 2020 were $117,602 and 0.74%,~~was 1.25% in 2021 compared to ~~$6,922 and 7.57% for the same period~~4.19% in ~~2019. The volume increase was due to liquidity-based borrowings established at FHLB and the Federal Reserve to primarily fund PPP loan originations.~~2020. We expect that our net interest margin will continue to decrease as our rate sensitive assets decline at a frequency and magnitude greater than our fund costs given the uncertainty in the market as a result of the pandemic.

~~For the three months ended September 30,~~

~~tax-equivalent~~

~~net interest income decreased $848 to $10,504 in 2020 from $11,352 in 2019. The decrease in~~

~~tax-equivalent~~

net interest income was attributable to a decline in net accretion from purchased assets and assumed liabilities and reduced earnings from general market rates, partially offset by increased net earnings from PPP loans. Average earning assets increased $271,312 while average earning liabilities increased $253,431 comparing the third quarters of 2020 and 2019. The

~~tax-equivalent~~

net interest margin for the three months ended September 30, was 3.26% in 2020 compared to 4.46% in 2019. The net interest spread decreased to 3.17% for the three months ended September 30, 2020 from 4.26% for the three months ended September 30, 2019. Net accretion decreased to $325 from $1,415 comparing the third quarters of 2020 and 2019. Net interest income generated from PPP loans amounted to $1,479 in the third quarter of 2020.

~~For the three months ended September 30,~~

~~tax-equivalent~~

~~interest income decreased $1,498, to $12,008 in 2020 from $13,506 in 2019. The overall yield on earning assets, on a fully~~

~~tax-equivalent~~

basis, decreased 158 basis points for the three months ended September 30, 2020 to 3.73% as compared to 5.31% for the three months ended September 30, 2019. This decrease was a result of the combined impact of lower loan yields from declines in market rates and the addition of low yielding PPP loans along with the effects of reduced accretion on purchased loans. Average loans increased $283,450 comparing the third quarters of 2020 and 2019 primarily due to PPP loans. The

~~tax-equivalent~~

yield on the loan portfolio was 3.94% for the three months ended September 30, 2020 compared to 5.67% for the same period last year. The combined impact of rate and volume variances caused an overall decrease in interest earned on loans of $1,064. The yield earned on investments decreased 63 basis points for the third quarter of 2020 to 2.33% from 2.96% for the third quarter of 2019. This coupled with average investments decreasing to $76,861 for the quarter ended September 30, 2020 compared to $93,010 for the same period in 2019, resulted in a decrease in

~~tax-equivalent~~

~~interest income of $245. Overall~~

~~tax-equivalent~~

~~interest earned on investments was $450 for the three months ended September 30, 2020 compared to $695 for the same period in 2019.~~

Total interest expense decreased $650 to $1,504 for the three months ended September 30, 2020 from $2,154 for the three months ended September 30, 2019. A favorable rate variance more than offset an unfavorable volume variance and caused interest expense to decrease. The cost of funds decreased to 0.56% for the three months ended September 30, 2020 as compared to 1.05% for the same period in 2019. The average volume of interest-bearing liabilities increased to $1,070,803 for the three months ended September 30, 2020, from $817,372 for the three months ended September 30, 2019. Average interest-bearing deposits increased $43,352 to $853,782 for the third quarter of 2020 from $810,430 for the same period last year. Average long-term debt increased to $217,021 for the third quarter of 2020 from $6,942 for the same period last year to provide funding for PPP loans.

3933

Table of Contents

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 include

available-for-sale

securities at amortized cost. Income on investment securities and loans is adjusted to a tax equivalent basis using the prevailing federal statutory tax rate.


	Nine months ended														Three months ended
	September 30, 2020							September 30, 2019							March 31, 2021							March 31, 2020
	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	$	1,005,344	$	31,649		4.21	%	$	849,959	$	34,651		5.45	%	$	1,095,594	$	10,348		3.83	%	$	838,825	$	9,782		4.69	%
Tax exempt		33,914		891		3.51	%		35,853		914		3.41	%		26,952		223		3.36	%		35,595		310		3.50	%
Investments:
Taxable		67,222		1,291		2.57	%		93,423		2,113		3.02	%		91,549		494		2.19	%		77,400		535		2.78	%
Tax exempt		7,971		223		3.74	%		7,655		201		3.51	%		41,443		192		1.88	%		4,628		47		4.08	%
Interest bearing deposits		38,997		112		0.38	%		36,009		647		2.40	%		36,101		9		0.10	%		30,490		89		1.17	%
Federal funds sold

Total earning assets		1,153,448		34,166		3.96	%		1,022,899		38,526		5.04	%		1,291,639		11,266		3.54	%		986,938		10,763		4.39	%
Less: allowance for loan losses		8,431							6,636							12,188							7,273
Other assets		99,559							106,247							84,774							105,680

Total assets	$	1,244,576						$	1,122,510						$	1,364,225						$	1,085,345

Liabilities and Stockholders’ Equity:
Interest bearing liabilities:
Money market accounts	$	116,504	$	288		0.33	%	$	112,598	$	806		0.96	%	$	148,513		43		0.12	%	$	102,072		171		0.67	%
NOW accounts		291,182		574		0.26	%		273,199		1,415		0.69	%		317,296		86		0.11	%		270,559		319		0.47	%
Savings accounts		142,385		117		0.11	%		133,347		127		0.13	%		163,890		32		0.08	%		133,267		60		0.18	%
Time deposits		278,813		3,405		1.63	%		305,804		3,851		1.68	%		234,066		762		1.32	%		289,186		1,239		1.72	%
Short term borrowings		9,766		28		0.38	%																989		5		2.03	%
Long-term debt		117,602		652		0.74	%		6,922		392		7.57	%		209,781		646		1.25	%		11,817		123		4.19	%

Total interest-bearing liabilities		956,252		5,064		0.71	%		831,870		6,591		1.06	%		1,073,546		1,569		0.59	%		807,890		1,917		0.95	%
Non-interest-bearing demand deposits		163,886							158,384							176,895							144,630
Other liabilities		12,952							16,842							14,861							13,668
Stockholders’ equity		111,486							115,414							98,923							119,157

Total liabilities and stockholders’ equity	$	1,244,576						$	1,122,510						$	1,364,225						$	1,085,345

Net interest income/spread			$	29,102		3.25	%			$	31,935		3.98	%			$	9,697		2.95	%			$	8,846		3.44	%

Net interest margin						3.37	%						4.18	%						3.04	%						3.60	%
Tax-equivalent adjustments:
Loans			$	187						$	192						$	47						$	65
Investments				47							42							40							10

Total adjustments			$	234						$	234						$	87						$	75

Provision for Loan Losses:

We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of ~~September 30, 2020.~~March 31, 2021.

The Company did not recognize a charge in the form of a provision for loan losses in the first quarter of 2021 based on the results from its adequacy modeling of the allowance for loan loss account at March 31, 2021. Comparatively, the provision for loan losses totaled ~~$5,656~~$1,800 for the ~~nine months ended September 30,~~same period in 2020. The 2020 ~~compared to $2,250~~increase in ~~2019. For the quarter ended September 30,~~ the provision for loan losses was ~~$1,844 in 2020 compared to $1,049 in 2019. The increase in the~~

~~Table of Contents~~

~~provision for loan losses is~~ the combined result of organic loan growth, excluding ~~100% SBA guaranteed~~ PPP ~~loans,~~loan balances outstanding, and changes in qualitative factors ~~used in~~related to the allowance for loan losses reserve associated with increasing risks within the economy and our ~~ALLL model, accounting for increased economic risks and~~credit portfolio due to the ~~direct impact on our customers resulting from the~~effects of

~~COVID-19~~COVID-19.

~~pandemic as of September 30, 2020.~~ The pandemic effects are expected to continue to weigh heavily on businesses and their ability to service ~~debt along~~debt. Despite the positive signs with ~~increasing unemployment for those individuals depending on these businesses for income. As a result,~~respect to the progress made with the pandemic, our future provisions may increase bydue to the growth of loan delinquencies and charge-offs resulting from

COVID-19

~~pandemic~~ related financial stress.

Table of Contents

Noninterest Income:

For the ~~nine~~three months ended ~~September 30,~~March 31, noninterest income totaled ~~$7,089~~$2,523 in ~~2020, an increase~~2021, a decrease of ~~$1,192~~$407 from ~~$5,897~~$2,930 in ~~2019.~~2020. The ~~increase~~primary contributor to the overall decrease was ~~primarily attributable to recognizing an $815 net gain~~$569 less in gains on the sale of investment securities to provide liquidity to fund loan demand and limit exposure to falling rates through the disposition of adjustable rate securities. This compares to a $95 loss from the sale of investment securities recorded in 2019. Mortgage banking income increased $543 for the nine months ended September 30, 2020 as compared to the same period in 2019 due to an increase in refinancing activity brought on by reductions in mortgage interest rates. Partially offsetting these positive influences were reductions in service charges, commissions and fees on fiduciary activities and wealth management income. Service charges, fees and commissions decreased due to

~~COVID-19~~

induced suspensions and reductions to service charges along with reductions in customer activity. Specifically, the Company experienced reductions in overdraft fee income, ATM income, and reduced late charge fee income as it proactively worked with customers and noncustomers alike in an effort to minimize the financial impact of

~~COVID-19~~

~~within the communities served. Trust and wealth management income declined for the nine months ended September 30, 2020 by $186 and $73 compared to the same period of 2019 driven~~offset partially by ~~the impact that~~

~~COVID-19~~

~~has had upon equity market valuations~~increases in ~~2020.~~

For the quarter ended September 30, noninterest income totaled $2,158 in 2020, an increase of $198 from $1,960 in 2019. An increase of $250 in mortgage banking income was partially offset primarily by reductions in servicesservice charges, fees, and commissions of ~~$30~~$93 and the recognition of higher comparable trust and mortgage banking income of ~~$68.~~$47 and $43, respectively.

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, FDIC 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 to control the variable expenses.

Noninterest expense ~~increased $21,265,~~decreased to ~~$53,144~~$8,387 for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, from ~~$31,879~~$9,212 for the same period last year. The ~~increase~~overall decrease was primarily due to ~~writing off the entire amount~~a decrease of goodwill on the books totaling $24,754. Excluding this nonrecurring charge, noninterest expense would have decreased $3,489, or 10.9%, comparing the nine months ended September 30, 2020 and 2019. For the nine months ended September 30,$589 in salaries and employee benefit expenses ~~decreased $3,120, or 16.8%,~~due to ~~$15,452~~the implementation of the reduction in ~~2020~~force initiatives from ~~$18,572 in 2019 due primarily to~~

~~one-time~~

~~charges~~branch closures and consolidation of ~~$2,218 taken in 2019 related to a separation agreement. Net occupancy expense increased $502, or 15.8%, to $3,676 in 2020 from $3,174 in 2019. The primary cause for the increase in cost was a $356~~

~~one-time~~

~~charge for the acceleration of lease expense on a closed office.~~departments. Other expenses decreased ~~$818, or 8.6%, to $8,713 in~~$190 comparing the first quarters of 2021 and 2020 ~~compared to $9,531 in 2019. The decrease is a result of implementing cost savings initiatives in the latter part of 2019.~~

For the three months ended September 30, 2020, noninterest expense increased $547, to $9,978 from $9,431 for the same period last year. Salaries and employee benefit expense was $5,411 for the quarter ended September 30, 2020, an increase of $179 over the same period in 2019 due to ~~the recognition of severance~~implementing efficiency initiatives and ~~furlough expenses. Net occupancy~~selective expense ~~increased $387, to $1,428 in~~reductions made during the third quarter of 2020 as compared to $1,041 in the third quarter of 2019 caused by the lease acceleration expense. For the third quarter, other expenses decreased to $2,918 in 2020 from $2,979 in 2019.

COVID-19

shutdowns.

Income Taxes:

We recorded an income tax ~~benefit of $49 for the nine months ended September 30, 2020 as compared to income tax~~ expense of ~~$456~~$686 for ~~the nine months ended September 30, 2019. For~~ the three months ended ~~September 30, we recorded~~March 31, 2021 and $56 for the three months ended March 31, 2020. The increase in the income tax expense ~~of $67~~ in ~~2020 compared~~2021 is attributable to ~~$486 in 2019.~~recognizing higher taxable income.

~~Table of Contents~~

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 ~~September 30, 2020,~~March 31, 2021, the end of the period covered by this Quarterly Report on Form

10-Q,

the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in

Rule 13a-15(e)

under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at ~~September 30, 2020,~~March 31, 2021, 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.

Table of Contents

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.

~~Table of Contents~~

Item 6.

Exhibits

The following Exhibits are incorporated by reference hereto:


31.1		Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

31.2		Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

32.1		Chief Executive Officer’s §~~1350~~§1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

32.2		Chief Financial Officer’s §~~1350~~§1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

101		Interactive Data File (XBRL).

104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

4336

Table of Contents

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: ~~November 5, 2020~~May 6, 2021


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

Date: ~~November 5, 2020~~May 6, 2021

4437


Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020		3
	Consolidated Statements of Income and Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~		4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~		5
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2623
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4235
Item 4.	Controls and Procedures		4235
PART II	OTHER INFORMATION:
Item 1.	Legal Proceedings		4235
Item 1A.	Risk Factors		4236
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4236
Item 3.	Defaults upon Senior Securities		4236
Item 4.	Mine Safety Disclosures		4236
Item 5.	Other Information		4236
Item 6.	Exhibits		4336
	Signatures		4437


	September 30, 2020			December 31, 2019
Net unrealized gain ( loss ) on investment securities available-for-sale	$	1,868		$	676
Income tax expense		392			142

Net of income taxes		1,476			534

Benefit plan adjustments		(1,117	)		(1,117	)
Income tax benefit		(235	)		(235	)

Net of income taxes		(882	)		(882	)

Derivative fair value adjustment		11
Income tax benefit		3

Net of income taxes		8

Accumulated other comprehensive income (loss)	$	602		$	(348	)


Three months ended September 30,	2020		2019
Unrealized gain (loss) on investment securities available-for-sale	$	114	$	(256	)
Net (gain) loss on the sale of investment securities available-for-sale (1)				53
Net change in derivative fair value		49

Other comprehensive income (loss) before taxes		163		(203	)
Income tax expense (benefit)		35		(42	)

Other comprehensive income (loss)	$	128	$	(161	)


Nine months ended September 30,	2020			2019
Unrealized gain on investment securities available-for-sale	$	2,007		$	2,703
Net (gain) loss on the sale of investment securities available-for-sale (1)		(815	)		95
Net change in derivative fair value		11

Other comprehensive income before taxes		1,203			2,798
Income tax expense		253			588

Other comprehensive income	$	950		$	2,210


	September 30, 2020		December 31, 2019
Commercial	$	382,518	$	118,658
Real estate:
Construction		64,322		61,831
Commercial		507,795		455,901
Residential		202,132		207,354
Consumer		6,675		8,365

Total	$	1,163,442	$	852,109


	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	584		$	465
ROU assets obtained in exchange for lease liabilities				$	4,529
Weighted average remaining lease term—operating leases, in years		9.12			10.46
Weighted average discount rate—operating leases		3.04	%		3.06	%


2020	$	187
2021		754
2022		697
2023		485
2024		317
Thereafter		1,568

Total lease payments		4,008
Less imputed interest		611

	$3,397


Balance, January 1, 2020	$	24,754
Less: Goodwill impairment		24,754

Balance, September 30, 2020	$


	Number of Loans		Amount		% of Outstanding Including PPP Loans			% of Outstanding Excluding PPP Loans			Aggregate Deferred Payments				Loans with Second Deferrals
	Number of Loans		Amount		% of Outstanding Including PPP Loans			% of Outstanding Excluding PPP Loans			Principal		Interest		Number of Loans		Amount		% of Outstanding Including PPP Loans			% of Outstanding Excluding PPP Loans
Commercial		10	$	3,003		0.78	%		2.61	%	$	141	$	77
Construction:
Commercial		2		246		0.64	%					3		8
Hospitality		2		13,468		48.42	%					55		398		1		6,755		24.29	%

Total		4		13,714		20.65	%					58		406		1		6,755		10.17	%

Commercial Real Estate:
Multi Family		3		7,709		13.43	%					95		136		1		1,053		1.84	%
Owner Occupied		9		4,745		3.77	%					204		95		1		1,088		0.86	%
Non-Owner Occupied		5		24,962		9.46	%					1,681		334		1		1,541		0.58	%
Hospitality		5		14,232		46.07	%					325		226		2		3,998		12.94	%
Agricultural		16		10,133		35.02	%					210		248

Total		38		61,781		12.19	%					2,.515		1,039		5		7,680		1.51	% 1

Residential Real Estate		40		4,813		2.37	%					119		135		4		1.660		0.82	%
Consumer		5		10		0.15	%					4		1

Total		97	$	83,321		7.14	%		9.28	%	$	2,837	$	1,658		10	$	16,095		1.38	%		1.79	%