Index to Financial Statements

As filed with the Securities and Exchange Commission on July 31, 2015August 21, 2019

Registration No.No.                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORMS-4

REGISTRATION STATEMENT

under

THE SECURITIES ACT OF 1933

 

 

RIVER FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

ALABAMA  6022  46-1422125
(State or other jurisdiction of
incorporation or organization)		  (Primary Standard Industrial
Classification Code Number)		  

(I.R.S. Employer

Identification No.)

2611 Legends Drive

Prattville, Alabama 36066

(334)290-1012

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Jimmy Stubbs

President and Chief Executive Officer

2611 Legends Drive

Prattville, Alabama 36066

(334)290-1012

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael D. Waters, Esq.

Jones Walker LLP

1819 Fifth Avenue420 20thStreet North, Suite 1100

Birmingham, Alabama 35203

(205) 244-5210

W. Brad Neighbors, Esq.

Balch & Bingham LLP

1901 Sixth Avenue North, Suite 1500

Birmingham, Alabama 35203

(205)(205) 251-8100244-5210

Ralph F. MacDonald, III, Esq.

Jones Day

1420 Peachtree St., N.E.

Atlanta, Georgia 30309-3053

(404)581-8622

 

 

Approximate Date of Commencement of Proposed Sale of the Securities to the Public:

As soon as practicable after the effective date of this Registration Statement and the satisfaction

or waiver of all other conditions to the merger described in the enclosed proxy statement / prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or emerging growth company. See theSeethe definitions of “large accelerated filer”,filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

 

Large accelerated filer ¨☐  Accelerated filer ¨☐
Non-accelerated filer ¨  (Do not check if a smaller reporting company)☐  Smaller reporting company x☒
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 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule13e-4(i) (Cross-Border Issuer Tender Offer)  ¨☐

Exchange Act Rule143-1(d) (Cross-Border Third-Party Tender Offer)  ¨☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of

securities to be registered

 

Amount

to be

registered

 

Proposed

maximum
offering price

per share

 

Proposed

maximum
aggregate

offering price(1)

 

Amount of

registration fee(2)

 

Amount

to be

        registered        

 

Proposed

maximum
        offering price        

per share

  

Proposed

maximum
aggregate

    offering price (1)    

  

Amount of

    registration fee (2)    

Common stock, par value $1.00 per share

 1,883,292(1) N/A $21,714,356 $2,523.21 779,121(1) N/A  $10,510,035  $1,273.82

(1)

This Registration Statement relates to the common stock of River Financial Corporation (the “Registrant”) issuable to holders of common stock of Keystone Bancshares,Trinity Bancorp, Inc. (“Trinity”) in the proposed merger of Keystone Bancshares, Inc. (“Keystone”)Trinity with and into the Registrant. Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f)(2) and Rule 457(f)(3) of the Securities Act of 1933 (the “Securities Act”) by: (i) multiplying $15.53,$9.52, the book value per share of KeystoneTrinity common stock as of March 31, 2015,June 30, 2019, times 1,883,2921,745,853 shares, the number of shares of KeystoneTrinity common stock outstanding, including in such number the maximum number of shares that may be issued prior to the merger pursuant to Keystone options and warrants;outstanding; and (ii) subtracting from such product $7,533,168,$6,110,486, the fixed cash portion of the merger consideration to be paid by the Registrant to the holders of KeystoneTrinity common stock exchanged in the merger in accordance with Rule 457(h)(1). KeystoneTrinity is a private company and no public market exists for its equity securities. Pursuant to Rule 416, this Registration Statement also covers an indeterminate number of shares as may become issuable as a result of stock splits, stock dividends, or similar transactions.

(2)

Determined in accordance with Section 6(b) of the Securities Act of 1933, as amended, at a rate equal to $116.20$121.20 per $1,000,000 of the proposed maximum aggregate offering price.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

 

 

 

Index to Financial Statements

Information contained in this joint proxy statement / prospectus is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell nor shall there be any sale of these securities in any jurisdiction in which such offer or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Any representation to the contrary is a criminal offense.

 

SUBJECT TO COMPLETION DATED JULY 31, 2015AUGUST 21, 2019

Joint Proxy Statement / Prospectus

Keystone Bancshares,Trinity Bancorp, Inc.

River Financial Corporation

MERGER PROPOSED — PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On behalf of the boardsboard of directors of River Financial Corporation (“River Financial”) and Keystone Bancshares,Trinity Bancorp, Inc. (“Keystone”Trinity”) we are pleased to deliver this joint proxy statement / prospectus (the “proxy statement / prospectus”) for the merger of KeystoneTrinity with and into River Financial.Financial Corporation (“River Financial”). Immediately following the merger of KeystoneTrinity with and into River Financial, KeystoneTrinity Bank, an Alabama banking corporation, Keystone’sTrinity’s wholly-owned subsidiary, will be merged with and into River Financial’s wholly-owned subsidiary, River Bank & Trust, an Alabama banking corporation.

If the merger is completed, shareholders of KeystoneTrinity will receive, in exchange for each outstanding share of Trinity common stock held of record, one0.44627 of a share of River Financial common stock, and $4.00$3.50 in cash. In addition, persons holding options or warrants to acquire Keystone common stock will receive options or warrants to acquire 1.25 sharesShares of River Financial common stock, for each such option or warrant at a purchase price equal to the original exercise price divided by 1.25. Shareholders of both Keystone and River Financial have a right to approve the merger. Shares of River Financial common stockpar value $1.00 per share, currently outstanding will continue to be held by River Financial shareholders without change. River Financial expects to issue a total of 779,121 shares of its common stock in the merger.

The shares of Keystone and River FinancialTrinity common stock are not currently traded publicly on any organized market. WhileRiver Financial common stock is traded in privately negotiated transactions and is also thinly traded on the OTC Pink Open Market (RVFR). River Financial is not currently a public company, it will be effective at the closing of the merger and will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.

If you areAs a holder of KeystoneTrinity common stock, you will be asked at the special meeting of KeystoneTrinity shareholders to be held on                     , 20152019 to vote, among other things, to adopt and approve the agreementAgreement and planPlan of merger.Merger by and between River Financial and Trinity (the “Merger Agreement”). Approval of the agreement and plan of mergerMerger Agreement requires the affirmative vote oftwo-thirds of the shares of KeystoneTrinity common stock outstanding, assuming that a quorum is present.

Similarly, if you are a holder of River Financial common stock, you will be asked at the special meeting of shareholders of River Financial to be held on                     , 2015 to vote to adopt and approve the agreement and plan of merger. Approval of the agreement and plan of merger requires the vote of two-thirds of the shares of River Financial common stock outstanding, assuming a quorum is present. You will also be asked to vote upon and approve an amendment to River Financial’s articles of incorporation to increase the authorized shares of River Financial common stock from 5,000,000 to 10,000,000 shares, to set the number of River Financial directors at seven (7) effective at the merger, and to approve the 2015 Incentive Stock Compensation Plan. The approval of the amendment to the articles of incorporation requires the affirmative vote of at least a majority of the shares of River Financial common stock outstanding. Approval of the setting of the number of directors and of the 2015 Incentive Stock Compensation Plan each requires the affirmative vote of a majority of the votes cast at the River Financial special meeting.

The KeystoneTrinity board of directors unanimously recommends that KeystoneTrinity common shareholders vote “FOR” the adoption and approval of the agreement and plan of merger.Merger Agreement.

The River Financial board of directors recommends that River Financial common shareholders vote “FOR” each of the adoption and approval of the agreement and plan of merger, approval of the increase in the number of authorized shares of River Financial common stock, the setting of the number of directors at seven (7), and approval of the 2015 Incentive Stock Compensation Plan.

This document describes the special meetings,meeting, the merger, the documents related to the merger and other related matters.Please read carefully this entire document, including “Risk Factors” beginning on page 2620 for a discussion of the risks relating to the proposed merger and owning River Financial common stock after the merger.

 

/s/ Ray Smith

/s/ Jimmy StubbsCarey Slay

Ray SmithCarey Slay

Chief Executive OfficerChairman of the Board

Keystone Bancshares,Trinity Bancorp, Inc.

Jimmy Stubbs

President and Chief Executive Officer

River Financial Corporation

Neither the Securities and Exchange Commission nor any state securities commission or bank regulatory agency has approved or disapproved of the River Financial common stock to be issued under this document or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

The shares of River Financial common stock to be issued in the merger are not savings or deposit accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

This proxy statement / prospectus is dated                     , 2015,2019, and it is first being mailed to Keystone and River FinancialTrinity shareholders, along with the enclosed proxy card, on or about                     , 2015.2019.

Index to Financial Statements

REFERENCES TO ADDITIONAL INFORMATION

River Financial has filed certain documents and important business and financial information with the Securities and Exchange Commission that have not been included in or delivered with this proxy statement / prospectus. This information is available to you without charge upon your written or oral request. You can obtain such documents and information by requesting them in writing or by telephone or email from River Financial at the following addresses:

River Financial Corporation

2611 Legends Drive

Prattville, Alabama 36066

Phone: (334)290-2706290-1012

Email: rhallman@riverbankandtrust.com

Attn:    Rebecca Hallman

You will not be charged for any of these documents that you request. IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO NO LATER THAN FIVE BUSINESS DAYS BEFORE THE APPLICABLE SPECIALANNUAL MEETING, i.e., by                     , 2019 IN ORDER TO RECEIVE THEM BEFORE THE SPECIALANNUAL MEETING.

You should rely only on the information contained or incorporated by reference into this document. No one has beenWe have not authorized anyone to provide you withany information that is different fromother than that contained in, or incorporated by reference into, this document. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should assume that the information in this document is accurate only as of the date of the noticesnotice of the special meeting or such other date as is specified. You should assume that the information incorporated by reference into this document is only accurate as of the date of such document or such other date as is specified. Neither the mailing of this document to Keystone shareholders or River FinancialTrinity shareholders nor the issuance by River Financial of shares of River Financial common stock in connection with the merger will create any implication to the contrary.

Information on the websites of River Financial or Keystone,Trinity, or any subsidiary of River Financial or Keystone,Trinity, is not part of this document. You should not rely on such information in deciding how to vote.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding KeystoneTrinity has been provided by KeystoneTrinity and information contained in this document regarding River Financial, as well as all pro forma information, has been provided by River Financial.

See “Where You Can Find More Information” on page      of this proxy statement / prospectus for more information about the documents referred to in this proxy statement / prospectus.

Index to Financial Statements

KEYSTONE BANCSHARES,TRINITY BANCORP, INC.

NOTICE OF SPECIALANNUAL MEETING OF SHAREHOLDERS

To be held on                     , 20152019

On                     , 2015, Keystone Bancshares,2019, Trinity Bancorp, Inc. (“Keystone”Trinity”) will hold aits SpecialAnnual Meeting of Shareholders at KeystoneTrinity Bank located at 2394 E. University Drive, Auburn,1479 W. Main Street, Dothan, Alabama 3683036305 at          p.m., local time, to consider and vote upon the following matters:

 

 1.

a proposal to approve the Agreement and Plan of Merger, dated as of May 13, 2015,June 4, 2019, by and between River Financial Corporation (“River Financial”) and Keystone, as it may be amended from time to time (referred to in the proxy statement / prospectus as the “merger agreement”Trinity (the “Merger Agreement”);

 

 2.

a proposal to elect Dr. Henry H. Barnard, II, Bill Brent Beasley, Terry D. Duffie, James Etheredge, Dr. William D. McLaughlin, Brian R. McLeod, John Mitchell, E. Carey Slay, Jr, Joe Paul Stewart, and J. Robbin Thompson as directors of Trinity to serveone-year term (provided that, if the merger referred to in proposal 1 is consummated, the terms will end pursuant to the merger);

3.

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the special meeting to approve the foregoing proposal;Merger Agreement; and

 

 3.4.

any other business properly brought before the special meeting or any adjournment or postponement thereof but which is not now anticipated.

The KeystoneTrinity board of directors recommends that you vote “FOR” the proposals 1, 2 and 23 above. No proposal is conditioned upon the approval of any other proposal.

The accompanying proxy statement / prospectus describes the terms and conditions of the merger agreement and includes the complete text of the merger agreement as Annex A. We urge you to read the enclosed materials carefully for a complete description of the merger agreement and the merger. The accompanying proxy statement / prospectus forms a part of this notice.

The KeystoneTrinity board of directors has fixed the close of business on                     , 2015,2019, as the record date for the special meeting. Only KeystoneTrinity shareholders of record at that time are entitled to notice of, and, if a holder of KeystoneTrinity common stock, to vote at, the special meeting, or any adjournment or postponement of the special meeting. Approval of the merger proposal requires the affirmative vote oftwo-thirds of the outstanding shares of KeystoneTrinity common stock and approvaleach of the proposal to adjourn the special meeting, if necessary or appropriate,other proposals requires the affirmative vote of a majority of the votes cast, in each caseall cases assuming that a quorum is present.

Alabama law provides that shareholders may dissent from the merger and demand that KeystoneTrinity pay the fair cash value, as defined by law, for their shares instead of receiving the consideration offered to shareholders in connection with the merger. A copy of the Alabama law governing dissenters rights is attached as Annex DC hereto. If shareholders holding more than 5% of the outstanding shares of common stock of KeystoneTrinity common stock dissent from the merger and demand appraisal rights, the merger will not be consummated unless that condition for closing is waived by both Keystone and River Financial. Dissenting shareholders will not receive appraisal rights if the merger is not consummated. For more information, See “The Merger — “The Merger—Dissenters’ Appraisal Rights in the Merger” beginning on page     .

Whether or not you plan to attend the special meeting, please submit your proxy with voting instructions. Please vote as soon as possible by submitting your proxy card by mail or in person. To submit your proxy by mail, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed, stamped envelope. This will not prevent you from voting in person, but it will help to secure a quorum. Any holder of record of KeystoneTrinity common stock who is present at the special meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before the special meeting in the manner described in the proxy statement / prospectus.

By Order of the Board of Directors

                    , 2015

W. Murray Neighbors

Chairman of the Board

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE VOTE YOUR SHARES PROMPTLY.

Index to Financial Statements

RIVER FINANCIAL CORPORATION

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To be held on                     , 2015

On                     , 2015, River Financial Corporation (“River Financial”) will hold a Special Meeting of Shareholders at River Bank & Trust located at The Legends Conference Center, 2500 Legends Circle, Prattville, Alabama 36066 at         p.m., local time, to consider and vote upon the following matters:

1.a proposal to approve the Agreement and Plan of Merger, dated as of May 13, 2015, by and between River Financial and Keystone Bancshares, Inc. (“Keystone”), as it may be amended from time to time (referred to in the proxy statement / prospectus as the “merger agreement”);

2.a proposal to amend the River Financial articles of incorporation to increase the authorized number of shares of River Financial common stock from 5,000,000 to 10,000,000 shares;

3.a proposal to establish the number of directors of River Financial at seven (7) effective upon the merger between Keystone and River Financial;

4.a proposal to approve the 2015 Incentive Stock Compensation Plan;

5.a proposal to approve the adjournment of the special meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the special meeting to approve the foregoing proposals; and

6.any other business properly brought before the special meeting or any adjournment or postponement thereof but which is not now anticipated.

The River Financial board of directors recommends that you vote “FOR” proposals 1-5 above.

The accompanying proxy statement / prospectus describes the terms and conditions of the merger agreement and includes the complete text of the merger agreement as Annex A. We urge you to read the enclosed materials carefully for a complete description of the merger agreement and the merger. The accompanying proxy statement / prospectus forms a part of this notice.

The River Financial board of directors has fixed the close of business on                     , 2015, as the record date for the special meeting. Only River Financial shareholders of record at that time are entitled to notice of, and to vote at, the special meeting, or any adjournment or postponement of the special meeting. Approval of the merger proposal requires the affirmative vote of two-thirds of the outstanding shares of River Financial common stock, and approval of the amendment of the articles of incorporation requires the affirmative vote of a majority of shares of River Financial common stock outstanding; approval of the setting of the number of directors at seven (7), of the 2015 Incentive Stock Compensation Plan and of the proposal to adjourn the special meeting, if necessary or appropriate, each requires affirmative vote of a majority of the votes cast, in all cases assuming that a quorum is present.

Alabama law provides that shareholders may dissent from the merger and demand that River Financial pay the fair cash value, as defined by law, for their shares for any shareholder who does not wish to retain River Financial shares after the merger. A copy of the Alabama law governing dissenters rights is attached as Annex D hereto. If shareholders holding more than 5% of the outstanding shares of River Financial common stock dissent from the merger and demand appraisal rights, the merger will not be consummated unless that condition for closing is waived by both River Financial and Keystone. Dissenting shareholders will not receive appraisal rights if the merger is not consummated. For more information, See “The Merger — Dissenters’ Appraisal Rights in the Merger” beginning on page     .

Whether or not you plan to attend the special meeting, please submit your proxy with voting instructions. Please vote as soon as possible by submitting your proxy card by mail or in person. To submit your proxy by mail, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed, stamped envelope. This will not prevent you from voting in person, but it will help to secure a quorum. Any holder of record of River Financial common stock who is present at the special meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before the special meeting in the manner described in the proxy statement / prospectus.

 

 By Order of the Board of Directors
                    , 20152019 

Larry PuckettCarey Slay

Chairman of the Board

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIALANNUAL MEETING IN PERSON, PLEASE VOTE YOUR SHARES PROMPTLY.

Index to Financial Statements

TABLE OF CONTENTS

 

   Page 

QUESTIONS AND ANSWERS

   1 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

   54 

SUMMARY

   7

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF RIVER FINANCIAL

14

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF KEYSTONE

166 

UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   18

COMPARATIVE PER SHARE DATA

2412 

COMPARATIVE MARKET PRICES AND DIVIDENDS

   2519 

RISK FACTORS

   2620 

THE KEYSTONE SPECIAL MEETINGELECTION OF DIRECTORS

   34

THE RIVER FINANCIAL SPECIAL MEETING

37

THE MERGER

40

THE MERGER AGREEMENT

6971 

ADJOURNMENT OF THE SPECIAL MEETINGSANNUAL MEETING

   76

APPROVAL TO INCREASE THE NUMBER OF RIVER FINANCIAL AUTHORIZED SHARES

77

APPROVAL TO ESTABLISH THE NUMBER OF RIVER FINANCIAL DIRECTORS AT SEVEN (7)

79

APPROVAL OF RIVER FINANCIAL’S 2015 INCENTIVE STOCK COMPENSATION PLAN

8071 

DESCRIPTION OF RIVER FINANCIAL COMMON STOCK

   8872 

COMPARISON OF SHAREHOLDERS’ RIGHTS

   9175 

UNITED STATESMATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO KEYSTONETRINITY SHAREHOLDERS

   9578 

INFORMATION ABOUT RIVER FINANCIAL

   9883 

RIVER FINANCIAL CORPORATION MANAGEMENT’s DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

98

INFORMATION ABOUT TRINITY

143

TRINITY BANCORP, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   107

INFORMATION ABOUT KEYSTONE

126

KEYSTONE MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

134147 

SUPERVISION AND REGULATION

   160174 

EXPERTS

   168181 

LEGAL MATTERS

   168181 

WHERE YOU CAN FIND MORE INFORMATION

   168182 

Index to Consolidated Financial Statements (Audited and Unaudited)

   F-1 

i

Index to Financial Statements

Annex A

 Agreement and Plan of Merger, dated as of May 13, 2015,June 4, 2019, by and between River Financial Corporation and Keystone Bancshares,Trinity Bancorp, Inc.

Annex B

 Opinion of Sandler O’Neill + Partners LPPorter White Capital, LLC

Annex C

Opinion of Stephens Inc.

Annex D

 Alabama Business Corporation Act ofregarding Dissenter’s Rights

Annex E

2015 Incentive Stock Compensation Plan of Appraisal

 

iii

Index to Financial Statements

QUESTIONS AND ANSWERS

The following are answers to certain questions that you may have regarding the Keystone special meeting, the River Financial specialTrinity shareholder’s meeting and the merger. We urge you to read carefully the remainder of this document (including the “Risk Factors”risk factors beginning on page     ) because the information in this section may not provide all the information that might be important to you in determining how to vote. Throughout this document, we refer to Keystone Bancshares,Trinity Bancorp, Inc. as “Keystone”“Trinity” and River Financial Corporation as “River Financial,” and, generally, references to River Financial include River Bank & Trust (sometimes referred to as “River Bank”), and references to KeystoneTrinity include KeystoneTrinity Bank. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this document.

 

Q:

What are holders of KeystoneTrinity common stock being asked to vote on?

 

A:

Holders of KeystoneTrinity common stock are being asked to vote (1) to adopt and approve the agreement and plan of merger by and between River Financial and Keystone,Trinity, (2) to elect Dr. Henry H. Barnard, II, Bill Brent Beasley, Terry D. Duffie, James Etheredge, Dr. William D. McLaughlin, Brian R. McLeod, John Mitchell, E. Carey Slay, Jr, Joe Paul Stewart, and (2)J. Robbin Thompson as directors of Trinity to serve a one-year term (provided that, if the merger referred to in proposal 1 is consummated, the terms will end pursuant to the merger agreement) and (3) to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the adoption and approval of the agreement and plan of merger.merger agreement. Throughout the remainder of this proxy statement / prospectus, the agreement and plan of merger is referred to as the “merger agreement.” In the merger, KeystoneTrinity will be merged with and into River Financial, and River Financial will be the continuing corporation. Immediately following the merger of KeystoneTrinity with and into River Financial, Keystone’sTrinity’s subsidiary bank, KeystoneTrinity Bank, will merge with and into River Financial’s subsidiary bank, River Bank & Trust, and River Bank & Trust will be the continuing bank. References to the “merger” refer to the merger of KeystoneTrinity with and into River Financial, unless the context clearly indicates otherwise. Unless marked otherwise on the proxy card, the proxy also grants discretionary authority to the proxy holders to vote, in their discretion, on any other matter that may come before the special meeting. We do not know of any other business that may come before the meeting.

 

Q:What are holders of River Financial common stock being asked to vote on?

A:Holders of River Financial common stock are being asked to vote (1) to adopt and approve the agreement and plan of merger by and between River Financial and Keystone, (2) to approve an amendment to the River Financial articles of incorporation to increase the authorized number of shares of River Financial common stock from 5,000,000 to 10,000,000 shares, (3) to establish the number of River Financial directors at seven (7) effective at the merger, (4) to approve the 2015 Incentive Stock Compensation Plan, and (5) to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the adoption and approval of the merger agreement and the other proposals. Unless marked otherwise on the proxy card, the proxy also grants discretionary authority to the proxy holders to vote, in their discretion, on any other matter that may come before the special meeting. We do not know of any other business that may come before the meeting.

Q:What will I receive if the merger is completed?

 

A:

If you are a shareholder of Keystone,Trinity, you will receive for each share of KeystoneTrinity common stock that you own $4.00$3.50 in cash and 1.000.44627 of a share of River Financial common stock. Shareholders of River Financial will retain their shares of River Financial common stock unchanged. In addition, each outstanding option and warrant to acquire Keystone common stock held by Keystone officers, directors, and others will be converted into options and warrants to acquire River Financial common stock.

 

Q:Will shareholders of River Financial receive anything in the merger?

A:No. Shareholders of River Financial are required by Alabama law to vote to approve the merger. Shareholders of River Financial will retain their shares of common stock of River Financial and will continue as shareholders of River Financial following the merger.

Index to Financial Statements
Q:What do holders of KeystoneTrinity common stock need to do now?

 

A:

After you have carefully read this document and have decided how you wish to vote your KeystoneTrinity shares, indicate on your proxy card how you want your shares to be voted with respect to (1) the adoption and approval of the merger agreement, (2) the election of the proposed directors and (2)(3) the approval of the adjournment of the Keystone specialTrinity meeting, if necessary or appropriate, to solicit additional proxies. When complete, sign, date and mail your proxy card in the enclosed postage-paid return envelope as soon as possible to the Keystone transfer agent: Demiurgic, Inc., Attn: Chris Fette, 94 Birkdale Loop, Pawleys Island, South Carolina 29585.Trinity at 1479 West Main Street, Dothan, Alabama 36301. Submitting your proxy by mail or directing your bank or broker to vote your shares will ensure that your shares are represented and voted at the Keystone specialTrinity meeting. Your proxy card must be received prior to the special meeting on                     , 2015,2019, in order to be counted. If you would like to attend the Keystone specialTrinity meeting, see “Can I attend the specialTrinity meeting and vote my shares in person?”

 

Q:What do holders of River Financial common stock need to do now?

A:After you have carefully read this document and have decided how you wish to vote your River Financial shares, indicate on your proxy card how you want your shares to be voted with respect to (1) the adoption and approval of the merger agreement, (2) approval of the increase in authorized shares, (3) approval of setting the number of directors at seven effective at the merger, (4) approval of the 2015 Incentive Stock Compensation Plan, and (5) approval of the adjournment of the River Financial special meeting, if necessary or appropriate, to solicit additional proxies. When complete, sign, date and mail your proxy card in the enclosed postage-paid return envelope as soon as possible to: Becky Hallman, River Financial Corporation, P.O. Box 680249, Prattville, Alabama 36068, by U.S. Mail or by delivery at 2611 Legends Drive, Prattville, Alabama 36606, or to rhallman@riverbankandtrust.com by email. Submitting your proxy by mail or directing your bank or broker to vote your shares will ensure that your shares are represented and voted at the River Financial special meeting. Your proxy card must be received prior to the special meeting on                     , 2015, in order to be counted. If you would like to attend the River Financial special meeting, see “Can I attend the special meeting and vote my shares in person?”

Q:Why is my vote as a holder of KeystoneTrinity common stock important?

 

A:

If you do not vote by proxy or vote in person at the Keystone specialTrinity meeting, it will be more difficult for KeystoneTrinity to obtain the necessary quorum to hold its special meeting. In addition, approval of the merger agreement requires the affirmative vote oftwo-thirds of the shares of common stock outstanding, assuming that a quorum is present. Thus, shares not voted in effect count as “no” votes.votes for the merger proposal.The KeystoneTrinity board of directors recommends that you vote to adopt and approve the merger agreement.

Q:Why is my vote as a holder of River Financial common stock important?

A:If you do not vote by proxy or vote in person at the River Financial special meeting, it will be more difficult for River Financial to obtain the necessary quorum to hold its special meeting. In addition, approval of the merger agreement requires the affirmative vote of two-thirds of the shares outstanding and entitled to be cast and approval of a majority of the shares of common stock outstanding respecting the increase in authorized shares, assuming that a quorum is present. Thus, shares not voted in effect count as “no” votes as to those matters.The River Financial board of directors recommends that you vote to adopt and approve the merger agreement and the other proposals.

Q:If my shares are held in street name by my broker, or in an individual retirement account, how will my shares be voted?

A: Your brokercannot vote your shares without instructions from you. You should instruct your broker as to how to vote your shares, following the directions your broker provides to you. Please check the voting form used by your broker. Without instructions, your shares will not be voted and will not count toward a quorum. In addition, the custodian of your IRA will vote on the proposals to be presented in accordance with your account agreement. You should contact your IRA custodian about the terms of your IRA agreement.

A:

Your brokercannot vote your shares without instructions from you. You should instruct your broker as to how to vote your shares, following the directions your broker provides to you. Please check the voting form used by your broker. Without instructions, your shares will not be voted and will not count toward a quorum. In addition, the custodian of your individual retirement account (“IRA”) will vote on the proposals to be presented in accordance with your account agreement. You should contact your IRA custodian about the terms of your IRA agreement.

Index to Financial Statements
Q:

Can I attend the special meeting and vote my shares in person?

 

A:

Yes. All holders of KeystoneTrinity common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Keystone special meeting, and all holders of River Financial common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the River Financial specialTrinity meeting. If you are a holder of record of common stock of either Keystone or River FinancialTrinity as of the record date, you can vote in person at the applicable special meeting. If you choose to vote in person at the special meeting and if you are a registered shareholder of record, you should bring the enclosed proxy card and proof of identity. If you hold your shares in street name, you must obtain and bring a broker representation letter in your name from your bank, broker or other holder of record and proof of identity. Everyone who attends the special meeting must abide by the rules for the conduct of the meeting, which will be announced and determined by the Chairman.Chair. At the appropriate time during the special meeting, the shareholders present will be asked whether anyone wishes to vote in person. You should raise your hand at thisthat time to receive a ballot to record your vote. Even if you plan to attend the special meeting, each of Keystone and River FinancialTrinity encourages its respective shareholdersyou to vote by proxy so your vote will be counted if you later decide not to attend the special meeting.

 

Q:

Is the merger expected to be taxable to KeystoneTrinity shareholders?

 

A:

We expect that to the extent KeystoneTrinity shareholders receive River Financial common stock in the merger, such shareholders will not be taxedsubject to U.S. federal income tax on that portion of the merger consideration. We expect that holdersconsideration at the time of Keystone common stockthe merger. However, Trinity shareholders will be taxedsubject to U.S. federal income tax on any gain but not loss, recognizedrealized on the exchange of their shares of KeystoneTrinity common stock for the merger consideration for United StatesU.S. federal income tax purposes to the extent they receive cash in the cash.merger. Trinity shareholders will also be subject to U.S. federal income tax with respect to cash received on account of dissenters’ rights and cash received in lieu of a fractional share of River Financial common stock. You should read “United States“Material U.S. Federal Income Tax Consequences of the Merger to KeystoneTrinity Shareholders” beginning on page      for a more complete discussion of the United StatesU.S. federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the specific U.S. federal income tax consequences of the merger to you.you, as well as the estate, gift, state, local ornon-U.S. tax consequences of the merger.

 

Q:

Can I change or revoke my vote?

 

A:

Yes. You may revoke any proxy at any time before it is voted in any of the following ways: (1) by personally appearing and choosing to vote at the applicable special meeting, if you are the shareholder of record, or you obtain and bring a broker representation letter in your name from your bank, broker or the holder of record and, in all cases, you bring proof of identity; (2) by written notification to Keystone or River Financial, as appropriate,Trinity, which is received prior to the exercise of the proxy; or (3) by a subsequent proxy executed by the person executing the prior proxy and presented at the special meeting. KeystoneTrinity shareholders may send their written revocation letter to Keystone Bancshares,Trinity Bancorp, Inc., Attention: Ray Smith, 2394 E. University Drive, Auburn,Robbin Thompson, 1479 West Main Street, Dothan, Alabama 36830.36301. Any shareholder entitled to vote in person at the Keystone specialTrinity meeting may vote in person regardless of whether a proxy previously has been given, but the mere presence of a shareholder at the special meeting will not by itself constitute revocation of a previously given proxy. River Financial shareholders may send their written revocation letter to River Financial Corporation, Attention: Becky Hallman, P.O. Box 680249, Prattville, Alabama 36068 by U.S. Mail or delivery or by email to rhallman@riverbankandtrust.com. Any shareholder entitled to vote in person at the River Financial special meeting may vote in person regardless of whether a proxy previously has been given, but the mere presence of a shareholder at the special meeting will not constitute revocation of a previously given proxy.

Q:

Should I send in my stock certificates now?

 

A:

No. As a KeystoneTrinity shareholder, you should not send in your KeystoneTrinity stock certificates at this time. After completion of the merger, River Financial will cause instructions to be sent to you for exchanging KeystoneTrinity stock certificates for shares of River Financial common stock and cash. Please do not send in your stock

Index to Financial Statements
certificates with your proxy card. River Financial shareholders will remain as shareholders of River Financial following the merger, and if you are a shareholder of River Financial, you need not do anything as your shares will remain unchanged.

 

Q:

Whom can I contact if I cannot locate my KeystoneTrinity stock certificate(s)?

 

A:

If you are unable to locate your original KeystoneTrinity stock certificate(s), you should contact either Kim Long in Gadsden,Robbin Thompson at 1479 West Main Street, Dothan, Alabama at (256) 543-1950 or Angela Moulton in Auburn, Alabama at (334) 466-2210.36301. Generally, merger consideration for lost certificates cannot be delivered except upon the making of an affidavit confirming such certificate to be lost, stolen or destroyed and the posting of a bond in such amount as River Financial may determine is reasonably necessary as indemnity against any claim that may be made with respect to such lost certificate.

 

Q:

When do you expect to complete the merger?

 

A:

We currently expect to complete the merger during the fourth quarter of 2015.2019. However, we cannot assure you when or if the merger will occur. We must, among other things, first obtain the approvals of holders of KeystoneTrinity common stock and River Financial common stock at their respective special meetings and the required regulatory approvals, or waivers thereof, described below in “The Merger — Merger—Regulatory Approvals” beginning on page     .

 

Q:

Will I be able to sell the River Financial common stock I receive pursuant to the merger?

 

A:

The River Financial common stock is not currentlytraded in privately negotiated transactions and is thinly traded on any national securities exchange or quotation system,the OTC Pink Open Market, and aan active liquid market for the stock does not currently exist and may not develop after the merger.

 

Q:

Do I have any dissenters’ rights in connection with the merger?

 

A:

Yes, both Keystone and River FinancialTrinity shareholders have dissenters’ rights of appraisal in connection with the merger. Under Alabama law, if you follow the prescribed procedures, under Alabama law, you may dissent from the merger and receive the fair value of your common stock. To perfect your dissenters’ rights, you must follow precisely the required statutory procedures. If the merger is consummated, then to the extent you are successful in pursuing your dissenters’ rights, you will be paid cash for your common stock, and such cash payment may beproduce taxable income tofor you. Please carefully review the information under the heading “The Mergers — Merger—Dissenters’ Appraisal Rights in the Merger,” beginning on page     .

 

Q:

What approvals are required?

We cannot complete the merger unless it is approved by the Board of Governors of the Federal Reserve System, or the Federal Reserve, the Federal Deposit Insurance Corporation, or the FDIC, and the Alabama State Banking Department, or the ASBD. River Financial has filed all required documents and notices with the regulators. Although we do not know of any reason why we would be unable to obtain the necessary regulatory approvals, their timing and related conditions or commitments cannot be predicted. River Financial and Trinity will proceed expeditiously and cooperate fully in the procurement of all necessary consents and approvals, or waivers thereof, and the taking of any other action, and the satisfaction of all other requirements prescribed by law or otherwise, necessary for consummation of the merger.

Q:

Whom should I call with questions?

 

A:Keystone shareholders

You may contact Ray Smith, Keystone’s CEO,Robbin Thompson by telephone at (256) 543-1950, Boles Pegues, Keystone’s President, by telephone at (334) 466-2210, or Rob Steen, Keystone’s SVP/Controller, by telephone at (334) 466-2210. River Financial shareholders should contact Jimmy Stubbs, President and CEO, by telephone at(334) 290-2700702-2265. or Becky Hallman, River Financial’s AVP Investor Relations/HR Director by telephone at (334) 290-2706.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement / prospectus and the documents that are made part of this proxy statement / prospectus by reference to other documents filed with the Securities and Exchange Commission, which is referred to in this proxy statement / prospectus as the SEC, include various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about River Financial and KeystoneTrinity that are subject to risks and uncertainties. This document reflects management’s current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause River Financial’s, Keystone’sTrinity’s or the combined company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements. Forward-looking statements speak only as of the date they are made and neither River Financial nor KeystoneTrinity assumes any duty to update forward-looking statements.

In addition to factors previously disclosed in reports filed with the SEC and those identified elsewhere herein, forward-looking statements include, but are not limited to, statements about (1) the expected benefits of the transaction between River Financial and KeystoneTrinity and between River Bank & Trust and KeystoneTrinity Bank, including future financial and operating results, cost savings, enhanced revenues and the expected market position of the combined company that may be realized from the transaction, and (2) River Financial’s and Keystone’sTrinity’s plans, objectives, expectations and intentions and other statements contained herein that are not historical facts. Other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “targets,” “projects”“projects,” “may,” “will,” “should,” “predict,” “continue” and “potential” or the negative of these terms or words of similar meaning generally are intended to identify forward-looking statements.statements, (3) statements related to the expected timing of the closing of the merger, (4) the expected returns and other benefits of the merger to shareholders, (3) expected improvement in operating efficiency resulting from the merger, (5) estimated expense reductions resulting from the transactions and the timing of achievement of such reductions, (6) the impact on and timing of the recovery of the impact on tangible book value, and (7) the effect of the merger on River Financial’s capital ratios. The statements are based upon the current beliefs and expectations of River Financial’s and Keystone’sTrinity’s management and are inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond their respective control. In addition, the forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from those indicated or implied in the forward-looking statements.

The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

difficulty in integrating the businesses of River Financial and Keystone may not be integrated successfully or the integrationTrinity including additional time and costs that may be more difficult, time-consuming or costly than expected;involved;

 

inability to realize the expected growth opportunities or costs savings from the transaction may not be fully realized or may take longer to realize than expected;merger;

 

loss of expected revenues following the transaction may be lower than expected as a result of losses of customers or other reasons;

 

greater than anticipated deposit attrition, operating costs, customer loss and business disruption following the transaction, including difficulties in maintainingpossible loss of relationships with employees, may be greater than expected;employees;

 

slower than expected governmental approvals, or waivers thereof, of the transaction mayor certain conditions to be satisfied post-merger that are not be obtained on the proposed terms or expected timeframe;expected;

 

possible modification of the terms of the proposed transaction may need to be modified to satisfy such regulatory approvals, waivers or conditions;

 

reputational risks and the reaction of the companies’ customers to the transaction;

 

diversion of management time on merger related issues;

 

changes in asset quality and credit risk;

inflation;

 

inflation;

customer acceptance of the combined company’s products and services;

 

customer borrowing, repayment, investment and deposit practices;

Index to Financial Statements
the introduction, withdrawal, success and timing of business initiatives;

 

the impact, extent, and timing of technological changes;

 

a weakening of the economies in which the combined company will conduct operations may adversely affectand the resulting effect on its operating results;

 

changes in the U.S. legal and regulatory framework or changes in such framework,which could adversely affect the operating results of the combined company;

 

compressed margins in the interest rate environment may compress margins andwhich could adversely affect net interest income; and

 

increased competition from other financial services companies in the combined company’s marketsmarkets;

failure to realize the cost savings and any revenue synergies from the merger;

disruption from the merger with customers, suppliers, employee or other business partners relationships;

the occurrence of any event, change or other circumstances that could adversely affect operations.give rise to the termination of the merger agreement;

the failure to obtain the necessary approvals by the shareholders of Trinity;

the amount of the costs, fees, expenses and charges related to the merger;

the failure of the closing conditions in the merger agreement to be satisfied, or any unexpected delay in closing of the merger;

the risk that the integration of Trinity’s operations into the operations of River Financial will be materially delayed or will be more costly or difficult than expected;

the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

the dilution caused by River Financial’s issuance of additional shares of its common stock in the merger transaction;

business disruptions as a result of the integration of the merging banks, including possible loss of customers;

diversion of management time to address transaction-related issues;

changes in asset quality and credit risk as a result of the merger;

changes in customer borrowing, repayment, investment and deposit behaviors and practices; and

the timing and success of new business initiatives; competitive conditions; and regulatory conditions.

Additional factors that could cause River Financial’s, Keystone’sTrinity’s or the combined company’s results to differ materially from those described in the forward-looking statements can be found in River Financial’s and Keystone’sTrinity’s audited financial statements and the risk factors discussed at page     . All subsequent written and oral forward-looking statements concerning River Financial, KeystoneTrinity or the proposed merger or other matters and attributable to River Financial, KeystoneTrinity or any person acting on either of their behalf are expressly qualified in their entirety by the cautionary statements above. River Financial and KeystoneTrinity do not undertake any obligation to update any forward-looking statement, whether written or oral, to reflect circumstances or events that occur after the date the forward-looking statements are made.

Index to Financial Statements

SUMMARY

This summary highlights the material information from this document. It may not contain all of the information that is important to you. We urge you to carefully read the entire document including “Risk Factors” at page      and the other documents to which we refer in order to fully understand the merger and the related transactions, including the risk factors set forth on page     _.transactions.See “Where You Can Find More Information” on page     . We have included page references parenthetically to direct you to a more complete description of the topics presented in this summary.

In the Merger, Holders of Trinity Common Stock Will Have a Right to Receive Cash and Shares of River Financial Common Stock (page     )

Trinity is proposing the merger of Trinity with River Financial. If the merger is completed, Trinity will merge with and into River Financial, with River Financial being the continuing company, and Trinity common stock will no longer be outstanding. Under the terms of the merger agreement, holders of Trinity common stock outstanding as of the effective date of the merger will have a right to receive for each share of Trinity common stock held immediately prior to the merger $3.50 in cash and 0.44627 of a share of River Financial common stock.

River Financial will not issue any fractional shares of River Financial common stock in the merger. Instead, a holder of Trinity common stock who otherwise would have received a fraction of a share of River Financial common stock will receive an amount in cash determined by multiplying the fraction of a share of River Financial common stock to which the holder would otherwise be entitled by $27.00, subject to certain adjustments outlined in the merger agreement.

Shareholders of River Financial will continue to hold their shares of River Financial common stock, which will be unchanged by the merger.

The merger agreement between River Financial and Trinity governs the merger. The merger agreement is included in this document as Annex A. Please read the merger agreement carefully in its entirety. All descriptions in this summary and elsewhere in this proxy statement / prospectus of the terms and conditions of the merger are qualified by reference to the merger agreement.

River Financial Shareholders Will Retain Their Shares of River Financial Common Stock After the Merger.

Alabama law does not require that shareholders of River Financial vote to approve the merger. Shareholders of River Financial will retain their shares of River Financial common stock in the merger. River Financial had 5,705,082 shares of common stock outstanding as of June 30, 2019 and will issue 779,121 shares in the merger.

We Expect the Merger Will Be aNon-Taxable Transaction to Trinity Shareholders to the Extent River Financial Common Stock is Received (page     )

It is a condition to completion of the merger (which may be waived by Trinity) that Trinity receive a legal opinion of its counsel Jones Day (or, if Jones Day is unwilling or unable to issue the opinion, a reasonably acceptable alternative counsel) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. The opinion will not bind the Internal Revenue Service, or the IRS, or any court, each of which could successfully assert that the merger should be treated as a fully taxable transaction for U.S. federal income tax purposes.

Generally, assuming that the merger qualifies as a reorganization, for U.S. federal income tax purposes, we expect that Trinity shareholders participating in the merger will recognize gain, but not loss, as a result of the



exchange of shares of Trinity common stock. The amount of gain recognized by each Trinity shareholder generally will be equal to the lesser of: (1) the amount of cash received; and (2) the excess of (x) the fair market value of the River Financial common stock and the amount of cash received over (y) such Trinity shareholder’s tax basis in its surrendered Trinity common stock. Any gain will be characterized as capital gain if the stock held otherwise meets the definition of a capital asset under the Code.

For a more complete discussion of the U.S. federal income tax consequences of the merger, see “Material U.S. Federal Income Tax Consequences of the Merger to Trinity Shareholders” starting on page     . Tax matters can be complicated and the tax consequences of the merger to any particular Trinity shareholder will depend on that shareholder’s particular tax situation. Accordingly, Trinity stockholders are urged to consult their tax advisors to determine the U.S. federal income tax consequences of the merger to them, as well as the estate, gift, state, local ornon-U.S. tax consequences of the merger.

Accounting Treatment of Merger (page     )

The merger will be accounted for as an “acquisition,” as that term is used under accounting principles generally accepted in the United States of America, for accounting and financial reporting purposes.

Comparative Market Prices and Share Information (page     )

Neither the shares of River Financial common stock nor Trinity common stock are publicly traded except that River Financial common stock is thinly traded on the OTC Pink Open Market. Shares of such common stock, when traded, have been infrequently traded in privately negotiated transactions, and transactions may have occurred at prices with which managements of River Financial and Trinity are not aware. As of June 30, 2019, the approximate book value per share of River Financial was $20.98 and of Trinity was $9.52.

Porter White Capital, LLC Has Provided an Opinion to the Trinity Board of Directors Regarding the Merger Consideration (page      and Annex B)

On June 4, 2019, Porter White Capital, LLC, or Porter White, rendered its opinion to the board of directors of Trinity, that, as of such date and based upon and subject to the factors and assumptions described to the Trinity board of directors during its presentation and set forth in its written opinion, the consideration to be paid to the holders of Trinity common stock in the proposed merger was fair, from a financial point of view, to holders of Trinity common stock. The full text of Porter White’s written opinion, which sets forth the assumptions made, matters considered and limits on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement / prospectus and is incorporated by reference herein. Trinity shareholders are urged to read the opinion in its entirety. Pursuant to an engagement letter between Trinity and Porter White, Porter White received a retainer of $10,000 and received consideration in the amount of $25,000 for the delivery of its fairness opinion. At the earlier of i) the time the merger is completed or ii) termination of the merger agreement, we will pay Porter White a final advisory fee of $15,000, which is not contingent upon the completion of the merger. Porter White’s written opinion is addressed to the board of directors of Trinity, is directed only to the consideration to be paid in the merger and does not constitute a recommendation as to how any holder of Trinity common stock should vote with respect to the merger or any other matter. Porter White has consented to the use of its opinion letter dated June 4, 2019, and the references to such letter in this proxy statement / prospectus.

The Trinity Board of Directors Recommends that Holders of Trinity Common Stock Vote “FOR” the Adoption and Approval of the Merger Agreement (page     )

The Trinity board of directors believes that the merger is in the best interests of Trinity and its shareholders and has approved the merger and the merger agreement. The Trinity board of directors recommends that holders



of Trinity common stock vote “FOR” the approval of the merger agreement. In reaching its decision, the Trinity board of directors considered a number of factors, which are described in “The Merger—Trinity’s Reasons for the Merger” on page     . The Trinity board of directors did not assign relative weights to the factors described in that section or the other factors considered by it. In addition, the Trinity board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Trinity board of directors may have given weights to different factors.

Trinity’s Directors and Executive Officers May Receive Additional Benefits from the Merger (page     )

When considering the information contained in this proxy statement / prospectus, including the recommendation of Trinity’s board of directors to vote to approve the merger agreement, holders of Trinity common stock should be aware that Trinity’s executive officers and members of Trinity’s board of directors may have interests in the merger that are different from, or in addition to, those of Trinity shareholders generally. These interests include indemnification, positions as certain officers and directors of River Financial, and certain employment agreements. Upon the merger’s effective date Brian McLeod, a director of Trinity, will be added to the board of directors of River Financial and Robbin Thompson, a director of Trinity, will be added to the board of directors of River Bank & Trust. At the Effective Date, River Bank & Trust shall provide employment arrangements to Robbin Thompson, Joe Sanders, and Lori Nelson. Trinity’s board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted and approved by holders of Trinity common stock. For information concerning these interests, please seethe discussion under the caption “The Merger—Interests of Trinity’s Directors and Executive Officers in the Merger” on page     .

Holders of Trinity Common Stock Have Appraisal Rights (page     )

Appraisal rights, also referred to as dissenters’ rights, are statutory rights that, if followed under applicable law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair cash value for their shares instead of receiving the consideration offered to shareholders in connection with the merger. The holders of Trinity common stock are entitled to appraisal rights in the merger under the Alabama Business Corporation Law, which we refer to herein as the ABCL. For more information, See “The Merger—Dissenters’ Appraisal Rights in the Merger” beginning on page     .

Resale of River Financial Common Stock (page     )

The shares of River Financial common stock to be issued to the shareholders of Trinity in connection with the merger will be freely tradable by such shareholders, except that if any former Trinity shareholders are deemed to be affiliates of River Financial, they must abide by certain transfer restrictions under the Securities Act of 1933, as amended.

Conditions Exist That Must Be Satisfied or Waived for the Merger to Occur (page     )

Currently, River Financial and Trinity expect to complete the merger during the fourth quarter of 2019. As more fully described in this document and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include, among others, receipt of the requisite approval of holders of Trinity common stock and the receipt of all required regulatory approvals, or waivers thereof, including approval by the Federal Reserve, the FDIC and the ASBD. See “The Merger—Regulatory Approvals.”

River Financial and Trinity cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.



Trinity or River Financial May Terminate the Merger Agreement Under Certain Circumstances (page     )

Trinity and River Financial may mutually agree to terminate the merger agreement before completing the merger, even after Trinity shareholder approval, as long as the termination is approved by each of the Trinity and River Financial boards of directors.

The merger agreement may also be terminated in the following circumstances:

•

by River Financial or Trinity if the merger has not been completed on or before March 31, 2020;

by River Financial or Trinity if the requisite shareholder vote in connection with the merger agreement is not obtained;

by River Financial or Trinity if the requisite approvals, or waivers thereof, from the Federal Reserve, FDIC and ASBD have not been obtained;

•

by River Financial or Trinity if there is a breach of the merger agreement that would result in the failure of any of the closing conditions or a material breach of a representation, warranty, covenant or other agreement and such failure or breach cannot or has not been cured within 30 days after the breaching party receives written notice of such breach;

by Trinity if Trinity receives a superior proposal for another business combination, provided that, upon such termination, Trinity must pay River financial $810,000 to reimburse River Financial for its expenses; or

by River Financial or Trinity if (a) the board of directors of Trinity shall have recommended to its shareholders that they tender their shares in a tender or exchange offer commenced by an unaffiliated third party for more than 20% of the outstanding shares, (b) the board of directors of Trinity shall have effected a change in its recommendation or recommended to its shareholders acceptance or approval of a superior proposal, (c) Trinity shall have notified River Financial in writing that it is prepared to accept a superior proposal, or (d) the board of directors of Trinity shall have resolved to do any of the foregoing provided that, upon such termination, Trinity must pay River financial $810,000 to reimburse River Financial for its expenses.

For a further description of these provisions, See “The Merger Agreement” on page     .

Expenses and Termination Fees (page     )

In general, each of Trinity and River Financial will be responsible for all expenses incurred by it in connection with the negotiation and completion of the transactions contemplated by the merger agreement, subject to specific exceptions discussed in this document. Upon termination of the merger agreement under specified circumstances, Trinity may be required to pay River Financial a termination fee of $810,000. See “The Merger Agreement—Termination Fee” beginning on page     for a complete discussion of the circumstances under which the termination fee will be required to be paid.

Regulatory Approvals Required for the Merger (page     )

Trinity and River Financial have agreed to use their reasonable best efforts to obtain all regulatory approvals, or waivers thereof, required to complete the transactions contemplated by the merger agreement. The required regulatory approvals include approval from the Federal Reserve (unless such approval is waived by the Federal Reserve), FDIC and ASBD. River Financial filed all applications and notifications believed to be necessary to obtain the required regulatory approvals, or waivers thereof.

Although we do not know of any reason why we cannot obtain the required regulatory approvals, or waivers thereof, in a timely manner, we cannot be certain when or if we will obtain them.



The Rights of Holders of Trinity Common Stock May Change as a Result of the Merger (page     )

The rights of holders of Trinity common stock are governed by Alabama law, as well as Trinity’s articles of incorporation, and bylaws. After completion of the merger, the rights of former Trinity shareholders will continue to be governed by Alabama law but will also be governed by River Financial’s articles of incorporation and bylaws. See “Description of River Financial Common Stock” on page      and “Comparison of Shareholder Rights” on page     .

Trinity Will Hold its Annual Meeting on                     , 2019 (page     )

The Trinity meeting will be held on                     , 2019, at 1479 W. Main Street, Dothan, Alabama, at             p.m., local time. At the meeting, holders of Trinity common stock will be asked to:

approve the merger agreement;

elect Dr. Henry H. Barnard, II, Bill Brent Beasley, Terry D. Duffie, James Etheredge, Dr. William D. McLaughlin, Brian R. McLeod, John Mitchell, E. Carey Slay, Jr, Joe Paul Stewart, and J. Robbin Thompson as directors of Trinity to serveone-year terms (provided that, if the merger referred to in proposal 1 is consummated, the terms will end pursuant to the merger);

approve the adjournment of the meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the meeting to approve the merger agreement; and

vote on any other business properly brought before the meeting or any adjournment or postponement thereof which is not now anticipated.

Record Date. Only holders of record of Trinity common stock at the close of business on                     , 2019, will be entitled to vote at the meeting. Each share of Trinity common stock is entitled to one vote. As of the record date of                     , 2019, there were              shares of Trinity common stock entitled to vote at the meeting.

Required Vote. Approval of the merger agreement requires the affirmative vote oftwo-thirds of the outstanding shares of Trinity common stock, and the other proposals require the affirmative vote of a majority of the votes cast, in all cases assuming that a quorum is present.

All of the Trinity directors have entered into support agreements with River Financial pursuant to which they have agreed, in their capacity as holders of Trinity common stock, to vote all of their shares in favor of the approval of the merger agreement. As of the record date, these directors and their affiliates had the right to vote approximately 629,418 shares of Trinity common stock, or approximately 36% of the outstanding Trinity shares entitled to be voted at the meeting. We expect these individuals to vote their Trinity common stock in favor of the approval of the merger agreement in accordance with those agreements.

Information about the Companies (page     )

Keystone Bancshares,Trinity Bancorp, Inc.

KeystoneTrinity is an Alabama corporation and a bank holding company incorporated in 20132017 that is the owner of all of the outstanding capital stock of KeystoneTrinity Bank, an AlabamaAlabama-chartered banking corporation establishedorganized in 2007. Keystone2006.Trinity Bank operates 3three banking offices in Auburn, Opelika,Dothan and Gadsden,Enterprise, Alabama. KeystoneTrinity Bank’s deposits are insured by the FDIC.

The principal executive offices of KeystoneTrinity are located at 2394 E. University Drive, Auburn,1479 W. Main Street, Dothan, Alabama, and its telephone number is (334) 466-2210.702-2265. Additional information about KeystoneTrinity is at “Information About Keystone”Trinity” on page     .



River Financial Corporation

River Financial is an Alabama corporation and a bank holding company incorporated in 2012 that is the owner of all of the outstanding capital stock of River Bank & Trust, an Alabama banking corporation, incorporated in 2006. River Bank & Trust operates 514 banking offices in Prattville, Wetumpka, and Montgomery, Alabama and a loan production office inAuburn, Opelika, Alexander City, Alabama which, before the end of September, 2015, will also become a full banking office.Millbrook, Daphne, Clanton, Thorsby and Gadsden, Alabama. River Bank & Trust’s deposits are insured by the FDIC.

The principal executive offices of River Financial are located at 2611 Legends Drive, Prattville, Alabama 36066 and its telephone number is (334)290-1012. Additional information about River Financial is included at “Information About River Financial” on page     .

In the Merger, Holders of Keystone Common Stock Will Have a Right to Receive Cash and Shares of River Financial Common Stock (page     )

River Financial and Keystone are proposing the merger of Keystone with River Financial. If the merger is completed, Keystone will merge with and into River Financial, with River Financial being the continuing company. Under the terms of the merger agreement, holders of Keystone common stock outstanding as of the effective date of the merger will have a right to receive for each share of Keystone common stock held immediately prior to the merger $4.00 in cash and 1.00 share of River Financial common stock.

River Financial will not issue any fractional shares of River Financial common stock in the merger. Instead, a holder of Keystone common stock who otherwise would have received a fraction of a share of River Financial common stock will receive an amount in cash determined by multiplying the fraction of a share of River Financial common stock to which the holder would otherwise be entitled by $20.00.

Shareholders of River Financial will continue to hold their shares of River Financial common stock, which will be unchanged by the merger.



Index to Financial Statements

The merger agreement between River Financial and Keystone governs the merger. The merger agreement is included in this document as Annex A. Please read the merger agreement carefully. All descriptions in this summary and elsewhere in this proxy statement / prospectus of the terms and conditions of the merger are qualified by reference to the merger agreement.

River Financial Shareholders Will Retain Their Shares of River Financial Common Stock After the Merger.

Alabama law requires that shareholders of River Financial vote to approve the merger. Shareholders of River Financial will retain their shares of River Financial common stock in the merger. River Financial has 2,993,137 shares of common stock currently outstanding and will issue up to 1,883,292 shares in the merger assuming all Keystone options and warrants are exercised prior to the merger.

We Expect the Merger Will Be a Non-Taxable Transaction to Keystone Shareholders to the Extent River Financial Common Stock Is Received (page     )

It is a condition to completion of the merger (which may be waived by the parties) that each of Keystone and River Financial receive a legal opinion of Balch & Bingham LLP and Jones Walker LLP, respectively, to the effect that the merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, for United States federal income tax purposes. The opinion will not bind the Internal Revenue Service, which could take a different view.

Generally, for United States federal income tax purposes, as a Keystone shareholder, you will recognize gain, but not loss, as a result of the exchange of your shares of Keystone common stock pursuant to the merger. The amount of gain you will recognize will be equal to the lesser of: (1) the amount of cash you receive; and (2) the excess of (x) the fair market value of the River Financial common stock and the amount of cash you receive over (y) your tax basis in your Keystone common stock. Any gain will be characterized as capital gain if the stock otherwise meets the definition of a capital asset under the Code.

You should read “United States Federal Income Tax Consequences of the Merger to Keystone Shareholders” starting on page     for a more complete discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation.

If you are a River Financial shareholder, the merger will have no tax effect upon your shares of River Financial common stock.

The United States federal income tax consequences described above may not apply to all holders of Keystone common stock. Your tax consequences will depend on your individual situation. Accordingly, Keystone strongly urges you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.

Accounting Treatment of Merger (page     )

The merger will be accounted for as an “acquisition,” as that term is used under accounting principles generally accepted in the United States of America, for accounting and financial reporting purposes.

Comparative Market Prices and Share Information (page     )

Neither the shares of River Financial common stock nor Keystone common stock are publicly traded. Shares of such common stock, when traded, have been traded in privately negotiated transactions, and transactions may have occurred at prices with which managements of River Financial and Keystone are not aware. As of March 15, 2015, the book value per share of River Financial was $14.95 and of Keystone was $15.53.



Index to Financial Statements

Sandler O’Neill + Partners LP Has Provided an Opinion to the Keystone Board of Directors Regarding the Merger Consideration (page     and Annex B)

On May 12, 2015, Sandler O’Neill + Partners LP, referred to as Sandler O’Neill, rendered its oral opinion to the board of directors of Keystone, which was subsequently confirmed in writing, that, as of such date and based upon and subject to the factors and assumptions described to the Keystone board of directors during its presentation and set forth in its written opinion, the consideration to be paid to the holders of Keystone common stock in the proposed merger was fair, from a financial point of view, to holders of Keystone common stock. The full text of Sandler O’Neill’s written opinion, which sets forth the assumptions made, matters considered and limits on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement / prospectus and is incorporated by reference herein. Keystone shareholders are urged to read the opinion in its entirety. Pursuant to an engagement letter between Keystone and Sandler O’Neill, Keystone has agreed to pay Sandler O’Neill a $400,000 transaction fee in connection with the merger, the majority of which is subject to and due and payable at the closing of the merger. Sandler O’Neill received a fee of $75,000 associated with the delivery of its fairness opinion, which became payable upon Sander O’Neill’s rendering its fairness opinion to the Keystone board of directors, which fairness opinion fee will be credited against the transaction fee due to Sandler O’Neill at the closing of the merger. Sandler O’Neill’s written opinion is addressed to the board of directors of Keystone, is directed only to the consideration to be paid in the merger and does not constitute a recommendation as to how any holder of Keystone common stock should vote with respect to the merger or any other matter. Sandler O’Neill has consented to the use of its opinion letter dated May 12, 2015, and the references to such letter in this proxy statement / prospectus.

Stephens Inc. Has Provided an Opinion to the River Financial Board of Directors Regarding the Merger Consideration (page     )

In deciding to approve the merger, the River Financial board of directors considered the opinion of its financial advisor, Stephens Inc., provided to River Financial’s board of directors on May 12, 2015 that as of the date of the opinion, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth in its written opinion, the exchange ratio of River Financial common stock and cash payable to holders of Keystone common stock pursuant to the merger agreement was fair from a financial point of view to River Financial. The opinion of Stephens Inc. will not reflect any developments that may occur or may have occurred after the date of its opinion and prior to the completion of the merger. Pursuant to an engagement letter between River Financial and Stephens Inc., River Financial has agreed to pay Stephens Inc. fees in connection with the merger, including a success fee of $200,000 contingent upon completion of the merger, and a fee of $100,000 for rendering its fairness opinion, which was paid upon issuing its fairness opinion. Stephens Inc. addressed its opinion to the River Financial board of directors, and the opinion is not a recommendation as to any action that a shareholder should take relating to the merger.

The Keystone Board of Directors Recommends that Holders of Keystone Common Stock Vote “FOR” the Adoption and Approval of the Merger Agreement (page     )

The Keystone board of directors believes that the merger is in the best interests of Keystone and its shareholders and has approved the merger and the merger agreement. The Keystone board of directors recommends that holders of Keystone common stock vote “FOR” the adoption and approval of the merger agreement. In reaching its decision, the Keystone board of directors considered a number of factors, which are described in “The Merger — Keystone’s Reasons for the Merger” on page     . The Keystone board of directors did not assign relative weights to the factors described in that section or the other factors considered by it. In addition, the Keystone board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Keystone board of directors may have given weights to different factors.



Index to Financial Statements

The River Financial Board of Directors Recommends that Holders of River Financial Common Stock Vote “FOR” the Adoption and Approval of the Merger Agreement and Other Proposals (pages     ,     ,     and     )

The board of directors of River Financial believes that the merger is in the best interests of River Financial and its shareholders and has approved the merger and the merger agreement. The board of directors of River Financial recommends that holders of River Financial common stock vote “FOR” the adoption and approval of the merger agreement. In reaching its decision, the River Financial board of directors considered a number of factors which are described in “The Merger — River Financial’s Reasons for the Merger” on page     . The River Financial board of directors did not assign relative weights to the factors described in that section or other factors considered by it. In addition, the River Financial board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of those factors. Individual members of the River Financial board of directors may have given weight to different factors.

In addition, to provide for the necessary shares to be issued in the merger, and for other future purposes, the River Financial board of directors recommends that you vote “FOR” the amendment to the articles of incorporation of River Financial to increase the number of shares of common stock from 5,000,000 to 10,000,000 shares. See “Approval to Increase the Number of River Financial Shares” at page     .

As part of the merger, the River Financial board of directors will be reconstituted to consist of seven persons, four of whom will be selected by River Financial and three of whom will be selected by Keystone. The River Financial board recommends a vote “FOR” the setting of the number of directors at seven (7) effective at the merger. See “Approval to Establish the Number of River Financial Directors at Seven (7)” at page     .

River Financial has in place a 2006 Incentive Stock Compensation Plan which expires in 2016 and pursuant to which stock options have been granted. The River Financial board of directors has approved a new plan, the 2015 Incentive Stock Compensation Plan, pursuant to which stock options, stock appreciation rights and restricted stock may be granted to officers and employees of River Financial and River Bank & Trust. The board of directors recommends that you vote “FOR” approval of this plan. See “Approval of River Financial’s 2015 Incentive Stock Compensation Plan” at page     .

Keystone’s Directors and Executive Officers May Receive Additional Benefits from the Merger (page     )

When considering the information contained in this proxy statement / prospectus, including the recommendation of Keystone’s board of directors to vote to adopt and approve the merger agreement, holders of Keystone common stock should be aware that Keystone’s executive officers and members of Keystone’s board of directors may have interests in the merger that are different from, or in addition to, those of Keystone shareholders generally. These interests include the receipt of options and warrants to acquire River Financial common stock, indemnification, positions as certain officers and directors of River Financial and River Bank & Trust, and certain employment arrangements. Keystone’s board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted and approved by holders of Keystone common stock. For information concerning these interests, please see the discussion under the caption “The Merger — Interests of Keystone’s Directors and Executive Officers in the Merger” on page     .

Holders of Keystone Common Stock and Holders of River Financial Common Stock Each Have Appraisal Rights (page     )

Appraisal rights, also referred to as dissenters’ rights, are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair cash value for their shares instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. The holders of Keystone common stock and the holders of



Index to Financial Statements

River Financial common stock are each entitled to appraisal rights in the merger under the Alabama Business Corporation Law which we refer to herein as the ABCL. For more information, See “The Merger — Dissenters’ Appraisal Rights in the Merger” beginning on page     .

Resale of River Financial Common Stock (page     )

The shares of River Financial common stock to be issued to the shareholders of Keystone in connection with the merger will be freely tradable by such shareholders, except that if any former Keystone shareholders are deemed to be affiliates of River Financial, they must abide by certain transfer restrictions under the Securities Act of 1933, as amended.

Conditions Exist That Must Be Satisfied or Waived for the Merger to Occur (page     )

Currently, River Financial and Keystone expect to complete the merger during the fourth quarter of 2015. As more fully described in this document and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include, among others, receipt of the requisite approvals of holders of Keystone and River Financial common stock, satisfaction of conditions related to shareholder appraisal rights, and the receipt of all required regulatory approvals, including approval by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”) and the Alabama State Banking Department (“ASBD”). See “The Merger — Regulatory Approvals.”

River Financial and Keystone cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Keystone or River Financial May Terminate the Merger Agreement Under Certain Circumstances (page     )

Keystone and River Financial may mutually agree to terminate the merger agreement before completing the merger, even after Keystone or River Financial shareholder approval, as long as the termination is approved by each of the Keystone and River Financial boards of directors.

The merger agreement may also be terminated in the following circumstances:

by River Financial or Keystone if the merger has not been completed on or before March 31, 2016;

by River Financial or Keystone if the requisite shareholder votes in connection with the merger agreement is not obtained;

by River Financial or Keystone if there is a breach of the merger agreement that would result in the failure of any of the closing conditions or a material breach of a representation, warranty, covenant or other agreement and such failure or breach cannot or has not been cured within 30 days after the breaching party receives written notice of such breach;

by Keystone if Keystone receives a superior proposal for another business combination and by River Financial if River Financial receives a superior proposal for another business combination; or

by River Financial or Keystone if (a) the board of directors of the other party shall have recommended to its shareholders that they tender their shares in a tender or exchange offer commenced by an unaffiliated third party for more than 20% of the outstanding shares, (b) the board of directors of the other party shall have effected a change in its recommendation or recommended to its shareholders acceptance or approval of a superior proposal, (c) the other party shall have notified the terminating party in writing that it is prepared to accept a superior proposal, or (d) the board of directors of such party shall have resolved to do any of the foregoing.

For a further description of these provisions, See “The Merger Agreement” on page     .



Index to Financial Statements

Expenses and Termination Fees (page     )

In general, each of Keystone and River Financial will be responsible for all expenses incurred by it in connection with the negotiation and completion of the transactions contemplated by the merger agreement, subject to specific exceptions discussed in this document. Upon termination of the merger agreement under specified circumstances, Keystone or River Financial may be required to pay the other party a termination fee of $300,000. See “The Merger Agreement — Agreement Not to Solicit Other Offers; Termination Fee” beginning on page     for a complete discussion of the circumstances under which the termination fee will be required to be paid.

Regulatory Approvals Required for the Merger (page     )

Keystone and River Financial have agreed to use their reasonable best efforts to obtain all regulatory approvals required to complete the transactions contemplated by the merger agreement. The required regulatory approvals include approval from the Federal Reserve, FDIC and the ASBD. Keystone and River Financial have filed all applications and notifications believed to be necessary to obtain the required regulatory approvals.

Although we do not know of any reason why we cannot obtain the required regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them.

The Rights of Holders of Keystone Common Stock May Change as a Result of the Merger (page     )

The rights of holders of Keystone common stock are governed by Alabama law, as well as Keystone’s articles of incorporation and bylaws. After completion of the merger, the rights of former Keystone shareholders will continue to be governed by Alabama law but will also be governed by River Financial’s articles of incorporation and bylaws. See “Description of River Financial Common Stock” on page     and “Comparison of Shareholder Rights” on page     .

Keystone Will Hold its Special Meeting on                     , 2015 (page     )

The Keystone special meeting will be held on                     , 2015, at 2394 E. University Drive, Auburn, Alabama, at                     p.m., local time. At the special meeting, holders of Keystone common stock will be asked to:

adopt and approve the merger agreement;

approve the adjournment of the special meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the special meeting to approve the foregoing proposal; and

vote on any other business properly brought before the special meeting or any adjournment or postponement thereof which is not now anticipated.

Record Date.Only holders of record of Keystone common stock at the close of business on                     , 2015, will be entitled to vote at the special meeting. Each share of Keystone common stock is entitled to one vote. As of the record date of                     , 2015, there were             shares of Keystone common stock entitled to vote at the special meeting.

Required Vote.Approval of the merger agreement requires the affirmative vote of two-thirds of the outstanding shares of Keystone common stock, and approval of the proposal to adjourn the special meeting, if necessary or appropriate, requires the affirmative vote of a majority of the votes cast, in each case assuming that a quorum is present.



Index to Financial Statements

All of the directors of Keystone have entered into support agreements with River Financial pursuant to which they have agreed, in their capacity as holders of Keystone common stock, to vote all of their shares in favor of the adoption and approval of the merger agreement. As of the record date, these directors and their affiliates had the right to vote approximately             shares of Keystone common stock, or approximately             % of the outstanding Keystone shares entitled to be voted at the special meeting. We expect these individuals to vote their Keystone common stock in favor of the approval of the merger agreement in accordance with those agreements.

River Financial Will Hold its Special Meeting on                     , 2015 (page     )

The River Financial special meeting will be held on                     , 2015, at             at             p.m., local time. At the special meeting, holders of River Financial common stock will be asked to:

adopt and approve the merger agreement;

approve the increase in authorized shares from 5,000,000 to 10,000,000

approve establishing the number of directors at seven (7);

approve the 2015 Incentive Stock Compensation Plan;

approve the adjournment of the special meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the special meeting to approve the foregoing proposals; and

vote on any other business properly brought before the special meeting or any adjournment or postponement thereof, which is not now anticipated.

Record Date. Only holders of record of River Financial common stock at the close of business on                     , 2015, will be entitled to vote at the special meeting. Each share of River Financial common stock is entitled to one vote. As of the record date of                     , 2015, there were             shares of River Financial common stock entitled to vote at the special meeting.

Required Vote. Approval of the merger agreement requires the affirmative vote of two-thirds of the shares of common stock outstanding, and approval of the increase in authorized shares requires a majority vote of shares outstanding. Approval of setting the number of directors at seven and approval of the 2015 Incentive Stock Compensation Plan each requires approval of a majority of votes cast. The other proposals also require the affirmative vote of a majority of the votes cast, in all cases assuming that a quorum is present.

All of the directors of River Financial have entered into agreements with Keystone pursuant to which they have agreed, in their capacity as holders of River Financial common stock, to vote all of their shares in favor of the adoption and approval of the merger agreement. As of the record date, these directors and their affiliates had the right to vote approximately             shares of River Financial common stock, or approximately             % of the outstanding River Financial shares entitled to be voted at the special meeting. We expect these individuals to vote their River Financial common stock in favor of the approval of the merger agreement in accordance with those agreements.

Other Matters. You can find information on the other matters to be voted on at “Approval to Increase the Number of River Financial Authorized Shares” at page     , “Approval to Establish the Number of River Financial Directors at Seven (7)” at page     , and “Approval of River Financial’s Incentive Stock Compensation Plan” at page     .



Index to Financial Statements

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF RIVER FINANCIAL

(Amounts In Thousands Except Ratios, Share and Per Share Data,

Banking Locations and Full-time Equivalent Employees)

The following selected historical consolidated financial data as or and for the twelve months ended December 31, 2014 and 2013, is derived from the audited consolidated financial statements of River Financial Corporation. The following selected historical consolidated financial data as of and for the three months ended March 31, 2015 and 2014, is derived from the unaudited consolidated financial statements of River Financial Corporation and has been prepared on the same basis as the selected historical consolidated financial data derived from the audited consolidated financial statements and, in the opinion of River’s management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data for those dates.

The results of operations as of and for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2015, or any future period. You should read the following selected historical consolidated financial data in conjunction with River’s Management Discussion and Analysis of Financial Condition and Results of Operations, audited consolidated financial statements and accompanying notes for the twelve months ended December 31, 2014, and unaudited consolidated financial statements and accompanying notes for the three months ended March 31, 2015, each of which are included elsewhere in this joint proxy statement / prospectus.

   Three Months
Ended March 31,		   Years Ended
December 31,		 
   2015   2014   2014   2013 

Summary of Operations:

       ��

Total interest income

  $3,933    $3,804    $15,474    $14,740  

Total interest expense

   305     333     1,274     1,524  

Net interest income

   3,628     3,471     14,200     13,216  

Provision for loan losses

   139     264     1,057     957  

Net interest income after provision for loan losses

   3,489     3,207     13,143     12,259  

Noninterest income

   726     533     2,467     2,299  

Noninterest expense

   2,850     2,561     10,607     10,241  

Income before income taxes

   1,365     1,179     5,003     4,317  

Income tax expense

   406     367     1,523     1,366  

Net income

   959     812     3,480     2,951  

Share and per common share data:

        

Basic net income per share

  $0.32    $0.27    $1.16    $0.97  

Diluted net income per share

  $0.31    $0.26    $1.13    $0.96  

Common equity per common share outstanding

  $14.95    $13.21    $14.68    $12.80  

Dividends per common share

  $0.14    $0.10    $0.10    $—    

Actual common shares outstanding

   2,993,137     2,997,066     2,998,837     2,988,066  

Weighted average common shares outstanding

   2,995,231     2,995,566     2,992,190     3,015,928  

Diluted weighted average common shares outstanding

   3,104,254     3,070,325     3,086,740     3,065,688  

Balance Sheet Data:

        

Total assets

  $445,052    $435,463    $446,704    $443,483  

Securities

   124,834     142,730     130,285     154,456  

Loans, net of unearned income

   277,095     241,017     265,137     237,512  

Allowance for loan losses

   3,925     3,905     3,778     3,701  

Deposits

   385,807     375,096     387,831     395,317  

Federal Home Loan Bank advances

   6,000     8,500     6,000     —    

Total stockholders’ equity

   44,749     39,592     44,031     38,255  

Average total assets

   435,747     427,760     430,908     409,237  

Average loans

   270,197     241,816     250,778     227,589  

Average interest earning assets

   402,736     397,343     399,715     377,166  

Average deposits

   376,977     370,918     374,386     361,497  

Average interest bearing deposits

   296,794     294,737     296,583     292,512  

Average interest bearing liabilities

   311,159     311,971     311,822     301,652  

Average total stockholders’ equity

   44,401     39,162     41,273     38,296  



Index to Financial Statements
   Three Months
Ended March 31,		  Years Ended
December 31,		 
   2015  2014  2014  2013 

Selected Financial Ratios:

     

(ratios are annualized where applicable)

     

Return on average assets

   0.88%   0.76%   0.81%   0.72% 

Return on average equity

   8.64%   8.29%   8.43%   7.71% 

Average equity to average total assets

   9.98%   8.99%   9.24%   8.64% 

Dividend payout

   43.71%   36.46%   8.50%   0.00% 

Efficiency ratio (1)

   65.46%   63.96%   63.64%   66.01% 

Net interest margin (2)

   3.65%   3.54%   3.55%   3.50% 

Net interest spread (3)

   3.66%   3.53%   3.56%   3.46% 

Capital Ratios (4):

     

Tier 1 leverage ratio

   9.90%   9.43%   9.68%   9.25% 

Common equity tier 1 (CET1) risk-based capital

   13.48%   N/A    N/A    N/A  

Tier 1 risk-based capital

   13.48%   14.81%   14.40%   14.54% 

Total risk-based capital

   14.70%   16.06%   15.65%   15.79% 

Asset Quality Ratios:

     

(ratios are annualized where applicable)

     

Net charge-offs to average loans

   0.00%   0.02%   0.39%   0.50% 

Allowance to period end loans

   1.42%   1.62%   1.42%   1.56% 

Allowance for loan losses to non-performing loans

   147.39%   80.25%   156.70%   100.03% 

Non-performing assets to total assets

   1.09%   1.20%   1.06%   0.93% 

Other Data:

     

Banking locations

   5    5    5    5  

Full-time equivalent employees

   82    73    80    74  

(1)Efficiency ratio is noninterest expense divided by the sum of net interest income before the provision for loan losses plus noninterest income.
(2)Net interest margin is net interest income (annualized for interim periods) divided by total average earning assets.
(3)Net interest spread is the difference between the weighted average effective yield on interest earning assets and the average effective rate paid on interest bearing liabilities.
(4)Capital ratios calculated on bank-only data. CET1 is only applicable beginning January 1, 2015 under regulatory capital regulations.



Index to Financial Statements

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF KEYSTONE

(Amounts In Thousands, Except Ratios, Share and Per Share Data,

Banking Locations and Full-Time Equivalent Employees)

The following selected historical consolidated financial data as of and for the twelve months ended December 31, 2014 and 2013, is derived from the audited consolidated financial statements of Keystone and its subsidiary, Keystone Bank. The following selected historical consolidated financial data as of and for the three months ended March 31, 2015 and 2014, is derived from the unaudited consolidated financial statements of Keystone and its subsidiary, Keystone Bank and has been prepared on the same basis as the selected historical consolidated financial data derived from the audited consolidated financial statements and, in the opinion of Keystone’s management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data for those dates.

The results of operations as of and for the three months ended March 31, 2015, are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2015, or any future period. You should read the following selected historical consolidated financial data in conjunction with Keystone’s Management’s Discussion and Analysis of Financial Condition and Results of Operations, audited consolidated financial statements and accompanying notes for the twelve months ended December 31, 2014, and unaudited consolidated financial statements and accompanying notes for the three months ended March 31, 2015, each of which are included elsewhere in this joint proxy statement / prospectus.

   Three Months
Ended March 31,		   Years Ended
December 31,		 
   2015   2014   2014   2013 
   (Unaudited)         

Summary of Operations:

        

Total interest income

  $2,514    $2,448    $10,029    $10,012  

Total interest expense

   341     360     1,421     1,717  

Net interest income

   2,173     2,088     8,608     8,295  

Provision for loan losses

   98     45     425     380  

Net interest income after provision for loan losses

   2,075     2,043     8,183     7,915  

Noninterest income

   497     307     1,679     1,836  

Noninterest expense

   1,584     1,451     6,237     5,957  

Income before income taxes

   988     899     3,625     3,794  

Income tax expense

   298     266     1,034     1,116  

Net income

   690     633     2,591     2,678  

Share and per common share data:

        

Basic net income per share

  $.39    $.36    $1.46    $1.48  

Diluted net income per share

  $.38    $.35    $1.44    $1.47  

Common equity per common share outstanding

  $15.53    $15.28    $15.07    $13.61  

Dividends per common share

  $—      $—      $.20    $.075  

Actual common shares outstanding

   1,788,792     1,763,792     1,788,792     1,763,792  

Weighted average common shares outstanding

   1,788,792     1,763,792     1,770,042     1,808,792  

Diluted weighted average common shares outstanding

   1,816,031     1,777,899     1,797,159     1,822,711  



Index to Financial Statements
   Three Months
Ended March 31,		  Years Ended
December 31,		 
   2015  2014  2014  2013 
   (Unaudited)       

Balance Sheet Data:

     

Total assets

  $252,348   $240,076   $239,095   $234,947  

Securities

   36,312    40,683    39,442    38,798  

Loans held for sale

   3,737    404    703    689  

Loans, net of unearned income

   169,528    155,034    164,487    155,837  

Allowance for loan losses

   2,460    2,392    2,370    2,345  

Deposits

   216,493    207,419    204,559    202,761  

Short-term borrowings

   6,500    6,500    6,500    6,576  

Total stockholders’ equity

   27,783    24,846    26,953    24,007  

Average total assets

   246,158    236,889    240,166    232,183  

Average loans

   171,314    155,545    161,003    156,002  

Average interest earning assets

   229,582    220,068    223,627    216,068  

Average deposits

   210,958    204,155    206,724    200,046  

Average interest bearing deposits

   184,111    181,263    180,626    177,242  

Average interest bearing liabilities

   190,631    187,943    187,171    183,742  

Average total stockholders’ equity

   27,370    24,512    25,497    23,609  

Selected Financial Ratios:

     

(ratios are annualized where applicable)

     

Return on average assets

   1.12%   1.07%   1.08%   1.15% 

Return on average equity

   10.08%   10.33%   10.16%   11.34% 

Average equity to average total assets

   11.12%   10.35%   10.62%   10.17% 

Dividend payout

   —      —      13.62%   5.08% 

Efficiency ratio(1)

   59.31%   60.31%   60.63%   58.80% 

Net interest margin(2)

   3.79%   3.79%   3.85%   3.84% 

Net interest spread(3)

   3.66%   3.68%   3.73%   3.70% 

Capital Ratios(4):

     

Tier 1 leverage ratio

   11.07%   10.59%   11.18%   10.38% 

Common equity tier 1 (CET1) risk-based capital

   13.99%   N/A    N/A    N/A  

Tier 1 risk-based capital

   13.99%   14.25%   14.87%   13.90% 

Total risk-based capital

   15.24%   15.50%   16.12%   15.15% 

Asset Quality Ratios:

     

(ratios are annualized where applicable)

     

Net charge-offs to average loans

   .02%   (.01%)   .25%   .26% 

Allowance to period end loans

   1.45%   1.54%   1.44%   1.50% 

Allowance for loan losses to non-performing loans

   113.84%   96.03%   123.82%   90.82% 

Non-performing assets to total assets

   1.31%   1.30%   1.33%   1.37% 

Other Data:

     

Banking locations

   3    3    3    3  

Full-time equivalent employees

   44    44    43    45  

(1)Efficiency ratio is non-interest expense divided by the sum of net interest income before the provision for loan losses plus non-interest income.
(2)Net interest margin is net interest income (annualized for interim periods) divided by total average earning assets.
(3)Net interest spread is the difference between the average yield on interest earning assets and the average yield on interest bearing liabilities.
(4)Capital ratios calculated on bank-only data. CET1 is only applicable beginning January 1, 2015 under Basel III.



Index to Financial Statements

UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following table shows unaudited pro forma condensed combined financial information about the financial condition and results of operations after giving effect to the merger.The unaudited pro forma condensed combined financial information assumes that the merger is accounted for under the acquisition method of accounting, and that River Financial will record the assets and liabilities of KeystoneTrinity at their respective fair values as of the date the merger is completed. The unaudited pro forma condensed combined balance sheet givessheets give effect to the merger as if the merger had occurred on March 31, 2015.June 30, 2019. The unaudited pro forma condensed combined income statements for the six months ended June 30, 2019, and the year ended December 31, 2014,2018, give effect to the merger as if the merger had become effective at January 1, 2014.2018.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented, nor the impact of possible business model changes. The unaudited pro forma condensed combined financial information also does not consider any potential impacts of current market conditions on revenues, expense efficiencies, asset dispositions and share repurchases, among other factors. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the preliminary determinations of the fair value of assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary significantly from the actual fair values that will be recorded upon completion of the merger.



River Financial Corporation and Keystone Bancshares,Trinity Bancorp, Inc.

Unaudited Pro Forma Combined Condensed Balance Sheet

March 31, 2015June 30, 2019

(in thousands, except per share amounts)

 

   Historical  Pro Forma
Adjustments		  Pro Forma
Combined		 
   River
Financial		  Keystone   

Assets

     

Cash and due from banks

  $12,726   $5,665    $(950)(a)  
     (950)(b)  
     7,000(f)  
     (7,160)(g)  $16,331  

Interest-bearing deposits in banks

   278    16,535     16,813  

Federal funds sold

   3,985    1,004     4,989  
  

 

 

  

 

 

   

 

 

 

Cash and cash equivalents

   16,989    23,204     38,133  

Certificates of deposit in banks

   1,743    5,554     7,297  

Securities available-for-sale

   124,834    36,312     161,146  

Loans, net of deferred fees

   277,094    173,265    (3,465)(c)   446,894  

Less allowance for loan losses

   (3,925)   (2,460)   2,460(c)   (3,925) 
  

 

 

  

 

 

   

 

 

 

Net loans

   273,169    170,805     442,969  

Premises and equipment, net

   13,304    6,382     19,686  

Accrued interest receivable

   1,461    665     2,126  

Bank owned life insurance

   9,741    4,661     14,402  

Foreclosed assets

   2,196    1,154    (346)(c)   3,004  

Goodwill

   0    —      7,572(c)   7,572  

Other intangible assets

   0    —      2,384(c)   2,384  

Investment in unconsolidated subsidiaries

   —      —       —    

Other assets

   1,615    3,611    333(a)  
     333(b)  
     29(c)   5,921  
  

 

 

  

 

 

   

 

 

 

Total Assets

  $445,052   $252,348    $704,640  
  

 

 

  

 

 

   

 

 

 

  Historical       
  River
Financial		  Trinity  Pro Forma
Adjustments		  Pro Forma
Combined		 

Assets

    

Cash and due from banks

 $16,992  $2,639   (3,000)(a)  $  
    (400)(b)  
    (6,111)(c)   10,120 

Interest-bearing deposits in banks

  23,493   14,773    38,266 

Federal funds sold

  18,020   —      18,020 
 

 

 

  

 

 

   

 

 

 

Cash and cash equivalents

  58,505   17,412    66,406 

Certificates of deposit in banks

  5,683   —      5,683 

Securitiesavailable-for-sale

  220,486   11,004    231,490 

Loans held for sale

  6,005   —      6,005 

Loans, net of deferred fees

  748,926   130,295   (2,606)(d)   876,615 

Less allowance for loan losses

  (7,104)   (2,081)   2,081 (d)   (7,104) 
 

 

 

  

 

 

   

 

 

 

Net loans

  741,822   128,214    869,511 

Premises and equipment, net

  28,972   2,494    31 ,466 

Accrued interest receivable

  3,422   676    4,098 

Bank owned life insurance

  20,843   —      20,843 

Foreclosed assets

  277   121   (30)(d)   368 

Goodwill

  18,293   —     10,058 (d)   28,351 

Other intangible assets

  4,934   —     1,580 (d)   6,514 

Other assets

  8,014   1,243   750 (a)  
    100 (b)  
    (257)(d)   9,850 
 

 

 

  

 

 

   

 

 

 

Total assets

 $1,117,256   161,164    1,280,585 
 

 

 

  

 

 

   

 

 

 

Liabilities

    

Noninterest-bearing deposits

 $258,697  $30,907    289,604 

Interest-bearing deposits

  698,673   111,011    809,684 
 

 

 

  

 

 

   

 

 

 

Total deposits

  957,370   141,918    1,099,288 

Securities sold under agreements to repurchase

  7,149   —      7,149 

Federal home loan bank advances

  —     1,962    1,962 

Note payable

  25,388   —      25,388 

Accrued interest payable and other liabilities

  7,678   663    8,341 
 

 

 

  

 

 

   

 

 

 

Total liabilities

  997,585   144,543    1,142,128 
 

 

 

  

 

 

   

 

 

 

Common stock related to 401(k) Employee Stock Ownership Plan

  1,599   —      1,599 
 

 

 

  

 

 

   

 

 

 


Index to Financial Statements
   Historical   Pro Forma
Adjustments		  Pro Forma
Combined		 
   River
Financial		  Keystone    

Liabilities

      

Noninterest bearing deposits

  $86,676   $28,714     $115,390  

Interest bearing deposits

   299,131    187,779      486,910  
  

 

 

  

 

 

    

 

 

 

Total deposits

   385,807    216,493      602,300  

Short term borrowings

   7,289    —        7,289  

Long term borrowings

   6,000    6,500     7,000(f)   19,500  

Other liabilities

   1,207    1,572      2,779  
  

 

 

  

 

 

    

 

 

 

Total Liabilities

   400,303    224,565      631,868  

Equity

      

Common stock

   3,057    1,789     (1,789)(d)  
      1,790(e)   4,847  

Additional paid-in capital

   35,181    22,207     (22,207)(d)  
      26,850(e)   62,031  

Retained earnings

   6,531    3,595     (3,595)(d)  
      (617)(a)   5,914  

Accumulated other comprehensive income

   865    192     (192)(d)   865  

Treasury stock

   (885)   —        (885) 
  

 

 

  

 

 

    

 

 

 

Total Equity

   44,749    27,783      72,772  
  

 

 

  

 

 

    

 

 

 

Total Liabilities and Equity

  $445,052   $252,348     $704,640  
  

 

 

  

 

 

    

 

 

 
  Historical       
  River
Financial		  Trinity  Pro Forma
Adjustments		  Pro Forma
Combined		 

Stockholders’ Equity

    

Common stock

  5,708   1,746   (1,746)(e)  
    779 (f)   6,487 

Additionalpaid-in capital

  79,776   11,643   (11,643)(e)  
    20,257(f)   100,033 

Retained earnings

  32,899   3,267   (2,250)(a)  
    (3,267)(e)   30,649 

Accumulated other comprehensive loss

  1,365   24   (24)(e)   1,365 

Treasury stock, at cost

  (77)   (59)   59(e)   (77) 

Common stock related to 401(k) Employee Stock Ownership Plan

  (1,599)   —      (1,599) 
 

 

 

  

 

 

   

 

 

 

Total stockholders’ equity

  118,072   16,621    136,858 
 

 

 

  

 

 

   

 

 

 

Total equity

  119,671   16,621    138,457 
 

 

 

  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

 $1,117,256  $161,164   $1,280,585 
 

 

 

  

 

 

   

 

 

 

 

(a)

Entry to reflect estimated closing costs associated with the transaction paid by River Financial prior to, or at closing. ThisThe total includes, among other things, estimatedthings. Estimated costs for legal, accounting and advisory services and data processing conversion costs.

 

Estimated total costs

  $950    $3,000 

Estimated income tax effect

   333     750 
  

 

   

 

 

Estimated impact on net stockholders’ equity

  $617     2,250 
  

 

   

 

 

 

(b)

Entry to reflect estimated closing costs associated with the transaction paid by KeystoneTrinity prior to, or at closing. ThisThe total includes, among other things, estimatedthings. Estimated costs for legal, accounting and advisory services and data processing conversion costs.

 

Estimated total costs

  $950    $400 

Estimated income tax effect

   333     100 
  

 

   

 

 

Estimated impact on net assets acquired

  $617  

Estimated impact on net stockholders’ equity

   300 
  

 

   

 

 

 

(c)

Cash consideration paid to Trinity shareholders based on 1,745,853

shares at $3.50 per share

  $6,111 


(d)

Based on currentthe estimates of fair market value on the March 31, 2015June 30, 2019 balance sheet of Keystone,Trinity, River Financial would record approximately $7.6$10.1 million of goodwill. A preliminary calculation is shown in the following table:The core deposit intangible was estimated to be 1.75% of Trinity’s core deposits. An estimated discount was applied to Trinity’s total loans of 1.4% for credit discount and 0.6% for accretable discount to compute estimated fair value. An estimate discount of 25% was applied to Trinity’s foreclosed assets.

 

Purchase Price

  $35,800  

Equity of Keystone

   27,783  

Deal charges paid by Keystone, net of tax effect

   (617) 

Core deposit intangible asset

   2,384  

Eliminate Keystone allowance for loan losses

   2,460  

Adjust Keystone loans to fair market value

   (3,465) 

Adjust Keystone foreclosed assets to fair value

   (346) 

Deferred tax asset resulting from accounting marks

   29  
  

 

 

 

Adjusted equity of Keystone

   28,228  
  

 

 

 

Estimated Goodwill

  $7,572  
  

 

 

 

Purchase price

  $27,147 

Equity of Trinity

   16,621 

Deal charges paid by Trinity, net of tax effect

   (300) 

Core deposit intangible asset

   1,580 

Eliminate Trinity allowance for loans losses

   2,081 

Adjust Trinity loans to fair market value

   (2,606) 

Adjust Trinity foreclosed asset to fair market value

   (30) 

Deferred tax asset resulting from accounting marks

   (257) 
  

 

 

 

Adjusted equity of Trinity

   17,089 
  

 

 

 

Estimated goodwill

   10,058 
  

 

 

 

 



Index to Financial Statements
(d)(e)

Entry to eliminate stockholders’ equity of Keystone.Trinity.

(e)(f)

Entry to record River Financial common stock issued to Keystone shareholders.Trinity shareholders based on 779,121 shares issued at $27.00 per share and $1 par value per share.

River Financial common shares issued — par value

  $1,790  

Additional paid in capital on shares issued

   26,850  
  

 

 

 

Total

  $28,640  
  

 

 

 

(f)     Long term debt issued by River Financial to fund cash consideration paid to Keystone shareholders

7,000

(g)    Cash consideration paid to Keystone shareholders

7,160



Index to Financial Statements

River Financial Corporation and Keystone Bancshares,Trinity Bancorp, Inc.

Unaudited Pro Forma Combined Condensed Statement onState of Income

For the ThreeSix Months Ended March 31, 2015June 30, 2019

 

  Historical   Pro Forma
Adjustments		  Pro Forma
Combined		 
  River
Financial		   Keystone      River
Financial		   Trinity   Pro Forma
Adjustments		 Pro Forma
Combined		 

Interest and fees on loans

   3,287     2,243     45(a)  5,575    $19,661   $3,694   $104(a)  $23,459 

Interest and dividends on securities

   640     212     852     2,942    121    —    3,063 

Other interest income

   6     59     65     383    163    —    546 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Total interest income

   3,933     2,514     45   6,492     22,986    3,978    104  27,068 

Interest on deposits

   291     322     613     3,163    726    —    3,889 

Interest on note payable

   791    —      —    791 

Other interest expense

   14     19     70(d)  103     53    26    —    79 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Total interest expense

   305     341     70   716     4,007    752    —    4,759 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Net interest income

   3,628     2,173     (25)  5,776     18,979    3,226    104  22,309 

Provision for loan losses

   139     98     237  

Provision for loans losses

   1,080    77    —    1,157 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Net interest income after provision for loan losses

   3,489     2,075     (25)  5,539     17,899    3,149    104  21,152 

Total noninterest income

   726     497     1,223     3,907    349    —    4,256 

Total noninterest expense

   2,850     1,584     108 (b)  4,542     14,986    1,997    129(b)  17,112 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Net income before income taxes

   1,365     988     (133)  2,220     6,820    1,501    (25)  8,296 

Provision for income taxes

   406     298     (49)(c)  655     1,451    299    (6)  1,744 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Net income

   959     690     (84)  1,565    $5,369   $1,202   $(19)  $6,552 
  

 

   

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Basic earnings per share

  $0.32    $0.39     $0.33    $0.94   $0.69    $1.01 

Diluted earnings per share

  $0.31    $0.38     $0.32    $0.93   $0.69    $1.00 

Average shares outstanding — basic

   2,995,231     1,788,792     4,784,023  

Average shares outstanding — diluted

   3,104,254     1,816,031     4,920,285  

Average shares outstanding—basic

   5,701,062    1,745,853    6,480,183 

Average shares outstanding—diluted

   5,793,553    1,745,853    6,572,674 

 

1.

The pro forma income statements assume the merger of River Financial and KeystoneTrinity occurred at the beginning of 2015 and purchase accounting marks applied to the Keystone balance sheet as ofon January 1, 20152018.

2.

The following adjustments were made to the historical income statements to reflect the purchase accounting entry and related fair market value adjustments.adjustments:

 (a)

Entry to record the accretable discount recognized during the period. Total accretable discount is estimated to be $905$782 and is amortized over5years using accelerated method.

 (b)

Entry to record the core deposit amortization for the period. Total core deposit intangible asset is estimated to be $2,384$1,580 and is amortized over 10 years using accelerated method.

 (c)

Entry to record the tax effect of the pro forma adjustments assuming a 37%25% tax rate.



Historical and Pro Forma Per Share Data for River Financial and Trinity

   At or For the
Three Months Ended
June 30, 2019		   At or For the
Year Ended
December 31, 2018		 

Book value per share

    

River Financial

  $20.98   $19.60 

Trinity

  $9.52   $8.67 

Pro Forma combined (1)

  $21.36   $20.13 

Trinity merger equivalent (2)

  $9.53   $8.98 

Dividends declared per share

    

River Financial

  $0.33   $0.27 

Trinity

  $0.00   $0.20 

Pro Forma combined (3)

  $0.33   $0.28 

Trinity merger equivalent (2),(3)

  $0.15   $0.12 

Basic earnings per share

    

River Financial

  $0.94   $1.63 

Trinity

  $0.69   $1.24 

Pro Forma combined

  $1.01   $1.78 

Trinity merger equivalent (2)

  $0.45   $0.79 

Diluted earnings per share

    

River Financial

  $0.93   $1.60 

Trinity

  $0.69   $1.23 

Pro Forma combined

  $1.00   $1.75 

Trinity merger equivalent (2)

  $0.44   $0.78 

(1)

Calculated by dividing the pro forma stockholders’ equity by the pro forma shares outstanding as follows:

Pro forma stockholders’ equity (thousands)

  $138,457    130,204 

Pro forma shares outstanding

   6,482,760    6,467,035 

(2)

Calculated by multiplying the pro forma combined information by the exchange ratio of 0.44627:1.

(3)(d)Interest expense on debt issued

Assumes the dividends per share declared and paid by River in the merger transaction.2019 and 2018 is unchanged for pro forma purposes.



Index to Financial Statements

River Financial Corporation and Keystone Bancshares,Trinity Bancorp, Inc.

Unaudited Pro Forma Combined Condensed Statement onState of Income

For the Year Ended December 31, 20142018

 

  Historical   Pro Forma
Adjustments		  Pro Forma
Combined		 
  River
Financial		   Keystone      River
Financial		   Trinity Pro Forma
Adjustments		 Pro Forma
Combined		 

Interest and fees on loans

   12,629     8,760     181(a)  21,570    $32,812   $6,801  $255(a)  $39,868 

Interest and dividends on securities

   2,811     1,005     3,816     3,587    281   —    3,868 

Other interest income

   34     264     298     286    178   —    464 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Total interest income

   15,474     10,029     181   25,684     36,685    7,260  255  44,200 

Interest on deposits

   1,244     1,349     2,593     3,650    1,127   —    4,777 

Interest on note payable

   485    —     —    485 

Other interest expense

   30     72     280(d)  382     546    57   —    603 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Total interest expense

   1,274     1,421     280   2,975     4,681    1,184   —    5,865 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Net interest income

   14,200     8,608     (99)  22,709     32,004    6,076  255  38,335 

Provision for loan losses

   1,057     425     1,482  

Provision for loans losses

   1,960    (241)   —    1,719 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Net interest income after provision for loan losses

   13,143     8,183     (99)  21,227     30,044    6,317  255  36,616 

Total noninterest income

   2,467     1,679     4,146     6,841    383   —    7,224 

Total noninterest expense

   10,606     6,237     433(b)  17,276     25,996    3,840  269(b)  30,105 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Net income before income taxes

   5,004     3,625     (532)  8,097     10,889    2,860  (14)  13,735 

Provision for income taxes

   1,524     1,034     (197)(c)  2,361     2,383    710  (4)  3,089 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Net income

   3,480     2,591     (335)  5,736    $8,506   $2,150  $(10)  $10,646 
  

 

   

 

   

 

  

 

   

 

   

 

  

 

  

 

 

Basic earnings per share

  $1.16    $1.46     $1.20    $1.63   $1.24   $1.78 

Diluted earnings per share

  $1.13    $1.44     $1.18    $1.60   $1.23   $1.75 

Average shares outstanding — basic

   2,992,315     1,770,042     4,762,357  

Average shares outstanding — diluted

   3,078,015     1,797,159     4,875,174  

Average shares outstanding—basic

   5,217,348    1,736,356   5,994,328 

Average shares outstanding—diluted

   5,311,074    1,741,053   6,088,054 

 

1.

The pro forma income statements assume the merger of River Financial and KeystoneTrinity occurred at the beginning of 2014 and purchase accounting marks applied to the Keystone balance sheet as ofon January 1, 20142018.

2.

The following adjustments were made to the historical income statements to reflect the purchase accounting entry and related fair market value adjustments.adjustments:

 (a)

Entry to record the accretable discount recognized during the period. Total accretable discount is estimated to be $905$765 and is amortized over5years using accelerated method.

 (b)

Entry to record the core deposit amortization for the period. Total core deposit intangible asset is estimated to be $2,384$1,580 and is amortized over 10 years using accelerated method.

 (c)

Entry to record the tax effect of the pro forma adjustments assuming a 37% 25%tax rate.

(d)Interest expense on debt issued in the merger transaction.



Index to Financial Statements

Historical and Pro Forma Per Share Data for River Financial and Keystone

   At or For the
Three Months Ended
March 31, 2015		  At or For the
Year Ended
December 31, 2014		 

Book Value Per Share

   

River Financial

  $14.95   $14.68  

Keystone

  $15.53   $15.07  

Pro forma combined

  $15.21   $15.06  

Keystone merger equivalent*

  $15.21   $15.06  

Dividends declared per share

   

River Financial

   n.m.**  $0.10  

Keystone

   n.m.**  $0.20  

Pro forma combined

   n.m.**  $0.14  

Keystone merger equivalent*

   n.m.**  $0.14  

Basic earnings per share

   

River Financial

  $0.32   $1.16  

Keystone

  $0.39   $1.46  

Pro forma combined

  $0.33   $1.20  

Keystone merger equivalent*

  $0.33   $1.20  

Diluted earnings per share

   

River Financial

  $0.31   $1.13  

Keystone

  $0.38   $1.44  

Pro forma combined

  $0.32   $1.18  

Keystone merger equivalent*

  $0.32   $1.18  

*Calculated by multiplying the pro forma combined information by the consideration exchange ratio of 1.25.
**Because both River Financial and Keystone have historically paid dividends annually rather than quarterly, these are deemed not meaningful.



Index to Financial Statements

COMPARATIVE PER SHARE DATA

The following table sets forth for River Financial common stock and Keystone common stock certain historical, pro forma and pro forma-equivalent per share financial information. The pro forma and pro forma-equivalent per share information gives effect to the merger as if the merger had been effective as of the dates presented, in the case of the book value data, and as if the merger had become effective on January 1, 2015, in the case of the net income and dividends declared data. The unaudited pro forma data in the table assumes that the merger is accounted for using the acquisition method of accounting and represents a current estimate based on available information of the combined company’s results of operations. The pro forma financial adjustments record the assets and liabilities of Keystone at their estimated fair values and are subject to adjustment as additional information becomes available and as additional analyses are performed. See “Unaudited Pro Forma Condensed Combined Financial Information” on page     .

We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and revenue enhancement opportunities. The unaudited pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of possible business model changes as a result of current market conditions which may impact revenues, expense efficiencies, asset dispositions, share repurchases and other factors. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during these periods nor is it indicative of the results of operations in future periods or the future financial position of the combined company. The Comparative Per Share Data table for the year ended December 31, 2014, combines the historical income per share data of River Financial and subsidiaries and Keystone and subsidiaries giving effect to the transactions as if the merger, using the acquisition method of accounting, had become effective on January 1, 2014. The pro forma adjustments are based upon available information and certain assumptions that River Financial’s management believes are reasonable. Upon completion of the merger, the operating results of Keystone will be reflected in the consolidated financial statements of River Financial on a prospective basis.

(Unaudited)  December 31, 2014
(12 months)		 
  

Income

Common

   Book Value —
Common		   Cash Dividends —
Common*		 
      

River Financial Historical

  $1.16    $14.68    $0.10  

Keystone Historical

  $1.46    $15.07    $0.20  

Pro Forma Combined

  $1.20    $15.06    $0.14  

*Dividends paid annually

Index to Financial Statements

COMPARATIVE MARKET PRICES AND DIVIDENDS

The shares of common stock of KeystoneTrinity are traded only in privately negotiated transactions, and River Financial are not traded on a public market. Thus, there is no established public trading market for the sharesTrinity’s common stock. Shares of Keystone and River Financial common stock and, no public market may develop for River Financial common stock following the merger.

Shares of common stock of Keystone and River Financial, when traded, are traded in privately negotiated transactions and some trades are thinly traded on the OTC Pink Open Market (RVFR). Trading in privately negotiated transactions may often be at prices of which management is unaware.

Management of KeystoneTrinity is aware of 34 trades of KeystoneTrinity common stock since January 1, 20132017 at prices ranging from $10.00$8.00 to $20.00 per share. The most recent trade of which management is aware took place in the second quarter of 2015 at $20.00$10.27 per share.

Management of River Financial is aware of 89 private trades of River Financial common stock since January 1, 2013 at prices ranging from $13.00$21.00 to $16.00$31.00 per share, the most recent trade of which was on July 30, 2019 when 2,500 shares traded at $29.00 per share. The most recent trade of which management is aware took placeprice on June 30, 2015,the OTC Pink Open Market occurred at $16.00 per share.$28.00 on August 2019 when 1,000 shares were traded. Anyover-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

The following chart shows the dividends paid per share of KeystoneTrinity and River Financial common stock.

 

   Keystone  River
Financial

2013

  $0.075  $0

2014

  $0.20  $0.10

2015

  $ 0*  $0.14*

*Dividends are normally paid annually
   Trinity*   River Financial* 

2017

  $0.00   $0.25 

2018

  $0.20   $0.27 

Six Months Ended June 30, 2019

  $0.00   $0.33 

* Dividends are normally paid annually

 

The merger agreement provides that neither Keystone nor River Financial shallTrinity may not pay dividends on its common stock prior to completion of the merger.

Asmerger except for dividends paid in the ordinary course of March 31, 2015, there were approximately 370 holdersbusiness and consistent with past practice. The board of record of Keystone common stock and 380 holders of recorddirectors of River Financial common stock.

expects to pay comparable dividends, but dividends are subject to board discretion and financial performance. The payment of dividends by River Financial and KeystoneTrinity is also subject to certain regulations that may limit or prevent the payment of dividends in certain circumstances. See “Supervision and Regulation — Regulation—Payment of Dividends.”

As of June 30, 2019, there were approximately 164 holders of record of Trinity common stock and 790 holders of record of River Financial common stock. River Financial expects to issue 779,121 shares of its common stock to Trinity shareholders in the merger. No person, including directors, owns five percent or more of River Financial’s common stock. The board of directors and executive management of River Financial currently beneficially owns in the aggregate 16.38% of River Financial’s outstanding common stock as of June 30, 2019. Such percentage will be approximately 14.42% following the merger. See “Information About River Financial—Security Ownership of Certain Beneficial Owners and Management.”

Index to Financial Statements

RISK FACTORS

In addition to the other information included in or incorporated by reference into this proxy statement / prospectus, including the matters addressed under the heading “Cautionary Statement Regarding Forward-Looking Statements” on page     of this proxy statement / prospectus,, holders of Keystone common stock and River FinancialTrinity common stock should consider the matters described below in determining whether to adopt and approve the merger agreement. If any of the following risks or other risks, which have not been identified or which River Financial and KeystoneTrinity may believe are immaterial or unlikely, actually occur, the business, financial condition and results of operations of the combined company could be adversely affected. Many factors, including those described below, could cause actual results to differ materially from those discussed in forward-looking statements.

Risks Related to the Merger

Holders of KeystoneTrinity common stock will have a reduced ownership and voting interest after the merger and may exercise less influence over management.

Holders of KeystoneTrinity common stock currently have the right to vote in the election of the KeystoneTrinity board of directors and on other matters affecting Keystone.Trinity. When the merger occurs, each holder of KeystoneTrinity common stock that receives shares of River Financial common stock will become a shareholder of River Financial with a percentage ownership of the combined organization that is smaller than such shareholder’s current percentage ownership of Keystone.Trinity. As a result, holders of KeystoneTrinity common stock may have less influence on the management and policies of River Financial than they now have on the management and policies of Keystone. Up to 1,883,292Trinity. A total of 779,121 shares of River Financial common stock maywill be issued to KeystoneTrinity shareholders in the merger including shares to be issued pursuant to Keystone options and warrants that may be exercised prior to the merger. There are currently 2,993,1375,705,082 shares of River Financial common stock outstanding.outstanding as of June 30, 2019. Thus, current KeystoneTrinity shareholders will own in the aggregate approximately 3912.02% percent of the River Financial common stock outstanding after the merger.

River Financial may not be able to successfully integrate KeystoneTrinity or realize the anticipated benefits of the merger.

River Financial’s merger with KeystoneTrinity involves the combination of two bank holding companies that previously have operated independently. A successful combination of the operations of the two entities will depend substantially on River Financial’s ability to consolidate operations, systems and procedures and to eliminate redundancies and costs. River Financial may not be able to combine the operations of KeystoneTrinity with its operations without encountering difficulties, such as:

 

the loss of key employees and customers;

 

the disruption of operations and business;

 

inability to maintain and increase competitive presence;

 

deposit attrition, customer loss and revenue loss;

 

possible inconsistencies in standards, control procedures and policies;

 

unexpected problems with costs, operations, personnel, technology and credit; and/or

 

problems with the assimilation of new operations, sites or personnel, which could divert resources from regular banking operations.

Additionally, general market and economic conditions andof governmental actions affecting the financial industry generally may inhibit River Financial’s successful integration of Keystone.Trinity.

Further, River Financial entered into the merger agreement with the expectation that the merger will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened market

Index to Financial Statements

position for the combined company throughout River Financial’s new footprint, cross-selling opportunities, technology, cost savings and operating efficiencies. Achieving the anticipated benefits of the merger is subject to a number of uncertainties, including whether River Financial integrates KeystoneTrinity in an efficient and effective manner, and general competitive factors in the marketplace. River Financial also believes that its ability to successfully integrate KeystoneTrinity with its operations will depend to a large degree upon its ability to retain Keystone’sTrinity’s existing management personnel. Although River Financial will enter into employment arrangements with certain key employees of Keystone following the merger, there can be no assurances that these key employees will not depart.employees. See “The Merger — Merger—Interests of KeystoneTrinity Directors and Executive Officers in the Merger” beginning on page    .

River Financial’s failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could materially impact its business, financial condition and operating results. In addition, the attention and effort devoted to the integration of KeystoneTrinity with River Financial’s existing operations may divert management’s attention from other important issues and could be adverse to its business. Finally, any cost savings that are realized may be offset by losses in revenues or other charges to earnings.

The merger consideration is fixed despite any changes in River Financial’s or Keystone’sTrinity’s book value or stock prices.

The book value of the River Financial common stock to be received, as well as the book value of the KeystoneTrinity common stock currently owned, may vary between the date of this proxy statement / prospectus, the date of the special meetingsmeeting and the closing of the merger. Such variations may result from changes in the respective companies’ business, operations or prospects, regulatory considerations, general market and economic conditions or other factors. Despite any such variations, the merger consideration that Keystone’sTrinity’s stockholders are entitled to receive will not change.change, provided that, if at any time River Financial issues common stock at a price of less than $27.00, the cash value prescribed to the shares of Trinity common stock shall automatically be downward adjusted to the lowest such issuance price.

There is no organized public trading market for River Financial common stock is thinly traded on the OTC Pink Open Market (RVFR), and there can be no assurance that aan active public market will develop.

There is no organized trading market for the shares of common stock of Trinity and River Financial or Keystone.Common Stock is thinly traded on the OTC Pink Open Market and is otherwise traded in privately negotiated transactions. There can be no expectation that aan active public market for River Financial common stock will develop following the merger. River Financial will beis subject to the reporting requirements of the Securities Exchange Act of 1934 following the merger, and, as a result, River Financial may consider the development of a public market for its common stock. However, no such decision has been made.1934. See “Comparative Market Prices and Dividends” on page     .

Because there is no public market for River Financial’s or Keystone’s common stock, it is difficult See also, “Risks Related to determine the fair value of the merger consideration.

The outstanding shares of River Financial’s and Keystone’s common stock are privately held and are not traded in any public market. This lack of a public market makes it difficult to determine the fair value of such common stock. The respective boards of directors of River Financial and Keystone did obtain fairness opinions from their financial advisors; however, because there is no public market for River Financial’s or Keystone’s common stock, such opinions may not be indicative of the fair market value of the shares of River Financial’s or Keystone’s common stock.Our Common Stock” below.

The merger agreement limits Keystone’sTrinity’s ability to pursue an alternative acquisition proposal and requires KeystoneTrinity to pay a termination fee of $300,000$810,000 under limited circumstances relating to alternative acquisition proposals.

The merger agreement prohibits KeystoneTrinity from soliciting, initiating, encouraging or facilitating certain alternative acquisition proposals with any third party, unless the directors determine in good faith (after

Index to Financial Statements

consultation with legal and financial advisors) that (1) a proposed acquisition transaction with an entity other than River Financial would be required in order for its directors to comply with their fiduciary duties and (2) that such alternative transaction is reasonably likely to be consummated and would result in a transaction more favorable to Keystone’sTrinity’s shareholders from a financial point of view than the merger with River Financial. See “The Merger Agreement — Agreement Not to Solicit Other Offers; Termination Fee”Agreement—No Solicitation” on page     . The merger agreement also provides for the payment by KeystoneTrinity to River Financial of a termination fee in the amount of $300,000$810,000 in the event that KeystoneTrinity terminates the merger agreement for certain reasons. These provisions might discourage a potential competing acquiroracquirer that might have an interest in acquiring all or a significant part of KeystoneTrinity from considering or proposing such an acquisition. See “TheSee“The Merger Agreement — Agreement Not to Solicit Other Offers; Agreement—Termination Fee” on page     .

The merger agreement also limits River Financial’s ability to pursue an alternative acquisition proposal and requires River Financial to pay a termination fee of $300,000 under limited circumstances relating to alternative acquisition proposals.

The merger agreement also prohibits River Financial from soliciting, initiating, encouraging or facilitating certain alternative acquisition proposals with any third party, unless the directors determine in good faith (after consultation with legal and financial advisors) that (1) a proposed acquisition transaction with an entity other than Keystone would be required in order for its directors to comply with their fiduciary duties and (2) that such alternative transaction is reasonably likely to be consummated and would result in a transaction more favorable to River Financial’s shareholders from a financial point of view than the merger with Keystone. See “The Merger Agreement — Agreement Not to Solicit Other Offers; Termination Fee” on page     . The merger agreement also provides for the payment by River Financial to Keystone of a termination fee in the amount of $300,000 in the event that River Financial terminates the merger agreement for certain reasons. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of River Financial from considering or proposing such an acquisition. See “The Merger Agreement — Agreement Not to Solicit Other Offers; Termination Fee” on page     .

Neither Keystone nor River FinancialTrinity has not obtained an updated opinion from its respective investment banker reflecting changes in circumstances that may have occurred since the signing of the merger agreement.

KeystoneTrinity has not obtained an updated opinion as of the date of this document from Sandler O’Neill + Partners, LP,Porter White, which is Keystone’sTrinity’s financial advisor, regarding the fairness, from a financial point of view, of the consideration to be paid in connection with the merger. Similarly, River Financial has not obtained an updated opinion as of the date of this document from Stephens Inc., which is River Financial’s financial advisor, regarding the fairness, from a financial point of view, of the exchange ratio of River Financial common stock and cash to be paid in connection with the merger. Changes in the operations and prospects of River Financial or Keystone,Trinity, general market and economic conditions and other factors which may be beyond the control of River Financial and Keystone,Trinity, and on which eachsuch fairness opinion was based, may have altered the value of River Financial or KeystoneTrinity or the value of shares of River Financial common stock and shares of KeystoneTrinity common stock as of the date of this document, or may alter such values by the time the merger is completed. NeitherThe opinion speaksdoes not speak as of any date other than the date of that opinion. For a description of the opinion KeystoneTrinity received from its financial advisor, please refer to “The Merger — Merger—Opinion of Keystone’sTrinity’s Financial Advisor” beginning on page     . For a description of the other factors considered by Keystone’sTrinity’s board of directors in determining to approve the merger, please refer to “The Merger — Keystone’sMerger—Trinity’s Reasons for the Merger” beginning on page     . For a description of the opinion River Financial received from its financial advisor, please refer to “The Merger — Opinion of River Financial’s Advisor” beginning on page     . For a description of the other factors considered by River Financial’s board of directors in determining to approve the merger, please refer to “The Merger — River Financial’s Reasons for the Merger” beginning on page     .

Index to Financial Statements

The merger is subject to the receipt of consents and approvals, or waivers thereof, from government entities that may impose conditions that could have an adverse effect on the combined company following the merger.

Before the merger may be completed, various approvals or consents, or waivers thereof, must be obtained from the Federal Reserve, the FDIC, the ASBD and other regulatory authorities. These government entities including the Federal Reserve, may impose conditions on the completion of the merger or the merger of KeystoneTrinity Bank with River Bank & Trust, or require changes to the terms of the merger. Although River Financial and KeystoneTrinity do not currently expect that any material conditions or changes would be imposed, there can be no assurances that they will not be. Such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger. See “The Merger — Merger—Regulatory Approvals” at page     .

If the merger is not completed, River Financial and KeystoneTrinity will have incurred substantial expenses without realizing the expected benefits of the merger.

Each of River Financial and KeystoneTrinity has incurred substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing and mailing this proxy statement / prospectus and all filing and other fees paid to the SEC and regulatory agencies in connection with the merger.prospectus. If the merger is not completed, River Financial and KeystoneTrinity would have to recognize these expenses without realizing the expected benefits of the merger.

Keystone’sTrinity’s directors and certain executive officers have interests in the merger that may differ from the interests of Keystone’sTrinity’s shareholders including, if the merger is completed, the receipt of financial and other benefits.

Some of Keystone’sTrinity’s directors and certain of Keystone’sTrinity’s executive officers have interests in the merger that are in addition to, and may be different from, the interests of KeystoneTrinity shareholders generally. InFor instance, upon the casemerger’s effective date Brian McLeod, a director of certain executive officers, these interests are certainTrinity, will be added to the board of directors of River Financial and Robbin Thompson, a director of Trinity, will be added to the board of directors of River Bank & Trust. At the effective date, River Bank & Trust will also provide employment arrangements to continue their employment after the merger.Robbin Thompson, Joe Sanders, and Lori Nelson. See “The Merger — Merger—Interests of KeystoneTrinity Directors and Executive Officers in the Merger” beginning on page      for a discussion of these interests.

The shares of River Financial common stock to be received by KeystoneTrinity shareholders as a result of the merger may have different rights from the shares of KeystoneTrinity common stock.

Upon completion of the merger, KeystoneTrinity shareholders will become River Financial shareholders and, in such event, their rights as shareholders will be governed by the River Financial articles of incorporation and bylaws.

Both River Financial and KeystoneTrinity are Alabama corporations and the rights of such shareholders are substantially the same. A comparison of the rights associated with KeystoneTrinity common stock with River Financial common stock is provided at “Comparison of Shareholders’ Rights” beginning on page     .

Risks Related to the Combined Company After the MergerBusiness of River Financial

Like most banking organizations, River Financial’s business is highly susceptibleconcentrated in, and largely dependent upon, the continued growth and welfare of the general geographic markets in which we operate.

Our commercial banking operations are concentrated in Alabama. As of December 31, 2018, most of our total loans were to credit risk.

borrowers located in Alabama. As a lender, River Financialresult, our financial condition and results of operations and cash flows are affected by changes in the economic conditions of the state or the regions of which it is exposeda part. Our success depends to a significant extent upon the riskbusiness activity, population, income levels, deposits, and real estate activity in this market. Although our customers’ business and financial interests may extend well beyond this market area, adverse conditions that River Financial’saffect this market area could reduce our growth rate, affect the ability of our customers will be unable to repay their loans, accordingaffect the value of collateral underlying loans, impact our ability to their termsattract deposits, and generally affect our financial conditions and results of operations. Because of our geographic concentration, we may be less able than other regional or national financial institutions to diversify our credit risks across multiple markets.

A return of recessionary conditions could result in increases in our level of nonperforming loans and/or reduced demand for our products and services, which could have an adverse effect on our results of operations.

Economic recession or other economic problems, including those affecting our markets and regions, but also those affecting the U.S. or world economies, could have a material adverse impact on the demand for our products and services. Since the conclusion of the last recession, economic growth has been slow and uneven, and unemployment levels remain relatively high. If economic conditions deteriorate, or if there are negative developments affecting the domestic and international credit markets, the value of our loans and investments may be harmed which in turn would have an adverse effect on our financial performance, and our financial condition may be adversely affected. In addition, although deteriorating market conditions could adversely affect our financial condition, results of operations, and cash flows, we cannot provide any assurance that we would benefit from any market growth or favorable economic conditions, either in our primary market areas or nationally, even if they do occur.

Difficult conditions in the collateral securingmarket for financial products and services may materially and adversely affect our business and results of operations.

Dramatic declines in the paymenthousing market during the recent economic recession, along with increasing foreclosures and unemployment, resulted in significant write-downs of their loans (if any) may not be sufficientasset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to assure repayment. Credit lossescredit default swaps and other derivative securities, caused many financial institutions to seek additional capital, to merge with larger and stronger institutions, and, in some cases, to fail. This market turmoil and tightening of credit led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally. Although conditions have improved, a return of these trends could have a material adverse effect upon River Financial’s operating results. River Financial’s credit risk with respect to itson our business and operations. Negative market developments may affect consumer installmentconfidence levels and commercial loan portfolios relates principally to the general creditworthiness of individualsmay cause adverse changes in payment patterns, causing increases in delinquencies and businesses within River Financial’s local market areas. River Financial’s credit risk with respect to River Financial’s residentialdefault rates which may impact our charge-offs and commercial real estate mortgage and construction loan portfolios relates principally to the general creditworthiness of individuals and businesses and the value of real estate serving as security for the repayment

Index to Financial Statements

of the loans. A related risk in connection with loans secured by commercial real estate is the effect of unknown or unexpected environmental contamination, which could make the real estate effectively unmarketable or otherwise significantly reduce its value as security, or could expose River Financial to remediation liabilities as the lender. See “River Financial’s Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on page     .

River Financial’s allowanceprovisions for loan lossesand credit losses. Economic deterioration that affects household and/or corporate incomes could also result in reduced demand for credit orfee-based products and services. These conditions would have adverse effects on us and others in the financial services industry.

Our small tomedium-sized business and entrepreneurial customers may not be sufficienthave fewer financial resources than larger entities to cover actualweather a downturn in the economy, which may impair a borrower’s ability to repay a loan, losses, whichand such impairment could adversely affect its earnings.our financial condition and results of operations.

River Financial maintainsWe focus our business development and marketing strategy primarily to serve the banking and financial services needs of small tomedium-sized businesses and entrepreneurs. These small tomedium-sized businesses and entrepreneurs may have fewer financial resources in terms of capital or borrowing capacity than larger entities. If economic conditions negatively impact the Alabama market generally, and small tomedium-sized businesses are adversely affected, our financial condition and results of operations may be negatively affected.

As a community bank, our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our performance.

We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring, and retaining employees who share our core values of being an allowance for loan losses in an attemptintegral part of the communities we serve, delivering superior service to cover loan losses inherent in River Financial’s loan portfolio. Additional loan losses will likely occurour customers, and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected.

As a community banking institution, we have lower lending limits and different lending risks than certain of our larger, more diversified competitors.

We are a community banking institution that provides banking services to the local communities in the futuremarket areas in which we operate. Our ability to diversify our economic risks is limited by our own local markets and economies. We lend primarily to individuals and to small tomedium-sized businesses, which may occur at a rateexpose us to greater than River Financial has experienced to date.

The determination of the allowance for loan losses, which represents management’s estimate of probable losses inherent in River Financial’s credit portfolio, involves a high degree of judgment and complexity. River Financial’s policy is to establish reserves for estimated losses on delinquent and other problem loans when it is determined that losses are expected to be incurred on such loans. Management’s determination of the adequacy of the allowance is based on various factors, including an evaluation of the portfolio, past loss experience, current economic conditions, the volume and type of lending conducted by River Financial, composition of the portfolio, the amount of River Financial’s classified assets, seasoning of the loan portfolio, the status of past due principal and interest payments and other relevant factors. Changes in such estimates may have a significant impact on River Financial’s financial statements. If River Financial’s assumptions and judgments prove to be incorrect, River Financial’s current allowance may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in its loan portfolio. Federal and state regulators also periodically review River Financial’s allowance for loan losses and may require River Financial to increase its provision for loan losses or recognize further loan charge-offs, based on judgments differentrisks than those of its management. Any increase in River Financial’s allowance forbanks that lend to larger, better-capitalized businesses with longer operating histories. In addition, our legally mandated lending limits are lower than those of certain of our competitors that have more capital than we do. These lower lending limits may discourage borrowers with lending needs that exceed our limits from doing business with us. We may try to serve such borrowers by selling loan losses would have an adverse effect on its operating results andparticipations to other financial condition.institutions; however, this strategy may not succeed.

Commercial and commercial real estate loans generally are viewed as having more risk of default than residential real estate loans or other consumer loans or investments. These types of loans also typically are larger than residential real estate loans and other consumer loans. Because the loan portfolio contains a significant number of commercial and commercial real estate loans with relatively large balances, the deterioration of a material amount of these loans may cause a significant increase in nonperforming assets. An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for loan losses or an increase in loan charge-offs, which would have an adverse impact on River Financial’s results of operations and financial condition. See “River Financial’s Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on page     .Our profitability is vulnerable to interest rate fluctuations.

Changes in interest rates and other factors beyond River Financial’s control may adversely affect its earnings and financial condition.

River Financial’s net incomeOur profitability depends to a great extentsubstantially upon the level of itsour net interest income. Changes in interest rates can increase or decrease net interest income and net income. Net interest income is the difference between the interest income River Financial earnsearned on assets (such as loans investments and othersecurities held in our investment portfolio) and the interest paid for liabilities (such as interest paid on savings and money market accounts and time deposits).

Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by fluctuations in interest rates. The magnitude and duration of changes in interest rates are events over which we have no control, and such changes may have an adverse effect on our net interest income. Prepayment and early withdrawal levels, which are also impacted by changes in interest rates, can significantly affect our assets and liabilities. For example, an increase in interest rates could, among other things, reduce the demand for loans and decrease loan repayment rates. Such an increase could also adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations, which could in turn lead to an increase innon-performing assets and net charge-offs. Conversely, a decrease in the general level of interest rates could affect us by, among other things, leading to greater competition for deposits and incentivizing borrowers to prepay or refinance their loans more quickly or frequently than they otherwise would. The primary tool that management uses to measure interest rate risk is a simulation model that evaluates the impact of varying levels of prevailing interest rates and the impact on net interest income and the economic value of equity. As of December 31, 2018, this simulation analysis indicated that if prevailing interest rates immediately decreased by 300 basis points, we would expect net interest income to decrease by approximately $2.7 million, or 7.2% over

the next 12 months, and an increase in the economic value of equity of $6.0 million, or 3.7%. We believe that this is unlikely based on current interest rate levels. Conversely, if prevailing interest rates immediately increased by 300 basis points, we would expect net interest income to decrease by approximately $1.3 million, or 3.5%, over the next 12 months, and a decrease in the economic value of equity of $27.4 million, or 16.8%. However, fluctuations in interest rates affect different classes of income-earning assets differently, and there can be no assurance as to the actual effect on our results of operations should such an increase or decrease occur.

Generally, the interest River Financial paysrates on our interest-earning assets and interest-bearing liabilities such as depositsdo not change at the same rate, to the same extent or on the same basis. Even assets and borrowings. Net interest income is affected byliabilities with similar maturities orre-pricing periods may react in different degrees to changes in market interest rates. Interest rates because differenton certain types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest-bearing liabilities mature or reprice more quickly than interest-earning assetsfluctuate in a period, an increaseadvance of changes in market rates of interest could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income.

Index to Financial Statements

Changes ingeneral market interest rates, are affected by many factors beyond River Financial’s control, including inflation, unemployment, the money supply, international events,while interest rates on other types of assets and events in world financial markets. River Financial attempts to manage its risk fromliabilities may lag behind changes in general market rates. Certain assets, such as fixed and adjustable rate mortgage loans, have features that limit changes in interest rates by adjustingon a short-term basis and over the rates, maturity, repricing, and balanceslife of the different types of interest-earning assets and interest-bearing liabilities, but interest rate risk management techniques are not exact. As a result, a rapid increase or decreaseasset. Changes in interest rates could materially and adversely affect our financial condition and results of operations.

Market interest rates for loans, investments, and deposits are highly sensitive to many factors beyond our control.

Generally, interest rate spreads (the difference between interest rates earned on assets and interest rates paid on liabilities) have an adverse effect on River Financial’s netnarrowed in recent years as a result of changing market conditions, policies of various government and regulatory authorities, and competitive pricing pressures, and we cannot predict whether these rate spreads will narrow even further. This narrowing of interest marginrate spreads could adversely affect our financial condition and results of operations. In addition, we cannot predict whether interest rates will continue to remain at present levels. Changes in the market interest rates may cause significant changes, up or down, in our net interest income.

We attempt to minimize the adverse effects of changes in interest rates by structuring our asset-liability composition in order to obtain the maximum spread between interest income and interest expense. However, there can be no assurance that we will be successful in minimizing the adverse effects of changes in interest rates. Depending on our portfolio of loans and investments, our financial condition and results of operations may be adversely affected by changes in interest rates.

We could suffer losses from a decline in the credit quality of the assets that we hold.

We could sustain losses if borrowers, guarantors, and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and policies that we believe are appropriate to minimize this risk, including the establishment and review of the allowance for typescredit losses, periodic assessment of productsthe likelihood of nonperformance, tracking loan performance, and servicesdiversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our financial condition and results of operations. In particular, we face credit quality risks presented by past, current, and potential economic and real estate market conditions.

A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could negatively impact our business.

A significant portion of our loan portfolio is secured by either residential or commercial real estate. As of December 31, 2018, we had approximately $184.9 million in River Financial’s markets alsoresidential real estate loans and $219.8 million in commercial real estate loans outstanding, representing approximately 26.2% and 31.2%, respectively, of our total loans outstanding on that date.

There are significant risks associated with real estate-based lending. Real estate collateral may vary significantly from location to location and overdeteriorate in value during the time based upon competition and local or regional economic factors.

See “River Financial’s Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on page     .

If River Financial or River Bank & Trust were unable to borrow funds through access to capital markets, River Bank & Trust maythat credit is extended, in which case we might not be able to meet the cash flow requirementssell such collateral for an

amount necessary to satisfy a defaulting borrower’s obligation to us. In that event, there could be a material adverse effect on our financial condition and results of its depositors and borrowers, or the operating cash needsoperations. Additionally, commercial real estate loans are subject to fund corporate expansion and other corporate activities.

Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. River Bank & Trust’s liquidity primarily is used to make loans and leases to repay deposit liabilities as they become due or are demanded by customers. Liquidity policies and limits are established by River Financial’s board of directors. Management regularly monitors the overall liquidity position of River Bank & Trust and River Financial to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Management also establishes policies and monitors guidelines to diversify River Bank & Trust’s funding sources to avoid concentrations in any one market source. Funding sources include Federal funds purchased, securities sold under repurchase agreements, non-core deposits, and short- and long-term debt.

River Bank & Trust maintains a portfolio of securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to River Bank & Trust should they be needed.unique risks. These sources include sales or securitizationstypes of loans River Bank & Trust’s abilityare often viewed as having more risks than residential real estate or other consumer loans, primarily because relatively large amounts are loans to acquire additional national market, non-core deposits, additional collateralized borrowings such asa relatively small number of borrowers. Thus, the issuancedeterioration of even a small number of these loans could cause a significant increase in the loan loss allowance or loan charge-offs, which in turn could have a material adverse effect on our financial condition and saleresults of debt securities, and the issuance and sale of common securities in public or private offerings. River Bank & Trust also can borrowoperations. Furthermore, commercial real estate loans depend on cash flows from the FRB’s discount window.property securing the debt. Cash flows may be affected significantly by general economic conditions and a downturn in a local economy in one of our markets or in occupancy rates where a property is located could increase the likelihood of default.

If River Bank & Trust is unable to access any of these funding sources when needed, River Bank & Trust might be unable to meet customers’ needs, which could adversely impact River Bank & Trust’s financial condition, results of operations, cash flows, and level of regulatory-qualifying capital.

See “River Financial’s Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on page     .

River Financial facesThe foregoing risks related to its operational, technological and organizational infrastructure.

River Financial’s ability to grow and compete is dependent on its ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of that infrastructure as River Financial expands. Similar to other large corporations, in River Financial’s case, operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or outside persons and exposure to external events. As discussed below, River Financial is dependent on its operational infrastructure to help manage these risks. In addition, River Financial is heavily dependent on the strength and capability of its technology systems which it uses both to interface with customers and to manage internal financial and other systems. River Financial’s ability to develop and deliver new products that meet the needs of its existing customers and attract new ones depends on the functionality of River Financial’s technology systems. Additionally, River Financial’s ability to run its business in compliance with applicable laws and regulations is dependent on these infrastructures.

Index to Financial Statements

River Financial continuously monitors its operational and technological capabilities and makes modifications and improvements when River Financial believes it will be cost effective to do so. In some instances, River Financial may build and maintain these capabilities itself. River Financial also outsources some of these functions to third parties. These third parties may experience errors or disruptions that could adversely impact River Financial and over which it may have limited control. River Financial also faces risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into its existing businesses.

A failure in River Financial’s operational systems or infrastructure, or those of third parties, could impair its liquidity, disrupt its businesses, result in the unauthorized disclosure of confidential information, damage its reputation and cause financial losses.

River Financial’s business is dependent on its ability to process and monitor, on a daily basis, a large number of transactions, many of which are highly complex, across numerous and diverse markets. These transactions, as well as the information technology services River Financial provides to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards. Due to the breadth of River Financial’s client base and its geographical reach, developing and maintaining River Financial’s operational systems and infrastructure is challenging, particularlyenhanced as a result of rapidly evolving legalthe limited geographic scope of our principal markets. Most of the real estate securing our loans is located in Alabama. Because the value of this collateral depends upon local real estate market conditions and regulatory requirementsis affected by, among other things, neighborhood characteristics, real estate tax rates, the cost of operating the properties, and technological shifts. River Financial’s financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled aslocal governmental regulation, adverse changes in any of these factors in Alabama could cause a resultdecline in the value of events that are wholly or partially beyond River Financial’s control, such asthe collateral securing a spikesignificant portion of our loan portfolio. Further, the concentration of real estate collateral in transaction volume, cyber-attack or other unforeseen catastrophic events, which may adversely affect River Financial’sthese two markets limits our ability to process these transactions or provide services.

In addition, River Financial’s operations rely on the secure processing, storage and transmission of confidential and other information on its computer systems and networks. Although River Financial takes protective measures to maintain the confidentiality, integrity and availability of its clients’ information across all geographic and product lines, and endeavors to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve. As a result, its computer systems, software and networks may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events that could have an adverse security impact. Despite the defensive measures River Financial takes to manage its internal technological and operational infrastructure, these threats may originate externally from third parties such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or may originate internally from within River Financial’s organization. Given the increasingly high volume of transactions, certain errors may be repeated or compounded before they can be discovered and rectified.

River Financial also facesdiversify the risk of operational disruption,such occurrences.

Our allowance for estimated loan losses may not be adequate to cover actual loan losses, which may require us to take a charge to earnings and adversely impact our financial condition and results of operations.

We maintain an allowance for estimated loan losses that we believe is adequate to absorb any probable losses in our loan portfolio. Management determines the amount of the allowance based upon an analysis of general market conditions, credit quality of our loan portfolio and performance of our customers relative to their financial obligations with us. We periodically evaluate the loan portfolio for risk grading, which can result in changes in our allowance. The amount of future losses is affected by changes in economic, operating, and other conditions, including changes in interest rates, which may be beyond our control, and such losses may exceed the allowance for estimated loan losses. Although we believe that our allowance for estimated loan losses is adequate to absorb any probable losses on existing loans that may become uncollectible, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. If actual losses exceed the estimate, the excess losses could adversely affect our net income and capital. Such excess could also lead to larger allowances for loan losses in future periods, which could in turn adversely affect new income and capital in those periods. If economic conditions differ substantially from the assumptions used in the estimate, or if the performance of our loan portfolio deteriorates, future losses may occur, and increases in the allowance may be necessary, either of which would have a negative effect on our financial condition and results of operations.

Additionally, federal banking regulators, as part of their supervisory function, periodically review the adequacy of our allowance for estimated loan losses. These agencies may require us to establish additional allowances based on their judgment of the information available at the time of their examinations. If these regulatory agencies require us to increase the allowance for estimated loan losses, it would have a negative effect on our financial condition and results of operations.

See “Changes in accounting standards could materially impact our financial statements” on Page    .

Our use of appraisals in deciding whether to make a loan secured by real property does not ensure the value of the real property collateral.

In considering whether to make a loan secured by real property, we generally require an appraisal. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made. If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property.

Our information systems may experience a failure termination or capacity constraintsinterruption.

We rely heavily on communications and information systems to conduct our business. Any failure or interruption in the operation of these systems could impair or prevent the effective operation of our customer relationship management, general ledger, deposit, lending, or other functions. While we have policies and procedures designed to prevent or limit the effect of a failure or interruption in the operation of our information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any of the third parties that facilitatefailures or interruptions affecting our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries. Such partiesinformation systems could also be the source of an attack on, or breach of, its operational systems, data or infrastructure. In addition, as interconnectivity with its clients grows, River Financial increasingly faces the risk of operational failure with respect to its clients’ systems.

Although River Financial has not experienced a material cyber-incident, if one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, its computer systems and networks, or otherwise cause interruptions or malfunctions in it, as well as its clients’ or other third parties’ operations, which coulddamage our reputation, result in damage to our reputation, substantial costs, regulatory penalties and/or client dissatisfaction or loss. Potential costs of a cyber-incident may include, but would not be limited to, remediation costs, increased protection costs, lost revenue from the unauthorized use of proprietary information or the loss of current and/or future customers,customer business, and litigation.

Indexexpose us to Financial Statements

The loss of certain key personnel could negatively affect River Financial’s operations.

River Financial depends in large part on the retention of a limited number of key executive management, lendingadditional regulatory scrutiny, civil litigation, and other banking personnel. River Financial could undergo a difficult transition period if it were to lose the services ofpossible financial liability, any of these individuals. River Financial’s success also depends on the experience of its banking facilities’ managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key persons could negatively impact the affected banking operations. Although certain key members of Keystone’s management will become a part of River Financial’s management and will provide additional depth, the unexpected loss of key senior managers, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on its business, financial condition, or operating results. See “The Merger — Interests of Keystone Directors and Executive Officers in the Merger” on page     .

Changes in government regulations and legislation could limit River Financial’s future performance and growth.

The banking industry is heavily regulated. River Financial is subject to examination, supervision and comprehensive regulation by various federal and state agencies. River Financial’s compliance is costly and restricts certain of its activities. Banking regulations are primarily intended to protect the federal deposit insurance fund and depositors, not shareholders. The burdens imposed by federal and state regulations put banks at a competitive disadvantage compared to less regulated competitors, such as finance companies, mortgage banking companies and leasing companies. Changes in the laws, regulations and regulatory practices affecting the banking industry may increase River Financial’s costs of doing business or otherwise adversely affect it and create competitive advantages for others. Regulations affecting banks and financial services companies undergo continuous change, and River Financial cannot predict the ultimate effect of these changes, which could have a material adverse effect on its profitabilityour financial condition and results of operations.

We use information technology in our operations and offer online banking services to our customers and unauthorized access to our or financial condition. Federal economicour customers’ confidential or proprietary information as a result of a cyber-attack or otherwise could expose us to reputational harm and monetary policies may alsolitigation and adversely affect River Financial’sour ability to attract and retain customers.

Information security risks for financial institutions have generally increased in recent years, in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties. We are under continuous threat of loss due to hacking and cyber-attacks, especially as we continue to expand customer capabilities to utilize internet and other remote channels to transact business. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. Therefore, the secure processing, transmission, and storage of information in connection with our online banking services are critical elements of our operations. However, our network could be vulnerable to unauthorized access, computer viruses and other malware, phishing schemes, or other security failures. In addition, our customers may use personal smartphones, tablet PCs, or other mobile devices that are beyond our control systems in order to access our products and services. Our technologies, systems and networks, and our customers’ devices, may become the target of cyber-attacks, electronic fraud, or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our customers’ confidential, proprietary, and other information, or otherwise disrupt our or our customers’ or other third parties’ business operations. As cyber threats continue to evolve, we may be required to spend significant capital and other resources to protect against these threats or to alleviate or investigate problems caused by such threats. To the extent that our activities or the activities of our customers involve the processing, storage, or transmission of confidential customer information, any breaches or unauthorized access to such information could present significant regulatory costs and expose us to litigation and other possible liabilities. Any inability to prevent these types of security threats could also cause existing customers to lose confidence in our systems and could adversely affect our reputation and ability to generate deposits. While we have not experienced any material losses relating to cyber-attacks or other information security breaches to date, we may suffer such losses in the future. The occurrence of any cyber-attack or information security breach could result in potential liability to clients, reputational damage, damage to our competitive position, and the disruption of our operations, all of which could adversely affect our financial condition or results of operations, lead to increased compliance and insurance costs and reduce shareholder value.

We are dependent upon outside third parties for the processing and handling of our records and data.

We rely on software developed by third-party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf. These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing, and securities portfolio accounting. While we perform a review of controls instituted by the applicable vendors over these programs in

accordance with industry standards and perform our own testing of user controls, we must rely on the continued maintenance of controls by these third-party vendors, including safeguards over the security of customer data. In addition, we maintain, or contract with third parties to maintain, daily backups of key processing outputs in the event of a failure on the part of any of these systems. Nonetheless, we may incur a temporary disruption in our ability to conduct business or process transactions, or incur damage to our reputation, if the third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems. Such a disruption or breach of security may have a material adverse effect on our business.

Any expansion into new markets or new lines of business might not be successful.

As part of our ongoing strategic plan, we may consider expansion into new geographic markets. Such expansion might take the form of the establishment of de novo branches or the acquisition of existing banks or bank branches. There are considerable costs associated with opening new branches, and new branches generally do not generate sufficient revenues to offset costs until they have been in operation for some time. Additionally, we may consider expansion into new lines of business through the acquisition of third parties or organic growth and development. There are substantial risks associated with such efforts, including risks that (i) revenues from such activities might not be sufficient to offset the development, compliance, and other implementation costs, (ii) competing products and services and shifting market preferences might affect the profitability of such activities, and (iii) our internal controls might be inadequate to manage the risks associated with new activities. Furthermore, it is possible that our unfamiliarity with new markets or lines of business might adversely affect the success of such actions. If any such expansions into new geographic or product markets are not successful, there could be an adverse effect on our financial condition and results of operations.

We have incurred substantial expenses related to our recent acquisition and expect to continue to incur some expenses related to the acquisition.

We have incurred substantial expenses and expect to continue to incur expenses in connection with completing our recent acquisition of Peoples Southern Bank and integrating the operations of the acquired bank with our operations. There are a number of factors beyond our control that could affect the total amount or the timing of our transaction and integration expenses and such expenses may exceed our initial projections. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with our recent acquisition could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the acquired businesses.

Acquisitions may disrupt our business and dilute stockholder value, and integrating acquired companies may be more difficult, costly, or time-consuming than we expect.

Our business strategy focuses on both organic growth and growth through acquisitions of financial institutions located in the southeastern United States, principally Alabama. Our pursuit of acquisitions may disrupt our business, and common stock that we issue as merger consideration may have the effect of diluting the value of your investment. In addition, we may fail to realize some or all of the anticipated benefits of completed acquisitions, including our acquisition of PSB Bancshares, Inc. (PSB) on October 31, 2018. We anticipate that the integration of PSB, as well as other businesses that we acquire in the future may be a time-consuming and expensive process, even if the integration process is effectively planned and implemented.

In addition, our acquisition activities could be material to our business and involve a number of significant risks, including the following:

incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business;

using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or the assets and liabilities that we seek to acquire;

exposure to potential asset quality issues of the target company;

intense competition from other banking organizations and other potential acquirers, many of which have substantially greater resources than we do;

potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance issues;

inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits of the acquisition;

incurring time and expense required to integrate the operations and personnel of the combined businesses;

inconsistencies in standards, procedures, and policies that would adversely affect our ability to maintain relationships with customers and employees;

experiencing higher operating expenses relative to operating income from the new operations;

creating an adverse short-term effect on our results of operations;

losing key employees and customers;

significant problems relating to the conversion of the financial and customer data of the entity;

integration of acquired customers into our financial and customer product systems;

potential changes in banking or tax laws or regulations that may affect the target company; or

risks of impairment to goodwill or other-than-temporary impairment of investment securities.

If difficulties arise with respect to the integration process, the economic benefits expected to result from acquisitions might not occur. As with any merger of financial institutions, there also may be business disruptions that cause us to lose customers or cause customers to move their business to other financial institutions. Failure to successfully integrate businesses that we acquire could have an adverse effect on our profitability, return on equity, return on assets, or our ability to implement our strategy, any of which in turn could have a material adverse effect on our business, financial condition, and results of operation.

Our recent acquisition of Peoples Southern Bank may make it difficult for investors to evaluate our business, financial condition, and results of operations, and also impair our ability to accurately forecast our future performance.

We completed the acquisition of Peoples Southern Bank on October 31, 2018. As of December 31, 2018, the assets of Peoples Southern Bank constituted approximately 17% of our total consolidated assets. Our limited history operating the merged company and the lack of combined historical financial information may not provide an adequate basis for investors to evaluate our business, financial condition, and results of operations, or to assess trends that may be affecting the businesses that we have acquired, or our business as a whole. Our future operating results depend upon a number of factors, including our ability to integrate these acquisitions, manage our growth, retain the merged customer base, and successfully identify and respond to emerging trends affecting our primary product lines and markets. As a result of these uncertainties, predictions about our future financial performance may not be as accurate as they would be if we had a longer operating history.

Our financial performance will be negatively impacted if we are unable to execute our growth strategy.

Our current growth strategy is to grow organically and supplement that growth with select acquisitions. Our ability to grow organically depends primarily on generating loans and deposits of acceptable risk and expense, and we may not be successful in continuing this organic growth. Our ability to identify appropriate markets for

expansion, recruit and retain qualified personnel, and fund growth at a reasonable cost depends upon prevailing economic conditions, maintenance of sufficient capital, competitive factors, and changes in banking laws, among other factors. Conversely, if we grow too quickly and are unable to control costs and maintain asset quality, such growth, whether organic or through select acquisitions, could materially and adversely affect our financial condition and results of operations.

External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Board of Governors of the Federal Reserve System. Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance. The primary impact of inflation on our operations most likely will be reflected in increased operating costs. Conversely, deflation generally will tend to erode collateral values and diminish loan quality. Virtually all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than general levels of inflation or deflation. Interest rates do not necessarily move in the same direction or by the same magnitude as the prices of goods and services.

Our liquidity needs might adversely affect our financial condition and results of operations.

The primary sources of funds for River Bank are customer deposits and loan repayments. Loan repayments are subject to the credit risks described above. In addition, deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, and general economic conditions. Therefore, River Bank may be required to rely from time to time on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations or support growth. River Bank has lines of credit in place with the Federal Home Loan Bank of Atlanta and correspondent banks that we believe are adequate to meet the Banks’ liquidity needs. However, there can be no assurance that these arrangements will be sufficient to meet future liquidity needs, particularly if loan demand grows faster than anticipated.

As a bank holding company, the sources of funds available to us are limited.

Any future constraints on liquidity at the holding company level could impair our ability to declare and pay dividends on our common stock. In some instances, notice to, or approval from, the Federal Reserve may be required prior to our declaration or payment of dividends. Further, our operations are primarily conducted by our subsidiary bank, which is subject to significant regulation. Federal and state banking laws restrict the payment of dividends by banks to their holding companies, and River Bank & Trust is subject to these restrictions in paying dividends to us. Because our ability to receive dividends or loans from River Bank & Trust is restricted, our ability to pay dividends to our stockholders is also restricted.

Additionally, the right of a bank holding company to participate in the assets of its subsidiary bank in the event of a bank-level liquidation or reorganization is subject to the claims of the bank’s creditors, including depositors, which take priority, except to the extent that the holding company may be a creditor with a recognized claim.

Our largest loan relationships currently make up a significant percentage of our total loan portfolio.

The concentration risk associated with having a small number of extremely large loan relationships is that, if one or more of these relationships were to become delinquent or suffer default, we could be at serious risk of material losses. The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance would negatively affect our earnings and capital. Even if the loans are collateralized, the large increase in classified assets could harm our reputation with our regulators and inhibit our ability to execute our business plan.

Several of our large depositors have relationships with each other, which creates a higher risk that one customer’s withdrawal of its deposit could lead to a loss of other deposits from customers within the relationship, which, in turn, could force us to fund our business through more expensive and less stable sources.

Several of our large depositors have business, family, or other relationships with each other, which creates a risk that any one customer’s withdrawal of its deposit could lead to a loss of other deposits from customers within the relationship.

Withdrawals of deposits by any one of our largest depositors or by one of our related customer groups could force us to rely more heavily on borrowings and other sources of funding sources,for our business and withdrawal demands, adversely affecting our net interest margin and results of operations. We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Consequently, the occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition, and future prospects.

We may not be able to adequately measure and limit the credit risk associated with our loan portfolio, which could adversely affect our profitability.

As a part of the products and services that we offer, we make commercial and commercial real estate loans. The principal economic risk associated with each class of loans is the creditworthiness of the borrower, which is affected by the strength of the relevant business market segment, local market conditions, and general economic conditions. Additional factors related to the credit quality of commercial loans include the quality of the management of the business and the borrower’s ability both to properly evaluate changes in the supply and demand characteristics affecting our market for products and services, and to effectively respond to those changes. Additional factors related to the credit quality of commercial real estate loans include tenant vacancy rates and the quality of management of the property. A failure to effectively measure and limit the credit risk associated with our loan portfolio could have an adverse effect on our business, financial condition, and results of operations.

We operate in a highly competitive industry and face significant competition from other financial institutions and financial services providers, which may decrease our growth or profits.

Consumer and commercial banking are highly competitive industries. Our market areas contain not only a large number of community and regional banks, but also a significant presence of the country’s largest commercial banks. We compete with other state and national financial institutions, as well as savings and loan associations, savings banks, and credit unions, for deposits and loans. In addition, we compete with financial intermediaries, such as consumer finance companies, commercial finance companies, mortgage banking companies, insurance companies, securities firms, mutual funds, and several government agencies, as well as major retailers, all actively engaged in providing various types of loans and investments,other financial services. Some of these competitors may have a long history of successful operations in our market areas and achieve satisfactorygreater ties to local businesses and more expansive banking relationships, as well as more established depositor bases, fewer regulatory constraints, and lower cost structures than we do. Competitors with greater resources may possess an advantage through their ability to maintain numerous banking locations in more convenient sites, to conduct more extensive promotional and advertising campaigns, or to operate a more developed technology platform. Due to their size, many competitors may offer a broader range of products and services, as well as better pricing for certain products and services than we can offer. For example, in the current low interest spreads.rate environment, competitors with lower costs of capital may solicit our customers to refinance their loans with a lower interest rate. Further, increased competition among financial services companies due to the recent consolidation of certain competing financial institutions may adversely affect our ability to market our products and services. Technology has lowered barriers to entry and made it possible for banks to compete in our market areas without a retail footprint by offering competitive rates, and fornon-banks to offer products and services traditionally provided by banks.

See “Supervision

The financial services industry could become even more competitive as a result of legislative, regulatory, and Regulation”technological changes and continued consolidation. Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking.

Our ability to compete successfully depends on page     .a number of factors, including:

our ability to develop, maintain, and build upon long-term customer relationships based on quality service and high ethical standards;

our ability to attract and retain qualified employees to operate our business effectively;

our ability to expand our market position;

the scope, relevance, and pricing of products and services that we offer to meet customer needs and demands;

the rate at which we introduce new products and services relative to our competitors;

customer satisfaction with our level of service; and

industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could harm our business, financial condition, and results of operations.

Our financial projections are based upon numerous assumptions about future events, and our actual financial performance may differ materially from our projections if our assumptions are inaccurate.

If the communities in which we operate do not grow, or if the prevailing economic conditions locally or nationally are less favorable than we have assumed, then our ability to reduce ournon-performing loans and other real estate owned portfolios and to implement our business strategies may be adversely affected, and our actual financial performance may be materially different from our projections.

Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our market areas even if they do occur. If our senior management team is unable to provide the effective leadership necessary to implement our strategic plan, including the successful integration of Peoples Southern Bank and Trinity Bank, our actual financial performance may be materially adversely different from our projections. Additionally, to the extent that any component of our strategic plan requires regulatory approval, if we are unable to obtain necessary approval, we will be unable to completely implement our strategy, which may adversely affect our actual financial results. Our inability to successfully implement our strategic plan could adversely affect the price of our common stock.

Because our business success depends significantly on key management personnel, the departure of such personnel could impair operations.

We depend heavily upon our senior management team. The loss of the services of a member of our senior management team, or an inability to attract other experienced banking personnel, could adversely affect our business. Some of these adverse effects could include the loss of personal contacts with existing or potential customers, as well as the loss of special technical knowledge, experience, and skills of such individuals who are responsible for our operations.

We may be adversely affected by the lack of soundness of other financial institutions or market utilities.

Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of

trading, clearing, counterparty, or other relationships. Defaults by, or even rumors or questions about, one or more financial institutions or market utilities, or the financial services industry generally, may lead to market-wide liquidity problems and losses of depositor, creditor, and counterparty confidence, and could lead to losses or defaults by us or by other institutions.

We depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. In deciding whether to extend credit, we may rely upon our customers’ representations that their financial statements conform to accounting principles generally accepted in the United States of America (GAAP) and present fairly, in all material respects, the financial condition, results of operations, and cash flows of the customer. We also may rely on customer representations and certifications, or other audit or accountants’ reports, with respect to the business and financial condition of our clients. Our financial condition, results of operations, financial reporting, and reputation could be negatively affected if we rely on materially misleading, false, inaccurate, or fraudulent information.

We are subject to environmental risk in our lending activities.

Because a significant portion of our loan portfolio is secured by real property, we may foreclose upon and take title to such property in the ordinary course of business. If hazardous substances are found on such property, we could be liable for remediation costs, as well as for personal injury and property damage. Environmental laws might require us to incur substantial expenses, materially reduce the property’s value, or limit our ability to use or sell the property. Although management has policies requiring environmental reviews before loans secured by real property are made and before foreclosure is commenced, it is still possible that environmental risks might not be detected and that the associated costs might have a material adverse effect on our financial condition and results of operations.

We continually encounter technological change and may have fewer resources than our competitors to continue to invest in technological improvements.

The geographic concentrationbanking and financial services industries are undergoing rapid technological changes, with frequent introductions of River Financial’snew technology-driven products and services. In addition to enhancing the level of service provided to customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that enhance customer convenience and create additional efficiencies in operations. Many of our competitors have greater resources to invest in technological improvements, and we may not be able to effectively implement new technology-driven products and services, which could reduce our ability to effectively compete.

The internal controls that we have implemented in order to mitigate risks inherent to the business of banking might fail or be circumvented.

Management regularly reviews and updates our internal controls and procedures that are designed to manage the various risks in our business, including credit risk, operational risk, and interest rate risk. No system of controls, however well-designed and operated, can provide absolute assurance that the objectives of the system will be met. If there were a failure of such a system, or if a system were circumvented, there could be a material adverse effect on our financial condition and results of operations.

Changes in accounting standards could materially impact our financial statements.

From time to time, the Financial Accounting Standards Board or the Securities and Exchange Commission, or the SEC, may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict, and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements.

In addition, in June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that will replace the current approach under GAAP for establishing the allowance for loan losses, which generally considers only past events and current conditions. This new standard, referred to as Current Expected Credit Loss (“CECL”), requires financial institutions to project a loan’s lifetime losses at origination, as opposed to the current framework which allows adjustments to the provision for loan and lease losses when losses are assessed as probable in an existing loan. At this time, we do not know and cannot reasonably quantify the impact of the adoption of CECL from the current incurred loss method. The new standard is expected to generally result in increases to allowance levels and will require the application of the revised methodology to existing financial assets through aone-time adjustment to retained earnings upon initial effectiveness. In December 2018, the Federal Deposit Insurance Corporation (“FDIC”), Federal Reserve and Office of the Comptroller of the Currency issued a final rule to allow a banking organization to elect to phase in the regulatory capital impact over a three-year period. A failure to effectively measure the effect of CECL may result in significant overstatement or understatement of our allowance for loan and lease losses, and in the event of an understatement, may necessitate that we significantly increase our allowance for loan and lease losses, which could adversely affect our net income.

Adverse weather or manmade events could negatively affect our core markets makes itsor disrupt our operations, which could have an adverse effect upon our business and results of operations.

Our market areas are susceptible to natural disasters, such as hurricanes, tornadoes, tropical storms, other severe weather events, and related flooding and wind damage, and manmade disasters. These disasters could negatively impact regional economic conditions; cause a decline in the value or destruction of mortgaged properties and increase the risk of delinquencies, foreclosures, or loss on loans originated by us; damage our banking facilities and offices; and negatively impact our growth strategy. Such weather events could disrupt operations, result in damage to properties, and negatively affect the local economies in the markets where we operate. We cannot predict whether or to what extent damage that may be caused by future weather or manmade events will affect our operations or the economies in our current or future market areas, but such events could negatively impact economic conditions.conditions in these regions and result in a decline in local loan demand and loan originations, a decline in the value or destruction of properties securing our loans, and an increase in delinquencies, foreclosures, or loan losses. Our business or results of operations may be adversely affected by these and other negative effects of natural or manmade disasters. Further, severe weather, natural disasters, acts of war or terrorism, and other external events could adversely affect us in a number of ways, including an increase in delinquencies, bankruptcies, or defaults that could result in a higher level ofnon-performing assets, net charge-offs, and provision for loan losses. Such risks could also impair the value of collateral securing loans and hurt our deposit base.

Unlike larger organizations

We are or may become involved from time to time in suits, legal proceedings, information-gathering requests, investigations, and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences.

Many aspects of our business involve substantial risk of legal liability. We are subject to being threatened to be named as defendants in lawsuits arising from our business activities, including business activities of PSB prior to such acquisition (or of Trinity following the merger). In addition, from time to time, we are, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, the Securities and Exchange Commission, and law enforcement authorities. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which we conduct our business, or reputational harm.

Risks Related to the Regulation of Our Industry

We are subject to extensive regulation in the conduct of our business, which imposes additional costs on us and adversely affects our profitability.

As a bank holding company, we are subject to federal regulation under the Bank Holding Company Act of 1956, as amended, or the BHCA, and the examination and reporting requirements of the Federal Reserve. Federal regulation of the banking industry, along with tax and accounting laws, regulations, rules, and standards, may limit our operations significantly and control the methods by which we conduct business, as they limit those of other banking organizations. Banking regulations are primarily intended to protect depositors, deposit insurance funds, and the banking system as a whole, and not stockholders or other creditors. These regulations affect lending practices, capital structure, investment practices, dividend policy, and overall growth, among other things. For example, federal and state consumer protection laws and regulations limit the manner in which we may offer and extend credit. In addition, the laws governing bankruptcy generally favor debtors, making it more geographically diversified, expensive and more difficult to collect from customers who become subject to bankruptcy proceedings.

We also may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial condition and results of operations.

Changes in laws, government regulation, and monetary policy may have a material effect on our results of operations.

Financial institutions have been the subject of significant legislative and regulatory changes and may be the subject of further significant legislation or regulation in the future, none of which is within our control. New proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the bank andnon-bank financial services industries, impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings, and disclosures, and have an effect on bankruptcy proceedings with respect to consumer residential real estate mortgages, among other things. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Changes to statutes, regulations, or regulatory policies, including changes in their interpretation or implementation by regulators, could affect us in substantial and unpredictable ways. Such changes could, among other things, subject us to additional costs and lower revenues, limit the types of financial services and products that we may offer, ease restrictions onnon-banks and thereby enhance their ability to offer competing financial services and products, increase compliance costs, and require a significant amount of management’s time and attention. Failure to comply with statutes, regulations, or policies could result in sanctions by regulatory agencies, civil monetary penalties, or reputational damage, each of which could have a material adverse effect on our business, financial condition, and results of operations.

Banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we become subject as a result of such examinations could materially and adversely affect us.

River Financial’s offices are generally concentratedBank & Trust is subject to supervision and regulation by banking agencies that periodically conduct examinations of our business, including compliance with laws and regulations – specifically, River Bank & Trust is subject to examination by the FDIC and the Alabama Banking Department. Accommodating such examinations may require management to reallocate resources, which would otherwise be used in central Alabama.theday-to-day operation of other aspects of our business. If, as a result of an examination, any such banking agency was to determine that the financial condition, capital resources, allowance for loan losses, asset quality, earnings prospects, management, liquidity, or other aspects of our operations had become unsatisfactory, or that we or our management were in violation of any law or regulation, such banking agency may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against us, our officers, or directors, to remove officers and directors, and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to such a regulatory action, it could have a material adverse effect on our business, financial condition, and results of operations.

FDIC deposit insurance assessments may materially increase in the future, which would have an adverse effect on earnings.

As a member institution of the Federal Deposit Insurance Corporation, River Bank & Trust is assessed a quarterly deposit insurance premium. Failed banks nationwide have significantly depleted the insurance fund and reduced the ratio of reserves to insured deposits. The FDIC has adopted a Deposit Insurance Fund, or DIF, Restoration Plan, which requires the DIF to attain a 1.35% reserve ratio by September 30, 2020. As a result of this geographic concentration,requirement, River Financial’sBank & Trust could be required to pay significantly higher premiums or additional special assessments that would adversely affect earnings, thereby reducing the availability of funds to pay dividends to the parent company, River Financial.

We are subject to certain capital requirements by regulators.

Applicable regulations require us to maintain specific capital standards in relation to the respective credit risks of our assets andoff-balance sheet exposures. Various components of these requirements are subject to qualitative judgments by regulators. We maintain a “well capitalized” status under the current regulatory framework. Our failure to maintain a “well capitalized” status could affect our customers’ confidence in us, which could adversely affect our ability to do business. In addition, failure to maintain such status could also result in restrictions imposed by our regulators on our growth and other activities. Any such effect on customers or restrictions by our regulators could have a material adverse effect on our financial condition and results of operations.

We may need to raise additional capital in the future, including as a result of potential increased minimum capital thresholds established by regulators, but that capital may not be available when it is needed or may be dilutive to stockholders.

We are required by federal and state regulatory authorities to maintain adequate capital levels to support our operations. New regulations implementing minimum capital standards could require financial institutions to maintain higher minimum capital ratios and may place a greater emphasis on common equity as a component of “Tier 1 capital,” which consists generally of shareholders’ equity and qualifying preferred stock, less certain goodwill items and other intangible assets. In order to support our operations and comply with regulatory standards, we may need to raise capital in the future. Our ability to raise additional capital will depend largely upon economic on

conditions in this market area. Deteriorationthe capital markets at that time, which are outside of our control, on our financial performance, and on our successful integration of PSB and the operations of River Bank & Trust. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on favorable terms. The capital and credit markets have experienced significant volatility in recent years. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If we cannot raise additional capital when needed, our financial condition and results of operations may be adversely affected, and our banking regulators may subject us to regulatory enforcement action, including receivership. Furthermore, our issuance of additional shares of our common stock could dilute the economic conditions in Alabamaownership interest of our stockholders.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act, or CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in one or morea wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations, and future prospects.

We are subject to the Bank Secrecy Act and other anti-money laundering statutes and regulations, and any deemed deficiency by us with respect to these laws could result in significant liability.

The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti- money laundering program and file suspicious activity and currency transaction reports when appropriate. In addition to other bank regulatory agencies, the federal Financial Crimes Enforcement Network of the following:Department of the Treasury is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the state and federal banking regulators, as well as the U.S. Department of Justice, Consumer Financial Protection Bureau, Drug Enforcement Administration, and IRS. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control of the Department of the Treasury regarding, among other things, the prohibition of transacting business with, and the need to freeze assets of, certain persons and organizations identified as a threat to the national security, foreign policy, or economy of the United States. If our policies, procedures, and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations, and future prospects.

Risks Related to Our Common Stock

The trading price of our common stock may be subject to various influences, which may make it difficult for you to sell your shares at the volumes, prices, and times desired.

The trading price of our common stock, which is determined primarily in privately negotiated transactions, may be volatile and subject to wide price fluctuations in response to various factors, including:

 

an increase

actual or anticipated fluctuations in loan delinquencies;our operating results, financial condition, or asset quality;

 

an increase

market conditions in problem assetsthe broader stock market in general, or in our industry in particular;

publication of research reports about us, our competitors, or the bank and foreclosures;non-bank financial services industries generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

 

a decrease

future issuances of our common stock or other securities;

significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving our competitors or us;

additions or departures of key personnel;

trades of large blocks of our stock;

economic and political conditions or events;

regulatory developments; and

other news, announcements, or disclosures (whether by us or others) related to us, our competitors, our core markets, or the bank andnon-bank financial services industries.

These and other factors may cause the market price and any demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock.

We cannot guarantee that we will pay dividends to our stockholders in the demand forfuture.

The holders of our common stock will receive dividends if and when declared by our board of directors out of legally available funds. Any future determination relating to the payment of dividends will be made at the discretion of our board of directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions, and other factors that our board of directors may deem relevant.

Our principal business operations are conducted through River Bank & Trust. Cash available to pay dividends to our stockholders is derived primarily, if not entirely, from dividends paid by our bank to us. The ability of River Bank & Trust to pay dividends to us, as well as our ability to pay dividends to our stockholders, will continue to be subject to, and limited by, certain legal and regulatory restrictions. Further, any lenders making loans to us may impose financial covenants that may be more restrictive with respect to dividend payments than the regulatory requirements.

A future issuance of stock could dilute the value of our common stock.

As of June 1, 2019, River Financial productshad 10,000,000 shares authorized to be issued, 5,703,547 shares of which were issued and services; and

a decreaseoutstanding. Those shares outstanding do not include the potential issuance, as of June 1, 2019, 368,625 shares of our common stock subject to issuance upon exercise of outstanding stock options, or 328,500 additional shares of our common stock that were reserved for issuance under the River Financial Corporation Incentive Stock Compensation Plans. Future issuance of any new shares could cause further dilution in the value of collateral for loans, especially real estate,our outstanding shares of common stock.

Our directors and executive officers beneficially own a significant portion of our common stock and have substantial influence over us.

Our directors and executive officers, as a group, beneficially owned approximately 16.38% of our outstanding common stock as of June 30, 2019. As a result of this level of ownership, our directors and executive officers have the ability, by taking coordinated action, to exercise significant influence over our affairs and policies. The interests of our directors and executive officers may not be consistent with your interests as a

stockholder. This influence may also have the effect of delaying or preventing changes of control or changes in turn reducing customers’ borrowing power,management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our Company.

Shares of our common stock are not insured deposits and may lose value.

Shares of our common stock are not savings or deposit accounts and are not insured by the FDIC’s DIF, or any other agency or private entity. Such shares are subject to investment risk, including the possible loss of some or all of the value of assets associated with problem loans and collateral coverage.

See “Information About River Financial” on page     .your investment.

Risks RelatedThe laws that regulate our operations are designed for the protection of depositors and the public, not our stockholders.

The federal and state banking laws and regulations applicable to our operations give regulatory authorities extensive discretion in connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect depositors and the FDIC’s deposit insurance fund and not for the purpose of protecting stockholders. These laws and regulations can materially affect our future business. Laws and regulations now affecting us may be changed at any time, and the interpretation of such laws and regulations by bank regulatory authorities is also subject to change.

We have the ability to incur debt and pledge our assets, including our stock in River Bank & Trust, to secure that debt.

We have the ability to incur debt and pledge our assets to secure that debt. Absent special and unusual circumstances, a holder of indebtedness for borrowed money has rights that are superior to those of holders of common stock. For example, interest must be paid to the Increaselender before dividends can be paid to the stockholders, and loans must be paid off before any assets can be distributed to stockholders if we were to liquidate. Furthermore, we would have to make principal and interest payments on our indebtedness, which could reduce our profitability or result in River Financial Authorized Sharesnet losses on a consolidated basis.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.

Since October 28, 2015, we have been required to comply with the regulatory and reporting requirements of the SEC. Complying with these reporting and other regulatory requirements is time consuming, results in increased costs to us, and could have a material adverse effect on our business, financial condition, and results of operations.

As a public company, we are subject to the requirements of the Exchange Act and the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we must commit significant resources and management oversight. We continue to implement procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also requires us to commit additional management, operational, and financial resources to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

TRINITY ANNUAL MEETING

The increase in River Financial authorized shares could haveaccompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of Trinity Bancorp, Inc., an anti-takeover effect.

River Financial proposes to increase its authorized sharesAlabama corporation (the “Company”), for use at the Annual Meeting of common stock from 5,000,000 to 10,000,000 shares. This increase is necessary to have available sufficient shares of common stockStockholders (the “Annual Meeting”) to be issued in the merger with Keystone, and is the primary purpose of the increase. The increase in shares could have an anti-takeover effect in the future because the board of directors would be able to issue additional shares of the authorized common stock up to the authorized amount without future shareholder approval. See “Approval to Increase the Number of River Financial Authorized Shares”held at page     .

Index to Financial Statements

THE KEYSTONE SPECIAL MEETING

This section contains information about the special meeting of Keystone shareholders that has been called to consider and approve the merger agreement. Together with this document, Keystone also is sending you a form of proxy that the Keystone board of directors is soliciting. The Keystone special meeting will be held[    ] on                 , 2015,2019, at KeystoneTrinity Bank, located at 2394 E. University Drive, Auburn,1479 West Main Street, Dothan, Alabama at             p.m., local time.

Matters to Be Considered36301.

The purposeonly matters of which the special meetingCompany is aware that are to vote on:be considered at the Annual Meeting are:

 

a proposal to adopt and approve the merger agreement; and
1.

a proposal to approve the merger agreement;

 

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the special meeting to approve the foregoing proposal; and
2.

a proposal to elect Dr. Henry H. Barnard, II, Bill Brent Beasley, Terry D. Duffie, James Etheredge, Dr. William D. McLaughlin, Brian R. McLeod, John Mitchell, E. Carey Slay, Jr, Joe Paul Stewart, and J. Robbin Thompson as directors of Trinity to serve aone-year term (provided that, if the merger referred to in proposal 1 is consummated, the terms will end pursuant to the merger);

 

any other business properly brought before the special meeting or any adjournment or postponement thereof but which is not now anticipated.
3.

a proposal to approve the adjournment of the Annual Meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the Annual Meeting to approve the merger agreement; and

4.

any other business properly brought before the Annual Meeting or any adjournment or postponement thereof but which is not now anticipated.

Proxies

Each copy of this document mailed to holders of KeystoneTrinity common stock is accompanied by a form of proxy with instructions for voting by mail. If you hold stock in your name as a shareholder of record and are voting by mail, you should complete, sign, date and return the proxy card accompanying this document in the enclosed postage-paid return envelope to ensure that your vote is counted at the special meeting, or at any adjournment or postponement of the special meeting, regardless of whether you plan to attend the special meeting.

If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker. If you hold your shares in an IRA, you should contact your IRA custodian as to how your shares may be voted.

If you hold common stock in your name as a shareholder of record, you may revoke your proxy at any time before it is voted by signing and returning a proxy card with a later date, delivering a written revocation letter to the KeystoneTrinity CEO, or by attending the special meeting in person and voting by ballot at the special meeting.

Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy previously has been given, but the mere presence of a shareholder at the special meeting will not constitute revocation of a previously given proxy.

Written notices of revocation and other communications about revoking your proxy should be addressed to:

Keystone Bancshares,Trinity Bancorp, Inc.

1479 West Main Street

Dothan, Alabama 36301

Attn: Ray Smith

2394 E. University Drive

Auburn, Alabama 36830

Phone:(334) 466-2210Robbin Thompson

All shares represented by valid proxies that KeystoneTrinity receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR”

“FOR” approval of the merger agreement and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. Business to be conducted at the special meeting must be confined to the subjects stated in Keystone’sTrinity’s notice of the special meeting.

Index to Financial Statements

Solicitation of Proxies

Keystone will bear the entire cost of soliciting proxies from holders of Keystone common stock. In addition to solicitation of proxies by mail, Keystone will request that banks, brokers, and other record holders send proxies and proxy material to the beneficial owners of Keystone common stock and secure their voting instructions. If necessary, Keystone may use several of its regular employees, who will not be specially compensated, to solicit proxies from holders of Keystone common stock, either personally or by telephone, facsimile, letter or other electronic means. Unless specified otherwise on the proxy card, the proxy card grants discretionary authority to the holders of the proxy to vote “FOR” each proposal and in the discretion of the proxy holder on any other matter that may be presented at the special meeting. We do not know of any other business that may be presented.

Record Date

The close of business on                     , 2015 has been fixed as the record date for determining the Keystone shareholders entitled to receive notice of and to vote at the special meeting. At that time,              shares of Keystone common stock were outstanding, held by approximately              holders of record.

Quorum

In order to conduct voting at the special meeting, there must be a quorum. A quorum is the number of shares that must be present at the meeting, either in person or by proxy. A quorum at the special meeting requires the presence of holders of Keystone common stock or their proxies who are entitled to cast at least a majority of the votes outstanding.

Votes Required

Approval of the merger agreement requires the affirmative vote of two-thirds of the outstanding shares of Keystone common stock, assuming that a quorum is present. You are entitled to one vote for each share of Keystone common stock you hold as of the record date.

Approval of the proposal to adjourn the special meeting if necessary or appropriate in order to solicit additional proxies requires the affirmative vote of a majority of the votes cast, assuming that a quorum is present.

Assuming there is a quorum, your failure to vote, an abstention or a broker non-vote will have the effect of a “NO” vote respecting the approval of the merger agreement but will not have an effect on the vote to adjourn.

The Keystone board of directors urges Keystone shareholders to promptly vote by completing, dating, and signing the accompanying proxy card and returning it promptly in the enclosed postage-paid envelope. If you hold your stock in “street name” through a bank or broker, please vote by following the voting instructions of your bank or broker. If you hold your stock in an IRA, you should consult your IRA custodian as to how your shares may be voted.

If you are the registered holder of your Keystone common stock or you obtain a broker representation letter from your bank, broker or other holder of record of your Keystone common stock and in all cases you bring proof of identity, you may vote your Keystone common stock in person by ballot at the special meeting. Votes properly cast at the special meeting, in person or by proxy, will be tallied by Keystone’s inspector of elections.

As of the record date, directors of Keystone had the right to vote approximately          shares of Keystone common stock, or approximately     % of the outstanding Keystone shares entitled to vote at the special meeting. All of the directors of Keystone and Keystone Bank have entered into agreements with River Financial pursuant to which they have agreed, in their capacity as holders of Keystone common stock, to vote all of their shares in favor of the adoption and approval of the merger agreement. We expect these individuals to vote their Keystone common stock in accordance with these agreements.

Index to Financial Statements

Recommendation of the Keystone Board of Directors

The Keystone board of directors has adopted and approved the merger agreement and the transactions it contemplates, including the merger. The Keystone board of directors determined that the merger, merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Keystone and its shareholders and recommends that you vote “FOR” approval of the merger agreement, and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. See “The Merger — Keystone’s Reasons for the Merger” on page      for a more detailed discussion of the Keystone board of directors’ recommendation.

Attending the Special Meeting

All holders of Keystone common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the special meeting. Keystone reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. Everyone who attends the special meeting must abide by the rules for the conduct of the meeting. Even if you plan to attend the special meeting, we encourage you to vote by proxy so your vote will be counted if you later decide not to attend the special meeting.

Index to Financial Statements

THE RIVER FINANCIAL SPECIAL MEETING

This section contains information about the special meeting of River Financial shareholders that has been called to consider and approve the merger agreement and other matters. Together with this document, River Financial also is sending you a form of proxy that the River Financial board of directors is soliciting. The River Financial special meeting will be held on                     , 2015, at River Bank & Trust, located at The Legends Conference Center, 2500 Legends Circle, Prattville, Alabama 36066 at             p.m., local time.

Matters to Be Considered

The purpose of the special meeting is to vote on:

a proposal to adopt and approve the merger agreement;

a proposal to amend the River Financial articles of incorporation to increase the authorized number of shares of common stock from 5,000,000 to 10,000,000;

a proposal to set the number of directors of River Financial at seven (7) effective at the merger;

a proposal to approve the 2015 Incentive Stock Compensation Plan;

a proposal to approve the adjournment of the special meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the special meeting to approve the foregoing proposals; and

any other business properly brought before the special meeting or any adjournment or postponement thereof but which is not now anticipated.

Proxies

Each copy of this document mailed to holders of River Financial common stock is accompanied by a form of proxy with instructions for voting by mail. If you hold stock in your name as a shareholder of record and are voting by mail, you should complete, sign, date and return the proxy card accompanying this document in the enclosed postage-paid return envelope to ensure that your vote is counted at the special meeting, or at any adjournment or postponement of the special meeting, regardless of whether you plan to attend the special meeting.

If you hold your stock in “street name” through a bank or broker, you must direct your bank or broker to vote in accordance with the instructions you have received from your bank or broker. If you hold your shares in an IRA, you should consult your IRA custodian as to how your shares may be voted.

If you hold common stock in your name as a shareholder of record, you may revoke your proxy at any time before it is voted by signing and returning a proxy card with a later date, delivering a written revocation letter to the River Financial, or by attending the special meeting in person and voting by ballot at the special meeting.

Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy previously has been given, but the mere presence of a shareholder at the special meeting will not constitute revocation of a previously given proxy.

Written notices of revocation and other communications about revoking your proxy should be addressed to:

Becky Hallman, AVP Investor Relations/HR Director

River Financial Corporation

P.O. Box 680249

Prattville, Alabama 36068

Tel:(334) 290-2706

email: rhallman@riverbankandtrust.com

Index to Financial Statements

All shares represented by valid proxies that River Financial receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” approval of the merger agreement; and “FOR” each of the other proposals listed above, including approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. Business to be conducted at the special meeting must be confined to the subjects stated in River Financial’s notice of the special meeting.

Solicitation of Proxies

River FinancialTrinity will bear the entire cost of soliciting proxies from holders of River FinancialTrinity common stock. In addition to solicitation of proxies by mail, River FinancialTrinity will request that banks, brokers, and other record holders send proxies and proxy material to the beneficial owners of River FinancialTrinity common stock and secure their voting instructions. If necessary, River FinancialTrinity may use several of its regular employees, who will not be specially compensated, to solicit proxies from holders of River FinancialTrinity common stock, either personally or by telephone, facsimile, letter or other electronic means. Unless specified otherwise on the proxy card, the proxy card grants discretionary authority to the holders of the proxy to vote “FOR” each proposal and in the discretion of the proxy holder to vote on any other matter that may be presented at the special meeting. We do not know of any other business that may be presented.

Record Date

The close of business on                     , 20152019 has been fixed as the record date for determining the River FinancialTrinity shareholders entitled to receive notice of and to vote at the special meeting. At that time,              shares of River FinancialTrinity common stock were outstanding, held by approximately 380          holders of record.

Quorum

In order to conduct voting at the special meeting, there must be a quorum. A quorum is the number of shares that must be present at the meeting, either in person or by proxy. A quorum at the special meeting requires the presence of holders of River FinancialTrinity common stock or their proxies who are entitled to cast at least a majority of the votes outstanding.

Votes Required

Approval of the merger agreement requires the affirmative vote of two-thirds of the River Financialoutstanding shares of Trinity common stock, outstanding assuming that a quorum is present, and approval of the amendment of the articles to increase authorized shares requires the affirmative vote of a majority of the shares of common stock outstanding. Approval of the proposal to set the number of directors at seven, approval of the 2015 Incentive Stock Compensation Plan, and approval of the proposal to adjourn the special meeting if necessary or appropriate in order to solicit additional proxies each requires approval of a majority of the votes cast, assuming that a quorum is present. You are entitled to one vote for each share of River FinancialTrinity common stock you hold as of the record date.

The election of directors requires a majority of the votes cast. Approval of the proposal to adjourn the meeting if necessary or appropriate in order to solicit additional proxies requires the affirmative vote of a majority of the votes cast, assuming that a quorum is present. Assuming there is a quorum, your failure to vote, an abstention or a brokernon-vote will have the effect of a “NO” vote respecting the approval of the merger agreement and approval of the increase in authorized shares but will not have an effect on the votes respecting the other proposals.vote to adjourn.

The River FinancialTrinity board of directors urges River FinancialTrinity shareholders to promptly vote by completing, dating, and signing the accompanying proxy card and returning it promptly in the enclosed postage-paid envelope. If you hold your stock in “street name” through a bank or broker, please vote by following the voting instructions of your bank or broker. If you hold your stock in an IRA, you should consult your IRA custodian as to how your shares may be voted.

Index to Financial Statements

If you are the registered holder of your River FinancialTrinity common stock or you obtain a broker representation letter from your bank, broker or other holder of record of your River FinancialTrinity common stock and in all cases you bring proof of identity, you may vote your River FinancialTrinity common stock in person by ballot at the special meeting. Votes properly cast at the special meeting, in person or by proxy, will be tallied by River Financial’sTrinity’s inspector of elections.

As of the record date, Trinity directors of River Financial had the right to vote approximately              shares of River FinancialTrinity common stock, or approximately     % of the outstanding River FinancialTrinity shares entitled to vote at the special meeting. All of the

Trinity directors of River Financial and RiverTrinity Bank & Trust have entered into agreements with KeystoneRiver Financial pursuant to which they have agreed, in their capacity as holders of River FinancialTrinity common stock, to vote all of their shares in favor of the adoption and approval of the merger agreement. We expect these individuals to vote their River FinancialTrinity common stock in accordance with these agreements.

Recommendation of the River FinancialTrinity Board of Directors

The River FinancialTrinity board of directors has adopted and approved the merger agreement and the transactions it contemplates, including the merger. The River FinancialTrinity board of directors determined that the merger, merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of River FinancialTrinity and its shareholders and recommends that you vote “FOR” approval of the merger agreement, “FOR” the proposal to amend the River Financial articles of incorporation to increase the authorized number of shares of common stock from 5,000,000 to 10,000,000, “FOR” the proposal to set the number of directors of River Financial at seven (7) effective at the merger, “FOR” the proposal to approve the 2015 Incentive Stock Compensation Plan, and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. See “The Merger — River Financial’sMerger—Trinity’s Reasons for the Merger” on page      for a more detailed discussion of the River FinancialTrinity board of directors’ recommendation regarding the merger.recommendation.

Attending the SpecialAnnual Meeting

All holders of River FinancialTrinity common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the special meeting. River FinancialTrinity reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. Everyone who attends the special meeting must abide by the rules for the conduct of the meeting. Even if you plan to attend the special meeting, we encourage you to vote by mailproxy so your vote will be counted if you later decide not to attend the special meeting.

Index to Financial Statements

THE MERGER

The information in this section and in the following section, “The Merger Agreement,” describes the material aspects of the merger. A copy of the merger agreement is included at Annex A and is incorporated herein by reference. You are urged to read the merger agreement in full.

General

On May 12, 2015 and May 13, 2015,June 4, 2019, the River Financial board of directors and the KeystoneTrinity board of directors, respectively, approved the merger agreement and the merger. If all of the conditions set forth in the merger agreement are satisfied or waived (to the extent permitted by law) and if the merger is otherwise completed, KeystoneTrinity will merge with and into River Financial, and River Financial will be the continuing corporation. Immediately following the merger of KeystoneTrinity with and into River Financial, KeystoneTrinity Bank will merge with and into River Bank & Trust, and River Bank & Trust will be the continuing bank.

Background of the Merger

Senior managementsKenneth H. Givens, the Executive Vice President and Chief Financial Officer of River Financial, and KeystoneCarey Slay, the Chairman of the Trinity board of directors, have known each other for years. In mid-August 2014,early 2018, Mr. Slay, at the request of Mr. Givens, invited Jimmy Stubbs, River Financial’s Chief Executive Officer, to give a presentation to the Presidentexecutive committee of the Trinity board of directors on River Bank & Trust and CEOhis business views on the Wiregrass Region of River Financial, and Murray Neighbors, the ChairmanAlabama. There were no discussions at that time of Keystone, attended a conference and,potential transaction.

In December 2018, while in attendance, spoke informally aboutPrattville, Alabama, Mr. Slay visited Mr. Givens at River Financial’s corporate headquarters. During the visit, Mr. Stubbs joined the meeting and discussed the footprint of each entity, the state of the banking environment in Alabama (especially the Wiregrass Region), and whether the two companies might consider a combination.combination, noting that River Financial’s boardstrategy focused on organic growth supplemented by select acquisitions. He indicated that River Financial had for some time been discussing the possibility ofidentified Trinity as a combination with another bank and had considered Keystone to be a prime potential transaction partner should River Financial’s board ultimately decide it wanted to pursue a transaction. River Financial’s management respected Keystone’s management, and believed Keystone’s market areas would complement the footprint of River Financial.acquisition.

After that initial conversation in mid-August, Mr. Stubbs and Ray Smith, the CEO of Keystone, had several telephone conversations and then met together in early September 2014 with an investment banking firm to discuss market conditions, the footprint of each entity and the state of the banking environment in Alabama. River Financial and KeystoneTrinity signed a confidentiality agreement on October 8, 2014December 19, 2018 to provide a basis for continued,discussions regarding a possible combination. Trinity provided River Financial with financial statements and more serious, discussions.certain confidential operational information.

On October 31, 2014,February 14, 2019, Mr. Stubbs invited the executive committee of the Trinity board up to Prattville to further explore a possible business combination and, two days later, Mr. SmithSlay, along with fellow executive committee members Joe Paul Stewart and Brian McLeod, met in Mr. Smith’s office to talk in more detail about a combination. At that point, Keystone’s management wanted some time to consider options until early January, 2015, when Mr. Smith and Mr. Stubbs spoke again by telephone.

In February 2015, Mr.with Messrs. Stubbs and certain directorsGivens and other members of River Financial senior management. At the meeting, Mr. Stubbs inquired of Mr. Slay whether Trinity might be willing to sell itself at a price equal to 1.6 times Trinity’s book value. Mr. Slay said no.

In late February 2019, Mr. Stubbs met with Mr. Slay and J. Robbin Thompson, President and Chief Executive Officer of Trinity to discuss River’s history and strategy, including Larry Puckett,a possible combination with Trinity. At Mr. Slay’s suggestion, Mr. Thompson and Joseph M. Sanders, the Executive Vice President of Trinity Bank, met with River Financial’s chairman, attended a bank director conference at which Mr. Smith and certain directors of Keystone, including Mr. Neighbors, Keystone’s chairman, were also in attendance. At that time, they met for dinnerFinancial management to discuss further a combination between the two companies.

On the weekend of March 6-7, 2015, Messrs. Stubbs, Smith, Puckett, Neighbors and an additional director of each company met to become better acquainted and to discuss possible ways in which the two companies could be combined, how management of each entity would work together, and potential valuation issuesbanks’ cultures, employee benefits practices, loan strategies, and other items related to a possible merger.aspects of their respective businesses in February and March.

Throughout this process,After the boards of directors ofsecond meeting between River Financial and Keystone were kept advised asTrinity management, Messrs. Thompson and Sanders reported to the meetings, conversationsexecutive committee of the Trinity board on March 25, 2019 that the respective businesses of Trinity and discussionsRiver Financial appeared complementary.

The executive committee of the Trinity Board met on April 4, 2019 and had a detailed discussion regarding Trinity’s options for remaining independent or entering into a business combination with River Financial. Mr. Stewart was instructed to communicate to Mr. Stubbs that were taking place.Trinity might be willing to discuss a business combination transaction, but reiterated that any transaction would have to be at a price to Trinity’s shareholders higher than 1.6 times Trinity’s book value.

After reviewing Trinity’s interim financial statements for the quarter ended March 31, 2019, on April 9, 2019 River Financial proposed anon-binding letter of intent for the merger of Trinity with River Financial at a purchase price equal to 1.7 times Trinity’s book value at March 31, 2019.

At a special meeting of the Trinity board on April 11, 2019, called to consider the proposed letter of intent, the Trinity board authorized management to execute and deliver the letter of intent and to engage legal counsel and a financial advisor to represent Trinity in negotiations with River Financial.

On March 23, 2015,April 15, 2019, River Financial and KeystoneTrinity executed athe letter of intent, setting forth in principle the terms of the merger. The companies conducted due diligence on each other and negotiatedmerger, including a price set at 1.7 times Trinity’s book value at March 31, 2019.

Inmid-April, following the termsletter of the definitive merger agreement. The River Financial board met on May 12, 2015 with its legal counsel, audit firm and investment banker and approved the merger agreement. The Keystone board met on May 12, 2015 withintent, Trinity engaged Jones Day as its legal counsel and investment banking firmPorter White & Co. as its financial advisor. Shortly thereafter, the companies and againtheir advisors commenced formal due diligence investigations of each other. On May 3, 2019, Jones Walker LLP, River Financial’s legal counsel, sent a draft merger agreement to Jones Day, and on May 13, 2015 and approved22, 2019, Jones Day delivered comments to the draft merger agreement.agreement on behalf of Trinity.

As a result of negotiations, River Financial agreed to increase the purchase price to account for certain adjustments to Trinity’s interim financial statements as of March 31, 2019. The parties executedcontinued negotiating the remaining terms of the merger agreement over the course of a couple of weeks, while they finalized their respective due diligence investigations.

On May 11, 2019, the Trinity board hosted the River Financial executive team to discuss progress on May 13, 2015.

negotiations. Two days later, members of both companies’ management met with the Alabama State Banking Department in Montgomery, Alabama, to discuss the preliminary plans for the merger. Negotiations continued on the merger agreement.

IndexAlso on June 4, 2019, Trinity’s board of directors held a special meeting to review and discuss the proposed merger and merger agreement. At this meeting, Trinity’s board of directors reviewed the merger agreement’s terms and conditions and discussed their fiduciary duties with Jones Day. Porter White & Co. reviewed with the board its financial analysis of the merger consideration and delivered to the board an oral opinion, subsequently confirmed in writing, to the effect that, as of that date and based on and subject to various assumptions and limitations described in the opinion, the merger consideration was fair, from a financial point of view, to Trinity’s shareholders. Following subsequent discussion, Trinity’s board of directors unanimously voted to approve the merger agreement, including the merger, and unanimously determined to recommend the merger agreement to the Trinity shareholders for approval. See “Opinion of Trinity’s Financial Statements
Advisor.”

Keystone’sLater that day, the parties executed and delivered the merger agreement and all ancillary documents. The merger agreement was publicly announced on June 5, 2019.

River Financial’s Reasons for the Merger

In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that its shareholders approve the merger agreement at the Keystone shareholder meeting, the KeystoneRiver Financial board of directors consulted with KeystoneRiver Financial management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors:

 

each of River Financial’s and Keystone’sTrinity’s business, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the KeystoneRiver Financial board of directors considered its view that River Financial’sTrinity’s business and operations complement those of KeystoneRiver Financial and that the merger would result in a combined company with aenhance River Financial’s diversified revenue stream, a well-balanced loan portfolio and an attractive funding base;

management’s expectation regarding cost and other synergies of the combined company;

 

its understanding of the current and prospective environment in which River Financial and Keystone operate, including national and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on Keystone both with and without the proposed transaction;

its review and discussions with Keystone’sRiver Financial’s management concerning the due diligence examination of River Financial;Trinity;

 

the complementary nature of the cultures of the two companies, which management believes should facilitate integration and implementation of the transaction;

 

management’s expectation that River Financial will retain its strong capital position upon completion of the opinion of Sandler O’Neill + Partners LP, Keystone’s financial advisor, delivered to the Keystone board of directors on May 12, 2015, which was subsequently confirmed in a written opinion dated as of May 12, 2015, to the effect that, as of that date, and subject to and based on the various assumptions, considerations, qualifications and limitations described at the meeting and set forth in the opinion, the merger consideration pursuant to the merger agreement was fair, from a financial point of view, to Keystone;transaction;

 

the ability of River Financial to expand its operations into a new and significant market in Dothan and Southeast Alabama;

the financial and other terms of the merger agreement, including the fixed exchange ratio, tax treatment and mutual deal protection and termination fee provisions, which it reviewed with its outside financial and legal advisors;

 

the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Keystone’sTrinity’s business, operations and workforce with those of River Financial;

 

the combined leadership of River Financial and River Bank & Trust following the merger;

the nature and amount of compensation and benefits to be received by KeystoneTrinity management in connection with the merger;

 

the potential risk of diverting management attention and resources from the operation of Keystone’sRiver Financial’s business and towards the completion of the merger; and

 

the regulatory and other approvals required in connection with the merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions.

The foregoing discussion of the information and factors considered by the Keystone board of directors is not intended to be exhaustive, but includes the material factors considered by the Keystone board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Keystone board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Keystone board of directors considered all these factors as a whole, including discussions with, and questioning of, Keystone’s management and Keystone’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

Index to Financial Statements

For the reasons set forth above, the Keystone board of directors determined that the merger agreement and the transactions contemplated by the merger agreement, are advisable and in the best interests of Keystone and its shareholders, and adopted and approved the merger agreement and the transactions contemplated by it. The Keystone board of directors recommends that the Keystone shareholders vote “FOR” the approval of the merger agreement.

River Financial’s Reasons for the Merger

In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that its shareholders approve the merger agreement, and other proposals at the River Financial shareholder meeting, the River Financial board of directors consulted with River Financial management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors:

each of River Financial’s and Keystone’s business, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the River Financial board of directors considered its view that Keystone’s business and operations complement those of River Financial and that the merger would result in a combined company with a diversified revenue stream, a well-balanced loan portfolio and an attractive funding base;

its understanding of the current and prospective environment in which River Financial and Keystone operate, including national and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on River Financial both with and without the proposed transaction;

management’s expectation regarding cost and other synergies of the combined company;

its review and discussions with River Financial’s management concerning the due diligence examination of Keystone;

the complementary nature of the cultures of the two companies, which management believes should facilitate integration and implementation of the transaction;

management’s expectation that River Financial will retain its strong capital position upon completion of the transaction;

the written opinion of Stephens Inc., River Financial’s financial advisor, dated as of May 12, 2015, delivered to the River Financial board of directors to the effect that, as of that date, and subject to and based on the various assumptions, considerations, qualifications and limitations set forth in the opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to River Financial;

the financial and other terms of the merger agreement, including the fixed exchange ratio, tax treatment and mutual deal protection and termination fee provisions, which it reviewed with its outside financial and legal advisors;

the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Keystone’s business, operations and workforce with those of River Financial;

the combined leadership of River Financial and River Bank & Trust following the merger;

the nature and amount of compensation and benefits to be received by Keystone management in connection with the merger;

the potential risk of diverting management attention and resources from the operation of River Financial’s business and towards the completion of the merger; and

the regulatory and other approvals required in connection with the merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions.

Index to Financial Statements

The foregoing discussion of the information and factors considered by the River Financial board of directors is not intended to be exhaustive, but includes the material factors considered by the River Financial board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the River Financial board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The River Financial board of directors considered all these factors as a whole, including discussions with, and questioning of, River Financial’s management and River Financial’s legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

Trinity’s Reasons for the Merger

The Trinity board of directors consulted with Trinity management, as well as Trinity’s financial and legal advisors, regarding the merger agreement, the merger and the transactions contemplated by the merger agreement. The following material factors were considered by the board to approve the merger agreement and the merger and to recommend these to Trinity’s shareholders for approval:

the current and prospective environment in which Trinity operates, including national, regional and local economic conditions, the competitive environment for financial institutions, the increased regulatory burdens on financial institutions, and the uncertainties in the regulatory climate going forward;

the results that could be expected to be obtained by Trinity if it continued to operate independently, and the likely benefits to shareholders of continued independent operations, as compared to the value of the consideration to be received by Trinity’s shareholders as a result of the merger;

the amount of consideration offered, in relation to the market value, book value per share, earnings per share and projected earnings per share of Trinity;

the form of merger consideration offered, including the opportunity for Trinity stockholders to receive shares of River Financial common stocktax-free for U.S. federal income tax purposes for their shares of Trinity stock;

the earnings and other prospects of the combined company;

Trinity’s and River Financial’s shared community banking philosophies, the additional products offered by River Financial to its customers, and the ability of the resulting institution to provide more comprehensive financial services to Trinity’s customers; and

the opinion of Porter White & Co., Trinity’s financial advisor, delivered to the Trinity board of directors on June 4, 2019, which was subsequently confirmed in a written opinion delivered at the board meeting, to the effect that, as of that date, and subject to and based on the various assumptions, considerations, qualifications and limitations described at the meeting and set forth in the opinion, the merger consideration pursuant to the merger agreement was fair, from a financial point of view, to Trinity’s shareholders.

The Trinity board considered other factors, including:

the terms and conditions of the merger agreement, including the parties’ respective representations, warranties, covenants and other agreements, the conditions to closing, a provision that permits Trinity’s board of directors, in the exercise of its fiduciary duties, under certain conditions, to furnish information to, or engage in negotiations with, a third party which has submitted an unsolicited proposal to acquire Trinity and a provision providing for Trinity’s payment of a termination fee to River Financial if the merger agreement is terminated under certain circumstances and the effect such termination fee could have on a third party’s decision to propose a merger or similar transaction to Trinity at a higher price than that contemplated by the merger with River Financial;

the likelihood that the regulatory approvals needed to complete the transaction will be obtained in a reasonable amount of time;

the likelihood of successful integration and the successful operation of the combined company; and

the effects of the merger on Trinity’s employees, customers and communities, including the prospects for continued employment and the severance and other benefits agreed to be provided to Trinity employees.

In the course of its deliberation, the Trinity board also considered a variety of risks and other countervailing factors, including:

the risks and costs to Trinity if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the effect on customers and business relationships, as well as the costs of the transaction;

the restrictions that the merger agreement imposes on actively soliciting competing bids, and the fact that Trinity would be obligated to pay a termination fee to River Financial under certain circumstances; and

the fact that Trinity will no longer exist as an independent, stand-alone company.

The Trinity board also considered the potential risks associated with the merger, including the need to obtain approval by Trinity shareholders, as well as regulatory approvals in order to complete the transaction, and the risks associated with the operations of the combined company including the ability to achieve the anticipated cost savings. The board also considered the structural protections included in the merger agreement such as the ability of Trinity to terminate the merger agreement in the event of any change or development affecting River Financial which has, or is reasonably likely to have, a material adverse effect on River Financial and which is not cured within 30 days after notice or cannot be cured prior to consummation of the merger.

The foregoing discussion of the information and factors considered by the Trinity board of directors is not intended to be exhaustive, but includes the material factors considered by the Trinity board. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Trinity board did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Trinity board considered all these factors as a whole, including discussions with, and questioning of, Trinity’s management and Trinity’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

For the reasons set forth above, the River FinancialTrinity board of directors determined that the merger agreement and the transactions contemplated by the merger agreement, are advisable and in the best interests of River FinancialTrinity and its shareholders, and adopted and approved the merger agreement and the transactions contemplated by it. The River FinancialTrinity board of directors recommends that the River FinancialTrinity shareholders vote “FOR” the approval of the merger agreement.

Opinion of Keystone’sTrinity’s Financial Advisor

The fairness opinion of Keystone’sOn April 24, 2019 Trinity engaged Porter White to act as our financial advisor in connection with the merger, Sandler O’Neill,proposed merger. Porter White is described below. The description contains projections, estimates and other forward looking statements about the future earnings or other measures of the future performance of Keystone, River Financial, and the combined companies after the merger. The description of Sandler O’Neill’s fairness opinion set forth below is qualified in its entirety by reference to the fairness opinion. You should review the copy of the fairness opinion, which is attached as Annex B.

By letter dated October 29, 2014, the Keystone board of directors engaged Sandler O’Neill to act as its financial advisor in connection with a possible merger involving Keystone. Sandler O’Neill is a nationally recognizedan Alabama investment banking firm whose principal business specialty is financial institutions. Inwith substantial experience in transactions similar to the ordinary coursemerger andis familiar with us and our operations. As part of its investment banking business, Sandler O’NeillPorter White is regularlycontinually engaged in the valuation of financial institutionsbusinesses and their securities in connection with, among other things, mergers and acquisitions and other corporate transactions. The Keystone board of directors selected Sandler O’Neill to act as its financial advisor in connection with a possible merger of Keystone based on Sandler O’Neill’s qualifications, expertise, reputation and experience in mergers and acquisitions involving community banks and its knowledge with respect to Keystone.acquisitions.

Sandler O’Neill acted as financial advisor to the Keystone board of directors in connection with the proposed merger with River Financial and participated in certain of the negotiations leading to the execution of the merger agreement. At the May 12, 2015 meeting of the Keystone board of directors, Sandler O’Neill delivered to the Keystone board of directors its oral opinion, which was subsequently confirmed in writing, that, as of such date, the merger consideration was fair to the holders of Keystone common stock from a financial point of view.The full text of Sandler O’Neill’s opinion is attached hereto as Annex B. Sandler O’Neill’s fairness opinion wasapproved by Sandler O’Neill’s fairness opinion committee. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of Sander O’Neill’s opinion set forth below is qualified in its entirety by reference to the opinion. Keystone’s shareholders are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to Keystone’s board of directors and is directed only to the fairness of the merger consideration to the holders of Keystone common stock from a financial point of view. It does not address the underlying business decision of Keystone to engage in the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Keystone, the effect of any other transaction in which Keystone might engage or any other aspect of the merger, and is not a recommendation to any Keystone shareholder as to how such shareholder should vote at the special shareholder meeting with respect to the merger or any other matter.

Index to Financial Statements

In connection with rendering its oral opinion on May 12, 2015, which was subsequently confirmed in writing, Sandler O’Neill reviewed and considered, among other things:

a draft of the merger agreement, dated May 6, 2015;

certain publicly available financial statements and other historical financial information of Keystone that Sandler O’Neill deemed relevant;

certain publicly available financial statements and other historical financial information of River Financial that Sandler O’Neill deemed relevant;

certain internal financial projections for Keystone for the years ending December 31, 2015 through December 31, 2017 as provided by the senior management of Keystone and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of Keystone;

certain internal financial estimates for River Financial for the years ending December 31, 2015 through December 31, 2017 as provided by the senior management of River Financial and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of River Financial and their financial advisor;

the pro forma financial impact of the merger on River Financial based on assumptions relating to transaction expenses, purchase accounting adjustments and cost savings as provided by the senior management of River Financial and its financial advisor;

the pro forma financial impact of the merger on River Financial based on the trading price for River Financial common stock, as mutually agreed upon and provided by the senior management of Keystone and River Financial.

a comparison of certain financial and other information for Keystone and River Financial with similar publicly available information for certain other banking institutions, the securities of which are publicly traded;

the terms and structures of other recent mergers and acquisition transactions in the banking sector;

the current market environment generally and in the banking sector in particular; and

such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant.

Sandler O’Neill also discussed with certain members of the senior management of Keystone the business, financial condition, results of operations and prospects of Keystone and held similar discussions with the senior management of River Financial regarding the business, financial condition, results of operations and prospects of River Financial.

In performing its review, Sandler O’Neill relied upon, the accuracy and completeness of all of the financial and other information that was available to Sandler O’Neill from public sources, that was provided to Sandler O’Neill by Keystone and River Financial or that was otherwise reviewed by Sandler O’Neill, and Sandler O’Neill assumed such accuracy and completeness for purposes of preparing its fairness opinion. Sandler O’Neill further relied on the assurances of the respective managements of Keystone and River Financial that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading in any material respect. Sandler O’Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Keystone or River Financial or any of their respective subsidiaries. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of Keystone, River Financial or the combined entity after the merger and Sandler O’Neill did not review any individual credit files relating to Keystone or River Financial. Sandler O’Neill assumed, with Keystone’s consent, that the respective allowances for loan losses for both Keystone and River Financial were adequate to cover such losses and that they would be adequate on a pro forma basis for the combined entity.

Index to Financial Statements

In preparing its analyses, Sandler O’Neill used internal financial projections for Keystone as provided by the senior management of Keystone for the years ending December 31, 2015 through December 31, 2017, and an estimated long-term earnings per share growth rate for the years thereafter as discussed with the senior management of Keystone, and internal financial estimates for River Financial for the years ending December 31, 2015 through December 31, 2017 as provided by the senior management of River Financial and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of River Financial and their financial advisor. Sandler O’Neill also received and used in its analyses certain projections of transaction costs, purchase accounting adjustments, expected cost savings and other synergies which were provided by River Financial and their financial advisor. With respect to those projections and estimates, the respective managements of Keystone and River Financial confirmed to Sandler O’Neill that those respective projections and estimates reflected the best currently available projections and estimates of those respective managements of the future financial performance of Keystone and River Financial, respectively, and Sandler O’Neill assumed that such performance would be achieved. Sandler O’Neill expressed no opinion as to such projections or estimates or the assumptions on which they were based. Sandler O’Neill assumed that there were no material changes in the respective assets, financial condition, results of operations, business or prospects of Keystone and River Financial since the date of the most recent financial data made available to Sandler O’Neill. Sandler O’Neill also assumed in all respects material to its analysis that Keystone and River Financial would remain as going concerns for all periods relevant to Sandler O’Neill’s analyses. Sandler O’Neill expressed no opinion as to any of the legal, accounting and tax matters relating to the merger and any other transactions contemplated in connection therewith.

Sandler O’Neill also assumed, with Keystone’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants required to be performed by such party under the agreements and that the conditions precedent in such agreements were not waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no material delay, limitation, restriction or condition would be imposed that would have an adverse effect on Keystone, River Financial or the merger, and (iii) the merger and any related transaction would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements.

Sandler O’Neill’s analyses and the views expressed therein were necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date of its fairness opinion. Events occurring after the date thereof could materially affect Sandler O’Neill’s views. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its fairness opinion or otherwise comment upon events occurring after the date thereof. Sandler O’Neill expressed no opinion as to the trading values of River Financial’s common stock will be once it is actually received by the holders of Keystone common stock. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by Keystone’s officers, directors, or employees, or any class of such persons, relative to the compensation to be received in the merger by any other shareholders of Keystone.

In rendering its oral opinion on May 12, 2015, which was subsequently confirmed in writing, Sandler O’Neill performed a variety of financial analyses. The following is a summary of the material analyses performed by Sandler O’Neill, but is not a complete description of all the analyses underlying Sandler O’Neill’s fairness opinion. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the

Index to Financial Statements

significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion; rather, Sandler O’Neill made its determination as to the fairness of the merger consideration on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all of such factors and analyses, could create an incomplete view of the evaluation process underlying its fairness opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to Keystone or River Financial and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Keystone, River Financial and the companies to which they are being compared.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of Keystone and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its fairness opinion and provided such analyses to Keystone’s board of directors at the meeting held on May 12, 2015. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. The analyses and fairness opinion of Sandler O’Neill were among a number of factors taken into consideration by Keystone’s board of directors in making its determination to approve the merger agreement and the transactions contemplated by the merger agreement (including the merger) and the analyses described below should not be viewed as determinative of the decision of Keystone’s board of directors or management with respect to the fairness of the merger.

Summary of Proposed Transaction. Sandler O’Neill reviewed the financial terms of the proposed transaction. Pursuant to the terms of the merger agreement, upon the effective time of the merger, holders of Keystone common stock will be entitled to receive, in exchange for each share of Keystone common stock, (i) 1.000 share of River Financial common stock and (ii) $4.00 in cash. Based upon financial information for Keystone as of or for the twelve month period ending March 31, 2015, Sandler O’Neill calculated the following transaction ratios:

Transaction Multiples (GAAP Basis)

Transaction Value / Book Value

132.4% 

Transaction Value / Tangible Book Value

132.4% 

Price / LTM Earnings

13.9x

Price / 2015 Estimated Earnings(1)

13.0x

Tangible Book Premium / Core Deposits(2)

4.9% 

(1)Based on projections as provided by Keystone senior management
(2)Core deposits are defined as total deposits less time deposits greater than $100,000

The aggregate transaction value was approximately $36.7 million, based upon a stock price for River Financial common stock of $16.00 per share, 1,789,992 shares of Keystone common stock outstanding, and the implied value of 39,500 in-the-money options and 53,800 in-the-money warrants with weighted average exercise prices of $10.06 and $10.00 respectively.

Comparable Company Analysis.Sandler O’Neill also used publicly available information as well as information provided by the senior management of Keystone to compare selected financial and market trading information for Keystone and the Keystone peer group, a specific group of financial institutions selected by Sandler O’Neill.

Index to Financial Statements

The Keystone peer group (the “Keystone Peer Group”) consisted of the following selected financial institutions:

Keystone Peer Group(1):

Southwest Georgia Financial

Carolina Trust Bank

Bank of South Carolina Corp.

Aquesta Financial Holdings

MainStreet Bank

Premara Financial Inc.

Freedom Bank of Virginia

Community Capital Bancshares

First West Virginia Bancorp Inc.

(1)Selected public banks headquartered in the Southeast with total assets of $100 million to $400 million, last twelve months return on average assets (“LTM ROAA”) greater than 0.25%, nonperforming/total assets less than 3.0% (nonperforming assets defined as (nonaccrual loans + troubled debt restructurings + other real estate owned)), and 3-month average daily trading volume greater than 1,000 shares, which financial measures Sandler O’Neill deemed to be relevant to Keystone’s financial condition and appropriate for selecting peer financial institutions for Keystone.

The table below sets forth data for Keystone as of or for the twelve months ended March 31, 2015 and the high, low, mean and median data for the Keystone Peer Group as of or for the twelve months ended March 31, 2015 (to the extent available, otherwise as of December 31, 2014), with pricing data as of May 11, 2015.

   Comparable Group Analysis 
   Keystone
Bancshares, Inc.		  Keystone Comparable Group 
   High
Result		  Low
Result		  Mean
Result		  Median
Result		 

Total Assets (in millions)

  $252   $400   $146   $310   $341  

Gross Loans/Deposits

   80.0%   99.3%   37.5%   81.6%   91.0% 

Tangible Common Equity/Tangible Assets

   11.0%   12.8%   6.6%   9.5%   9.0% 

Tier I Leverage Ratio

   11.1%   11.5%   7.9%   9.3%   9.1% 

Total Risk Based Capital Ratio

   15.2%   21.4%   10.3%   13.9%   12.0% 

LTM Return on Average Assets

   1.1%   1.3%   0.3%   0.6%   0.7% 

LTM Return on Average Equity

   10.1%   12.7%   3.1%   6.7%   7.1% 

LTM Net Interest Margin

   3.9%   4.3%   3.1%   3.9%   4.0% 

LTM Efficiency Ratio

   61.0%   86.9%   59.6%   77.4%   76.8% 

Loan Loss Reserve/Gross Loans

   1.4%   1.8%   1.0%   1.4%   1.4% 

Nonperforming Assets/Total Assets

   1.3%   1.9%   0.2%   0.8%   0.4% 

Price/Tangible Book Value

   —      204.0%   23.0%   102.0%   98.0% 

Price/LTM Earnings Per Share

   —      21.5x   8.5x   15.2x   15.9x 

Market Capitalization (in millions)

   —     $75   $8   $32   $31  

Sandler O’Neill also used publicly available information as well as information provided by the senior management of River Financial to perform a similar analysis for River Financial and the River Financial peer group, a group of financial institutions as selected by Sandler O’Neill.

Index to Financial Statements

The River Financial peer group (the “River Financial Peer Group”) consisted of the following selected financial institutions:

River Financial Peer Group(1):

North State Bancorp

Bank of South Carolina Corp.

First Capital Bancorp Inc.

MainStreet Bk

Fauquier Bankshares Inc.

Freedom Bank of Virginia

Southcoast Financial Corp.

First WV Bancorp Inc.

Carolina Alliance Bank

Carolina Trust Bank

Southwest Georgia Financial

(1)Selected public banks headquartered in the Southeast with total assets of $300 million to $700 million, LTM ROAA greater than 0.25%, nonperforming/total assets less than 3.0%, and 3-month average daily trading volume greater than 1,000 shares, which financial measures Sandler O’Neill deemed to be relevant to River Financial’s financial condition and appropriate for selecting peer financial institutions for River Financial.

The table below sets forth data for River Financial as of or for the twelve months ended March 31, 2015 and the high, low, mean and median data for the River Financial Peer Group as of or for the twelve months ended March 31, 2015 (to the extent available, otherwise as of December 31, 2014), with pricing data as of May 11, 2015.

   Comparable Group Analysis 
   River
Financial
Corporation		  River Comparable Group 
    High
Result		  Low
Result		  Mean
Result		  Median
Result		 

Total Assets (in millions)

  $445   $686   $306   $450   $400  

Gross Loans/Deposits

   71.8%   103.8%   37.5%   84.7%   91.3% 

Tangible Common Equity/Tangible Assets

   9.9%   11.2%   7.0%   9.5%   9.3% 

Tier I Leverage Ratio

   9.9%   12.3%   9.0%   10.0%   9.3% 

Total Risk Based Capital Ratio

   14.7%   21.4%   10.3%   14.7%   15.0% 

LTM Return on Average Assets

   0.8%   1.6%   0.4%   0.8%   0.8% 

LTM Return on Average Equity

   8.8%   13.0%   4.9%   8.9%   8.9% 

LTM Net Interest Margin

   3.7%   4.3%   3.1%   3.8%   3.7% 

LTM Efficiency Ratio

   62.4%   83.5%   59.6%   72.9%   75.4% 

Loan Loss Reserve/Gross Loans

   1.4%   1.8%   1.0%   1.3%   1.3% 

Nonperforming Assets/Total Assets

   1.0%   1.9%   0.2%   1.0%   0.9% 

Price/Tangible Book Value

   —      204.0%   92.0%   117.0%   114.0% 

Price/LTM Earnings Per Share

   —      21.5x   8.1x   14.3x   14.0x 

Market Capitalization (in millions)

   —     $75   $25   $49   $54  

Net Present Value Analysis. Sandler O’Neill performed an analysis that estimated the net present value per share of Keystone’s common stock through December 31, 2019. Sandler O’Neill based its analysis on internal financial projections for Keystone for the years ending December 31, 2015 through December 31, 2019, as provided by the senior management of Keystone.

To approximate the terminal value of Keystone common stock at December 31, 2019, Sandler O’Neill applied price to earnings multiples of 11.0x to 17.0x and multiples of tangible book value ranging from 80% to 120%. Sandler O’Neill selected the price to earnings and tangible book value multiples based on Sandler O’Neill’s review of, among other matters, the trading multiples of selected companies that Sandler O’Neill deemed to be comparable to Keystone (the Keystone Peer Group). The terminal values were then discounted to present values using discount rates ranging from 9.0% to 15.0%, which were selected to reflect different assumptions regarding potential desired rates of return of holders of Keystone common stock.

Index to Financial Statements

As illustrated in the following tables, the analysis indicates an imputed range of values per share of Keystone common stock of $14.51 to $28.04 when applying multiples of earnings to the applicable amounts indicated in the Keystone projections and $10.75 to $19.96 when applying multiples of tangible book value to the applicable amounts indicated in the Keystone projections.

Discount

Rate

 

Earnings Multiples

(Value shown is a per share valuation)

 

11.0x

 

12.5x

 

14.0x

 

15.5x

 

17.0x

9%

 $18.58 $20.95 $23.31 $25.68 $28.04

10%

 $17.81 $20.08 $22.34 $24.61 $26.87

11%

 $17.08 $19.25 $21.42 $23.59 $25.76

12%

 $16.39 $18.47 $20.55 $22.63 $24.71

13%

 $15.73 $17.72 $19.72 $21.71 $23.70

14%

 $15.10 $17.01 $18.93 $20.84 $22.75

15%

 $14.51 $16.34 $18.17 $20.01 $21.84

Discount

Rate

 

Tangible Book Value Multiples

(Value shown is a per share valuation)

 

80%

 

90%

 

100%

 

110%

 

120%

9%

 $13.73 $15.29 $16.85 $18.40 $19.96

10%

 $13.17 $14.66 $16.15 $17.64 $19.13

11%

 $12.64 $14.06 $15.49 $16.92 $18.35

12%

 $12.13 $13.50 $14.87 $16.23 $17.60

13%

 $11.65 $12.96 $14.27 $15.58 $16.89

14%

 $11.19 $12.44 $13.70 $14.96 $16.22

15%

 $10.75 $11.96 $13.16 $14.37 $15.58

Sandler O’Neill also considered and discussed with Keystone’s board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Keystone’s net income varied from 20.0% above projections to 20.0% below projections. This analysis resulted in the following reference ranges of values for Keystone common stock using a discount rate of 12.87%.

Earnings Projection
Change from

Base Case

 

Earnings Multiples

(Value shown is a per share valuation)

 

11.0x

 

12.5x

 

14.0x

 

15.5x

 

17.0x

(20.0)%

 $9.59 $10.64 $11.70 $12.75 $13.81

(10.0)%

 $10.64 $11.83 $13.02 $14.20 $15.39

(5.0)%

 $11.17 $12.42 $13.67 $14.93 $16.18

0.0%

 $11.70 $13.02 $14.33 $15.65 $16.97

5.0%

 $12.22 $13.61 $14.99 $16.38 $17.76

10.0%

 $12.75 $14.20 $15.65 $17.10 $18.55

20.0%

 $13.81 $15.39 $16.97 $18.55 $20.14

The following table describes the discount rate calculation for Keystone common stock prepared by Sandler O’Neill. The discount rate equals the sum of the risk free rate, the equity risk premium and the size premium.

Risk Free Rate

4.00% Based on 20-year normalized treasury yield

Equity Risk Premium

5.00% Per Duff & Phelps 2014 Valuation Handbook

Size Premium

3.87% Per Duff & Phelps 2014 Valuation Handbook

Discount Rate

12.87% 

Index to Financial Statements

Sandler O’Neill also performed an analysis that estimated the net present value per share of River Financial common stock assuming that River Financial performed in accordance with internal financial estimates for River Financial for the years ending December 31, 2015 through December 31, 2017 as provided by the senior management of River Financial and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of River Financial and their financial advisor. To approximate the terminal value of River Financial common stock at December 31, 2019, Sandler O’Neill applied price to earnings multiples ranging from 11.0x to 17.0x and multiples of tangible book value ranging from 90% to 130%. Sandler O’Neill selected the price to earnings and tangible book value multiples based on Sandler O’Neill’s review of, among other matters, the trading multiples of selected companies that Sandler O’Neill deemed to be comparable to River Financial. The terminal values were then discounted to present values using different discount rates ranging from 9.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders of River Financial’s common stock.

As illustrated in the following tables, the analysis indicates an imputed range of values per share of River Financial common stock of $10.95 to $21.30 when applying earnings multiples to the applicable amounts indicated in the River Financial projections and $10.70 to $19.48 when applying multiples of tangible book value to the applicable amounts indicated in the River Financial projections.

Discount

Rate

 

Earnings Multiples

(Value shown is a per share valuation)

 

11.0x

 

12.5x

 

14.0x

 

15.5x

 

17.0x

7%

 $14.05 $15.86 $17.68 $19.49 $21.30

8%

 $13.46 $15.20 $16.94 $18.67 $20.41

9%

 $12.91 $14.57 $16.23 $17.90 $19.56

10%

 $12.38 $13.97 $15.57 $17.16 $18.76

11%

 $11.88 $13.41 $14.94 $16.46 $17.99

12%

 $11.40 $12.87 $14.33 $15.80 $17.26

13%

 $10.95 $12.36 $13.76 $15.17 $16.57

Discount

Rate

 

Tangible Book Value Multiples

(Value shown is a per share valuation)

 

90%

 

100%

 

110%

 

120%

 

130%

7%

 $13.73 $15.17 $16.60 $18.04 $19.48

8%

 $13.16 $14.54 $15.91 $17.29 $18.66

9%

 $12.62 $13.93 $15.25 $16.57 $17.89

10%

 $12.10 $13.37 $14.63 $15.89 $17.15

11%

 $11.61 $12.82 $14.03 $15.24 $16.46

12%

 $11.15 $12.31 $13.47 $14.63 $15.79

13%

 $10.70 $11.82 $12.93 $14.05 $15.16

Sandler O’Neill also considered and discussed with the Keystone board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming River Financial’s net income varied from 20% above projections to 20% below projections. This analysis resulted in the following range of per share values for River Financial common stock, using the same price to earnings multiples of 11.0x to 17.0x and a discount rate of 12.87%.

Earnings Projection
Change from

Base Case

 

Earnings Multiples

(Value shown is a per share valuation)

 

15.0x

 

16.0x

 

14.0x

 

15.5x

 

17.0x

(20.0)%

 $9.68 $10.91 $12.14 $13.37 $14.59

(10.0)%

 $10.81 $12.19 $13.57 $14.95 $16.33

(5.0)%

 $11.37 $12.83 $14.29 $15.74 $17.20

0.0%

 $11.93 $13.47 $15.00 $16.54 $18.07

5.0%

 $12.50 $14.11 $15.72 $17.33 $18.94

10.0%

 $13.06 $14.75 $16.44 $18.12 $19.81

20.0%

 $14.18 $16.03 $17.87 $19.71 $21.55

Index to Financial Statements

In connection with its analyses, Sandler O’Neill considered and discussed with the Keystone board of directors how the net present value analyses would be affected by changes in the underlying assumptions. Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Analysis of Selected Merger Transactions.Sandler O’Neill reviewed two groups of comparable merger and acquisition transactions. The first group, referred to as the nationwide transaction group, included merger transactions announced from January 1, 2014 through May 11, 2015 involving selected United States-based banks in which the target’s total assets were between $150 million and $350 million, with the target’s LTM ROAA greater than 0.50%, with the target’s tangible common equity / tangible assets greater than 9.0%, and the target’s NPAs/Assets less than 3.0%. Sandler O’Neill deemed these transactions to be comparable to the proposed River Financial and Keystone merger.

The nationwide transaction group was composed of the following transactions:

Acquirer / Target

Carolina Alliance Bank

/PBSC Financial Corporation

LINCO Bancshares, Inc.

/Community First Bank

Olney Bancshares of Texas, Inc.

/Vintage Shares, Inc.

ESB Bancorp MHC

/Citizens National Bancorp, Inc.

Pacific Continental Corporation

/Capital Pacific Bancorp

Durant Bancorp, Inc.

/Consolidated Equity Corporation

ServisFirst Bancshares, Inc.

/Metro Bancshares, Inc.

Wintrust Financial Corporation

/Delavan Bancshares, Inc.

NewBridge Bancorp

/Premier Commercial Bank

First Busey Corporation

/Herget Financial Corp.

American National Bankshares Inc.

/MainStreet BankShares, Inc.

Home BancShares, Inc.

/Broward Financial Holdings, Inc.

BNC Bancorp

/Harbor Bank Group, Inc.

Community & Southern Holdings, Inc.

/Alliance Bancshares, Inc.

Glacier Bancorp, Inc.

/FNBR Holding Corporation

Home BancShares, Inc.

/Florida Traditions Bank

CB Financial Services, Inc.

/FedFirst Financial Corporation

MainSource Financial Group, Inc.

/MBT Bancorp

Peoples Bancorp Inc.

/Ohio Heritage Bancorp, Inc.

First Citizens Bancshares, Inc.

/Southern Heritage Bancshares, Inc.

Salisbury Bancorp, Inc.

/Riverside Bank

Index to Financial Statements

The second group, referred to as the Southeast transaction group, included merger transactions announced from January 1, 2013 through May 11, 2015 involving those in which the target was headquartered in the Southeast U.S. where the target’s total assets were between $100 million and $500 million, and the target’s NPAs/Assets less than 3.0%. Sandler O’Neill deemed these transactions to be reflective of the proposed River Financial and Keystone merger.

The Southeast transaction group was composed of the following transactions:

Acquirer / Target

Achieva Credit Union

/Calusa Financial Corporation, Inc.

Carolina Alliance Bank

/PBSC Financial Corporation

Sunshine Bancorp, Inc.

/Community Southern Holdings, Inc.

Community & Southern Holdings, Inc.

/Community Business Bank

Ameris Bancorp

/Merchants & Southern Banks of Florida, Inc.

United Community Banks, Inc.

/MoneyTree Corporation

First Horizon National Corporation

/TrustAtlantic Financial Corporation

ServisFirst Bancshares, Inc.

/Metro Bancshares, Inc.

NewBridge Bancorp

/Premier Commercial Bank

American National Bankshares Inc.

/MainStreet BankShares, Inc.

Home BancShares, Inc.

/Broward Financial Holdings, Inc.

Magnolia Banking Corporation

/First National Bancshares of Hempstead County

Charles Investment Group, LLC

/United Group Banking Company of Florida, Inc.

BNC Bancorp

/Harbor Bank Group, Inc.

Eastern Virginia Bankshares, Inc.

/Virginia Company Bank

Community & Southern Holdings, Inc.

/Alliance Bancshares, Inc.

Commerce Union Bancshares, Inc.

/Reliant Bank

Heritage Financial Group, Inc.

/Alarion Financial Services, Inc.

Home BancShares, Inc.

/Florida Traditions Bank

Simmons First National Corporation

/Delta Trust & Banking Corporation

First Citizens Bancshares, Inc.

/Southern Heritage Bancshares, Inc.

HomeTrust Bancshares, Inc.

/Bank of Commerce

TriSummit Bancorp, Inc.

/Community National Bank of the Lakeway Area

As illustrated in the following table, Sandler O’Neill compared the transaction price to book value per share, transaction price to tangible book value per share, transaction price to last twelve months earnings, and core deposit premium for the proposed merger as compared to the high, low, mean and median multiples of the comparable transactions in both the nationwide transaction group and the Southeast transaction group.

   Comparable Nationwide Transaction Multiples 
   River Financial /
Keystone Bancshares		  Comparable Nationwide Transactions(1) 
    High Result  Low Result  Mean Result  Median Result 

Transaction Value / Book Value

   132.4%   220.8%   97.1%   142.5%   143.0% 

Transaction Value / Tangible Book Value

   132.4%   220.8%   97.1%   142.6%   143.7% 

Transaction Value / LTM Earnings

   13.9x   37.4x   8.4x   20.7x   20.0x 

Core Deposit Premium(3)

   4.9%   16.7%   (0.6)%   6.3%   5.9% 

Index to Financial Statements

Comparable Southeast Transaction Multiples

 
   River Financial
/ Keystone
Bancshares		  Comparable Southeast Transactions(2) 
    High Result  Low Result  Mean Result  Median Result 

Transaction Value / Book Value

   132.4%   198.6%   86.7%   134.1%   136.1% 

Transaction Value / Tangible Book Value

   132.4%   198.6%   86.7%   135.0%   136.1% 

Transaction Value / LTM Earnings

   13.9%   55.2x    9.3x    25.3x    23.3x  

Core Deposit Premium(3)

   4.9%   16.7%   (2.1)%   5.6%   4.9% 

(1)High, low, mean and median for selected merger transactions announced from January 1, 2014 through May 11, 2015 involving selected United States-based banks in which the target’s total assets were between $150 million and $350 million, with the target’s LTM ROAA greater than 0.50%, with the target’s tangible common equity / tangible assets > 9.0%, and the target’s NPAs/Assets less than 3.0%.
(2)High, low, mean and median for selected merger transactions announced from January 1, 2013 through May 11, 2015 involving those in which the target was headquartered in the Southeast U.S. where the target’s total assets were between $100 million and $500 million, and the target’s NPAs/Assets less than 3.0%.
(3)Core deposits defined as total deposits less time deposits greater than $100,000

Pro Forma Merger Analysis.Sandler O’Neill analyzed certain potential pro forma effects of the merger, based on the following assumptions provided by River Financial’s management: (i) the merger closes in the third calendar quarter of 2015; (ii) 100% of the holders of Keystone common stock will be entitled to receive, in exchange for each share of Keystone common stock, 1.000 shares of River Financial common stock and $4.00 in cash; and (iii) all outstanding Keystone in-the-money options and warrants are rolled into new River Financial options and warrants at closing.

Sandler O’Neill also incorporated the following assumptions, as provided by the senior management of River Financial and its financial advisor: (a) estimated earnings per share projections for Keystone for the years ending December 31, 2015 through December 31, 2017, as provided by the senior management of Keystone and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of Keystone, projections for the years ending December 31, 2015 and December 31, 2017 for River Financial as provided by the senior management of River Financial and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of River Financial and its financial advisor; (b) purchase accounting adjustments of a credit mark on loans equal to 2.0% of gross loans, and an other real estate owned mark of $0.3 million; (d) cost savings equal to approximately 15% of Keystone’s projected non-interest expense, which would be 100% realized in the first full year of operations; (e) transaction costs and expenses of approximately $1.2 million; (f) a 1.50% core deposit premium on $172 million of core deposits; and (g) opportunity cost of cash on hand of 4.0%. The analysis indicated that the merger (excluding transaction expenses) would be approximately 5.8%, 17.6%, 15.8%, 16.8% and 18.0% accretive to River Financial’s earnings per share in 2015, 2016, 2017, 2018 and 2019, respectively, and would be approximately 11.8, 11.8%, 9.1%, 6.7%, 4.2%, and 1.9% dilutive to River Financial’s tangible book value per share at the closing of the merger and at year end 2015, 2016, 2017, 2018 and 2019, respectively.

Sandler O’Neill also analyzed certain capital ratios of River Financial on a pro forma basis for the merger. That analysis provided the following results:

   Pro Forma Capital Ratios 
   Closing
9/30/2015		  12/31/2015  12/31/2016  12/31/2017  12/31/2018  12/31/2019 

Tang. Common Equity / Tang. Assets

   9.3%   9.4%   9.9%   10.3%   10.8%   11.3% 

Tier 1 Common / Risk-Weighted Assets

   12.6%   12.8%   13.4%   14.0%   14.6%   15.2% 

Tier 1 Leverage Ratio

   9.3%   9.4%   10.1%   10.6%   11.0%   11.5% 

Tier 1 Risk Based Capital Ratio

   12.6%   12.8%   13.4%   14.0%   14.6%   15.2% 

Total Risk Based Capital Ratio

   13.4%   13.6%   14.2%   14.9%   15.5%   16.1% 

Index to Financial Statements

Sandler O’Neill’s Relationship.Sandler O’Neill acted as financial advisor to the board of directors of Keystone in connection with the merger. Keystone has agreed to pay Sandler O’Neill a transaction fee in connection with the merger, the majority of which is subject to the closing of the merger. The transaction fee is equal to $400,000, the majority of which is subject to and due and payable on the day of closing. Sandler O’Neill received a fee of $75,000 associated with the delivery of its fairness opinion, which became payable upon Sandler O’Neill’s rendering its fairness opinion to the Keystone board of directors, which fairness opinion fee will be credited against the transaction fee due to Sandler O’Neill at the closing of the merger. Keystone has also agreed to reimburse Sandler O’Neill for its reasonable out-of-pocket expenses, and to indemnify Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees and agents against certain liabilities arising out of its engagement.

Sandler O’Neill has not provided other investment banking services to Keystone or River Financial in the past two years; however, Sandler O’Neill may provide, and receive compensation for, such services in the future.

Opinion of River Financial’s Financial Adviser

On February 23, 2015, the River Financial board of directors engaged Sterne Agee & Leach, Inc. (“Sterne Agee”) to act as financial adviser to River Financial regarding a potential merger transaction with Keystone Bank, a bank wholly owned by Keystone Bancshares, Inc. Then, on or about March 3, 2015, in connection with the individual banker providing such services to River Financial transferring to Stephens Inc. (“Stephens”), River Financial consented to the transfer of the financial advisor engagement from Sterne Agee to Stephens. As part of the engagement, Stephens was asked to assess the fairness, from a financial point of view, of the “Exchange Ratio” (i.e., the conversion of each share of Keystone common stock into $4.00 cash and 1.00 share of River Financial common stock) to River Financial. Stephens is a nationally recognized investment banking firm, with headquarters in Little Rock, Arkansas, and with significant experience in the banking and financial institutions industry. River Financial retained Stephens based upon its experience as a financial advisor in mergers and acquisitions of financial institutions and its knowledge of financial institutions.

As part of Stephens’s engagement, representatives participated in River Financial’s board of directors meeting held on May 12, 2015, during which River Financial’s board of directors evaluated the proposed merger. At this meeting, StephensPorter White reviewed the financial aspects of the proposed transactionmerger with our board of directors and, rendered anon June 4, 2019, delivered a written opinion to our board of directors that as of the date of the merger agreement, the Exchange Ratioconsideration (the “Merger Consideration”) payable to Trinity shareholders in connection with Keystone in the merger was fair from a financial point of view,view. Porter White’s opinion was issued on June 4, 2019 and subsequently reissued solely to River Financial. River Financial’s boardreflect an immaterial correction to the number of directors approvedoutstanding shares of Trinity common stock and a corresponding increase in the merger agreement at this meeting.Merger Consideration. The changes did not affect Porter White’s analyses nor its opinion.

The full text of Stephens’sPorter White’s written opinion is attachedincluded in this proxy statement as Annex C to this joint proxy statement / prospectusB and is incorporated herein by reference. River Financial’s stockholdersYou are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Stephens.Porter White. The descriptionsummary of thePorter White’s opinion set forth hereinincluded in this proxy statement is qualified in its entirety by reference to the full text of such opinion.Stephens has approved the inclusion and summary Porter White’s opinion is directed to our board of its opinion in this joint proxy statement / prospectus.

Stephens’ opinion speaks only as of the date of the opiniondirectors and addresses only the fairness, from a financial point of view, of the Exchange Ratio to River Financial. Stephens’ opinionMerger Consideration payable in connection with the merger. It does not address the merits of the underlying business decision by River Financial to enter intoproceed with the merger the merits of the merger as compared to other alternatives potentially available to River Financial or the relative effects of any alternative transaction in which River Financial might engage, nor is it intended to beand does not constitute a recommendation to any personof Trinity’s shareholders as to how tosuch shareholders should vote at the shareholder meeting on the proposal to approvemerger or any related matter.

During the course of its engagement, and as a basis for arriving at its opinion, Porter White reviewed and analyzed material bearing upon Trinity’s financial and operating conditions and material prepared in connection with the merger, including, among other things, the following:

(i)

reviewed the terms of the merger agreement;

(ii)

participated in discussions with Trinity management concerning Trinity’s financial condition, asset quality and regulatory standing, capital position, historical and current earnings, and Trinity’s future financial performance;

(iii)

participated in discussions with River Financial management concerning River Financial’s financial condition, asset quality and regulatory standing, capital position, historical and current earnings, and River Financial’s future financial performance;

(iv)

reviewed Trinity’s audited financial statements for the years ended December 31, 2018, 2017, 2016 and 2015;

(v)

reviewed River Financial’s audited financial statements for the years ended December 31, 2018, 2017, 2016 and 2015;

(vi)

reviewed certain financial forecasts and projections of Trinity, prepared by its management;

(vii)

reviewed certain financial forecasts and projections of River Financial, prepared by its management;

(viii)

analyzed certain aspects of Trinity’s financial performance and condition and compared such financial performance with data of publicly-traded companies Porter White deemed similar to Trinity;

(ix)

analyzed certain aspects of River Financial’s financial performance and condition and compared such financial performance with data of publicly-traded companies Porter White deemed similar to River Financial;

(x)

compared the proposed financial terms of the merger with the financial terms of certain other recent merger and acquisition transactions involving acquired companies that Porter White deemed to be relevant to Trinity; and

(xi)

performed such other analyses and considered such other information, financial studies, investigations and financial, economic and market criteria as Porter White deemed relevant.

Porter White also conducted meetings and had discussions with members of Trinity’s and River Financial’s senior management for purposes of reviewing their business, financial condition, results of operations and future prospects, as well as their history and past and current operations, and their historical financial performance and their outlook and future prospects. Porter White also discussed with Trinity’s management its assessment of the rationale for the merger. Stephens’ fairness opinion committee approvedPorter White also performed such other analyses and considered such other factors as Porter White deemed appropriate, and took into account its experience in other transactions, as well as its knowledge of the issuance of Stephens’ opinion.banking and financial services industry and its general experience in securities valuations.

In rendering its opinion, Stephens, among other things:

Analyzed certain audited financial statements and management reports regarding River Financial and Keystone;

Index to Financial Statements
Analyzed certain internal financial statements and other financial and operating data (including financial projections for fiscal years 2015 — 2019) concerning River Financial prepared by management of River Financial;

Analyzed certain internal financial statements and other financial and operating data (including financial projections for fiscal years 2015 — 2017) concerning Keystone prepared by management of Keystone;

Reviewed the forecasted potential future cash flows of River Financial and Keystone, including the excess capital available for distribution, as prepared by River Financial’s and Keystone’s managements, respectively, and performed a discounted cash flow analysis utilizing these management assumptions and forecasts;

Compared the financial contribution of each of River Financial and Keystone of certain historical and projected financial information to the pro forma entity created by the transaction relative the Exchange Ratio and each institutions’ pro forma ownership;

Compared the net present values based on the standalone discounted cash flow analyses of River Financial and Keystone relative to the Exchange Ratio;

Reviewed the financial terms, to the extent publicly available, of certain merger or acquisition transactions that we deemed relevant to our analysis of the transaction;

Analyzed the Exchange Ratio relative to Keystone’s tangible book value, last twelve months earnings and core deposits as of March 31, 2015;

Analyzed, on a pro forma basis, the impact of the transaction on certain balance sheet, income statement and capitalization ratios of River Financial;

Analyzed, on a pro forma basis, the impact of the transaction on the forecasted earnings per share, dividends per share, tangible book value per share and net present value per share of each of River Financial and Keystone for the projected fiscal years ending December 31, 2015—2019;

Reviewed the most recent draft of the merger agreement and related documents provided to us by River Financial;

Discussed with the management and board of directors of River Financial the operations of and future business prospects for River Financial and Keystone and the anticipated financial consequences of the transaction to River Financial and Keystone;

Assisted in deliberations regarding the material terms of the transaction and River Financial’s negotiations with Keystone; and

Performed other such analyses and provided other such services as Stephens has deemed appropriate.

Stephens has relied onPorter White assumed, without independent verification, the accuracy and completeness of the financial and other information and financial datarepresentations contained in the materials provided to Stephensit by Trinity and River Financial and Keystonein the discussions it had with management. Porter White relied upon the reasonableness and achievability of the other information reviewedfinancial forecasts and projections (and the assumptions and bases therein) provided to Porter White by Stephens in connection with the preparation of Stephens’ opinion,Trinity and its opinion is based upon such information. Stephens has not independently verified the accuracy or completeness of the information and financial data on which Stephens’ opinion is based. Members of the respective management teams of River Financial, and Keystone have assured Stephensassumed that they arethe financial forecasts, including without limitation, the projections regarding under-performing andnon-performing assets and netcharge-offs were reasonably prepared by Trinity and River Financial on a basis reflecting the best currently available information and judgments and estimates by Trinity and River Financial, and that such forecasts will be realized in the amounts and at the times contemplated thereby. Porter White did not aware of any relevant information that has been omitted or remains undisclosed to Stephens. Stephens has not assumedassume any responsibility independently to verify such information or assumptions.

Porter White is not an expert in the evaluation of loan and lease portfolios for making or undertakingpurposes of assessing the adequacy of the allowances for loan losses with respect thereto. Porter White assumed that such allowances for us are, in the aggregate, adequate to cover such losses. Porter White was not requested to make, and did not conduct, an independent evaluation, physical inspection or appraisal of Trinity’s and River Financial’s assets, properties, facilities or liabilities (contingent or otherwise), the collateral securing any of thesuch assets or liabilities, or the collectability of River Financial or of Keystone,any such assets, and Stephens hasPorter White was not been furnished with any such evaluations or appraisals;appraisals, nor has Stephens evaluated the solvencydid Porter White review any of Trinity’s or fair value of River FinancialFinancial’s loan or of Keystone under any laws relating to bankruptcy, insolvency or similar matters. In addition, Stephens has not received or reviewed any individual credit files nor has Stephens made an evaluation of the adequacy of the allowance for loan losses of River Financial or Keystone. Stephens has not assumed any obligation to conduct any physical inspection of the properties or facilities of River Financial or of Keystone. With respect to the

files.

Index to Financial Statements

financial forecasts prepared by the managements of River Financial and Keystone, Stephens hasPorter White assumed that such financial forecasts have been reasonably prepared and reflect the best currently available estimates and judgments of the management of River Financial and Keystone as to the future financial performance of River Financial and Keystone and that the financial results reflected by such projections will be realized as predicted. Stephens has also assumed that the representations and warranties contained in the merger agreement and all related documents including the disclosure schedules provided to River Financial, are true, correct and complete in all material respects.

The projections furnished to Stephens and used by it in certain of its analyses were prepared by River Financial’s and Keystone’s senior management teams. River Financial and Keystone do not publicly disclose internal management projections of the type provided to Stephens in connection with its review of the merger. As a result, such projections were not prepared with a view towards public disclosure. The projections were based on numerous variables and assumptions, which are inherently uncertain, including factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in the projections.

For purposes of rendering its opinion, Stephens assumed that, in all respects material to its analyses:

the merger will be completedconsummated substantially in accordance with the terms set forth in the merger agreement, with no adjustmentswithout any waiver of material terms or conditions by Trinity or any other party to the Exchange Ratio;merger agreement and that the final merger agreement would not differ materially from the draft Porter White reviewed. Porter White assumed that the merger is, and will be, in compliance with all laws and regulations that are applicable to Trinity. Trinity advised Porter White that there are no factors known to Trinity that would impede any necessary regulatory or governmental approval of the merger. Porter White further assumed that, in the course of obtaining the necessary regulatory and government approvals, no restriction will be imposed on

River Financial or on Trinity that would have a material adverse effect on the contemplated benefits of the merger. Porter White also assumed that no changes in applicable law or regulation will occur that will cause a material adverse change in the prospects or operations of Trinity after the merger.

In performing its analyses, Porter White made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of River Financial and Trinity. Porter White’s opinion was necessarily based on financial, economic, market and other conditions and circumstances as they existed on, and on the information made available to Porter White as of, the dates used in its opinion. Porter White has no obligation to update or reaffirm its opinion at any time. Any estimates contained in the analyses performed by Porter White are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities may be sold or the prices at which any securities may trade at any time in the future. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. Porter White’s opinion does not address the relative merits of the merger as compared to any other business combination in which Trinity might engage. In addition, Porter White’s fairness opinion was among several factors taken into consideration by our board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as solely determinative of the decision of our board of directors or our management with respect to the fairness of the Merger Consideration to be paid to, or any consideration to be received by, Trinity shareholders in connection with the merger.

The following is a summary of the material analyses prepared by Porter White and delivered to Trinity’s board of directors on June 4, 2019, in connection with the delivery of its fairness opinion. This summary is not a complete description of the analyses underlying the fairness opinion or the presentation prepared by Porter White, but it summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Porter White did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include the information presented in tabular format. The analyses and the summary of the analyses must be considered as a whole and selecting portions of the analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying the analyses and opinion of Porter White. The tables alone are not a complete description of the financial analyses.

Summary of Merger Consideration and Implied Transaction Pricing Ratios

It was the understanding of Porter White that, in accordance with the terms of the merger agreement, each share of Trinity common stock outstanding prior to the effective date of the merger shall cease to be outstanding and shall be converted into $3.50 in cash and 0.44627 shares of River Financial common stock. Based on a cash value of $27.00 per whole share of River Financial common stock, the total aggregate purchase consideration is $27.072 million (as used in this section, the “Merger Consideration”). The Merger Consideration on a per share basis is $15.55 which assumes 1,741,053 Trinity common shares outstanding as of the date of the merger agreement. Porter White summarized the merger terms, based on Trinity’s financial information as of and for the twelve months ended March 31, 2019 in the table below:

Table 1: Consideration to Trinity Shareholders and Implied Transaction Pricing Ratios

   Aggregate   Per Share   % 

Cash

  $6,094   $3.50    22.5% 

Stock from RVRF

   20,978    12.05    77.5% 
  

 

 

   

 

 

   

 

 

 

Deal Value

  $27,072   $15.55    100.0% 
  

 

 

   

 

 

   

 

 

 

Price / Book

   $27,072    /   $15,925    =    1.70x 

Price / Tangible Book

   $27,072    /   $15,925    =    1.70x 

Price / Earnings

   $27,072    /   $2,444    =    11.08x 

Price / Normalized Earnings *

   $27,072    /   $2,057    =    13.16x 

Price / Assets

   $27,072    /   $160,516    =    16.87% 

Price / Deposits

   $27,072    /   $141,826    =    19.09% 

Premium / Core Deposits **

  ($27,072—15,925)    /   $103,187    =    10.80% 

Sources:    Porter White; Merger Agreement

Note: Pricing ratios based on Trinity’s consolidated financial data as of and for the twelve months ended March 31, 2019.

*

Normalized earnings are actual LTM 3/31/19 earnings of $2.444 million excluding a $500,000 provision reversal net of 22.5% tax.

**

Premium / Core Deposits = (Merger Consideration – Tangible Equity) / Core Deposits. Core deposits exclude time deposits over $100,000.

Dollars in thousands except per share amounts.

Comparable Company Trading Approach (Trinity)

As part of its analysis, Porter White looked at valuations for comparable publicly traded peer institutions of Trinity. The peer group for Trinity consisted of 15 publicly traded banks headquartered in the Southeast with total assets between $100 million and $500 million with return on average assets, or ROAA, greater than 1.00% as of or for the twelve months ended March 31, 2019. Any institutions that were publicly-known to be merger targets as of May 31, 2019 were excluded from the analysis.

Analysis of peer group data to describe another company involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the merger, public trading or other values of the companies to which they are being compared. As most of the comparable trading companies of Trinity are very thinly-traded, Porter White assumed an illiquidity discount to be immaterial. The results derived from the peer group trading analysis can be seen in the following chart.

Table 2: Trinity Comparable Trading Analysis

          Financials as of/for 12Mos Ended 3/31/19  Market Data as of May 31, 2019 

Institution

 Ticker Exchange State HQ City Total
Assets
($000)		  TanEq/
TanAssts
(%)		  ROAA
(%)		  NIM
(%)		  Effcy
Ratio
(%)		  Price/
TanBook
(x)		  Price/
Earn
(x)		  Div
Yield
(%)		  Market
Cap
($MM)		  Avg
DailyVol
(shares)		 

Trinity Bancorp, Inc.

   AL Dothan  160,516   9.92   1.61   3.86   56.6      

Aquesta Financial Holdings

 AQFH OTC Pink NC Cornelius  475,250   10.40   1.03   NA   73.2   0.96   10.80   0.93   47.2   2,260 

Bank of Botetourt

 BORT OTC Pink VA Buchanan  457,731   10.32   1.01   3.81   67.4   0.99   9.43   2.36   46.6   406 

Bank of South Carolina Corp

 BKSC NASDAQ SC Charleston  431,824   10.96   1.63   4.15   56.2   2.05   14.07   3.64   97.0   3,607 

blueharbor bank

 BLHK OTC Pink NC Mooresville  226,154   12.92   1.15   3.94   60.9   1.26   NA   NA   34.3   1,247 

Century Next Financial Corp

 CTUY OTCQX LA Ruston  475,652   NA   1.01   4.25   64.8   1.31   12.03   0.72   51.3   152 

Citizens Bancorp of Virginia

 CZBT OTC Pink VA Blackstone  401,356   13.02   1.25   3.84   63.8   1.02   11.03   3.74   53.6   361 

Citizens Financial Corp.

 CIWV OTC Pink WV Elkins  279,744   9.61   1.23   4.29   60.8   1.02   NA   3.96   27.0   241 

Community First Bancorp

 CFOK OTC Pink SC Seneca  392,698   9.49   1.16   3.82   94.3   0.88   7.14   NA   30.0   1,009 

First Citrus Bancorporation

 FCIT OTC Pink FL Tampa  396,115   8.82   1.12   3.72   62.3   1.53   12.15   NA   49.5   461 

Home Federal Bancorp of LA

 HFBL NASDAQ LA Shreveport  434,357   11.28   1.12   3.86   60.2   1.25   13.26   1.70   57.5   1,774 

Pinnacle Bancshares, Inc.

 PCLB OTC Pink AL Jasper  227,514   12.45   1.19   3.80   65.9   1.00   10.75   2.78   28.3   392 

Prime Meridian Holding Co

 PMHG OTCQX FL Tallahassee  426,849   12.11   1.05   3.77   62.5   1.23   15.26   0.59   63.8   1,419 

Southeastern Banking Corp

 SEBC OTC Pink GA Darien  427,580   13.43   1.63   4.08   55.3   1.06   8.83   2.66   61.4   516 

Surrey Bancorp

 SRYB OTC Pink NC Mount Airy  311,983   14.60   1.64   4.52   56.5   1.34   12.18   2.74   60.9   347 

Truxton Corporation

 TRUX OTC Pink TN Nashville  494,046   12.00   1.80   3.15   57.4   1.89   13.11   2.46   112.0   859 
    Median  426,849   11.64   1.16   3.85   62.3   1.23   12.03   2.56   51.3   516 
    25th Percentile  352,341   10.34   1.08   3.80   58.8   1.01   10.75   1.50   40.4   377 
    75th Percentile  446,044   12.81   1.44   4.13   65.4   1.32   13.11   3.00   61.1   1,333 
          Book Value   Earnings    
              per Share   per Share    
    

Trinity Bancorp, Inc.

  $9.15  $1.40    
    

Implied Value based on Peer Median

  $11.29  $16.89    

Sources:    Porter White; S&P Global Market Intelligence

Porter White calculated the median (and quartile) Price/Tangible Book Value and Price/LTM Earnings for the comparable peer group based on trading information as of May 31, 2019 and applied those multiples to the relevant metrics for Trinity to calculate a set of implied, peer-based valuations for Trinity common stock, which ranged from $11.29 per share to $16.89 per share.

Comparable Company Trading Approach (River Financial)

As part of its analysis, Porter White looked at both recent transactions in River Financial common stock and at valuations for comparable publicly traded peer institutions. River Financial has a thinly-traded stock (OTC Pink Open Market); however, management reported that between January 1, 2019 and May 31, 2019,arm’s-length transactions (involving outsiders) of its common stock were at a weighted average of $28.62 per share. Other transactions in River Financial’s stock have involved its ESOP or other compensation agreements and are based on different legal valuation criteria.

Porter White identified a peer group for River Financial of 16 publicly traded banks headquartered in the Southeast with total assets between $500 million and $2.0 billion, with ROAA between 0.75% and 1.25%, nonperformingassets-to-total

assets less than 3.00%, tangible commonequity-to-tangible assets, or TCE Ratio, between 8% and 12% and an average daily trading volume in excess of 1,000 shares, all as of or for the 12 months ending March 31, 2019.

Analysis of peer group data to describe another company involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the merger, public trading or other values of the companies to which they are being compared. The results derived from the peer group trading analysis can be seen in the following chart.

Table 3: River Financial Comparable Trading Analysis

              Financials as of and for 12 Months ended 3/31/19  Market Data as of May 31, 2019 

Institution

 Ticker  Exchange  State  HQ City  Total
Assets
($000)		  TanEq/
TanAssts
(%)		  ROAA
(%)		  NIM
(%)		  Effcy
Ratio
(%)		  NPA/
Assets
(%)		  Price/
TanBook
(x)		  Price/
Earn
(x)		  Div
Yield
(%)		  Market
Cap
($MM)		  Avg
DailyVol
(shares)		 

River Financial Corporation

  RVRF   OTC Pink   AL   Prattville   1,090,413   8.52   0.95   4.00   67.4   0.29      

Auburn National Bancorp

  AUBN   NASDAQ   AL   Auburn   835,014   10.89   1.13   3.45   59.3   0.04   1.35   13.64   2.91   123.1   5,733 

Bank of the James Fin Group

  BOTJ   NASDAQ   VA   Lynchburg   684,388   8.35   0.81   3.81   72.5   0.92   1.08   11.33   1.71   61.5   3,292 

C&F Financial Corporation

  CFFI   NASDAQ   VA   Toano   1,549,360   9.09   1.18   5.76   68.9   0.47   1.20   9.39   3.08   166.8   5,983 

Comm Bankers Trust Corp

  ESXB   NASDAQ   VA   Richmond   1,398,497   10.18   1.07   3.77   64.9   1.28   1.13   11.20   1.65   161.4   25,228 

Eagle Financial Services

  EFSI   OTCQX   VA   Berryville   808,717   11.28   1.15   4.09   65.6   0.73   1.21   12.20   3.14   108.4   1,180 

Fauquier Bankshares

  FBSS   NASDAQ   VA   Warrenton   700,502   8.87   0.91   3.84   76.4   0.95   1.28   12.84   2.28   79.7   2,339 

First Community Corp

  FCCO   NASDAQ   SC   Lexington   1,097,396   9.24   1.01   3.71   67.8   0.56   1.36   12.43   2.47   136.3   16,331 

FVCBankcorp

  FVCB   NASDAQ   VA   Fairfax   1,419,763   11.03   0.96   3.57   54.0   0.76   1.57   20.40   NA   244.7   18,470 

Investar Holding Corp

  ISTR   NASDAQ   LA   Baton Rouge   1,961,894   9.09   0.87   3.57   64.4   0.46   1.38   15.51   0.88   235.4   16,117 

John Marshall Bancorp

  JMSB   OTCQB   VA   Reston   1,425,477   10.33   0.95   3.47   63.1   0.26   1.31   15.86   NA   192.3   3,995 

Limestone Bancorp

  LMST   NASDAQ   KY   Louisville   1,091,323   8.83   0.93   3.52   70.9   0.57   1.16   11.43   0.00   110.6   3,837 

MainStreet Bancshares

  MNSB   NASDAQ   VA   Fairfax   1,146,081   10.91   1.06   3.40   57.2   0.30   1.56   16.32   NA   191.6   3,680 

Parkway Acquisition Corp.

  PKKW   OTCQX   VA   Floyd   673,420   10.53   0.82   4.55   69.7   1.60   1.04   13.41   2.03   73.3   3,558 

Reliant Bancorp, Inc.

  RBNC   NASDAQ   TN   Brentwood   1,761,926   9.56   0.85   3.65   73.8   0.35   1.53   17.55   1.65   245.8   15,367 

SW Georgia Financial Corp

  SGB   NYSEAM   GA   Moultrie   551,071   8.21   0.89   3.97   73.0   0.19   1.13   11.00   2.40   51.0   1,518 

Union Bank

  UBNC   OTCQX   NC   Greenville   770,592   8.74   0.94   3.91   65.0   0.13   1.34   12.93   1.32   88.2   1,014 
     Median   1,094,360   9.40   0.94   3.74   66.7   0.51   1.32   13.52   1.71   144.9   3,916 
     25th Percentile   753,070   8.86   0.88   3.56   64.1   0.29   1.15   11.41   1.32   84.5   3,492 
     75th Percentile   1,421,192   10.62   1.06   3.92   71.3   0.80   1.41   15.97   2.40   203.1   8,329 
           TBV per   Earnings    
                Share   per Share    
    

River Financial (pro forma)

   $14.90   $2.14    
    Implied Value based on Peer Median   $19.69   $28.94    
    

Implied Value based on Peer Median with 10% liquidity
discount

 
 		  $17.72   $26.05    

Sources:    Porter White; S&P Global Market Intelligence

Porter White’s analysis implied a value of River Financial common stock in a range of $19.69 to $28.94 per share. Due to the thinly-traded nature of River Financial common stock and that most of the peer institutions are traded on NASDAQ, Porter White then applied a 10% illiquidity discount to the implied, peer-based valuation. The implied value for River Financial common stock with the 10% illiquidity discount was in the range of $17.72 to $26.05. Taken together, the recent trading information of River Financial common stock and the range of implied peer-based valuations support the $27.00 per share value for River Financial common stock agreed upon by both parties in the merger.

Comparable Transaction Approach

In its analysis, Porter White reviewed four groups of selected merger and acquisition transactions involving similar sellers in the Southeastern U.S. to Trinity: a Geographic peer group, a Profitability peer group, an Asset Quality peer group, and a Capital peer group.

The Geographic peer group consisted of transactions in the Southeastern U.S. announced between January 1, 2017 and May 31, 2019 involving sellers with total assets between $100 million and $300 million, headquartered in a Metropolitan Statistical Area, or MSA, and with positive return on average assets (ROAA) and included the following transactions:

Buyer

Seller

Institution

State

Institution

State
Citizens Holding CompanyMSCharter BankMS
Allegheny Bancshares, Inc.WVMount Hope Bankshares, Inc.WV
CBS Banc-Corp.ALPrimeSouth BankAL
United Community Banks, Inc.GAFirst Madison Bank & TrustGA
Stock Yards Bancorp, Inc.KYKing Bancorp, Inc.KY
Colony Bankcorp, Inc.GALBC Bancshares, Inc.GA
BankFirst Capital CorporationMSFNB Bancshares of Central Alabama, Inc.AL
B.P.C. CorporationTNCFB Bancshares, Inc.TN
First Citizens BancShares, Inc.NCPalmetto Heritage Bancshares, Inc.SC
River Financial CorporationALPSB Bancshares, Inc.AL
FNS Bancshares, Inc.ALCatoosa Bancshares, Inc.GA
SmartFinancial, Inc.TNFoothills Bancorp, Inc.TN
Carolina Trust BancShares, Inc.NCClover Community Bankshares, Inc.SC
Premier Financial Bancorp, Inc.WVFirst Bank of Charleston, Inc.WV
Sunstate BankFLIntercontinental Bankshares, LLCFL
National Commerce CorporationALPremier Community Bank of FloridaFL
Parkway Acquisition Corp.VAGreat State BankNC
SmartFinancial, Inc.TNTennessee Bancshares, Inc.TN
Union Savings and Loan AssociationLAHibernia Bancorp, Inc.LA
First Bancshares, Inc.MSSunshine Financial, Inc.FL
Investor groupKYBancorp of Lexington Inc.KY
Investar Holding CorporationLABOJ Bancshares, Inc.LA
PB Financial CorporationNCCB Financial CorporationNC
Select Bancorp, Inc.NCPremara Financial, Inc.NC
Entegra Financial Corp.NCChattahoochee Bank of GeorgiaGA
FSB LLCALFirst Southern Bancshares, Inc.AL
Charter Financial CorporationGAResurgens BancorpGA
Seacoast Banking Corporation of FloridaFLNorthStar Banking CorporationFL
National Commerce CorporationALPatriot BankFL
First Community CorporationSCCornerstone BancorpSC

Buyer

Seller

Institution

State

Institution

State
FNS Bancshares, Inc.ALCommerce Bancshares, Inc.TN
West Town Bancorp, Inc.NCSound Banking CompanyNC
Progress Financial CorporationALFirst Partners Financial, Inc.AL
HCBF Holding Company, Inc.FLJefferson Bankshares, Inc.FL

The Profitability peer group consisted of transactions in the Southeastern U.S. announced between January 1, 2017 and May 31, 2019 involving sellers with total assets between $100 million and $300 million and ROAA greater than 1.00% and included the following transactions:

Buyer

Seller

Institution

State

Institution

State

Allegheny Bancshares, Inc.

WVMount Hope Bankshares, Inc.WV

CBS Banc-Corp.

ALPrimeSouth BankAL

United Community Banks, Inc.

GAFirst Madison Bank & TrustGA

Stock Yards Bancorp, Inc.

KYKing Bancorp, Inc.KY

First Citizens BancShares, Inc.

NCPalmetto Heritage Bancshares, Inc.SC

River Financial Corporation

ALPSB Bancshares, Inc.AL

FNS Bancshares, Inc.

ALCatoosa Bancshares, Inc.GA

Century Next Financial Corporation

LAAshley Bancstock CompanyAR

First US Bancshares, Inc.

ALPeoples BankVA

FNS Bancshares, Inc.

ALCommerce Bancshares, Inc.TN

Progress Financial Corporation

ALFirst Partners Financial, Inc.AL

The Asset Quality peer group consisted of transactions in the Southeastern U.S. announced between January 1, 2017 and May 31, 2019 involving sellers with total assets between $100 million and $300 million and NPAs / Total Assets less than 1.00%.

Buyer

Seller

Institution

State

Institution

State

Blue Ridge Bankshares, Inc.

VAVirginia Community Bankshares, Inc.VA

Allegheny Bancshares, Inc.

WVMount Hope Bankshares, Inc.WV

Southern States Bancshares, Inc.

ALEast Alabama Financial Group, Inc.AL

CBS Banc-Corp.

ALPrimeSouth BankAL

United Community Banks, Inc.

GAFirst Madison Bank & TrustGA

Stock Yards Bancorp, Inc.

KYKing Bancorp, Inc.KY

Colony Bankcorp, Inc.

GALBC Bancshares, Inc.GA

BankFirst Capital Corporation

MSFNB Bancshares of Central Alabama, Inc.AL

Summit Financial Group, Inc.

WVPeoples Bankshares, Inc.WV

River Financial Corporation

ALPSB Bancshares, Inc.AL

FNS Bancshares, Inc.

ALCatoosa Bancshares, Inc.GA

SmartFinancial, Inc.

TNFoothills Bancorp, Inc.TN

Century Next Financial Corporation

LAAshley Bancstock CompanyAR

First US Bancshares, Inc.

ALPeoples BankVA

Sunstate Bank

FLIntercontinental Bankshares, LLCFL

National Commerce Corporation

ALPremier Community Bank of FloridaFL

Parkway Acquisition Corp.

VAGreat State BankNC

SmartFinancial, Inc.

TNTennessee Bancshares, Inc.TN

Investor group

KYBancorp of Lexington Inc.KY

Select Bancorp, Inc.

NCPremara Financial, Inc.NC

Bank of McKenney

VACCB Bankshares, Inc.VA

Buyer

Seller

Institution

State

Institution

State

Entegra Financial Corp.

NCChattahoochee Bank of GeorgiaGA

FSB LLC

ALFirst Southern Bancshares, Inc.AL

Charter Financial Corporation

GAResurgens BancorpGA

Seacoast Banking Corporation of Florida

FLNorthStar Banking CorporationFL

Investar Holding Corporation

LACitizens Bancshares, Inc.LA

Progress Financial Corporation

ALFirst Partners Financial, Inc.AL

HCBF Holding Company, Inc.

FLJefferson Bankshares, Inc.FL

The Capital peer group consisted of transactions in the Southeastern U.S. announced between January 1, 2017 and May 31, 2019 involving sellers with total assets between $100 million and $300 million and Tangible Equity / Tangible Assets between 9.00% and 11.00% and included the following transactions:

Buyer

Seller

Institution

State

Institution

State

Blue Ridge Bankshares, Inc.

VAVirginia Community Bankshares, Inc.VA

CBS Banc-Corp.

ALPrimeSouth BankAL

BankFirst Capital Corporation

MSFNB Bancshares of Central Alabama, Inc.AL

B.P.C. Corporation

TNCFB Bancshares, Inc.TN

First Citizens BancShares, Inc.

NCPalmetto Heritage Bancshares, Inc.SC

PBD Holdings, LLC

TNFirst Columbia Bancorp, Inc.FL

FNS Bancshares, Inc.

ALCatoosa Bancshares, Inc.GA

SmartFinancial, Inc.

TNFoothills Bancorp, Inc.TN

Carolina Trust BancShares, Inc.

NCClover Community Bankshares, Inc.SC

Century Next Financial Corporation

LAAshley Bancstock CompanyAR

First US Bancshares, Inc.

ALPeoples BankVA

SmartFinancial, Inc.

TNTennessee Bancshares, Inc.TN

Investor group

KYBancorp of Lexington Inc.KY

Select Bancorp, Inc.

NCPremara Financial, Inc.NC

FSB LLC

ALFirst Southern Bancshares, Inc.AL

Charter Financial Corporation

GAResurgens BancorpGA

Seacoast Banking Corporation of Florida

FLNorthStar Banking CorporationFL

Using the latest publicly available information prior to each deal announcement, Porter White analyzed the following transaction metrics for each respective peer group: dealprice-to-tangible book value, dealprice-to-LTM earnings, dealprice-to-total assets, and premium to core deposits. Porter White compared the indicated transaction multiples for the merger to the high, low, and median multiples of each merger transaction group. The results derived from the peer group comparable transaction analysis can be seen in the following chart.

Table 4: Trinity Comparable Transaction Analysis

  Transaction Pricing     Target Financials 
  Price/
TanBook
(x)		  Price/
Earnings
(x)		  Price
Assets
(%)		  Premium/
Core Dep
(%)		     Total
Assets
($000)		  TanEq/
TanAssts
(%)		  ROAA
(%)		  Effcy
Ratio
(%)		  NPA/
TotAssts
(%)		 

Geographic Group

          

Median

  1.60   20.35   15.29   8.90    190,342   10.68   0.80   69.3   0.59 

High

  2.00   38.64   25.82   21.56    296,103   15.18   3.54   88.3   4.18 

Low

  1.16   4.04   10.39   2.58    106,826   7.47   0.16   44.6   0.00 

Profitability Group

          

Median

  1.62   13.43   15.10   8.33    166,602   11.08   1.20   62.9   0.17 

High

  1.94   26.79   20.13   19.62    273,810   13.24   3.54   73.9   4.18 

Low

  1.16   4.04   8.33   1.94    121,947   9.32   1.01   44.6   0.00 

Asset Quality Group

          

Median

  1.61   19.70   15.54   8.77    213,433   10.50   0.89   66.4   0.19 

High

  2.00   38.64   25.82   21.56    296,103   15.04   1.96   87.3   0.99 

Low

  0.99   6.11   8.33   -0.13    121,947   8.21   0.20   44.6   0.00 

Capital Group

          

Median

  1.62   17.69   15.10   8.90    211,797   10.05   0.83   70.7   0.61 

High

  1.99   38.64   18.84   19.62    273,238   10.96   1.63   106.4   5.91 

Low

  1.09   6.11   8.33   1.21    121,947   9.12   -1.11   52.2   0.00 

Trinity-River:

  1.70   11.08   16.87   10.80   Trinity:   160,516   9.92   1.61   56.6   0.83 

Price/NormEarn

 

  13.16         

Sources: Porter White; S&P Global Market Intelligence

Discounted Cash Flow Approach

Additionally, Porter White performed an analysis that estimated the net present value per share of Trinity common stock on a standalone basis assuming Trinity performed in accordance with management projections for the coming5-year period. To approximate the terminal value of a share of Trinity common stock, Porter White applied aprice-to-tangible book value per share multiple ranging from 1.60x to 2.00x and aprice-to-earnings per share multiple ranging from 12.0x to 20.0x. The terminal values were then discounted to present values using different discount rates ranging from 9.0% to 13.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Trinity common stock. As shown in the following tables, the analysis indicated an imputed range of values per share of Trinity common stock of $11.94 to $17.57 when applying multiples of tangible book value per share and $9.70 to $18.68 when applying multiples of earnings per share. Per share values that are less than the $15.55 per share value in the merger are shaded in gray.

Table 5: Discounted Cash Flow Analysis of Tangible Book Value

LOGO     Terminal Tangible Book Multiples  
   1.60x 1.70x 1.80x 1.90x 2.00x
 9% $14.23 $15.06 $15.90 $16.74 $17.57
 10% $13.61 $14.41 $15.21 $16.01 $16.80
 11% $13.02 $13.79 $14.55 $15.31 $16.08
 12% $12.47 $13.20 $13.93 $14.66 $15.39
 13% $11.94 $12.64 $13.34 $14.03 $14.73

Sources:    Porter White; Trinity management

Note:         Values less than $15.55 per share are shaded in gray.

Table 6: Discounted Cash Flow Analysis of LTM Earnings

LOGO     Terminal Earnings Multiples  
   12.0x 14.0x 16.0x 18.0x 20.0x
 9% $11.55 $13.33 $15.12 $16.90 $18.68
 10% $11.05 $12.75 $14.46 $16.16 $17.87
 11% $10.58 $12.20 $13.83 $15.46 $17.09
 12% $10.13 $11.68 $13.24 $14.80 $16.36
 13% $9.70 $11.19 $12.68 $14.17 $15.66

Sources:    Porter White; Trinity management

Note:         Values less than $15.55 per share are shaded in gray.

Conclusion

Porter White concluded that the Merger Consideration to be received under the terms of the merger agreement was fair, from a financial point of view, to Trinity’s shareholders. The Opinion expressed by Porter White was based upon market, economic and other relevant considerations as they existed and could be evaluated as of the date of the Opinion. For purposes of rendering its Opinion, Porter White assumed that, in all respects material to its analyses:

the merger will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any term, condition or agreement thereof;

 

the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement are true and correct;

 

each party to the merger agreement and all related documents will perform all of the covenants and agreements required to be performed by such party under such documents;

 

all conditions to the completion of the merger will be satisfied without any waiver;waivers; and

 

in the course of obtaining the necessary regulatory, contractual or other consents or approvals for the merger, no restrictions, including any divestiture requirements, termination, or other payments or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of the combined entity or the contemplated benefits of the merger, including the cost savings and related expenses expected to result from the merger.

Stephens further assumed that the merger will be accounted for as a purchase transaction under generally accepted accounting principles, and that the merger will qualify as a tax-free reorganization for United States federal income tax purposes. Stephens’ opinion is not an expression of an opinionPorter White cannot provide assurance as to the price at which shares of River Financial common stock will trade following the announcementwhen or if all of the merger, the actual value of the shares of common stock of the combined company when issued pursuantconditions to the merger can or will be satisfied or, if applicable, waived by the price at which the shares of common stock of the combined company will trade following the completion of the merger.

Stephens’ opinion is necessarily based upon market, economic and other conditions as they existed and can be evaluated on, and on the information made available to Stephens asappropriate party. As of the date of the opinion. It should be understoodthis Proxy Statement, Porter White has no reason to believe that subsequent developments may affect the opinion and that Stephens does not have any obligation to update, revise or reaffirm its opinion. Stephens has assumed that the mergerof these conditions will be consummated on the terms of the latest draft of the merger agreement provided to Stephens, without material waiver or modification. Stephens has assumed that in the course of obtaining the necessary regulatory, lending or other consents or approvals (contractual or otherwise) for the merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that would have a material adverse effect on the contemplated benefits of the merger to River Financial or the shareholders. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the Stephens opinion was among several factors taken into consideration by the River Financial board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the River Financial board of directors with respectsatisfied or waived.

Compensation to the fairness of the consideration.

Porter White

Index to Financial Statements

The following is a summary of the material financial analyses performed and material factors considered by Stephens in connection with its opinion. Stephens performed certain procedures, including each of the financial analyses described below, and reviewed with River Financial’s executive management and board of directors the assumptions upon which the analyses were based, as well as other factors. Although the summary does not purport to describe all of the analyses performed or factors considered by Stephens within this regard, it does set forth those considered by Stephens to be material in arriving at its opinion. The order of the summaries of analyses described does not represent the relative importance or weight given to those analyses by Stephens. It should be noted that in arriving at its opinion, Stephens did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Stephens believes that its analysis must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

Summary of Proposal. Stephens reviewed the financial terms of the proposed transaction. Pursuant to the terms of the merger agreement, upon the merger, each outstanding shareengagement, Porter White received a retainer of Keystone common stock shall be cancelled, shall cease to exist$10,000 and shall no longer be outstanding and shall be converted into the right to receive 1.00 share of River Financial’s common stock and $4.00 per share in cash.

Contribution Analysis. Stephens compared certain historical and projected financial information for River Financial and Keystone relative to the Exchange Ratio and their shareholders’ ownershipreceived consideration in the combined company. Based on the analysis, River’s imputed ownership ranged from 51.1% to 64.1% and the implied exchange ratio ranged from 1.7159 to 1.0048. The analysis is illustrated below:

  Contribution (%)      Implied
Exchange Ratio
(x)		  Premium / (Discount)
to Merger
Agreement
of 1.2500x
(%)		 
  River  Keystone       

Balance Sheet

                

Total Assets

  63.8    36.2      1.0151x    (18.79) 

Gross Loans

  62.0    38.0      1.0954x    (12.37) 

Deposits

  64.1    35.9      1.0048x    (19.62) 

Tangible Common Equity

  61.7    38.3      1.1101x    (11.20) 

Average

  62.9    37.1      1.0556x    (15.56) 

Profitability

                

FY 2012 Net Income

  51.1    48.9      1.7159x    37.27  

FY 2013 Net Income

  52.4    47.6      1.6278x    30.22  

FY 2014 Net Income

  57.4    42.6      1.3290x    6.32  

Q1’15 Net Income

  58.3    41.7      1.2807x    2.46  

LTM Net Income

  57.9    42.1      1.3009x    4.07  

Average

  55.4    44.6      1.4408x    15.26  

2015E Net Income

  57.7    42.3      1.3106x    4.85  

2016E Net Income

  56.6    43.4      1.3742x    9.94  

2017E Net Income

  57.8    42.2      1.3076x    4.61  

2018E Net Income

  58.6    41.4      1.2641x    1.13  

2019E Net Income

  59.4    40.6      1.2221x    (2.23) 

Average

  58.0    42.0      1.2949x    3.59  
      

Average of Blue Shade

  58.3    41.7      1.2822x    2.57  

Pro Forma Holding Company Board of Directors:

  57.1    42.9      1.3428x    7.43  

Pro Forma Ownership:

    High  1.7159x    37.27  

Ownership — 100% Stock(1)

  58.9    41.1    Mean  1.2829x    2.63  

Ownership — As Structured(1)

  63.9    36.1    Median  1.2949x    3.59  
    Low  1.0048x    (19.62) 

Index to Financial Statements

Note: Dollars in millions; financial data asamount of March 31, 2015

(1) Based on fully diluted shares outstanding at close

Data Source: Company documents, SNL Financial, Management Estimates

Comparable Transaction Analysis

Stephens reviewed publicly available information related to two groups of precedent transactions involving a depository institution as a selling entity:

(1)Selected nationwide transactions since 2013 with a publicly disclosed deal value, target assets between $100 million and $400 million, NPAs / Assets less than 3.00% and last twelve months return on average assets greater than 0.75%.

Buyer

Target

First Financial Bankshares

FBC Bancshares, Inc.

Carolina Alliance Bank

PBSC Financial Corp.

LINCO Bancshares Inc.

Community First Bank

Veritex Holdings Inc.

IBT Bancorp Inc.

Wintrust Financial Corp.

Community Financial Shares Inc.

SunPac LLC

Security First Bank

Olney Bancshares of Texas Inc.

Vintage Shares Inc.

Hambac Inc.

Kentucky Home Bancshares Inc.

Pacific Continental Corp.

Capital Pacific Bancorp

Durant Bancorp Inc.

Consolidated Equity Corp.

First Southern Bancorp Inc.

First United Inc.

NewBridge Bancorp

Premier Commercial Bank

First Citizens Banc Corp

TCNB Financial Corp.

Home Bancshares Inc.

Broward Financial Holdings Inc.

Community Bancshares Inc.

Citizens Bank of Asheville Ohio

Olney Bancshares of Texas Inc.

HBank Texas

Univest Corp. of Pennsylvania

Valley Green Bank

BNC Bancorp

Harbor Bank Group Inc.

Independent Bank Group Inc.

Houston City Bancshares Inc.

First Business Financial Services Inc.

Aslin Group Inc.

Glacier Bancorp Inc.

FNBR Holding Corp.

Home Bancshares Inc.

Florida Traditions Bank

MainSource Financial Group

MBT Bancorp

First Citizens Bancshares Inc.

Southern Heritage Bancshares

Salisbury Bancorp Inc.

Riverside Bank

First Financial Bancorp

Insight Bank

First Financial Bancorp

First Bexley Bank

Horizon Bancorp

SCB Bancorp Inc.

NewBridge Bancorp

CapStone Bank

Index to Financial Statements

Buyer

Target

New Century Bancorp Inc.

Select Bancorp Inc.

Community & Southern Holdings Inc.

Verity Capital Group Inc.

Independent Bank Group Inc.

Live Oak Financial Corp.

Wilshire Bancorp Inc.

BankAsiana

Commerce Bancshares Inc.

Summit Bancshares Inc.

CBTCO Bancorp

Bradley Bancorp

CNB Financial Corp.

FC Banc Corp.

Heritage Financial Corp.

Valley Community Bancshares Inc.

Pacific Premier Bancorp

San Diego Trust Bank

Glacier Bancorp Inc.

Wheatland Bankshares Inc.

Lakeland Bancorp

Somerset Hills Bancorp

Investor Group

Grand Savings Bank

(2)Selected Southeast transactions since 2013 with a publicly disclosed deal value, target assets between $100 million and $400 million, NPAs / Assets less than 3.00% and last twelve months return on average assets greater than 0.75%.

Buyer

Target

Target State

Carolina Alliance Bank

PBSC Financial Corp.SC

Hambac Inc.

Kentucky Home Bancshares Inc.KY

First Southern Bancorp Inc.

First United Inc.KY

NewBridge Bancorp

Premier Commercial BankNC

Home Bancshares Inc.

Broward Financial Holdings Inc.FL

BNC Bancorp

Harbor Bank Group Inc.SC

Home Bancshares Inc.

Florida Traditions BankFL

First Citizens Bancshares Inc.

Southern Heritage BancsharesTN

NewBridge Bancorp

CapStone BankNC

New Century Bancorp Inc.

Select Bancorp Inc.NC

Community & Southern Holdings Inc.

Verity Capital Group Inc.GA

Transaction multiples$25,000 for the merger were calculated based on an offer pricedelivery of $20.00 per share for Keystone. For each precedent transaction, Stephens derived and compared, among other things,its fairness opinion. At the implied deal value paid forearlier of i) the acquired company to:

tangible book value of Keystone based on the financial statements of Keystone available prior to the announcement of the merger;

the last twelve months net income based on the financial statements of Keystone available prior to the announcement of the merger; and

tangible equity premium to core deposits (total deposits less time deposits greater than $100,000) based on the financial statements of Keystone available prior to the announcement of the acquisition

Index to Financial Statements

The results of the analyses are set forth in the following table:

Fixed Exchange Ratio:

     1.2500x        

Price per Share:(1)

    $20.00        

Current Aggregate Transaction Value:(2)

  

  $36.7      Precedent Transactions(5)   

Transaction Multiples:

  Keystone
Per Share
Value(3)		   Multiple(1)  Nationwide  Southeast 
     Low  Median  High  Low  Median  High 

P/TBV

  $15.50     129.0%   98.4%   146.2%   234.0%   113.3%   134.3%   198.6% 

P/LTM EPS

  $1.48     13.5x   10.4x   16.4x   24.7x   11.5x   14.4x   24.7x 

Core Deposit Premium(4)

  $102.6     4.4%   0.1%   7.4%   25.3%   2.7%   5.9%   16.7% 

 Note: Dollars in millions, except per share data

(1)Assumes a per share valuation for River Financial of $16.00
(2)Based on 1,789,992 common shares outstanding, 39,500 options with a weighted average exercise price of $10.06, and 53,800 warrants with a weighted average exercise price of $10.00
(3)Financial data as of March 31, 2015
(4)Assumes time deposits greater than $100,000 are non-core deposits. As of March 31, 2015, Keystone reported $32.8 million in non-core deposits.
(5)Selected bank transactions since 2013 with a publicly disclosed deal value, target assets between $100 million and $400 million, NPAs / Assets less than 3.00%, and last twelve months return on average assets greater than 0.75%.

Data Source: SNL Financial; Company Documents

No company or transaction used as a comparison in the above analysis is identical to River Financial, Keystone or the merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.

Discounted Cash Flow Analysis.

River Financial

Stephens estimated the present value of all shares of River Financial stock based on River Financial’s estimated future earnings stream beginning in second quarter of 2015. In performing this analysis, Stephens used River Financial’s management guidance for fiscal years 2015 to 2019 to derive projected after-tax cash flows. In determining cash flows available to shareholders, Stephens assumed that River Financial would maintain a tangible common equity/tangible asset ratio of 8.0% and would retain sufficient earnings to maintain that level. Any earnings in excess of what would need to be retained represented dividendable cash flows for River Financial. The analysis assumed discount rates ranging from 14.5% to 22.5% and terminal multiples ranging from 11.0 times to 15.0 times fiscal year 2019 forecasted earnings. This resulted in a standalone discounted cash flow analysis range of value of River Financial from $12.48 to $19.66 per share.

Keystone

Stephens estimated the present value of all shares of Keystone common stock based on Keystone’s estimated future earnings stream beginning in second quarter 2015. In performing this analysis, Stephens used Keystone management’s estimates for fiscal years 2015 to 2017 and assumed consistent results for 2018 and 2019 to derive projected after-tax cash flows. In determining cash flows available to shareholders, Stephens assumed that Keystone would maintain a tangible common equity/tangible asset ratio of 8.0% and would retain sufficient earnings to maintain that level. Any earnings in excess of what would need to be retained represented dividendable cash flows for River Financial. The analysis assumed discount rates ranging from 14.5% to 22.5% and terminal multiples ranging from 11.0 times to 15.0 times fiscal year 2019 forecasted earnings. This resulted in a standalone discounted cash flow analysis range of value of Keystone from $16.28 to $24.53 per share.

Index to Financial Statements

Exchange Ratio Analysis

Stephens analyzed the implied exchange ratio at an 18.5% discount rate and at terminal multiples ranging from 11.0 times to 15.0 times fiscal year 2019 forecasted earnings.

Based on Discount Rate of 18.50%  Terminal Multiple 
   11.0x  13.0x  15.0x 

River Financial

  $13.96   $15.62   $17.28  

Keystone

   18.08    19.90    21.72  

Implied Exchange Ratio

   1.2945x   1.2736x   1.2568x 

Premium/(Discount) to Merger Agreement Exchange Ratio of 1.2500x

   3.6%   1.9%   0.5% 

Implied Exchange Ratio — Based on NPV

Implied
Exchange Ratio
(x)		Premium / (Discount)
to Merger Agreement of 1.2500x
(%)

River Financial Max

Keystone Min1.0462x(16.3%) 

River Financial Median

Keystone Median1.2736x1.9% 

River Financial Min

Keystone Max1.5551x24.4% 

Based on Discount Rate Range — 14.50% - 22.50% &

Terminal Multiple Range — 11.0x - 15.0x

Implied
Exchange Ratio
(x)		Premium / (Discount)
to Merger Agreement of 1.2500x
(%)

Implied Exchange Ratio — Based on NPV

River Financial Max

Keystone Min0.8279x(33.8%) 

River Financial Median

Keystone Median1.2736x1.9% 

River Financial Min

Keystone Max1.9653x57.2% 

Stephens stated that the discounted cash flow present value analysis is a widely used valuation methodology, but noted that it relies on numerous assumptions, including asset and earnings growth rates, terminal values, and discount rates. The analysis did not purport to be indicative of the actual values or expected values of either institution.

Pro Forma Financial Impact Analysis. Stephens performed pro forma merger analyses that combined projected income statement and balance sheet information of River Financial and Keystone beginning on December 31, 2015. Assumptions regarding the accounting treatment, acquisition adjustments and cost savings were used to calculate the financial impact that the merger would have on certain projected financial results of River Financial. In the course of this analysis, Stephens used earnings estimates for River Financial and Keystone for 2015 to 2019 as provided by the management of River Financial. This analysis indicated that the merger is expectedcompleted or ii) termination of the merger agreement, Trinity will pay Porter White a final advisory fee of $15,000, which is not contingent upon the completion of the merger. Pursuant to be accretivethe engagement agreement, in addition to River Financial’s estimated earnings per share in 2016 to 2019its fees and dilutive to tangible book value per share for River Financial through 2020. In addition,regardless of whether the merger is projected to be accretive to River Financial’s net present value per share, increase certain profitability metrics; however, the analysis illustrates that River Financial will slow the annual increase in its annual dividend per share. The pro forma entity is projected to maintain well-capitalized regulatory capital ratios. For all of the above analyses, the actual results achieved by Keystone following the merger will vary from the projected results, and the variations may be material.

As part of Stephens’ investment banking business, Stephens regularly issues fairness opinions and is continually engaged in the valuation of companies and their securities in connection with business reorganizations, private placements, negotiated underwritings, mergers and acquisitions and valuations for estate, corporate and other purposes. Stephens expects to pursue future investment banking services assignments from River Financial. In the ordinary course of business, Stephens and its affiliates at any time may hold long or short positions, and may trade or otherwise effect transactions as principal or for the accounts of customers, in debt or equity securities or options on securities of River Financial or of any other participant in the merger.

Index to Financial Statements

Stephensconsummated, Trinity has acted exclusively for the board of directors of River Financial in rendering its opinion in connection with the Exchange Ratio and will receive a fee from River Financial for its services. Upon the delivery of the fairness opinion, a fee of $100,000 was paid. In addition, River Financial agreed to payreimburse Porter White for certain reasonableout-of-pocket expenses incurred in performing its services and to Stephens a fee, upon the successful completionindemnify Porter White against certain claims, losses and expenses arising out of the merger equal to $300,000, less the amount previously paid for the fairness opinion. River Financial is also obligated to reimburse Stephens for reasonable out-of-pocket expenses and disbursements, and to indemnify against certain liabilities, including liabilities under federal securities laws and liabilities that could arise from the issuance of its opinion.or Porter White’s engagement. Other than services provided in connection with the merger, StephensPorter White has not provided investment banking and financial advisory services to Trinity or River Financial or Keystone in the priorpast two years.

Interests of KeystoneTrinity Directors and Executive Officers in the Merger

When considering the recommendation of Keystone’sTrinity’s board of directors, holders of KeystoneTrinity common stock should be aware that Keystone’sTrinity’s executive officers and members of Keystone’sTrinity’s board of directors may have interests in the merger that are different from, or in addition to, those of KeystoneTrinity shareholders generally. Keystone’sTrinity’s board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, to the extent these different interests existed at the time of the negotiation, evaluation and approval of the merger agreement, and in recommending that the merger agreement be approved by holders of KeystoneTrinity common stock.

River Financial and River Bank & Trust Board of Directors and Executive Officers Following the Merger

The merger agreement provides that uponthe board of directors of River Financial after the Merger will not change from immediately prior to the Merger, except that Brian McLeod, or such other designee selected by Trinity and reasonably acceptable to River Financial, shall be added as a director of River Financial as of the effective date of the merger, the number of directors of River Financial shall consist of seven persons, four of whom shall be chosen by the current River Financial board of directors and three of whom shall be chosen by the current Keystone board of directors.

Merger. The four directors of River Financial who are expected to continue as River Financial directors will include Jimmy Stubbs, Larry Puckett, Jim Ridling and a fourth director to be determined byMerger agreement further provides that the board of directors.

Biographical and other information respecting all River Financial directors is located at “Information About River Financial — Directors and Executive Officers,” “— Security Ownership of Certain Beneficial Owners and Management” and “— Compensation of Directors and Executive Officers” beginning on Page     .

The three directors of Keystone who are expected to serve on the River Financial board are:

Gerald Ray Smith, Jr.

W. Murray Neighbors

John A. Freeman

In addition, each of the current directors of Keystone Bank and River Bank & Trust will become directors of River Bank & Trust followingwill not change from immediately prior to the bank merger, except that Robbin Thompson, or such other designee selected by Trinity and reasonably acceptable to River Financial, shall be added as a director of River Bank & Trust as of the effective date of the bank merger.

Biographical and other information respecting these persons is located at “Information About Keystone — Trinity—Directors and Executive Officers” and “—Security Ownership of Certain Beneficial Owners and Management.”

Pursuant to the merger, Larry Puckett, Jimmy Stubbs and Ken Givens will continue as chairman of the board, chief executive officer, and executive vice president and chief financial officer, respectively, of River Financial and River Bank & Trust. Murray Neighbors, Ray Smith, and Boles Pegues currently with Keystone, will serve as vice chairman of the board, president, and executive vice president, respectively, of River Bank & Trust, and Murray Neighbors and Ray Smith will serve a vice chairman of the board and president, respectively, of River Financial.

Index to Financial Statements

The bylaws of River Financial will be amended effectiveManagement” at the merger to provide that, for a period of four years following the merger, (i) board approval of certain transactions will require the affirmative vote of a minimum of 65 percent of the members of the board and (ii) if a vacancy occurs on the board, the vacancy will be filled by either the remaining River Financial or the remaining Keystone directors depending upon whether the board seat was held by a River Financial or Keystone director. See “Description of River Financial Common Stock — Bylaw Amendments Effective at the Merger.”page [    ].

Employment Arrangements and Change in Control Agreements

During negotiations of the proposed merger, representatives of River Financial and KeystoneTrinity discussed certain executive officers of KeystoneTrinity remaining with the combined company in order to enhance the value of the proposed transaction. Ray SmithRobbin Thompson, Joe Sanders, and Boles PeguesLori Nelson agreed to term sheets with River Financial, contingent on the completion of the merger, to continue their employment with River Financial following completion of the merger and to assist with the integration of KeystoneTrinity with River Financial.

Pursuant to these term sheets, Ray SmithRobbin Thompson, who will assume the position of President for the Wiregrass Region, will receive an annual base salary of $225,000,$162,450, a merger integration payment of $225,000 atparticipation in the closing of the merger,River Bank & Trust Relationship Manager annual bonus plan, options on 32,0005,000 shares of River Financial common stock, a monthly car allowance of $350, and other benefits under River Financial’s benefit plans. Joe Sanders, who will assume the position of Senior Vice President for the Wiregrass Region, will receive an annual base salary of $120,000, a participation in the River Bank & Trust Relationship Manager annual bonus plan, options on 2,500 shares of River Financial common stock and other benefits under River Financial’s benefit plans. Boles PeguesLori Nelson will receive an annual base salary of $155,000,$63,250, a merger integration payment of $155,000 atparticipation in the closing of the merger,River Bank & Trust Relationship Manager annual bonus plan, options on 15,0001,000 shares of River Financial common stock and other benefits under River Financial’s benefit plans. The term sheets also provide that River Financial will assume Mr. Smith’sprovide Messrs. Thompson and Mr. Pegues’ Supplemental Executive Retirement Plans and Split-Dollar Life Insurance Agreements and that River Financial will pay any excise or similar taxes assessed on Mr. Smith or Mr. Pegues asSanders a resultonetime increase in annual salary equal to the annual amount of country club dues currently in effect at the date of the payment of any and allclose of the foregoing compensation.proposed transaction and membership in the Officer Loan Committee.

In addition, Mr. Smith and Mr. PeguesThompson will receiveenter into a change in control agreements fromagreement with River Financial and upon execution of the change in control agreements, Mr. Smith and Mr. Pegues each agree to waive their rights under their employment agreements with Keystone. EachFinancial. The change in control agreement defines a “change in control” as (a) a change in control as defined by River Financial’s primary federal bank regulator; (b) a merger or business combination or contested election wherenon-employee directors cease to be a majority of directors; (c) a transfer of all or substantially all of the assets of River Financial to another entity which is not an affiliate of River Financial; (d) a merger of River Financial with another corporation or entity and less than 60% of the equity interest in the surviving corporation is owned by former

shareholders of River Financial; or (e) a sale by River Financial or transfer of more than 50% of its equity interest to persons not affiliated with River Financial. Upon a change in control, Mr. SmithThompson shall receive a lump sum cash payment equal to 2.991.5 times the base amount of Mr. Smith’sThompson’s compensation and 1.5 times the applicable contributions by River Bank for the annual premium for group life, long-term disability and health insurance benefits if employment is terminated within threetwo years after a change in control, Mr. Smith will continue to receive health and insurance benefits for 36 months.control. If Mr. Smith Thompson is terminated for cause as(as defined in the agreement,agreement) or resigns for anything other than Good Reason (as defined in the agreement) prior to a change in control, no compensation or benefits shall be paid. Mr. Pegues’ change in control agreement will provide that if within two years after a change in control, Mr. Pegues resigns for good reason or is terminated other than for cause, Mr. Pegues will receive insurance and health benefits for 18 months plus a lump sum cash payment equal to 1.5 times Mr. Pegues’ base amount of compensation. If Mr. Pegues is terminated for cause (as defined in the agreement), no compensation or benefits will be paid. A resignation for “good reason”“Good Reason” generally means a material diminution of employee’s authority, duties, salary or relocation of employee’s principal place of business. The agreementsagreement also provideprovides for payment of certain excise taxes or penalties, if applicable.

On April 28, 2015, Keystone Bank provided John Gittings with written notice that it was no longer extending the term of his employment agreement. As a result, and pursuant to the terms of his employment agreement, Mr. Gittings is entitled to receive, until April 28, 2017, compensation equal to his previous year’s base salary plus an annual bonus not less than his previous year’s bonus, less any disability payment he may receive after April 28, 2015. Under a term sheet entered into with Mr. Gittings, River Financial will assume the obligation to make the foregoing compensation payments. In addition, River Financial has agreed to assume Mr. Gittings’ Supplemental Executive Retirement Plan and Split-Dollar Life Insurance Agreement.

Index to Financial Statements

Keystone Options and Warrants

Keystone stock options and warrants held by Keystone officers, directors and others outstanding at the time of the merger will be converted into options and warrants to acquire River Financial common stock.

Keystone Options

The following table lists those who hold Keystone options and the number of shares of River Financial options to be received by such persons.

Name

  Keystone
Shares
Subject to
Options		   River
Financial
Shares to be
received(1)		   Exercise
Price(2)		 

Gerald Ray Smith, Jr.

   25,000     31,250    $8.00  

Rob Steen

   1,000     1,250    $8.00  

Jeffrey D. Allen

   5,000     6,250    $8.00  

Marty Freeman

   3,500     4,375    $8.00  

James Frank Bevis

   2,500     3,125    $8.40  

John E. Britton, Jr.

   2,500     3,125    $8.40  

(1)One share of Keystone subject to options will be converted into an option to acquire 1.25 shares of River Financial. This table does not reflect River Financial options to be granted to Mr. Smith or Mr. Pegues as part of their employment arrangements with River Financial described above.
(2)The exercise price of Messrs. Smith, Steen, Allen and Freeman’s Keystone options is $10.00 per share and the exercise price of Messrs. Bevis and Britton’s Keystone options is $10.50 per share. The exercise price of River Financial options will be the exercise price for each share of Keystone common stock subject to such Keystone options divided by 1.25 or $8.00 and $8.40 per share, respectively.

Keystone Warrants

The following table lists the directors of Keystone who hold warrants to acquire shares of Keystone common stock and the number of shares of River Financial common stock to be received by such persons.

Name

  Keystone
Shares
Subject to
Warrants		   River
Financial
Shares to
Subject to
Warrants(1)		   Exercise
Price(2)		 

John F. Gittings

   25,000     31,250    $8.00  

J. Mark Traylor

   5,000     6.250    $8.00  

Boles B. Pegues, III

   23,800     29,750    $8.00  

(1)One share of Keystone common stock will be converted into 1.25 shares of River Financial subject to River Financial warrants.
(2)The exercise price of Keystone warrants is $10.00 per share. The exercise price of River Financial warrants will be the exercise price for each share of Keystone common stock subject to such Keystone warrants divided by 1.25 or $8.00 per share.

Indemnification of Directors and Officers; Insurance.Insurance

The merger agreement provides that following the closing date of the merger River Financial will indemnify any current or former officer or director of KeystoneTrinity or KeystoneTrinity Bank against liabilities arising out of the fact that such person is or was an officer, director or employee of KeystoneTrinity or KeystoneTrinity Bank. All rights of such persons to indemnification under Keystone’sTrinity’s or KeystoneTrinity Bank’s articles and bylaws shall survive the merger and continue in full force and effect. River Financial also will provide six years of “tail” directors’ and officers’ liability insurance policy coverage for those persons serving as directors

Index to Financial Statements

or officers of KeystoneTrinity or KeystoneTrinity Bank immediately prior to the merger under River Financial’s existing directors’ and officers’ liability insurance policy.merger. See “The Merger Agreement — Agreement—Directors’ and Officers’ Insurance and Indemnification.” The indemnification applies to acts or omissions occurring at, prior to or after the closing date of the merger. See “Description of River Financial Corporation Common Stock—Indemnification of Directors and Officers.”

Dissenters’ Appraisal Rights in the Merger

If the merger is consummated, holders of record of both Keystone common stock and River FinancialTrinity common stock who follow the procedures specified by Article 13 of the Alabama Business Corporation Law (“ABCL”)ABCL will be entitled to a determination and payment in cash of the “fair value” of their stock (as determined immediately before the effective time of the merger), excluding any appreciation or depreciation resulting from the anticipation of the merger, unless such exclusion would be inequitable, but including interest from the effective date of the merger until the date of payment. Shareholders who elect to follow these procedures are referred to as dissenting shareholders.

A vote in favor of the merger agreement by a holder of KeystoneTrinity common stock or a holder of River Financial common stock will result in a waiver of such shareholder’s right to demand payment for his or her shares.

The following summary of the provisions of Article 13 of the ABCL is not intended to be a complete statement of such provisions, the full text of which is attached as Annex DC to this proxy statement / prospectus, and is qualified in its entirety by reference thereto.

A holder of KeystoneTrinity common stock electing to exercise dissenters’ rights (1) must deliver to KeystoneTrinity at 2394 E. University Drive, Auburn,1479 W. Main Street, Dothan, Alabama 3683036305, Attention: Ray Smith,Robbin Thompson, before the vote at the Keystone special meeting, written notice of his or her intent to demand payment for his or her shares if the merger is effectuated, and (2) must not vote in favor of the merger agreement. Similarly, a holder of River Financial common stock electing to exercise dissenters’ rights (1) must deliver to River Financial at P.O. Box 680249, Prattville, Alabama 36068, Attention: Becky Hallman, before the vote at the River Financial specialTrinity meeting, written notice of his or her intent to demand payment for his or her shares if the merger is effectuated, and (2) must not vote in favor of the merger agreement. The requirement of this written notice is in addition to and separate from the requirement that such shares not be voted in favor of the merger agreement, and the requirement of written notice is not satisfied by voting against the merger agreement either in person or by proxy. The requirement that shares not be voted in favor of the merger agreement will be satisfied if no proxy is returned and the shares are not voted in person. Because a properly executed and delivered proxy which is left blank will, unless revoked, be voted “FOR” approval of the merger agreement, in order to be assured that his, her or its shares are not voted in favor of the merger agreement, the dissenting shareholders who vote by proxy must not leave the proxy blank but must (1) vote “AGAINST” the approval of the merger agreement or (2)

affirmatively “ABSTAIN” from voting. Neither a vote against approval of the merger agreement nor an abstention will satisfy the requirement that a written notice of intent to demand payment be delivered to KeystoneTrinity or River Financial, as appropriate, before the vote on the merger agreement.

A record shareholder may assert dissenters’ rights as to fewer than all of the shares registered in his or her name only if he or she dissents with respect to all shares beneficially owned by any one person and notifies Keystone or River Financial, as appropriate,Trinity in writing of the name and address of each person on whose behalf he or she asserts dissenters’ rights. A beneficial shareholder may assert dissenters’ rights as to shares held on his or her behalf only if he or she submits to Keystone or River Financial, as appropriate,Trinity the record shareholder’s written consent to the dissent prior to or contemporaneously with such assertion and he or she does so with respect to all shares of which he, she or it is the beneficial shareholder or over which he, she or it has the power to vote.Where no number of shares is expressly mentioned, the notice of intent to demand payment will be presumed to cover all shares held in the name of the record holder.

No later than ten days after the merger, River Financial, as the continuing corporation of the merger, will send a written dissenters’ notice to each dissenting shareholder of either Keystone or River FinancialTrinity who did not

Index to Financial Statements

vote in favor of the merger and who duly filed a written notice of intent to demand payment in accordance with the foregoing.foregoing procedures. The dissenters’ notice will specify, among other things, the deadline by which time River Financial must receive a payment demand from such dissenting shareholders and will include a form for demanding payment. The deadline will be no fewer than 30 days and no more than 60 days after the date the dissenters’ notice is delivered.It is the obligation of any dissenting shareholder to initiate all necessary action to perfect his or her dissenters’rights within the time periods prescribed in Article 13 of the ABCL and the dissenters’ notice. If no payment demand is timely received from a dissenting shareholder, all dissenters’ rights of said dissenting shareholder will be lost, notwithstanding any previously submitted written notice of intent to demand payment.Each dissenting shareholder who demands payment retains all other rights of a shareholder unless and until those rights are cancelled or modified by the merger. A dissenting shareholder who demands payment in accordance with the foregoing may not thereafter withdraw that demand and accept the terms offered under the merger agreement unless River Financial consents thereto.

Within 20 days of a formal payment demand, a dissenting shareholder who has made a demand must submit his or her share certificate or certificates to River Financial so that a notation to that effect may be placed on such certificate or certificates and the shares may be returned to the dissenting shareholder with the notation thereon.A shareholder’s failure to submit shares for notation will, at River Financial’s option, terminate the holder’s rights as a dissenter, unless a court of competent jurisdiction determines otherwise.

Promptly after the merger, or upon receipt of a payment demand, River Financial shall offer to pay each dissenting shareholder who complied with Article 13 of the ABCL the amount River Financial estimates to be the fair value of such dissenting shareholder’s shares plus accrued interest. Each dissenting shareholder who agrees to accept the offer of payment in full satisfaction of his or her demand must surrender to River Financial the certificate or certificates representing his or her shares in accordance with the terms of the dissenters’ notice. Upon receiving the certificate or certificates, River Financial will pay each dissenting shareholder the fair value of his or her shares, plus accrued interest. Upon receiving payment, each dissenting shareholder ceases to have any interest in the shares.

Each dissenting shareholder who has made a payment demand may notify River Financial in writing of his or her own estimate of the fair value of his or her shares and the amount of interest due, and demand payment of his or her estimate, or reject the offer made to such shareholder as described above and demand payment of the fair value of his or her shares and interest due, if: (1) the dissenting shareholder believes that the amount offered is less than the fair value of the shares or that the interest due is incorrectly calculated; or (2) River Financial fails to make an offer as required by Article 13 of the ABCL within 60 days after the date set for demanding payment; provided, however, that a dissenting shareholder waives the right to demand payment different from that offered unless he or she notifies River Financial of his or her demand in writing within 30 days after River Financial offered payment for the shares.

If a demand for payment remains unsettled, River Financial will commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the proceeding is not commenced within the60-day period, each dissenting shareholder whose demand remains unsettled shall be entitled to receive the amount demanded. Such a proceeding will be filed in the Circuit Court of AutaugaElmore County, Alabama. Each dissenting shareholder made a party to the proceeding is entitled to judgment for the amount the court finds to be the fair value of the shares, plus accrued interest. The court’s finding may set a value above or below the value the shareholder believes is appropriate. Upon payment of the judgment and surrender to River Financial of the certificate or certificates representing the judicially appraised shares, a dissenting shareholder will cease to have any interest in the shares. The Court may assess costs incurred in such a proceeding against River Financial or may assess the costs against all or some of the dissenting shareholders, in amounts the court finds equitable, to the extent the Court finds that such dissenting shareholders acted arbitrarily, vexatiously or not in good faith in demanding payment different from that initially offered by River Financial. The Court may also assess the reasonable fees and expenses of counsel and experts against River Financial, if the Court finds that it did not substantially comply with its requirements regarding providing notice of dissenters’ rights and the procedures associated therewith under Article 13 of the ABCL or

Index to Financial Statements

against either River Financial or all or some of the dissenting shareholders if the Court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided in Article 13 of the ABCL. If the Court finds that services of counsel for any dissenter were of substantial benefit to other similarly situated dissenters, and that fees for such services should not be assessed against River Financial, then the Court may award reasonable fees to such counsel that will be paid out of the amounts awarded to dissenters who benefited from such services.

Accounting Treatment of the Merger

River Financial will account for the merger using the acquisition method of accounting. The assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of KeystoneTrinity will be recorded, as of completion of the merger, at their respective fair values and added to those of River Financial. Any excess of the purchase price over fair values will be recorded as goodwill. Consolidated financial statements and reported results of operations of River Financial issued after completion of the merger will reflect these values but will not be restated retroactively to reflect the historical financial position or results of operations of Keystone.Trinity.

Regulatory Approvals

Completion of the merger is subject to prior receipt of all approvals and consents required to be obtained from applicable governmental and regulatory authorities. River Financial and KeystoneTrinity also have agreed to cooperate and use all reasonable best efforts to prepare as promptly as possible all documentation, to make all requisite regulatory filings and to obtain any necessary permits, consents, approvals or authorizations of governmental entities necessary to consummate the transactions contemplated by the merger agreement as soon as practicable.

There can be no assurance that regulatory approvals will be obtained, that such approvals will be received on a timely basis, or that such approvals will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of River Financial following completion of the merger. The merger is conditioned upon the receipt of all consents, approvals and actions of governmental authorities and the filing of all other notices with such authorities in respect to the merger. See “The Merger Agreement—Conditions to the Completion of the Merger” on page     .

Federal Reserve Approval. The merger is subject to the prior approval of the Federal Reserve under Section 3(a)(5) of the Bank Holding Company Act of 1956, as amended, and related federal regulations, and River Financial and KeystoneTrinity must wait at least 15 days after the date of such approval before they may complete

the merger. In reviewing the transactions under the applicable statutes and regulations, the Federal Reserve will consider, among other factors, the competitive impact of the merger. The Federal Reserve also will consider the financial and managerial resources of the companies and their subsidiary banks and the convenience and needs of the communities to be served as well as the companies’ effectiveness in combating money-laundering activities. Furthermore, the Federal Reserve will take into consideration the extent to which the proposed acquisition would result in greater or more concentrated risks to the stability of the United States banking or financial system. In connection with its review, the Federal Reserve will provide an opportunity for public comment on the application for the merger and is authorized to hold a public meeting or other proceeding if it determines that would be appropriate.

Under the Community Reinvestment Act of 1977, the Federal Reserve must take into account the record of performance of each of River Financial and KeystoneTrinity in meeting the credit needs of the entire communities, includinglow- and moderate-income neighborhoods, served by the companies and their subsidiaries. As of their last respective examinations, River Bank & Trust was rated “satisfactory” and KeystoneTrinity Bank was rated “satisfactory.” Applications or notifications may also be required to be filed with various other regulatory authorities in connection with the merger.

Index to Financial Statements

The Federal Reserve may waive its formal application requirement in lieu of the FDIC and ASBD approvals outlined below and require only a notice filing, and River Financial will seekhas sought such waiver.

FDIC. Immediately following the merger, River Financial intends to merge KeystoneTrinity Bank with and into River Bank & Trust, with River Bank & Trust as the continuing bank. Consummation of the bank subsidiary merger is subject to receipt of the approval of the FDIC under the Bank Merger Act. Application for approval of the bank merger will be subject to a30-day public notice and comment period, as well as review and approval by the FDIC. In evaluating an application filed under the Bank Merger Act, the FDIC generally considers the financial and managerial resources of the banks, the convenience and needs of the community to be served, the banks’ effectiveness in combating money-laundering activities as well as the import of the transaction on financial stability similar to the review that the Federal Reserve would give as outlined above. In connection with its review, the FDIC and ASBD will provide an opportunity for public comment on the application for the bank merger, and is authorized to hold a public meeting or other proceeding if they determine that would be appropriate.

State Bank Regulatory Approvals. Under Alabama state law, River Financial must file an application with the Alabama Banking Department for approval of the bank merger. River Financial must also provide the Alabama Banking Department with notice of the proposed merger of River Financial with Keystone,Trinity, as well as a copy of the application filed with the FDIC under the Bank Merger Act. Among other things, the Alabama State Banking Department will consider the financial strength, including capital, of River Bank & Trust following the merger.

River Financial and KeystoneTrinity are not aware of any governmental approvals or compliance with banking laws and regulations that are required for the merger to become effective other than those described above. River Financial and KeystoneTrinity intend to seek any other approval and to take any other action that may be required to complete the merger. There can be no assurance that any required approval or action can be obtained or taken prior to the meeting.

If the approval of the merger by any of the authorities mentioned above is subject to compliance with any conditions, there can be no assurance that the parties or their subsidiaries will be able to comply with such conditions or that compliance ornon-compliance will not have adverse consequences for the combined company after consummation of the merger. The parties believe that the proposed merger is compatible with such regulatory requirements.

Third-Party Approvals. The merger is conditioned upon the receipt of all consents and approvals of third parties with respect to specified agreements, unless the failure to obtain any such consent or approval would not

reasonably be expected to have a material adverse effect on River Financial or Keystone.Trinity. Pursuant to the merger agreement, River Financial and KeystoneTrinity have agreed to use their reasonable best efforts to obtain all consents, approvals and waivers from third parties necessary in connection with the completion of the merger.

Restrictions on Resales by Affiliates

The shares of River Financial common stock to be issued to KeystoneTrinity shareholders in the merger have beenare being registered under the Securities Act of 1933, as amended, referred to as the Securities Act. These shares may be traded freely and without restriction by those shareholders not deemed to be “affiliates” of River Financial after the merger as that term is defined under the Securities Act. An affiliate of a corporation, as defined by the rules promulgated under the Securities Act, is a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, that corporation. Affiliates generally include directors, executive officers and beneficial owners of 10% or more of a company’s common stock. Any shareholder deemed to be an affiliate of River Financial may resell shares of River Financial common stock issued in the merger only in transactions permitted by Rule 144 and Rule 145 promulgated under the Securities Act or as otherwise permitted under the Securities Act. These restrictions are expected to apply to the KeystoneTrinity directors who become directors of River Financial and specified executive officers of KeystoneTrinity who become executive officers of River Financial, as well as to other related individuals or entities.

Index to Financial Statements

THE MERGER AGREEMENT

The following is a summary of the material provisions of the merger agreement. This description does not purport to be complete and is qualified in its entirety by reference to the agreement and plan of merger, a copy of which is attached as Annex A to this proxy statement / prospectus and incorporated by reference herein. This summary may not contain all of the information about the merger agreement that may be important to you. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

Terms of the Merger

Each of the River Financial board of directors and the KeystoneTrinity board of directors has approved the merger agreement, which provides for the merger of KeystoneTrinity with and into River Financial. River Financial will be the continuing corporation in the merger. The River Financial articles of incorporation and River Financial bylaws as in effect immediately prior to the completion of the merger will be the articles of incorporation and bylaws of the continuing corporation, subject to the bylaw amendments described below at “Bylaw Amendments.”corporation.

For each share of KeystoneTrinity common stock issued immediately prior to the completion of the merger, except for shares of KeystoneTrinity common stock held by KeystoneTrinity in its treasury and shares that may be owned by River Financial (other than in a fiduciary capacity or as a result of debts previously contracted), a KeystoneTrinity shareholder will receive for each share of KeystoneTrinity common stock held of record at the effective date of the merger $4.00$3.50 in cash and 1.0000.44627 of a share of River Financial common stock.

River Financial does not expect any fractional shares and River Financial will not issue fractional shares of River Financial common stock in connection with the merger. Instead, River Financial will make a cash payment without interest to each KeystoneTrinity shareholder who would otherwise have received a fractional share of River Financial common stock. The amount of this cash payment will be determined by multiplying the fraction of a share of River Financial common stock otherwise issuable to such shareholder by $20.00.$27.00.

The merger agreement allows River Financial to change the structure of the merger. No such change may alter the amount or kind of merger consideration to be provided under the merger agreement, materially impede or delay consummation of the merger or cause any of the closing conditions to the merger to not be capable of being fulfilled unless duly waived by the party entitled to the benefits thereof.

Effective Time of the Merger

The merger will be completed following the receipt of all necessary approvals and consents of all governmental entities, the expiration of all statutory waiting periods and the satisfaction or waiver of all other conditions to the merger set forth in the merger agreement, or such later date as the parties mutually agree. See “Conditions to the Completion of the Merger” below. Articles of Merger will be filed in the office of the Alabama Secretary of State as required under the corporation law of Alabama and will establish the effective time of the merger.

Treatment of Keystone Stock Options and Warrants

The merger agreement provides that, upon completion of the merger, each outstanding option or warrant to purchase Keystone common stock granted by Keystone will be assumed by River Financial and each option and warrant shall entitle the holder thereof to acquire 1.25 shares of River Financial common stock at an exercise price equal to the original exercise price divided by 1.25.

Bank Merger

Immediately after the merger, KeystoneTrinity Bank will merge with and into River Bank & Trust, with River Bank & Trust as the continuing bank.

Index to Financial Statements

Bylaw Amendments

Effective at the merger, the bylaws of River Financial will be amended to require a 65 percent vote of the board of directors to approve certain transactions. See “Description of River Financial Common Stock — Bylaw Amendments Effective at the Merger.”

Conversion of Shares; Exchange of Certificates

The conversion of KeystoneTrinity common stock into the right to receive the applicable merger consideration will occur automatically upon completion of the merger. At or promptly after the effective time of the merger,

certificates representing shares of KeystoneTrinity common stock will be exchanged for the merger consideration, without interest, to be received by holders of KeystoneTrinity common stock in the merger pursuant to the terms of the merger agreement.

As soon as reasonably practicable after the completion of the merger, the exchange agent will mail a letter of transmittal to each holder of KeystoneTrinity common stock at the effective time of the merger. This mailing will contain instructions on how to surrender KeystoneTrinity common stock in exchange for the applicable merger consideration.

If a certificate for KeystoneTrinity common stock has been lost, stolen or destroyed, the exchange agent will issue the consideration properly payable under the merger agreement upon receipt of an affidavit of that fact by the claimant and the posting of a bond in such amount as River Financial or the exchange agent determine is reasonably necessary as indemnity.

Each of River Financial and the exchange agent will be entitled to deduct and withhold from the cash payable to any holder of KeystoneTrinity common stock the amounts it is required to deduct and withhold under any federal, state, local or foreign tax law. If River Financial or the exchange agent withholds any amounts, these amounts will be treated for all purposes as having been paid to the shareholders from whom they were withheld.

Dividends and Distributions

Until shares of KeystoneTrinity common stock represented by certificates are properly surrendered for exchange, any dividends or other distributions with a record date on or after the effective time of the merger with respect to River Financial common stock into which shares of KeystoneTrinity common stock have been converted will accrue but will not be paid. River Financial will pay to former KeystoneTrinity shareholders any unpaid dividends or other distributions with respect to River Financial shares, without interest and less any taxes withheld, only after they have duly surrendered their KeystoneTrinity shares to the exchange agent.

Keystone and River Financial have agreed that, prior to the completion of the merger, neither will declare or pay any dividend or distribution on its common stock.

Representations and Warranties

The representations, warranties and covenants described in this and the following section and included in the merger agreement were made only for purposes of the merger agreement and, as of specific dates, are solely for the benefit of River Financial and Keystone,Trinity, may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between River Financial and KeystoneTrinity rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to investors. These descriptions are qualified in their entirety by reference to the merger agreement. You should not rely on the representations, warranties or covenants or any description thereof as characterizations of the actual state of facts or condition of River Financial, KeystoneTrinity or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by River Financial or Trinity. The representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read

Index to Financial Statements

only in conjunction with the information provided elsewhere in this proxy statement / prospectus and in the documents incorporated by reference into this proxy statement / prospectus. See “Where You Can Find More Information” on page     .

River Financial and KeystoneTrinity have made representations and warranties to the other regarding, among other things:

 

corporate matters, including due organization and qualification;

 

authority relative to execution and delivery of the merger agreement and the absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger;

required governmental filings and consents;

 

financial statements and the absence of undisclosed liabilities;

 

legal proceedings;

 

broker’s fees payable in connection with the merger.

 

the accuracy of information supplied for inclusion in this proxy statement / prospectus and other similar documents;

 

the absence of certain changes or events;

 

compliance with applicable laws and permits;

 

matters relating to loans, the allowance for loan losses and other real estate owned;

 

Community Reinvestment Act compliance;

 

employee and employee benefit matters;

 

environmental matters; and

 

intellectual property matters.

None of the parties’ representations and warranties in the merger agreement survive the effective time of the merger.

Certain representations and warranties of River Financial and KeystoneTrinity are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect,” when used in reference to River Financial or Keystone,Trinity, means among other things, a material adverse effect on the business, operations, assets or financial condition of the applicable party and its subsidiaries, taken individually or as a whole. In determining whether a material adverse effect has occurred or would reasonably be expected to occur, River Financial and KeystoneTrinity will disregard any effects resulting from:

 

the acts or omissions of KeystoneTrinity or River Financial or any of their respective subsidiaries taken with the prior written consent of the other party in contemplation of the transactions contemplated by the merger agreement;

 

changes in laws or interpretations thereof that are generally applicable to the banking industry;

 

changes in generally accepted accounting principles; and

 

the merger or compliance with the provisions of the merger agreement.

The representations and warranties of KeystoneTrinity are generally contained in Article 5 of the merger agreement. The representations and warranties of River Financial are generally contained in Article 4 of the merger agreement.

Index to Financial Statements

Covenants and Agreements

KeystoneTrinity and River Financial have undertaken customary covenants that place restrictions on it and its respective subsidiaries until the completion of the merger. KeystoneTrinity and River Financial have agreed not to, and not permit its subsidiaries to, among other things:

 

amend the articles of incorporation, bylaws or other governing instruments;

 

incur any additional debt obligation or other obligation for borrowed money except in the ordinary course of business consistent with past practices;

 

repurchase, redeem, or otherwise acquire any outstanding securities;

declare or pay any dividend or make any other distribution in respect of common stock;stock except, in the case of River Financial, in the ordinary course of business and consistent with past practice;

 

issue, deliver or agree to issue any additional shares of common stock, bonds or other securities;securities other than pursuant to the exercise of options;

 

adjust, split, combine or reclassify any shares of common stock or issue or authorize the issuance of any other securities in respect of or in substitution for shares of common stock, or sell, lease, mortgage or otherwise dispose of or otherwise encumber any asset other than in the ordinary course of business for reasonable and adequate consideration;

 

increase (except for increases consistent with past practices) the compensation, including wages, salary, fees, bonuses, profit sharing, incentive, pension, retirement, severance, of any such person;

 

except in the ordinary course of business, enter into, modify, amend or terminate any contract that would otherwise be considered material under the merger agreement; or

 

agree to, or make any commitment to, take, or adopt any resolutions in support of, any of the actions prohibited by the above.

In addition to the general covenants above, Keystone and River Financial have furtherTrinity has agreed not to withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to the other party,River Financial, the approval of the merger agreement or the recommendation of the board of directors, except as permitted under the merger agreement, principally in the exercise of the Keystone or River Financial boardsTrinity board of directors’ fiduciary duty.

Agreement Not to Solicit Other Offers; Termination Fee

Until the merger is completed or the merger agreement is terminated, Keystone and River Financial eachTrinity has agreed that it, its subsidiaries, its officers and its directors will not:

 

initiate, solicit, or encourage any inquiries or the making of any acquisition proposal;

 

enter into or continue any discussions or negotiations regarding any acquisition proposals; or

 

agree to or endorse any other acquisition proposal.

Each of Keystone and River FinancialTrinity may, however, furnish information regarding itself to, or enter into and engage in discussions with, any person or entity in response to an unsolicitedbona fide written acquisition proposal by the person or entity, if its board of directors determines in good faith, after consultation with its outside legal counsel, and financial advisors, that failing to do so may cause the board to breach its fiduciary duty. In general, an “acquisition proposal” is a tender offer for at least 20 percent of Keystone’sTrinity’s shares, or River Financial’s shares, as applicable, or a merger or other business combination proposal seeking to acquire Keystone or River Financial, as applicable.Trinity.

If eitherthe board of directors determines, after consultation with its financial advisor and legal counsel, that another acquisition proposal is superior to the merger because it is more favorable to its shareholders from a financial point of view than the proposed merger, and is reasonably likely to be completed on the proposed terms

Index to Financial Statements

on a timely basis, then it may terminate the merger agreement, subject: (i) in the case of termination bysubject to River Financial, to Keystone’sFinancial’s right, for a period of 10 business days after receipt of notice of the superior proposal from River Financial, to make adjustments in the terms and condition so the merger agreement so that any such acquisition proposal ceases to constitute a superior proposal and (ii) in the case of termination by Keystone, to River Financial’s right, for a period of 5 business days after receipt of notice of the superior proposal from Keystone,Trinity, to make adjustments in the terms and conditions of the merger agreement so that any such acquisition proposal ceases to constitute a superior proposal. If River Financial or Keystone, as applicable, does not sufficiently adjust the terms and conditions of the merger agreement, the other partyTrinity will be at liberty to accept the superior proposal. In general, a “superior proposal” is an unsolicited, bona fide offer to acquire Keystone, or River Financial, as applicable,Trinity where the applicable board of directors concludes, after consideration with legal and financial advisers, that the offer would be more favorable to shareholders than the merger. If either Keystone or River FinancialTrinity terminates the merger agreement under the foregoing circumstances, the terminating partyit will pay to the otherRiver Financial a termination fee of $300,000.$810,000.

Voting Agreements

In connection with the merger agreement, the KeystoneTrinity directors have entered into a support agreement with River Financial pursuant to which each KeystoneTrinity director has agreed, in his capacity as a shareholder of Keystone,Trinity, to vote his shares of KeystoneTrinity common stock in favor of the merger at the KeystoneTrinity shareholder meeting. The complete support agreement is included at Exhibit B to the Agreement and Plan of Merger at Annex A to this proxy statement / prospectus.

In connection with the merger agreement, the River Financial directors have also entered into a support agreement with Keystone pursuant to which each River Financial director has agreed, in his capacity as a shareholder of River Financial, to vote his shares of River Financial common stock in favor of the merger at the River Financial shareholder meeting. The complete support agreement is included at Exhibit C to the Agreement and Plan of Merger at Annex A to this proxy statement / prospectus.

Board Recommendations

Except to the extent as it would cause the directors of either Keystone’s or River Financial’sTrinity’s board of directors to breach their fiduciary duties under applicable law (as determined after consultation with legal counsel), each of the Keystone and River FinancialTrinity board of directors:

 

shall not withdraw, modify or qualify in any manner adverse to the other partyRiver Financial the approval of the merger agreement and/or its recommendation to shareholders of the approval of the merger agreement, or take any action or make any statement in connection with the special meeting inconsistent with such approval or its recommendation to its respective shareholders (collectively, a “change in recommendation”);

 

shall not make a change in recommendation unless such board of directors agrees to a “superior proposal” as outlined above; and

 

shall submit the merger agreement to its respective shareholders of such board of directors for a vote notwithstanding a change in recommendation.

Reasonable Best Efforts

River Financial and KeystoneTrinity have agreed to use commercially reasonable best efforts to take all actions that are necessary, proper or advisable under the merger agreement and applicable laws to consummate and make effective the merger and the other transactions contemplated by the merger agreement as promptly as practicable. River Financial and KeystoneTrinity have also agreed to cooperate and use all commercially reasonable best efforts to prepare as promptly as possible all documentation, to make all requisite regulatory filings and to obtain any necessary

Index to Financial Statements

permits, consents, approvals or authorizations of governmental entities necessary to consummate the transactions contemplated by the merger agreement as soon as practicable, except that neither River Financial nor KeystoneTrinity is required to take any such action if such action is reasonably likely to result in a material adverse effect.

Employee Matters

River Financial has agreed that all employees of Trinity Bank at the effective time of the merger will be retained as employees of River Bank & Trust for at least nine months following the effective date of the merger, at their same rate of pay. Any former Trinity employee not retained after the nine-month period will be entitled to a severance payment equal to 120 days’ rate of pay. Employees of KeystoneTrinity and its subsidiaries immediately prior to the effective time of the merger who become employees of River Financial or its subsidiaries will be covered by the River Financial employee benefit plans on substantially the same basis as the other employees of River Financial and its subsidiaries performing services in a comparable position. River Financial will recognize employees’ service with KeystoneTrinity Bank as service with River Financial or River Bank & Trust, as applicable, for purposes of eligibility to participate and vesting under the benefit plans, policies or arrangements, subject to applicable break-in-service rules.law.

Directors’ and Officers’ Insurance and Indemnification

The merger agreement provides that River Financial will indemnify any current or former officer or director of KeystoneTrinity or KeystoneTrinity Bank against liabilities arising out of the fact that such person is or was an officer, director or employee of KeystoneTrinity or KeystoneTrinity Bank or, in the case of current officers and directors, arising out of the merger

agreement or any transaction contemplated by the merger agreement. All rights of such persons to indemnification under Keystone’sTrinity’s or KeystoneTrinity Bank’s articles and bylaws shall survive the merger and continue in full force and effect.

River Financial also will provide six years of “tail” directors, and officers’ liability insurance policy coverage for those persons serving as directors or officers of KeystoneTrinity or KeystoneTrinity Bank immediately prior to the merger under River Financial’s existing directors’ and officers’ liability insurance policy.merger.

Conditions to the Completion of the Merger

River Financial’s and Keystone’sTrinity’s respective obligations to complete the merger are subject, but not limited, to the fulfillment or, in certain cases, waiver of the following conditions:

 

The requisite shareholder approval of Keystone and River FinancialTrinity shall have been obtained.

 

All consents of, filings and registrations with, and notifications to, all regulatory authorities required for consummation of the merger shall have been obtained or made and shall be in full force and effect and all waiting periods required by law shall have expired. No consent obtained from any regulatory authority that is necessary to consummate the transactions contemplated by the merger agreement shall be conditioned or restricted in a manner which in the reasonable judgment of the board of directors of either party would so materially adversely impact the economic or business benefits of the transactions contemplated by the merger agreement that, had such condition or requirement been known, such party would not, in its reasonable judgment, have entered into the merger agreement.

 

No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law or order (whether temporary, preliminary or permanent) or taken any other action that prohibits, restricts or makes illegal consummation of the transactions contemplated by the merger agreement.

 

The FormS-4 Registration Statement registering the shares of River Financial common stock to be issued to KeystoneTrinity shareholders shall have become effective under the Securities Act of 1933 and shall not be the subject of any stop order suspending the effectiveness of the FormS-4 nor shall proceedings for that purpose have been threatened.

 

The representations and warranties of KeystoneTrinity and River Financial must be true and correct in all material respectrespects as of the effective date of the merger.

 

All other agreements and covenants of KeystoneTrinity and River Financial mustthat are required to be fulfilled.

Index to Financial Statements
The shareholders of River Financial must have approved the increase in authorized shares and the setting of the number of directors at seven.

 

The number of Keystone or River Financial shareholders exercising dissenters’ rights of appraisal does not exceed 5 percent of the outstanding shares of common stock of either Keystone or River Financial.
•

The number of Trinity shareholders exercising dissenters’ rights of appraisal does not exceed 5 percent of the outstanding shares of common stock of Trinity.

 

Keystone and River Financial

Trinity shall each receive an opinion from their respectiveits legal advisorscounsel substantially to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code.

We cannot provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this proxy statement / prospectus, we have no reason to believe that any of these conditions will not be satisfied.

Amendment, Waiver and Termination of the Merger Agreement

Subject to applicable law, the parties may amend the merger agreement by written agreement if so authorized by their respective boards of directors. However, after any approval of the transactions contemplated by the merger agreement by holders of Keystone common stock and River FinancialTrinity common stock, there may not be, without further shareholder approval, any amendment of the merger agreement that requires such further shareholder approval under applicable law. Either party to the merger agreement may, subject to applicable law, extend the time for

performance of any obligation of the other party, waive any inaccuracies in the representations and warranties of the other party, or may waive compliance by the other party with any of the other agreements or conditions contained in the merger agreement.

Subject to certain limitations, the merger agreement may be terminated at any time prior to the closing date of the merger, if certain conditions are not satisfied or if certain events occur, whether before or after approval of the merger agreement by River Financial’s and/or Keystone’sTrinity’s shareholders:

 

by mutual written consent of River Financial and Keystone;Trinity;

 

by

by:

River Financial or Keystone if:

Trinity if the closing date of the merger shall not have occurred on or prior to March 31, 2016;2020;

 

River Financial or Trinity if there has been a material breach by the other party of (1) any covenant or undertaking in the merger agreement or (2) any representation or warranty of the other party contained in the merger agreement, where such breach cannot be or has not been cured within 30 days following delivery of written notice of the breach;

 

River Financial or Trinity if the merger is not approved by Trinity’s shareholders;

River Financial or Trinity if conditions to completion of the merger are not satisfied;

Trinity prior to a party’sTrinity’s shareholders meeting such party’sif its board of directors authorizes such partyTrinity to enter into a binding agreement respecting a superior proposal;

 

the other party’s board of directors withdraws or qualifies the recommendation in this proxy statement / prospectus that its shareholders vote to adopt and approve the merger agreement, or resolves to do either of the foregoing; or

the other partyRiver Financial if Trinity approves or recommends, or publicly proposes to approve or recommend, a superior proposal by a third party, a change in recommendation or a tender offer for more than 20% of its company’sTrinity’s outstanding stock.

With respect to a termination relating to a superior proposal, a change in recommendation or a tender offer, a partyTrinity may owe a $300,000an $810,000 termination fee to the other party.River Financial. See “Agreement Not to Solicit Other Offers; Termination Fee.”

IndexELECTION OF DIRECTORS

At the meeting, the Trinity shareholders will be asked to Financial Statements

elect Dr. Henry H. Barnard, II, Bill Brent Beasley, Terry D. Duffie, James Etheredge, Dr. William D. McLaughlin, Brian R. McLeod, John Mitchell, E. Carey Slay, Jr, Joe Paul Stewart, and J. Robbin Thompson as directors provided that, if the merger is consummated, the terms will end pursuant to the merger agreement. If the merger is not consummated, each director will serve aone-year term. Under Alabama law, the election of directors requires a majority vote of the common stock present in person or represented by proxy and entitled to vote at the meeting. Consequently, any shares not voted “FOR” a particular nominee (whether as a result of an abstention, a direction to withhold authority or abroker non-vote) will not be counted in the nominee’s favor.

Unless authority is withheld or the shares are subject to abroker non-vote, the proxies solicited by the board of directors will be voted “FOR” the election of these nominees. In case any of the nominees becomes unavailable for election to the board of directors, an event that is not anticipated, the persons named as proxies, or their substitutes, will have full discretion and authority to vote or refrain from voting for any other candidate in accordance with their judgment.

The board of directors of Trinity recommends to its shareholders that the shareholders of Trinity vote “FOR” the proposal to elect Dr. Henry H. Barnard, II, Bill Brent Beasley, Terry D. Duffie, James Etheredge, Dr. William D. McLaughlin, Brian R. McLeod, John Mitchell, E. Carey Slay, Jr, Joe Paul Stewart, and J. Robbin Thompson as directors of Trinity to serve aone-year term (provided that, if the merger referred to in proposal 1 is consummated, the terms will end pursuant to the merger agreement). This proposal is #2 on the Trinity proxy card.

Information about Directors and Executive Officers

For more information about the directors and executive officers,seeINFORMATION ABOUT TRINITY—Directors and Executive Officers.

ADJOURNMENT OF THE SPECIAL MEETINGSANNUAL MEETING

In the event that there are not sufficient votes to constitute a quorum or to approve the merger agreement at the time of either the Keystone or River Financial specialTrinity meeting, the special meeting may be adjourned to a later date or dates in order to permit further solicitation of proxies. In order to allow proxies that have been received by Keystone or River FinancialTrinity at the time of the special meeting to be voted for an adjournment, if necessary, the shareholders of each of Keystone and River FinancialTrinity are asked to approve a proposal to adjourn the special meeting, if necessary, to solicit additional proxies to approve the merger agreement. The board of directors of each of Keystone and River FinancialTrinity recommends to its respective shareholders that its shareholders vote “FOR” the adjournment proposal. If it is necessary to adjourn the special meeting, no notice of the adjourned special meeting is required to be given to shareholders (unless the adjournment is for more than 120 days after the date fixed for the original meeting), other than an announcement at the special meeting of the hour, date and place to which the special meeting is adjourned.

The board of directors of Keystone and River Financial eachTrinity recommends to its respective shareholders that the shareholders of Keystone and River Financial, respectively,Trinity vote “FOR” the approval to adjourn the special meeting. This proposal is #2 on the Keystone proxy card and #5 on the River Financial proxy card.

Index to Financial Statements

APPROVAL TO INCREASE THE NUMBER OF

RIVER FINANCIAL AUTHORIZED SHARES

General

If you are a shareholder of River Financial, River Financial’s board of directors is seeking your approval of an amendment to the articles of incorporation of River Financial to increase the authorized number of shares of common stock from the present 5,000,000 shares to 10,000,000. The purpose of the amendment is two-fold: (1) primarily to provide sufficient shares of River Financial common stock to be issuedmeeting in the mergerevent of Keystone and River Financial and (2) secondarilyinsufficient votes to preserve River Financial’s flexibility to issue additional shares of common stock for various business needs, as they arise. The amendment requires the approval of the holders of a majority of River Financial’s outstanding common stock.

If the amendment is approved by River Financial’s shareholders, it will become effective upon the filing of articles of amendment with the Alabama Secretary of State, which we expect would occur shortly after shareholder approval of the amendment and prior toapprove the merger with Keystone.

Purpose of the Proposed Amendment

River Financial’s articles of incorporation currently authorize River Financial to issue up to 5,000,000 shares of common stock, $1.00 par value, without further authorization from shareholders. As of March 31, 2015, there were 2,993,137 shares of River Financial common stock issued and outstanding. An additional 380,000 shares are subject to issue under outstanding stock options and warrants of River Financial. An additional 82,100 shares are available for issue under River Financial’s 2006 stock option plan. Thus, River Financial has 1,544,763 shares available to be issued. Under the terms of the merger agreement with Keystone, River Financial will be required to issue up to 1,883,292 shares of common stock in the merger assuming all shares under Keystone stock options and warrants are exercised prior to the merger. In addition, 32,000 shares and 15,000 shares will be made subject to options for Ray Smith and Boles Pegues, respectively effective at the merger, and 40,000 shares and 15,000 shares subject to options for Jimmy Stubbs and Ken Givens, respectively, at the merger. Thus, additional shares of common stock will be needed for purposes of the merger. The amendment, if approved, would allow up to 4,559,471 shares of River Financial common stock to be issued following the merger without further shareholder approval. The board of directors of River Financial recommends approval of the amendment.

The River Financial board also believes it is in the best interest of River Financial and its shareholders to increase the number of authorized shares of common stock so as to have sufficient authorized, but unissued and unreserved, shares available for issuance to meet valid business needs as they arise. Those business needs may include future stock dividends or splits, equity financings, acquisitions, adopting new or modifying current employee benefit plans, and other proper corporate purposes identified by the board in the future.

The board believes additional authorized shares of common stock would provide River Financial with the necessary flexibility to issue shares in the future for various corporate purposes and enable it to take timely advantage of market conditions and opportunities without the delay and expense associated with convening a special shareholders’ meeting to seek approval for those additional shares, except as may otherwise be required by law.

Other than the shares to be issued as outline above and 300,000 shares to be available for issuance under the new incentive compensation plan described below at “Approval of River Financial’s 2015 Incentive Stock Compensation Plan,” River Financial has no current plan, commitment, arrangement, understanding, or agreement regarding the issuance of the additional shares of common stock that would result from the proposed increase in authorized shares. The additional shares of common stock will be available for issuance by the board for various future corporate needs as discussed above.

Index to Financial Statements

Potential Effects of the Proposed Amendment

The board of directors of River Financial is required to make any determination to issue shares of common stock based on its judgment regarding the best interests of River Financial and its shareholders. Future issuances of shares of common stock, or securities convertible into shares of common stock, could have a dilutive effect on earnings per share, book value per share, and the voting interest and power of current shareholders since holders of common stock are not entitled to preemptive rights.

The ability of the board of directors to issue additional shares of common stock without additional shareholder approval may be deemed to have an antitakeover effect. The amendment, however, is not being proposed in order to prevent a change of control, is not in response to any present attempt known to the board to obtain representation on the board or to take significant action affecting control of River Financial. Although the board of directors has no such plans, the board could use the additional shares of common stock to oppose a hostile takeover attempt or to delay or prevent changes of control or changes in or removal of management of River Financial. For example, the issuance of shares of common stock in a public or private sale, merger, or similar transaction would increase the number of outstanding shares, thereby possibly diluting the interest of a party attempting to obtain control of River Financial. In addition, the increased shares authorized by the proposed amendment could permit the board to issue shares to persons supportive of management’s position. Such persons might then be in a position to vote to prevent or delay a proposed business combination that is deemed unacceptable to the board, although perceived as desirable by some shareholders. Again, the board has no such plans.

An existing provision of River Financial’s articles of incorporation requiring a 75% vote to approve a sale of all or substantially all of the assets of River Financial may have the effect of discouraging takeover proposals for River Financial or impeding a business combination between River Financial and a major shareholder.

The board of directors does not, however, intend to issue any additional shares of common stock except on terms that it deems to be in the best interests of River Financial and its shareholders.

The merger agreement has as a condition to both River Financial’s and Keystone’s obligation the approval of the proposal to increase authorized shares, but the parties may waive such condition, and if such condition were waived, River Financial would likely call another meeting of shareholders following consummation of the merger to vote on the increase in shares. River Financial and Keystone could also delay consummation of the merger to resolicit River Financial shareholders. Any amendment to the merger agreement that would alter the consideration to be received by Keystone shareholders in the merger would be required to be approved by Keystone shareholders.

Required Vote

Approval of the amendment requires the affirmative vote of at least a majority of the outstanding shares of River Financial’s common stock. Abstentions and broker non-votes will have the same effect as a vote against the proposed amendment.

Amendment

Section 4.1 of River Financial’s articles of incorporation would be amended in its entirety to read as follows:

4.1 The total number of shares of all classes of common stock (“Shares”) which the Corporation shall have authority to issue is 10,000,000, consisting of 10,000,000 shares of $1.00 par value common stock (“Common Stock”).

The board of directors of River Financial recommends shareholders vote “FOR” approval of the amendment to River Financial’s articles of incorporation to increase the number of authorized shares of common stock. This proposal is #2 on the River Financial proxy card.

Index to Financial Statements

APPROVAL TO ESTABLISH THE NUMBER OF

RIVER FINANCIAL DIRECTORS AT SEVEN (7).

The merger agreement provides that at the effective date of the merger, the bylaws of River Financial will be amended to provide that the board of directors of River Financial will consist of seven directors, four of whom will be directors of River Financial immediately before the merger and three of whom will be directors of Keystone immediately before the merger. See “The Merger — Interests of Keystone Directors and Executive Officers in the Merger.”

At the present time, the board of directors of River Financial consists of 13 persons. The bylaws of River Financial and the Alabama Business Corporation Law provide that the board of directors of an Alabama corporation may increase or decrease the size of the corporation’s board of directors. However, if the decrease or increase in size is by a number that is more than 30% of the existing number of directors, the shareholders must approve the change in number.

Accordingly, because establishing the number of directors of River Financial at seven following the merger results in a reduction in the size of the current board of directors by more than 30 percent, the River Financial board of directors recommends that shareholders of River Financial approve the reduction to seven members effective at the merger.

In the future, the number of directors may be increased or decreased by the board of directors within the 30 percent limitation provided by the bylaws and the Alabama Business Corporation Law described above. Approval of this proposal requires the affirmative vote of a majority of the shares voting at the River Financial special meeting. For this purpose abstentions and broker non-votes will not count as votes cast.

The merger agreement has as a condition to both River Financial’s and Keystone’s obligation the approval of the proposal to set the number of River Financial shareholders at seven, but the parties may waive such condition, and if such condition were waived, River Financial would likely call another meeting of shareholders following consummation of the merger to vote on the proposal. River Financial and Keystone could also delay consummation of the merger to resolicit River Financial shareholders. Any amendment to the merger agreement that would alter the consideration to be received by Keystone shareholders in the merger would be required to be approved by Keystone shareholders.

Approval of this proposal requires the affirmative vote of a majority of shares voting at the special meeting. Abstentions and broker non-votes will have no effect on the vote.

The board of directors of River Financial recommends that you vote “FOR” the proposal to establish the number of directors of River Financial at seven effective upon the merger.agreement. This proposal is #3 on the River FinancialTrinity proxy card.

Index to Financial Statements

APPROVAL OF RIVER FINANCIAL’S

2015 INCENTIVE STOCK COMPENSATION PLAN

On May 12, 2015, the board of directors of River Financial Corporation approved the 2015 Incentive Stock Compensation Plan (the “Plan”), to be effective upon River Financial shareholder approval. The Plan permits the board of directors to grant options, stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”) respecting River Financial common stock to officers and employees of River Financial and River Bank & Trust. The Board believes that the Plan provides an effective means for River Financial to attract and retain skilled managers, executives and employees in a competitive market and that it is important to have stock available under the Plan for the purpose of these stock incentives. In addition, pursuant to the merger with Keystone, River Financial may be required to issue options to acquire up to 49,375 shares of River Financial Common Stock to current officers and employees of Keystone if those persons holding Keystone options do not exercise their options prior to the merger. River Financial will also issue options for 32,000 shares and 15,000 shares to Ray Smith and Boles Pegues, respectively, effective at the merger and also options for 40,000 shares and 15,000 shares to Jimmy Stubbs and Ken Givens, respectively. River Financial’s current 2006 Incentive Compensation Plan has only 82,100 shares remaining available for grant and, thus, an insufficient number of shares are available for the grant of options as a result of the merger with Keystone.

Under the Plan, a total of 300,000 shares of River Financial Common Stock may be issued. We anticipate that the shares reserved for issuance under the Plan, along with the shares remaining available for issuance under our 2006 Incentive Compensation Plan, will be sufficient to meet our needs for approximately 5 years.

The following is a brief description of the Plan, a complete copy of which is attached to the proxy statement/prospectus as Annex E. The Plan will become effective upon approval by the shareholders.

Purpose of the Plan

Generally, the purpose of the Plan is to promote the interests of River Financial by providing an incentive to officers and employees of River Financial and its subsidiaries to remain in the employ of River Financial or its subsidiaries and to aid River Financial in attracting and developing capable management personnel. Pursuant to the Plan, such persons will continue to be offered an opportunity to acquire and increase a proprietary interest in River Financial through awards of options to purchase Common Stock and other stock incentives such as SARs, restricted stock and RSUs (the “Awards”).

Terms of the Plan

Administration of the Plan. The Compensation Committee (the “Committee”) will generally administer the Plan, and has the authority to grant Awards under the Plan, including setting the terms of the Awards. The Committee will also generally have the authority to interpret the Plan, to establish any rules or regulations relating to the Plan that it determines to be appropriate, and to make any other determination that it believes necessary or advisable for proper administration of the Plan.

Eligibility.All salaried employees of River Financial and its majority owned subsidiaries are eligible to participate in the Plan. Currently, approximately 86 employees are eligible to participate in our equity compensation program. Following the merger with Keystone, we anticipate that number may increase to approximately 125. Awards under the Plan may be granted in any one or a combination of the following forms: incentive stock options (“ISOs”) under Section 422 of the Internal Revenue Code of 1986 (the “Code”), non-qualified stock options, SARs, restricted stock and RSUs, each of which is discussed in more detail in “Terms of Awards” below.

Shares Issuable through the Plan. A total of 300,000 shares of common stock are authorized for issuance under the Plan. The common stock to be delivered pursuant to Awards under the Plan are to be made available from the authorized but unissued shares of common stock, or from shares of common stock that may be reacquired by River Financial.

Index to Financial Statements

Limitations and Adjustments to Shares Issuable under the Plan. Awards relating to no more than 40,000 shares of River Financial common stock may be granted to a single participant in any fiscal year. The maximum number of shares that may be issued upon exercise of options intended to qualify as incentive stock options under the Code is 300,000. For purposes of determining the maximum number of shares of common stock available for delivery under the Plan, shares that are not delivered because an Award is forfeited, canceled, or settled in cash will not be deemed to have been delivered under the Plan.

Proportionate adjustments will be made to all of the share limitations provided in the Plan, including shares subject to outstanding Awards, in the event of any recapitalization, reclassification, stock dividend, stock split, combination of shares, or other change in the shares of common stock, and the terms of any Award will be adjusted to the extent appropriate to provide participants with the same relative rights before and after the occurrence of any such event.

Duration of the Plan.No Awards as ISOs may be granted under the Plan after May 12, 2025.

General Terms of Awards

Options.An option is a right to purchase shares of common stock from River Financial. The Committee will determine the number and exercise price of the options, provided that the option exercise price may not be less than the fair market value of a share of Common Stock on the date of grant. In addition, the Committee will determine the time or times that the options become exercisable. The term of an option will also be determined by the Committee, but may not exceed ten years. The Committee may accelerate the exercisability of any option at any time. The Committee may not, without the prior approval of our shareholders, decrease the exercise price for any outstanding option after the date of grant. Incentive stock options will be subject to certain additional requirements necessary in order to qualify as incentive stock options under Section 422 of the Code.

The option exercise price may be paid in cash; by check; in shares of common stock; or in any other manner authorized by the Committee. Subject to the restrictions provided in the agreement and the Plan, a participant receiving options has no rights of a shareholder, including the right to receive dividends, until shares of Common Stock are issued to the participant as a result of the participant’s exercise of his options.

Stock Appreciation Rights.A stock appreciation right, or SAR, is a right to receive, without payment to River Financial, a number of shares of common stock or the cash value thereof determined by dividing the product of the number of shares as to which the SAR is exercised and the amount of the appreciation in each share by the fair market value of a share on the date of exercise of the right. The Committee will determine the base price used to measure share appreciation, provided that the base price may not be less than the fair market value of a share of Common Stock on the date of grant. The Committee will also determine whether the right may be paid in cash, and the number and term of the SARs, provided that the term of a SAR may not exceed ten years. The Committee may accelerate the exercisability of any SAR at any time. The Plan restricts decreases in the base price of SARs on terms similar to the restrictions described above for options. Subject to the restrictions provided in the agreement and the Plan, a participant receiving SARs has no rights of a shareholder, including the right to receive dividends, until shares of Common Stock are issued to the participant as a result of the participant’s exercise of his SARs.

Restricted Stock.The Committee may grant shares of common stock subject to restrictions on sale, pledge, or other transfer by the recipient for a certain restricted period. All shares of restricted stock will be subject to such restrictions as the Committee may provide in an agreement with the participant, including provisions that may obligate the participant to forfeit the shares to us in the event of termination of employment or if specified performance goals or targets are not met. The Committee may, in its sole discretion, require the automatic deferral of dividends or reinvestment of dividends for the purchase of additional shares of restricted stock during the restricted period. During the restricted period, the participant shall have the right to vote such shares of restricted stock.

Index to Financial Statements

Restricted Stock Units.A restricted stock unit, or RSU, represents the right to receive from River Financial one share of common stock on a specific future vesting or payment date. All RSUs will be subject to such other restrictions as the Committee may provide in an agreement with the participant, including provisions which may obligate the participant to forfeit the units in the event of termination of employment or if specified performance goals or targets are not met. Subject to the restrictions provided in the agreement and the Plan, a participant receiving RSUs has no rights of a shareholder until shares of Common Stock are issued to the participant. RSUs may be granted with dividend equivalent rights.

Transferability of Awards.Awards granted pursuant to the Plan may not be transferred except by will or the laws of descent and distribution.

Tax Withholding.River Financial may withhold from any payments or stock issuances under the Plan, or collect as a condition of payment, any taxes required by law to be withheld. The participant may, but is not required to, satisfy his or her withholding tax obligation by electing to deliver currently owned shares of Common Stock, or to withheld from the shares the participant would otherwise receive, shares, in either case having a value equal to the minimum amount required to be withheld. This election must be made prior to the date on which the amount of tax to be withheld is determined, and is subject to the Committee’s right of disapproval.

Federal Income Tax Consequences of Awards

Federal Income Tax Consequences Applicable to ISOs. An ISO qualifying under Section 422 of the Code receives special statutory treatment for federal income tax purposes. The receipt and exercise of an ISO under the Plan will not result in any taxable gain or income for federal income tax purposes to an employee to whom an ISO is granted or who exercises the ISO. We will not be entitled to any deduction for federal income tax purposes on account of the grant or exercise of an ISO. If the Common Stock acquired upon exercise of an ISO is held for at least one year from the date of exercise and two years from the date of grant of the option, no gain or loss will be recognized until disposition of the Common Stock, and any gain or loss realized upon disposition will be treated as gain from the sale or exchange of a capital asset. Any gain realized upon the exercise of an ISO but not taxable under the special treatment applicable to incentive stock options, however, will be included in computing “alternative minimum taxable income” subject to the alternative minimum tax imposed by Section 55 of the Code. If the Common Stock acquired upon exercise of an ISO is disposed of within the same taxable year of the recognition of such difference as an item of “alternative minimum taxable income,” other than by reason of death and certain other permitted dispositions, income from compensation will be realized and recognized to the employee in the year of the disposition. In that event, such difference will not be treated as an item of “alternative minimum taxable income” to the employee, and we will be entitled to a deduction in the same amount as the employee’s income from compensation in the year in which such disposition occurs.

If the exercise price of an ISO is paid for by the surrender of previously owned shares and the shares surrendered were acquired through the exercise of an ISO and have not been held for the holding periods, the optionee will recognize income on such exchange, and the basis of the shares received will be equal to the fair market value of the shares surrendered. If the applicable holding period has been met on the date of exercise, there will be no income recognition and the basis and the holding period of the previously owned shares will carry over to the same number of shares received in exchange, and the remaining shares will begin a new holding period and have a zero bas

Federal Income Tax Consequences Applicable to Nonqualified Stock Options (“NQOs”). The NQOs granted under the Plan are not intended to and do not qualify as incentive stock options under Section 422 of the Code. A grantee will not realize taxable income upon the grant of an NQO, nor will River Financial be entitled to any tax deduction upon such grant. Upon the exercise of the NQO, the grantee will be required to include in his or her taxable income for the year the excess of the fair market value of the shares at the time of exercise over the aggregate option price paid for such shares. Amounts realized as compensation income by an employee upon exercise are also subject to federal income tax withholding, including FICA and FUTA withholding requirements under the Code and applicable state income tax laws.

Index to Financial Statements

Generally, River Financial is entitled to a deduction in computing its federal income taxes for the same year in which the grantee recognizes taxable income on account of his or her exercise of the NQO in an amount equal to the compensation income taxable to the grantee as a result of his or her exercise, provided River Financial has complied with the applicable withholding and reporting requirements, if any, under the Code. Such amounts are also subject to the matching contribution requirements by River Financial under FICA and FUTA.

Following the exercise of an NQO, the grantee’s basis in the shares received upon such exercise is equal to the option price paid for the shares plus any compensation income realized by him or her as a result of the exercise. Thereafter, upon sale of the shares received by the grantee, if the selling price exceeds such basis for the shares acquired upon exercise of the NQO, the excess is taxable to the seller as capital gain (either long-term or short-term, depending upon whether the shares have met the applicable holding period requirements), and no deduction is allowed to River Financial with respect to any such gain realized upon the sale. Should the selling price of the shares acquired upon exercise of the NQO be less than the basis of those shares, the difference is treated as a capital loss to the seller (either long-term or short-term, depending upon the applicable holding period).

If the exercise price of a NQO is paid by the surrender of previously owned shares, the basis and the holding period of the previously owned shares carry over to the same number of shares received in exchange for the previously owned shares. The compensation income recognized on exercise of these options is added to the basis of the shares received.

The foregoing discussion assumes that an NQO under the Plan is exercised by the grantee and that any subsequent sale of the shares acquired upon exercise is made by the grantee. The federal income tax consequences may differ if an NQO is exercised following the death of a grantee or any shares acquired upon exercise are disposed of following the death of a grantee.

Federal Income Tax Consequences of SARs. Upon the exercise of an SAR and the receipt of cash, the grantee’s receipt of cash will be taxable to the grantee as ordinary income. If the grantee receives shares of Common Stock, the full fair market value of the shares received is taxable as ordinary income to the grantee. The grantee’s basis in any stock received will be the fair market value of the stock on the date of exercise of the SAR, and any subsequent sale of such stock will result in capital gain or loss, depending upon the sale price. Generally, River Financial will receive a deduction upon the exercise of the SAR in an amount equal to the income recognized by the grantee.

Federal Income Tax Consequences of Restricted Stock and RSUs. Generally, an employee will not incur a taxable gain or income for federal income tax purposes upon receipt of a grant of restricted stock or RSUs and River Financial will not be entitled to any deduction. The fair market value of the restricted stock is taxable to the employee as ordinary income on the date the restricted stock vests. If shares received upon vesting are later sold, any gain or loss on the sale of shares is taxable as short- or long-term capital gain, depending upon the length of time the stock was held. Any dividends received during the period of restriction or accrued and paid upon vesting are taxed as ordinary income. River Financial may receive a tax deduction in the amount and at the time the employee realizes ordinary income.

Individuals receiving shares of restricted stock may make an election under Section 83(b) of the Code with respect to the shares. By making a Section 83(b) election, the restricted stock holder elects to realize compensation income with respect to the shares when the restricted stock is granted rather than at the time the forfeiture restrictions lapse. The amount of such compensation income will be equal to the fair market value of the shares when the holder receives them (valued without taking the restrictions into account), less any amount paid for the shares, and we will be entitled to a corresponding deduction at that time. By making a Section 83(b) election, the holder will realize no additional compensation income with respect to the shares when the forfeiture restrictions lapse, and will instead recognize gain or loss with respect to the shares when they are sold. The holder’s tax basis in the shares with respect to which a Section 83(b) election is made will be equal to the fair

Index to Financial Statements

market value when received by the holder, and the holding period for such shares begins at that time. If, however, the shares are subsequently forfeited, the holder will not be entitled to claim a loss with respect to the shares to the extent of the income realized by the holder upon the making of the Section 83(b) election. To make a Section 83(b) election, a holder must file an appropriate form of election with the Internal Revenue Service and with us, each within 30 days after shares of restricted stock are received, and the holder must also attach a copy of his or her election to his or her federal income tax return for the year in which the shares are received.

Dividend payments received with respect to shares of restricted stock for which a Section 83(b) election has been made generally will be treated as dividend income.

An employee who receives RSUs is taxed on the fair market value of the shares of Common Stock received on the date the RSUs vest, and the value is reported as ordinary income in the year the vesting occurs. River Financial may receive a tax deduction in the amount and at the time the employee realizes ordinary income. Because no shares are actually issued with the grant of RSUs, no Section 83(b) election is permitted.

Section 409A. If any Award constitutes non-qualified deferred compensation under Section 409A of the Code, it will be necessary that the Award be structured to comply with Section 409A of the Code to avoid the imposition of additional tax, penalties, and interest on the participant.

Tax Consequences of a Change of Control. If, in connection with a termination following a change of control, the exercisability, vesting or payout of an Award is accelerated, any excess on the date of the change of control of the fair market value of the shares or cash issued under accelerated Awards over the purchase price of such shares, if any, may be characterized as “parachute payments” (within the meaning of Section 280G of the Code) if the sum of such amounts and any other such contingent payments received by the employee exceeds an amount equal to three times the “base amount” for such employee. The base amount generally is the average of the annual compensation of the employee for the five years preceding such change in ownership or control. An “excess parachute payment,” with respect to any employee, is the excess of the parachute payments to such person, in the aggregate, over and above such person’s base amount. If the amounts received by an employee upon a change of control are characterized as parachute payments, the employee will be subject to a 20% excise tax on the excess parachute payment and we will be denied any deduction with respect to such excess parachute payment.

The foregoing discussion summarizes the federal income tax consequences of Awards that may be granted under the Plan based on current provisions of the Code, which are subject to change. This summary does not cover any foreign, state or local tax consequences.

Effect of Termination of Employment or a Change of Control

Options and SARs. If a participant’s employment or service with River Financial or a subsidiary terminates for any reason other than death, disability, retirement or a change of control, the option or SAR shall expire on the earlier of (i) the last day of the term of the option or SAR or (ii) the date that is three months after the date of termination. Upon termination of employment by reason of death, disability or retirement, the option or SAR shall expire on the earlier of (w) the last day of the term of the option or SAR or (x) the first anniversary of the termination. An installment of a participant’s option or SAR shall not become exercisable on the otherwise applicable vesting date of such award if the participant’s termination occurs on or before such vesting date; provided, however, that options and SARs shall become fully and immediately exercisable upon (y) the death or disability of the participant or (z) the occurrence of a change of control. At the option of the Committee, upon a change of control, options may be cashed out based upon the equivalent price per share paid to shareholders in the transaction. If the Committee determines that a participant has committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty or other bad act, the participant shall not be entitled to exercise or receive payment for any option or SAR.

Index to Financial Statements

Restricted Stock and RSUs. If a participant’s date of termination occurs during the restricted period or vesting period set forth in the award agreement, then the participant shall forfeit the restricted stock or RSUs, as applicable, as of the date of termination; provided, however, that if termination is due to the participant’s death, disability or change of control, all unvested shares of restricted stock or RSUs shall vest, free of all restrictions otherwise imposed by the Plan. If the Committee determines that a participant has committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty or other bad act, the participant shall not be entitled to exercise or receive payment for any award of restricted stock or RSUs.

Change of Control. For purposes of the Plan, a “change of control” shall mean any of the following events:

acquisition by a person or a group of beneficial ownership of securities representing more than 20% of the combined voting power of the then-outstanding securities of River Financial;

during any period of two consecutive years or less, the individuals who at the beginning of such period constituted a majority of the board of directors cease, for any reason other than death, to constitute a majority of the board of directors, unless the election of or nomination for election of each new director during such period was approved by a vote of at least two-thirds (2/3) of the directors still in office who were directors at the beginning of the period;

any event consisting of a change of control of River Financial that is required to be described pursuant to Item 6(e) of Schedule 14A of the Securities Exchange Act of 1934;

sale, transfer or other disposition of all or substantially all of the assets of River Financial to any person other than an affiliate of River Financial; or

approval by the stockholders of any merger, consolidation or statutory share exchange or sale of assets to an entity other than River Financial or its subsidiaries.

Section 162(m) of the Code

Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation of more than $1 million paid in any year (not including amounts deferred) to a corporation’s chief executive officer and the three most highly compensated executive officers other than the chief financial officer (“covered employees”). However, compensation paid by River Financial that is “qualified performance-based compensation” under Section 162(m) may be excepted from the $1 million limitation. The Committee may make awards of restricted stock and RSUs, utilizing performance measures described below, thereby allowing those awards to qualify for the “qualified performance-based compensation” exception under Section 162(m) of the Code, provided all of the other requirements under Section 162(m) are satisfied. Incentive stock options and SARs granted under the Plan pursuant to its terms are intended to qualify as “qualified performance-based compensation” when awarded by the Committee.

If an award of restricted stock or RSUs is intended to qualify for the “qualified performance-based compensation” exception under Section 162(m) of the Code, the Committee must establish performance goals using one or more of the following criteria: (i) interest income or interest income growth; (ii) net interest income or net interest income growth; (iii) net interest margin or net interest margin improvements; (iv) non-interest income or non-interest income growth; (v) reductions in non-interest expenses or improvement in River Financial or a subsidiary’s efficiency ratio; (vi) reductions in non-accrual loans or other problem assets; (vii) earnings before income taxes; (viii) net income; (ix) per share earnings; (x) increases in core deposits, either in absolute dollars or as a percentage of total deposits, or both; (xi) return on average equity; (xii) total stockholder return; (xiii) share price performance; (xiv) return on average assets or on various categories of assets; (xv) any combination of the foregoing. Goals may be determined by comparisons of selected performance metrics, including any of the metrics set forth in the preceding clauses, to the comparable metrics of a selected peer group of banking institutions or a stock index, as applicable; or to individualized business or performance objectives established for the grantee. Performance goals shall be established by the Committee not later than ninety (90) days after the commencement of a performance period, and the Committee shall not have discretion to increase the amount of compensation payable

Index to Financial Statements

following attainment of the performance goals. Finally, the Committee must certify in writing that the performance goals and all applicable conditions have been met prior to payment.

Termination or Amendment of the Plan

The Plan may be terminated or amended by the board of directors provided that shareholders of River Financial must approve any amendment that: (i) requires shareholder approval under applicable rules and regulations; or (ii) changes the maximum number of shares for which Awards may be granted. In addition, all outstanding Awards will be terminated in the event of a liquidation or dissolution of River Financial.

New Plan Benefits

The grant of awards under the Plan is entirely in the discretion of the Committee.

As part of its approval of the merger agreement, the board of directors of River Financial approved options to be granted to Jimmy Stubbs and Ken Givens effective at the merger as follows:

New Plan Benefits

Name and position

  Dollar
Value		  Number of
Shares		 

Jimmy Stubbs

President and Chief Executive Officer

  $70,000(1)   40,000  

Ken Givens

Executive Vice President and Chief Financial Officer

  $26,250    15,000  

(1)The value is calculated assuming a 10 year expiration date, an expected life of 7 years, a volatility factor of 10%, a risk free interest rate of 2.00% and a dividend yield of 1.50%, for a value of $1.75 per share.

Following the merger, two executive officers of Keystone will receive options respecting River Financial common stock as set forth at “The Merger — Interests of Keystone Directors and Executive Officers in the Merger — Keystone Options and Warrants.”

Equity Compensation Plan Information as of December 31, 2014

The following table provides information about River Financial shares of common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2014.

Equity Compensation Plan Information

Plan Category

  Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)		   Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)		   Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)		 

Equity compensation plans approved by security holders1

   245,000    $11.71     82,100  

Equity compensation plans not approved by security holders2

   135,000    $10.00     0  
  

 

 

     

 

 

 

Total

   380,000       82,100  
  

 

 

     

 

 

 

1The options are issued pursuant to River Financial’s 2006 Incentive Compensation Plan.

2Warrants were issued to directors of River Financial as part of the organization of River Bank & Trust in 2006.

Index to Financial Statements

Vote Required

Approval of the Plan is not a condition to consummation of the merger with Keystone. If the Plan is not approved, River Financial would likely present the Plan for shareholder approval at a future meeting of shareholders.

Approval of the Plan requires the affirmative vote of a majority of the shares of River Financial Common Stock voting at the River Financial special meeting. Abstentions and broker non-votes will have no effect on the vote.The Board recommends a vote “FOR” the Plan. This proposal is #4 on the River Financial proxy card.

Index to Financial Statements

DESCRIPTION OF RIVER FINANCIAL COMMON STOCK

The following summarizes certain provisions of River Financial’s common stock. Additional information regarding the common stock is set forth in the articles of incorporation and bylaws of River financialFinancial and in the applicable provisions of the Alabama Business Corporation Law, sometimes referred to as the “ABCL.”

General

The authorized common stock of River Financial consists of 5,000,00010,000,000 shares of common stock, $1.00 par value per share, 2,993,1375,705,082 shares of which were outstanding on March 31, 2015. River Financial’s board of directors has proposed an amendment to the articles of incorporation to increase the authorized number of shares of common stock from 5,000,000 to 10,000,000 shares. See “Approval to Increase the Number of River Financial Authorized Shares.”June 30, 2019.

Voting Rights

Each holder of common stock is entitled to one vote per share on any issue requiring a vote of shareholders at any meeting. There is no cumulative voting in the election of directors.

Upon a proposal by River Financial’s board of directors, River Financial’s articles of incorporation may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the shares of common stock outstanding and entitled to vote.

There is no redemption right, sinking fund provision, or right of conversion with respect to River Financial’s common stock.

River Financial’s bylaws provide that the president, the chairman, the board of directors, or any one or more of its shareholders owning, in the aggregate, not less than 10% of the common stock, may call a special meeting of shareholders at any time.

River Financial’s articles of incorporation provide that River Financial may not sell or transfer all or substantially all its assets except upon the affirmative vote of at least 75% of all shares of common stock entitled to vote.

Dividend Rights

The board of directors may authorize the payment of cash dividends to shareholders. The board of directors may not authorize a dividend if the corporation would not be able to pay its debts as they become due or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy any preferential rights of holders of common stock that are superior to holders of common stock. The principal source of the payment of dividends by River Financial is the payment of dividends to it by River Bank & Trust. River Bank & Trust is subject to regulatory requirements in the payment of dividends described at “Supervision and Regulation”.

Board Membership — Membership—Vacancies, Removal

The bylaws provide that any vacancy in the board of directors may be filled by the shareholders or the board of directors except that the directors may not fill a vacancy resulting from an increase in the number of directors by more than 30% of the number of directors last approved by shareholders.

Terms of directors, including directors selected to fill vacancies, shall expire at the next regular meeting of shareholders at which directors are elected, unless they resign or are removed from office.

Despite the expiration of a director’s term, the director shall continue to serve until his or her successor is elected and qualifies or until there is a decrease in the number of directors and his or her position is eliminated.

Index to Financial Statements

Shareholders of River Financial may remove one or more directors with or without cause only at a shareholder meeting called for that purpose, and the meeting notice must state that the purpose of the meeting is the removal of the director(s).

Preemptive Rights

Holders of the shares of common stock do not have preemptive rights to subscribe for additional shares when additional shares are offered for sale by River Financial.

Indemnification of Directors and Officers

Subject to applicable law, a director shall not be held personally liable to River Financial or its shareholders for monetary damages for any action taken, or any failure to take any action as a director, except that a director’s liability shall not be eliminated for (i) the amount of a financial benefit received by a director to which he or she is not entitled; (ii) an intentional infliction of harm on River Financial or the shareholders; (iii) a violation of section10A-2-8.33 of the Alabama Business Corporation Law; (iv) an intentional violation of criminal law; or (v) a breach of a director’s duty of loyalty to River Financial or its shareholders or (vi) a violation of 12 C.F.R. Part 359 or any payment or benefit relating to the imposition of penalties under the Alabama Banking Code.shareholders. It is the intention that the directors of River Financial be protected from personal liability to the fullest extent permitted by the Alabama Business Corporation Law as it now or hereafter exists. If at any time in the future the ABCL is modified to permit further or additional limitations on the extent to which directors may be held personally liable to River Financial, the protection afforded by River Financial’s articles of incorporation shall be expanded to afford the maximum protection permitted under such law.

Subject to the above limitations and in accordance with the ABCL, River Financial will indemnify a director or officer who was successful, on the merits or otherwise, in the defense of any proceeding, or of any claim, issue or matter in the proceeding to which he or she was a party because he or she is or was a director or officer of River Financial against reasonable expenses incurred in connection with the proceeding, notwithstanding that he or she was not successful on any other claim, issue or matter in any such proceeding.

Furthermore, the ABCL provides that River Financial may indemnify an individual made a party to a proceeding because he or she is or was a director or officer of River Financial against liability incurred in a proceeding if: (1) he or she conducted himself or herself in good faith; and (2) he or she reasonably believed (a) in the case of conduct in his or her official capacity with River Financial, that his or her conduct was in its best interest; and (b) in all other cases, that his or her conduct was at least not opposed to its best interest; and (3) in the case of any criminal proceeding he or she had no reasonable cause to believe his or her conduct was unlawful. River Financial may not indemnify a director or officer in connection with a proceeding by or in the right of River Financial in which the director or officer was adjudged liable to River Financial; or in connection with any other proceeding charging improper personal benefit to him or her, whether or not involving action in his or her official capacity, in which he or she was adjudged liable on the basis that personal benefit was improperly received by him or her. River Financial’s bylaws also require indemnification to the fullest extent provided by the ABCL.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of River Financial or River Bank & Trust, pursuant to the foregoing provisions, or otherwise, River Financial has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by River Financial of expenses incurred or paid by a director, officer or controlling person of River Financial in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, River Financial will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Index to Financial Statements

River Financial and River Bank & Trust have procured a directors and officers liability insurance policy providing for insurance against certain liabilities incurred by directors and officers of River Financial and River Bank & Trust while serving in their capacities as such, to the extent such liabilities could be indemnified under the above provisions.

Liquidation or Dissolution

In the event of any liquidation or dissolution of River Financial, the holders of the common stock shall be entitled to receive, in cash or in kind, the assets of River Financial available for distribution which are remaining after payment or provision for payment of River Financial’s debts and liabilities.

Termination of Certain Bylaw Amendments Effective atProvisions.

As part of River Financial’s acquisition of Keystone Bancshares, Inc. in 2015, the Merger

The merger agreement provides that effective with the completionRiver Financial bylaws were amended to provide a restructuring of the merger, the bylaws of River Financial will be amended by the board of directors to provide that, for a period of four years after the merger,add certain Keystone directors and to require certain transactions of River Financial requiring board approval will require the affirmative vote of a minimum of 65 percent of the existing members of the board of directors during the four year period following the merger. These transactions are:

(i) a merger or consolidation of River Financial;

(ii)such as an acquisition of River Financial to be approved by a statutory exchange offer, tender offer, salethe vote of all or substantially all of the assets of River Financial or other comparable transaction;

(iii) a change in the chairman65 percent of the board vice chairman, chief executive officer, president, executive vice president or chief financial officer or a reduction in the compensation or benefits of any of the foregoing;

(iv) the declaration and payment of dividends;

(v) an increase in the size of the board of directors to more than seven; and

(vi) voluntary registration or deregistration at any time of the common stock of River Financial under the federal securities laws.

Any amendment to the foregoingmembers. These bylaw provisions shall also require a vote of 65 percent of the existing board of directors.expire on December 31, 2019.

In addition, effective at the merger, the bylaws will be amended to provide that the board of directors of River Financial shall consist of 7 persons, 4 of which shall consist of current River Financial directors (“Legacy River Financial Directors”) and 3 of which shall be selected by Keystone directors (“Legacy Keystone Directors”). For a period of 4 years after the effective date of the merger, a vacancy in a Legacy River Financial Director shall be filled by the remaining Legacy River Financial Directors and a vacancy in the Legacy Keystone Directors shall be filled by the remaining Legacy Keystone Directors. This bylaw provision shall be effective for 4 years after the effective date of the merger. See “The Merger — Interests of Keystone Directors and Executive Officers in the Merger.”

Index to Financial Statements

COMPARISON OF SHAREHOLDERS’ RIGHTS

Both KeystoneTrinity and River Financial are incorporated under Alabama law, and, thus, your rights as a KeystoneTrinity shareholder will continue to be governed by Alabama law when you are a shareholder of River Financial. Shareholder rights are also governed by the articles of incorporation and bylaws of a corporation. As a shareholder of River Financial, your rights will also be governed by River Financial’s articles of incorporation and bylaws.

The following is a summary of the material terms of and differences between the rights of holders of River Financial common stock and the rights of holders of KeystoneTrinity common stock, but does not purport to be a complete description of those differences. These differences may be determined in full by reference to the Alabama Business Corporation Law, the River Financial articles of incorporation and bylaws and the KeystoneTrinity articles of incorporation and bylaws. Copies of the River Financial and Keystone articles of incorporation and bylaws are available, without charge, to any person, including any beneficial owner to whom this document is delivered, by following the instructions listed under “Where You Can Find More Information” on page     .

 

KEYSTONETRINITY  RIVER FINANCIAL

Authorized Common stock

Authorized Common stock
Authorized Shares. KeystoneTrinity is authorized under Keystone’sits articles of incorporation to issue 5,000,00010,000,000 shares of common stock, par value $1.00$.01 per share.  Authorized Shares. River Financial is authorized under River Financial’s articles of incorporation to issue 5,000,00010,000,000 shares of common stock, par value $1.00 per share. River Financial’s board of directors has proposed an amendment to the articles of incorporation to increase River Financial’s authorized common stock to 10,000,000 shares. See “Approval to Increase the Number of River Financial Authorized Shares.”

Authorized Preferred Stock

Authorized Shares. Keystone
Trinity is authorized under Keystone’sits articles of incorporation to issue 2,000,0001,000,000 shares of preferredcommon stock, par value $1.00$.01 per share.  Authorized Shares. River Financial is not authorized under River Financial’s articles of incorporation to issue any shares of preferred stock.

Preemptive Rights

Keystone’sPreemptive Rights
Trinity’s shareholders have no preemptive rights and no preferential right to purchase or to subscribe for any additional shares of stock that may be issued by Keystone.Trinity.  River Financial’s shareholders have no preemptive rights and no preferential right to purchase or to subscribe for any additional shares of stock that may be issued by River Financial.

Voting Rights In An Extraordinary Transaction

Keystone’s articles
Trinity may not sell or transfer all or substantially all of incorporation do not provide forits assets or merger with and into any voting rights in an extraordinary transaction that are different from those voting rights prescribed underother company, except upon the ABCL.affirmative vote of at leasttwo-thirds of the shares of common stock outstanding.  River Financial’s articles of incorporation provide that River Financial may not sell or transfer all or substantially all of its assets except upon the affirmative vote of at least 75% of the shares of common stock outstanding.

Index to Financial Statements

Amendment To The Articles Of Incorporation

The KeystoneTrinity articles of incorporation may be amended by the adoption of the amendment by the board of directors and, if required, subsequent approval by Keystone’sTrinity’s shareholders. If shareholder approval is required, theThe requisite shareholder vote to approve an amendment is a majority of shares outstanding and entitled to vote.  The River Financial articles of incorporation may be amended by the adoption of the amendment by the board of directors and, if required, subsequent approval by River Financial’s shareholders. The requisite shareholder vote to approve an amendment is a majority of shares outstanding and entitled to vote.

Amendment To The Bylaws

The KeystoneTrinity bylaws may be amended or repealed (A) by the KeystoneTrinity board of directors atunless (i) any regular meetingthe articles of incorporation or the Alabama Business and Nonprofit Entities Code reserve this power exclusively to the shareholders in whole or in part or (ii) at any special meeting if notice of such proposed action is containedthe shareholders in amending or repealing a particular bylaw provide expressly that the notice of such special meetingBoard may not amend or repeal that bylaw or (B) by the shareholders by a majority of votes cast at (i) any annual meeting or (ii) at any special meeting if notice of such proposed action shall have been given to each shareholder.shareholders.  The River Financial bylaws may be amended or repealed (A) by the River Financial board of directors at (i) any regular meeting or (ii) at any specialannual meeting if notice of such proposed action is contained in the notice of such specialannual meeting or (B) by the shareholders by a majority of votes cast at (i) any annual meeting or (ii) at any specialannual meeting if notice of such proposed action shall have been given to each shareholder.

The board of directors may not amend the quorum requirements for a shareholder meeting.

  

The board of directors may not amend the quorum requirements for a shareholder meeting. The bylaws will be amended in certain respects as of the merger. See “Description of River Financial Common Stock — Bylaw Amendments Effective at the Merger.”

Appraisal/Dissenters’ Rights

Under the ABCL, appraisal rights are available only in connection with specific transactions such as mergers, share exchanges, sales of all or substantially all of the assets of a corporation, and when the articles of incorporation so provide. A shareholder is entitled to follow the procedures set forth in the ABCL and receive payment for the fair value of such shares held by the shareholder.  Under the ABCL, appraisal rights are available only in connection with specific transactions such as mergers, share exchanges, sales of all or substantially all of the assets of a corporation, and when the articles of incorporation so provide. A shareholder is entitled to follow the procedures set forth in the ABCL and receive payment for the fair value of such shares held by the shareholder.

Appraisal rights are available to KeystoneTrinity shareholders, because KeystoneTrinity shareholders are entitled to vote on approval of the merger.

  

Appraisal rights are available to River Financial shareholders, because River Financial shareholders are entitlednot required to vote on approval of the merger.

Special

Annual Meeting Of Shareholders

Special
Annual meetings of the KeystoneTrinity shareholders, for any purpose or purposes, unless otherwise prescribed by the ABCL, may be called by the CEO, chairmanboard of directors. Special meetings of the board, orshareholders may be called by the board of directors, and shall be called by the CEOchairman, vice-chairman, the president or secretary at the request of the holders of not less than one-tenthat least 10% of all of the votesvoting shares entitled to be cast on any issue proposed to be consideredvote at thesuch meeting.  SpecialAnnual meetings of the River Financial shareholders, for any purpose or purposes, unless otherwise prescribed by the ABCL, may be called by the president, chairman of the board, or by the board of directors, and shall be called by the president or secretary at the request of the holders of not less thanone-tenth of all of the votes entitled to be cast on any issue proposed to be considered at the meeting.

Index to Financial Statements
Board Of Directors

Number of Directors

The KeystoneTrinity board of directors has 10 directors.directors subject to a maximum of 25. The KeystoneTrinity bylaws provide that the number of directors will notmay be comprisedincreased or decreased from time to time in the discretion of less than 5 northe board, except that only shareholders may increase or decrease by more than 20 persons and30% the number of directors last approved by the shareholders.The River Financial board of directors has 9 directors subject to a maximum of 12. The River Financial bylaws provide that the number of directors may be increased or decreased from time to time in the discretion of the board, except that only shareholders may increase or decrease by 30% or more the number of directors last approved by the shareholders.

The River Financial board of directors has 13 directors. The River Financial bylaws provide that the number of directors will not exceed 20 and may be increased or decreased from time to time in the discretion of the board, except that only shareholders may increase or decrease by 30% or more the number of directors last approved by the shareholders. Shareholders of River Financial will vote to establish the number of directors of River Financial at seven following the merger as described at “Approval to Establish the Number of River Financial Directors at Seven (7).”

Director Terms

Keystone
Trinity directors are elected for one year terms.  River Financial directors are elected for one year terms.

Removal

A director of KeystoneRemoval
Shareholders may be removed from office by shareholdersremove directors with or without cause, unless prohibited by the articles of incorporation, at a meeting called for that purpose.purposes.  A director of River Financial may be removed from office by shareholders with or without cause at a meeting called for that purpose.

Vacancies

Vacancies in the KeystoneTrinity board may be filled by the shareholders or by the vote of a majority of the remaining members of the board of directors, although less than a quorum, subject to the requirements set forth above at “Number of Directors.”  Vacancies in the River Financial board may be filled by the shareholders or by the vote of a majority of the remaining members of the board of directors, although less than a quorum, subject to the requirements set forth above at “Number of Directors.” The bylaws will be amended respecting filling director vacancies as described at “Description of River Financial Common Stock — Bylaw Amendments Effective at the Merger.”

Special Meetings of the Board

Special
Annual or special meetings of the board of directors may be called by or at the request of the president, chairman of the board of directors or by two or more members of the board of directors. Notice of any special meeting shallneed not be givenprovided if it occurs at the same place as the stockholders’ annual meeting. Special meetings must be preceded by 24 hours’ notice delivered personally or by telephone or telegraph or mailed at least two days in advance to each director.2 days’ notice.  Special meetings of the board of directors may be called by or at the request of the president, chairman of the board of directors or by two or more members of the board of directors. Notice of any specialannual meeting shall be given by 24 hours’ notice delivered personally or by telephone or telegraph or mailed at least two days in advance to each director.

Index to Financial Statements

Director Liability and Indemnification

Under the ABCL and Keystone’sTrinity’s bylaws, directors and officers are entitled to indemnification under special circumstances comparable to those existing under River Financial’s bylaws.annual circumstances.  Under the ABCL and River Financial’s bylaws, directors and officers are entitled to indemnification under specialannual circumstances. See “Description of River Financial Common Stock — Stock—Indemnification of Directors and Officers.”

Effective at the merger, the bylaws of River Financial will be amended to require a 65 percent vote of the existing members of the board of directors to approve certain transactions. See “Description of River Financial Common Stock — Bylaw Amendments Effective at the Merger.”

Index to Financial Statements

UNITED STATESMATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

OF THE MERGER TO KEYSTONETRINITY SHAREHOLDERS

TheSubject to the limitations, assumptions and qualifications described herein, in the opinion of Jones Day, the following general discussion sets forthare the anticipated material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of Keystone commonTrinity stock that exchange their shares of Keystone common stock for shares of River Financial common stock in the merger.Trinity stock. This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to income tax. This discussion is based upon the Internal Revenue Code of 1986, as amended, or the Code, the regulations promulgated under the Code and court and administrative rulings and decisions, all as in effect on the date of this document. These laws may change, possibly with retroactive effect, and any change could affect the accuracy of the statements and conclusions set forth in this discussion.

This discussion is addressed only to those KeystoneTrinity shareholders who hold their shares of Keystone commonTrinity stock as a capital asset within the meaning of Section 1221 of the Code.Code (generally, property held for investment). Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to youparticular Trinity shareholders in light of yourtheir particular circumstances or that may be applicable to you if youTrinity shareholders that are subject to special treatment under the U.S. federal income tax laws, including if you are:including:

 

a

financial institution;institutions;

 

a

tax-exempt organization; entities and organizations;

 

an

S corporationcorporations or other pass-through entityentities (or an investorinvestors in an S corporationcorporations or other pass-through entity)entities);

 

an insurance company;

grantor trusts;

 

a mutual fund;

real estate investment trusts or regulated investment companies;

 

a dealer

insurance companies;

dealers or brokerbrokers in stocks and securities, or currencies;

 

a trader

traders in securities that elects electmark-to-market treatment;

 

subject to the alternative minimum tax provisions

holders of the Code;

a holder of Keystone commonTrinity stock that received Keystone commonTrinity stock through the exercise of an employee stock option, through a tax qualified retirement plan, or otherwise as compensation;

 

a person

persons that isare not a U.S. holderholders (as defined below);

 

a person

persons that hashave a functional currency other than the U.S. dollar;

 

a holder

holders of Keystone commonTrinity stock that holds Keystone commonhold Trinity stock as part of a hedge, straddle, constructive sale, conversion, or other integrated transaction; or

 

Persons subject to tax under Code sections 877 or 877A as a U.S. expatriate.expatriates.

DeterminingIn addition, the actualdiscussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger to youor the ownership and disposition of shares of River Financial common stock, nor does it address the 3.8% U.S. Medicare contribution surtax. Persons who may be complex. Theysubject to taxes other than U.S. federal income taxes should consult their own tax advisors regarding the imposition of any such taxes as a result of the merger or the ownership and disposition of shares of River Financial common stock.

The U.S. federal income tax consequences to a partner in a partnership (including for this purpose an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that holds Trinity common stock generally will depend on your specific situationthe status of the partner and on factors that are not within our knowledge or control. Youthe activities of the partnership. Partners in any partnership holding Trinity common stock should consult with yourtheir own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local, foreign or other tax laws and of changes in those laws.advisors.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Keystone commonTrinity stock that is for U.S. federal income tax purposes (i) an individual citizen or resident of the United States, (ii) a corporation, or entity treated as a corporation, organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes or (iv) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

ALL HOLDERS OF TRINITY COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR FEDERAL, STATE, LOCAL ANDNON-U.S. TAX CONSEQUENCES TO THEM OF THE MERGER AND THE OWNERSHIP AND DISPOSITION OF SHARES OF RIVER FINANCIAL COMMON STOCK RECEIVED IN THE MERGER.

IndexU.S. Federal Income Tax Consequences of the Merger to Financial Statements

The U.S. federal income tax consequences to a partner in an entity or arrangement treatedHolders

Qualification of the Merger as a partnership, for U.S. federal income tax purposes,Reorganization

River Financial and Trinity intend that holds Keystonethe merger constitute a “reorganization” within the meaning of Section 368(a) of the Code. In order to constitute a “reorganization,” certain requirements must be met, including, among others, that:

the value of the River Financial common stock generally will depend onissued to Trinity shareholders in the statusmerger as a percentage of the partnertotal consideration furnished to Trinity shareholders in connection with the merger satisfies the continuity of shareholder interest requirement for corporate reorganizations, which will generally be satisfied if such percentage is 40% or more, taking into account any acquisitions by River Financial (or any related party) of shares of River Financial common stock issued to Trinity shareholders in connection with the merger;

River Financial will continue Trinity’s historic business or will use a significant portion of Trinity’s historic business assets in a business; and

the activitiesmerger will be consummated in accordance with the terms of this proxy statement-prospectus.

River Financial and Trinity believe that the merger will meet the applicable requirements and constitute a reorganization within the meaning of Section 368(a) of the partnership. Partners in a partnership holding Keystone common stock should consult their own tax advisors.

Tax Opinions

The parties intend for the merger to be treated as a reorganization for U.S. federal income tax purposes.Code. It is a condition to River Financial’sTrinity’s obligation to complete the merger that River FinancialTrinity receive an opinion from Jones Walker LLP,Day (or, if Jones Day is unwilling or unable to issue the opinion, a reasonably acceptable alternative counsel), dated the closing date of the merger, substantially to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. It is a condition to Keystone’s obligation to complete the merger that Keystone receive anfor U.S. federal income tax purposes. This opinion from Balch & Bingham LLP, dated the closing date of the merger, substantially to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. In addition, in connection with the filing of the registration statement of which this document is a part, each of Jones Walker LLP and Balch & Bingham LLP has delivered an opinion to River Financial and Keystone, respectively, to the same effect as the opinions described above. These opinions will be based on representation letters provided by River Financial and KeystoneTrinity and on customary factual assumptions. None of the opinions described aboveassumptions, but will not be binding on the Internal Revenue Service.IRS or on any court. In addition, if any of the representations or assumptions upon which the aforementioned opinion is based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected. Neither River Financial and Keystone have not sought and will not seeknor Trinity has requested or intends to request any ruling from the Internal Revenue Service regarding any matters relatingIRS as to the merger, and as a result, thereU.S. federal income tax consequences of the merger. Consequently, no assurances can be no assurancegiven that the Internal Revenue ServiceIRS will not assert, or that a court would not sustain, a position contrary to any oftreating the conclusions set forth below. In addition, if any ofmerger as a reorganization. Trinity shareholders should consult their own tax advisors with respect to the representations or assumptions upon which those opinions are based are inconsistent with the actual facts, the United States federal incomeparticular tax consequences of the merger could be adversely affected.to them, including the consequences if the IRS successfully challenged the treatment of the merger as a reorganization. The remainder of this discussion assumes that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

United States Federal Income Tax Consequences to U.S. Holders

A U.S. holder that exchanges its Trinity common stock for shares of the Merger Generally.

The following discussion regarding the United States federal income tax consequences of the merger assumes that the merger will be consummated as describedRiver Financial common stock and cash in the merger agreement and this proxy statement / prospectus and Keystone and River Financial will not waive the opinion condition described above in “— Tax Opinions.” The merger will be treated for United States federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the Code.

A holder of Keystone common stockgenerally will recognize gain but(but not loss, on the receipt of the merger considerationloss) in an amount equal to the lesser of: (i) the amount

of cash received byin exchange for the holder; orTrinity common stock in the merger (excluding any cash received in lieu of a fractional share of Trinity common stock, which will be treated as described below under “—Cash Instead of a Fractional Share.”) and (ii) the excess, if any, of (x)(a) the sum of the amount of cash treated as received in exchange for Trinity common stock in the merger (excluding any cash received in lieu of a fractional share) plus the fair market value of the River Financial common stock and the amount of cash received pursuant to(determined when the merger over (y) the recipient’s tax basis in his Keystone common stock. Any gain recognized will be characterized as a capital gain. Long-term capital gains of non-corporate taxpayers are subject to reduced rates of taxation. The aggregate adjusted tax basis of the sharesoccurs) of River Financial common stock received in the merger (including the fair market value of any fractional shares), over (b) the U.S. holder’s tax basis in the Trinity common stock surrendered. For this purpose, a U.S. holder must calculate gain or loss separately for each identifiable block of Trinity common stock that such U.S. holder surrenders pursuant to the exchange. Any recognized gain generally will be capital gain, and will be long-term capital gain if, as of the effective date of the merger, the holding period for the Trinity common stock is greater than one year. For U.S. holders that arenon-corporate holders, long-term capital gain generally will be taxed at a preferential U.S. federal income tax rate.

It is possible that a U.S. holder could be required to treat all or part of its recognized gain as dividend income if such holder’s percentage ownership in River Financial (including shares that the holder is deemed to own under certain attribution rules) after the merger is not meaningfully reduced from what the holder’s percentage ownership would have been if the shareholder had received solely shares of River Financial common stock deemed received) willrather than a combination of cash and River Financial common stock in the merger, which is referred to as a dividend equivalent transaction. A U.S. holder with a relatively minimal stock interest in Trinity and River Financial that experiences a reduction in its proportionate interest in River Financial as a result of the merger generally should not be regarded as having had a dividend equivalent transaction as a result of the same as themerger.

The aggregate adjusted tax basis of a U.S. holder’s River Financial common stock received in the shares of Keystonemerger (including the tax basis in any fractional share deemed sold for cash) will be equal to the aggregate tax basis in such U.S. holder’s Trinity common stock surrendered in exchange forthe merger, decreased by the amount of cash received (other than cash received in lieu of a fractional share) and increased by the amount of gain, if any, recognized (but excluding any gain realized in connection with the deemed sale of a fractional share). The holding period of the River Financial common stock increased by any gain recognized by the recipient, and reduced by any cash received by a U.S. holder will include the recipient. The holding period of the shares of Trinity common stock surrendered in exchange therefor. If a U.S. holder has differing tax bases and/or holding periods in respect of Trinity common stock, such U.S. holder should consult with a tax advisor with respect to the allocation of the River Financial common stock received (includingand cash consideration as between such blocks of Trinity common stock, the amount of any fractional sharegain to be recognized, and the determination of the tax bases and/or holding periods of the particular shares of River Financial common stock deemed received and redeemed as described below) will include the holding period of shares of Keystone common stock surrendered in exchange for the River Financial common stock.received.

Cash Instead of a Fractional Share

If you receiveA U.S. holder that receives cash instead of a fractional share of River Financial common stock you will be treated as having received the fractional share of River Financial common stock pursuant to the merger and then as having sold that fractional share of River Financial common stock for cash.cash in a redemption by River Financial. As a result, youprovided that the deemed payment is treated as a redemption pursuant to Section 302 of the Code, and not otherwise equivalent to a dividend, such a U.S. holder generally will recognize

Index to Financial Statements

gain or loss equal to the difference between the amount of cash received and the tax basis in yourits fractional share of River Financial common stock as set forth above. This gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for the sharesshare (including the holding period of Keystone commonTrinity stock surrendered therefor) is greater than one year. For U.S. holders that arenon-corporate holders, long-term capital gain generally will be taxed at a preferential U.S. federal income tax rate. The deductibility of capital losses is subject to limitations. We do

Dissenters’ Rights

The discussion above does not expect any fractional shares inapply to Trinity shareholders that exercise dissenters’ rights with respect to the merger. A U.S. holder that exercises dissenters’ rights with respect to the merger and receives cash for shares

Backup Withholding

If you are a non-corporate holder of KeystoneTrinity common stock you may be subjectwill generally recognize capital gain (or loss) measured by the difference between the amount of cash received and the holder’s tax basis in those shares, provided that the payment is treated as a redemption pursuant to information reportingSection 302(a) of the Code, and backup withholding (currently atnot otherwise equivalent to a ratedividend. A surrender of 28%)all Trinity shares held by a U.S. holder, based on any cash payments you receive. You generallyan exercise of dissenters’ rights, will not be treated as a dividend if the U.S. holder exercising dissenters’ rights owns no shares of Trinity or River Financial immediately after the merger, after giving effect to the constructive ownership rules pursuant to the Code. As described above, capital gain or loss will be long-term capital gain or loss if the holder’s holding period for the Trinity shares surrendered is more than one year, and capital gain may be taxed at a preferential rate for U.S. federal income tax purposes fornon-corporate U.S. holders, while the deductibility of capital losses is subject to backuplimitations for all holders. If a U.S. holder exercising dissenters’ rights will own shares in River Financial immediately following the merger (after taking into account the constructive ownership rules mentioned above), the U.S. holder should consult the U.S. holder’s own tax advisers as to the tax consequences to the U.S. holder of the merger.

Reporting Requirements

In general, each U.S. holder will be required to retain records pertaining to the merger pursuant to applicable Treasury Regulations. In addition, each U.S. holder that owned immediately before the merger (1) 1% or more by vote or value of the Trinity common stock or (2) Trinity securities with a tax basis of $1,000,000 or more will be required to file a statement with such U.S. holder’s U.S. federal income tax return setting forth such U.S. holder’s tax basis in the Trinity common stock surrendered in the merger, the fair market value of the Trinity common stock surrendered in the merger, the date of the merger and the name and employer identification number of Trinity and River Financial.

Backup Withholding and Information Reporting

In general, information reporting requirements may apply to cash payments, if any, made to U.S. holders in connection with the merger, unless an exemption applies. Backup withholding however,may be imposed on the above payments if you:

furnish a correctU.S. holder (1) fails to provide a taxpayer identification number certify that you are not subjector appropriate certificates or (2) otherwise fails to backup withholding on the substitute Form W-9 or successor form included in the election form/letter of transmittal you will receive and otherwise comply with all the applicable requirements of the backup withholding rules;rules or

provide proof that you are otherwise exempt from backup withholding.

establish an exemption. Any amounts withheld from payments to a holder under the backup withholding rules are not an additional tax and will generally be allowed as a refund or credit against yoursuch holder’s applicable U.S. federal income tax liability, provided you timely furnish the required information is furnished to the Internal Revenue Service.

IRS. Holders should consult their own tax advisors regarding the application of backup withholding based on their particular circumstances and the availability of and procedure for obtaining an exemption from backup withholding.

IndexTax Consequences of the Ownership and Disposition of Shares of River Financial Common Stock

Distributions

Distributions, if any, made with respect to shares of River Financial Statements

common stock generally will be treated as dividends for U.S. federal income tax purposes to the extent of River Financial’s current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Dividends paid may qualify for the long term capital gains rate if certain holding period requirements are met. In addition, dividends paid to corporate U.S. holders may qualify for the dividend received deduction if the U.S. holder meets certain holding period and other requirements. Distributions in excess of River Financial’s current or accumulated earnings and profits as determined for U.S. federal income tax purposes generally will be treated as a return of capital to the extent of a U.S. holder’s tax basis in its shares of River Financial common stock and thereafter as capital gain. If a U.S. holder has differing tax bases and/or holding periods in respect of River Financial common stock, such U.S. holder should consult with its tax advisor with respect to the determination of the tax bases and/or gain for each block of River Financial common stock.

Sale or Other Taxable Disposition

A U.S. holder generally will recognize capital gain or loss on the sale or other taxable disposition of River Financial common stock in an amount equal to the difference between the amount realized from the disposition and the U.S. holder’s adjusted tax basis in its River Financial common stock. Any gain or loss on a sale or other taxable disposition of River Financial common stock generally will be long-term capital gain or loss if the holding period for such common stock is greater than one year. For U.S. holders that arenon-corporate holders, long-term capital gain generally will be taxed at a preferential U.S. federal income tax rate. The deductibility of capital losses is subject to limitations.

The preceding discussion is intended only as an overview of the material U.S. federal income tax consequences of the merger. It is not a complete analysis or discussion of all potential tax consequences that may be important to you. Thus, you are strongly encouraged to consult your tax advisor as to the specific tax consequences of the merger, including tax return reporting requirements, the applicability and effect of federal, state, local and other tax laws and the effect of any proposed changes in the tax laws.

INFORMATION ABOUT RIVER FINANCIAL

GeneralOverview

River Financial is a bank holding company headquartered in Prattville, Alabama. River Financial’s primary business is servingBank & Trust, its wholly owned subsidiary, was formed as an Alabama banking corporation in March 2006. In November 2012, River Financial was formed as an Alabama corporation and all the sole shareholder for its wholly-owned subsidiary,common shares of River Bank & Trust an Alabama banking corporation headquartered in Prattville, Alabama.

were exchanged for common stock shares of River Financial was formed on November 30, 2012.Financial. River Bank & Trust was formed on March 10, 2006.became the wholly owned subsidiary of River Financial. We acquired Keystone Bancshares, Inc. and its subsidiary bank, Keystone Bank, in 2015, and PSB Bancshares, Inc. and its subsidiary bank, Peoples Southern Bank, in 2018.

We operate one subsidiary bank, River Bank & Trust. Through River Bank & Trust, provides commercial bankingwe provide a broad array of financial services through 5 full-timeto businesses, business owners, and professionals. We operate fourteen full-service banking offices, located in Montgomery, Prattville, Millbrook, Wetumpka, Auburn, Opelika, Alexander City, Daphne, Clanton, Thorsby and Montgomery,Gadsden, Alabama.

As of December 31, 2018, we had total assets of $1.1 billion, total loans of $711.3 million, total deposits of $898.7 million, and total shareholders’ equity of $110.1 million.

Our Products and Services

Through River Bank & Trust, we engage in the business of banking, which consists primarily of accepting deposits from the public and making loans and other investments. Our principal sources of funds for loans and investments at River Bank & Trust are demand, time, savings, and other deposits (including negotiable orders of withdrawal, or NOW accounts) and the amortization and prepayments of loans and investments. Our principal sources of income are interest and fees collected on loans, interest collected on other investments, fees earned from the origination and sale of residential mortgage loans, and service charges, as well as income from investment brokerage services. Our principal expenses are interest paid on savings and other deposits (including NOW accounts), interest paid on other borrowings, employee compensation, office expenses, and other overhead expenses.

Deposits

River Bank & Trust’s principal sources of funds are core deposits, including demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits, and certificates of deposit. As of December 31, 2018, our deposit composition was as follows:

LOGO

Deposit rates are reviewed weekly by senior management. Management believes that the rates that we offer are competitive with those offered by other institutions in our market areas. We also focus on customer service to attract and retain deposits.

Transaction accounts include demand deposits and NOW accounts, which customers use for cash management and which provide us with a source of fee income, as well as alow-cost source of funds. Time and savings accounts also provide a relatively stable andlow-cost source of funds. Our primary source of funds is NOW accounts. Certificates of deposit in excess of $100,000 are held primarily by customers in our market areas. We utilize brokered certificates of deposit to supplement our market funding sources when funding needs or pricing warrants the use of wholesale funding.

Lending

We offer a range of lending services, including real estate, consumer, and commercial loans, to individuals, small businesses, and other organizations located in or conducting a substantial portion of their business in our market areas. Our total loans, net of unearned income, at December 31, 2018, were approximately $711.3 million, or approximately 66.4% of total assets. The interest rates charged on loans vary with the degree of risk, maturity, and amount of the loan and are further subject to competitive pressures, money market rates, availability of funds, and government regulations.

As of December 31, 2018, our loan portfolio composition was classified as follows: (percent of gross loans)

LOGO

Real Estate Loans. Loans secured by real estate are the primary component of our loan portfolio, constituting approximately $506.8 million, or 71.3%, of total loans, net of unearned income, at December 31, 2018. River Bank & Trust originates consumer and commercial loans for the purpose of acquiring real estate that are secured by such real estate (CRE). We also often take real estate as an additional source of collateral to secure commercial and industrial (C&I) loans. Such loans are classified as real estate loans rather than commercial and industrial loans if the real estate collateral is considered significant as a secondary source of repayment for the loan. Loans are typically made on a recourse basis supported by financial statements and a review of the repayment ability of the borrower(s) and/or guarantor(s). Origination fees are charged for many loans secured by real estate.

Real estate lending activities consist of the following:

Commercial real estate term loans accrue at either variable or fixed rates. The variable rates approximate current market rates. Amortizations are typically no more than 25 years.

The primary type of residential mortgage loan is the single-family first mortgage, typically structured with fixed or adjustable interest rates, based on market conditions. These loans usually have fixed rates for up to five years, with maturities of 15 to 30 years.

Construction and land development (C&D) loans are typically made on a variable-rate basis. Loan terms usually do not exceed 24 months.

We originate residential loans for sale into the secondary market. These loans are made in accordance with underwriting standards set by the purchaser of the loan, normally as toloan-to-value ratio, interest rate, borrower qualification, and documentation. These loans are generally made under a commitment to purchase from a loan purchaser. We generally collect from the borrower or purchaser a combination of the origination fee, discount points, and/or a service release fee.

Home Equity Lines of Credit: We originate home equity lines of credit secured by residential property. The loans are typically made on a variable rate basis with maturities up to 10 years. At December 31, 2018, home equity lines of credit constituted $39.0 million, or 5.5% of our loan portfolio.

Commercial and Industrial Loans. We make loans for commercial purposes in various lines of business. These loans are typically made on terms up to seven years at fixed or variable rates. The loans are secured by various types of collateral, including accounts receivable, inventory, or, in the case of equipment loans, the

financed equipment. We attempt to reduce our credit risk on commercial loans by underwriting the loan based on the borrower’s cash flow and its ability to service the debt from earnings, and by limiting theloan-to-value ratio. Historically, we have typically loaned up to 80% on loans secured by accounts receivable, up to 50% on loans secured by inventory (which are typically also secured by accounts receivable), and up to 100% on loans secured by equipment. We also make some unsecured commercial loans. Commercial and industrial loans constituted $134.4 million, or 19.1% of our loan portfolio, at December 31, 2018. Interest rates are negotiable based upon the borrower’s financial condition, credit history, management stability and collateral.

Consumer Loans. Consumer lending includes installment lending to individuals in our market areas and generally consists of loans to purchase automobiles and other consumer durable goods. Consumer loans constituted $33.9 million, or 4.8% of our loan portfolio, at December 31, 2018. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history and collateral. Consumer rates are both variable and fixed, with terms negotiable. Terms generally range from one to five years depending on the nature and condition of the collateral. Periodic amortization, generally monthly, is typically required.

Loan Approval. Certain credit risks are inherent in making loans. These include repayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectability.

We attempt to minimize loan losses through various means and the use of standardized underwriting criteria. We have established a standardized loan policy that may be modified based on local market conditions. In particular, on larger credits, we generally rely on the cash flow of a debtor as the source of repayment and secondarily on the value of the underlying collateral. In addition, we attempt to utilize shorter loan terms in order to reduce the risk of a decline in the value of such collateral.

We address repayment risks by adhering to internal credit policies and procedures. These policies and procedures include officer and customer lending limits, a loan committee approval process for larger loans, documentation examination, andfollow-up procedures for loan review and any exceptions to credit policies. The point in the loan approval process at which a loan is approved depends on the size of the borrower’s credit relationship with the bank and the loan authority of the lending officer to whom the loan request is made. Each of our lending officers has the authority to approve loans up to an approved loan authority amount, as approved by the bank’s board of directors. Loans in excess of the highest loan authority amount of a particular lending officer must be approved by the bank’s loan committee, or another officer with sufficient loan authority to approve the request.

Risk Ratings. Loan officers are directly responsible for monitoring the risk in their respective portfolios. On commercial loans, risk grades are assigned by the loan officer for the probability of default following analysis of borrower characteristics and external economic factors. However, on consumer loans, accepts deposits, providesrisk grades are determined by a borrower’s credit score and personal debt ratio, as well as the borrower’s repayment history with the bank.

Electronic Banking We offer electronic banking services such asto our customers, including commercial and retail online andbanking, automated bill payment, mobile banking, includingand remote deposit capture and delivers treasury and cash management services. River Bank & Trust also operates a loan production officefor certain customers.

Market Areas

We currently conduct our banking operations through our Banks’ 14 banking locations in the state of Alabama. The locations include Montgomery, Prattville, Millbrook, Wetumpka, Auburn, Opelika, Alexander City, Alabama. River Bank & Trust has one subsidiary, River Region Properties, LLC, which holds certain property interests.Daphne, Clanton, Thorsby and Gadsden. Our market areas generally include Montgomery, Auburn-Opelika and Gadsden.

Immediately following the merger of Keystone with River Financial, Keystone Bank will merge with River Bank & Trust.

Target Markets

River Financial, through its subsidiary River Bank & Trust, provides a full range of traditional banking services throughout the Montgomery, Alabama Metropolitan Statistical Area (the “Montgomery MSA”). River Bank & Trust primarily markets its services to small businesses and residents of its market area through its main office and branches. It employs seasoned banking professionals with experience in the market area and who are active in their communities. River Bank & Trust operates 5 banking offices in Prattville, Montgomery and Wetumpka, Alabama, and a loan production office in Alexander City, Alabama.Competition

The total population of the Montgomery MSAfinancial services industry is approximately 375,000. Montgomery, Alabama is the state capital and the location of Maxwell Air Force Base.

Products and Services Overview

River Bank & Trust is a full-service community bank. Its principal business is banking and consists of lending and deposit gathering (as well as other banking-related products and services) to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage such banking services. River Bank & Trust provides a wide range of commercial banking serviceshighly competitive. We compete for businesses and individuals, including checking, savings, and money market deposit accounts, certificates of deposit and loans for consumer, commercial and real estate purposes. Services include electronic and online banking.

River Bank & Trust’s profitability is dependent on responsible lending with strong focus on lending standards to help ensure long-term growth in assets, loans, deposits, and net income in a manner consistent with safe, sound and prudent banking practices. To achieve this goal, River Bank & Trust’s strategy is to: (1) expand loans and deposits through organic market share growth and strategic acquisitions; (2) provide customers with a breadth of products and financial services; (3) employ, empower and motivate management to provide personalized customer service, consistent with the best traditions of community banking, while maximizing profits; and (4) maintain asset quality and control overhead expense.

River Bank & Trust provides a variety of loans, deposits and related services to its business customers. Such services include but are not limited to business checking, deposit products and services, business loans, and lines of credit. River Bank & Trust offers similar services to its consumers, including but not limited to personal loans, checking, residential mortgage loans and mortgage refinancing, safe deposit boxes, debit cards, direct deposit, and official bank checks.

Index to Financial Statements

Competition

River Bank & Trust faces substantial competition in attracting and retaining deposits and making loans to its customers in all of itsour principal markets. We compete directly with other bank and nonbank institutions located within our markets, internet-based banks,out-of-market banks, and bank holding companies that advertise in or otherwise serve our markets, along with money market and mutual funds, brokerage houses, mortgage companies, and insurance companies or other commercial entities that offer financial services products. Competition involves efforts to retain current customers, obtain new loans and deposits, increase the scope and type of services offered, and offer competitive interest rates paid on deposits and charged on loans. The primary factors in competing for deposits are the range and qualityMany of our competitors enjoy competitive advantages, including greater financial services offered,resources, a wider geographic presence, more accessible branch office locations, the ability to offer attractive ratesadditional services, more favorable pricing alternatives, and the availabilitylower origination and operating costs. Some of convenient office locations.

In the Montgomery MSA, River Bank & Trust competesour competitors have been in business for deposits with 19 other commercial banks, as well as numerous savingsa long time and loan associations, credit unions,have an established customer base and issuers of commercial papername recognition. We believe that our competitive pricing, personalized service, and other securities. River Bank & Trust’s market sharecommunity involvement enable us to effectively compete in the Montgomery MSA is 5.07%, making River Bank & Trust the 7th ranked bankcommunities in terms of deposits. Additional competition for deposits comes from their investment alternatives, such as money market mutual funds and corporate and government securities. The primary factors in competing for loans are the range and quality of the lending services offered, interest rates, and loan origination fees. Competition for the origination of loans normally comes from other financial institutions, commercial banks, credit unions, insurance companies and other financial services companies. River Bank & Trust believes that it has successfully competed with larger banks and other smaller community banks in the Montgomery MSA by focusing on personal service and financial products to meet the needs of the community.which we operate.

Employees

As of MarchDecember 31, 2015, River Financial2018, we had approximately 185 full-time and River Bank & Trust employed approximately 86 persons on10 part-time employees. None of these employees are party to a full time or part time basis.collective bargaining agreement.

Properties

TheOur headquarters and the main office of both River Financial and River Bank & Trust is located at 2611 Legends Drive, Prattville, Alabama 36066. In addition to itsIncluding the main office, River Bank & Trust ownsoperates fourteen branches with drive-through and/or ATM service.

The following table summarizes pertinent details of River Financial’s main and operates a branch at 612 S. Memorial Drive, Prattville, Alabama, one branchbanking offices as of December 31, 2018:

Office Address

Owned/Leased

2611 Legends Drive

Prattville, AL 36066

Owned       

612 South Memorial Drive

Prattville, AL 36067

Leased       

7075 Halcyon Park Drive

Montgomery, AL 36117

Leased       

309 Maxwell Boulevard

Montgomery, AL 36104

Leased       

10 Cambridge Drive

Wetumpka, AL 36092

Owned       

3617 U.S. Highway 280

Alexander City, AL 35010

Owned       

2394 East University Drive

Auburn, AL 36830

Owned       

1804 Thomason Drive

Opelika, AL 36801

Owned       

244 South 3rd Street

Gadsden, AL 35901

Owned       

3111 Alabama Highway 14

Millbrook, AL 36054

Owned       

Office Address

Owned/Leased

620 Second Avenue North

Clanton, AL 35046

Owned       

2040 7th Street South

Clanton, AL 35045

Owned       

20688 Hwy 31

Thorsby, AL 35171

Owned       

27900 North Main Street, Suite 4

Daphne, AL 36526

Leased       

We believe that our banking offices are in Wetumpka at 10 Cambridge Drive,good condition and two branches in Montgomery, one at 7075 Halcyon Park Drive and one at 309 Maxwell Boulevard. River Bank & Trust also operates a loan production office. It leases its loan production office located at 1120 Airport Drive, Suite 201, Alexander City, Alabama. This office will become a branch office before the end of September, 2015.are suitable to our needs.

Legal ProceedingsProceedings.

Both River Financial and River Bank & Trust may from timeAs of June 30, 2019, we are not subject to time be involved in litigation during the ordinary course of business; however, neither River Financial nor River Bank & Trust are currently involved in anymaterial pending or threatened litigation.

Index to Financial Statements

Our Directors and Executive Officers

The following table sets forth the name, age, and biographical information regardingposition of the individuals who currently serve as River Financial directorsFinancial’s executive officers and executive officers:directors.

 

Directors

Name/Director Since(1)

Age

Position with

River Financial

Business Experience during the last 5 years

Larry Puckett / 200673Director / Chairman of the BoardPresident of Larry Puckett Chevrolet, Community Cars, Inc. & LP Automotive Service Inc.; Managing Partner of Puckett Properties, Ltd; Managing Member of LP Management, LLC
Jim L. Ridling / 200671Director / Vice-Chairman of the BoardCommissioner of Alabama Department of Insurance
Lynn M. Carter / 200652Director / Secretary of the BoardPresident of Southeast Cherokee Constr., Inc.; Member of Morning Star, LLC
Charles Herron / 200658DirectorPresident of Rock Springs Land & Timber, Boulder Brook & Herron Family Farms; Member of Beaver Creek, Mill Springs, Spartan Value Investors & Herron Investments
Jerry C. Kyser, Jr. / 200650DirectorPresident of Kyser property Mgmt. Co., Inc.; Member of Dixie Properties, LLC, 4-K Properties, LLC, KMB Alley, LLC, KMB Investments, LLC, Burbank, LLC, JPK Investments, LLC; Limited Partner of Kyser Family Partnership, Ltd; Partner of Kyser Properties, Ltd; Manager of 2K Properties, LLC, Alley Enterprises, LLC & 231 Riverside, LLC
David R. Thrasher / 200664DirectorMD — Partner of Montgomery Pulmonary Consultants
David B. Smith / 200653DirectorGeneral Partner of Smith Farm & Forest & HD&D Land Company
R. Shepherd Morris / 200658DirectorPresident of Morris & Morris Farms, Inc. & Milsted Farm Group Inc.; Director of Choice Cotton Company, Inc. (Cotton Marketing)
Bolling P. Starke, III / 200653DirectorPresident of Starke Agency, Inc. & Starke Life Agency, Inc. (insurance); Partner of The Implement Store, LLC; Member of Implement Parking Lot, LLP
Adolph Weil, III / 200658DirectorManaging Director of Alatrust Inc. (Alabama trust company)
Vernon B. Taylor / 200650DirectorDirector of MTW Aerospace, Inc.
Dorothy H. Sanford / 200667DirectorPresident of DHS Holding 1, 2, 3, 4 & 5, Inc. & Homeplace Developers, Inc., Partner of Home Place Capital; Member of Member of Rock Hill LLC, Interstate Commercial Park LLC, and Warm Springs, LLC
James M. Stubbs / 200652DirectorDirector & President & CEO of River Bank & Trust and River Financial

Index to Financial Statements

Executive Officers Who are Not Directors

Name/Executive Officer Since

Age

Position with

River Financial

Business Experience during the last 5 years

Kenneth Givens / 2011

62EVP / CFOEVP / CFO of River Bank & Trust and River Financial; 1982-2011 VP/Controller, CFO, EVP/CFO/Director of Aliant Bank

Joel Winslett2

54EVP / CCOEVP / CCO of River Bank & Trust

Name

  

Age

  

Position

  Director Since 

Larry Puckett

  76  Director and Chairman of the Board of Directors   2006 

W. Murray Neighbors

  69  Director and Vice Chairman of the Board of Directors   20151 

James M .Stubbs

  56  Director and Chief Executive Officer   2006 

Gerald R. Smith, Jr.

  65  Director and President   20151 

Vernon B. Taylor

  54  Director   2006 

Jimmy L. Ridling

  74  Director   2006 

John A. Freeman

  71  Director   20151 

Charles Moore, III

  43  Director   20192 

Charles E. Herron

  62  Director   20192 

Kenneth H. Givens

  65  Executive Vice President, CFO, Secretary of the Board of Directors   2011 

 

1 Directors are elected for one year terms.

Service commenced on December 31, 2015 as a result of the merger between River Financial and Keystone Bancshares, Inc. and its subsidiaries.

2 Executive Officer

Nominated for election and elected as director of River Bank & Trust only.Financial at the April 2019 annual meeting.

Security OwnershipBelow is certain information regarding our executive officers’ and directors’ individual experience, qualifications, attributes, and skills and brief statements of Certain Beneficial Ownersthose aspects of our directors’ backgrounds that led us to conclude that they should serve as directors or executive officers.

Larry Puckett was one of the founding directors of River Bank & Trust in 2006, and was appointed as a Director and Chairman of the board of directors at that time. While Mr. Puckett currently remains as the Chairman of the board of directors, he is also the Dealer/Operator and President of Larry Puckett Chevrolet in Prattville, Alabama. Mr. Puckett serves on multiple business andnon-profit boards, and is considered to be a valued member and successful business person in the automotive industry and his community.

W. Murray Neighbors was appointed as a Director and Vice Chairman of the board of directors in 2015 as a result of the Keystone merger effective December 31, 2015. Prior to the merger, Mr. Neighbors was one of the original Members of the Board of Directors and served as Chairman of the board of directors of Keystone Bancshares, Inc. and Keystone Bank in 2007. Mr. Neighbors is retired from the US Treasury Department, but

remains an active developer of commercial and residential properties in Auburn, AL. He is managing member of WMN Properties, Member of P&T Properties (golf course and restaurant), member of ITC Capital Partners, LLC, and member of CFS 16, LLC. Mr. Neighbors is also very active in his community as a member of the City of Auburn’s Commercial Development Authority, has served on the Business Development Committee for the Auburn Chamber of Commerce and as the Treasurer of the Lee County Rotary Club.

James M. Stubbs was one of the founding directors, President and Chief Executive Officer of River Bank & Trust in 2006. Mr. Stubbs was appointed as the Chief Executive Officer of River Financial and River Bank & Trust, effective with the merger with Keystone Bancshares on December 31, 2015. Mr. Stubbs has over twenty five years of commercial banking experience. Specifically, Mr. Stubbs served as a Vice President in the Consumer and Commercial Lending Departments of Aliant Bank from June 1986 through June 1997. Subsequently, he served as an Area President for Colonial Bank from June 1997 through February 2005, when he left to begin the formation of River Bank & Trust. Mr. Stubbs community involvement includes serving on numerous business andnon-profit boards.

Gerald R. Smith, Jr. was appointed as a Director of the board of directors in 2015 as a result of the Keystone merger effective December 31, 2015. Mr. Smith was also appointed as President of River Financial and River Bank & Trust effective December 31, 2015. Prior to the Keystone merger, Mr. Smith was one of the founding directors of Keystone Bank in 2007, and served as Chief Executive Officer. Mr. Smith also brings 45 years of banking experience and a long history of community involvement in Gadsden, AL. Prior to forming Keystone Bank, Mr. Smith served as the Area Executive for North Alabama for The Bank with overall responsibility for offices in several cities. He also served as a Senior Banking Officer with The Bank overseeing loan operations and central loan underwriting.

Vernon B. Taylor was one of the founding directors of River Bank & Trust in 2006, and is currently serving as a Director of River Financial and River Bank & Trust. He has been in aviation for 28 years, and served as a pilot in the US Air Force. Mr. Taylor later founded and directed two aviation service companies based in the River Region. He serves on those boards and is an investor in local commercial real estate. Mr. Taylor is very active in the community while serving on several local boards.

Jimmy L. Ridling was one of the founding directors of River Bank & Trust in 2006, and was appointed as a Director and Vice Chairman of the board of directors at that time through 2015. While currently serving as a Director of River Financial and River Bank & Trust, Mr. Ridling has had a successful career in the insurance industry and brings a diverse background to the board while currently serving as Commissioner of the Alabama Department of Insurance. He was Vice President of the U.S. operations of Firemen’s Fund Insurance, and then became President and Chief Executive Officer of Southern Guaranty. Mr. Ridling also served as Chairman of the Board of Directors for Jackson Hospital and the River Region United Way, a board member of the Montgomery Airport Authority, the Montgomery Area Chamber of Commerce, and the Central Alabama Community Foundation.

John A. Freemanwas appointed as a Director of the board of directors in 2015 as a result of the Keystone merger effective December 31, 2015. Mr. Freeman is the President of Freeman Land Development, Inc., and has a long history as a community and civic leader in the Gadsden area. He also previously served as an Advisory Director of Superior Bank in Gadsden, AL.

Kenneth H. Givens has served as an Executive Vice President and Chief Financial Officer for River Bank & Trust and River Financial since 2011. Mr. Givens began his career in community bank accounting and financial management in 1974. He spent his first eight years with First Alabama (Regions) Bank of Dothan as a Controller and the Human Resource Director, and then spent the next 29 years with Aliant Financial Corporation & Aliant Bank as the Chief Financial Officer, Executive Vice President and Director. Mr. Givens also served as an instructor at the Alabama Banking School from 1998 through the summer of 2014.

Charles Moore III was appointed as a Director of River Bank & Trust’s board of directors in 2018 as a result of the merger with Peoples Southern Bank effective October 31, 2018 and was elected to River Financial’s board in 2019. Mr. Moore is a partner in the Birmingham office of the Bradley Arant Boult Cummings law firm,

where he focuses on commercial lending and the representation of community banks. He is also a native of Clanton, Alabama, and served on the board of directors of Peoples Southern Bank for ten years leading up to the 2018 merger with River Financial. Mr. Moore also serves on the executive Committee of Junior Achievement of Alabama, a nonprofit organization that teaches financial literacy, entrepreneurship, and workforce readiness in gradesK-12. He is graduate of Vanderbilt University and the University of Virginia School of Law.

Charles E. Herron, Jr. was one of the founding directors of River Bank & Trust in 2006, and was elected in River Financial’s board in 2019. Mr. Herron has worked in the land and timber business in Alabama for over 35 years. He is the owner and President of Rock Springs Land & Timber, Inc.,co-owner of Stone Martin Builders LLC, and an ardent supporter of hunting and outdoor conservation efforts. Mr. Herron received the Governor’s Conservation Achievement Award for Conservation Educator of the Year in 2011. He has also supported the Alabama Loggers Council, the Alabama Forestry Association, and is a member of the Montgomery Area Chamber of Commerce Committee of 100.

Director Independence

Our board of directors has determined that all of our directors are “independent directors,” as defined in NASDAQ Marketplace Rule 5605(a)(2), except Messrs. Stubbs and Smith, who are executive officers. In determining each director’s independence, our board of directors considered the services provided, and loan transactions between us or River Bank & Trust and the director or the director’s family members or businesses with which our directors or their family members are associated, and other matters that our board of directors deemed pertinent.

Audit/Compliance Committee

The Company’s board relies upon the audit committee of River Bank & Trust to perform the required duties under 12 C.F.R. § 363.5 for insured depository institutions, and the Alabama Banking Department’s policy on Audit and Risk Management Standards for Alabama, State Chartered Banks. These duties include the appointment, compensation and oversight of the independent public accountant who performs services under the FDICs Part 363, and reviewing with management and the independent public accountant the basis for the reports issued under Part 363. The current members of the Audit/Compliance Committee are Lynn Carter, Banks Herndon, Murray Neighbors, David Smith and David Thrasher. The Board of Directors of the Company and River Bank & Trust have determined that Murray Neighbors is a financial expert for purposes of the audit committee. Mr. Neighbors retired from a 26 year career in federal financial criminal investigations and management oversight where he served as the Director of Review and Program Evaluation for the Criminal Investigation Division of the U.S. Treasury Department. Mr. Neighbors is also an independent director.

Board of Directors’ Role in Risk Oversight

Our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. Our board of directors oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance stockholder value.

Additional Information Concerning Directors

There are no family relationships among our directors and executive officers. None of our directors or executive officers serves as a director of any other company that has a class of securities registered under, or that is subject to the periodic reporting requirements of, the Exchange Act, or any investment company registered under the Investment Company Act of 1940. None of our directors or executive officers has been involved in any legal proceedings during the past 10 years that are material to an evaluation of the ability or integrity of any of

our directors or executive officers or in which such director or officer had or has a material interest adverse to us or any of our subsidiaries. The principal occupation and employment during the past five years of each of our directors and executive officers was carried on, in each case except as specifically identified above, with a corporation or organization that is not a parent, subsidiary or other affiliate of us.

Code of Business Conduct and Ethics; Reports

We have adopted a Code of Business Conduct and Ethics, or Code, that all of the bank’s employees, officers and directors must abide by. The Code is approved on an annual basis, and a receipt of acknowledgment and understanding of the Code is required annually by the directors of the board and all bank employees. We will provide, free of charge, a copy of our code to any person upon request made in writing to Rebecca Hallman, AVP Investor Relations/HR Director, P.O. Box 680249, Prattville, Alabama 36066, or by email, rhallman@riverbankandtrust.com.

River Financial sends, without cost, its annual report, which includes audited financial statements, to any shareholders upon request at the email address set forth in the immediately preceding paragraph.

Executive Compensation

Compensation of Executive Officers

Our executive compensation program is designed to attract, motivate, and retain high-quality leadership and incentivize our executive officers to achieve performance goals over the short- and long-term, which also aligns the interests of our executive officers with our stockholders. The following discussion relates to the compensation of our Chief Executive Officer (CEO), Jimmy Stubbs, our President, Gerald R. Smith, Jr., and our Chief Financial Officer (CFO), Kenneth H. Givens, who are collectively referred to herein as our named executive officers of River Financial. Our Executive Committee and board of directors has historically reviewed and determined the compensation of our named executive officers on an annual basis.

Elements of Executive Compensation

We do not currently have employment agreements with any of our executive officers. The compensation of our named executive officers presently consists of base salary, equity awards,non-equity incentive compensation, and certain other benefits, as further described below.

Base Salaries: Base salaries for our named executive officers are determined based on each officer’s responsibilities, experience, and contributions to our growth, individual performance, Company performance, and general industry conditions.

Equity Awards. Our named executive officers participate in the 2015 Incentive Stock Compensation Plan. See plan details on the following page. Grants of equity to our named executive officers under the Incentive Plan have consisted of option awards. Options have a life of 10 years. See “Outstanding Equity Awards at 2018 FiscalYear-End.” These grants provide our named executive officers with the appropriate incentives to continue in our employ and to improve our growth and profitability, serve to align the interests of our named executive officers with our stockholders, and reward our named executive officers for improved Company performance. Any grant recommendations are presented to the Stock Option Committee for approval, and then presented to the full board through an Executive Session for approval.

Other Employee Benefits. We provide the following additional benefits to our named executive officers on the same basis as all other eligible employees:

Company-sponsored healthcare plans, including coverage for medical, dental, vision and gap insurance benefits;

a qualified 401(k) employee stock ownership plan with a matching contribution; and

payment of life, accidental death and dismemberment, and long term disability insurance premiums.

Summary Compensation Table

The following table showssets forth, for the beneficial ownershipyears ended December 31, 2018 and December 31, 2017, a summary of the shares of common stock ownedcompensation paid to or earned by directors andour named executive officers as a group, as of December 31, 2014. No person beneficially owns five percent (5%) or more of River Financial’s common stock.from the Company.

 

Name of Beneficial Owner

  Title
Of
Class		   Amount and
Nature of
Beneficial
Ownership		  Percentage of
Outstanding
Shares(1)		 

Larry Puckett

   Common     105,833(2)   3.52% 

Jim Ridling

   Common     76,002(3)   2.53% 

Lynn M. Carter

   Common     58,052    1.94% 

Charles E. Herron, Jr.

   Common     110,385    3.68% 

Jerry C. Kyser, Jr.

   Common     76,000(4)   2.51% 

David R. Thrasher

   Common     66,782(5)   2.21% 

R. Shepherd Morris

   Common     92,402    3.08% 

Bolling P. Starke, III

   Common     79,905    2.66% 

Adolph Weil, III

   Common     77,000(6)   2.55% 

Vernon B. Taylor

   Common     99,000    3.30% 

Dorothy Sanford

   Common     75,052(7)   2.48% 

James M. Stubbs

   Common     152,552(8)   4.92% 

David B. Smith

   Common     76,000(9)   2.53% 

Executive Officers who are not directors

     

Kenneth Givens

   Common     9,000(10)   .30% 

Joel Winslett

   Common     12,000(11)   .40% 

All directors and executive officers as a group

   Common     1,192,165    36.34% 

1Based upon total outstanding shares as of December 31, 2014. Percentages are calculated for each person assuming the exercise of options or warrants held by such person but that no other person exercises options or warrants. For the directors and executive officers as a group, the percentage is determined by assuming that each director and executive officer exercises all options and warrants but that no other person exercises options or warrants.
2Larry Puckett’s ownership includes 10,000 vested warrants not yet exercised.
3Jim Ridling owns all of his shares jointly with his spouse, Catherine S. Ridling.
4Jerry C. Kyser, Jr.’s ownership includes 25,000 vested warrants not yet exercised.
5David R. Thrasher’s ownership includes 25,000 vested warrants not yet exercised.
6Adolph Weil, III’s ownership includes 15,000 vested warrants not yet exercised.
7Dorothy Sanford’s ownership includes 25,000 vested warrants not yet exercised.
8James M. Stubbs’ ownership includes 102,500 vested warrants and options not yet exercised.
9David B. Smiths’ ownership includes 10,000 vested warrants not yet exercised.
10Kenneth Givens’ ownership solely represents 9,000 vested options not yet exercised.
11Joel Winslett’s ownership includes 12,000 vested options not yet exercised.

Index to Financial Statements

Compensation of Directors and Executive Officers

The following tables show the annual rate of compensation and stock option grants for River Financial’s president and chief executive officer and the two most highly compensated executive officers other than the president and chief executive officer for 2013 and 2014.

Name and
Principal Position(1)

YearSalary
($)		Bonus
($)		Option
Awards(2)
($)		All Other
Compensation
($)		Total
($)

Jimmy Stubbs, President and Chief Executive Officer


2013
2014
$

$

203,077.06

207,138.56


$

$

45,900.04

62,424.02


$

11,490

None


$

$

10,731.65

14,486.48

(3)

(3)

$

$

271,198.75

284,049.06


Kenneth Givens, Executive Vice President & Chief Financial Officer


2013
2014
$

$

165,710.98

169,025.22


$

$

29,963.56

33,958.70


$

5,745

None


$

$

16,221.31

17,007.64

(4)

(4)

$

$

217,640.85

219,991.56


Joel Winslett, Executive Vice President / Chief Credit Officer


2013
2014
$

$

129,461.70

132,050.98


$

$

19,507.53

26,530.24


$

2,873

None


$

$

14,283.01

14,343.15

(5)

(5)

$

$

166,125.24

172,924.37


Name and Principal Position  Year   Salary ($)   Option(1)
Awards ($)		   Non-Equity
Incentive Plan
Compensation ($)		   All Other(2)
Compensation ($)		   Total ($) 

James M. Stubbs

Chief Executive Officer

   2018   $280,500   $96,175   $84,150   $28,913   $489,738 
   2017   $258,103   $—     $82,500   $28,295   $368,898 

Gerald R. Smith, Jr.

President

   2018   $249,900   $76,940   $74,970   $38,325   $440,135 
   2017   $239,615   $—     $73,500   $29,710   $342,825 

Kenneth Givens

Chief Financial Officer

   2018   $198,900   $57,705   $39,780   $19,948   $316,333 
   2017   $190,499   $—     $39,000   $20,355   $249,854 

 

(1)Mr. Stubbs and Mr. Givens hold the same positions with River Bank & Trust and River Financial. Mr. Winslett holds his position only with River Bank & Trust.
(2)

Represents the grant date fair value of options and warrants calculated in accordance with FASB Topic 718 as set forth in footnote 1 of River Financial’s financial statements.

(3)(2)

All other compensation:

a.

All other compensation for Mr. Stubbs in 20132018 includes life insurance / accidental death & dismembermentdirector fees ($1,143.04), long term disability insurance ($396.00), company vehicle ($1,768.50) and company match on the 401(K) ($7,424.11).

All other compensation for Mr. Stubbs in 2014 includes life insurance / accidental death & dismemberment ($1,170.36), long term disability insurance ($396.00), company vehicle ($5,350.00) and company match on the 401(K) ($7,570.12).

(4)All other compensation for Mr. Givens in 2013 includes medical insurance ($8,061.00), gap insurance ($202.55)15,000), life insurance / accidental death & dismemberment ($933.48)1,098), long term disability insurance ($396.00)288), company vehicle ($1,527), and company match on the 401(K) ($6,628.28)11,000).

All other compensation for Mr. Givens in 2014 includes medical insurance ($7,093.80), gap insurance ($604.27), life insurance / accidental death & dismemberment ($953.88), long term disability insurance ($396.00), and company match on the 401(K) ($7,959.69).

(5)b.

All other compensation for Mr. WinslettStubbs in 20132017 includes medical insurancedirector fees ($8,061.00), gap insurance ($211.25)11,000), life insurance / accidental death & dismemberment ($730.44)978), long term disability insurance ($396.00)264), company vehicle ($1,887), and a company match on the 401(K) ($4,884.32)14,166).

c.

All other compensation for Mr. Smith in 2018 includes director fees ($15,000), medical and dental insurance ($7,158), gap insurance ($1,819), life insurance/accidental death & dismemberment ($720), long term disability ($724), company vehicle ($1,905), and company match on the 401(K) ($11,000).

d.

All other compensation for Mr. Smith in 2017 includes director fees ($11,000), medical and dental insurance ($6,782), gap insurance ($1,605), life insurance/accidental death & dismemberment ($978), long term disability ($264), company vehicle ($2,275), and company match on the 401(K) ($6,806).

e.

All other compensation for Mr. Givens in 2018 includes medical and dental insurance ($7,335), gap insurance ($1,403), life insurance / accidental death & dismemberment ($1,012), long term disability ($724), and company match on the 401(K) ($9,474).

f.

All other compensation for Mr. Givens in 2017 includes medical and dental insurance ($7,330), gap insurance ($1,308), life insurance / accidental death & dismemberment ($978), long term disability ($264), and company match on the 401(K) ($10,475).

All2006 & 2015 Incentive Stock Compensation Plans

General. The 2015 Incentive Stock Compensation Plan, or Incentive Plan, was approved by our stockholders at a special called meeting on December 1, 2015. The purpose of the Incentive Plan is to promote the long-term success of River Financial by providing financial incentives to eligible persons who are in positions to make significant contributions toward such success. The Plan is designed to attract individuals of outstanding ability to employment with River Financial, to encourage such persons to acquire a proprietary interest in River Financial, and to render superior performance for River Financial. The 2015 Incentive Plan provides for the grant of incentive andnon-qualified stock options, stock appreciation rights, restricted and unrestricted stock awards, performance awards, and other compensationstock-based awards to our employees, officers, and directors. The 2015 Incentive Plan reserved for Mr. Winslettissuance a total of 300,000 shares of our common stock, and the 2006 Incentive Plan reserved for issuance a total of 375,000 shares of our common stock, subject to adjustment in 2014 includes medical insurance ($7,093.80)the event of a recapitalization, stock split or similar event. The Plan was amended by River Financial’s stockholders effective April 23, 2019 to add 300,000 shares to the Plan. As of June 30, 2019, 367,625 shares of our common stock were subject to outstanding options under the 2006 and 2015 Incentive Plans and 328,500 additional shares of our common stock were reserved for issuance under the 2015 Incentive Plan. The 2006 Incentive Plan expired on April 3, 2016.

Administration of the Incentive Plan. The Incentive Plan provides that it will be administered by the Compensation Committee, which has the authority to grant awards under the Incentive Plan, to determine the terms of each award (which are evidenced by a written agreement describing the material terms of the award), gap insurance ($824.66), life insurance / accidental death & dismemberment ($746.61), long term disability insurance ($396.00),to interpret the provisions of the Incentive Plan and a company matchto make all other determinations that it may deem necessary or advisable to administer the Incentive Plan.

Types of Awards Available Under the Incentive Plan.

Options – The Incentive Plan provides for awards in the form of options to purchase shares of our common stock, either as incentive stock options qualified under Section 422 of the Code or options that are not so qualified (referred to asnon- qualified stock options). The exercise price of an option may not be less than 100% of the fair market value of our common stock on the 401(K) ($5,282.08)date of the grant. The exercise price may be paid in cash, or as otherwise provided in the award agreement.

Stock Appreciation Rights – The Incentive Plan provides for the grant of stock appreciation rights. The base price of a stock appreciation right may not be less than 100% of the fair market value of our common stock on the date of the grant. The consideration payable upon exercise of a stock appreciation right will be paid in cash, shares of our common stock, or a combination of cash and shares of our common stock, as determined by the Committee.

Stock Awards – The Incentive Plan provides for the grant of restricted or unrestricted stock awards, or restricted stock units (RSU). Stock awards may be issued for any lawful consideration as the Committee may determine, and the consideration may be in the form of services performed, or may be paid in cash, shares of our common stock, or a combination of cash and shares of our common stock, as determined in the sole discretion of the Committee.

Performance Awards – The Incentive Plan provides for the grant of performance awards that become payable on account of attainment of one or more performance goals established by the Committee. Performance awards may be settled in cash, shares of our common stock, or a combination of cash and our common stock, as determined in the sole discretion of the Committee. Performance goals established by the Committee may be based on our or an affiliate’s operating income or one or more other business criteria selected by the Committee that apply to an individual or group of individuals, a business unit, or us or an affiliate as a whole, over such performance period as the Committee may designate.

Vesting. The Committee has the authority to determine the vesting schedule applicable to each award, and to accelerate the vesting or exercisability of any award.

Change in Control Transactions. In the event of any transaction resulting in a change in control, outstanding stock options and other awards under the Incentive Plan that are payable in or convertible into our common stock will terminate upon the effective time of such change in control unless provision is made in connection with the transaction for the continuation or assumption of such awards by, or for the substitution of the equivalent awards of, the surviving or successor entity or a parent thereof. In the event of such termination, the holders of such awards will be permitted, immediately before the change in control, to exercise or convert all portions of such awards that are then exercisable or convertible or that will become exercisable or convertible upon or prior to the effective time of the change in control. The Committee may take such actions as it deems appropriate to provide for the acceleration of the exercisability of any or all outstanding stock options or other awards.

Adjustments for Other Corporate Transactions. In the event of certain corporate transactions (including a stock dividend or split,spin-off,split-up, dividend, recapitalization, merger, consolidation or share exchange, or similar corporate change that is not part of a transaction resulting in a change in control of us), the Committee will appropriately adjust, if needed, (a) the maximum number and kind of shares reserved for issuance or with respect to which awards may be granted under the Incentive Plan and (b) the terms of outstanding awards, including, but not limited to, the number, kind, and price of securities subject to such awards.

Termination and Amendment. Our board of directors may terminate, amend, or modify the Incentive Plan or any portion thereof at any time; provided, however, that (i) any such amendment that would require shareholder approval in order to ensure compliance with any applicable rules or regulations; and (ii) any amendment that would change the maximum aggregate number of shares for which Awards may be granted under the Plan (except as required under any adjustments pursuant to Sections 1.03 and 4.01 of the Plan), shall be subject to approval of the shareholders of the Company.

Outstanding Equity Awards at 2018 FiscalYear-End

The following table sets forth information as of December 31, 2018, concerning outstanding equity awards previously granted to our named executive officers:

   OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END         
   Option / Warrant awards         

Name

  Number of
securities
underlying
unexercised
options (#)
exercisable		   Number of
securities
underlying
unexercised
options (#)
unexerciseable (1)		   Option
exercise
price ($)		   Option
expiration date(2)		   Number of
Shares of Stock
that Have Not
Vested		   Market Value of
Shares of Stock
that have Not
Vested		 

James Stubbs

   7,500    —     $13.00    1/15/2019     $0 
   10,000    —     $13.50    1/15/2020     $0 
   10,000    —     $12.47    3/13/2023     $0 
   6,000    4,000   $15.00    1/14/2025    4,000   $108,000 
   16,000    24,000   $16.00    1/20/2026    24,000   $648,000 
   —      25,000   $27.00    11/1/2028    25,000   $675,000 
            

 

 

 
   49,500    53,000        53,000   $1,431,000 

Gerald R. Smith, Jr.

   12,800    19,200   $16.00    1/20/2026    19,200   $518,400 
   —      20,000   $27.00    11/1/2028    20,000   $540,000 
            

 

 

 
   12,800    39,200        39,200   $1,058,400 

Kenneth Givens

   16,000    —     $13.60    2/1/2022    0   $0 
   1,000    —     $12.47    3/13/2023    0   $0 
   3,000    2,000   $15.00    1/14/2025    2,000   $54,000 
   6,000    9,000   $16.00    1/20/2026    9,000   $243,000 
   —      15,000   $27.00    11/1/2028    15,000   $405,000 
            

 

 

 
   26,000    26,000         $702,000 

Total

   88,300    118,200         $3,191,400 

(1)

Unexerciseable options are subject to time-vesting requirements. Such options vest in equal amounts annually for three to five years from the date of grant. Options are granted for a 10 year life expiring on the 10th anniversary of the grant date.

(2)

See footnote (1).

Retirement Benefits

We maintain atax-qualified 401(k) Employee Stock Ownership Plan, or the “KSOP”, in which our named executive officers participate, as well as any other eligible employees. The Plan allows participants to contribute up to 100% of their pay on apre-tax basis into individual retirement accounts, subject to the maximum annual limits set by the IRS. However, no more than 50% of the participant’s contribution can be invested in the company stock. The Company’s matching employer contribution is in an amount equal to 100% of the first 3% and 50% up to the next 2% of each plan participant’s elective deferrals. The employer’s matching contributions are currently 100% invested in company stock, and are immediately 100% vested in order to maintain “safe harbor” status.

Director Compensation

Fees. River Financial Directors received a director’s fee of $15,000 in 2018. The following table shows fees paid to those persons who were directors of River Financial in 2018. The fees paid are paid by River Bank & Trust. The following persons serve as directors of River Financial. Such persons also serve as directors of River Bank & Trust. River Bank & Trust’s board also consists of 14 additional directors.

   DIRECTOR COMPENSATION 

Name

      Year           Fees earned    
or paid
in cash ($)		       Total ($)     

Larry Puckett

   2018   $15,000   $15,000 

Jimmy L. Ridling

   2018   $15,000   $15,000 

James M. Stubbs

   2018   $15,000   $15,000 

John A. Freeman

   2018   $15,000   $15,000 

Vernon B. Taylor

   2018   $15,000   $15,000 

Gerald R. Smith, Jr.

   2018   $15,000   $15,000 

W. Murray Neighbors

   2018   $15,000   $15,000 

Charles Herron*

   2018   $15,000   $15,000 

Charles Moore**

   2018   $15,000   $ 15,000 

Larry Puckett

   2017   $11,000   $11,000 

Jimmy L. Ridling

   2017   $11,000   $11,000 

James M. Stubbs

   2017   $11,000   $11,000 

John A. Freeman

   2017   $11,000   $11,000 

Vernon B. Taylor

   2017   $11,000   $11,000 

Gerald R. Smith, Jr.

   2017   $11,000   $11,000 

W. Murray Neighbors

   2017   $11,000   $11,000 

Charles Herron*

   2017   $11,000   $11,000 

*

Added to the River Financial board of directors in 2019. Served on the River Bank & Trust board in 2018 and 2017.

**

Added to the River Financial board of directors in 2019. Served on the River Bank & Trust board commencing October 2018.

Change in Control Agreements

River Bank & Trust has change in control agreements with Jimmy Stubbs, President and Chief Executive Officer, Gerald R. Smith, President, and Kenneth H. Givens, Executive Vice President and Chief Financial Officer, and foursix other executive officers of the bank. Mr. Stubbs’ agreement isand Mr. Smith’s agreements are for a term of 36 months and renewsrenew annually, and the agreements for all other executive officers are for 24 months and renew annually.

The agreements define a “change“change in control” as (a) a change in control as defined by the bank’s primary federal bank regulator; (b) a merger or business combination or contested election wherenon-employee directors cease to be a majority of directors; (c) the bank transfers all or substantially all of its assets to another entity

Index to Financial Statements

which is not an affiliate of the bank; (d) the bank is merged with another corporation or entity and less than 60% of the equity interest in the surviving corporation is owned by former shareholders of the bank; or (3)(e) the bank sells or transfers more than 50% of its equity interest to persons not affiliated with the bank.

Except for Mr. Stubbs and Mr. Smith, the agreements are “double“double trigger” agreements, which means that the employee receives benefits only if there is a change in control, and within 24 months either an employee terminates employment for “good reason,” which includes a material diminution in employee’s authority, duties or responsibilities, or salary, or there is a relocation of employee’s principal place of business to a location outside a radius of 35 miles of employee’s principal place of business at the time of the change in control.

Except for Mr. Stubbs and Mr. Smith, if within two years after a change in control, an employee resigns for good reason or is terminated other than for cause, the employee will receive insurancea lump sum cash payment equal to 1.5 times applicable contributions by River Bank & Trust for the annual premium for group life, long-term disability and health insurance benefits for 18 months plus a lump sum cash payment equal to 1.5 times employee’s base amount of compensation.

Mr. Stubbs’ agreement providesand Mr. Smith’s agreements provide that upon a change in control, Mr. Stubbseach person shall receive a lump sum cash payment equal to 2.99 times Mr. Stubbs’the base amount of compensation and if Mr. Stubbs’ employment is terminated at the effective date or within three years after a change in control, Mr. Stubbseach person will continuereceive a lump sum cash payment equal to receive3 times the applicable contributions by River Bank & Trust for the annual premium for group life, long-term disability and health and insurance benefits for 36 months. Mr. Stubbs has waived the applicationplus a lump sum cash payment equal to 1.5 times employee’s base amount of the change in control provision with respect to the merger.compensation.

If an employee is terminated for cause, as defined in the agreements, or resigns prior to a change in control, the employee receives no compensation or benefits from the agreement.

As stated, Mr. Stubbs has waived the application of the merger with Keystone to his change in control agreement. The following table shows the benefits that would be due to Mr. Givens and Mr. Winslett if both “triggers” to their change in control agreements were to become operative.

GOLDEN PARACHUTE COMPENSATION

Name

  Cash   Perquisites /
Benefits		  Total 

Kenneth Givens

  $253,537    $13,571.93(1)  $267,108.93  

Joel Winslett

  $198,076    $13,591.61(1)  $211,667.61  

Golden Parachute Compensation

 

Executive

  Cash  Perquisites /
Benefits		  Total 

James M. Stubbs, CEO

  $922,714.00(1)  $4,248.00 (3)  $926,962.00 

Gerald R. Smith, Jr., President

  $747,201.12(1)  $32,162.04 (3)  $779,363.16 

Kenneth Givens, EVP/CFO

  $298,350.00(2)  $16,081.02(4)  $314,431.02 

 

 (1)

Represents 2.99 times “Base Amount”

(2)

Represents 1.50 times “Base Amount”

(3)

Represents payments for 3 times the applicable contributions by the Bank for the annual premium for group life, LTD and health insurance benefits

(4)

Represents payments for 1.5 yearstimes the applicable contributions by the Bank for medicalthe annual premium for group life, LTD and health insurance gap insurance, life insurance / accidental death and dismemberment and long term disability insurance.benefits

Stock Incentive Plan

River Financial has a 2006 Stock Incentive Plan (the “Plan”) covering up to 375,000 shares of River Financial common stock. The following discussion outlines some of the essential features of this plan, but is qualified in its entirety by reference to the full text of the plan.

The Plan is administered by a committee of the board of directors and provides for the granting of common stock options to purchase shares of common stock to officers, directors and key employees of River Financial and River Bank & Trust. The plan is administered by the compensation committee, which has the exclusive right, subject to the provisions of the plan, to interpret its provisions and to prescribe, amend and rescind rules and regulations for its administration. The exercise price of each option granted under the Plan will not be less than the fair market value of the common stock as determined by the board of directors at the date of grant.

For “incentive stock options” qualified under the Internal Revenue Code, the aggregate value of the shares for which an employee may exercise options in any year cannot exceed $100,000, measured by the fair market value at date of grant, plus any unused carryover of this annual limitation. The price of the option cannot be less

Index to Financial Statements

than 100% of the fair market value of the shares on the date the option is granted, except as to persons who hold more than 10% of the voting power of River Financial, in which case the option price cannot be less than 110% of fair market value.

No incentive option may be exercised more than ten years after it is granted. An option becomes exercisable, subject to the foregoing limitation, any time after it is granted unless vesting requirements are imposed with the grant. An incentive option must be exercised within 90 days of retirement and within 90 days after termination by River Financial. All vesting requirements on options may be waived if there is a change of control or potential change of control of River Financial.

The plan also provides that notwithstanding any other provision in the plan or any agreement under the plan, River Financial’s primary regulator shall at any time have the right to require any holder of options to exercise such options or forfeit options not exercised if River Financial’s capital falls below minimum capital required by River Financial’s primary regulator.

The incentive stock compensation plan provides that if a change in control of River Financial occurs, options outstanding that are not yet exercisable as a result of vesting requirements may nevertheless be exercised. Also, in lieu of exercise, River Financial has the right to pay cash to the holder equal to the “change of control price.” The change of control price is the highest price paid or offered in a change of control or potential change of control within the preceding 60 days. A change in control occurs when a person or entity acquires 20 percent or more of River Financial’s common stock or when certain other events occur such as a change in two-thirds of the board of directors that is not recommended by the incumbent directors, or an acquisition of River Financial. The merger between Keystone and River Financial is not a change in control under the plan.

Options and Equity Plans

The following table provides information about the value of executive officers’ outstanding options as of December 31, 2014.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Option awards

Name

Number of securities
underlying unexercised
options (#) exercisable

Number of securities
underlying unexercised
options (#) unexercisable(1)

Option exercise
price ($)		Option
expiration
date

James Stubbs

60,000 options

25,000 warrants

7,500 options

10,000 options

10,000 options

—  

—  
—  
—  
—  
2,000 options

8,000 options







10.00
10.00
13.00
13.50
12.47
13.50
12.47











04/03/2016
04/03/2016
01/15/2019
01/15/2020
03/13/2023
01/15/2020
03/13/2023





Kenneth Givens

8,000 options
1,000 options		—  
—  
12,000 options
4,000 options


13.60
12.47
13.60
12.47





02/01/2022
03/13/2023
02/01/2022
03/13/2023


Joel Winslett

7,500 options
2,000 options
2,000 options
500 options		—  
—  
—  
—  
500 options
2,000 options




10.00
13.00
13.50
12.47
13.50
12.47









08/14/2018
01/15/2019
01/15/2020
03/13/2023
01/15/2020
03/13/2023




(1)Unexercisable options are subject to time-vesting requirements.

Index to Financial Statements

Jimmy Stubbs and Kenneth Givens will also receive options to acquire River Financial common stock following the merger respecting 40,000 shares and 10,000 shares, respectively.

Retirement Plan

River Financial has in place a 401(k) Employee Stock Ownership Plan (the “401(k) Plan”) pursuant to which employees may defer a portion of their compensation on an annual basis subject to dollar limits established by law. Employees may make regular 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax). River Financial makes a “safe harbor” matching contribution equal to 100% of the first 3% of the employee’s annual compensation deferred by the employee and 50% of the next 2% of the employee’s annual compensation deferred. This contribution is 100% vested. River Financial may also make discretionary matching contributions equal to a uniform percentage of the amount of the salary reduction the employee elects to defer, which is determined by River Financial annually. However, in applying this matching percentage only salary reductions up to 6 percent of the payroll period compensation is considered. The total discretionary matching contribution may not exceed 4 percent of the employee’s compensation.

Each year, River Financial may make a discretionary stock bonus contribution, and employees must complete a year of service and be actively employed on the last day of the 401(k) Plan year to share in this contribution. An employee completes a year of service if the employee is credited with 1000 hours of service during the year.

Employees are always 100 percent vested in contributions from salary deferrals, rollover contributions and safe harbor matching contributions. With respect to discretionary contributions, the employee does not vest in those contributions until the employee has 3 years of service, at which time the employee becomes 100 percent vested.

Director Compensation

River Bank & Trust paid directors fees for 2014 as set forth in the table below. River Financial does not pay directors fees.

DIRECTOR COMPENSATION

 

Name

  Fees
earned or
paid in
cash ($)		   Stock
Awards
($)		  All
Other
Compensation		  Total
($)		 

Larry Puckett

  $5,000    N/A  N/A  $5,000  

Jim Ridling

  $5,000    N/A  N/A  $5,000  

Lynn M. Carter

  $5,000    N/A  N/A  $5,000  

Charles E. Herron, Jr.

  $5,000    N/A  N/A  $5,000  

Jerry C. Kyser, Jr.

  $5,000    N/A  N/A  $5,000  

David R. Thrasher

  $5,000    N/A  N/A  $5,000  

R. Shepherd Morris

  $5,000    N/A  N/A  $5,000  

Bolling P. Starke, III

  $5,000    N/A  N/A  $5,000  

David B. Smith

  $5,000    N/A  N/A  $5,000  

Vernon B. Taylor

  $5,000    N/A  N/A  $5,000  

Dorothy Sanford

  $5,000    N/A  N/A  $5,000  

Adolph Weil, III

  $5,000    N/A  N/A  $5,000  

James M. Stubbs

  $5,000    N/A  N/A  $5,000  

(1)The persons shown in this table will continue as directors of River Bank & Trust following the merger of Keystone Bank with and into River Bank & Trust. Four of these persons, including Jimmy Stubbs, Larry Puckett and Jim Ridling will continue to serve as directors of River Financial following the merger of Keystone with River Financial. The fourth person to serve as a director of River Financial following the merger has not yet been determined.

Index to Financial Statements

Directors receive a standard annual director fee of $5,000.

Certain directors hold warrants to acquire shares of River Financial common stock pursuant to a warrant agreement. The Directors holding warrants are shown above at “SecuritySecurity Ownership of Certain Beneficial Owners and Management.” Management

The warrant agreement providesfollowing table sets forth certain information regarding the beneficial ownership of our common stock as of March 1, 2019 by:

each of our directors;

our named executive officers listed in the Summary Compensation Table;

all of our current directors and executive officers as a group; and

each stockholder known by us to beneficially own more than 5% of our common stock

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of June 30, 2019, pursuant to derivative securities, such as options or RSUs, are deemed to be outstanding for the director may purchase at a pricepurpose of $10.00 per sharecomputing the numberpercentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on an aggregate of 5,705,082 shares of common stock subjectoutstanding as of June 30, 2019.

Except as indicated in footnotes to the warrant agreement. The warrants expiretable, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on April 3, 2016.information provided to us by such stockholder.

Name of Beneficial Owner

  Amount and
Nature of
Beneficial
Ownership		  Percentage
of
Outstanding
Shares (1)		 

Named Directors & Executive Officers

   

Larry Puckett

   132,000   2.32% 

Jim Ridling

   100,352   1.76% 

Vernon B Taylor

   131,139   2.30% 

James M Stubbs

   210,477(2)   3.73% 

Gerald R Smith, Jr.

   84,450(3)   1.48% 

W. Murray Neighbors

   60,002   1.05% 

John A. Freeman

   24,969   0.44% 

Kenneth H. Givens

   25,000(4)   0.62% 

Charles Moore, III

   16,080(5)   0.28% 

Charles E. Herron

   150,000(5)   2.62% 

Executive Officers and Directors as a Group

   934,469   16.60% 

5% Stockholders known by us

   N/A  

(1)

Based upon total outstanding shares as of June 30, 2019. Percentages are calculated for each person assuming the exercise of options or warrants held by such person but that no other person exercises options or warrants. For the directors and executive officers as a group, the percentage is determined by assuming that each director and executive officer exercises all options and warrants but that no other person exercises options or warrants.

(2)

James M. Stubbs’ ownership includes 52,000 vested options not yet exercised. Also includes 41,875 shares held in a trust where Mr. Stubbs is the trustee, but not the beneficiary of the trust.

(3)

Gerald R. Smith, Jr.’s ownership includes 19,200 vested options not yet exercised.

(4)

Kenneth H. Givens’ ownership solely represents 25,000 vested options not yet exercised.

(5)

First elected as director at the April 2019 annual meeting.

Certain Relationships and Related Transactions/Director Independence

Banking Transactions

We and our subsidiaries may engage in transactions with directors, officers, employees, and other “related parties” only to the extent that such activities are permitted by, and consistent with, applicable laws and regulations. Federal and state regulations impose a number of River Financialrestrictions on transactions and dealings between insured depository institutions and related parties. In general, these transactions are subject to certain quantitative limitations and are required to be on substantially the same terms and conditions as are available for transactions between the institution and unrelated parties. “Related parties” include our directors and officers, their spouses, and certain members of their immediate families, as well as other persons or entities with which we have certain relationships, as set forth in federal and state regulations.

River Bank & Trust hasWe have had in the past, and expectsexpect to have in the future, loans and other banking transactions in the ordinary course of business with our directors, (including independent directors)officers, and executive officers of River Financialprincipal stockholders, and River Bank & Trust, including members of their families or corporations, partnerships or other organizations in which such officers or directors have a controlling interest. These loans are madeassociates, on substantially the same terms, (includingincluding interest rates and collateral)collateral, as those availableprevailing at the same time for comparable transactions with personsunrelated parties. Such transactions are not relatedexpected to River Bank & Trust and did not involve more than the normal riskrisks of collectability ornor present other unfavorable features.

In addition, River Bank & Trust is subjectfeatures to the provisions of Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of creditus. Loans to or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. River Bank & Trust is also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

The aggregate dollar amount of loans outstanding toindividual directors and executive officers of River Bank & Trustmust also comply with our lending policies and River Financial was approximately $29,593,453 at June 30, 2015.statutory lending limits.

Index to Financial Statements

RIVER FINANCIAL CORPORATION MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

For the Years Ending December 31, 2018 and 2017

The following discussion and analysis of River Financial’s financial condition and results of operations should be read together with our consolidated financial statements and related notes thereto and other financial information appearing elsewhere in this document. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences are discussed in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

The following discussion pertains to our historical results, on a consolidated basis. However, because we conduct all of our material business operations through our subsidiaries, the discussion and analysis relates to activities primarily conducted at the subsidiary level.

All dollar amounts in the tables in this section are in thousands of dollars, except per share data or when specifically identified. The words “we,” “us,” “our,”

Our Business

We are a bank holding company headquartered in Prattville, Alabama. We operate one subsidiary bank—River Bank and “River Financial”Trust.

Through River Bank, we provide a broad array of financial services to businesses, business owners and similar terms when usedprofessionals through 14 full-service banking offices in this section refer toAlabama.

2018 Merger

On October 31, 2018, we merged with PSB Bancshares, Inc. (PSB) with River Financial Corporation unlessbeing the context indicates otherwise.survivor. At the same time, PSB’s wholly owned subsidiary bank, Peoples Southern Bank, was merged into River Bank. PSB’s common shareholders received 60 shares of our common stock and $6,610.00 in cash in exchange for each share of PSB’s common stock. We paid an aggregate of $24,496,660 in cash and issued 222,360 shares of our common stock. The aggregate estimated value of the consideration paid was $30.5 million. We recorded $8.2 million of goodwill and a core deposit intangible asset of $4.7 million.

IntroductionWe marked PSB’s assets and liabilities to fair value based on information available, and these fair value adjustments are subject to change for up to one year after the closing date as additional information becomes available. We acquired approximately $190.8 million in assets at fair value from PSB and added three banking offices with approximately $55.2 million in loans and approximately $167.4 million in deposits.

Segments

While our chief decision makers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. Because the overall banking operations comprise substantially all of the consolidated operations, no separate segment disclosures are presented in the accompanying consolidated financial statements.

Overview of Results

Our net income was $8.5 million in 2018, compared with $8.3 million in 2017. The following is a narrative discussionlargest contributing factors leading to the increase in the net income and analysis of significant changesother highlights include the following: average

interest earning assets in 2018 were $800.4 million compared to $738.0 million in 2017. The higher level of interest earning assets led to an increase in net interest income from $29.6 million in 2017 to $32.0 million in 2018. These increases were partially offset by the expenses associated with the PSB acquisition during the fourth quarter of 2018.

Average loans outstanding in River Financial’s results of operations2018 were $619.2 million, approximately 19.58% higher than $517.8 million in average loans outstanding in 2017. The higher average balance for total loans outstanding was the primary reason for the three months ended March 31, 2015increase of $2.4 million in our net interest income.

The effective yield on our loan portfolio decreased from 5.39% in 2017 to 5.29% in 2018. The decrease in the yield was mainly attributable to competitive pricing pressures and 2014loans renewing and repricing at lower market rates.

Average total investment securities in 2018 were $163.2 million compared to $200.3 million in 2017. The decrease was due to the years ended December 31, 2014need to fund loan growth.

Averagenon-interest bearing deposits grew from $168.5 million in 2017 to $186.1 million in 2018. The increase resulted from organic growth as well as deposits obtained in the PSB merger.

Our higher net interest income was offset by higher operating expenses, which grew to $26.0 million in 2018 from $21.3 million in 2017. The increase in noninterest expense came from organic growth with most of the increase in salaries and 2013,employee benefits. There was also a significant increase in data processing expenses as a result of termination expenses related to the PSB merger.

Our noninterest income increased from $6.3 million in 2017 to $6.8 million in 2018. The increase resulted from increases in service charges and fee income and income from mortgage operations. These increases were offset by a decrease in bank owned life insurance income from the financial condition at March 31, 2015 and 2014, and December 31, 2014 and 2013. This discussion and analysis should be readprior year as a result of death benefits received in conjunction with River Financial’s Consolidated Financial Statements and related notes included elsewherethe prior year that were not received in this proxy statement / prospectus.the current year.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in River Financial’sour Notes to the Consolidated Financial Statements. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or future periods. The use of estimates, assumptions, and judgment is necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations.

The following briefly describes the more complex policies involving a significant amount of judgments about valuation and the application of complex accounting standards and interpretations.

Allowance for Loan Losses

River Financial recordsWe record estimated probable inherent credit losses in the loan portfolio as an allowance for loan losses. The methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management. Some of the more critical judgments supporting River Financial’s allowance for loan losses include judgments about: creditworthiness of borrowers, estimated value of underlying collateral, assumptions about cash flow, determination of loss factors for estimated credit losses, and the impact of current events, conditions, and other factors impacting the level of inherent losses. Under different conditions or using different assumptions, the actual or estimated credit losses ultimately realized by River

Financial may be different than management’s estimates provided in our Consolidated Financial Statements included elsewhere in this joint proxy statement / prospectus.

herein. For a more complete discussion of the methodology employed to calculate the allowance for loan losses, see Note 1 to River Financial’sour Consolidated Financial Statements for the year ended December 31, 2018, which are included in this joint proxy statement / prospectus.elsewhere herein.

Investment Securities Impairment

Periodically, we assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. In such instance, we

Index to Financial Statements

would consider many factors, including the severity and duration of the impairment, our intent and ability to hold the security for a period of time sufficient for a recoveryrecover in value, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value. The credit portion of the impairment, if any, is recognized as a realized loss in current earnings.

Income Taxes

Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognized in the financial statements. A valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “more likely than not” that the tax assets or benefits will be realized. Realization of tax benefits depends on having sufficient taxable income, available tax loss carrybacks or credits, the reversing of taxable temporary differences and/or tax planning strategies within the reversal period and that current tax law allows for the realization of recorded tax benefits.

Business Combinations

Assets purchased and liabilities assumed in a business combination are recorded at their fair value. The fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities. On the date of acquisition, when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments, the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as thenon-accretable difference. We must estimate expected cash flows at each reporting date. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income. In addition, purchased loans without evidence of credit deterioration are also handled under this method.

Comparison of the Results of Operations for the three monthsyears ended MarchDecember 31, 20152018 and 20142017

The following is a narrative discussion and analysis of significant changes in our results of operations for the years ended December 31, 20142018 and 2013 (all dollar amounts in thousands, except per share data)2017.

Net Income

River Financial had2018 vs. 2017

During the year ended December 31, 2018, our net income of $3,480was $8.5 million, compared to $8.3 million for the year ended December 31, 2014, or $1.16 basic earnings per share, compared to net income2017, an increase of $2,951, or $0.98 basic earnings per share for the year ended December 31, 2013. The diluted earnings per share were $1.13 for the year ended December 31, 2014 and $0.95 for the year ended December 31, 2013. River Financial’s net income for the three months ended March 31, 2015 was $959, or $0.32 basic earnings per share, compared to earnings of $812, or $0.27 basic earnings per share for the same period of 2014. The diluted earnings per share was $0.31 for the first three months of 2015 and $0.26 for the first three months of 2014.

2.54%. The primary reason for the increase in net income between the years ended December 31, 2014 and 2013 isin 2018 compared to 2017 was an increase in net interest income resulting from $29.6 million in 2017 to $32.0 million in

2018 for an increase of $2.4 million, or 8.30%. Our net interest margin remained unchanged at 4.00% in 2017 and in 2018. The lack of change in the margin resulted from a combination of the decrease in the yield on our loan portfolio from 5.39% in 2017 to 5.29% in 2018 and the increase in the average cost of funds from 0.48% in 2017 to 0.79% in 2018. These negative trends were offset by the loan growth during the current year which resulted in loans comprising a higher levelspercentage of loan volume and othertotal interest earning assets at 77.4% in 2018 compared to 70.2% in 2017.

Noninterest income increased from $6.3 million in 2017 to $6.8 million in 2018, or 8.43%. The increase resulted from increases in service charges and a reduction in the interest expense on interest-bearing deposits. The higher net interestfee income wasand income from mortgage operations. These increases were partially offset by a net increase in noninterest expense that primarily resulted from an increase in salaries and employee benefits.

The primary reasons for the increase in net income between the three month periods ended March 31, 2015 and 2014 include an increase in net interest income that resulted from higher levels of loan volume, an increase in noninterest income that resulted from more service charge income from deposit accounts and the introduction in 2015 of investment brokerage services, and a decrease in bank owned life insurance income as a result of receiving death benefits in the provision for loan losses. These factors that increased net income were partially offset by an increaseprior year, but not in salaries and employee benefits.the current year.

Net Interest Income and Net Interest Margin Analysis

The largest component of River Financial’sour net income is its net interest income —– the difference between the income earned on interest-earning assets and the interest paid on deposits and borrowed funds used to support our assets. Net interest income divided by average earning assets represents our net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the yield on interest-earning assets, and the cost of interest-bearing liabilities. Our margin can also be affected by economic conditions, the competitive environment, loan demand, and deposit flow. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and our primary source of earnings.

The following table shows, for the years 2018 and 2017, the average balance of each principal category of our assets and liabilities and the average yields on assets and average costs of liabilities. Such yields and costs are calculated by dividing income or expense by the average daily balances of the associated assets or liabilities.

AVERAGE BALANCE SHEETS & NET INTEREST INCOME

   Year Ended December 31, 2018  Year Ended December 31, 2017 
   Average
Balance		  Interest
Income/
Expense		  Average
Yield/Rate		  Average
Balance		   Interest
Income/
Expense		  Average
Yield/
Rate		 

Interest earning assets

        

Loans

  $619,238  $32,766   5.29%  $517,822   $27,930   5.39% 

Mortgage loans held for sale

   4,404   166   3.77%   4,036    86   2.13% 

Investment securities:

        

Taxable securities

   125,477   2,734   2.18%   146,370    2,938   2.01% 

Tax-exempt securities

   37,683   1,078   2.86%   53,951    1,712   3.17% 

Interest bearing balances in other banks

   13,185   275   2.09%   15,868    211   1.33% 

Federal funds sold

   400   11   2.75%   —      —     0.00% 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest earning assets

  $800,387  $37,030   4.63%  $738,047   $32,877   4.45% 

Interest bearing liabilities

        

Interest bearing transaction accounts

  $198,380  $713   0.36%  $189,673   $452   0.24% 

Savings and money market accounts

   207,829   1,442   0.69%   189,438    667   0.35% 

Time deposits

   138,144   1,495   1.08%   137,781    1,110   0.81% 

Securities sold under agreement to repurchase

   10,274   38   0.37%   13,592    28   0.21% 

Federal Home Loan Bank advances

   23,644   490   2.07%   8,712    101   1.16% 

Federal funds purchased

   664   18   2.71%   721    13   1.80% 

Note payable

   10,535   485   4.60%   5,935    249   4.20% 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest bearing liabilities

  $589,470  $4,681   0.79%  $545,852   $2,620   0.48% 

Noninterest-bearing funding of earning assets

   210,917   —     0.00%   192,195    —     0.00% 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total cost of funding earning assets

  $800,387  $4,681   0.58%  $738,047   $2,620   0.35% 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Net interest rate spread

     3.84%      3.97% 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Net interest income/margin (taxable equivalent)

   $32,349   4.05%    $30,257   4.10% 

Tax equivalent adjustment

    (345)      (707)  
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Net interest income/margin

   $32,004   4.00%    $29,550   4.00% 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Comparison of net interest income for the years ended December 31 2018, and 2017

Net interest income increased $2.4 million, or 8.30%, to $32.0 million for the year ended December 31, 2018, compared to $29.6 million for 2017. The increase was due to an increase in interest income of $4.5 million, resulting from higher levels of loan volume. The increase in interest income was primarily due to a 19.58% increase in average loans outstanding during compared to 2017. The resulting net interest margin remained at 4.00% for 2018 and 2017. During 2018,non-interest bearing deposits averaged $186.1 million, compared to $168.5 million during 2017, an increase of $17.6 million, or 10.43%.

Interest-earning assets averaged $800.4 million for 2018, compared to $738.0 million for 2017, an increase of $62.4 million, or 8.46%. Average loans increased $101.4 million during 2018 to $619.2 million from $517.8 million in 2017. The mix of average earning assets also shifted to loans from investment securities. As a percentage of average total earning assets, average loans increased from 70.2% in 2017 to 77.4% in 2018. The yield on average interest-earning assets increased 18 basis points to 4.63% during 2018, compared to 4.45% for

2017. The yield on earning assets increased primarily due to the increase in the percentage of average loans as a percentage of average total earning assets during 2018. During 2018, loan yields decreased 10 basis points to 5.29%. The decrease in loan yields was primarily due competitive pricing pressures and loans repricing at lower market rates.

Interest-bearing liabilities averaged $589.5 million for 2018, compared to $545.9 million for 2017, an increase of $43.6 million. The increase in average volume occurred from organic growth in addition to the PSB merger. The average rate paid on interest-bearing liabilities was 0.79% for 2018, compared to 0.48% for 2017. During recent years, we have benefited from the historically low interest rates and repriced time deposits at maturity at the lower current market rates, and we have also lowered rates on other deposit accounts to lower market rates where possible. However, during the current year interest rates have increased steadily. The increase in total interest expense from $2.6 million in 2017 to $4.7 million in 2018 was mainly attributable to the steady increase in our cost of funds as a result of market conditions.

The following table reflects, for the years 2018 and 2017, the changes in our net interest income due to changes in the volume of earning assets and interest-bearing liabilities and the associated rates earned or paid on the assets and liabilities.

   Year Ended December 31, 2018 vs.
Year Ended December 31, 2017		 
   Volume   Variance
due to
Yield/Rate		   Total 

Interest earning assets

      

Loans

  $5,455   $(619)   $4,836 

Mortgage loans held for sale

   8    72    80 

Investment securities:

      

Taxable securities

   (417)    213    (204) 

Tax-exempt securities

   (517)    (117)    (634) 

Interest bearing balances in other banks

   (36)    100    64 

Federal funds sold

   —      11    11 
  

 

 

   

 

 

   

 

 

 

Total interest earning assets

  $4,493   $(340)   $4,153 

Interest bearing liabilities

      

Interest bearing transaction accounts

  $23   $238   $261 

Savings and money market accounts

   68    707    775 

Time deposits

   12    373    385 

Securities sold under agreement to repurchase

   (6)    16    10 

Federal Home Loan Bank advances

   174    215    389 

Federal funds purchased

   (1)    6    5 

Note payable

   194    42    236 
  

 

 

   

 

 

   

 

 

 

Total interest bearing liabilities

  $464   $1,597   $2,061 

Net interest income

      

Net interest income (taxable equivalent)

  $4,029   $(1,937)   $2,092 

Taxable equivalent adjustment

   151    211    362 
  

 

 

   

 

 

   

 

 

 

Net interest income

  $4,180   $(1,726)   $2,454 
  

 

 

   

 

 

   

 

 

 

Provision for Loan Losses

During the year ended December 31, 2018, we recorded a provision for loan losses of $2.0 million compared to $1.7 million during the year ended December 31, 2017. The increase in the provision for loan losses resulted from growth in loan volume. Net loan charge-offs decreased from $866 thousand in 2017 to

$264 thousand in 2018. The allowance for loan losses is increased by a provision for loan losses, which is a charge to earnings, and is decreased by charge-offs and increased by loan recoveries. In determining the adequacy of our allowance for loan losses, we consider our historical loan loss experience, the general economic environment, the overall portfolio composition, and other information. As these factors change, the level of loan loss provision changes. When individual loans are evaluated for impairment, and impairment is deemed necessary, the impaired portion of the loan amount is generally charged off. As of December 31, 2018 and 2017, $725 thousand and $908 thousand of our allowance was related to impaired loans, respectively.

Noninterest Income

In addition to net interest margin, we generate other types of recurring noninterest income from our operations. Our banking operations generate revenue from service charges and fees on deposit accounts. We have a mortgage division that generates revenue from originating and selling mortgages, and from the sale ofnon-deposit investment products through an arrangement with a registered broker-dealer with which we have a revenue-sharing arrangement. In addition to these types of recurring noninterest income, River Bank owns insurance on several key employees and records income on the increase in the cash surrender value of these policies.

The following table sets forth the principal components of noninterest income for the periods indicated.

   For the Year Ended
December 31,		 
   2018   2017 

Service charges and fees

  $3,465   $2,949 

Investment brokerage revenue

   136    58 

Mortgage operations

   2,293    1,895 

Bank owned life insurance income

   569    1,086 

Net gain (loss) on sale of investment securities

   (48)    5 

Other noninterest income

   426    316 
  

 

 

   

 

 

 

Total noninterest income

  $6,841   $6,309 
  

 

 

   

 

 

��

Noninterest income for the years ended December 31, 2018 and 2017 was $6.8 million and $6.3 million, respectively. The primary reason for the increase in noninterest income was from service charges and fees and income from our mortgage operations. Service charges and fees continued to be our largest source of noninterest income in 2018 with $3.5 million compared to $2.9 million in 2017. These service charges and fees are primarily generated by checking and savings accounts. Our mortgage operations produced noninterest income in 2018 of $2.3 million compared to $1.9 million in 2017. These increases were partially offset by a $517 thousand decrease in bank owned life insurance income resulting from death benefits received during the prior year but not the current year.

Noninterest expense

Our total noninterest expense increase reflects our continued growth, as well as the expansion of our operational framework, employee expansion, and facility expansion, as we build the foundation to support our recent and future growth. We believe that some of our overhead costs will reduce as a percentage of our revenue as we grow and gain operating leverage by spreading these costs over a larger revenue base.

The following table presents the primary components of noninterest expense for the periods indicated.

   For the Years Ended
December 31,		 
   2018   2017 

Salaries and employee benefits

  $14,016   $12,097 

Occupancy expenses

   1,534    1,399 

Equipment rentals, depreciation, and maintenance

   916    841 

Telephone and communications

   274    261 

Advertising and business development

   658    625 

Data processing

   3,527    1,689 

Foreclosed assets, net

   200    163 

Federal deposit insurance and other regulatory assessments

   342    333 

Legal and other professional services

   798    505 

Other operating expense

   3,731    3,392 
  

 

 

   

 

 

 

Total noninterest expense

  $25,996   $21,305 
  

 

 

   

 

 

 

Noninterest expense for the years ended December 31, 2018 and 2017 was $26.0 million and $21.3 million, respectively, an increase of $4.7 million, or 22.0%. The largest component of noninterest expense was salaries and employee benefits. Salaries and benefits increased approximately $1.9 million mainly due to the addition of new employees. The increase of $1.8 in data processing expense was mainly a result of the termination costs recognized as a result of the PSB merger. The increase in most of the remaining noninterest expense categories resulted primarily from continued organic growth as well as from the PSB merger.

Income Tax Provision

Income tax expense of $2.4 million and $4.5 million was recognized during the years ended December 31, 2018 and 2017, respectively. The decrease in income tax expense during 2018 was mainly due to Tax Cuts and Jobs Act of 2017 which lowered the federal corporate tax rate from 34% to 21%. The effective tax rate for the year 2018 was 21.9% compared to 35.3% for the year 2017. The effective tax rates are affected by items of income and expense that are not subject to federal and state taxation.

Comparison of Balance Sheets at December 31, 2018 and 2017

Overview

Our total assets increased $247.2 million, or 30.0%, from $823.3 million at December 31, 2017, to $1.1 billion at December 31, 2018. Loans increased by $162.4 million during 2018 and investment securities increased $35.3 million in 2018. Cash and cash equivalents increased by $31.9 million during 2018.

Deposits at December 31, 2018 totaled $898.7 million, an increase of $198.8 million as compared to December 31, 2017. Noninterest-bearing deposits increased $56.1 million in 2018 and interest-bearing deposits increased $142.7 million. Our deposits increased during 2018 mainly as a result of the PSB merger. Other changes are due to normal fluctuations in deposits as well as customers moving their deposits to higher yielding investments.

Loans

Loans are our largest category of earning assets and typically provide higher yields than other types of earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks that we attempt to

control and counterbalance. Total loans averaged $619.2 million during the year ended December 31, 2018, or 77.4% of average earning assets, as compared to $517.8 million or 70.2% of average earning assets, for the year ended December 31, 2017. At December 31, 2018, total loans, net of unearned income, were $711.3 million, compared to $547.1 million at December 31, 2017, an increase of $164.2 million, or 30.0%.

The organic, ornon-acquired, growth in our loan portfolio is attributable to our ability to attract new customers from other financial institutions and overall growth in our markets. Much of our loan growth has come from moving customers from other financial institutions to River Bank. We have also been successful in building banking relationships with new customers. We have hired several new bankers in the markets that we serve, and these employees have been successful in transitioning their former clients and attracting new clients to River Bank. Our bankers are expected to be involved in their communities and to maintain business development efforts to develop relationships with clients, and our philosophy is to be responsive to customer needs by providing decisions in a timely manner. In addition to our business development efforts, many of the markets that we serve have shown signs of economic recovery over the last few years.

The table below provides a summary of the loan portfolio composition as of the periods indicated.

COMPOSITION OF LOAN PORTFOLIO

   December 31, 2018  December 31, 2017 
   Amount   % of
Total		  Amount  % of
Total		 

Residential real estate:

      

Closed-end1-4 family—first lien

  $162,249    23.0%  $115,776   21.4% 

Closed-end1-4 family—junior lien

   5,739    0.8%   4,969   0.9% 

Multi-family

   16,938    2.4%   16,977   3.1% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total residential real estate

   184,926    26.2%   137,722   25.4% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Commercial real estate:

      

Nonfarm nonresidential

   209,391    29.7%   173,443   32.0% 

Farmland

   10,417    1.5%   7,782   1.4% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total commercial real estate

   219,808    31.2%   181,225   33.4% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Construction and land development:

      

Residential

   39,680    5.6%   25,830   4.8% 

Other

   62,430    8.9%   40,734   7.5% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total construction and land development

   102,110    14.5%   66,564   12.3% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Home equity lines of credit

   39,040    5.5%   35,833   6.6% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Commercial loans:

      

Other commercial loans

   112,927    16.0%   95,896   17.7% 

Agricultural

   1,743    0.2%   1,581   0.3% 

State, county, and municipal loans

   19,756    2.9%   8,332   1.5% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total commercial loans

   134,426    19.1%   105,809   19.5% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Consumer loans

   33,867    4.8%   23,231   4.3% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Total gross loans

   714,177    101.3%   550,384   101.5% 

Allowance for loan losses

   (6,577)    -0.9%   (4,881)   -0.9% 

Net deferred loan fees and discounts

   (2,915)    -0.4%   (3,263)   -0.6% 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net loans

  $704,685    100.0%  $542,240   100.0% 
  

 

 

   

 

 

  

 

 

  

 

 

 

In the context of this discussion, a “real estate mortgage loan” is defined as any loan, other than a loan for construction purposes, secured by real estate, regardless of the purpose of the loan. It is common practice for

financial institutions in our market areas, and for us in particular, to obtain a security interest or lien in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan. This practice tends to increase the magnitude of the real estate loan portfolio. In many cases, we prefer real estate collateral to many other potential collateral sources, such as accounts receivable, inventory, and equipment.

The Federal regulatory agencies issued two “guidance” documents that have a significant impact on real estate related lending and, thus, on the operations of River Bank. One part of the guidance could require lenders to restrict lending secured primarily by certain categories of commercial real estate to a level of 300% of their capital or raise additional capital. This factor, combined with the current economic environment, could affect River Bank’s lending strategy away from, or to limit its expansion of, commercial real estate lending which has been a material part of River Financial’s lending strategy. This could also have a negative impact on our lending and profitability. Management actively monitors the composition of River Bank’s loan portfolio, focusing on concentrations of credit, and the results of that monitoring activity are periodically reported to the River Financial board of directors.

The other guidance relates to the structuring of certain types of mortgages that allows negative amortization of consumer mortgage loans. Although River Bank does not engage at present in lending using these types of instruments, the guidance could have the effect of making River Bank less competitive in consumer mortgage lending if the local market is driving the demand for such an offering.

The principal component of our loan portfolio is real estate mortgage loans on residential and commercial properties. At December 31, 2018, this category totaled $443.8 million and represented 63.0% of the total loan portfolio, compared to $354.8 million, or 65.4% of the total loan portfolio atyear-end 2017. Residential real estate loans increased in 2018 $47.2 million, or 34.3%, and commercial real estate loans increased $38.6 million, or 21.3%. Home equity lines of credit increased $3.2 million, or 8.9%.

Real estate construction loans totaled $102.1 million at December 31, 2018, an increase $35.5 million, or 53.4%, over $66.6 million at December 31, 2017. This loan type accounted for 14.5% and 12.3% of our total loan portfolio at December 31, 2018 and December 2017, respectively.

Commercial and industrial loans totaled $134.4 million at December 31, 2018, compared to $105.8 million at December 31, 2017, an increase of $28.6 million, or 27.0% during 2018. We expect this growth trend with respect to commercial and industrial loans to continue as economic conditions improve.

The repayment of loans is a source of additional liquidity for us. The following table sets forth our loans maturing within specific intervals at December 31, 2018.

LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES

   One year
or less		   Over one
year through
five years		   Over five
years		   Total 

Residential real estate:

        

Closed—end1-4 family—first lien

  $18,011   $84,448   $59,790   $162,249 

Closed—end 1-4 family—junior lien

   1,669    2,917    1,153    5,739 

Multi-family

   1,275    10,173    5,490    16,938 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total residential real estate

   20,955    97,538    66,433    184,926 
  

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

        

Nonfarm nonresidential

   23,713    148,080    37,598    209,391 

Farmland

   5,124    4,900    393    10,417 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

   28,837    152,980    37,991    219,808 
  

 

 

   

 

 

   

 

 

   

 

 

 

Construction and land development:

        

Residential

   38,539    831    310    39,680 

Other

   15,973    25,761    20,696    62,430 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total construction and land development

   54,512    26,592    21,006    102,110 
  

 

 

   

 

 

   

 

 

   

 

 

 

Home equity lines of credit

   3,108    6,411    29,521    39,040 
  

 

 

   

 

 

   

 

 

   

 

 

 

Commercial loans:

        

Other commercial loans

   39,883    61,475    11,569    112,927 

Agricultural

   974    525    244    1,743 

State, county, and municipal loans

   3,821    3,119    12,816    19,756 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial loans

   44,678    65,119    24,629    134,426 
  

 

 

   

 

 

   

 

 

   

 

 

 

Consumer loans

   6,204    19,972    7,691    33,867 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross loans

  $158,294   $368,612   $187,271   $714,177 
  

 

 

   

 

 

   

 

 

   

 

 

 

The information presented in the table above is based upon the contractual maturities of the individual loans, which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms at their maturity. Consequently, we believe that this treatment presents fairly the maturity structure of the loan portfolio.

Investment Securities

We use our securities portfolio primarily to enhance our overall yield on interest-earning assets and as a source of liquidity, as a tool to manage our balance sheet sensitivity and regulatory capital ratios, and as a base upon which to pledge assets for public deposits. When our liquidity position exceeds current needs and our expected loan demand, other investments are considered as a secondary earnings alternative. As investments mature, they are used to meet current cash needs, or they are reinvested to maintain our desired liquidity position. We have designated all of our securities asavailable-for-sale to provide flexibility, in case an immediate need for liquidity arises, and we believe that the composition of the portfolio offers needed flexibility in managing our liquidity position and interest rate sensitivity without adversely impacting our regulatory capital levels. Securitiesavailable-for-sale are reported at fair value with unrealized gains or losses reported as a separate component of other comprehensive income, net of related deferred taxes. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

The following tables summarize the amortized cost and fair value of securitiesavailable-for-sale at December 31, 2018 and 2017.

INVESTMENT SECURITIES

   December 31, 2018   December 31, 2017 
   Amortized
Cost		   Fair
Value		   Amortized
Cost		   Fair
Value		 

Securities available for sale:

        

Residential mortgage-backed

  $108,915   $104,933   $125,768   $122,972 

U.S. govt. sponsored enterprises

   63,833    63,922    13,176    12,999 

State, county, and municipal

   57,417    57,160    55,339    55,501 

Corporate debt obligations

   2,670    2,615    1,831    1,817 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $232,835   $228,630   $196,114   $193,289 
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows the scheduled maturity and average yields of our securities at December 31, 2018.

INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS

   Within one year  After one year but
within five years		  After five years but
within ten years		  After ten years  Other securities 
   Amount   Yield  Amount   Yield  Amount   Yield  Amount   Yield  Amount   Yield 

U.S. govt. sponsored enterprises

  $12,298    2.58%  $37,163    2.90%  $11,352    3.26%  $3,109    2.16%  $—      —% 

State, county, and municipal

   3,767    2.43%   17,835    2.27%   11,795    2.54%   23,763    2.86%   —      —% 

Corporate debt obligations

   1,027    3.03%   1,002    3.75%   586    4.71%   —      —%   —      —% 

Residential mortgage-backed

   —      —%   —      —%   —      —%   —      —%   104,933    2.32% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Totals

  $17,092    2.57%  $56,000    2.71%  $23,733    2.94%  $26,872    2.78%  $104,933    —% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

We invest primarily in mortgage-backed securities, municipal securities, and obligations of government-sponsored entities and agencies of the United States, though we may in some situations also invest in direct obligations of the United States or obligations guaranteed as to the principal and interest by the United States. All of our mortgage-backed securities are residential securities issued by the Federal National Mortgage Association, or FNMA, and the Federal Home Loan Mortgage Corporation, or FHLMC. During all periods presented, we have used most of our excess liquidity to invest in loans, as our loan demand has remained strong, rather than investing in investment securities.

Allowance for Loan Losses, Provision for Loan Losses and Asset Quality

Allowance for loan losses and provision for loan losses

Our allowance for loan losses represents our estimate of probable inherent credit losses in the loan portfolio. We determine the required allowance each quarter based on an ongoing evaluation of risk as it correlates to potential losses within the portfolio. Increases in the allowance are made by charges to the provision for loan losses. Loans deemed to be uncollectible are charged against the allowance. Recoveries of previouslycharged-off amounts are credited to our allowance for loan losses.

Management utilizes a review process for the loan portfolio to identify loans that are deemed to be impaired. A loan is considered impaired when it is probable that the Bank will be unable to collect the scheduled payments

of principal and interest due under the contractual terms of the loan agreement or when the loan is deemed to be a troubled debt restructuring. For loans and loan relationships deemed to be impaired that are $100 thousand, or greater, management determines the estimated value of the underlying collateral, less estimated costs to acquire and sell the collateral, or the estimated net present value of the cash flows expected to be received on the loan or loan relationship. These amounts are compared to the current investment in the loan and a specific allowance for the deficiency, if any, is specifically included in the analysis of the allowance for loan losses. For loans and loan relationships less than $100 thousand that are deemed to be impaired, management applies a loss factor of 15% and includes that amount in that analysis of the allowance for loan losses rather than specifically measuring the impairment for each loan or loan relationship.

All other loans are deemed to be unimpaired and are grouped into various homogeneous risk pools utilizing regulatory reporting classifications. River Bank’s historical loss factors are calculated for each of these risk pools based on the net losses experienced as a percentage of the average loans outstanding. The time periods utilized in these historical loss factor calculations are subjective and vary according to management’s estimate of the impact of current economic cycles. As every loan has a risk of loss, minimum loss factors are estimated based on long term trends for River Bank, the banking industry, and the economy. The greater of the calculated historical loss factors or the minimum loss factors are applied to the unimpaired loan amounts currently outstanding for the risk pool and included in the analysis of the allowance for loan losses. In addition, certain qualitative adjustments may be included by management as additional loss factors applied to the unimpaired loan risk pools. These adjustments may include, among other things, changes in loan policy, loan administration, loan, geographic, or industry concentrations, loan growth rates, and experience levels of our lending officers. The loss allocations for specifically impaired loans, smaller impaired loans not specifically measured for impairment, and unimpaired loans are totaled to determine the total required allowance for loan losses. This total is compared to the current allowance on the Bank’s books and adjustments made accordingly by a charge or credit to the provision for loan losses.

Management believes the data it uses in determining the allowance for loan losses is sufficient to estimate potential losses in the loan portfolio; however, actual results could differ from management’s estimate.

The following table presents a summary of changes in the allowance for loan losses for the periods and dates indicated.

ALLOWANCE FOR LOAN LOSSES

   Year Ended: 

Amounts in thousands, (except percentages)

  December 31,
2018		  December 31,
2017		 

Allowance for loan losses at beginning of period

  $4,881  $4,007 

Charge-offs:

   

Mortgage loans on real estate:

   

Residential

   41   32 

Commercial real estate

   109   308 

Construction and land development

   —     24 

Equity lines of credit

   20   100 
  

 

 

  

 

 

 

Total mortgage loans on real estate

   170   464 

Commercial

   284   466 

Consumer

   48   109 
  

 

 

  

 

 

 

Total charge-offs

   502   1,039 

Recoveries:

   

Mortgage loans on real estate:

   

Residential

   15   24 

Commercial real estate

   13   16 

Construction and land development

   38   11 

Equity lines of credit

   12   4 
  

 

 

  

 

 

 

Total mortgage loans on real estate

   78   55 

Commercial

   139   104 

Consumer

   21   14 
  

 

 

  

 

 

 

Total recoveries

   238   173 
  

 

 

  

 

 

 

Net Charge-offs

   264   866 

Provision for loan losses

   1,960   1,740 
  

 

 

  

 

 

 

Allowance for loan losses at end of period

  $6,577  $4,881 
  

 

 

  

 

 

 

Total loans outstanding, net of deferred loan fees and discounts

  $711,262  $547,121 

Average loans outstanding, net of deferred loan fees

  $619,238  $517,822 

Allowance for loan losses to period end loans

   0.92%   0.89% 

Net charge-offs to average loans (annualized)

   0.04%   0.17% 

In accordance with ASC Topic 805,Business Combinations, the loans acquired in 2015 from Keystone Bank and the loans acquired from Peoples Southern Bank in 2018 were recorded at fair value and any discount to fair value was recorded against the loans rather than as an allowance for loan losses. Approximately $504 thousand of the discount associated with the loans acquired from Peoples Southern Bank was deemed related to credit quality. The total discount was recorded as an accretable discount and is accreted into interest income over the life of the loans using the level yield method. At December 31, 2018, the acquired loan portfolio of Keystone Bank which we acquired in 2015 totaled $48.6 million and had a related accretable discount of $1.3 million. During 2018, discount accretion of $1.2 million was recognized in interest income on loans. At December 31, 2017, Keystone’s acquired loan portfolio totaled $75.0 million and had a related accretable discount of $2.5 million. During 2017, discount accretion of $2.3 million was recognized in interest income on loans. At December 31, 2018, Peoples Southern Bank’s acquired loan portfolio totaled $53.7 million and had a

related accretable discount of $654 thousand. During 2018, discount accretion of $62 thousand was recognized in interest income on loans.

Overall, asset quality indicators have continued to improve, and, as a result, provision expense has been minimal for the Bank’s loan portfolio. During the years ended December 31, 2018 and 2017, we recorded provision expense of $2.0 million and $1.7 million, respectively.

Allocation of Our Allowance for Loan Losses

While no portion of our allowance for loan losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of our allowance for loan losses to specific loan categories for the periods indicated.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

   As of December 31, 
   2018  2017 
   Amount   Percent of
Allowance in each
Category to
Total Allowance		  Amount   Percent of
Allowance in each
Category to
Total Allowance		 

Residential real estate

  $1,579    24.0%  $1,167    23.9% 

Commercial real estate

   1,961    29.8%   1,604    32.9% 

Construction and land development

   942    14.3%   606    12.4% 

Home equity lines of credit

   394    6.0%   333    6.8% 

Commercial

   1,375    20.9%   954    19.5% 

Consumer

   326    5.0%   217    4.5% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $6,577    100.0%  $4,881    100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Nonperforming Assets

The following table presents our nonperforming assets for the dates indicated.

NONPERFORMING ASSETS

   December 31, 
   2018  2017 

Nonaccrual loans

  $2,740  $2,586 

Accruing loans past due 90 days or more

   19   421 
  

 

 

  

 

 

 

Total nonperforming loans

   2,759   3,007 

Foreclosed assets

   496   1,546 
  

 

 

  

 

 

 

Total nonperforming assets

  $3,255  $4,553 
  

 

 

  

 

 

 

Allowance for loan losses to period end loans

   0.92%   0.89% 

Allowance for loan losses to period end nonperforming loans

   238.38%   162.32% 

Net charge-offs to average loans (annualized)

   0.04%   0.17% 

Nonperforming assets to period end loans and foreclosed property

   0.46%   0.83% 

Nonperforming loans to period end loans

   0.39%   0.55% 

Nonperforming assets to total assets

   0.30%   0.55% 

Period end loans

   711,262   547,121 

Period end total assets

   1,070,464   823,292 

Allowance for loan losses

   6,577   4,881 

Average loans for the period

   619,238   517,822 

Net charge-offs for the period

   264   866 

Period end loans plus foreclosed property

   711,758   548,667 

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful. In addition to consideration of these factors, loans that are past due 90 days or more are generally placed on nonaccrual status. When a loan is placed on nonaccrual status, all accrued interest on the loan is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Payments received while a loan is on nonaccrual status will generally be applied to the outstanding principal balance. When a problem loan is finally resolved, there may ultimately be an actual write-down orcharge-off of the principal balance of the loan that would necessitate additional charges to the allowance for loan losses.

Total nonperforming assets decreased $1.4 million to $3.2 million at December 31, 2018, from $4.6 million at December 31, 2017. Total nonperforming assets as a percentage of total assets decreased 0.25% from 0.55% at December 31, 2017 to 0.30% at December 31, 2018. Improving asset quality has been and will continue to be a primary focus of management.

Deposits

Deposits, which include noninterest-bearing demand deposits, interest-bearing demand deposits, money market accounts, and savings, time, and other deposits, are the primary funding source for River Bank. We offer a variety of products designed to attract and retain customers, with primary focus on building and expanding client relationships. We continue to focus on establishing a comprehensive relationship with consumer and business borrowers, seeking deposits as well as lending relationships.

The following table details the composition of our deposit portfolio as of the dates indicated.

COMPOSITION OF DEPOSITS

   December 31, 2018  December 31, 2017 
   Amount   Percent of
Total		  Amount   Percent of
Total		 

Demand deposits, noninterest-bearing

  $241,274    26.8%  $185,171    26.5% 

Demand deposits, interest-bearing

   239,463    26.6%   195,792    28.0% 

Money market accounts

   200,143    22.3%   153,732    22.0% 

Savings deposits

   55,733    6.2%   29,441    4.2% 

Time certificates of $250 or more

   47,251    5.3%   37,045    5.3% 

Other time certificates

   114,843    12.8%   98,680    14.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Totals

  $898,707    100.0%  $699,861    100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total deposits were $898.7 million at December 31, 2018, an increase of $198.8 million, or 28.4%, from $699.9 at December 31, 2017. Noninterest-bearing demand deposits and interest-bearing demand deposits increased a combined total of $99.8 million, or 26.2% from December 31, 2017 to December 31, 2018. These two categories of deposits are our least expensive source of funding for interest-earning assets.

The following table details the maturities of our time deposits which consist entirely of certificates of deposit.

MATURITIES OF CERTIFICATES OF DEPOSIT

   All CDs   CDs $100
or more		   CDs
Less Than
$100		 

Three months or less

  $35,437   $16,122   $19,315 

Greater than three months through six months

   30,173    13,100    17,073 

Greater than six months through one year

   52,292    19,039    33,253 

Greater than one year through three years

   31,774    10,215    21,559 

Greater than three years

   12,418    3,281    9,137 
  

 

 

   

 

 

   

 

 

 

Total

  $162,094   $61,757   $100,337 
  

 

 

   

 

 

   

 

 

 

Deposit growth has benefited to a large extent from uncertainty in the financial markets, which has increased the liquidity of many banks as consumers and businesses look for safe places for liquidity, thereby increasing bank deposits.

Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning or when the terms are attractive and will not disrupt our offering rates in our markets. A source that we have used for wholesale funding is the Federal Home Loan Bank of Atlanta (“FHLB”). At December 31, 2018 and 2017 River Bank had $20.0 million and $10.0 million, respectively, of borrowings outstanding with FHLB.

Liquidity

Market and public confidence in our financial strength and financial institutions in general will largely determine our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital reserves.

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving consideration to bothon- andoff-balance sheet sources of and demands for funds on a daily, weekly, and monthly basis.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations in a cost-effective manner and to meet current and future potential obligations such as loan commitments, lease obligations, and unexpected deposit outflows. In this process, we focus on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet our needs.

Funds are available from a number of basic banking activity sources, including the core deposit base, the repayment and maturity of loans, and investment security cash flows. Other funding sources include federal funds purchased, brokered certificates of deposit, and borrowings from the FHLB.

Cash and cash equivalents at December 31, 2018 and 2017 were $47.5 million and $15.6 million, respectively. Based on the recorded cash and cash equivalents, our liquidity resources were sufficient at December 31, 2018 to fund loans and meet other cash needs as necessary.

Contractual Obligations

While our liquidity monitoring and management considers both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations.

   Due in 1
year or less		   Due after 1
through
3 years		   Due after 3
through
5 years		   Due after
5 years		   Total 

Federal Home Loan Bank advances

  $20,000   $—     $—     $—     $20,000 

Note payable

   3,165    7,008    7,895    8,895    26,963 

Certificates of deposit of less than $100

   69,641    21,559    9,137    —      100,337 

Certificates of deposit of $100 or more

   48,261    10,215    3,281    —      61,757 

Securities sold under agreements to repurchase

   7,975    —      —      —      7,975 

Operating leases

   609    1,128    1,056    833    3,626 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $149,651   $39,910   $21,369   $9,728   $220,658 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-Balance Sheet Arrangements

We are party to credit-related financial instruments withoff-balance sheet risks in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded on our balance sheet. Our exposure to credit loss is represented by the contractual amounts of these commitments. We follow the same credit policies in making commitments as we do foron-balance sheet instruments.

Ouroff-balance sheet arrangements are summarized in the following table for the periods indicated.

CREDIT EXTENSION COMMITMENTS

   December 31,
2018		   December 31,
2017		 

Commitments to extend credit

  $146,462   $142,878 

Stand-by and performance letters of credit

   5,412    2,268 
  

 

 

   

 

 

 

Total

  $151,874   $145,146 
  

 

 

   

 

 

 

Interest Sensitivity and Market Risk

Interest Sensitivity

We monitor and manage the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring technique we employ is simulation analysis and this technique is augmented by “gap” analysis.

In simulation analysis, we review each individual asset and liability category and their projected behavior in various different interest rate environments. These projected behaviors are based upon management’s past experiences and upon current competitive environments, including the various environments in the different markets in which we compete. Using this projected behavior and differing rate scenarios as inputs, the simulation analysis generates as output projections of net interest income. We also periodically verify the validity of this approach by comparing actual results with those that were projected in previous models.

Another technique used in interest rate management, but to a lesser degree than simulation analysis, is the measurement of the interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale or trading securities, replacing an asset or liability at maturity, or by adjusting the interest rate during the life of an asset or liability.

We evaluate interest rate sensitivity risk and then formulate guidelines regarding asset generation and repricing and sources and prices ofoff-balance sheet commitments in order to decrease interest sensitivity risk. We use computer simulations to measure the net income effect of various interest rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time.

The following table illustrates our interest rate sensitivity at December 31, 2018, assuming that the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities.

INTEREST SENSITIVITY ANALYSIS

   0-1 Mos  1-3 Mos  3-12 Mos  1-2 Yrs  2-3 Yrs  >3 Yrs  Total 

Interest earning assets

        

Loans

  $138,958  $39,548  $139,683  $128,191  $87,624  $177,258  $711,262 

Securities

   5,266   8,359   25,984   24,772   28,134   136,115   228,630 

Certificates of deposit in banks

   —     249   975   1,229   978   2,735   6,166 

Cash balances in banks

   32,253   —     —     —     —     —     32,253 

Federal funds sold

   1,420   —     —     —     —     —     1,420 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest earning assets

  $177,897  $48,156  $166,642  $154,192  $116,736  $316,108  $979,731 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Interest bearing liabilities

        

Interest bearing transaction accounts

  $98,181  $4,789  $21,552  $28,735  $28,735  $57,471  $239,463 

Savings and money market accounts

   139,140   4,666   21,000   28,000   28,000   35,070   255,876 

Time deposits

   9,335   27,375   81,857   17,743   13,388   12,396   162,094 

Securities sold under agreements to repurchase

   7,975   —     —     —     —     —     7,975 

Federal Home Loan Bank Advances

   20,000   —     —     —     —     —     20,000 

Note payable

   782   —     2,420   3,400   3,608   16,753   26,963 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest bearing liabilities

  $275,413  $36,830  $126,829  $77,878  $73,731  $121,690  $712,371 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Interest sensitive gap

        

Period gap

  $(97,516)  $11,326  $39,813  $76,314  $43,005  $194,418  $267,360 

Cumulative gap

  $(97,516)  $(86,190)  $(46,377)  $29,937  $72,942  $267,360  

Cumulative gap—Rate Sensitive Assets/ Rate

        

Sensitive Liabilities

   (10.0)%   (8.8)%   (4.7)%   3.1%   7.4%   27.3%  

We generally benefit from increasing market rates of interest when we have an asset-sensitive gap (a positive number) and generally benefit from decreasing market interest rates when we are liability-sensitive (a negative number). As shown in the table above, we are slightly liability-sensitive on a cumulative basis through two years. The interest sensitivity analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest-sensitive than market- based rates such as those paid onnon-core deposits. For this and other reasons, management relies more upon the simulation analysis (as noted above) in managing interest rate risk. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in the volume and mix of earning assets and interest-bearing liabilities.

Market Risk

Our earnings are dependent, to a large degree, on our net interest income, which is the difference between interest income earned on all earning assets, primarily loans and securities, and interest paid on all interest bearing-liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our market risk arises primarily from inherent interest rate risk in our lending, investing, and deposit gathering activities. We seek to reduce our exposure to market risk through actively monitoring and managing interest rate risk. Management relies upon static “gap” analysis to determine the degree of mismatch in the maturity and repricing distribution of interest-earning assets and interest-bearing liabilities which quantifies, to a large extent, the degree of market risk inherent in our balance sheet. Gap analysis is further augmented by simulation analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest-bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 400 basis points below the current prevailing rates to 400 basis points above the current prevailing rates. Management makes certain assumptions as to the effect that varying levels of interest rates have on certain earning assets and interest bearing-liabilities, which assumptions consider both historical experience and consensus estimates of outside sources.

The following table illustrates the results of our simulation analysis to determine the extent to which market risk would affect net interest margin for the next 12 months if prevailing interest rates increased or decreased by the specified amounts from current rates. As noted above, this model uses estimates and assumptions in asset and liability account rate reactions to changes in prevailing interest rates. However, to isolate the market risk inherent in the balance sheet, the model assumes that no growth in the balance sheet occurs during the projection period. This model also assumes an immediate and parallel shift in interest rates, which would result in no change in the shape or slope of the interest rate yield curve. Because of the inherent use of these estimates and assumptions in the simulation model to derive this market risk information, the actual results of the future impact of market risk on our net interest margin may (and most likely will) differ from that found in the table.

MARKET RISK

   Impact on net interest income 
   As of
December 31,
2018		  As of
December 31,
2017		 

Change in prevailing rates:

   

+ 400 basis points

   (4.94)%   (1.37)% 

+ 300 basis points

   (3.49)%   (0.53)% 

+ 200 basis points

   (2.10)%   (0.02)% 

+ 100 basis points

   (0.85)%   0.30% 

+ 0 basis points

   —     —   

- 100 basis points

   (0.08)%   (4.51)% 

- 200 basis points

   (4.43)%   (10.54)% 

- 300 basis points

   (7.25)%   (12.82)% 

- 400 basis points

   (8.38)%   (13.80)% 

Capital Resources

Total stockholders’ equity at December 31, 2018 was $110.1 million, or 10.3% of total assets. At December 31, 2017, total stockholders’ equity was $89.0 million, or 10.8% of total assets. The increase in shareholders’ equity for 2018 was mainly attributable to the PSB merger and net income of $8.5 million.

The bank regulatory agencies have established risk-based capital requirements for banks. These guidelines are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against“off-balance sheet”

activities such as loans sold with recourse, loan commitments, guarantees, and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity, such as preferred stock, that may be included in capital. Certain items, such as goodwill and other intangible assets, are deducted from total capital in arriving at the various regulatory capital measures such as Tier 1 capital and total risk based capital. Our objective is to maintain River Bank’s current status as a “well-capitalized institution,” as that term is defined by River Bank’s regulators. As of December 31, 2018, RB&T was “well-capitalized” under the regulatory framework for prompt corrective action.

Changes to the regulatory guidelines for bank capital levels that became effective January 1, 2015, the minimum ratio of total capital to risk-weighted assets (including certainoff-balance sheet activities such as standby letters of credit) is 8%. The required ratio of “Tier 1 Capital” (consisting generally of shareholders’ equity and qualifying preferred stock, less certain goodwill items and other intangible assets) to risk-weighted assets is 6%. While there was previously no required ratio of “Common Equity Tier 1 Capital” (which generally consists of common stock, retained earnings, certain qualifying capital instruments issued by consolidated subsidiaries, and Accumulated Other Comprehensive Income, subject to adjustments) to total risk-weighted assets, a required minimum ratio of 4.5% became effective on January 1, 2015, as well. The remainder of total capital, or “Tier 2 Capital,” may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets, (b) preferred stock not qualifying as Tier 1 Capital, (c) hybrid capital instruments, (d) perpetual debt, (e) mandatory convertible securities, and (f) certain subordinated debt and intermediate-term preferred stock up to 50% of Tier 1 Capital. Total Capital is the sum of Tier 1 Capital and Tier 2 Capital (which is included only to the extent of Tier 1 Capital), less reciprocal holdings of other banking organizations’ capital instruments, investments in unconsolidated subsidiaries, and any other deductions as determined by the appropriate regulator.

Quantitative measures, established by regulation to ensure capital adequacy effective January 1, 2015, require River Bank & Trust to maintain minimum amounts and ratios (set forth in the table below) of total risk based capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).

The following table presents River Bank’s capital amounts and ratios with the required minimum levels for capital adequacy purposes including the phase in of the capital conservation buffer under Basel III and minimum levels to be well capitalized (as defined) under the regulatory prompt corrective action regulations. The following table contains selected capital ratios at December 31, 2018 and 2017 for River Bank.

CAPITAL ADEQUACY ANALYSIS

As of December 31, 2018:

  Actual  Required For Capital
Adequacy Purposes		  To Be Well Capitalized
Under Prompt Corrective
Action Regulations		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 

Total Capital (To Risk-Weighted Assets)

  $115,721    14.253%  $80,174    >= 9.875%  $81,189    >= 10.000% 

Common Equity Tier 1 Capital (To Risk- weighted Assets)

   109,144    13.443%   51,758    >= 6.375%   52,773    >= 6.500% 

Tier 1 Capital (To Risk-Weighted Assets)

   109,144    13.443%   63,936    >= 7.875%   64,951    >= 8.000% 

Tier 1 Capital (To Average Assets)

   109,144    14.006%   31,172    >= 4.000%   38,965    >= 5.000% 

As of December 31, 2017:

  Actual  Required For Capital
Adequacy Purposes		  To Be Well Capitalized
Under Prompt Corrective
Action Regulations		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 

Total Capital (To Risk-Weighted Assets)

  $89,604    14.325%  $57,859    >= 9.250%  $62,551    >= 10.00% 

Common Equity Tier 1 Capital (To Risk- weighted Assets)

   84,724    13.545%   35,967    >= 5.750%   40,658    >= 6.50% 

Tier 1 Capital (To Risk-Weighted Assets)

   84,724    13.545%   45,349    >= 7.250%   50,040    >= 8.00% 

Tier 1 Capital (To Average Assets)

   84,724    10.429%   32,497    >= 4.000%   40,621    >= 5.00% 

River Bank’s Total Capital ratio and Tier 1 Capital (To Risk-weighted Assets) ratio decreased fromyear-end 2017 toyear-end 2018 as a result of the PSB merger, but the ratios remain well above the levels for the Bank to be deemed well-capitalized.

Banking regulations limit the amount of dividends that a bank may pay without approval of the regulatory authorities. These restrictions are based on the bank’s level of regulatory classified assets, prior years’ net earnings and ratio of equity capital to assets. As of December 31, 2018, the maximum amount of dividend River Bank could declare payable to the Company was approximately $14.0 million.

For the Three Months Ending June 30, 2019 and 2018

Overview of Second Quarter 2019 Results

Net income was $2.72 million in the quarter ended June 30, 2019, compared with $2.27 million in the quarter ended June 30, 2018. Several significant measures from the 2019 second quarter include:

Net interest margin (taxable equivalent) of 3.87%, compared with 4.12% for the second quarter of 2018.

Net interest income increase of $1.8 million for the quarter ended June 30, 2019, representing a 23.71% rate of increase over the quarter ended June 30, 2018.

Annualized return on average earning assets for the quarter ended June 30, 2019 of 1.08% compared with 1.19% for the quarter ended June 30, 2018.

Annualized return on average equity for the quarter ended June 30, 2019 of 9.41% compared with 10.11% for the quarter ended June 30, 2018.

Loan increase of $17.3 million during the quarter, representing a 9.47% annualized growth rate.

Securitiesavailable-for-sale decrease of $5.0 million during the quarter, representing a 8.88% annualized decrease for the quarter.

Deposit increase of $25.3 million during the quarter, representing a 10.85% annualized growth rate.

Stockholders’ equity increase of $4.9 million during the quarter representing a 17.42% annualized growth rate.

Book value per share of $20.98 at June 30, 2019, compared with $19.60 per share at December 31, 2018.

Tangible book value per share of $16.91 at June 30, 2019, compared with $15.41 at December 31, 2018.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in the notes to the financial statements for the year ended

December 31, 2018, which are contained herein. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or future periods. The use of estimates, assumptions, and judgment is necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations.

The following briefly describes the more complex policies involving a significant amount of judgments about valuation and the application of complex accounting standards and interpretations.

Allowance for Loan Losses

We record estimated probable inherent credit losses in the loan portfolio as an allowance for loan losses. The methodologies and assumptions for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management. Some of the more critical judgments supporting our allowance for loan losses include judgments about: creditworthiness of borrowers, estimated value of underlying collateral, assumptions about cash flow, determination of loss factors for estimating credit losses, and the impact of current events, conditions and other factors impacting the level of inherent losses. Under different conditions or using different assumptions, the actual or estimated credit losses that we may ultimately realize may be different than our estimates. In determining the allowance, we estimate losses on individual impaired loans, or groups of loans that are not impaired, where the probable loss can be identified and reasonably estimated. On a quarterly basis, we assess the risk inherent in our loan portfolio based on qualitative and quantitative trends in the portfolio, including the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impact of local, regional and national economic factors on the quality of the loan portfolio. Based on this analysis, we may record a provision for loan losses in order to maintain the allowance at appropriate levels. For a more complete discussion of the methodology employed to calculate the allowance for loan losses, see note 1 to our consolidated financial statements for the year ended December 31, 2018, which are contained herein.

Investment Securities Impairment

We assess, on a quarterly basis, whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. In such instance, we would consider many factors, including the severity and duration of the impairment, our intent and ability to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value through current earnings.

Income Taxes

Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognized in the financial statements. A valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “more likely than not” that the tax assets or benefits will be realized. Realization of tax benefits depends on having sufficient taxable income, available tax loss carrybacks or credits, the reversing of taxable temporary differences and/or tax

planning strategies within the reversal period and that current tax law allows for the realization of recorded tax benefits.

Business Combinations

Assets purchased and liabilities assumed in a business combination are recorded at their fair value. The fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities. On the date of acquisition, when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments, the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. We must estimate expected cash flows at each reporting date. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income. In addition, purchased loans without evidence of credit deterioration are also handled under this method.

Comparison of the Results of Operations for the three and six months ended June 30, 2019 and 2018

The following is a narrative discussion and analysis of significant changes in our results of operations for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018.

Net Income

During the three months ended June 30, 2019, our net income was $2.72 million, compared to $2.27 million for the three months ended June 30, 2018, an increase of $455 thousand, or 20.09%.

The primary reason for the increase in net income for the second quarter of 2019 as compared to the second quarter of 2018 was an increase in net interest income. During the three months ended June 30, 2019, net interest income was $9.5 million compared to $7.7 million for the three months ended June 30, 2018, an increase of $1.8 million, or 23.71%. This increase is a result of higher levels of loan volume and other earning assets from organic growth as well as from growth through the PSB merger. The increase in interest income was accompanied by a corresponding increase in interest expense that resulted from an increase in deposit rates and from deposit growth both organically and through the PSB merger. Total noninterest income for the second quarter of 2019 was $2.1 million compared to $1.8 million for the quarter ended June 30, 2018. This increase in noninterest income was primarily the result of the $355 thousand increase in service charges and fees which was mostly a result of additional income from the PSB merger. Total noninterest expense in the second quarter of 2019 increased $1.6 million, or 26.14%, from the second quarter of 2018. This increase was due primarily due to the PSB merger. The most significant increases were an increase of $762 thousand in salaries and employee benefits, an increase of $291 thousand in data processing, and a $197 thousand increase in amortization expense related to the core deposit intangible assets.

During the six months ended June 30, 2019, our net income was $5.4 million, compared to $4.5 million for the six months ended June 30, 2018, an increase of $845 thousand, or 18.68%.

The primary reason for the increase in net income for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 was an increase in net interest income and an increase in noninterest income. During this period in 2019, net interest income was $19.0 million compared to $15.2 million for the same period in 2018, an increase of $3.8 million, or 24.82%. This increase is a result of higher levels of loan volume and other earning assets from organic growth as well as growth through the PSB merger. The increase in interest income was accompanied by a corresponding increase in interest expense that resulted from an increase in deposit rates and from deposit growth both organically and through the PSB merger. Total noninterest income for

the first six months of 2019 was $3.9 million compared to $3.2 million in the first six months of 2018. This increase was primarily the result of an increase of $681 thousand in revenue from service charges and fees which was mostly a result of additional income from the PSB merger. Total noninterest expense in the first six months of 2019 increased $3.3 million, or 28.48%, from the first six months of 2018. The most significant increases were an increase of $1.4 million in salaries and employee benefits, an increase of $561 thousand in data processing, and a $401 thousand increase in amortization expense related to the core deposit intangible assets.

Net Interest Income and Net Interest Margin Analysis

The largest component of our net income is net interest income – the difference between the income earned on interest earning assets and the interest paid on deposits and borrowed funds used to support assets. Net interest income divided by average interest earning assets represents River Financial’sRFC’s net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the yield on interest earning assets and the cost of interest bearing liabilities. Our net interest margin can also be affected by economic conditions, the competitive environment, loan demand, and deposit flow. Management’s ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the primary source of earnings. This is discussed in greater detail under the heading “Interest Sensitivity and Market Risk”

Index to Financial Statements

The Federal Reserve has not raised short-term interest rates over the past several years, but management understands that an increase, or increases, could possibly occur in 2015 if general economic conditions continue to show improvement. In the press release dated March 18, 2015, the Federal Open Market Committee included the following:

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Based on this statement and general economic data, management believes that River Financial’s net interest margin should remain relatively stable over the remainder of 2015, depending upon rates offered by competitors in local markets and depending on the stability of River Financial’s loan and deposit portfolios.

Comparison of net interest income for the yearsthree months ended December 31, 2014June 30, 2019 and 20132018

The following table shows, for the yearsthree months ended December 31, 2014June 30, 2019 and 2013,2018, the average balances of each principal category of our earning assets and interest bearing liabilities and the average taxable equivalent yields on assets and average costs of liabilities. These yields and costs are calculated by dividing the income or expense by the average daily balance of the associated assets or liabilities (amounts in thousands).

   Three Months Ended June 30, 2019  Three Months Ended June 30, 2018 
   Average
Balance		   Interest
Income/
Expense		  Average
Yield/Rate		  Average
Balance		   Interest
Income/
Expense		  Average
Yield/Rate		 

Interest earning assets

         

Loans

  $739,548   $9,920   5.38%  $595,747   $7,927   5.34% 

Mortgage loans held for sale

   4,005    37   3.74%   5,703    56   3.90% 

Investment securities:

         

Taxable securities

   169,692    1,052   2.48%   115,278    553   1.93% 

Tax-exempt securities

   54,083    547   4.06%   33,049    208   2.52% 

Interest bearing balances in other banks

   28,599    156   2.28%   9,075    44   1.94% 

Federal funds sold

   9,612    66   2.43%   —      —     0.00% 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest earning assets

  $1,005,539   $11,778   4.70%  $758,852   $8,788   4.64% 

Interest bearing liabilities

         

Interest bearing transaction accounts

  $245,961   $292   0.48%  $192,061   $165   0.34% 

Savings and money market accounts

   279,269    722   1.04%   195,298    314   0.64% 

Time deposits

   164,126    666   1.63%   134,284    338   1.02% 

Short-term debt

   8,402    11   0.53%   9,220    12   0.48% 

Federal Home Loan Bank advances

   —      —     0.00%   21,099    106   2.01% 

Note payable

   25,641    392   6.19%   4,819    62   5.06% 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest bearing liabilities

  $723,399   $2,083   1.15%  $556,781   $997   0.72% 

Noninterest-bearing funding of earning assets

   282,140    —     0.00%   202,071    —     0.00% 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total cost of funding earning assets

  $1,005,539   $2,083   0.83%  $758,852   $997   0.53% 

Net interest rate spread

      3.54%      3.92% 
    

 

 

  

 

 

    

 

 

  

 

 

 

Net interest income/margin (taxable equivalent)

    $9,695   3.87%    $7,791   4.12% 

Tax equivalent adjustment

     (146)      (72)  
    

 

 

  

 

 

    

 

 

  

 

 

 

Net interest income/margin

    $9,549   3.81%    $7,719   4.08% 
    

 

 

  

 

 

    

 

 

  

 

 

 

The following table reflects, for the three months ended June 30, 2019 and 2018, the changes in our net interest income due to variances in the volume of interest earning assets and interest bearing liabilities and variances in the associated rates earned or paid on these assets and liabilities (amounts in thousands).

   Three Months Ended June 30, 2019 vs.
Three Months Ended June 30, 2018		 
       Volume       Variance
due to
    Yield/Rate    		       Total     

Interest earning assets

      

Loans

  $1,919   $74   $1,993 

Mortgage loans held for sale

   (17)    (2)    (19) 

Investment securities:

      

Taxable securities

   266    233    499 

Tax-exempt securities

   132    207    339 

Interest bearing balances in other banks

   88    24    112 

Federal funds sold

   —      66    66 
  

 

 

   

 

 

   

 

 

 

Total interest earning assets

  $2,388   $602   $2,990 

Interest bearing liabilities

      

Interest bearing transaction accounts

  $46   $81   $127 

Savings and money market accounts

   134    274    408 

Time deposits

   76    252    328 

Short-term debt

   (2)    1    (1) 

Federal Home Loan Bank advances

   (106)    —      (106) 

Note payable

   258    72    330 
  

 

 

   

 

 

   

 

 

 

Total interest bearing liabilities

  $406   $680   $1,086 

Net interest income

      

Net interest income (taxable equivalent)

  $1,982   $(78)   $1,904 

Taxable equivalent adjustment

   (45)    (29)    (74) 
  

 

 

   

 

 

   

 

 

 

Net interest income

  $1,937   $(107)   $1,830 
  

 

 

   

 

 

   

 

 

 

Total interest income for the three months ended June 30, 2019 was $11.6 million and total interest expense was $2.1 million, resulting in net interest income of $9.5 million for the period. For the same period of 2018, total interest income was $8.7 million and total interest expense was $997 thousand, resulting in net interest income of $7.7 million for the period. This represents a 23.71% increase in net interest income when comparing the same period from 2019 and 2018. When comparing the variances related to interest income for the three months ended June 30, 2019 and 2018, the increase was primarily attributed to increases in average volumes in loans and investment securities. The volume related increase in interest income for the three months ended June 30, 2019 was also accompanied by an increase in the yield on loans and investment securities. When comparing variances related to interest expense for the three months ended June 30, 2019 and 2018, the increase resulted primarily from an increase in the effective rates paid on deposit accounts as well as from the increased interest expense on the note payable related to the PSB merger.

Comparison of net interest income for the six months ended June 30, 2019 and 2018

The following table shows, for the six months ended June 30, 2019 and 2018, the average balances of each principal category of our earning assets and interest bearing liabilities and the average taxable equivalent yields on assets and average costs of liabilities. These yields and costs are calculated by dividing the income or expense by the average daily balance of the associated assets or liabilities.

 

  Year Ended December 31, 2014 Year Ended December 31, 2013   Six Months Ended June 30, 2019 Six Months Ended June 30, 2018 
  Average
Balance		   Interest
Income/
Expense		 Average
Yield/Rate		 Average
Balance		   Interest
Income/
Expense		 Average
Yield/Rate		   Average
Balance		   Interest
Income/
Expense		 Average
Yield/Rate		 Average
Balance		   Interest
Income/
Expense		 Average
Yield/Rate		 

Interest earning assets

                  

Loans

   250,778     12,665   5.05%  227,589     12,335   5.42%   $729,382   $19,700  5.45%  $580,245   $15,247  5.30% 

Mortgage loans held for sale

   148     5   3.38%  260     9   3.46%    2,817    52  3.72%  4,561    81  3.58% 

Investment securities:

                  

Taxable securities

   119,559     2,134   1.78%  124,517     1,924   1.55%    172,283    2,149  2.52%  120,651    1,178  1.97% 

Tax-exempt securities

   23,145     1,025   4.43%  14,277     650   4.55%    54,204    984  3.66%  36,677    465  2.56% 

Interest bearing balances in other banks

   2,486     24   0.97%  2,681     25   0.93%    27,659    307  2.24%  9,824    88  1.81% 

Federal funds sold

   3,747     10   0.27%  8,102     21   0.26%    5,727    76  2.68%   —      —    0.00% 
  

 

   

 

  

 

  

 

   

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 

Total interest earning assets

   399,863     15,863   3.97%  377,426     14,964   3.96%   $992,072   $23,268  4.74%  $751,958   $17,059  4.59% 

Interest bearing liabilities

                  

Interest bearing transaction accounts

   113,416     226   0.20%  95,665     222   0.23%   $246,754   $575  0.47%  $190,622   $278  0.29% 

Savings and money market accounts

   78,200     176   0.23%  80,135     205   0.26%    269,221    1,362  1.02%  191,320    473  0.50% 

Time deposits

   104,968     842   0.80%  116,712     1,077   0.92%    163,568    1,226  1.51%  134,936    648  0.97% 

Short-term debt

   9,459     17   0.18%  9,078     21   0.23% 

Long-term debt

   5,813     13   0.22%   —       —     0.00% 

Securities sold under repurchase agreements

   8,887    24  0.54%  11,418    22  0.39% 

Federal Home Loan Bank advances

   2,320    29  2.52%  18,785    167  1.79% 

Note payable

   26,035    791  6.13%  5,220    122  4.71% 
  

 

   

 

  

 

  

 

   

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 

Total interest bearing liabilities

   311,856     1,274   0.41%  301,590     1,525   0.51%   $716,785   $4,007  1.13%  $552,301   $1,710  0.62% 

Noninterest-bearing funding of earning assets

   88,007     —     0.00%  75,836     —     0.00%    275,287    —    0.00%  199,657    —    0.00% 
  

 

   

 

  

 

  

 

   

 

  

 

   

 

   

 

  

 

  

 

   

 

  

 

 

Total cost of funding earning assets

   399,863     1,274   0.32%  377,426     1,525   0.40%   $992,072   $4,007  0.81%  $751,958   $1,710  0.46% 
     

 

     

 

 

Net interest rate spread

     3.56%     3.46%      3.61%     3.97% 
    

 

     

 

      

 

  

 

    

 

  

 

 

Net interest income/margin (taxable equivalent)

     14,589   3.65%     13,439   3.56%     $19,261  3.92%    $15,349  4.12% 

Tax equivalent adjustment

     (389)      (224)       (282)      (144)  
    

 

     

 

      

 

  

 

    

 

  

 

 

Net interest income/margin

     14,200   3.55%     13,215   3.50%     $18,979  3.86%    $15,205  4.08% 
    

 

     

 

      

 

  

 

    

 

  

 

 

Index to Financial Statements

The following table reflects, for the years ended December 31, 2014 and 2013, the changes in our net interest income due to variances in the volume of interest earning assets and interest bearing liabilities and variances` in the associated rates earned or paid on these assets and liabilities.

   December 31, 2014 vs. December 31, 2013 
       Volume       Variance
due to
Yield/Rate		       Total     

Interest earning assets

      

Loans

   1,258     (928)    330  

Mortgage loans held for sale

   (4)    —       (4) 

Investment securities:

      

Taxable securities

   (77)    287     210  

Tax-exempt securities

   403     (28)    375  

Interest bearing balances in other banks

   (1)    —       (1) 

Federal funds sold

   (11)    —       (11) 
  

 

 

   

 

 

   

 

 

 

Total interest earning assets

   1,568     (669)    899  

Interest bearing liabilities

      

Interest bearing transaction accounts

   41     (37)    4  

Savings and money market accounts

   (5)    (24)    (29) 

Time deposits

   (108)    (127)    (235) 

Short-term debt

   1     (5)    (4) 

Long-term debt

   13     —       13  
  

 

 

   

 

 

   

 

 

 

Total interest bearing liabilities

   (58)    (193)    (251) 

Net interest income

      

Net interest income (taxable equivalent)

   1,626     (476)    1,150  

Taxable equivalent adjustment

   (266)    101     (165) 
  

 

 

   

 

 

   

 

 

 

Net interest income

   1,360     (375)    985  
  

 

 

   

 

 

   

 

 

 

Total interest income for the year ended December 31, 2014 was $15,474 and interest expense was $1,274, resulting in net interest income of $14,200. For the year ended December 31, 2013, total interest income as $14,740 and total interest expenses was $1,525, which resulted in net interest income of $13,215. This represents an increase of 5.0% in total interest income, a 16.5% decrease in interest expense, and a 7.5% increase in net interest income when comparing the two years. When comparing the variances related to interest income and interest expense for the years 2014 and 2013, the increase and decrease, respectively, were primarily attributed to the following: (1) the increase in interest income resulted from increased average loan volume outstanding, increased average investment volume outstanding, and increased yield on investments, and (2) the decrease in interest expense primarily resulted from River Financial’s management of the rates on interest-bearing liabilities that effectively reduced the cost of interest-bearing liabilities from 0.51% in 2013 to 0.41% in 2014.

Index to Financial Statements

Comparison of net interest income for the threesix months ended March 31, 2015June 30, 2019 and 2014

The following table shows, for the three months ended March 31, 2015 and March 31, 2014, the average balances of each principal category of our earning assets and interest bearing liabilities and the average taxable equivalent yields on assets and average costs of liabilities. These yields and costs are calculated by dividing the income or expense by the average daily balance of the associated assets or liabilities.

   Three months Ended March 31, 2015  Three months Ended March 31, 2014 
   Average
Balance		   Interest
Income/
Expense		  Average
Yield/Rate		  Average
Balance		   Interest
Income/
Expense		  Average
Yield/Rate		 

Interest earning assets

         

Loans

   270,197     3,304    4.96%   241,816     3,064    5.14% 

Mortgage loans held for sale

   154     1    2.63%   180     2    4.51% 

Investment securities:

         

Taxable securities

   103,300     463    1.82%   127,402     566    1.80% 

Tax-exempt securities

   25,610     264    4.18%   21,407     248    4.70% 

Interest bearing balances in other banks

   2,266     5    0.89%   2,531     6    0.96% 

Federal funds sold

   1,208     1    0.34%   4,007     2    0.20% 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest earning assets

   402,735     4,038    4.06%   397,343     3,888    3.96% 

Interest bearing liabilities

         

Interest bearing transaction accounts

   116,307     55    0.19%   106,262     52    0.20% 

Savings and money market accounts

   82,159     45    0.22%   78,428     44    0.23% 

Time deposits

   98,328     191    0.78%   110,047     228    0.84% 

Short-term debt

   8,365     4    0.19%   9,213     5    0.22% 

Long-term debt

   6,000     10    0.67%   8,022     4    0.20% 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total interest bearing liabilities

   311,159     305    0.40%   311,972     333    0.43% 

Noninterest-bearing funding of earning assets

   91,576     —      0.00%   85,371     —      0.00% 
  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Total cost of funding earning assets

   402,735     305    0.31%   397,343     333    0.34% 
     

 

 

     

 

 

 

Net interest rate spread

      3.66%      3.53% 
    

 

 

     

 

 

  

Net interest income/margin (taxable equivalent)

     3,733    3.75%     3,555    3.62% 

Tax equivalent adjustment

     (105)      (84)  
    

 

 

     

 

 

  

Net interest income/margin

     3,628    3.65%     3,471    3.54% 
    

 

 

     

 

 

  

Index to Financial Statements

The following table reflects, for the three months ended March 31, 2015 and March 31, 2014,2018, the changes in our net interest income due to variances in the volume of interest earning assets and interest bearing liabilities and variances in the associated rates earned or paid on these assets and liabilities.

 

  Three Months Ended March 31, 2015 vs.
Three Months Ended March 31, 2014		   Six Months Ended June 30, 2019 vs.
Six Months Ended June 30, 2018		 
  Volume   Variance
due to
Yield/Rate		   Total       Volume       Variance
due to
    Yield/Rate    		       Total     

Interest earning assets

            

Loans

   360     (120)    240    $3,910   $543   $4,453 

Mortgage loans held for sale

   —       (1)    (1)    (32)    3    (29) 

Investment securities:

            

Taxable securities

   (106)    3     (103)    510    461    971 

Tax-exempt securities

   48     (32)    16     221    298    519 

Interest bearing balances in other banks

   (1)    —       (1)    161    58    219 

Federal funds sold

   (1)    —       (1)    —      76    76 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest earning assets

   300     (150)    150    $4,770   $1,439   $6,209 

Interest bearing liabilities

            

Interest bearing transaction accounts

   5     (2)    3    $81   $216   $297 

Savings and money market accounts

   2     (1)    1     193    696    889 

Time deposits

   (24)    (13)    (37)    138    440    578 

Short-term debt

   (1)    —       (1)    (5)    7    2 

Long-term debt

   (1)    7     6  

Federal Home Loan Bank advances

   (146)    8    (138) 

Note payable

   486    183    669 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest bearing liabilities

   (19)    (9)    (28)   $747   $1,550   $2,297 

Net interest income

            

Net interest income (taxable equivalent)

   319     (141)    178    $4,023   $(111)   $3,912 

Taxable equivalent adjustment

   (41)    20     (21)    (82)    (56)    (138) 
  

 

   

 

   

 

   

 

   

 

   

 

 

Net interest income

   278     (121)    157    $3,941   $(167)   $3,774 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest income for the threesix months ended March 31, 2015June 30, 2019 was $3,933$23.0 million and total interest expense was $305,$4.0 million, resulting in net interest income of $3,628$19.0 million for the period. For the same period of 2014,2018, total interest income was $3,804$16.9 million and total interest expense was $333,$1.7 million, resulting in net interest income of $3,471$15.2 million for the period. This represents a 4.5%24.82% increase in net interest income when comparing the same period from 20152019 and 2014.2018. When comparing the variances related to interest income for the six months ended June 30, 2019 and 2018, the increase was primarily attributed to increases in average volumes in loans and investment securities. The volume related increase in interest income for the period was also accompanied by an increase in the yield on loans and investment securities. When comparing variances related to interest expense for the threesix months ended March 31, 2015June 30, 2019 and March 31, 2014,2018, the increase and decrease, respectively, were attributedresulted primarily from an increase in the effective rates paid on deposit accounts as well as from the increased interest expense on the note payable related to the following: (1) the increase in interest income resulted from increased average loan volume outstanding, and (2) the decrease in interest expense primarily resulted from River Financial’s management of the rates on interest-bearing liabilities, effectively reducing the cost of interest-bearing liabilities from 0.43% in 2014 to 0.40% in 2015.

The Federal Reserve has not raised short-term interest rates over the past several years, but management understands that an increase, or increases, could possibly occur in 2015 if general economic conditions continue to show improvement. In the press release dated March 18, 2015, the Federal Open Market Committee included the following:

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Index to Financial Statements

Based on this statement and general economic data, management believes that River Financial’s net interest margin should remain relatively stable over the remainder of 2015, depending upon rates offered by competitors in local markets and depending on the stability of River Financial’s loan and deposit portfolios.PSB merger.

Provision for Loan Losses

The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. As a result of evaluating the allowance for loan losses at March 31, 2015,June 30, 2019, management recorded a provision of $139$540 thousand in the firstsecond quarter of 2015. A2019 compared to a provision of $264 was recorded$480 thousand in the firstsecond quarter of 2014.2018. The decreaseincrease in the provision was primarily related to a decrease in the level of, and impairment amount on, loans classified as substandard. A provision was recordedcontinued loan growth from June 30, 2018 to June 30, 2019.

The allowance for the year 2014 of $1,057 compared toloan losses is increased by a provision for loan losses, which is a charge to earnings, and it is decreased by loan charge-offs and increased by recoveries on loans previously charged off. In determining the year 2013 or $957. The increase was primarily related to growth in River Financial’s loan portfolio.

Until the economy fully recovers from the effects of the Great Recession, management recognizes that more borrowers may develop cash flow issues that could adversely affect their ability to fully repay their loans. Our analysisadequacy of the allowance for loan losses, we consider our historical loan loss experience, the general economic environment, our overall portfolio composition and other relevant information. As these factors change, the level of loan loss provision changes. When individual loans are evaluated for impairment and impairment is deemed necessary, a specific allowance is required for the impaired portion of the loan losses factors in these considerations, but if the economy weakens or does not recover more quickly, or if there is an increase in loan volumes, River Financial may have to record additional provision for loan lossesamount. Subsequent changes in the future. The level ofimpairment amount will generally cause corresponding changes in the allowance maintained by River Financial involves evaluationrelated to the impaired loan and corresponding changes to the loan loss provision. As of uncertainties and mattersJune 30, 2019, the recorded allowance related to impaired loans was $378 thousand. As of judgment. Management believesJune 30, 2018, the recorded allowance for loan losses at December 31, 2014 and 2013 and March 31, 2015related to be adequate.impaired loans was $894 thousand.

Noninterest Income

River Financial’sIn addition to net interest income, we generate various types of noninterest income consists offrom our operations. Our banking operations generate revenue from service charges and other fees mainly on deposit accounts,accounts. Our mortgage division generates revenue from secondary marketoriginating and selling mortgage operations, bank ownedloans. Our investment brokerage division generates revenue through a revenue-sharing relationship with a registered broker-dealer. We also own life insurance policies on several key employees and record income from investment services provided to customers, net gains (losses) on salesthe increase in the cash surrender value of investment securities, and miscellaneous other income. Totalthese policies.

The following table sets forth the principal components of noninterest income for the year ended December 31, 2014 was $2,467 compared with $2,299 for the year ended December 31, 2013. The increase of $168, or 7.3%, was primarily attributable to: 1) an increaseperiods indicated (amounts in service charges and fees on deposit accounts of $260; and 2) an increase in debit card interchange fee income of $56. These increases were partially offset by a decrease in 1) income from mortgage operations of $53; and 2) a decrease in net gains on sales of investment securities of $122.thousands).

Total noninterest

   For the Three Months
Ended June 30,		   For the Six Months
Ended June 30,		 
   2019   2018   2019   2018 

Service charges and fees

  $1,200   $845   $2,286   $1,605 

Investment brokerage revenue

   28    16    45    58 

Mortgage operations

   666    697    1,089    1,107 

Bank owned life insurance income

   141    143    280    283 

Net gain (loss) on sale of investment securities

   (3)    1    (3)    3 

Other noninterest income

   75    71    210    185 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

  $2,107   $1,773   $3,907   $3,241 
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income for the three months ended March 31, 2015June 30, 2019 was $726$2.1 million compared with $533to $1.8 million for the same period in 2014.2018. The increase of $193, or 36.2%, was primarily attributable to: 1) an increase$355 thousand in service charges and fee income of $73; 2)fees was primarily related to an increase in bank owned life insurancethe number of deposit accounts and activity within the deposit accounts which was mostly a result of the PSB merger.

Noninterest income of $33; and 3)for the commencement in 2015 of offering investment services to customers which produced $74 investment services incomesix months ended June 30, 2019 was $3.9 million compared to none in$3.2 million for the same period of 2018. The increase of $681 thousand in 2014.

Management believes noninterest income will continueservice charges and fees was primarily related to supplement core earnings for River Financial. The levelan increase in the number of income from salesdeposit accounts and activity within the deposit accounts which was mostly a result of mortgage loans originated for sale and investment services are directly impacted by market conditions and may vary accordingly. Furthermore, the federal government makes decisions regarding certain maximum interchange pricing that may affect the level of interchange income received by River Financial for debit card transactions.PSB merger.

Noninterest Expense

Noninterest expenses consist primarily of salaries and employee benefits, building occupancy and equipment expenses, advertising and promotion expenses, data processing expenses, legal and professional services expense and miscellaneous other operating expenses. Noninterest

The following table sets forth the principal components of noninterest expense for the year ended December 31, 2014 was $10,606 compared to $10,241 for the year ended December 31, 2013 for an increase of

periods indicated (amounts in thousands).

Index to Financial Statements

$365, or 3.6%. Salaries and employee benefits increased $322 with the increase resulting from staffing a new loan production office in 2014 and a return to a normal level of incentive compensation in 2014 following a reduced level in 2013. Advertising and business development expenses increased $123 as additional marketing was implemented in 2014 in an attempt to raise brand awareness for River Bank & Trust primarily through television advertising. Other operating expenses increased $155 because of higher expenses for debit card transaction costs and fraud losses as well as loan origination costs as loans increased. These increases were partially offset by a decrease in foreclosed asset expenses of $204 and a decrease in legal and other professional services expense of $47.

   For the Three Months
Ended June 30,		   For the Six Months
Ended June 30,		 
   2019   2018   2019   2018 

Salaries and employee benefits

  $4,310   $3,548   $8,330   $6,917 

Occupancy expenses

   495    391    974    733 

Equipment rentals, depreciation, and maintenance

   260    213    536    471 

Telephone and communications

   91    72    169    121 

Advertising and business development

   121    227    329    347 

Data processing

   720    429    1,407    846 

Foreclosed assets, net

   57    67    123    90 

Federal deposit insurance and other regulatory assessments

   96    78    194    160 

Legal and other professional services

   252    173    429    283 

Other operating expense

   1,262    878    2,495    1,696 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

  $7,664   $6,076   $14,986   $11,664 
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense for the three months ended March 31, 2015June 30, 2019 totaled $2,850$7.7 million compared to $2,561with $6.1 million for the same period of 2018. The increase in 2014 for analmost all noninterest expense line items were associated with the PSB merger. The increase was primarily a result of $289, or 11.3%.increases in salaries and employee benefits expense. Salaries and employee benefits increased $159 primarily because$762 thousand, or 21.48%, to $4.3 million in the second quarter of 2019 from $3.5 million in the second quarter of 2018. The number of full-time equivalent employees increased from approximately 149 at June 30, 2018 to approximately 192 at June 30, 2019 for an increase of approximately 28.86%. There was also a $291 thousand and $197 thousand increase in data processing and amortization expense related to the core deposit intangibles from the second quarter of 2018 to the second quarter of 2019. Equipment rentals, depreciation, and maintenance increased $47 thousand, or approximately 22.07%, in the second quarter of 2019 as compared to the second quarter of 2018 as a result of the addition of staffing withadditional branches acquired in the implementation of investment services and in preparation for openingPSB merger. Occupancy expenses also increased $104 thousand which was also mostly as a new branch office. Advertising and business development expenses increased $42 as we continued a television marketing campaign through mostresult of the first quarterPSB merger.

Noninterest expense for the six months ended June 30, 2019 totaled $15.0 million compared with $11.7 million for the same period of 2015. Other operating expenses increased $582018. The increase was primarily froma result of increases in various expensessalaries and employee benefits expense. Salaries and employee benefits increased $1.4 million, or 20.43%, to $8.3 million in the first six months of 2019 from $6.9 million in the first six months of 2018. Approximately $1.2 million of the increase in salaries and employee benefits expense was in regular salaries and wages with over $600 thousand of the $1.2 million increase due to the additional employees from the PSB merger. There was also a $561 thousand and $401 thousand increase in data processing and amortization expense related to originating loans as loan volume increased.the core deposit intangibles, respectively.

Provision for Income Taxes

River Financial recorded income tax expense for the year ended December 31, 2014 of $1,523. For the year ended December 31, 2013, we recordedWe recognized income tax expense of $1,366. The effective tax rate$732 thousand for the year 2014 was 30.4% compared to an effective rate of 31.6% for 2013. The lower effective tax rate for the year 2014 resulted from an increase of $249 in tax exempt income from investment securities.

For the three months ended March 31, 2015 and March 31, 2014, River Financial’s income tax expense was $406 and $367, respectively.June 30, 2019, compared to $671 thousand for the three months ended June 30, 2018. The effective tax rate for the three months ended March 31, 2015June 30, 2019 was 29.7% while21.2% compared to 22.9% for the same period in 2018. The effective tax rate is affected by levels of items of income that are not subject to federal and/or state taxation and by levels of items of expense that are not deductible for federal and/or state income tax purposes.

We recognized income tax expense of $1.5 million for the six months ended June 30, 2019, compared to $1.3 million for the six months ended June 30, 2018. The increase of $153 thousand, or 11.79%, resulted from

the increase in net income before taxes of $998 thousand in the first six months of 2019 as compared to the first six months of 2018. The effective tax rate for the threesix months ended March 31, 2014June 30, 2019 was 31.2%.21.3% compared to 22.3% for the same period in 2018. The lower effective tax rate in 2015 was a resultis affected by levels of an increase in the levelitems of income that are not subject to federal and/or state taxation and by levels of items of expense that are not deductible for federal and/or state income tax exempt income from loans, tax exempt income from investment securities, and tax exempt income from bank owned life insurance.purposes.

Comparison of Financial Condition at March 31, 2015,June 30, 2019 and December 31, 2014 and 20132018

Overview

Our total assets decreased $1,652,increased $46.8 million, or 0.4%4.37%, from December 31, 20142018 to March 31, 2015. Total assets at December 31, 2014 included some seasonal temporary deposits that were not on the balance sheet at March 31, 2015. Net loansJune 30, 2019. Loans, net of deferred fees and discounts, increased $11,958,$37.7 million, or 4.5%5.30%, from December 31, 20142018 to March 31, 2015.June 30, 2019. Securitiesavailable-for-sale decreased by $5,451,$8.1 million, or 4.2%3.56%, from December 31, 20142018 to MarchJune 30, 2019. Cash and cash equivalents increased $11.0 million, or 23.15% from December 31, 20152018 to June 30, 2019 as net cash inflowsfunds were obtained from thesethe sale of investment securities were used to fund a portion of the growth in net loans. Interest-bearing deposits in other banks decreased by $5,739, or 95.4%, to also fund a portion of the growth in net loans.loan growth. Total deposits increased $58.7 million, or 6.53%, from December 31, 2018 to June 30, 2019. Federal Home Loan Bank advances decreased $2,024,$20 million or 0.5%, because of normal daily fluctuations in noninterest-bearing deposits.100.00% million from December 31, 2018 to June 30, 2019. Total stockholders’ equity increased $718,$7.9 million, or 1.6%,7.21% from December 31, 2018 to June 30, 2019 primarily becausedue to decrease in the net unrealized loss on securitiesavailable-for-sale along with strong earnings for the quarter.

Investment Securities

We use our securities portfolio primarily to enhance our overall yield on interest-earning assets, as a source of retainedliquidity, as a tool to manage our balance sheet sensitivity and regulatory capital ratios, and as a base from which to pledge assets for public deposits. When our liquidity position exceeds current needs and our expected loan demand, other investments are considered as a secondary earnings alternative. As investments mature or pay down, they are used to meet current cash needs, or they are reinvested to maintain our desired liquidity position. We have historically designated all our securities asavailable-for-sale to provide flexibility in case an immediate need for liquidity arises, and we believe that the composition of $540the portfolio offers needed flexibility in managing our liquidity position and netinterest rate sensitivity without adversely impacting our regulatory capital levels. Securitiesavailable-for-sale are reported at fair value, with unrealized gains or losses reported as a separate component of other comprehensive income, net of $258.deferred taxes. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

Total assets increased $3,222, or 0.7% fromDuring the six months ended June 30, 2019, we purchased investment securities totaling $31.4 million and sold investment securities with proceeds received of $21.8 million including net realized losses of $3 thousand.

The following tables summarize the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securitiesavailable-for-sale at June 30, 2019 and December 31, 2013 to December 31, 2014. Net loans totaled $261,360 at December 31, 2014 compared to $233,811 at December 31, 2013, for an increase of 11.8%. Investment securities totaled $130,285 at December 31, 2014 and $154,456 at December 31, 2013, for a decrease of 15.7%, as net cash inflows from the investment securities were used as the primary source of funding for the growth2018 (amounts in net loans during 2014.thousands).

Total liabilities at December 31, 2014 were $402,674 compared to $405,228 at December 31, 2013. Total deposits at December 31, 2014 were $387,831 at December 31, 2014 compared to $395,317 at December 31, 2013 with the decrease occurring in the time certificates of deposit category. Short-term debt decreased $1,218 from $9,261 at December 31, 2013 to $8,043 at December 31, 2014 because of normal daily fluctuations. Long-

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair Value 

June 30, 2019:

       

Securitiesavailable-for-sale:

       

Residential mortgage-backed

  $110,379   $504   $(1,245)  $109,638 

U.S. govt. sponsored enterprises

   50,282    1,170    (45)   51,407 

State, county, and municipal

   55,824    1,519    (30)   57,313 

Corporate debt obligations

   2,155    11    (38)   2,128 
  

 

 

   

 

 

   

 

 

  

 

 

 

Totals

  $218,640   $3,204   $(1,358)  $220,486 
  

 

 

   

 

 

   

 

 

  

 

 

 

Index to Financial Statements

term debt at December 31, 2014 totaled $6,000 compared to none at December 31, 2013. The long-term debt at December 31, 2014 consisted of borrowings from the Federal Home Loan Bank of Atlanta as part of River Financial’s asset-liability management to provide some longer-term fixed rate funding.

Total stockholders’ equity at December 31, 2014 was $44,031 compared to $38,255 at December 31, 2013. The $5,776 increase resulted primarily from retained earnings in 2014 of $3,184 and other comprehensive income for 2014 of $2,436. The other comprehensive income in 2014 was all related to higher values in the investment securities available-for-sale. At December 31, 2014, the net unrealized gain in the available-for-sale securities portfolio was $994 compared to a net unrealized loss position of $2,999 at December 31, 2013.

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair Value 

December 31, 2018:

       

Securitiesavailable-for-sale:

       

Residential mortgage-backed

  $108,915   $45   $(4,027)  $104,933 

U.S. govt. sponsored enterprises

   63,833    367    (278)   63,922 

State, county, and municipal

   57,417    219    (476)   57,160 

Corporate debt obligations

   2,670    7    (62)   2,615 
  

 

 

   

 

 

   

 

 

  

 

 

 

Totals

  $232,835   $638   $(4,843)  $228,630 
  

 

 

   

 

 

   

 

 

  

 

 

 

Loans

Loans are the largest category of interest earning assets and typically provide higher yields than other types of interest earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control and counterbalance. Total loans averaged $270,197$739.5 million during the three months ended March 31, 2015,June 30, 2019, or 67.1%73.5% of average interest earning assets, as compared to $241,816,$595.7 million, or 60.9%78.5% of average interest earning assets, for the three months ended March 31, 2014.June 30, 2018. At March 31, 2015,June 30, 2019, total loans, net of deferred loan fees and discounts, were $277,094,$748.9 million, compared to $265,138$711.3 million at December 31, 2014,2018, an increase of $11,956,$37.6 million, or 4.5%. Total loans averaged $250,778 during the year ended December 31, 2014, or 62.7% of average interest earning assets, as compared to $227,589, or 60.3% or average interest earning assets, for the year ended December 31, 2013. At December 31, 2014, total loans, net of deferred loan fees, were $265,138, compared to $237,512 at December 31, 2013, an increase of 11.6%.5.29%

The organic, ornon-acquired,growth in the loan portfolioaverage outstanding loans is primarily attributable to River Bank & Trust’sBank’s ability to attract new customers from other financial institutions. We opened one new full service branch location in 2013 and a loan production office in 2014. We have hired severalexperienced bankers in the markets we serve and these employees were successful in transitioning many of their former clients as well as bringing new clients to River Bank & Trust.Bank. Our bankers are expected to maintain calling efforts to develop relationships with clients and our philosophy is to be responsive to customer needs by providing service and decisions in a timely manner. Additionally, the markets we serve have shown some signs of economic recovery over the last few years.years which has increased demand for the services we provide.

Index to Financial Statements

The following table below provides a summary of the loan portfolio as of March 31, 2015,June 30, 2019, and December 31, 2014 and 2013.2018.

 

  June 30, 2019 December 31, 2018 
 March 31, 2015 December 31, 2014 December 31, 2013   Amount   % of
Total		 Amount % of
Total		 

Residential real estate:

         

Closed-end 1-4 family — first lien

 $53,627   $49,198   $33,193  

Closed-end 1-4 family — junior lien

 1,583   1,638   2,015  

Closed-end1-4 family—first lien

  $172,862    23.3%  $162,249  23.0% 

Closed-end1-4 family—junior lien

   6,576    0.9%  5,739  0.8% 

Multi-family

 5,497   5,455   5,496     16,729    2.3%  16,938  2.4% 

Equity lines of credit

 17,160   16,433   14,031  
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total residential real estate

 77,867   72,724   54,735     196,167    26.5%  184,926  26.2% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Commercial real estate:

         

Nonfarm nonresidential

 94,070   90,657   89,629     228,572    30.8%  209,391  29.7% 

Farmland

 8,928   8,496   10,072     8,994    1.2%  10,417  1.5% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total commercial real estate

 102,998   99,153   99,701     237,566    32.0%  219,808  31.2% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Construction and land development:

         

Residential

 6,999   6,792   5,150     46,629    6.3%  39,680  5.6% 

Other

 19,707   18,187   19,233     62,973    8.5%  62,430  8.9% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total construction and land development

 26,706   24,979   24,383     109,602    14.8%  102,110  14.5% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Home equity lines of credit

   41,905    5.6%  39,040  5.5% 

Commercial loans:

         

Other commercial loans

 51,494   49,156   43,060     105,012    14.2%  112,927  16.0% 

Agricultural

 554   676   708     1,767    0.2%  1,743  0.2% 

State, county, and municipal loans

 6,280   5,987   3,175     21,553    2.9%  19,756  2.9% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total commercial loans

 58,328   55,819   46,943     128,332    17.3%  134,426  19.1% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Consumer loans

 11,689   12,912   12,109     37,743    5.1%  33,867  4.8% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total gross loans

 277,588   265,587   237,871     751,315    101.3%  714,177  101.3% 

Allowance for loan losses

 (3,925)  (3,778)  (3,701)    (7,104)    -1.0%  (6,577)  -0.9% 

Net deferred loan fees

 (494)  (449)  (359) 

Net deferred loan fees and discounts

   (2,389)    -0.3%  (2,915)  -0.4% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Net loans

 $273,169   $261,360   $233,811    $741,822    100.0%  $704,685  100.0% 
 

 

  

 

  

 

   

 

   

 

  

 

  

 

 

In thethis context, of this discussion, a “real estate loan” is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. It is common practice for financial institutions in our market areas, and for River Bank, & Trust, to obtain a security interest or lien in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. In general, we prefer real estate collateral to many other potential collateral sources, such as accounts receivable, inventory and equipment.

Real estate loans are the largest component of our loan portfolio.portfolio and include residential real estate loans, commercial real estate loans, and construction and land development loans. At March 31, 2015,June 30, 2019, this category totaled $180,865,$543.3 million, or 65.2%72.32% of total gross loans, compared to $171,877,$506.8 million, or 64.7%, and $154,436, or 64.9%70.97%, at December 31, 2014 and 2013, respectively. Residential real2018. Real estate loans increased $23,132,$36.5 million, or 42.3%7.20%, during the period December 31, 20132018 to March 31, 2015. This category had the highest growth in volume and percentage increase during this period.June 30, 2019. Commercial loans increased $11,385,decreased $6.1 million, or 24.3%4.53% during the same period. Our management team and lending officers have a great deal of experience and expertise in real estate lending and commercial lending.

The Federal regulatory agencies issued two “guidance” documents that have a significant impact on real estate related lending and, thus, on the operations of River Bank & Trust.Bank. One part of the guidance could require lenders to restrict lending secured primarily by certain categories of commercial real estate to a level of 300% of their capital or raise additional capital. This factor, combined with the current economic environment, could affect

Index to Financial Statements

affect River Bank & Trust’sBank’s lending strategy away from, or to limit its expansion of, commercial real estate lending which has been a material part of River Financial’s lending strategy. This could also have a negative impact on our lending and profitability. Management actively monitors the composition of River Bank & Trust’sBank’s loan portfolio, focusing on concentrations of credit, and the results of that monitoring activity are periodically reported to the Board of Directors.

The other guidance relates to the structuring of certain types of mortgages that allows negative amortization of consumer mortgage loans. Although River Bank & Trust does not engage at present in lending using these types of instruments, the guidance could have the effect of making River Bank & Trust less competitive in consumer mortgage lending if the local market is driving the demand for such an offering.

Allowance for Loan Losses, Provision for Loan Losses and Asset Quality

Allowance for loan losses and provision for loan losses

The allowance for loan losses represents management’s estimate of probable inherent credit losses in the loan portfolio. Management determines the allowance based on an ongoing evaluation of risk as it correlates to potential losses within the portfolio. Increases to the allowance for loan losses are made by charges to the provision for loan losses. Loans deemed to be uncollectible are charged against the allowance. Recoveries of previouslycharged-off amounts are credited to the allowance for loan losses.

Management utilizes a review process for the loan portfolio to identify loans that are deemed to be impaired. A loan is considered impaired when it is probable that River Bank & Trust will be unable to collect the scheduled payments of principal and interest due under the contractual terms of the loan agreement or when the loan is deemed to be a troubled debt restructuring. For loans and loan relationships deemed to be impaired that are $100 thousand, or greater, management determines the estimated value of the underlying collateral, less estimated costs to acquire and sell the collateral, or the estimated net present value of the cash flows expected to be received on the loan or loan relationship. These amounts are compared to the current investment in the loan and a specific allowance for the deficiency, if any, is specifically included in the analysis of the allowance for loan losses. For loans and loan relationships less than $100 thousand that are deemed to be impaired, management applies a general loss factor of 15% and includes that amount in the analysis of the allowance for loan losses rather than specifically measuring the impairment for each loan.loan or loan relationship.

All other loans are deemed to be unimpaired and are grouped into various homogenoushomogeneous risk pools primarily utilizing regulatory reporting classification codes. River Bank & Trust’sBank’s historical loss factors are calculated for each of the risk pools based on the percentage of net losses experienced as a percentage of the average loans outstanding. The time periods utilized in these historical loss factor calculations are subjective and vary according to management’s estimate of the impact of current economic cycles. As every loan has a risk of loss, minimum loss factors are estimated based on long term trends for River Bank, & Trust, the banking industry, and the economy. The greater of the calculated historical loss factors or the minimum loss factors are applied to the unimpaired loan amounts currently outstanding for the risk pool and included in the analysis of the allowance for loan losses. In addition, certain qualitative adjustments may be included by management as additional loss factors. These adjustments may include, among other things, changes in loan policy, loan administration, loan, geographic, or industry concentrations, loan growth rates, and loan growth.experience levels of our lending officers. The loss allocations for specifically impaired loans, smaller impaired loans not specifically measured for impairment, and unimpaired loans are totaled yieldto determine the total required allowance for loan losses. This total is compared to the current allowance on the Bank’s books and adjustments made accordingly by a charge or credit to the provision for loan losses.

Management believes the data it uses in determining the allowance for loan losses is sufficient to estimate potential losses in the loan portfolio; however, actual results could differ from management’s estimate.

Index to Financial Statements

The following table presents a summary of changes in the allowance for loan losses for the period indicated.periods indicated (amounts in thousands).

 

  Three Months Ended:   Year Ended:   As of and for the
Three Months Ended:		 As of and for the
Six Months Ended:		 
  March 31,
2015		   March 31,
2014		   December 31,
2014		   December 31,
2013		   June 30,
2019		 June 30,
2018		 June 30,
2019		 June 30,
2018		 

Allowance for loan losses at beginning of period

  $3,778    $3,701    $3,701    $3,874    $7,128  $5,387  $6,577  $4,881 

Charge-offs:

             

Mortgage loans on real estate:

             

Residential

   —       18     34     171  

Residential real estate

   585   —    587   —   

Commercial real estate

   —       —       690     30     —     —     —     —   

Construction and land development

   —       90     258     657     —     —     —     —   

Equity lines of credit

   —       26     26     —    
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Total mortgage loans on real estate

   —       134     1,008     858     585   —    587   —   

Home equity lines of credit

   —    20   —    20 

Commercial

   —       15     126     214     46  35  121  75 

Consumer

   17     17     97     239     60   —    101  30 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Total

   17     166     1,231     1,311     691  55  809  125 

Recoveries:

             

Mortgage loans on real estate:

             

Residential

   —       —       —       65  

Residential real estate

   6  13  7  13 

Commercial real estate

   —       —       16     —       7  2  99  5 

Construction and land development

   1     —       54     33     5  4  8  26 

Equity lines of credit

   —       —       2     2  
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Total mortgage loans on real estate

   1     —       72     100     18  19  114  44 

Home equity lines of credit

   50  10  50  12 

Commercial

   12     84     120     44     40  20  68  86 

Consumer

   12     22     59     37     19  9  24  12 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Total

   25     106     251     181     127  58  256  154 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Net Charge-offs (Recoveries)

   (8)    60     980     1,130  

Net charge-offs (recoveries)

   564  (3)  553  (29) 

Provision for loan losses

   139     264     1,057     957     540  480  1,080  960 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Allowance for loan losses at end of period

  $3,925    $3,905    $3,778    $3,701    $7,104  $5,870  $7,104  $5,870 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Total loans outstanding, net of deferred loan fees

   748,926  615,395  748,926  615,395 

Average loans outstanding, net of deferred loan fees

   739,548  595,747  729,382  580,245 

Allowance for loan losses to period end loans

   0.95%  0.95%  0.95%  0.95% 

Net charge-offs (recoveries) to average loans (annualized)

   0.31%  0.00%  0.15%  -0.01% 

Allocation of the Allowance for Loan Losses

While no portion of the allowance for loans losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance for loan losses to specific loan categories as of the dates indicated.indicated (amounts in thousands).

 

   March 31, 2015  December 31, 2014  December 31, 2013 
   Amount   Percent
of Total		  Amount   Percent
of Total		  Amount   Percent
of Total		 

Mortgage loans on real estate:

          

Residential

  $271     6.9%  $305     8.1%  $199     5.4% 

Commercial real estate

   1,208     30.8%   1,267     33.5%   1,669     45.1% 

Construction and land development

   538     13.7%   627     16.6%   651     17.6% 

Equity lines of credit

   430     11.0%   436     11.5%   427     11.5% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total mortgage loans on real estate

   2,447     62.3%   2,635     69.7%   2,946     79.6% 

Commercial

   1,112     28.3%   623     16.5%   524     14.2% 

Consumer

   360     9.3%   520     13.8%   231     6.3% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $3,925     100.0%  $3,778     100.0%  $3,701     100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Index to Financial Statements
   June 30, 2019  December 31, 2018 
   Amount   Percent of
Total		  Amount   Percent of
Total		 

Mortgage loans on real estate:

       

Residential real estate

  $1,196    16.8%  $1,579    24.0% 

Commercial real estate

   2,517    35.5%   1,961    29.8% 

Construction and land development

   1,056    14.9%   942    14.3% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total mortgage loans on real estate

   4,769    67.2%   4,482    68.1% 

Home equity lines of credit

   421    5.9%   394    6.0% 

Commercial

   1,566    22.0%   1,375    20.9% 

Consumer

   348    4.9%   326    5.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $7,104    100.0%  $6,577    100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Nonperforming Assets

The following table presents our nonperforming assets as of the dates indicated:indicated (amounts in thousands):

 

  March 31, December 31,   June 30, December 31, 
  2015 2014 2014 2013   2019 2018 2018 

Nonaccrual loans

  $445   $789   $269   $228    $3,113  $2,500  $2,740 

Restructured loans

   1,909   4,077   1,718   3,297  

Accruing loans past due 90 days or more

   309    —     424   175     30  134  19 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total nonperforming loans

   2,663   4,866   2,411   3,700     3,143  2,634  2,759 

Foreclosed assets

   2,196   347   2,340   427     277  1,014  496 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total nonperforming assets

  $4,859   $5,213   $4,751   $4,127    $3,420  $3,648  $3,255 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Allowance for loan losses to period end loans

   1.42%  1.62%  1.42%  1.56%    0.95%  0.95%  0.92% 

Allowance for loan losses to period end non-performing loans

   1.47   0.80   1.57   1.00  

Net charge-offs to average loans (annualized)

   0.00%  0.02%  0.37%  0.50% 

Allowance for loan losses to period end nonperforming loans

   226.03%  222.85%  238.38% 

Net charge-offs (recoveries) to average loans (annualized)

   0.15%  -0.01%  0.04% 

Nonperforming assets to period end loans and foreclosed property

   1.74%  2.16%  1.78%  1.73%    0.46%  0.59%  0.46% 

Nonperforming loans to period end loans

   0.96%  2.02%  0.91%  1.56%    0.42%  0.43%  0.39% 

Nonperforming assets to total assets

   0.31%  0.43%  0.30% 

Period end loans

   748,926  615,395  711,262 

Period end total assets

   1,117,256  855,885  1,070,464 

Allowance for loan losses

   7,104  5,870  6,577 

Average loans for the period

   729,382  595,747  619,238 

Net charge-offs for the period

   553  (29)  264 

Period end loans plus foreclosed property

   749,203  616,409  711,758 

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that the collection of interest is doubtful. When a loan is placed on nonaccrual status, all accrued interest on the loan is reversed and

deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Payments received while the loan is on nonaccrual status are applied to the loan’s outstanding principal balance. When a problem loan is fully resolved, there may ultimately be an actual write-down orcharge-off of the principal balance of the loan which would necessitate additional charges to the allowance for loan losses.

Investment Securities

We use our investment securities portfolio primarily to enhance our overall yield on interest earning assets and as a source of liquidity, as a tool to manage our balance sheet sensitivity to changing interest rates, as a tool to manage our regulatory capital ratios, and as a base from which to pledge assets for public deposits. When our liquidity position exceeds current needs and our expected loan demand, other investments are considered as a secondary earnings alternative. As investments mature, they are used to meet current cash needs or they are reinvested to maintain our desired liquidity position. We have designated all of our securities as available for sale to provide flexibility in case an immediate for liquidity arises and believe that the composition of the portfolio offers needed flexibility in managing our liquidity position and interest rate sensitivity without adversely impacting our regulatory capital levels. Securities available for sale are reported at fair value with unrealized gains or losses reported as a separate component of other comprehensive income, net of related deferred income taxes. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

Index to Financial Statements

The following table summarizes the amortized cost and fair value of securities available for sale as of March 31, 2015, and December 31, 2014 and 2013.

   March 31, 2015   December 31, 2014   December 31, 2013 
   Amortized
Cost		   Fair Value   Amortized
Cost		   Fair Value   Amortized
Cost		   Fair Value 

Securities available-for-sale:

            

Residential mortgage-backed

  $74,400    $74,812    $72,578    $72,809    $94,617    $93,574  

U.S. govt. sponsored enterprises

   22,955    $22,983     31,467    $31,280     40,035    $38,831  

State, county, and municipal

   25,062    $26,035     24,246    $25,193     21,802    $21,052  

Corporate debt obligations

   1,000    $1,004     1,000    $1,002     1,000    $998  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $123,417    $124,834    $129,291    $130,284    $157,454    $154,455  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We invest primarily in obligations guaranteed as to the principal and interest by the United States, mortgage-backed securities, municipal securities and obligations of United States government sponsored entities and agencies. All of our mortgage backed securities are residential securities issued by FNMA, FHLMC, and GNMA. From December 31, 2014 to March 31, 2015, we have used most of our excess liquidity and cash inflows from the investment portfolio to invest in loans. We do not anticipate significant investment in securities until loan demand slows or the yields on investment securities become more attractive.

At March 31, 2015, twenty-seven (27) debt securities had unrealized losses with aggregate depreciation of 1.06% from River Financial’s amortized cost basis. These unrealized losses relate principally to current interest rates for similar types of securities. The contractual terms of these securities do not permit the issuer to settle them at a price less than the amortized cost of the securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Because we do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, we do not consider those investments to be other-than-temporarily impaired at March 31, 2015.

The following table presents the amortized cost, fair value and weighted average yield for each major category of the investment portfolio by contractual maturity range as of March 31, 2015.

  Contractual maturities          
  After 1 Year Through 5 Years  After 5 Year Through 10 Years  After 10 Years  Totals 
    Amortized  
Cost		  Fair
Value		  Weighted
Average
Yield		    Amortized  
Cost		  Fair
Value		  Weighted
Average
Yield		  Amortized
Cost		  Fair
Value		  Weighted
Average
Yield		  Amortized
Cost		  Fair
Value		  Weighted
Average
Yield		 

Securities available for sale:

            

Residential mortgage-backed

  3,523    3,565    1.71%   17,295    17,495    1.68%   53,582    53,752    1.81%   74,400    74,812    1.77% 

U.S. govt. sponsored enterprises

  9,093    9,120    1.29%   3,883    3,983    2.54%   9,979    9,880    2.25%   22,955    22,983    1.92% 

State, county & municipal

  —      —      0.00%   1,327    1,362    2.48%   23,735    24,673    2.94%   25,062    26,035    2.91% 

Corporate debt

  —      —      0.00%   1,000    1,004    1.45%   —      —      0.00%   1,000    1,004    1.45% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Totals

  12,616    12,685    1.41%   23,505    23,844    1.86%   87,296    88,305    2.16%   123,417    124,834    2.03% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Index to Financial Statements

Deposits

Deposits, which include noninterest bearing demand deposits, interest bearing demand deposits, money market accounts, savings accounts, and time deposits, are the principal source of funds for River Bank & Trust.Bank. We offer a variety of products designed to attract and retain customers, with primary focus on building and expanding client relationships. Management continues to focus on establishing a comprehensive relationship with consumer and business borrowers, seeking deposits as well as lending relationships.

The following table details the composition of our deposit portfolio as of March 31, 2015,June 30, 2019, and December 31, 2014 and 2013.2018.

 

  March 31, 2015 December 31, 2014 December 31, 2013   June 30, 2019 December 31, 2018 
  Amount   Percent of
Total		 Amount   Percent of
Total		 Amount   Percent of
Total		   Amount   Percent of
Total		 Amount   Percent of
Total		 

Demand deposits, non-interest bearing

  $86,676     22.5%  $88,839     22.9%  $89,706     22.7%   $258,697    27.0%  $241,274    26.8% 

Demand deposits, interest bearing

   118,436     30.7%  118,644     30.6%  116,597     29.5%    247,095    25.8%  239,463    26.6% 

Money market accounts

   72,631     18.8%  71,708     18.5%  69,933     17.7%    224,015    23.4%  200,143    22.3% 

Savings deposits

   10,175     2.6%  9,494     2.4%  7,353     1.9%    58,241    6.1%  55,733    6.2% 

Time certificates of $250,000 or more

   18,170     4.7%  17,168     4.4%  19,559     4.9% 

Time certificates of $250 thousand or more

   51,519    5.4%  47,251    5.3% 

Other time certificates

   79,719     20.7%  81,978     21.1%  92,169     23.3%    117,803    12.3%  114,843    12.8% 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

 

Totals

  $385,807     100.0%  $387,831     100.0%  $395,317     100.0%   $957,370    100.0%  $898,707    100.0% 
  

 

   

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

   

 

 

Total deposits were $385,807$957 million at March 31, 2015, down $2,024June 30, 2019, an increase of $58.7 million from December 31, 20142018 with the decreaseincrease resulting mainly from normal fluctuations in the balances of money market accounts and demand deposits. Wedeposit accounts. Some of our demand deposit accounts are seasonal and typically have aggressively managed interest rates onlarger balances atyear-end than at the end of other calendar quarters. The seasonality of these demand deposits is related to property tax collections and maintained an emphasis on increasing the number and volume of accounts other than time certificates of deposit to lower the cost of funding for River Bank & Trust during the previous few years as general interest rates have remained low, with many at historical lows. This strategy led to the decrease in time certificates of deposit during the period from December 31, 2013 to March 31, 2015.agricultural production.

The following table presents River Bank & Trust’sBank’s time certificates of deposits of $100, or more, by various maturities as of March 31, 2015.June 30, 2019 (amounts in thousands).

 

Three months or less

  $9,609  

Three through six months

   15,773  

Greater than six month through twelve months

   18,664  

Greater than twelve months

   16,705  
  

 

 

 

Total

  $60,751  
  

 

 

 
  All Time Deposits  Time Deposits
$100 or more		  Time Deposits
less than $100		 

Three months or less

 $32,800  $19,868  $12,932 

Greater than three months through six months

  24,519   14,356   10,163 

Greater than six months through one year

  61,847   37,641   24,206 

Greater than one year through three years

  41,677   30,271   11,406 

Greater than three years

  8,479   5,516   2,963 
 

 

 

  

 

 

  

 

 

 

Total

 $169,322  $107,652  $61,670 
 

 

 

  

 

 

  

 

 

 

Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning and management or when the terms are attractive and will not disrupt our offering rates in our markets. A source we have used for wholesale funding is the Federal Home Loan Bank of Atlanta (FHLB). We had FHLB borrowings of $6,000 at each of December 31, 2014 and March 31, 2015 drawn on a line of credit. The line of credit with the

FHLB is secured by pledges of various loans in our loan portfolio. At March 31, 2015,June 30, 2019, the FHLB line of credit remaining available was $27,527$162.7 million and at December 31, 20142018 it was $23,461.$116.8 million. As of June 30, 2019 we have no Federal Home Loan Bank advances outstanding compared to $20 million at December 31, 2018. We also have lines of credit for federal funds borrowings with other banks that totaled $21,500$38.5 million at March 31, 2015June 30, 2019 and $13,000 at December 31, 2014.2018. Furthermore, we have pledged certain loans to the Federal Reserve Bank (FRB) to secure a line of credit. At March 31, 2015,June 30, 2019, the FRB line of credit available was $37,494$119.1 million and at December 31, 2014,2018, the FRB line of credit available was $34,172.$116.5 million. We have never drawn on the FRB line of credit and consider it a contingency line of credit to be used only for emergency liquidity management.

The Company borrowed $7.5 million on January 4, 2016 and used the proceeds to fund the cash payments made to Keystone shareholders according to the merger agreement. The loan was scheduled to mature on December 31, 2022, but was paid in full during 2018. The interest rate was floating and was equal to the Wall Street Journal Prime Rate. Quarterly principal payments of $268 thousand plus accrued interest were due on March 31, June 30, September 30, and December 31 of each year.

IndexOn October 31, 2018, River Financial entered into a loan agreement with CenterState Bank for $27 million. The loan proceeds were drawn and received by River Financial on October 31, 2018. The loan proceeds were used to Financial Statements
fund the payment of the cash consideration to the PSB shareholders of $24.5 million in accordance with the merger agreement and for general corporate purposes. The loan carries a fixed interest rate of 6%. The loan is secured by all of the common stock of River Bank. The balance at December 31, 2018 was $27 million. Principal and interest payments are due quarterly and began in January 2019. The final principal payment will be paid at October 30, 2025. The terms of the loan agreement require River Bank to maintain a classified assets to tier 1 capital plus ALLL ratio not to exceed 40%, a tier 1 leverage ratio of at least 8%, a total risk-based ratio of at least 12%, and a fixed charge coverage ratio of at least 1:3:1 times. The loan agreement also requires the Bank to maintain at least $2 million in liquid assets at all times during the term of the loan.

Principal payments on the CenterState Bank Loan are due as follows:

June 30, 2019 – June 30, 2020

  $3,300 

July 1, 2020 – June 30, 2021

   3,503 

July 1, 2021 – June 30, 2022

   3,718 

July 1, 2022 – June 30, 2023

   3,946 

July 1, 2023 – June 30, 2024

   4,188 

Afterward

   6,733 
  

 

 

 

Total

  $25,388 
  

 

 

 

Liquidity

Market and public confidence in our financial strength and financial institutions in general will largely determine our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital reserves.

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving consideration to bothon- andoff-balance sheet sources of and demands for funds on a daily, weekly and monthly basis.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost-effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows. In this process, we focus on assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet our needs.

Funds are available from a number of basic banking activity sources, including the core deposit base, the repayment and maturity of loans, and investment cash flows. Other funding sources include federal funds borrowings, brokered certificates of deposit and borrowings from the FHLB and FRB.

Cash and cash equivalents at March 31, 2015June 30, 2019 and December 31, 20142018, were $58.5 million and 2013, were $16,989, $25,369 and $30,421,$47.5 million, respectively. Based on recorded cash and cash equivalents, management believes River Financial’s liquidity resources were sufficient at March 31, 2015June 30, 2019 to fund loans and meet other cash needs as necessary.

Off-Balance Sheet Arrangements

River Financial is party to financial instruments withoff-balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized by the balance sheet. The contract amounts of those instruments reflect the extent of involvement River Financial has in particular classes of financial instruments.

The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. River Financial uses the same credit policies in making commitments and conditional obligations as it does foron-balance-sheet instruments. In most cases, River Financial requires collateral or other security to support financial instruments with credit risk.

Financial instruments whose contract amount represents credit risk at June 30, 2019 and December 31, 2018 were as follows (amounts in thousands):

   June 30, 2019   December 31, 2018 

Commitments to extend credit

  $160,850   $146,462 

Stand-by and performance letters of credit

   4,917    5,412 
  

 

 

   

 

 

 

Total

  $165,767   $151,874 
  

 

 

   

 

 

 

Contractual Obligations

While our liquidity monitoring and management considers both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations as of March 31, 2015.June 30, 2019 (amounts in thousands).

 

  Due in 1
year or less		   Due after 1
through 3
years		   Due after 3
through 5
years		   Due after 5
years		   Total   Due in 1
year or less		   Due after 1
through
3 years		   Due after 3
through
5 years		   Due after
5 years		   Total 

Federal Home Loan Bank advances

  $6,000    $4,000    $—      $—      $10,000  

Deposits without a stated maturity

  $788,048   $—     $—     $—     $788,048 

Certificates of deposit of less than $100

   27,737     8,739     —       667    $37,143     47,301    11,406    2,963    —      61,670 

Certificates of deposit of $100 or more

   44,046     15,554     1,151     —      $60,751     71,865    30,271    5,516    —      107,652 

Securities sold under agreements to repurchase

   7,289     —       —       —      $7,289     7,149    —      —      —      7,149 

Note payable

   3,300    7,221    8,134    6,733    25,388 

Operating leases

   521     1,560     1,037     1,549    $4,667     602    1,105    1,096    844    3,647 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total contractual obligations

  $85,593    $29,853    $2,188    $2,216    $119,850    $918,265   $50,003   $17,709   $7,577   $993,554 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Capital Position and Dividends

At March 31, 2015June 30, 2019 and December 31, 2014,2018, total stockholders’ equity was $44,749$118.1 million and $44,031,$110.1 million, respectively. The increase of $718$7.9 million resulted mainly from the net change in retained earnings and other

comprehensive income for the six months ended June 30, 2019. Retained earnings for the first six months of 2019 increased $3.4 million and other comprehensive income of $258 and retained earnings $540 for the three months ended March 31, 2015. The increase in other comprehensive income was all related to changes in fair value of River Financial’s available-for-sale investment securities portfolio. As bond market rates generally declined between December 31, 2014 and March 31, 2015, the fair value of the investment portfolio increased.increased $4.5 million. The ratio of stockholders’ equity to total assets was 10.01%10.57% and 9.86%10.29% at March 31, 2015June 30, 2019 and December 31, 2014,2018, respectively.

River Bank & Trust is subject to various regulatory capital requirements administered by the federal banking agencies. Certain items such as goodwill and other intangible assets are deducted from total capital in arriving at the various regulatory capital measures such as Common Equity Tier 1 capital,1capital, Tier 1 capital, and total

Index to Financial Statements

risk based capital. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on River Financial’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the River Bank & Trust must meet specific capital guidelines that involve quantitative measures of itsthe bank’s assets, liabilities, and certainoff-balance-sheet items as calculated under regulatory regulations and guidelines. River Bank & Trust’sBank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures, established by regulation to ensure capital adequacy effective January 1, 2015, require River Bank & Trust to maintain minimum amounts and ratios (set forth in the table below) of total risk based capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).

Management believes, as of March 31, 2015,June 30, 2019, that River Bank & Trust meets all capital adequacy requirements to which it is subject. The following table presents River Bank & Trust’sBank’s capital amounts and ratios as of March 31, 2015June 30, 2019 with the required minimum levels for capital adequacy purposes including the phase in of the capital conservation buffer under Basel III and minimum levels to be well capitalized (as defined) under the regulatory prompt corrective action regulations.

As of June 30, 2019:

  Actual  Required For Capital
Adequacy Purposes		  To Be Well Capitalized
Under Prompt Corrective
     Action Regulations      		 
  Amount  Ratio              

Total Capital (To Risk-Weighted Assets)

 $47,129    14.70%  $25,648     >= 8.00%  $32,061    >= 10.00% 

Common Equity Tier 1 Capital (To Risk-Weighted Assets)

  43,204    13.48%   14,423     >= 4.50%   20,833    >=   6.50% 

Tier 1 Capital (To Risk-Weighted Assets)

  43,204    13.48%   19,230     >= 6.00%   25,640    >=   8.00% 

Tier 1 Capital (To Average Assets)

  43,204    9.90%   17,456     >= 4.00%   21,820    >=   5.00% 

  Actual  Required For Capital
Adequacy Purposes		  To Be Well Capitalized
Under Prompt Corrective
Action Regulations		 
  Amount  Ratio      Amount          Ratio          Amount          Ratio     

Total Capital (To Risk-Weighted Assets)

 $118,438   14.227%  $87,413   >= 10.500%  $83,251   >= 10.00% 

Common Equity Tier 1 Capital (To Risk-Weighted Assets)

  111,334   13.373%   58,276   >= 7.000%   54,113   >= 6.50% 

Tier 1 Capital (To Risk-Weighted Assets)

  111,334   13.373%   70,763   >= 8.500%   66,601   >= 8.00% 

Tier 1 Capital (To Average Assets)

  111,334   10.340%   43,069   >= 4.000%   53,837   >= 5.00% 

Management believes, as of December 31, 2014,2018, that River Bank & Trust met all capital adequacy requirements to which it was subject at the time. The following table presents River Bank & Trust’sBank’s capital amounts and ratios as of December 31, 20142018 with the required minimum levels for capital adequacy purposes and minimum levels to be well capitalized (as defined) under the prompt corrective action regulations that were in effect prior to January 1, 2015.regulations.

As of December 31, 2018:

 

 Actual Required For Capital
Adequacy Purposes		 To Be Well Capitalized
Under Prompt Corrective
    Action Regulations    		  Actual Required For Capital
Adequacy Purposes		 To Be Well Capitalized
Under Prompt Corrective
Action Regulations		 
 Amount Ratio Amount   Ratio   Amount     Ratio    Amount Ratio     Amount         Ratio         Amount         Ratio     

Total Capital (To Risk-Weighted Assets)

 $45,913   15.65%  $23,470     >= 8.00%  $29,337   >= 10.00%  $115,721  14.253%  $80,174  >= 9.875%  $81,189  >= 10.00% 

Common Equity Tier 1 Capital (To Risk-Weighted Assets)

 109,144  13.443%  51,758  >= 6.375%  52,773  >= 6.50% 

Tier 1 Capital (To Risk-Weighted Assets)

 42,232   14.40%  11,731     >= 4.00%  17,597   >=   6.00%  109,144  13.443%  63,936  >= 7.875%  64,951  >= 8.00% 

Tier 1 Capital (To Average Assets)

 42,232   9.68%  17,451     >= 4.00%  21,814   >=   5.00%  109,144  14.006%  31,172  >= 4.000%  38,965  >= 5.00% 

River Financial’s principal source of funds for dividend payments and debt service is dividends received from River Bank & Trust.Bank. There are statutory limitations on the payment of dividends by River Bank & Trust to River Financial. As of March 31, 2015,June 30, 2019, the maximum amount Riverthe Bank & Trust could dividend to River Financial without prior regulatory authority approval was approximately $5,500.$13.3 million. In addition to dividend restrictions, federal statutes prohibit unsecured loans from banks to bank holding companies.

During the six months ending June 30, 2019 there were 63,500 incentive stock options issued with a weighted average exercise price of $27.00 per share. During the same period, there were 20,300 incentive stock options exercised at a weighted average exercise price of $13.07 per share. A total of 368,625 incentive stock options were outstanding as of June 30, 2019 with a weighted average exercise price of $20.06 per share and a weighted average remaining life of 6.94 years.

Interest Sensitivity and Market Risk

Management monitors and manages the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring technique employed by Riverthe Bank & Trust is simulation analysis.

Index to Financial Statements

In simulation analysis, we review each asset and liability category and its projected behavior in various different interest rate environments. These projected behaviors are based on management’s past experience and on current competitive environments, including the various environments in the different markets in which we compete. Using projected behavior and differing rate scenarios as inputs, the simulation analysis generates projections of net interest income. We also periodically verify the validity of this approach by comparing actual results with those that were projected in previous models.

Another technique used in interest rate management, but to a lesser degree than simulation analysis, is the measurement of the interest sensitivity “gap”, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.

We evaluate interest rate sensitivity risk and then formulate guidelines regarding asset generation and repricing, and sources and prices ofoff-balance sheet commitments in order to maintain interest sensitivity risk at levels deemed prudent by management. We use computer simulations to measure the net income effect of various rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time.

The following table illustrates our interest rate sensitivity at March 31, 2015,June 30, 2019, assuming the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities.maturities (amounts in thousands).

 

  0-1 Mos 0-3 Mos 3-12 Mos 1-2 Yrs 2-3 Yrs > 3 Yrs Total  0-1 Mos 1-3 Mos 3-12 Mos 1-2 Yrs 2-3 Yrs >3 Yrs Total 

Interest earning assets

               

Loans

  $—     84,716   36,894   39,395   41,183   75,400   277,588   $145,809  $44,618  $157,407  $137,125  $89,144  $174,823  $748,926 

Securities

   3,382   7,686   14,331   21,304   14,582   63,549   124,834   8,764  16,926  32,388  27,181  29,022  106,205  220,486 

Certificates of deposit in banks

   —      —     1,743    —      —      —     1,743   591  1,467  745  981  484  1,415  5,683 

Cash balances in banks

   278    —      —      —      —      —     278   23,493   —     —     —     —     —    23,493 

Federal funds sold

   3,985    —      —      —      —      —     3,985   18,020   —     —     —     —     —    18,020 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total interest earning assets

   7,645   92,402   52,968   60,699   55,765   138,949   408,428   $196,677  $63,011  $190,540  $165,287  $118,650  $282,443  $1,016,608 

Interest bearing liabilities

               

Interest bearing transaction accounts

   39,152   3,975   11,922   15,898   15,898   31,591   118,436   $101,346  $4,942  $22,206  $29,655  $29,655  $59,291  $247,095 

Saving and money market accounts

   38,351   2,679   8,031   10,707   10,707   12,331   82,806  

Savings and money market accounts

 160,386  4,962  22,332  29,775  29,775  35,026  282,256 

Time deposits

   —     23,010   48,772   18,428   6,608   1,071   97,889   11,267  22,523  83,482  28,672  12,857  10,521  169,322 

Short term borrowings

   7,289    —      —      —      —      —     7,289  

Long term borrowings

   —      —     2,000   4,000    —      —     6,000  

Securities sold under agreements to repurchase

 7,149   —     —     —     —     —    7,149 

Note payable

 807   —    2,493  3,503  3,718  14,867  25,388 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total interest bearing liabilities

  $84,792   29,664   70,725   49,033   33,213   44,993   312,420   $280,955  $32,427  $130,513  $91,605  $76,005  $119,705  $731,210 

Interest sensitive gap

               

Period gap

  $(77,147)  62,738   (17,757)  11,666   22,552   93,956   96,008   $(84,278)  $30,584  $60,027  $73,682  $42,645  $162,738  $285,398 

Cumulative gap

   (77,147)  (14,409)  (32,166)  (20,500)  2,052   96,008    $(84,278)  $(53,694)  $6,333  $80,015  $122,660  $285,398  

Cumulative gap-Rate Sensitive Assets/ RateSensitive Liabilities

   -18.9%  -3.5%  -7.9%  -5.0%  0.5%  23.5%  

Cumulative gap—Rate Sensitive Assets/ Rate

Sensitive Liabilities

 -8.3%  -5.3%  0.6%  7.9%  12.1%  28.1%  

River Bank & Trust generally benefits from increasing market interest raterates when it has an asset-sensitive gap (a positive number) and generally benefits from decreasing market interest rates when it is liability sensitive (a negative number). As shown in the table above, River Bank & Trust is liability sensitive on a cumulative basis throughout the one year time frame. The interest sensitivity analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest sensitive

Index to Financial Statements

than market-based rates such as those paid onnon-core deposits. For this and other reasons, management relies more upon the simulations analysis (as noted above) in managing interest rate risk. Net interest income may be impacted by other significant factors in a givegiven interest rate environment, including changes in volume and mix of interest earning assets and interest bearing liabilities.

River Bank & Trust’sBank’s earnings are dependent, to a large degree, on its net interest income, which is the difference between interest income earned on all interest earning assets, primarily loans and securities, and interest paid on all interest bearing liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our market risk arises primarily from inherent interest rate risk in our lending, investing and deposit gathering activities. We seek to reduce our exposure to market risk through actively monitoring and managing interest rate risk. Management relies on simulations analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 400 basis points below the current prevailing rates to 400 basis points above current prevailing interest rates. Management makes certain assumptions as to the effect varying levels of interest rates have on certain interest earning assets and interest bearing liabilities, which assumptions consider both historical experience and consensus estimates of outside sources.

The following table illustrates the results of our simulation analysis to determine the extent to which market risk would affect net interest income for the next twelve months if prevailing interest rates increased or decreased

by the specified amounts from current rates. As noted above, this model uses estimates and assumptions in asset and liability account rate reactions to changes in prevailing interest rates. However, to isolate the market risk inherent in the balance sheet, the model assumes that no growth in the balance sheet occurs during the projection period. This model also assumes an immediate and parallel shift in interest rates, which would result in no change in the shape or slope of the interest rate yield curve. Because of the inherent use of the estimates and assumptions in the simulation model to derive this market risk information, the actual results of the future impact of market risk on our net interest income may differ from that found in the table. Given the current level of prevailing interest rates, management believes prevailing market rates falling 300 basis points and 400 basis points are not reasonable assumptions. All other simulated prevailing interest rates changes modeled indicate a level of sensitivity of River Bank & Trust’sBank’s net interest income to those changes that is acceptable to management and within established River Bank & Trustbank policy limits as of both dates shown.

 

  Impact on net interest income   Impact on net interest income 
  As of
March 31, 2015		 As of
December 31, 2014		   As of
June 30,
2019		 As of
December 31,
2018		 

Change in prevailing interest rates:

   

Change in prevailing rates:

   

+ 400 basis points

   -1.99%  -2.12%    (1.85)%  (4.94)% 

+ 300 basis points

   -1.38%  -1.19%    (1.08)%  (3.49)% 

+ 200 basis points

   -1.47%  -1.58%    (0.29)%  (2.10)% 

+ 100 basis points

   -1.35%  -1.25%    (0.11)%  (0.85)% 

0 basis points

   —      —    

+ 0 basis points

   —     —   

- 100 basis points

   -1.70%  -2.39%    (2.09)%  (0.08)% 

- 200 basis points

   -6.03%  -7.65%    (6.78)%  (4.43)% 

- 300 basis points

   -8.17%  -10.05%    (7.27)%  (7.25)% 

- 400 basis points

   -8.52%  -10.43%    (7.77)%  (8.38)% 

Index to Financial Statements

INFORMATION ABOUT KEYSTONETRINITY

General

KeystoneTrinity is a bank holding company headquartered in Auburn,Dothan, Alabama. Keystone’sIt is an Alabama corporation organized in 2017 by Trinity Bank, an Alabama-chartered commercial bank organized in 2006, for the purpose of becoming a bank holding company through ownership of 100% of Trinity Bank’s common stock. Trinity’s primary activity is owning and controlling Trinity Bank.

Trinity Bank offers general retail and commercial banking including checking, savings and time deposits of various types, the making of secured and unsecured loans and other banking services to individuals, businesses, institutions, and governmental entities.

Trinity’s main office is located at 1479 West Main Street, Dothan, Alabama 36301. Dothan is a town of approximately 68,247 located in northwest Houston County, in southeast Alabama. Trinity Bank also has branches located at 3850 West Main Street, Dothan, Alabama and 306 South Main Street in Enterprise, Alabama.

As of March 31, 2019, Trinity Bank had total deposits of approximately $141.8 million of which approximately $30.9 million (21.79%) werenon-interest bearing and $110.9 million (78.21%) were interest bearing. On that same date, Trinity Bank had total outstanding loans of approximately $121.2 million, of which $2.7 million were loans to individuals for household, family and personal expenditures; $20.5 million were commercial and industrial loans and $97.1 million were real estate loans. Approximately $1.9, or 1.47% of the total loans were made to finance agricultural production.

On March 31, 2019, Trinity Bank had 29 full-time employees.

The banking business is serving as the sole shareholder for its wholly-owned subsidiary, Keystonehighly competitive. Trinity Bank’s service area consists primarily of Houston and Coffee Counties, Alabama. According to FDIC Deposit Market Share Data published on June 30, 2018, eight commercial banks operate 12 branches in Coffee County, Alabama. Of these institutions, Trinity Bank an Alabama banking corporation headquarteredranked 6th, with 9.74% deposit market share. Fifteen commercial banks operate 36 branches in Auburn,Houston County, Alabama. The principal executive offices of Keystone and KeystoneOf these institutions, Trinity Bank are located at 2394 E. Auburn Drive, Auburn, Alabama 36830, and the telephone number is (334) 466-2210.

Keystone was formed on April 11, 2013. Keystone Bank was formed on February 27, 2007. Keystone Bank provides commercial banking services through 3 full-time banking offices located in Auburn, Opelika and Gadsden, Alabama. Keystone Bank originates commercial and consumer loans, accepts deposits, provides electronic banking services such as online banking, including remoteranked 11th, with 2.78% deposit capture, and delivers treasury and cash management services.market share.

Immediately following the merger of KeystoneTrinity with River Financial, KeystoneTrinity Bank will merge with and into River Bank & Trust.

Target Markets

Keystone, through its subsidiary Keystone Bank, provides a full range of traditional banking services throughout the Auburn-Opelika and Gadsden, Alabama Metropolitan Statistical Areas (the “Auburn-Opelika MSA” and the “Gadsden MSA”, respectively). Keystone Bank primarily markets its services to small businesses and residents of its market area through its main office and branches. It employs seasoned banking professionals with experience in the market area and who are active in their communities.

The total population of the Auburn-Opelika and Gadsden MSAs are approximately 154,255 and 103,531, respectively.

Products and Services Overview

Keystone Bank is a full-service community bank. Its principal business is banking and consists of lending and deposit gathering (as well as other banking-related products and services) to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage such banking services. Keystone Bank provides a wide range of commercial banking services for businesses and individuals, including checking, savings, and money market deposit accounts, certificates of deposit and loans for consumer, commercial and real estate purposes. Services include electronic and online banking.

Keystone Bank’s profitability is dependent on responsible lending with strong focus on lending standards to help ensure long-term growth in assets, loans, deposits and net income in a manner consistent with safe, sound and prudent banking practices. To achieve this goal, Keystone Bank’s strategy is to: (1) expand loans and deposits through organic market share growth and strategic acquisitions; (2) provide customers with a breadth of products and financial services; (3) employ, empower and motivate management to provide personalized customer service, consistent with the best traditions of community banking, while maximizing profits; and (4) maintain asset quality and control overhead expense.

Keystone Bank provides a variety of loans, deposits and related services to its business customers. Such services include but are not limited to business checking, deposit products and services, business loans, and lines of credit. Keystone Bank offers similar services to its consumers, including but not limited to personal loans, checking, residential mortgage loans and mortgage refinancing, safe deposit boxes, debit cards, direct deposit, and official bank checks.

Index to Financial Statements

Competition

Keystone Bank faces substantial competition in attracting and retaining deposits and making loans to its customers in all of its principal markets. Competition involves efforts to retain current customers, obtain new loans and deposits, increase types of services offered, and offer competitive interest rates on deposits and loans. The primary factors in competing for deposits are the range and quality of financial services offered, the ability to offer attractive rates and the availability of convenient office locations.

Based on the FDIC’s June 30, 2014 Deposit Market Share Report (the “Report”), in the Auburn-Opelika MSA, Keystone Bank competes for deposits with 17 other commercial banks, as well as numerous savings and loan associations, credit unions, and issuers of commercial paper and other securities. The Report further provides that Keystone Bank’s market share in the Auburn-Opelika MSA is 5.47%, making Keystone Bank the eighth (8th) ranked bank in terms of deposits. Based on the Report, in the Gadsden MSA, Keystone Bank competes for deposits with 12 other commercial banks, as well as numerous savings and loan associations, credit unions, and issuers of commercial paper and other securities. The Report further provides that Keystone Bank’s market share in the Gadsden MSA is 8.67%, making Keystone Bank the fifth (5th) ranked bank in terms of deposits. Additional competition for deposits comes from investment alternatives, such as money market mutual funds and corporate and government securities. The primary factors in competing for loans are the range and quality of the lending services offered, interest rates, and loan origination fees. Competition for the origination of loans normally comes from other financial institutions, commercial banks, credit unions, insurance companies and other financial services companies. Keystone Bank believes that it has successfully competed with larger banks and other smaller community banks in the Auburn-Opelika MSA and the Gadsden MSA by focusing on personal service and financial products to meet the needs of the community.

Employees

As of March 31, 2015, Keystone and Keystone Bank employed approximately 44 persons on a full time or part time basis.

Properties

The main office of both Keystone and Keystone Bank is located at 2394 E. University Drive, Auburn, Alabama 36830. In addition to its main office, Keystone Bank owns and operates one branch in Opelika at 1804 Thomason Drive, Opelika, Alabama 36801 and one branch in Gadsden at 244 South 3rd Street, Gadsden, Alabama 35901.

Legal Proceedings

Both Keystone and Keystone Bank may from time to time be involved in litigation during the ordinary course of business; however, neither Keystone nor Keystone Bank is currently involved in any pending litigation.

Index to Financial Statements

Directors and Executive Officers

The following table sets forth the name, age and biographical information regarding the Keystone directors and executive officers:officers of Trinity are as follows:

Name  Age  Position  

Trinity Bank

Director Since

E. Carey Slay. Jr.

  71  Chairman  2006

Joe Paul Stewart

  72  Vice Chairman  2006

J. Robbin Thompson

  44  President, CEO and Director  2016

Brian R. McLeod

  50  Secretary  2006

Dr. William D. McLaughlin

  63  Director  2006

Dr. Henry H. Barnard, II

  62  Director  2006

B. Brent Beasley

  53  Director  2006

Terry D. Duffie

  68  Director  2006

John L. Mitchell, Sr.

  68  Director  2012

James E. Etheredge

  65  Director  2013

Each of the directors listed above have been Trinity directors since its incorporation in 2017.

Set forth below is a summary of the recent business experience of each of the nominees:

 

Directors

Name/Director Since(1)

Age• 

PositionDr. Henry H. Barnard, II, practices orthopedic surgery with

Keystone

Business Experience during the last 5 years

John A. Freeman /2007

67Director Musculoskeletal Associates, in Albany, Georgia. He has practiced medicine for over 28 years. Dr. Barnard is also Past President of Freeman Land Development, Inc. (real estate developmentthe Houston County Medical Society, the Past Chief of Staff for Flowers Hospital, and land sales)

John F. Gittings / 2007

68Director / Executive Vice-Chairman, CFOthe Past Chief Financial Officer of Keystone Bancshares, Inc.Surgery for Flowers Hospital and Keystone Bank

Banks Herndon / 2007

68DirectorLand Agent with Tutt Land Company (land sales); Retired Attorney

W. Murray Neighbors /2007

65Director / Chairman of the BoardChairman of Keystone Bancshares, Inc. and Keystone Bank; Managing Member of WMN Properties, LLC (commercial/residential real estate); Managing Member of BMW Investments, LLC (residential rental property); Member of NHA, LLC (student rental properties); Member and Treasurer of Auburn, North Park, LLC (parking deck facility); Member of P&T Properties, LLC (golf club and restaurant)

Dr. Lucian Newman, III / 2007

53DirectorMD (General Surgeon) with The Surgery Clinic, LLC; ChiefSoutheast Alabama Medical Officer/Founder of ComplyMD Medical Software LLC (a medical software technology company)

Boles B. Pegues, III / 2007Center.

54Director / PresidentPresident of Keystone Bancshares, Inc. and Keystone Bank

Howard J. Porter, Jr. / 2007

64DirectorMember/Owner/Investor of various companies(2)

John Y. Reynolds / 2007

54DirectorExecutive Vice President of Computer Services, Inc. (CSI) Document Services Division (core banking applications)

Gerald Ray Smith, Jr. / 2007

61Director / CEOChief Executive Officer of Keystone Bancshares, Inc. and Keystone Bank; Chief Lending Officer of Keystone Bank

J. Mark Traylor / 2007

45DirectorPresident of Traylor-Porter Healthcare Management (nursing homes and rehabilitation); Member of Arbor Springs Health & Rehab Ctr., Ltd. (skilled nursing); TP Healthcare, LLC (pharmacy, therapy), and TP Services, LLC (pharmacy, therapy)

 

(1)Directors are elected annually for one year terms or until their successors are duly elected and qualified. The above-listed directors have served as directors of Keystone Bank since its formation in 2007 and as directors of Keystone since its formation in 2013. The above-listed directors were last elected in June of 2014.•
(2)

HoPo Realty investments, LLC (real estate investments, oil & gas investments, office & apartments, warehouses); H.J. Porter & Associates, Inc. (warehouses, stock investments); Old Ivy Investments, LLC (residential lots); Hilltop Pines, LLC (apartments); Ash Properties, Ltd. (nursing home); TP Healthcare, LLC (pharmacy, therapy); RPM Apartments, LLC; RPM Troy, LLC (apartments); SanPort Housing, LLC (rental house); Arbor Springs Health & Rehab Ctr., Ltd. (skilled nursing); TP Services, LLC (pharmacy, therapy); Porter Properties, LLC (real estate investments); RPM Holdings, LLC (real estate investments); RPM/Eastdale Storage, LLC; RPM Self Storage, LLC; RPM Office, LLC; E.G. Enterprises, Inc.; PorterBrent Beasley serves as the National Account Director for Great Dane Limited Partnership, or Great Dane, an Illinois-based company and one of the largest manufacturers of semi-truck trailers in North America. Prior to his employment with Great Dane, Mr. Beasley was employed by Fruehauf Trailer Corporation in Charlotte, North Carolina, and Dorsey Trailers in Elba, Alabama. Mr. Beasley has more than 34 years of experience in this field.

Index to Financial Statements
 Residential, LLC; Wood Valley/Anniston, LLC (apartments); Porter Properties,•

Terry D. Duffiehas participated in the Dothan-area television and radio industry for over 38 years. Mr. Duffie currently serves as President of the Great Gulf South Interconnect, d/b/a Scenic Cable Network & Productions. Mr. Duffie also served as Executive Vice President and General Manager ofWKMX-FM Radio until September of 2004. Terry was also appointed Member of Finance Committee for the International Blues Foundation in 2016 and in 2017, he was elected a board member for the Foundation.

•

James Etheredgeis retired from the telecommunications industry with over 34 years of service. At the time of his retirement he was the System Manager for Knology of the Wiregrass. He became part of the Knology family in January 2008 when the communications company he had been employed with for over 29 years and was acquired by Knology. James also served on several committees for both state and national communications associations. Prior to his telecommunication tenure he worked six years in the banking industry. James also serves on numerous boards and is active in his local church.

•

Dr. William D. McLaughlinis a gastroenterologist with Digestive Health Specialists in Dothan/Enterprise/Ozark. He has been in Dothan since 1987 and has four children. He also serves on the Board of the Dothan Rescue Mission & Wiregrass Rehab Center.

•

Brian R. McLeod serves as Secretary of the Board of Directors of Trinity Bank. He has served since 2002 as Chief Financial Officer and Treasurer of The National Security Group, Inc. (real estate investment); Spring House Farm, LLC (land); Tigertown Investments,, a publicly traded insurance holding company based in Elba, Alabama. Prior to assuming this position, Mr. McLeod served as the Controller for National Security for eight years. Mr. McLeod is a Certified Public Accountant.

•

John Mitchell,owner of Mitchell Nissan INC,Mitchell-Mazda, Lincoln, Mitchell Hyundai, of Enterprise andco-owner of Toyota of Dothan, currently resides in Enterprise with his wife, Beverly. They have three children and seven grandchildren. Mr. Mitchell has been in the car business since 1969 and is a very active member of various organizations throughout the Wiregrass area.

•

E. Carey Slay, Jr, Mr. Slay serves as Chairman of the Board of Directors of Trinity Bank. Mr. Slay also serves as the Controller and Chief Financial Officer of Mike Schmitz Automotive Group, Inc.; Gatewood Villas,, and Toyota of Dothan. In 2010 Mr. Slay became an owner in Schmitz & Mitchell, Inc.; E.G. Holdings, LLC (residential lots); HJP / Unit 100-104 Towne Center (office, condo). d/b/a Toyota of Dothan. Prior to assuming this position, Mr. Slay was employed for three years as the Chief Financial Officer of Courtesy Pontiac Cadillac and for eight years as the Comptroller of Dothan Chrysler Plymouth Dodge. Mr. Slay also has served over 11 years in various banking positions.

•

Joe Paul Stewartserves as Vice Chairman of the Board of Directors of Trinity Bank. Mr. Stewart is a retired bank executive with over 46 years of banking experience in the Wiregrass area. In 2003, Mr. Stewart completed a three-year term as the City President of Regions Bank in Enterprise, Alabama. Prior to that, Mr. Stewart served for five years as the Executive Vice President of Community Bank & Trust in Enterprise, and for 20 years as the President and Chief Executive Officer for both Coffee County Bank and Pike County Bank.

•

J. Robbin ThompsonCity President, Enterprise, joined Trinity Bank in 2010 and has 23 years of banking experience, all in the Wiregrass area. He previously served in various capacities with The First

National Bank of Ashford, Barbour County Bank (both n/k/a MidSouth Bank) and Regions Bank, last serving as Enterprise City Executive and SE AL Construction and Development Officer. Thompson is currently serving his second term as the Chairman of the Enterprise Chamber of Commerce, is a member of the Enterprise Industrial Development Board, ESCC Foundation Board, Enterprise Homebuilder’s Association Board, and is a past Chairman of the Enterprise Chamber of Commerce, and past President of the Enterprise Rotary Club.

Security Ownership of Certain Beneficial Owners and Management

The following table showssets forth the beneficial ownershipnumber and the percentage of shares of Trinity’s common stock that were beneficially owned, as of June 30, 2019, by (1) each of Trinity’s directors and each of our named executive officers, (2) all of Trinity’s directors and executive officers as a group, and (3) each person known to Trinity to beneficially own more than 5% of any class of our voting common stock.

As of the date set forth above, Trinity had 1,745,853 shares of common stock owned byoutstanding.

Beneficial ownership is determined in accordance with the directorsrules of the SEC and executive officers of Keystonegenerally includes voting or investment power with respect to securities. Except as of March 31, 2015. No person beneficially owns five percent (5%) or more of Keystone’s common stock.otherwise noted in the footnotes below, each holder identified below has sole voting and investment power with respect to such securities.

 

Name of Beneficial Owner

  Title of
Class		   Amount and
Nature of
Beneficial
Ownership		  Percentage of
Outstanding
Shares(1)		 

John A. Freeman

   Common     21,269    1.19% 

John F. Gittings

   Common     46,302(2)   2.55% 

Banks Herndon

   Common     10,000(3)   0.56% 

W. Murray Neighbors

   Common     50,002(4)   2.79% 

Dr. Lucian Newman, III

   Common     20,231    1.13% 

Boles B. Pegues, III

   Common     50,002(5)   2.76% 

Howard J. Porter, Jr.

   Common     15,000    0.84% 

John Y. Reynolds

   Common     10,000    0.56% 

Gerald Ray Smith, Jr.

   Common     55,000(6)   3.03% 

J. Mark Traylor

   Common     32,345(7)   1.80% 

All directors and executive officers as a group

     310,151    16.60% 

Name of Beneficial Owner (1)

  Number of Shares (2)   Percent of Class 

All Directors and Named Executive Officers:

    

J. Robbin Thompson

   11,722    * 

Carey Slay

   41,221    2.36% 

Joe Paul Stewart (3)

   144,387    8.27% 

Brian McLeod (4)

   26,588    1.52% 

Brent Beasley

   77,368    4.43% 

Bill McLaughlin(5)

   63,356    3.74% 

Henry Barnard

   91,620    5.25% 

Terry Duffie

   41,888    2.40% 

James Etheredge

   34,545    1.98% 

John Mitchell

   59,975    3.44% 

Stephanie Walker

   2,700    * 

Joseph Sanders

   32,048    1.84% 

All Directors and Executive Officers as a Group

   627,418    35.94% 

Persons known to Company who own more than 5% of
outstanding shares of Trinity common stock:

    

National Security Insurance Company

661 East Davis Street

Elba, AL 36323

   130,065    7.45% 

Donnie W. Dean

3664 S. Oates Street

Dothan, AL 36301

   121,857    6.98% 

Gayle K. Stewart (6)

1479 West Main Street

Dothan, AL 36301

   144,387    8.27% 

 

(1)*Based upon total outstanding shares as of March 31, 2015. Percentages are calculated for each person assuming the exercise of options or warrants held by such person, but that no other person exercises options or warrants. For the directors and executive officers as a group, the percentage is determined by assuming that each director and executive officer exercises all options and warrants.

Less than 1%

(1)

Unless otherwise specified, each beneficial owner’s business address is c/o Trinity Bank, 1479 West Main St., Dothan, AL 36301.

(2)John F. Gittings’

Information relating to beneficial ownership of common stock by directors is based upon information furnished by each person using “beneficial ownership” concepts set forth in rules of the SEC under the Securities Exchange Act of 1934, as amended. Under such rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes 100the power to vote or direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under such rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may disclaim any beneficial ownership. Accordingly, directors and named executive officers may be named as beneficial owners of shares held jointlyas to which they may disclaim any beneficial interest. Except as indicated in other notes to this table describing special relationships with Gloria Gittings, 21,200other persons and specifying shared voting or investment power, directors and named executive officers possess sole voting and investment power with respect to all shares held in his IRA and 25,000 vested warrants not yet exercised.of common stock set forth opposite their names.

(3)Banks Herndon’s ownership includes 9,998

Mr. Stewart’s wife, Gayle K. Stewart, owns 68,012 shares held jointly with Margo S. Herndon.of Trinity common stock in her name only.

(4)W. Murray Neighbors’

Mr. McLeod is Vice President of Finance and Operations and Chief Financial Officer of National Security Group, Inc. and a director of various of its subsidiaries, including, National Security Insurance Company (“NSIC”). As such, he may be deemed to beneficially own the shares of Trinity common stock held by NSIC. Mr. McLeod disclaims beneficial ownership includes 25,000of the shares of Trinity common stock held in his IRA and 11,200 shares held in the IRA of Ann G. Neighbors.by NSIC.

(5)Boles B. Pegues, III’s ownership includes 26,200

Mr. McLaughlin’s wife, Sarah Kathryn Hills McLaughlin, owns 9,104 shares heldof Trinity common stock in his IRA and 23,800 vested warrants not yet exercised.her name only. Mr. McLaughlin’s children residing at the same address own 4,207 shares of this total.

(6)Gerald Ray Smith, Jr.’s ownership includes 20,000

Ms. Stewart’s husband, Joe Paul Stewart, owns 76,375 shares heldof Trinity common stock in his IRA and 25,000 vested options not yet exercised.name only.

(7)J. Mark Traylor’s ownership includes 5,290 shares held in his IRA, 15,000 shares held by his father, Ronald Traylor, 5,000 shares held by his father’s company, Chesterfield Apartments, and 5,000 vested warrants not yet exercised.

Compensation of Directors and Executive Officers

The following table shows the annual rate of compensation and stock option grants for Keystone’s executives who will serve as executives of River Financial after the merger transaction.

Name and
Principal Position(1)

  Year   Salary
($)		   Bonus
($)		   All Other
Compensation
($)		  Total
($)		 

Gerald Ray Smith, Jr, Chief

   2013    $200,000.16    $46,302.00    $17,557.20(2)  $263,859.36  

Executive Officer

   2014    $225,000.06    $56,250.00    $18,458.11(2)  $299,708.17  

Boles B. Pegues, III, President

   2013    $145,000.08    $19,796.00    $6,908.16(3)  $171,704.24  
   2014    $155,000.11    $27,900.00    $7,074.76(3)  $189,974.87  

Index to Financial Statements

(1)Mr. Smith and Mr. Pegues hold the same positions with Keystone and Keystone Bank. After the merger, Mr. Smith and Mr. Pegues will be the President and Executive Vice President, respectively, of River Bank & Trust. After the merger, Mr. Smith will also be President of River Financial.
(2)All other compensation for Mr. Smith in 2013 includes medical insurance ($8,271.00), life insurance / accidental death & dismemberment ($638.28), long term disability insurance ($648.00), and company match on the 401(K) ($7,999.92).

All other compensation for Mr. Smith in 2014 includes medical insurance ($8,755.21), life insurance / accidental death & dismemberment ($638.28), long term disability insurance ($648.00), and company match on the 401(K) ($8,416.62).

(3)All other compensation for Mr. Pegues in 2013 includes life insurance / accidental death & dismemberment ($638.28), long term disability insurance ($469.80), and company match on the 401(K) ($5,800.08).

All other compensation for Mr. Pegues in 2014 includes life insurance / accidental death & dismemberment ($638.28), long term disability insurance ($469.80), and company match on the 401(K) ($5,966.68).

Employment Agreements

Keystone Bank has executive employment agreements with Ray Smith, Chief Executive Officer, Boles Pegues, President, and John Gittings, Chief Financial Officer. Each executive’s employment agreement is for a term of 24 months and, unless notice of non-renewal is given by Keystone Bank, automatically renews and the term is extended for one additional day on each day so that the term of their employment agreements shall always be 24 months.

The employment agreements provide that upon the occurrence of a “change in control” of Keystone Bank, all rights and obligations specified in the “Non-Competition and Non-Solicitation” section shall terminate immediately, but the terms and conditions of the “Compensation” section shall survive and the executives shall continue to (i) receive their base salary, disability insurance, and health insurance, (ii) participate in standard retirement and benefit plans, and (iii) participate in standard executive level compensation plans, all for the remaining term of the employment agreements.

The merger between River Financial and Keystone, or Keystone Bank with River Bank & Trust, would likely constitute a change in control under these employment agreements; however, Messrs. Smith and Pegues have agreed to waive their rights under their employment agreements upon executing new change in control agreements with River Financial at closing of the merger. See “The Merger — Interests of Keystone Directors and Executive Officers in the Merger — Employment Arrangements and Change in Control Agreements” at page     .

On April 28, 2015, Keystone Bank provided John Gittings with written notice that it was no longer extending the term of his employment agreement. As a result and pursuant to the terms of his employment agreement, Mr. Gittings is entitled to receive, until April 28, 2017, compensation equal to his previous year’s base salary plus an annual bonus not less than his previous year’s bonus, less any disability payment he may receive after April 28, 2015. Under a term sheet entered into with Mr. Gittings, River Financial will assume the obligation to make the foregoing compensation payments.

Stock Incentive Plan

Keystone has a 2007 Stock Incentive Plan (the “Plan”) covering up to 50,000 shares of Keystone common stock. The following discussion outlines some of the essential features of this Plan, but is qualified in its entirety by reference to the full text of the Plan.

The Plan provides for the granting of common stock options to purchase shares of common stock to employees of Keystone and Keystone Bank. The Plan is administered by a committee of the board of directors,

Index to Financial Statements

which has the exclusive right, subject to the provisions of the Plan, to interpret its provisions and to prescribe rules and regulations for its administration. The exercise price of each option granted under the Plan will not be less than the fair market value of the common stock as determined by the board of directors at the date of grant.

For “incentive stock options” qualified under the Internal Revenue Code, the aggregate value of the shares for which an employee may exercise options in any year cannot exceed $100,000, measured by the fair market value at date of grant, plus any unused carryover of this annual limitation. The price of the option cannot be less than 100% of the fair market value of the shares on the date the option is granted, except as to persons who hold more than 10% of the voting power of Keystone, in which case the option price cannot be less than 110% of fair market value.

No incentive option may be exercised more than ten years after it is granted. An option becomes exercisable, subject to the foregoing limitation, any time after it is granted unless vesting requirements are imposed with the grant. An incentive option must be exercised within 90 days of retirement and within 90 days after termination by Keystone.

The Plan also provides that notwithstanding any other provision in the Plan or any agreement under the Plan, Keystone’s primary regulator shall at any time have the right to require any holder of options to exercise such options or forfeit options not exercised if Keystone’s capital falls below minimum capital required by Keystone’s primary regulator.

Options and Equity Plans

The following table provides information about the value of the outstanding options as of December 31, 2014 of the Keystone executives who will serve as executives of River Financial after the merger transaction.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Option awards

 

Name

  Number of securities
underlying unexercised
options (#) exercisable		   Option exercise price ($)   Option expiration date 

Gerald Ray Smith, Jr.

   25,000 options    $10.00     3/1/2017  

Retirement Plans

Keystone Bank has in place a 401(k) Plan pursuant to which employees may defer a portion of their compensation on an annual basis subject to dollar limits established by law. Employees may make regular 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax). Keystone Bank makes a “safe harbor” matching contribution equal to 100% of the first 3% of the employee’s annual compensation deferred by the employee and 50% of the next 2% of the employee’s annual compensation deferred. This contribution is 100% vested. Employees are always 100 percent vested in contributions from salary deferrals, rollover contributions and safe harbor matching contributions.

Keystone Bank also maintains a supplemental executive retirement plan (the “SERP”) under which Ray Smith, Boles Pegues and John Gittings participate. Participants who retire at or after age 70 receive a benefit equal to the greater of (i) $75,000 annually or (ii) the amounts of any annual cash distributions paid to Keystone Bank from the deferred compensation investment account set up to fund the SERP. Participants with ten years of covered employment may retire early at or after age 60 and receive a discounted benefit equal to the liability accrued by Keystone Bank for Keystone Bank’s obligations to participant under the SERP (“Accrual Balance”) earned as of December 31st of the year immediately preceding the participant’s retirement date. Participants leaving employment due to disability before reaching age 70 receive a benefit equal to the participant’s Accrual

Index to Financial Statements

Balance earned as of December 31st of the year immediately preceding the participant’s departure date. Under each of these scenarios, benefits are paid for seven (7) years, at which time the participant shall receive an amount equal to the remaining value of the deferred compensation investment account. Upon a change in control and termination prior to a participant reaching age 70, a participant may receive a benefit equal to the greater of (i) the participant’s Accrual Balance on the effective date of the change in control or (ii) the value of the deferred compensation investment account set up to fund the SERP. Pursuant to the merger, Keystone Bank’s SERPs will be assumed by River Financial.

Split Dollar Life Insurance Agreements

Keystone Bank has Split Dollar Life Insurance Agreements with Ray Smith, Boles Pegues and John Gittings. Under each Split Dollar Life Insurance Agreement, Keystone Bank is the sole owner of an insurance policy under which the executive is insured and is responsible for contributing the entire premium payable under the policy. In the event of the executive’s death while the Split Dollar Life Insurance Agreement is still in effect, Keystone Bank is entitled to receive its interest in the proceeds from such policy (as set forth in the Split Dollar Life Insurance Agreement) and the executive’s designated beneficiary is entitled to receive the executive’s interest (as set forth in the Split Dollar Life Insurance Agreement). The Split Dollar Life Insurance Agreement terminates upon termination of the executive’s employment with Keystone Bank prior to executive’s eligibility to receive benefits under the executive’s SERP, described above, termination of executive’s employment “for cause” (as defined in executive’s employment agreement, described above), fulfillment or cancellation of the benefits due executive under executive’s SERP, described above, or bankruptcy, receivership or dissolution of Keystone Bank. In such event, Keystone Bank would become the sole beneficiary of the life insurance policy. In the event of termination of the executive’s employment following a Change in Control (as defined in the SERP, described above), the death benefit under the Split Dollar Life Insurance Agreement will fully vest and the Split Dollar Life Insurance Agreement will continue in effect. Pursuant to the merger, Keystone Bank’s Split Dollar Life Insurance Agreements will be assumed by River Financial.

Director Compensation

Keystone Bank paid directors fees for 2014 as set forth in the table below. Keystone does not pay directors fees.

DIRECTOR COMPENSATION

 

Name(1)

  Fees
earned or
paid in
cash ($)		   Stock
Awards
($)		   All
Other
Compensation		   Total
($)		 

John A. Freeman

  $8,650.00     N/A     N/A    $8,650.00  

John F. Gittings

   N/A     N/A     N/A     N/A  

Banks Herndon

  $8,650.00     N/A     N/A    $8,650.00  

W. Murray Neighbors

  $10,000.00     N/A     N/A    $10,000.00  

Dr. Lucian Newman, III

  $7,300.00     N/A     N/A    $7,300.00  

Joel V. Osborn

  $7,900.00     N/A     N/A    $7,900.00  

Boles B. Pegues, III

   N/A     N/A     N/A     N/A  

Howard J. Porter, Jr.

  $8,350.00     N/A     N/A    $8,350.00  

John Y. Reynolds

  $8,450.00     N/A     N/A    $8,450.00  

Gerald Ray Smith, Jr.

   N/A     N/A     N/A     N/A  

J. Mark Traylor

  $8,100.00     N/A     N/A    $8,100.00  

(1)The persons shown in this table will continue as directors of River Bank & Trust following the merger of Keystone Bank with River Bank & Trust, and Messrs. Neighbors, Smith, and Freeman will serve as directors of River Financial following the merger of Keystone with River Financial.

Non-management directors receive a standard annual director fee of $5,000. For the first half of 2014, non-management directors received an additional $250 per board meeting and $100 per committee meeting. For the

Index to Financial Statements

second half of 2014, non-management directors received an additional $300 per board meeting and $150 per committee meeting.

Certain directors hold warrants to acquire shares of Keystone common stock pursuant to a warrant agreement. The Directors holding warrants are shown above at “Security Ownership of Certain Beneficial Owners and Management.” The warrant agreement provides that the director may purchase at a price of $10.00 per share the number of shares of common stock subject to the warrant agreement. The warrants expire on March 1, 2017.

Certain Relationships and Related Transactions of Keystone

Keystone has had, and expects to have in the future, loans and other banking transactions in the ordinary course of business with directors (including independent directors) and executive officers of Keystone and Keystone Bank, including members of their families or corporations, partnerships or other organizations in which such officers or directors have a controlling interest. These loans are made on substantially the same terms (including interest rates and collateral) as those available at the time for comparable transactions with persons not related to Keystone Bank and did not involve more than the normal risk of collectability or present other unfavorable features.

In addition, Keystone Bank is subject to the provisions of Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Keystone Bank is also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

The aggregate dollar amount of loans outstanding to directors and executive officers of Keystone Bank and Keystone was approximately $1,379,243.03 at March 31, 2015.

Index to Financial Statements

KEYSTONE MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All dollar amounts in this section are in thousands of dollars, except per share data or when specifically identified. The words “we,” “us,” “our,” and “Keystone” and similar terms when used in this section refer to Keystone Bancshares, Inc. and Keystone Bank, unless the context indicates otherwise.

Introduction

The following is a narrative discussion and analysis is designed to provide a better understanding of significant changes in Keystone’svarious factors related to the results of operations and financial condition of Trinity and Trinity Bank. This discussion is intended to supplement and highlight information contained in the accompanying unaudited condensed consolidated financial statements and related notes for the three and six months ended March 31, 2015June 30, 2019 and 20142018, and the yearsaccompanying audited consolidated financial statements and related notes for the year ended December 31, 20142018 and 2013,2017.

OVERVIEW

Trinity was incorporated in 2017 under the laws of the State of Alabama and became a bank holding company after it acquired Trinity Bank that same year. Trinity Bank is an Alabama-chartered bank organized in 2006. Both Trinity and Trinity Bank are headquartered in Dothan, Alabama which is located in northwest Houston County, in southeast Alabama. Trinity Bank has branches located at1479 West Main Street and 3850 West Main Street in Dothan, Alabama and 306 South Main Street in Enterprise, Alabama.

Trinity Bank offers general retail and commercial banking including checking, savings and time deposits of various types, the making secured and unsecured loans and other banking services to individuals, businesses, institutions, and governmental entities.

Summary of Results of Operations

   Six Months
Ended June 30,		   Three Months
Ended June 30		   Year Ended
December 31		 

(Dollars in thousands, except per share data)

  2019   2018   2019   2018   2018  2017 

Net interest income (GAAP)

  $3,226    2,974   $1,633    1,525   $6,076   5,725 

Noninterest income

   349    198    129    101    384   433 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total revenue

   3,575    3,172    1,762    1,626    6,460   6,158 

Provision for loan losses

   77    48    39    12    (240)   1,753 

Noninterest expense

   1,997    1,947    1,069    989    3,840   3,663 

Income tax expense

   299    285    168    155    710   477 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Net income

   1,202    891   $486    470   $2,150   265 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Basic and diluted net earnings per share

  $0.69    0.51   $0.28    0.27   $1.23   0.15 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Financial Summary

Trinity’s net income was $2.15 million for 2018, compared to $265 thousand for the year ended 2017. Net income was $1.20 million for the first six months of 2019, compared to $891 thousand for the first six months of 2018. Basic and diluted earnings per share were $1.23 and $0.15 per share for the full years 2018 and 2017, respectively.Basic and diluted earnings per share was $0.69 for the first six months of 2019 compared to $0.51 per share for the first six months of 2018.

Net interest income was $3.49per share and $3.02 per share for the full years 2018 and 2017, respectively. This 15.56% increase was primarily due to increased loan volume. Net interest income was $3.23 million in the first six months of 2019, an 8.47% increase compared to $2.97 million in the first six months of 2018. This increase was primarily due to an increase in average loans of more than $10 million. Average loans were $122.8 million in 2018, compared to $117.7 million in 2017. Trinity’s net interest margin increased to 4.31% in the first six months of 2019, compared to 4.21% in the first six months of 2018, as yields on earning assets increased.

Reversal of the provision for loan losses were $240 thousand in 2018, compared to a provision for loan losses of $1.75 million in 2017. The provision for loan losses was $77 thousand at June 30, 2019 and $48 thousand at June 30, 2018. The provision for loan losses is based upon various estimates and judgements, including the absolute level of loans, loan growth, credit quality and the amount of net charge-offs.

Noninterest income was $349 thousand in the first six months of 2019 compared to $198 thousand in the first six months of 2018. Noninterest income was $384 thousand in 2018 compared to $433 thousand in 2017. Noninterest expense was $2.0 million in the first six months of 2019 compared to $1.95 million in the in the first six months of 2018. This minimal increase in noninterest expense was primarily due to increased accruals of merger related expenses. Noninterest expense was $3.8 million in 2018 compared to $3.7 million in 2017. This increase in noninterest expense was primarily due to increased legal reserves related to potential claims with respect to certain loans.

Income tax expense was $299 thousand in the in the first six months of 2019 and $285 thousand in the in the first six months of 2018, reflecting an effective tax rate of 19.9% in 2019 and 24.2% in 2018. Income tax expense was $710 thousand in 2018 and $477 thousand in 2017, reflecting an effective tax rate of 24.8% and 64.3%, respectively. The decrease in the effective tax rate was primarily due to the 2018 Tax Cuts & Jobs Act, which lowered Trinity’s statutory federal tax rate from 35% to 21%. Because the tax rate was reduced, Trinity reduced the net deferred tax assets carried based on the 35% rate to the value based on the 21% rate. This change resulted in additional tax provision in 2017 of $242. Income tax expense increased in 2018 from 2017 because of the significantly higher net income before taxes.

Trinity paid cash dividends of $0.20 per share in 2018 and no cash dividend in 2017. At June 30, 2019, Trinity Bank’s regulatory capital ratios were well above the minimum amounts required to be “well capitalized” under current regulatory standards with a total risk-based capital ratio of 15.44%, a Tier one leverage ratio of 10.17% and CET1 capital ratio of 14.19%.

CRITICAL ACCOUNTING POLICIES

Nature of Operations

Trinity and Trinity Bank provides various other financial condition at March 31, 2015,services to individuals and December 31, 2014corporate customers through its offices in Dothan and 2013. This discussionEnterprise, Alabama. Trinity Bank’s primary deposit products are demand deposits, savings and analysis should be readcertificates of deposit. Its primary lending products are commercial loans. As a state bank, Trinity Bank is subject to regulation by the Alabama State Banking Department and the Federal Deposit Insurance Corporation.

Additionally, Trinity Bank maintains correspondent banking relationships with regional correspondent banks. Trinity Bank does not have any significant concentrations to any one industry or customer. Note 3 of the audited financial statements discusses the types of securities in conjunction with Keystone’s Consolidated Financial Statementswhich Trinity Bank invests. Note 4 discusses the types of lending in which Trinity Bank engages.

The accounting and related notes included elsewherereporting policies and practices of Trinity conform to accounting principles generally accepted in this proxy statement / prospectus.the United States of America. Trinity’s significant accounting policies are described below.

Critical Accounting Policies and EstimatesPrinciples of Consolidation

Keystone’s

The accompanying consolidated financial statements are prepared based onincludes the applicationaccounts of certain accounting policies, the mostTrinity and Trinity Bank.

In consolidation, all significant intercompany balances and transactions have been eliminated.

Use of which are described in Keystone’s NotesEstimates

The preparation of consolidated financial statements requires management to the Consolidated Financial Statements. Certain of these policies require numerousmake estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect Keystone’sthe reported results and financial position for the current period or future periods. The useamounts of estimates, assumptions, and judgment is necessary when financial assets and liabilities are required toand 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. Actual results could differ from these estimates.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains, and losses be recorded at, or adjusted to reflect fair value. Assets carried at fair value inherently resultincluded in more financial statement volatility. Fair values and information used to record valuation adjustments for certainnet income. Certain changes in assets and liabilities, such as unrealized gains and losses onavailable-for-sale securities, are reported as a separate component of the stockholders’ equity section of the balance sheets. Such items, along with net income, are components of comprehensive income.

Presentation of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing) and interest-bearing deposits in banks with an original maturity of 90 days or less, and federal funds sold. Generally, federal funds are sold forone-day periods.

Investment Securities

Securities that are held principally for resale in the near term are recorded in the trading assets account at fair value.

Securities classified asheld-to-maturity are those debt securities Trinity has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost and adjusted for amortization of premium and accretion of discount, computed using the interest method, over their contractual lives.

Securities classified asavailable-for-sale are equity securities with readily determinable fair values and those debt securities that Trinity intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified asavailable-for-sale would be based on various factors, including significant movement in interest rates, changes in the maturity mix of Trinity’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. These securities are carried at estimated fair value based on information provided by a third party pricing service with any unrealized gains or losses excluded from net income and reported in accumulated other comprehensive income (loss), which is reported as a separate component of stockholders’ equity, net of the related deferred tax effect.

Dividend and interest income, including amortization of premium and accretion of discount arising at acquisition, from all categories of investment securities are basedincluded in interest income in the consolidated statements of income.

Gains and losses realized on quoted market prices orsales of investment securities, determined using the adjusted cost basis of the specific securities sold, are provided byincluded in noninterest income in the consolidated statements of income. Additionally, declines in the estimated fair value of individual investment securities below their cost that are other-than-temporary are reflected as realized losses in the statements of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include, among other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in anythings, (i) the length of these areas could have a material impact on Keystone’s futuretime and the extent to which the fair value has been less than cost, (ii) the financial condition and results of operations.

The following briefly describes the more complex policies involving a significant amount of judgments about valuation and the application of complex accounting standards and interpretations. For a more complete discussionnear term prospects of the methodology employedissuer, (iii) that Trinity does not intend to calculatesell these estimates, see Note 1securities, and (iv) it is more likely than not that Trinity will not be required to Keystone’s Consolidated Financial Statements includedsell before a period of time sufficient to allow for any anticipated recovery in this proxy statement / prospectus.fair value.

Restricted stock is stock from the Federal Home Loan Bank and First National Banker’s Bank, which are restricted as to their marketability. Because no ready market exists for these investments and they have no quoted market value, Trinity Bank’s investment in these stocks are carried at cost. Management reviews for impairment based on the ultimate recoverability of the cost basis of the stock.

Loans and Allowance for Loan Losses

Keystone records estimated probable inherent credit losses inTrinity Bank grants real estate, commercial, consumer and agricultural loans to customers. A substantial portion of the loan portfolio as an allowanceis represented by real estate loans throughout Houston and Coffee County and surrounding areas. The ability of Trinity Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for loan losses. The methodologies and assumptionsthe foreseeable future or until maturity, orpay-off, generally are reported at their outstanding unpaid principal balances adjusted for determining the adequacy of the overall allowance for loan losses involve significant judgments to be made by management. Some of the more critical judgments supporting the allowance for loan losses include judgments about: creditworthinessand any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees are deferred and amortized as a level yield adjustment over the respective term of borrowers,the loan.

The accrual of interest on the loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Loans are typicallycharged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed onnon-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed onnon-accrual orcharged-off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for loan losses is established as estimated losses and are charged to earnings through a provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance is based on two basic principles of accounting: (i) FASB ASC 450, Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) FASB ASC 310, Receivables, which requires that losses on impaired loans be accrued based on the differences between the loan balance and either the value of underlying collateral, assumptionsif such loans are considered to be collateral dependent and in the process of collection, or the present value of future cash flows, or the loan’s value as observable in the secondary market. A loan is considered impaired when, based on current information and events, Trinity has concerns about cash flow, determinationthe ability to collect the scheduled payments of loss factorsprincipal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and borrower, including the length of the delay, the reasons for estimated creditthe delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Trinity’s allowance for loan losses has three basic components: the specific allowance, the formula allowance and the pooled allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. As a result of the uncertainties inherent in the estimation process, management’s estimate of loan losses and the impactrelated allowance could change in the near term.

The specific allowance component is used to individually establish an allowance for loans identified for impairment testing. When impairment is identified, a specific reserve may be established based on Trinity Bank’s calculation of current events, conditions,the estimated loss embedded in the individual loan. Impairment testing includes consideration of

the borrower’s overall financial condition, resources and otherpayment record, support available from financial guarantors and the fair market value of collateral. These factors impactingare combined to estimate the levelprobability and severity of inherent losses. Under differentLarge groups of smaller balance, homogeneous loans are collectively evaluated for impairment.

The formula allowance component is used for estimating the loss on internally risk rated loans exclusive of those identified as impaired. The loans meeting Trinity’s internal criteria for classification, such as special mention, substandard, doubtful and loss, as well as specifically identified impaired loans, are segregated from performing loans within the portfolio. These internally classified loans are then grouped by loan type. Each loan type is assigned an allowance factor based on management’s estimate of the associated risk, complexity and size of the individual loans within the particular loan category. Classified loans are assigned a higher allowance factor thannon-classified loans due to management’s concerns regarding collectability or management’s knowledge of particular elements surrounding the borrower. Allowance factors increase with the worsening of the internal risk rating.

The pooled formula component is used to estimate the losses inherent in the pools ofnon-classified loans. These loans are then also segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, results of the loan review system and the effect of external factors (i.e. competition and regulatory requirements). Current economic conditions take into account the average unemployment rates for Houston County and Coffee County, Alabama, the State of Alabama and for the nation, with the most significance given to the Houston and Coffee County data. The allowance factors assigned differ by loan type.

Allowance factors and overall size of the allowance may change from period to period based on management’s assessment of the above-described factors and the relative weights given to each factor. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require Trinity Bank to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. It is Trinity’s policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs on loans are being amortized on the interest method over the term of the loan. Management considers loans impaired when, based on current information, it is probable that Trinity Bank will not collect all principal or interest payments according to contractual terms. Loans are evaluated for impairment in accordance with Trinity’s portfolio monitoring and ongoing risk assessment procedures. Management considers the financial condition of the borrower, cash flow of the borrower, payment status of the loan, and the value of collateral, if any, securing the loan. Loans that experience insignificant payment delays and payment shortfalls are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Trinity’scharge-off policy states after all collection efforts have been exhausted and the loan is deemed to be a loss, it will be charged to Trinity Bank’s established allowance for loan losses. For unsecured loans, a loan that is over 90 days past due or one in which management deems no longer collectible will becharged-off. For secured loans, at the time that management deems a loan no longer collectible, Trinity will take action to repossess the collateral if in Trinity’s best interest and to liquidate the collateral as soon as possible. Once the collateral is liquidated, the remaining deficiency will becharged-off. If liquidation of the collateral is expected to take an extended period of time, management will estimate the expected loss amount and charge off that amount.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, Trinity Bank has entered into commitments to extend credit, commitments under standby letters of credit, and unfunded commitments under lines of credit. Such financial instruments are recorded when they are funded.

Foreclosed Properties

Foreclosed properties include properties that have been acquired in complete or partial satisfaction of a debt. These properties are initially recorded at fair value on the date of acquisition. Any write-downs at the time of acquisition are charged to the allowance for loan losses. Subsequent to acquisition, a valuation allowance is established, if necessary, to report these assets at the lower of (a) fair value minus estimated costs to sell or (b) cost. Gains and losses realized on the sale, and any adjustments resulting from periodicre-evaluation of the property are included in noninterest income or expense, as appropriate. Net costs of maintaining and operating the properties are expensed as incurred.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using different assumptions, the actualstraight-line method based on the estimated useful lives of the assets or the expected terms of the leases, if shorter.

Expenditures for improvements, which extend the life of an asset, are capitalized and depreciated over the asset’s remaining useful life. Gains or losses realized on the disposition of properties and equipment are reflected in the statements of income. Expenditures for repairs and maintenance are charged to operating expenses as incurred.

Valuation of Long-lived Assets

Trinity accounts for the valuation of long-lived assets under FASB ASC 360, Property, Plant and Equipment. This guidance requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated credit losses ultimately realized mayfair value of the assets. Assets to be different than management’s estimates provided in Keystone’s Consolidated Financial Statements included elsewhere in this proxy statement / prospectus.disposed of are reportable at the lower of the carrying amount of fair value, less costs to sell.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income andpre-tax financial income and between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognizedincluded in the financial statements. A valuation allowance may be

Index to Financial Statements

establishedstatements at currently enacted income tax rates applicable to the extent necessary to reduceperiod in which the deferred tax assetassets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

In addition, deferred tax assets are reduced by a level at whichvaluation allowance when, in the opinion of management, it is “moremore likely than not”not that some portion or all of the deferred tax assets or benefits will not be realized. Realization of

Trinity does not have uncertain tax benefits depends on having sufficient taxable income, available tax loss carrybacks or credits, the reversing of taxable temporary differences and/or tax planning strategies within the reversal periodpositions that are deemed material, and that current tax law allowsdid not recognize any adjustments for the realization of recordedunrecognized tax benefits. Management believes that Keystone will generate sufficient operating earningsTrinity’s policy is to realize the current recorded deferred tax benefits. Examination of Keystone’srecognize interest and penalties on income taxes in other noninterest expense. Trinity remains subject to examination for income tax returns or changes in tax lawfor the years ending after December 31, 2014.

Earnings Per Share

Basic earnings per share represent income available to common stockholders divided by the taxing authorities may also impact Keystone’s tax liabilities and resulting provisions for income taxes.

Comparisonweighted average number of Resultscommon shares outstanding during the period. The weighted average number of Operationscommon shares outstanding used to calculate earnings per share was 1,741,696 for the Three Months Ended March 31, 2015 and 2014 and Years Endedyear ended December 31, 20142018 and 2013

Overview

The following discussion describes Keystone’s results of operations1,745,853 for the three and six months ended March 31, 2015 and 2014, and for the years ended December 31, 2014 and 2013. Like most community banks, Keystone derives most of its income from interest Keystone receives on its loans and investments. Keystone’s primary source of funds for making these loans and investments is noninterest and interest bearing deposits. Consequently, one of the key measures of Keystone’s success is the amount of net interest income, or the difference between the income on Keystone’s interest-earning assets, such as loans and investments, and the expense on Keystone’s interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield Keystone earns on these interest-earning assets and the rate Keystone pays on its interest-bearing liabilities.June 30, 2019.

Results of Operations for the Three Months Ended March 31, 2015 and 2014

Keystone had earnings of $690 for the first three months of 2015, or $0.39 basicDiluted earnings per share comparedreflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to earnings of $633 or $0.36 basic earnings per share forincome that would result from the same period of 2014.assumed issuance. Potential common shares that may be issued by Trinity Bank relate solely to outstanding stock options. The dilutive shares outstanding used to calculate diluted earnings per share were $0.381,746,393 for the first three months of 2015year ended December 31, 2018. There was no potential common shares issuable at June 30, 2019.

RESULTS OF OPERATIONS

Average Balance Sheet and $0.35 for the first three months of 2014.Interest Rates

During the first three months of 2015, there were a number of variances when compared with the first three months of 2014, but the most significant quarter over quarter variances occurred in income from net interest income which increased $85, fees on mortgage originations in non-interest income, which increased $182 and employee salaries and benefits in non-interest expense, which increased $120. These three variances and other information about Keystone’s results of operations for the three months ended March 31, 2015 and 2014 are discussed below and on the pages that follow.

   Year ended December 31 
   2018  2017 

(Dollars in thousands)

  Average
Balance		   Yield/
Rate		  Average
Balance		   Yield/
Rate		 

Interest-earning assets:

       

Loans and loans held for sale

  $122,844    5.55%  $117,704    5.44% 

Securities—taxable

   4,609    2.09%   7,106    1.98% 

Securities—tax-exempt

   8,325    2.63%   5,678    3.23% 

Interest bearing bank deposits

   9,733    1.89%   8,013    0.96% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest-earning assets

   145,511    5.03%   138,501    4.95% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Interest-bearing liabilities:

       

Deposits:

       

Interest bearing demand

   11,776    0.34%   10,053    0.35% 

Savings and money market

   42,048    0.72%   45,915    0.60% 

Time-deposits—retail

   51,565    1.52%   47,912    1.41% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest-bearing deposits

   105,389    1.07%   103,880    0.95% 

FHLB advances

   2,160    2.61%   1,604    2.70% 

Other Borrowings

   —      —  %   3    0.21% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest-bearing liabilities

   107,550    1.10%   105,487    0.97% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Net interest income and margin

  $6,061    4.22%  $5,714    4.21% 
  

 

 

   

 

 

  

 

 

   

 

 

 

   Six months ended June 30, 
  

 

 

 
   2019  2018 

(Dollars in thousands)

  Average
Balance		   Yield/
Rate		  Average
Balance		   Yield/
Rate		 

Interest-earning assets:

       

Loans and loans held for sale

  $128,008    5.86%  $120,750    5.53% 

Securities—taxable

   3,510    2.23%   4,694    2.08% 

Securities—tax-exempt

   8,095    2.69%   8,360    2.62% 

Interest bearing bank deposits

   13,749    2.40%   9,978    1.64% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest-earning assets

   153,362    5.30%   143,782    4.98% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Interest-bearing liabilities:

       

Deposits:

       

Interest bearing demand

   12,872    0.34%   11,439    0.33% 

Savings and money market

   45,273    1.06%   41,594    0.60% 

Time deposits—retail

   48,889    1.85%   51,454    1.47% 

Time deposits—wholesale

   2,145    1.65%   —      —  % 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest-bearing deposits

   109,179    1.34%   104,487    1.00% 

FHLB advances

   2,012    2.62%   2,210    2.61% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Total interest-bearing liabilities

   111,191    1.36%   106,698    1.03% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Net interest income and margin (a)

  $3,226    4.31%  $2,975    4.21% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Net Interest Income and Margin

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of Keystone’s earnings. Totalwas $6.1 million in 2018, compared to $5.7 million in 2017. This increase was primarily related to growth in loan volume. Net interest income for the three months ended March 31, 2015 was $2,514 and total interest expense was $341, resulting in net interest income$3.2 million for the first threesix months of 2015 totaling $2,173. For2019, compared to $3.0 million for the first six months of 2018. This increase was primarily due to the increased interest income related to growth in loan volume.

The yield on total interest-earning assets increased by 32 basis points to 5.30% for the first six months of 2019, compared to 4.98% for the first six months of 2018, primarily driven by fluctuations in short term yields.

The yield on total interest-earning assets increased by 8 basis points to 5.03% in 2018, compared to 4.95% in 2017. Expansion of Trinity’s earning asset yields from 2017 to 2018 was primarily driven by fluctuations in short term yields, partially offset by a 60 basis point decrease in the yieldon tax-exempt available-for-sale securities from 2017 to 2018.

The cost of total interest-bearing liabilities increased 13 basis points to 1.10% in 2018, from 0.97% in 2017. The net increase was largely a result of the Federal Reserve increasing interest rates.

The cost of total interest-bearing liabilities increased 33 basis points to 1.36% in the first six months of 2019, compared to 1.03% in the same period in 2014 total2018. The net increase was largely a result of increased interest income was $2,448 and totalrates.

Trinity deploys various asset liability management strategies to manage its risk to interest expense was $360, which resulted inrate fluctuations. Trinity’s net interest income of $2,088. This represents a 2.70% increase in total interest income, a 5.28% decrease in total interest expense and a 4.07% increase in net interest income when comparing the same periods from 2015 and 2014. When comparing the variances related to interest income and interest expense for the first three months of 2015 and the first three months of 2014, the increase and decrease, respectively, were attributed to the following: (1) the increase in interest income ismargin could experience pressure due to the increaseincreased competition for quality loan opportunities, and possible increases in loan demand, and (2) the decrease in interest expense is primarily due to Keystone’s managementTrinity’s costs of the rates on interest-bearing liabilities over the past year, effectively reducing the cost of interest-bearing liabilities from .77% for the first three months of 2014 to .72% for the first three months of 2015.

Index to Financial Statements

The Federal Reserve has not raised short-term interest rates over the past several years, but based upon recent public comments fromfunds if the Federal Reserve Board Chairperson, management understands that an increase, or increases could possibly occur in 2015 if general economic conditions continue to show improvement. If interest rates are increased, management believes that Keystone’s net interest margin should continue to remain relatively stable over the remainder of 2015 due to the stability of Keystone’s loan and deposit portfolios and Keystone’s interest rate risk management policies.rates.

The following table presents yields and rates on Keystone’s average earning assets and average interest-bearing liabilities and the change in interest income and expense due to changes in volume and rates for the three months ended March 31, 2015 and 2014.

Index to Financial Statements

Yields on Average Earning Assets and Rates

on Average Interest-Bearing Liabilities

  March 31, 2015  March 31, 2014  Change 
  Average
Balance		  Interest
Rate		  Income/
Expense*		  Average
Balance		  Interest
Rate		  Income/
Expense*		  Due to
Volume		  Due to
Rate		  Total 

Loans, net of unearned interest

 $171,314    5.24%   8,972   $155,545    5.44%   8,454    834    (316)   518  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Investment securities — taxable

  7,260    1.59    115    10,735    2.19    235    (65)   (55)   (120) 

Investment securities — tax-
exempt(1)

  29,737    4.21    775    30,572    4.44    842    (23)   (44)   (67) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total investment securities(1)

  36,997    3.69    890    41,307    3.86    1,077    (88)   (99)   (187) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Federal funds sold

  1,004    2.21    22    979    2.27    22    1    (1)   —    

Restricted equity securities

  609    —      —      661    —      —      —      —      —    

Interest-bearing balances with banks

  19,658    0.87    171    21,576    1.12    241    (20)   (50)   (70) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total earning assets

  229,582    4.38    10,055    220,068    4.45    9,794    727    (466)   261  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and due from banks

  3,319      3,771       

Bank premises and equipment

  6,415      6,603       

Allowance for loan losses, accrued interest and other assets

  6,843      6,447       
 

 

 

    

 

 

      

Total assets

 $246,159     $236,889       
 

 

 

    

 

 

      

Deposits:

         

Interest-bearing checking accounts

 $42,530    0.46%   198   $39,919    0.65%   260    16    (78)   (62) 

Money market demand accounts

  78,572    0.54    421    74,619    0.55    414    21    (14)   7  

Savings deposits

  5,901    0.28    17    5,082    0.37    19    3    (5)   (2) 

Time deposits

  57,108    1.14    653    61,644    1.13    694    (52)   11    (41) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-bearing deposits

  184,111    0.70    1,289    181,264    0.76    1,387    (12)   (86)   (36) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Federal funds purchased

  21    —      —      180    —      —      —      —      —    

Other borrowings

  6,500    1.17    76    6,500    0.86    56    —      20    20  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-bearing liabilities

  190,632    0.72    1,365    187,944    0.77    1,443    (12)   (66)   (78) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Noninterest-bearing deposits

  26,848      22,892       

Other liabilities

  1,309      1,541       

Stockholders’ equity

  27,370      24,512       
 

 

 

    

 

 

      

Total liabilities and stockholders’ equity

 $246,159     $236,889       
 

 

 

    

 

 

      

Net interest income

    8,690      8,351     $339  
   

 

 

    

 

 

    

 

 

 

Net interest spread(2)

   3.66%     3.68%     
  

 

 

    

 

 

     

Net interest margin(3)

   3.79%     3.80%     
  

 

 

    

 

 

     

*Annualized
(1)Yields are presented on a fully taxable equivalent basis using a tax rate of 38%.
(2)Yield on earning assets less cost of funds interest bearing liabilities.
(3)Net interest income divided by average interest earning assets.

Index to Financial Statements

Provision for Loan Losses

The provision for loan losses represents a charge to earnings necessary to establishprovide an allowance for loan losses that, in management’s evaluation, isshould be adequate to provide coverage for estimatedthe probable losses on outstanding loans and to provide for uncertainties in the economy. As a result of evaluating the allowance

loans. Trinity reversed its provision for loan losses of $240 thousand at MarchDecember 31, 2015, management2018 and recorded a provision for loan losses of $98 for the first three months of 2015. There was$1.75 million at December 31, 2017. Trinity’s recorded a $45 provision for loan losses recorded during the first three months of 2014. The increase in the quarter over quarter provision for loanwas $77 thousand at June 30, 2019 and $48 thousand at June 30, 2018.

Probable losses ison outstanding loans at December 31, 2017 increased due to certain loans becoming subject to potential claims for which management determined it to be doubtful that the continuing growth in Keystone’s loan portfolio.

guarantees or collateral could be relied upon for repayment. Management became aware of an apparent fraud associated with the borrower/guarantor on one relationship for which it was doubtful that the loan guarantees or collateral could be relied upon for repayment. Management determined the loan should becharged-off at December 31, 2017. The totalprovision was increased and Trinity subsequentlycharged-off $1.1 million. Management also became aware that another borrower had been denied its claims under a federal agricultural disaster relief program. As a result, management deemed the loan to be substandard at December 31, 2017 and wrote the remaining collateral to zero. The full amount of the loan was specifically reserved and subsequently charged off. The amount charged to the allowance for loan losses was $2,460 or 1.45%$503 thousand. However, this loan was fully paid in 2018 and the full amount was recorded as a recovery in the allowance for loan losses. This resulted in an overall reversal of loans at March 31, 2015, and $2,392 or 1.54%provision for loan losses in 2018 of loans at March 31, 2014. The level$240 thousand.

Based upon its assessment of the loan portfolio, management adjusts the allowance maintained by Keystone includesfor loan losses to an amount it believes to be appropriate to adequately cover probable losses in the loan portfolio. Trinity’s allowance for loan losses to total loans decreased to 1.57% at December 31, 2018 from 1.86% at December 31, 2017. Trinity’s allowance for loan losses to total loans decreased to 1.60% at June 30, 2019 from 1.94% at June 30, 2018.

Based upon its evaluation of uncertainties and matters of judgment. Managementthe loan portfolio, management believes the allowance for loan losses at March 31, 2015 and March 31, 2014 to be adequate.

Non-Interest Income

Keystone’s non-interest income consistsadequateto absorb Trinity’s estimate of fees on mortgage originations, service charges and other fees on deposit accounts and gain on sales of securities available for sale. Total non-interest income for the three months ended March 31, 2015 was $497 compared with $307 for the same period in 2014, an increase of $190, or 61.9%. The primary increase was in fees on mortgage originations of $182, or 135.8%, when comparing the first three months of 2015 with the same period in 2014. The increase is due to an increase in mortgage loan production as a result of a new branch in Opelika, Alabama which opened in 2013 and an increase in construction lending which in turn results in an increase in mortgage loans when the loans transition to permanent financing.

Management believes that non-interest income will continue to supplement core earnings for Keystone. Management also believes that mortgage origination fees will be fairly stable for the remainder of 2015; however, if interest rates increase, this could slow the demand for one-to-four family mortgage loans.

Non-Interest Expense

Non-interest expenses consist primarily of salary and employee benefits, equipment and occupancy expenses, and other operating expenses. Non-interest expense for the three months ended March 31, 2015 was $1,584 compared to $1,451 for the same period in 2014, an increase of $133, or 9.2%. The primary increase when comparing the first three months of 2015 to the first three months of 2014 was an increase of $120, or 13.8%, in employee salaries and benefits due in large part to an increase in incentive pay and commissions on the origination of mortgage loans.

Income Taxes

Keystone recorded income tax expense for the three months ended March 31, 2015 and 2014 of $298 and $268, respectively. Keystone’s income tax expense for the three months ended March 31, 2015 reflects an effective combined Federal and State income tax rate of 30.1% compared to 29.6% for the three months ended March 31, 2014. The decreaseprobable losses existing in the effective income tax rate from the blended statutory Federalloan portfolio at June 30, 2019. While Trinity’s policies and State income tax rate (38.2%) is principally dueprocedures used to tax-free income from investments in municipal securities and tax-free bank-owned life insurance income.

Results of Operations for the Years Ended December 31, 2014 and 2013

Keystone had earnings of $2,591 for the year ended December 31, 2014, or $1.46 basic earnings per share, compared to earnings of $2,678 or $1.48 basic earnings per share for the same period of 2013. The diluted earnings per share were $1.44 for the year ended December 31, 2014 and $1.47 for 2013.

During 2014, there were a number of variances when compared to 2013, but the most significant year to year variances occurred in income from net interest income, which increased $313, gains on sales of securities

Index to Financial Statements

available for sale as non-interest income, which decreased $211, and employee salaries and benefits expense in non-interest expenses, which increased $290. These three variances as well as other information about the 2014 and 2013 results of operations are discussed below and on the pages that follow.

Net Interest Income

Net interest income represents the amount by which interest earned on various earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of Keystone’s earnings. Total interest income for the year ended December 31, 2014 was $10,029 and total interest expense was $1,421, resulting in net interest income for 2014 totaling $8,608. For the same period in 2013 total interest income was $10,012 and total interest expense was $1,717, which resulted in net interest income of $8,295. This represents a 0.17% increase in total interest income, a 17.24% decrease in total interest expense and a 3.77% increase in net interest income when comparing the same periods from 2014 and 2013. When comparing the variances related to interest income and interest expense for 2014 and 2013, the increase and decrease, respectively, were attributed to the following: (1) the increase in interest income is due to the increase in loan demand and (2) the decrease in interest expense is primarily due to Keystone’s management of the rates on interest-bearing liabilities over the past year, effectively reducing the cost of interest-bearing liabilities from .80% for 2013 to .76% for 2014.

The following table presents yields and rates on Keystone’s average earning assets and average interest-bearing liabilities and the change in interest income and expense due to changes in volume and rates for the years ended December 31, 2014 and 2013.

Index to Financial Statements

Yields on Average Earning Assets and Rates

on Average Interest-Bearing Liabilities

  December 31, 2014  December 31, 2013  Change 
  Average
Balance		  Interest
Rate		  Income/
Expense		  Average
Balance		  Interest
Rate		  Income/
Expense		  Due to
Volume		  Due to
Rate		  Total 

Loans, net of unearned interest

 $161,003    5.44%  $8,760   $156,002    5.63%   8,778    277    (295)   (18) 

Investment securities — taxable

  9,630    2.05    197    9,286    1.54    143    5    49    54  

Investment securities — tax-
exempt(1)

  30,285    4.36    819    27,731    4.90    842    74    (97)   (23) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total investment securities(1)

  39,915    3.80    1,016    37,017    4.05    985    79    (48)   31  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Federal funds sold

  1,003    2.39    24    922    2.82    26    2    (4)   (2) 

Restricted equity securities

  623    —      —      670    —      —      —      —      —    

Interest-bearing balances with banks

  21,084    1.09    229    21,456    1.04    223    (4)   10    6  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total earning assets

  223,628    4.48   $10,029    216,067    4.63    10,012    354    (337)   17  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and due from banks

  3,617      3,311       

Bank premises and equipment

  6,521      6,087       

Allowance for loan losses, accrued interest and other assets

  6,401      6,719       
 

 

 

    

 

 

      

Total assets

 $240,167     $232,184       
 

 

 

    

 

 

      

Deposits:

         

Interest-bearing checking accounts

 $40,462    0.59%   239   $36,566    0.90%   328    32    (121)   (89) 

Money market demand accounts

  75,428    0.55    416    75,254    0.82    615    1    (200)   (199) 

Savings deposits

  5,297    0.34    18    3,823    0.44    17    6    (5)   1  

Time deposits

  59,440    1.14    675    61,600    1.16    715    (25)   (15)   (40) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-bearing deposits

  180,627    0.75    1,348    177,243    0.79    1,675    14    (341)   (39) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Federal funds purchased

  44    —      —      —      —      —      —      —      —    

Other borrowings

  6,500    1.12    73    6,500    0.87    42    —      31    31  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-bearing liabilities

  187,171    0.76    1,421    183,743    0.80    1,717    14    (310)   31  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Noninterest-bearing deposits

  26,262      22,899       

Other liabilities

  1,237      1,933       

Stockholders’ equity

  25,497      23,609       
 

 

 

    

 

 

      

Total liabilities and stockholders’ equity

 $240,167     $232,184       
 

 

 

    

 

 

      

Net interest income

    8,608     $8,295     $313  
   

 

 

    

 

 

    

 

 

 

Net yield on earning assets(2)

   3.73%     3.70%     
  

 

 

    

 

 

     

Net interest margin(3)

   3.85%     3.84%     
  

 

 

    

 

 

     

(1)Yield is presented on a fully taxable equivalent basis using a tax rate of 38%.
(2)Yield on earning assets less cost of funds of interest bearing liabilities.
(3)Net interest income divided by average interest earning assets.

Index to Financial Statements

Provision for Loan Losses

The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan losses that, in management’s evaluation, is adequate to provide coverage for estimated losses on outstanding loans and to provide for uncertainties in the economy. As a result of evaluatingestimate the allowance for loan losses, as well as the resultant provision for loan losses charged to operations, are believed adequate by management and are reviewed from time to time by our regulators, they are based on estimates and judgment and are therefore approximate and imprecise. Factors beyond Trinity’s control, such as conditions in the local and national economy, a local real estate market or particular industry conditions exist which may negatively and materially affect Trinity’s asset quality and the adequacy of Trinity’s allowance for loan losses and, thus, the resulting provision for loan losses.

Noninterest Income

   Six Months ended June 30, 

(Dollars in thousands)

          2019                   2018         

Service charges on deposit accounts

  $76   $62 

Mortgage lending

   128    78 

Other

   145    58 
  

 

 

   

 

 

 

Total noninterest income

  $349   $198 
  

 

 

   

 

 

 

   Year ended December 31, 

(Dollars in thousands)

          2018                   2017         

Service charges on deposit accounts

  $101   $107 

Mortgage lending

   153    119 

Other

   130    207 
  

 

 

   

 

 

 

Total noninterest income

  $384   $433 
  

 

 

   

 

 

 

Other noninterest income was $145 thousand in the first six months of 2019 compared to $58 thousand in the first six months of 2018. The increase was largely attributed to a $78 thousand gain on disposal of a foreclosed property. Other noninterest income was $130 thousand in 2018 compared to $207 thousand in 2017. The difference was largely attributed to a $60 thousand gain on a sale of other real estate owned, or OREO, in 2017 and $10 thousand in recovery income in 2017.

Trinity’s income from mortgage lending is attributable to origination income from secondary market mortgage loans with third party originators. Origination income, net, is comprised of gains or losses from the sale of the mortgage loans originated, origination fees, underwriting fees and other fees associated with the origination of loans, which are netted against the commission expense associated with these originations.

The increase in mortgage lending income was primarily from an increase in the volume of mortgage loans originated.

Noninterest Expense

   Year ended December 31 

(Dollars in thousands)

        2018               2017       

Salaries and benefits

  $1,970   $2,007 

Net occupancy and equipment

   739    780 

Professional fees

   370    177 

FDIC and other regulatory assessments

   105    105 

Other real estate owned, net

   106    62 

Other

   550    532 
  

 

 

   

 

 

 

Total noninterest expense

  $3,840   $3,663 
  

 

 

   

 

 

 

The decrease in salaries and benefits expense reflects employee attrition.

The increase in professional fees was primarily due to increased legal reserves related to potential claims with respect to certain loans.

   Six Months ended June 30 

(Dollars in thousands)

        2019               2018       

Salaries and benefits

  $976   $1,089 

Net occupancy and equipment

   402    380 

Professional fees

   286    141 

FDIC and other regulatory assessments

   53    53 

Other real estate owned, net

   2    5 

Other

   277    279 
  

 

 

   

 

 

 

Total noninterest expense

  $1,996   $1,947 
  

 

 

   

 

 

 

The decrease in salaries and benefits expense reflects employee attrition.

The increase in professional fees was primarily due to increased legal reserves related to potential claims with

respect to certain loans.

Income Tax Expense

Income tax expense was $710 thousand in 2018 compared to $477 thousand in 2017. Trinity’s effective income tax rate was 24.8% in 2018, compared to 64.3% in 2017. The high effective income tax rate in 2017 resulted from Trinity decreasing the book value of its net deferred income tax assets because the federal income tax rate was reduced from 35% to 21% by the 2018 Tax Cuts & Jobs Act that was signed into law in December of 2017. The decrease in the value of the net deferred tax assets resulted in Trinity providing $242 thousand additional federal income tax in 2017. Excluding the effect of this additional provision, Trinity’s 2017 effective income tax rate would have been 31.7%.

Income tax expense was $299 thousand in the first six months of 2019 compared to $285 thousand in the first six months of 2018. Trinity’s effective income tax rate was 19.9% at June 30, 2019 and 24.2% at June 30, 2018.

BALANCE SHEET ANALYSIS

Securities

Securitiesavailable-for-sale were $12.6 million at December 31, 2018, a decrease of $822 thousand, or 7%, compared to $13.4 million as of December 31, 2017. This decrease reflects a decrease in the amortized cost basis of securitiesavailable-for-sale of $700 thousand and a decrease in the fair value of securitiesavailable-for-sale of $822 thousand. The decrease in the amortized cost basis of securitiesavailable-for-sale was due to zero purchases to replace calls, maturities and paydowns and an increase of unrealized losses. The average yields earned on total securities was 2.45% in 2018 and 2.71% in 2017.

The following table shows the carrying value and weighted average yield of securitiesavailable-for-sale as of December 31, 2018 according to contractual maturity. Actual maturities may differ from contractual maturities of residential mortgage-backed securities (“RMBS”) because the mortgages underlying the securities may be called or prepaid with or without penalty.

   December 31, 2018 

(Dollars in thousands)

  1 year
or less		  1 to 5
years		  5 to 10
years		  After 10
years		  Total
Fair Value		 

Agency obligations

  $1,249   960   708   985   3,895 

Agency RMBS

   —     —     —     590   590 

State and political subdivisions

   1,104   —     4,299   2,710   8,113 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalavailable-for-sale

  $2,353   960   5,007   4,285   12,599 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average yield:

      

Agency obligations

   1.49%   2.119%   2.00%   2.52%   1.96% 

Agency RMBS

   —  %   —  %   —  %   2.52%   2.52% 

State and political subdivisions

   2.26%   —  %   2.83%   3.05%   2.65% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalavailable-for-sale

   1.49%   1.78%   2.14%   2.15%   2.08% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Securitiesavailable-for-sale were $11.0 million at June 30, 2019, a decrease of $1.3 million, or 10%, compared to $12.5 million as of June 30, 2018. This decrease reflects a decrease in the amortized cost basis of securitiesavailable-for-sale of $1.5 million and a decrease in the fair value of securitiesavailable-for-sale of $1.2 million. The decrease in the amortized cost basis of securitiesavailable-for-sale was due to zero purchases to replace calls, maturities and paydowns and an increase in unrealized losses. The average yields earned on total securities was 2.19% for the six months ended June 30, 2019 and 2.50% for the six months ended June 30, 2018.

The following table shows the carrying value and weighted average yield of securitiesavailable-for-sale as of as of June 30, 2019 according to contractual maturity. Actual maturities may differ from contractual maturities of RMBS because the mortgages underlying the securities may be called or prepaid with or without penalty.

   June 30, 2019 

(Dollars in thousands)

  1 year
or less		  1 to 5
years		  5 to 10
years		  After 10
years		  Total
Fair Value		 

Agency obligations

  $—     501    997   1,498 

Agency RMBS

   —     371   693   576   1,640 

State and political subdivisions

   —     1,370   4,215   2,281   7,866 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalavailable-for-sale

  $—     2,242   4,908   3,854   11,004 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average yield:

      

Agency obligations

   —  %   2.12%   —  %   2.78%   2.47% 

Agency RMBS

   —  %   2.14%   2.57%   2.54%   2.54% 

State and political subdivisions

   —  %   1.69%   2.14%   2.09%   2.04% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalavailable-for-sale

   —  %   1.80%   2.20%   2.30%   2.19% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Loans

   June 30,   December 31, 

(In thousands)

  2019   2018   2018   2017 

Commercial and industrial

  $29,647    25,327    21,145    26,316 

Construction and land development

   17,961    18,317    16,583    14,949 

Commercial real estate

   46,823    43,621    54,608    44,585 

Residential real estate

   33,321    33,792    33,067    33,379 

Consumer installment

   2,705    2,425    2,370    2,365 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

   130,457    123,482    127,773    121,594 

Less: unearned income

   162    246    280    237 
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans, net of unearned income

  $130,295    123,326    127,493    121,357 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned income, were $127 million at December 31, 2018, an increase of $6 million, or 5%, from $121 million at December 31, 2017. Five loan categories represented the majority of the loan portfolio at December 31, 2018: commercial real estate mortgage loans (43%), residential real estate mortgage loans (26%), commercial and industrial loans (17%) and construction and land development loans (13%). Approximately 65% of Trinity’s commercial real estate loans were classified as owner-occupied at December 31, 2018.

Total loans, net of unearned income, were $130.3 million at June 30, 2019, an increase of $7 million, or 5%, from $123.2 million at June 30, 2018. Five loan categories represented the majority of the loan portfolio at June 30, 2019: commercial real estate mortgage loans (36%), residential real estate mortgage loans (26%), commercial and industrial loans (23%) and construction and land development loans (15%). Approximately 75% of Trinity’s commercial real estate loans were classified as owner-occupied at June 30, 2019.

Within its residential real estate mortgage portfolio, Trinity had junior lien mortgages of approximately $760 thousand or 0.60%, and $898 thousand, or 0.74%, of total loans, net of unearned income at December 31, 2018 and 2017, respectively. Trinity had junior lien mortgages of approximately $1.7 million, or 1.32% of total loans, and $720 thousand, or 0.58%, of total loans, net of unearned income at June 30, 2019 and 2018, respectively. Trinity’s residential real estate mortgage portfolio does not include any, subprime loans, or any material amount of other high-risk consumer mortgage products.

Purchased loan participations included in Trinity’s loan portfolio were approximately $2.7 million and $1.5 million as of December 31, 2018 and 2017, respectively. All purchased loan participations are underwritten

by Trinity independent of the selling bank. In addition, all loans, including purchased participations, are evaluated for collectability during the course of 2014, management recordedTrinity’s normal loan review procedures. If Trinity deems a provisionparticipation loan impaired, it applies the same accounting policies and procedures described under “Critical Accounting Policies—Allowance for loan losses of $425Loan Losses”

The average yield earned on loans and loans held for the year ended December 31, 2014. Theresale was a $380 provision for loan losses recorded for 2013. The increase5.55% in 2018 and 5.44% in 2017, and was 5.86% in the provision forfirst six months of 2019 and 5.53% in the first six months of 2018.

The specific economic and credit risks associated with Trinity’s loan losses is dueportfolio include, but are not limited to, the continuing growtheffects of current economic conditions on Trinity’s borrowers’ cash flows, real estate market sales volumes, valuations, and availability and cost of financing for properties, real estate industry concentrations, deterioration in Keystone’scertain credits, interest rate fluctuations, reduced collateral values ornon-existent collateral, title defects, inaccurate appraisals, financial deterioration of borrowers, fraud, and any violation of applicable laws and regulations.

Trinity attempts to reduce these economic and credit risks by adhering to loan portfolio.

The total allowanceto value guidelines for collateralized loans, investigating the creditworthiness of borrowers and monitoring borrowers’ financial positions. Also, Trinity establishes and periodically reviews its lending policies and procedures. Banking regulations limit Trinity Bank’s credit exposure by prohibiting unsecured loan losses was $2,370relationships that exceed 10% of its capital; or 1.44%20% of capital, if loans at December 31, 2014, and $2,345 or 1.50%in excess of loans at December 31, 2013. The level10% of capital are fully secured. Under these regulations, Trinity is prohibited from having secured loan relationships in excess of approximately $3.6 million based on Trinity Bank’s capital (as defined by regulation) as of June 30, 2019. Trinity’s loan policy requires that the loan committee of the allowance maintained by Keystone includes an evaluationTrinity Bank board of uncertainties and matters of judgment. Management believesdirectors approve any loan relationships that exceed legal lending limit. At June 30, 2019, Trinity Bank had one county loan relationship exceeding legal lending limit.

Allowance for Loan Losses

Trinity maintains the allowance for loan losses at a level that management believes appropriate to adequately cover Trinity’s estimate of probable losses in the loan portfolio. As of December 31, 20142018 and December 31, 20132017, respectively, the allowance for loan losses was $2 million and $2.3 million which management believed to be adequate.adequate at each of the respective dates. As of June 30, 2019 and 2018, respectively, the allowance for loan losses was $2 million and $2.4 million which management believed to be adequate at each of the respective dates. The judgments and estimates associated with the determination of the allowance for loan losses are described under “Critical Accounting Policies”.

Non-Interest Income

Keystone’s non-interest income consistsA summary of fees on mortgage originations, service charges and other fees on deposit accounts, gains on sale of securities available for sale and other operating income. Total non-interest income for the year ended December 31, 2014 was $1,679 compared with $1,836 for the same period in 2013, a decrease of $157 or 8.55%. The primary factorchanges in the decreaseallowance for loan losses and certain asset quality ratios for each of non-interest income was a $211, or 57.3%, decrease in gains on sale of securities available for sale that primarily relates to gains taken in 2013 as part of a portfolio restructuring program that did not occur in 2014. In addition, there was a decrease in service charges on deposit accountsthe five quarters in the amount of $35, or 12.9%,six months ended June 30, 2019 and an increase in other operating income of $78, or 30.6%, which is primarily related to a $55 increase in ATM/Debit card fee income.

Management believes that non-interest income will continue to supplement core earnings for Keystone. Management also believes that if the Federal Reserve increase interest rates, this could slow the demand for one-to-four family mortgage loans which could decrease Keystone’s mortgage loan origination fees. Service charge income on deposit accounts has declined in comparison with the prior year2018 and may continue to decrease depending on the federal government’s decisions regarding future legislation aimed at capping or reducing certain fees historically charged by banks.

Non-Interest Expense

Non-interest expenses consist primarily of salaries and employee benefits, equipment and occupancy expenses, and other operating expenses. Non-interest expense for the year ended December 31, 2014 was $6,237, compared to $5,957 for the same period in 2013, an increase of $280, or 4.7%. The most significant change noted when comparing 2014 to 2013 was an increase of $290, or 8.3%, in employee salaries and benefits due in large part to Keystone opening a new branch in Opelika, Alabama in August of 2013 which increased salaries in 2014 over 2013 due to 2013 being a partial year for salaries at the new branch location. In addition, there was an increase in occupancy and equipment expenses in the amount of $94, or 24.5%, due to the new Opelika, Alabama branch location in 2013 which was offset by a decrease in other operating expenses of $104, or 4.9%, primarily related to a $169 decrease in carrying costs and gains and losses associated with other real estate owned.

Income Taxes

Keystone recorded income tax expense for the years ended December 31, 20142018 and 20132017 are presented below.

   Six months ended June 30,  Years ended December 31, 

(Dollars in thousands)

        2019              2018              2018              2017       

Allowance for loan losses:

     

Balance at beginning of period

  $2,006   2,256   2,256   1,554 

Charge-offs:

     

Commercial and industrial

   —     —     109   1,191 

Construction and land development

   —     —     —     2 

Commercial real estate

   —     —     —     —   

Residential real estate

   —     —     —     —   

Consumer installment

   9   3   3   50 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total charge-offs

   9   3   112   1,243 

Recoveries:

     

Commercial and industrial

   6   6   15   63 

Construction and land development

   —     85   85   —   

Commercial real estate

   —     —     —     —   

Residential real estate

   —     —     —     83 

Consumer installment

   1   2   2   46 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total recoveries

   7   93   102   192 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net recoveries (charge-offs)

   2   90   (10)   (1,051) 

Provision for loan losses

   77   47   (240)   1,753 
  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance

  $2,081   2,393   2,006   2,256 
  

 

 

  

 

 

  

 

 

  

 

 

 

as a % of loans

   1.60%   1.94   1.57   1.86 

as a % of nonperforming loans

   57.90%   63.89   54.04   27.88 

Net (recoveries) charge-offs as a % of average loans

   (0.01)%   (0.15)   0.01   0.89 
  

 

 

  

 

 

  

 

 

  

 

 

 

Management assesses the adequacy of $1,034the allowance prior to the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolios, past loan loss experience, known and $1,116, respectively. Income tax expense for the year ended December 31, 2014 reflects an effective income tax rate of 28.5%, compared to 29.4% for the year ended December 31, 2013. The decreaseinherent risks in the effective income tax rate fromportfolio, adverse situations that may affect the blended statutory Federalborrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and State income tax rate (38.2%)peer bank loan quality indications and other pertinent factors. This evaluation is inherently subjective as it requires various material estimates and judgments including the resultamounts and timing of tax-free income from investments in municipal securities and tax-free bank-owned life insurance income.

Indexfuture cash flows expected to Financial Statements

Comparisonbe received on impaired loans that may be susceptible to significant change. The ratio of Financial Condition as of March 31, 2015, December 31, 2014 and 2013

Balance Sheet Summary

Keystone’s total assets were $252,348 at March 31, 2015, $239,095 at December 31, 2014 and $234,947 at December 31, 2013. Loans, net ofTrinity’s allowance for loan losses totaled $167,068 at March 31, 2015, $162,118to total loans outstanding was 1.57% at December 31, 2014 and $153,4932018, compared to 1.86% at December 31, 2013. Investment securities, all2017. The ratio of which are carried as availableTrinity’s allowance for sale, totaled $36,312loan losses to total loans outstanding was 1.60% at March 31, 2015, $39,442June 30, 2019, compared to 1.94% at June 30, 2018. In the future, the allowance to total loans outstanding ratio will increase or decrease to the extent the factors that influence Trinity’s quarterly allowance assessment in their entirety either improve or weaken.

Net charge-offs were $10 thousand, or 0.01% of average loans, in 2018, compared to charge-offs of $1.05 million, or 0.89%, in 2017. Net recoveries were $2 thousand, or 0.01% of average loans, in the first six months 2019, compared to recoveries of $90 thousand, or 0.15%, in the first six months of 2018.

At December 31, 20142018 and $38,798 at December 31, 2013. The percentage changes for these categories from December 31, 2013 to March 31, 2015 are a 7.4% increase in total assets, an 8.8% increase2017, Trinity’s recorded investment in loans netconsidered impaired was $1.63 million and $1.19 million, respectively, with corresponding valuation allowance of $184 thousand and $633 thousand, respectively.

Trinity’s regulators, as an integral part of their examination process, periodically review Trinity’s allowance for loan losses, and a 6.4% decrease in investment securities. The percentage changes illustrate a core element of our profit strategy of redeploying Keystone’s funding sources into higher yielding loans from lower yielding investment securities while maintaining a stable base of liquidity.

Total liabilities increased by 5.9%may require Trinity to $224,565 at March 31, 2015 from $212,142 at December 31, 2014 primarily as a result of increases in deposits, primarily in interest bearing and noninterest bearing demand accounts and money market accounts. Stockholders’ equity increased 3.1%make additional provisions to $27,783 at March 31, 2015 from $26,953 at December 31, 2014, primarily due to earnings and the change in net unrealized gains on available-for-sale securities. A more detailed discussion of assets, liabilities and capital follows.

Securities

Keystone uses its investment securities portfolio primarily to enhance the overall yield on interest earning assets and as a source of liquidity, as a tool to manage balance sheet sensitivity to changing interest rates, and as a base from which to pledge assets for public deposits, when needed. When Keystone’s liquidity position exceeds current needs and expected loan demand, this excess liquidity is deployed into investment securities as a secondary earnings alternative. As investments mature, they are used to meet current cash needs or they are reinvested to maintain Keystone’s desired liquidity position. Keystone has designated all of its securities as available for sale to provide flexibility in case an immediate need for liquidity arises and believe that the composition of the portfolio offers needed flexibility in managing Keystone’s liquidity position and interest rate sensitivity without adversely impacting Keystone’s regulatory capital levels. Securities available for sale are reported at fair value with unrealized gains or losses reported as a separate component of other comprehensive income, net of related deferred income taxes. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

The following table summarizes the amortized cost and fair value of securities available for sale as of March 31, 2015, and December 31, 2014 and 2013.

  March 31, 2015  December 31, 2014  December 31, 2013 
  Amortized
Cost		  Fair
Value		  Percent
of Total		  Amortized
Cost		  Fair
Value		  Percent
of Total		  Amortized
Cost		  Fair
Value		  Percent
of Total		 

Securities Available for Sale:

         

U.S. Government sponsored agencies

 $781   $780    2.15%  $780   $773    1.96%  $777   $757    1.95% 

U.S. Government sponsored mortgage-backed securities

  1,450    1,507    4.15%   1,472    1,515    3.84%   639    644    1.66% 

State and municipal securities

  31,671    32,049    88.26%   34,918    35,117    89.04%   34,931    34,351    88.54% 

Corporate bonds

  2,119    1,976    5.44%   2,191    2,037   ��5.16%   3,059    3,046    7.85% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total securities available for sale

 $36,021   $36,312    100.00%  $39,361   $39,442    100.00%  $39,406   $38,798    100.00% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements

Securities totaled $36,312 at March 31, 2015 which represents a 7.9% decrease from the December 31, 2014 total of $39,442. The decrease in securities, which was from the sale and maturities of securities, was to fund loan growth.

The investment securities portfolio is the second largest component of Keystone’s earning assets and represented 14.4% of total assets at March 31, 2015. Keystone has invested a significant portion of its securities portfolio into state and municipal securities to take advantage of the yields offered by this class of securities. Prior to purchase, each investment in municipal securities undergoes a careful evaluation of the credit quality of the issuer. The average yield on the investment securities portfolio (on a tax-equivalent basis) for the first three months of 2015, the year ended December 31, 2014 and 2013 was 3.69%, 3.80% and 4.05%, respectively. As of March 31, 2015, Keystone did not have any securities within its securities portfolio from any one issuer with an aggregate book value or market value in excess of 10% of stockholders equity.

The following table shows Keystone’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at March 31, 2015:

  Less Than 12 Months  12 Months or More  Total 
  Fair
Value		  Unrealized
Losses		  Number
of
Securities
Included		  Fair
Value		  Unrealized
Losses		  Number
of
Securities
Included		  Fair
Value		  Unrealized
Losses		 

March 31, 2015

        

U.S. government sponsored agencies

 $—     $—      —     $548   $(6)   2   $548   $(6) 

State and municipal securities

  4,040    (16)   17    3,665    (153)   13    7,705    (169) 

Corporate bonds

  889    (38)   2    1,087    (105)   3    1,976    (143) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total temporarily impaired securities

 $4,929   $(54)   19   $5,300   $(264)   18   $10,229   $(318) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The following table shows Keystone’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at December 31, 2014:

  Less Than 12 Months  12 Months or More  Total 
  Fair
Value		  Unrealized
Losses		  Number
of
Securities
Included		  Fair
Value		  Unrealized
Losses		  Number
of
Securities
Included		  Fair
Value		  Unrealized
Losses		 

December 31, 2014

        

U.S. government sponsored agencies

 $—     $—      —     $546   $(9)   2   $546   $(9) 

State and municipal securities

  8,871    (74)   35    6,678    (157)   25    15,549    (231) 

Corporate bonds

  429    (57)   1    1,608    (97)   4    2,037    (154) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total temporarily impaired securities

 $9,300   $(131)   36   $8,832   $(263)   31   $18,132   $(394) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements

The following table shows Keystone’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at December 31, 2013:

  Less Than 12 Months  12 Months or More  Total 
  Fair
Value		  Unrealized
Losses		  Number
of
Securities
Included		  Fair
Value		  Unrealized
Losses		  Number
of
Securities
Included		  Fair
Value		  Unrealized
Losses		 

December 31, 2013

        

U.S. government sponsored agencies

 $756   $(20)   3   $—     $—      —     $756   $(20) 

State and municipal securities

  19,116    (666)   71    3,582    (178)   14    22,698    (844) 

Corporate bonds

  981    (22)   2    1,338    (18)   3    2,319    (40) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total temporarily impaired securities

 $20,853   $(708)   76   $4,920   $(196)   17   $25,773   $(904) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Keystone’s investment securities are considered high quality investments in line with normal industry investing practices. The unrealized losses are primarily the result of changes in the interest rate and sector environments. Consistent with the original classification as available-for-sale securities, Keystone does not intend to sell any of the debt securities with unrealized losses and Keystone does not believe that it is more likely than not that Keystone will be required to sell a security in an unrealized loss position prior to a recovery in its value. Accordingly, Keystone has not recognized any other-than-temporary impairment in its consolidated statements of income. Keystone may sell the above or other securities in the ordinary course of business in response to unexpected and significant changes in liquidity needs, unexpected and significant increases in interest rates and/or sector spreads that significantly extend the security’s holding period.

The following table presents the amortized cost, fair value and weighted average yield for each major category of the investment portfolio by contractual maturity range as of March 31, 2015.

  Contractual Maturities 
  Less Than 1 Year  After 1 Year Through 5 Years  After 5 Years Through 10 Years 
  Amortized
Cost		  Fair
Value		  Weighted
Average
Yield		  Amortized
Cost		  Fair
Value		  Weighted
Average
Yield		  Amortized
Cost		  Fair
Value		  Weighted
Average
Yield		 

Securities available for sale

         

U.S. Government sponsored agencies

 $—     $—      —     $781   $780    1.48%  $—     $—      —    

U.S. Government sponsored mortgage-backed securities

  —      —      —      —      —      —      1,450    1,507    3.27% 

State and municipal securities(1)

  1,392    1,293    2.58%   14,689    14,801    2.27%   12,530    12,778    2.97% 

Corporate bonds

  —      —      —      250    248    0.65%   453    444    1.59% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total securities available for sale

 $1,392   $1,293    2.58%  $15,720   $15,829    2.21%  $14,433   $14,729    2.95% 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements
   Contractual Maturities 
   After 10 Years  Totals 
   Amortized
Cost		   Fair
Value		   Weighted
Average
Yield		  Amortized
Cost		   Fair
Value		   Weighted
Average
Yield		 

Securities available for sale

           

U.S. Government sponsored agencies

  $—      $—       —     $781    $780     1.48% 

U.S. Government sponsored mortgage-backed securities

   —       —       —      1,450     1,507     3.27% 

State and municipal securities(1)

   3,060     3,176     4.15%   31,671     32,049     2.74% 

Corporate bonds

   1,417     1,284     5.15%   2,119     1,976     3.86% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total securities available for sale

  $4,477    $4,460     4.47%  $36,021    $36,312     2.80% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

(1)Yields are not presented on a fully taxable equivalent basis.

Loans

Essentially all of Keystone’s loans originate from Etowah County, Alabama and Lee County, Alabama and adjacent counties in Alabama. Keystone seeks to exercise prudent risk management in lending, including diversification by loan category and industry segment, as well as by identification of credit risks. Management is also sensitive, despite this diversification by loan category and industry segment, to the risks associated with Keystone’s geographic loan concentration in Etowah County and Lee County and adjacent counties in Alabama.

Keystone has targeted commercial business lending, commercial and residential real estate lending and consumer lending. Keystone seeks to build a loan portfolio which is capable of adjusting to swings in the interest rate market, and it is Keystone’s policy to maintain a diverse loan portfolio not dependent on any particular market or industry segment. At March 31, 2015, December 31, 2014 and December 31, 2013, Keystone’s loan-to-deposit ratio was 78.3%, 80.4% and 76.9%, respectively.

Loans are the largest component of Keystone’s assets and are a primary source of income. The loan portfolio is composed of three primary segments: real estate mortgage loans, non-real estate commercial loans and non-real estate consumer loans. Within the real estate loan segment, Keystone further segregates by loan classes of construction and land development, residential real estate, commercial real estate and other real estate. The table below sets forth the loan categories and the relative percentages of these loan categories in the portfolio at March 31, 2015 and December 31, 2014 and 2013.

Portfolio Segments and Classes

The composition of loans, excluding loans held for sale, is summarized as follows:

   March 31, 2015  December 31, 2014  December 31, 2013 
   Amount  Percent  Amount  Percent  Amount  Percent 

Real estate mortgages:

       

Construction and land development

  $24,885    14.67%  $21,381    12.98%  $16,035    10.29% 

1-4 family residential

   63,229    37.25%   62,974    38.24%   58,569    37.54% 

Commercial

   52,444    30.90%   50,303    30.54%   47,972    30.75% 

Other

   5,660    3.33%   5,273    3.20%   7,427    4.76% 

Commercial

   13,396    7.89%   14,637    8.89%   16,599    10.64% 

Consumer

   10,122    5.96%   10,127    6.15%   9,397    6.02% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   169,736    100.00%   164,695    100.00%   155,999    100.00% 

Deferred loan fees

   (208)    (207)    (161)  

Allowance for loan losses

   (2,460)    (2,370)    (2,345)  
  

 

 

   

 

 

   

 

 

  

Loans, net

  $167,068    $162,118    $153,493   
  

 

 

   

 

 

   

 

 

  

Index to Financial Statements

As represented in the table, gross loans increased by approximately 3.1% during the first three months of 2015. Keystone experienced growth in real estate loans, with increases in commercial real estate loans (4.3%), construction and land development loans (16.4%), residential real estate loans, and other real estate loans, which are loans primarily secured by farmland (7.3%).

At March 31, 2015, real estate loans accounted for 86.1% of total loans. Accordingly, Keystone has a significant concentration of credit that is dependent on the continuing strength of the local real estate market. Management is focused on making loans in an orderly fashion to maintain quality, especially considering the economic impact of the recession several years ago.

The repayment of loans is a source of additional liquidity for Keystone. The following table sets forth the loans maturing within specific intervals at March 31, 2015, excluding unearned net fees and costs.

   One Year
or Less		   One to
Five Years		   Over Five
Years		   Total 

Real estate mortgages:

        

Construction and land development

  $17,555    $7,153    $177    $24,885  

1-4 family residential

   8,001     44,438     10,790     63,229  

Commercial

   3,939     36,536     11,969     52,444  

Other

   1,937     3,077     646     5,660  

Commercial

   7,045     6,161     190     13,396  

Other

   1,588     8,312     222     10,122  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $40,065    $105,677    $23,994    $169,736  
  

 

 

   

 

 

   

 

 

   

 

 

 

The information presented in the above table is based upon the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity.

Allowance for Loan Losses

There are risks inherent in all loans, so Keystone maintains an allowance for loan losses based on their judgment about information available to absorb probable losses on existingthem at the time of their examinations.

Nonperforming Assets

At December 31, 2018 Trinity had $1.2 million in nonperforming assets, compared to $887 thousand at December 31, 2017. At June 30, 2019 Trinity had $1.3 million in nonperforming assets, compared to $1.8 million at June 30, 2018.

The table below provides information concerning total nonperforming assets and certain asset quality ratios.

(Dollars in thousands)

  June 30,
2019		  March 31,
2019		   December 31,
2018		   September 30,
2018		   June 30,
2018		 

Nonperforming assets:

         

Nonperforming (nonaccrual) loans

  $1,205   1,206    1,084    1,265    1,529 

Other real estate owned

   121   121    121    228    228 
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Total nonperforming assets

  $1,326   1,327    1,205    1,493    1,757 
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

as a % of loans and other real estate owned

   1.02%   1.03    0.94    1.19    1.42 

as a % of total assets

   0.82%   0.83    0.79    0.99    1.16 

Nonperforming loans as a % of total loans

   0.93%   0.94    0.85    1.01    1.24 

The table below provides information concerning the composition of nonaccrual loans that may become uncollectible. Keystone establishesat December 31, 2018 and maintains this allowance by charging2017, respectively.

   December 31 

(In thousands)

  2018   2017 

Nonaccrual loans:

    

Commercial and industrial

  $117    —   

Commercial real estate

   861    602 

Residential real estate

   106    27 
  

 

 

   

 

 

 

Total nonaccrual loans

  $1,084    629 
  

 

 

   

 

 

 

The table below provides information concerning the composition of nonaccrual loans at June 30, 2019 and 2018, respectively.

   June 30 

(In thousands)

  2019   2018 

Nonaccrual loans:

    

Commercial and industrial

  $117    774 

Commercial real estate

   859    648 

Residential real estate

   229    107 
  

 

 

   

 

 

 

Total nonaccrual loans

  $1,205    1,529 
  

 

 

   

 

 

 

Trinity discontinues the accrual of interest income when (1) there is a provision for loan losses against its operating earnings. Insignificant deterioration in the following section, Keystone has included a discussionfinancial condition of this process, as well as several tables describing Keystone’s allowance for loan lossesthe borrower and the allocation of this allowance among Keystone’s various categories of loans.

Keystone follows the provisions of ASC 310-10 and ASC 310-40 related to impaired loans. A loan is impaired when it is probable that Keystone will be unable to collect the scheduled paymentsfull repayment of principal and interest is not expected or (2) the principal or

interest is more than 90 days past due, under the contractual terms of the loan agreement. Impaired loans are measured at the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral ifunless the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, Keystone shall recognize an impairment by creating a valuation allowance with a corresponding charge to the provision for loan losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for loan losses.

Keystone considers all loans subject to the provisions of ASC 310-10 and ASC 310-40 that are on nonaccrual status to be impaired. Loans are placed on nonaccrual status when doubt as to timely collection of principal or interest exists, or when principal or interest is past due 90 days or more unless such loans areboth well-secured and in the process of collection. DelaysAt December 31, 2018, Trinity had $1.1 million in loans on nonaccrual, compared to $629 thousand at December 31, 2017. At June 30, 2019, Trinity had $1.2 million in loans on nonaccrual, compared to $1.5 million at June 30, 2018.

Trinity may elect to formally restructure certain loans the weakening credit status of a borrower to facilitate a repayment plan that minimizes the potential losses that Trinity might incur. Restructured loans, or shortfalls in loan paymentstroubled debt restructurings, or TDRs, are evaluated with various other factors to determineclassified as impaired loans, and if a loan is impaired. Generally, delinquencies under 90 daysthe loans are considered insignificant unless certain other factors are present which indicate impairment is probable. The decision to place a loan on nonaccrual status is also based on an evaluationas of the borrower’s financial condition, collateral, liquidation value,date of restructuring, the loans are included in the nonaccrual loan balances noted above. Nonaccrual loan balances do not include loans that have been restructured that were performing as of the restructure date.

Information on TDRs for the year ended December 31, 2018 is as follows:

   Number
of
Contracts		   Pre-Modification
Outstanding
Recorded
Investment		   Post-Modification
Outstanding
Recorded
Investment		 

Commercial Real Estate

   2    882,443    887,686 
  

 

 

   

 

 

   

 

 

 
   2   $882,443   $887,686 
  

 

 

   

 

 

   

 

 

 

One TDR shown above was modified during 2017. The loan in the amount of $602,026 was converted to interest only payments for three months in the prior year. This same loan later was modified to reduce the interest rate from 5.375% to 4.5%. The loan was renewed for twelve months in late 2018.

At December 31, 2018 and other factors that affect2017, there were no loans 90 days past due and still accruing interest. At June 30, 2019 and 2018, there were no loans 90 days past due and still accruing interest.

The table below provides information concerning the composition of OREO at December 31, 2018 and 2017, respectively.

   December 31 

(In thousands)

  2018   2017 

Other real estate owned:

    

Commercial

  $121    258 
  

 

 

   

 

 

 

Total other real estate owned

  $121    258 
  

 

 

   

 

 

 

At December 31, 2018 and 2017, Trinity held $121 thousand and $258 thousand in OREO properties acquired from borrowers, respectively.

The table below provides information concerning the composition of OREO at June 30, 2019 and 2018, respectively.

   June 30 

(In thousands)

  2019   2018 

Other real estate owned:

    

Commercial

  $121    227 
  

 

 

   

 

 

 

Total other real estate owned

  $121    227 
  

 

 

   

 

 

 

At June 30, 2019 and 2018, Trinity held $121 thousand and $227 thousand in OREO properties acquired from borrowers, respectively.

Potential Problem Loans

Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to pay.

comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Federal Reserve, Trinity’s primary regulator, for loans classified as substandard, excluding nonaccrual loans.    Potential problem loans are not included in nonperforming assets. Trinity had no potential problem loans at June 30, 2019, December 31, 2018, June 30, 2018 or December 31, 2017.

Index to Financial Statements

Generally, at the timeThe following table is a loan is placed on nonaccrual status, all interest accrued and uncollected on the loan in the current fiscal year is reversed from income, and all interest accrued and uncollected from the prior year is charged off against the allowance for loan losses. Thereafter, interest on nonaccrualsummary of Trinity’s performing loans is recognized as interest income only to the extent that cash is received and future collection of principal is not in doubt. If the collectability of outstanding principal is doubtful, such interest received is applied as a reduction of principal. A nonaccrual loan may be restored to accruing status when principal and interest is no longerwere past due at least 30 days but less than 90 days as of December 31, 2018 and unpaid2017, respectively.

   December 31 

(In thousands)

  2018   2017 

Performing loans past due 30 to 89 days:

    

Commercial and industrial

  $6    11 

Construction and land development

   —      —   

Commercial real estate

   63    363 

Residential real estate

   48    —   

Consumer installment

   47    20 
  

 

 

   

 

 

 

Total performing loans past due 30 to 89 days

  $164    394 
  

 

 

   

 

 

 

The following table is a summary of Trinity’s performing loans that were past due at least 30 days but less than 90 days as of June 30, 2019 and future collection of principal2018, respectively.

   June 30 

(In thousands)

  2019   2018 

Performing loans past due 30 to 89 days:

    

Commercial and industrial

  $125    187 

Construction and land development

   497    —   

Commercial real estate

   22    224 

Residential real estate

   51    123 

Consumer installment

   50    55 
  

 

 

   

 

 

 

Total performing loans past due 30 to 89 days

  $745    589 
  

 

 

   

 

 

 

Deposits

   December 31 

(In thousands)

  2018   2017 

Noninterest bearing demand

  $28,785    27,602 

Interest Bearing Demand

   12,568    10,930 

Money market

   35,289    30,303 

Savings

   7,972    10,875 

Certificates of deposit under $100 thousand

   12,355    12,672 

Certificates of deposit $100 thousand to $250 thousand

   20,843    21,974 

Certificates of deposit and other time deposits of $250 thousand or more

   16,720    16,317 
  

 

 

   

 

 

 

Total deposits

  $134,532    130,673 
  

 

 

   

 

 

 

Total deposits were $134.5 million and interest on a timely basis is not in doubt. At March 31, 2015, there were five non-accrual loans totaling $313, and there were five non-accrual loans totaling $243$130.7 million at December 31, 2014.2018 and 2017, respectively. The increase was mostly from money market accounts acquired in 2018.

Other loans may be classified as impaired when the current net worth

The average rates paid on total interest-bearing deposits were 1.07% in 2018 and financial capacity0.95% in 2017. Noninterest bearing deposits were 21% and 21% of the borrower or the collateral pledged, if any, is viewed as inadequate. In those cases, such loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if such deficiencies are not corrected, there is a probability that Keystone will sustain some loss. In such cases, interest income continues to accrue as long as the loan does not meet Keystone’s criteria for nonaccrual status.

Generally, Keystone also classifies as impaired any loans the terms of which have been modified in a troubled debt restructuring. Interest is accrued on such loans that continue to meet the modified terms of their loan agreements. At March 31, 2015, Keystone had four loans that have had their terms modified in a troubled debt restructuring, andtotal deposits at December 31, 2014, Keystone had two such loans. Troubled debt restructurings are discussed2018 and 2017, respectively.

   June 30 

(In thousands)

  2019   2018 

Noninterest bearing demand

  $30,907    28,244 

Interest Bearing Demand

   12,340    12,225 

Money market

   34,444    32,418 

Savings

   12,574    10,440 

Certificates of deposit under $100 thousand

   14,206    14,733 

Certificates of deposit $100 thousand to $250 thousand

   20,718    20,281 

Certificates of deposit and other time deposits of $250 thousand or more

   14,154    16,904 

Brokered certificates of deposit

   2,575    —   
  

 

 

   

 

 

 

Total deposits

  $141,918    135,245 
  

 

 

   

 

 

 

Total deposits were $141.9 million and $135.2 million at June 30, 2019 and 2018, respectively. By contracting with third party, Promontory Financial Network, Trinity is able to bring in more detail later in under the heading “Troubled Debt Restructurings”.

Keystone Bank’s charge-off policylarger public fund deposits by not being limited to securities available for impaired loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when they are considered uncollectible.pledging.

The average recorded investmentrates paid on total interest-bearing deposits were 1.34% in impaired loans for March 31, 2015 and December 31, 2014 was $1,907 and $1,248, respectively. The related total amount of interest income recognized for the period that such loans were impaired was $24 for the first threesix months 2019 and 1.01% in the first six months of 2015, which compares2018. Noninterest bearing deposits were 22% and 21% of total deposits at June 30, 2019 and 2018, respectively.

Other Borrowings

Other borrowings consist of short-term borrowings and long-term debt. Trinity Bank did not have any short-term borrowings. Trinity Bank had available federal fund lines totaling $7.5 million with $16 for the same period in 2014. Keystone’s level of impaired loans increased over the three months, going from $1,233none outstanding at December 31, 20142018 and 2017, respectively, and $7.5 million and none outstanding at June 30, 2019 and 2018, respectively. Trinity had no securities sold under agreements to $1,902repurchase at MarchJune 30, 2019, December 31, 2015 as2018, June 30, 2018 or December 31, 2017.

Long-term debt consisted of FHLB borrowings collateralized by a result of twoblanket lien on the Bank’s1-4 family residential mortgage loans totaling $753 being restructured$5.3 million as of June 30, 2019, $4.2 million as of December 31, 2018, $6.1 million as of June 30, 2018, and $4.5 million as of December 31, 2017. As of June 30, 2019, the maturity dates ranged from May 15, 2025 to July 8, 2027 based on various advances of the principal reducing credits.

The average rates paid on long-term debt were 2.61% in 2018 and 2.70% in 2017. The average rates paid on long-term debt were 2.62% in the first six months of 2019 and 2.61% in the first six months of 2018.

CAPITAL ADEQUACY

The bank regulatory agencies have established risk-based capital requirements for banks. These guidelines are intended to provide an additional measure of a troubled debt restructuring duringbank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against“off-balance sheet” activities such as loans sold with recourse, loan commitments, guarantees, and standby letters of credit. These guidelines are intended to strengthen the quarter. Keystone’s management believes that existingquality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves are adequate to absorb potential lossesand other forms of equity, such as preferred stock, that may occurbe included in these segmentscapital. Certain items, such as goodwill and other intangible assets, are deducted from total capital in arriving at the various regulatory capital measures such as Tier 1 capital and total risk based capital. Trinity’s objective is to maintain Trinity Bank’s current status as a “well-capitalized institution,” as that term is defined by Trinity Bank’s regulators. As of June 30, 2019, Trinity Bank was “well-capitalized” under the portfolio.regulatory framework for prompt corrective action.

Index

Changes to Financial Statements

the regulatory guidelines for bank capital levels that became effective January 1, 2015, the minimum ratio of total capital to risk-weighted assets (including certainoff-balance sheet activities such as standby letters of credit) is 8%. The following table details activity inrequired ratio of “Tier 1 Capital” (consisting generally of shareholders’ equity and qualifying preferred stock, less certain goodwill items and other intangible assets) to risk-weighted assets is 6%. While there was previously no required ratio of “Common Equity Tier 1 Capital” (which generally consists of common stock, retained earnings, certain qualifying capital instruments issued by consolidated subsidiaries, and Accumulated Other Comprehensive Income, subject to adjustments), or CET1, to total risk-weighted assets, a required minimum ratio of 4.5% became effective on January 1, 2015, as well. The remainder of total capital, or “Tier 2 Capital,” may consist of (a) the allowance for loan losses forof up to 1.25% of risk-weighted assets, (b) preferred stock not qualifying as Tier 1 Capital, (c) hybrid capital instruments, (d) perpetual debt, (e) mandatory convertible securities, and (f) certain subordinated debt and intermediate-term preferred stock up to 50% of Tier 1 Capital. Total Capital is the periods ended March 31, 2015sum of Tier 1 Capital and 2014 and years ended December 31, 2014 and 2013.

   Three Months Ended  Years Ended 
   March 31,
2015		  March 31,
2014		  December 31,
2014		  December 31,
2013		 

Allowance for loan losses at beginning of period

  $2,370   $2,345   $2,345   $2,378  

Charge-offs:

     

Real estate mortgages:

     

Construction and land development

   —      —      82    47  

1-4 family residential

   27    —      70    263  

Commercial

   —      —      51    104  

Other

   —      —      —      —    
  

 

 

  

 

 

  

 

 

  

 

 

 

Total real estate mortgages

   27    —      203    414  

Commercial

   —      —      212    6  

Consumer and other

   14    —      22    21  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   41    —      437    441  

Recoveries:

     

Real estate mortgages:

     

Construction and land development

   —      —      2    —    

1-4 family residential

   29    2    31    2  

Commercial

   —      —      —      —    

Other

   —      —      —      —    
  

 

 

  

 

 

  

 

 

  

 

 

 

Total real estate mortgages

   29    2    33    2  

Commercial

   4    —      4    15  

Consumer and other

   —      —      —      11  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   33    2    37    28  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net Charge-offs (recoveries)

   8    (2)   400    413  

Provision for loan losses

   98    45    425    380  
  

 

 

  

 

 

  

 

 

  

 

 

 

Allowance for loan losses at end of period

  $2,460   $2,392   $2,370   $2,345  
  

 

 

  

 

 

  

 

 

  

 

 

 

Ratio of net charge-offs during the period to average loans outstanding (annualized)

   0.02%   (0.01)%   0.25%   0.26% 
  

 

 

  

 

 

  

 

 

  

 

 

 

The following table details the allocation of the allowance for loan losses to each portfolio segment and class of loans as of March 31, 2015, December 31, 2014 and 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

   March 31, 2015  December 31, 2014  December 31, 2013 
   Amount   Percent
of loans
in each
category
to total
loans		  Amount   Percent
of loans
in each
category
to total
loans		  Amount   Percent
of loans
in each
category
to total
loans		 

Real estate mortgages:

          

Construction and land development

  $428     14.7%  $408     13.0%  $493     10.3% 

1-4 family residential

   948     37.2%   1,010     38.2%   900     37.5% 

Commercial

   663     30.9%   601     30.5%   597     30.8% 

Other

   78     3.3%   70     3.2%   37     4.8% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total real estate mortgages

   2,117     86.1%   2,089     84.9%   2,027     83.4% 

Commercial

   215     7.9%   167     8.9%   205     10.6% 

Consumer and Other

   128     6.0%   114     6.2%   113     6.0% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $2,460     100.0%  $2,370     100.0%  $2,345     100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Index to Financial Statements

Credit Risk Management

Credit administration and the special assets manager are both involved in the credit risk management process and assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. Keystone has taken a number of measures to manage the portfolios and reduce risk, particularly in the more problematic portfolios.

Keystone employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk managementTier 2 Capital (which is guided by a comprehensive loan policy that provides for a consistent and prudent approach to underwriting and approval of credit. Within the board approved Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios. Loan review and credit administration establish a timely schedule and scope for loan reviews. These reviews ensure such loans have proper risk ratings and accrual status, and if necessary, ensure loans are transferredincluded only to the special assets manager.

Credit qualityextent of Tier 1 Capital), less reciprocal holdings of other banking organizations’ capital instruments, investments in unconsolidated subsidiaries, and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewedany other deductions as determined by the chief credit officer, the officers loan committee,appropriate regulator.

Trinity’s consolidated stockholders’ equity was $15.1 million and the directors loan committee.

The following categories are utilized by management to analyze and manage the credit quality and risk of the loan portfolio:

Pass — includes obligations where the probability of default is considered low.

Special Mention — includes obligations that exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects or credit position at a future date. These loans are not adversely classified and do not expose Keystone to sufficient risk to warrant adverse classification.

Substandard — includes obligations with defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

Doubtful — includes obligations with all the weaknesses found in substandard loans with the added provision that the weaknesses make collection of debt in full, based on currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the loan, the loans’ classification as loss is deferred until a more exact status may be determined. There are no loans rated doubtful in Keystone’s portfolio as of March 31, 2015, December 31, 2014 and 2013.

Loss — includes obligations incapable of repayment. Such loans are considered uncollectible and of such little value, that continuance as an active asset is not warranted. Loans determined to be a loss are charged-off at the date of loss determination. Consequently, there are no loans with a loss rating in Keystone’s portfolio as of March 31, 2015, December 31, 2014 and 2013 as all such loans have been charged-off.

Index to Financial Statements

At March 31, 2015 and December 31, 2014, there were $7,367 and $8,153, respectively, in loans included on Keystone’s internal “watch” list, or loans graded special mention, substandard or doubtful. Loans are identified for inclusion on the watch list when information obtained about changes or uncertainties that may affect a borrower’s financial condition have prompted management to more closely monitor the ability of the borrower to comply with the agreed upon repayment terms of the loan agreement. The resulting loan classifications could represent trends or uncertainties which management expects may impact future operating results, liquidity or capital resources.

The following table breaks down Keystone’s credit quality indicators by type of loan as of March 31, 2015:

   Pass   Special
Mention		   Substandard   Doubtful   Total 

March 31, 2015

          

Real estate mortgages:

          

Construction and land development

  $23,708    $259    $918    $—      $24,885  

1-4 family residential

   61,074     1,361     794     —       63,229  

Commercial

   49,180     1,464     1,800     —       52,444  

Other

   5,594     —       66     —       5,660  

Commercial

   13,105     144     147     —       13,396  

Consumer

   9,708     141     273     —       10,122  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

  $162,369    $3,369    $3,998    $—      $169,736  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table breaks down Keystone’s credit quality indicators by type of loan$13.4 million as of December 31, 2014:2018 and 2017, respectively. The change was primarily driven by net income over $2 million in 2018.

   Pass   Special
Mention		   Substandard   Doubtful   Total 

December 31, 2014

          

Real estate mortgages:

          

Construction and land development

  $20,303    $99    $979    $—      $21,381  

1-4 family residential

   60,232     1,928     814     —       62,974  

Commercial

   47,017     1,478     1,808     —       50,303  

Other

   5,205     —       68     —       5,273  

Commercial

   13,926     363     348     —       14,637  

Consumer

   9,859     209     59     —       10,127  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

  $156,542    $4,077    $4,076    $—      $164,695  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table breaks down Keystone’s credit quality indicators by type of loanTrinity’s consolidated stockholders’ equity was $16.6 million and $14.1 million as of December 31, 2013:June 30, 2019 and 2018, respectively. The change was primarily driven by net income over $2 million in 2018.

   Pass   Special
Mention		   Substandard   Doubtful   Total 

December 31, 2013

          

Real estate mortgages:

          

Construction and land development

  $14,167    $344    $1,524    $—      $16,035  

1-4 family residential

   56,995     662     913     —       58,570  

Commercial

   45,237     1,228     1,507     —       47,972  

Other

   7,225     —       202     —       7,427  

Commercial

   16,064     404     131     —       16,599  

Consumer

   9,124     203     69     —       9,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

  $148,812    $2,841    $4,346    $—      $155,999  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

Past Due Loans

A loan is considered past due if any required principalTrinity Bank’s Tier 1 leverage ratio was 10.06%, CET1 capital ratio was 13.38%, Tier 1 risk-based capital ratio was 13.38%, and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. As of March 31, 2015, December 31, 2014 and December 31, 2013, Keystone’s past due loans, including loans on nonaccrual status, were a consistent 1.22%, 1.16% and 1.17%, of total loans outstanding for each respective period. Management pursues all avenues of collection regarding its past due loans and loan officers review the status of past due loans weekly and report to the board monthly.

The following table provides an aging analysis of Keystone’s past due loans as of March 31, 2015:

     Past Due Status (Accruing Loans)       
  Current  30-59
Days		  60-89
Days		  90+
Days		  Total Past
Due		  Nonaccrual  Total 

March 31, 2015

       

Real estate mortgages:

       

Construction and land development

 $24,853   $—     $—     $—     $—     $32   $24,885  

1-4 family residential

  61,557    1,443    38    —      1,481    191    63,229  

Commercial

  52,444    —      —      —      —      —      52,444  

Other

  5,660    —      —      —      —      —      5,660  

Commercial

  13,167    18    142    —      160    69    13,396  

Consumer

  9,992    84    25    —      109    21    10,122  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total:

 $167,673   $1,545   $205   $—     $1,750   $313   $169,736  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The following table provides an aging analysis of Keystone’s past due loans as of December 31, 2014:

     Past Due Status (Accruing Loans)       
  Current  30-59
Days		  60-89
Days		  90+
Days		  Total Past
Due		  Nonaccrual  Total 

December 31, 2014

       

Real estate mortgages:

       

Construction and land development

 $21,216   $133   $—     $—     $133   $32   $21,381  

1-4 family residential

  62,248    270    —      339    609    117    62,974  

Commercial

  49,772    531    —      —      531    —      50,303  

Other

  5,273    —      —      —      —      —      5,273  

Commercial

  14,262    156    —      148    304    71    14,637  

Consumer

  10,010    88    —      6    94    23    10,127  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total:

 $162,781   $1,178   $—     $493   $1,671   $243   $164,695  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements

The following table provides an aging analysis of Keystone’s past due loans as of December 31, 2013:

     Past Due Status (Accruing Loans)       
  Current  30-59
Days		  60-89
Days		  90+
Days		  Total Past
Due		  Nonaccrual  Total 

December 31, 2013

       

Real estate mortgages:

       

Construction and land development

 $15,293   $137   $75   $—     $212   $530   $16,035  

1-4 family residential

  58,243    150    —      —      150    177    58,570  

Commercial

  47,535    —      —      —      —      437    47,972  

Other

  7,299    —      —      —      —      128    7,427  

Commercial

  16,491    108    —      —      108    —      16,599  

Consumer

  9,319    —      13    35    48    29    9,396  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total:

 $154,180   $395   $88   $35   $518   $1,301   $155,999  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Troubled Debt Restructurings

Keystone’s loan portfolio includes certain loans that have been modified in a troubled debt restructuring (“TDR”), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from Keystone’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses. These potential incremental losses have been factored into the overall allowance for loan losses estimate. The level of any re-defaults will likely be affected by future economic conditions. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is repaid in full, reclassified to loans held for sale, foreclosed, charged off, sold, or it meets both of the following criteria to be removed from TDR status: (1) the restructuring agreement specifies an interest rate equal to or greater than the rate that the borrowerrisk-based capital ratio was willing to accept at the time of the restructuring for a new loan with comparable risk; and (2) the loan is not impaired based on the terms specified by the restructuring agreement. During the three months ended March 31, 2015, there were two loans totaling $753 added to Keystone’s list of TDRs. There were no loans modified as TDRs during the year ended December 31, 2014.

The following table summarizes the carrying balances of TDR’s at March 31, 2015, December 31, 2014 and December 31, 2013:

   March 31,
2015		   December 31,
2014		   December 31,
2013		 

Performing TDR’s

  $1,848    $1,178    $1,246  

Nonperforming TDR’s

   —       —       —    
  

 

 

   

 

 

   

 

 

 

Total TDR’s

  $1,848    $1,178    $1,246  
  

 

 

   

 

 

   

 

 

 

Index to Financial Statements

Nonperforming Assets

   March 31,  December 31, 
   2015  2014  2014  2013 

Nonaccrual loans

  $313   $1,163   $243   $1,301  

Restructured loans

   1,848    1,242    1,178    1,246  

Accruing loans past due 90 days or more

   —      86    493    35  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total nonperforming loans

   2,161    2,491    1,914    2,582  

Other real estate owned

   1,154    641    1,273    641  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total nonperforming assets

  $3,315   $3,132   $3,187   $3,223  
  

 

 

  

 

 

  

 

 

  

 

 

 

Allowance for loan losses to period end loans

   1.45%   1.54%   1.44%   1.50% 

Allowance for loan losses to period end nonperforming loans

   113.84%   96.03%   123.82%   90.82% 

Non-performing assets to period end loans and other real estate owned

   1.94%   2.01%   1.92%   2.06% 

Nonperforming loans to period end loans

   1.27%   1.61%   1.16%   1.66% 

Deposits

Deposits are the principal source of funds for Keystone. Total deposits were $216,493 and $204,559 at March 31, 2015 and December 31, 2014, respectively, representing an increase of 5.8%. Historically, Keystone has targeted local consumers, professionals and commercial businesses as its central customers; therefore, deposit instruments in the form of demand deposits, savings accounts, money market demand accounts, certificates of deposit and individual retirement accounts are offered to customers. Management believes Etowah County and Lee County and the surrounding area is a stable economic market offering growth opportunities for Keystone; however, Keystone competes with several of the larger bank holding companies that have bank offices in this area, as well as other community banks, and therefore, no assurances of market growth can be given. Even though Keystone is in a very competitive market, management currently believes that its market share will be expanded.

Non-interest-bearing demand deposits increased 14.6% from $25,05614.63% at December 31, 20142018. These ratios exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 8.0% for tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio to $28,714 at March 31, 2015. Total interest-bearing deposits increased 4.6% from $179,503be considered “well capitalized.” Trinity Bank’s capital conservation buffer was 6.63% at December 31, 20142018.

Trinity Bank’s Tier 1 leverage ratio was 10.16%, CET1 capital ratio was 14.18%, Tier 1 risk-based capital ratio was 14.18%, and total risk-based capital ratio was 15.44% at June 30, 2019. These ratios exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 8.0% for tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio to $187,779be considered “well capitalized.” Trinity Bank’s capital conservation buffer was 7.44% at MarchJune 30, 2019.

Off-Balance Sheet Arrangements

At December 31, 2015 primarily as a result from an increase in money market accounts. These two increases reflect management’s ongoing efforts to emphasize growth in the core deposit base.

The table below sets forth2018 and June 30, 2019, Trinity Bank had outstanding standby letters of credit of $340 thousand and $340 thousand and unfunded loan commitments outstanding of $18.2 million and $17.4 million, respectively. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total balances of deposits by type as of March 31, 2015, December 31, 2014, and December 31, 2013 and the percent change in balances over the intervening period:

   March 31, 2015  December 31, 2014  December 31, 2013 
   Amount   Percent
of Total		  Amount   Percent
of Total		  Amount   Percent
of Total		 

Non-interest bearing demand

  $28,714     13.3%  $25,056     12.2%  $22,837     11.3% 

Interest bearing demand

   43,410     20.1%   41,860     20.5%   39,962     19.7% 

Money market accounts

   80,651     37.3%   74,399     36.4%   72,314     35.7% 

Savings deposits

   6,126     2.8%   5,720     2.8%   4,691     2.3% 

Time certificates of $100 or more

   32,838     15.2%   32,338     15.8%   35,422     17.5% 

Other time certificates

   24,754     11.3%   25,186     12.3%   27,535     13.5% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

  $216,493     100.0%  $204,559     100.0%  $202,761     100.0% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Index to Financial Statements

The following table presents time certificates of deposits of $100, or more, by various maturities as of March 31, 2015.

Three months or less

  $1,987  

Three through six months

   11,302  

Six through twelve months

   8,820  

Over twelve months

   10,729  
  

 

 

 

Total

  $32,838  
  

 

 

 

Return on Equity and Assets

The following table presents certain performance ratios for each reported period.

   March 31,  December 31, 
   2015  2014  2014  2013 

Return on assets (net income divided by average total assets)(1)

   1.12%   1.07%   1.08%   1.15% 

Return on equity (net income divided by average equity)(1)

   10.08%   10.33%   10.16%   11.34% 

Dividend payout ratio (dividends declared per share divided by net income per share)

   —  %   —  %   13.62%   5.08% 

Equity to assets ratio (average equity divided by average total assets)

   11.12%   10.35%   10.62%   10.17% 

(1)Ratios have been annualized for interim reporting periods

Liquidity

Keystone’s management seeks to maximize net interest income by managing Keystone’s assets and liabilities within appropriate constraints on capital, liquidity and interest rate risk. Liquidity is the ability to maintain sufficient cash levels necessary to fund operations, meet the requirements of depositors and borrowers, and fund attractive investment opportunities. Keystone’s primary source of liquidity is expected to be a stable core deposit base. In addition, short-term investments, loan payments and investment security maturities provide a secondary source. Higher levels of liquidity bear corresponding costs, measured in terms of lower yields on short-term more liquid earning assets and higher interest expense involved in extending liability maturities.

Keystone maintains a formal asset and liability management process to quantify, monitor and control interest rate risk and to assist management in maintaining stability in the net interest margin under varying interest rate environments. Keystone accomplishes this process through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.

Keystone’s securities portfolio consists of earning assets that provide interest income. Securities classified as available-for-sale include securities intended to be used as part of Keystone’s asset/liability strategy and/or securities that may be sold in response to changes in interest rate, prepayment risk, the need or desire to increase capital and similar economic factors. Securities totaling $1,293 mature within the next 12 months.

A secondary source of liquidity is Keystone’s loan portfolio. At March 31, 2015, loans of approximately $40,065 either will become due within 12 months.

As for liabilities, certificates of deposit of $100,000 or greater of approximately $22,109 either will become due or will be subject to rate adjustments during the next 12 months. Managementcommitment level does not anticipate that there will be significant reductions from deposit accounts that allow withdrawals, such as negotiable order of withdrawal accounts, money market demand accounts, demand deposits and regular savings accounts in the future.

Index to Financial Statements

Loan Commitments

Keystone 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 and letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit are variable rate instruments.

Keystone’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. Keystone uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of commitments is as follows for each period end:

   March 31,
2015		   December 31,
2014		   December 31,
2013		 

Commitments to extend credit

  $35,896    $34,477    $17,221  

Letters of credit

   369     390     362  
  

 

 

   

 

 

   

 

 

 
  $36,265    $34,867    $17,583  
  

 

 

   

 

 

   

 

 

 

Available Funding

necessarily represent future cash requirements. If needed to fund these outstanding commitments, in addition to its available cash, KeystoneTrinity Bank has the ability to liquidate securities available-for-salefederal funds sold or securitiesavailable-for-sale, or on a short-term basis to borrow additional funds from the Federal Home Loan Bank orand purchase Federalfederal funds from other financial institutions. Additionally, Keystone could sell participations in these

Residential mortgage lending and servicing activities

Since 2015, Trinity has originated secondary market mortgage loans with third party originators. Although the representations and warranties vary among investors, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or other loans to correspondent banks. As mentioned above, Keystone has been able to fund its ongoing liquidity needs through its stable core deposit base,liens against the property securing the loan, payments, its investment security maturities and short-term borrowings. As of March 31, 2015, Keystone has accommodationscompliance with the Federal Home Loan Bank and other financial institutions that would allow the borrowing of an additional $40,586 of funding under these arrangements.

Contractual Obligations

While Keystone’s liquidity monitoring and management considers both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations as of March 31, 2015.

   Due in 1
Year or Less		   Due After 1
Through 3
Years		   Due After 3
Through 5
Years		   Due After 5
Years		   Total 

Federal Home Loan Bank advances

  $6,500    $—      $—      $—      $6,500  

Certificates of deposit of less than $100

   14,071     7,005     3,678     —       24,754  

Certificates of deposit of $100 or more

   22,109     6,876     3,853     —       32,838  

Operating leases

   —       —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $42,680    $13,881    $7,531    $—      $64,092  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital Position and Dividends

At March 31, 2015, December 31, 2014 and December 31, 2013, total stockholders’ equity was $27,783 and $26,953 and $24,007 or 11.0%, 11.3% and 10.2%, respectively, of total assets. The increases each year primarily relate to earnings less dividends paid and changes in accumulated other comprehensive income which is composed of changes in net unrealized gains and losses on Keystone’s available for sale securities portfolio. The increase from December 31, 2013 to December 31, 2014 was significantly impacted by a tax-effected increase in

Index to Financial Statements

net unrealized gainsloan criteria set forth in the available-for-sale securities portfolio of $455. During the year ended December 31, 2014applicable agreement, compliance with applicable federal, state, and 2013, dividends were paid at a rate of $.20 and $.075 per common share, respectively. No dividends have been paid during the three months ended March 31, 2015.

Because Keystone qualifies as a Small Bank Holding Company under the Federal Reserve Board’s Small Bank Holding Company Policy Statement, the capital position of Keystone Bank, and not the consolidated company, is measured for regulatory capital adequacy.

Keystone Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of Keystone Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Keystone Bank is considered well-capitalized based on its regulatory capital ratios. Keystone Bank’s capital ratios have been enhanced as capital has been raised through earnings and as a result of repositioning the balance sheet. As Keystone Bank’s assets increase, its capital ratios can be expected to decline, but not below the well-capitalized level established by the regulatory agencies.

The table below sets forth Keystone Bank’s capital ratios as of the periods indicated.

   Actual  For Capital
Adequacy
Purposes		  To Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 

March 31, 2015:

          

Total Capital to Risk Weighted Assets

  $29,676     15.24%  $15,578     8.00%  $19,472     10.00% 

Tier I Capital to Risk Weighted Assets

  $27,242     13.99%  $11,683     6.00%  $15,578     8.00% 

Common Equity Tier 1 to Risk Weighted Assets

  $27,242     13.99%  $11,069     4.50%  $15,989     6.50% 

Tier I Capital to Average Assets

  $27,242     11.07%  $9,839     4.00%  $12,299     5.00% 

December 31, 2014:

          

Total Capital to Risk Weighted Assets

  $29,120     16.12%  $14,455     8.00%  $18,068     10.00% 

Tier I Capital to Risk Weighted Assets

  $26,860     14.87%  $7,227     4.00%  $10,841     6.00% 

Common Equity Tier 1 to Risk Weighted Assets

   N/A     N/A    N/A     N/A    N/A     N/A  

Tier I Capital to Average Assets

  $26,860     11.18%  $9,612     4.00%  $12,015     5.00% 

December 31, 2013:

          

Total Capital to Risk Weighted Assets

  $26,687     15.15%  $14,089     8.00%  $17,611     10.00% 

Tier I Capital to Risk Weighted Assets

  $24,484     13.90%  $7,045     4.00%  $10,567     6.00% 

Common Equity Tier 1 to Risk Weighted Assets

   N/A     N/A    N/A     N/A    N/A     N/A  

Tier I Capital to Average Assets

  $24,484     10.38%  $9,437     4.00%  $11,796     5.00% 

In December 2010, the Basel Committee on Bank Supervision (“BCBS”) finalized a set of international guidelines for determining regulatory capital known as “Basel III.” In July 2013, the federal bank regulators approved final regulatory capital rules implementing BCBS’s December 2010 capital framework as well as certain provisions of the Dodd-Frank Act. The new capital rules under Basel III also substantially revise the risk-based capital requirements applicable to banking institutions as compared to the general risk-based capital rules now in effect. The new capital rules revise the components of capital and address other issues affecting the numerator in regulatory capital ratios. The new capital rules also address asset risk weights and other issues

Index to Financial Statements

affecting the denominator in regulatory capital ratios and replace the existing general risk-weighting approach. The new capital rules were effective for Keystone Bank on January 1, 2015 (subject to a phase-in period).

The new capital rules,local laws, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.matters.

The new capital rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios and will be subject to phase-in through January 1, 2019. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. When fully phased-in on January 1, 2019, the new capital rules will require Keystone Bank to maintain such additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

There are statutory, regulatory and prudential limitations on the payment of dividends by Keystone Bank. Alabama law restricts the amount of dividends that may be paid by Keystone Bank. In no event is an Alabama-chartered bank permitted to pay dividends in any calendar year that exceed the total of its net earnings (as defined by state banking regulations) of that year combined with its retained net earnings of the preceding two years without the prior approval of the Alabama State Banking Department. Prior regulatory approval must be obtained before declaring any dividends if the amount of Keystone Bank’s capital and surplus is below certain statutory limits. Dividends can also be restricted under federal law, and under state safety and soundness considerations, as a result of a declining or inadequate capital level. Future dividends may be paid at the discretion of the board of directors consistent with the regulatory, legal and prudent considerations discussed elsewhere in this document.

Interest Sensitivity and Market Risk

Management monitors and manages the pricing and maturity of Keystone’s assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring technique employed by Keystone is simulation analysis.

In simulation analysis, Keystone reviews each asset and liability category and its projected behavior in various different interest rate environments. These projected behaviors are based on management’s past experience and on current competitive environments, including the various environments in the different markets in which Keystone competes. Using projected behavior and differing rate scenarios as inputs, the simulation analysis generates projections of net interest income. Keystone also periodically verifies the validity of this approach by comparing actual results with those that were projected in previous models.

Another technique used in interest rate management, but to a lesser degree than simulation analysis, is the measurement of the interest sensitivity “gap”, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.

Keystone evaluates interest rate sensitivity risk and then formulates guidelines regarding asset generation and repricing, and sources and prices of off-balance sheet commitments in order to maintain interest sensitivity risk at levels deemed prudent by management. Keystone uses computer simulations to measure the net income effect of various rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time.

Index to Financial Statements

The following table illustrates interest rate sensitivity “gap” analysis at March 31, 2015 of Keystone’s interest earning assets and interest bearing liabilities, based upon Keystone’s historical experience of collections and repricing rather than the stated maturity and repricing dates.

   0-3 Mos  3-12 Mos  1-3 Yrs  3-5 Yrs  5-10 Yrs  >10 Yrs 

Interest earning assets:

       

Loans

  $47,899   $36,648   $42,430   $24,810   $16,678   $1,063  

Securities

   1,398    1,032    6,147    9,097    15,618    3,020  

Interest-bearing deposits in banks

   15,347    2,243    1,747    1,147    1,605    —    

Federal funds sold

   1,004    —      —      —      —      —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest earning assets

  $65,648   $39,923   $50,324   $35,054   $33,901   $4,083  

Interest-bearing liabilities:

       

Interest-bearing transaction accounts

  $3,310   $8,465   $15,025   $7,909   $6,885   $1,816  

Saving and money market accounts

   8,805    21,344    32,303    13,719    9,195    1,411  

Time deposits

   4,653    31,527    13,881    7,531    —      —    

Other borrowings

   —      6,500    —      —      —      —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-bearing liabilities

  $16,768   $67,836   $61,209   $29,159   $16,080   $3,227  

Interest sensitive gap:

       

Period gap

  $48,880   $(27,913)  $(10,885)  $5,895   $17,821   $856  

Cumulative gap

  $48,880   $20,967   $10,082   $15,977   $33,798   $34,654  

Cumulative gap ratio

   391.5%   124.8%   106.9%   109.1%   117.7%   117.8% 

Keystone generally benefits from increasing market interest rates when it has an asset-sensitive gap (a positive number) and generally benefit from decreasing market interest rates when it has a liability sensitive (a negative number). As shown in the table above, Keystone is asset sensitive on a cumulative basis throughout the one year time frame. The interest sensitivity analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest sensitive than market-based rates such as those paid on non-core deposits. For this and other reasons, management relies more upon a simulation analysis, as described above, in managing interest rate risk. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in volume and mix of interest earning assets and interest bearing liabilities.

Keystone’s earnings are dependent, to a large degree, on its net interest income, which is the difference between interest income earned on all interest earning assets, primarily loans and securities, and interest paid on all interest bearing liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Keystone’s market risk arises primarily from inherent interest rate risk in its lending, investing and deposit gathering activities. Keystone seeks to reduce its exposure to market risk through actively monitoring and managing interest rate risk. Management relies on simulations analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 100 basis points below the current prevailing rates to 400 basis points above current prevailing interest rates. Management makes certain assumptions as to the effect varying levels of interest rates have on certain interest earning assets and interest bearing liabilities, which assumptions consider both historical experience and consensus estimates of outside sources.

The following table illustrates the results of Keystone’s simulation analysis to determine the extent to which market risk would change net interest income (by percentage) for the next twelve months if prevailing interest rates increased or decreased by the specified amounts from current rates. However, to isolate the market risk inherent in the balance sheet, the model assumes that no growth in the balance sheet occurs during the projection period. This model also assumes an immediate and parallel shift in interest rates, which would result in no

Index to Financial Statements

change in the shape or slope of the interest rate yield curve. Because of the inherent use of the estimates and assumptions in the simulation model to derive this market risk information, the actual results of the future impact of market risk on net interest income may differ from that found in the table. All other simulated prevailing interest rates changes modeled indicate a level of sensitivity of net interest income to those changes that is acceptable to management and within established policy limits. Because management believes that an increase, or increases, in interest rates by The Federal Reserve could likely occur in 2015, based on current economic data and comments from the Federal Reserve Chairperson, as well as the current level of interest rates, interest rate decreases below 100 basis points has not been modeled due to not being meaningful.

As of
March 31, 2015

Change in prevailing interest rates:

+400 basis points

11.90% 

+300 basis points

8.61% 

+200 basis points

5.39% 

+100 basis points

2.35% 

0 basis points

—  

-100 basis points

-3.42% 

Effects of Inflation and Changing Prices

The accompanying consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles,GAAP and practices within the banking industry, which require the measurement of financial position and operating results in terms of historical dollars without considering the changechanges in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on the performance of a financial institutioninstitution’s performance than the effects of general levels of inflation. Although interest rates do

CURRENT ACCOUNTING DEVELOPMENTS

The following ASUs have been issued by the FASB but are not necessarily moveyet effective.

ASU2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments;

ASU2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement; and

ASU2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.

Information about these pronouncements is described in more detail below.

ASU2016-13, Financial Instruments—Credit Losses (Topic 326):—Measurement of Credit Losses on Financial Instruments, amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, the new standard eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses using a broader range of information regarding past events, current conditions and forecasts assessing the collectability of cash flows. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however the new standard will require that credit losses be presented as an allowance rather than as a write-down. The new guidance affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases,off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are SEC filers, the new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2019, and early adoption is permitted beginning in 2019. Trinity is currently evaluating the impact this ASU will have on its consolidated financial statements.

ASU2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, improves the disclosure requirements on fair value measurements by eliminating the requirements to disclose (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU also added specific disclosure requirements for fair value measurements for public entities including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and all interim periods within those fiscal years. Early adoption is permitted upon issuance of the ASU. Entities are permitted to early adopt amendments that remove or modify disclosures and delay the adoption of the additional

disclosures until their effective date. Trinity is currently evaluating the impact this ASU will have on its consolidated financial statements.

ASU 2018- 15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software (and hosting arrangements that includeinternal-use software license). This ASU requires entities to use the guidance in FASB ASC350-40, Intangibles—Goodwill and Other—Internal Use Software, to determine whether to capitalize or expense implementation costs related to the service contract. This ASU also requires entities to (i) expense capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement; (ii) present the expense related to the capitalized implementation costs in the same direction or toline item on the income statement as fees associated with the hosting element of the arrangement; (iii) classify payments for capitalized implementation costs in the statement of cash flows in the same extentmanner as payments made for fees associated with the priceshosting element; and (iv) present the capitalized implementation costs in the same balance sheet line item that a prepayment for the fees associated with the hosting arrangement would be presented. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. Trinity is currently evaluating the impact this ASU will have on its consolidated financial statements.

Table 1—Average Balance and Net Interest Income Analysis

   Year ended December 31 
   2018  2017 

(Dollars in thousands)

  Average
Balance		   Interest
Income/
Expense		   Yield/
Rate		  Average
Balance		   Interest
Income/
Expense		   Yield/
Rate		 

Interest-earning assets:

           

Loans and loans held for sale (1)

  $122,844   $6,801    5.55%  $117,704   $6,385    5.44% 

Securities—taxable

   4,609    96    2.09%   7,106    112    1.98% 

Securities—tax-exempt (2)

   8,325    164    2.63%   5,678    160    3.23% 

Interest bearing bank deposits

   9,733    184    1.89%   8,013    86    1.21% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total interest-earning assets

   145,511    7,245    5.03%   138,501    6,743    4.95% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities:

           

Deposits:

           

Interest bearing demand

  $11,776    40    0.34%  $10,053    36    0.35% 

Savings and money market

   42,048    303    0.72%   45,915    275    0.60% 

Time-deposits—retail

   51,565    784    1.52%   47,912    674    1.41% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

   105,389    1,127    1.07%   103,880    985    0.95% 

FHLB advances

   2,161    57    2.61%   1,604    44    2.70% 

Other borrowings

   —      —      —     3    —      0.21% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

   107,550    1,184    1.10%   105,487    1,029    0.97% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Net interest income and margin

    $6,061    4.22%    $5,714    4.21% 
    

 

 

   

 

 

    

 

 

   

 

 

 

(1)

Average loan balances are shown net of unearned income and loans on nonaccrual status have been included in the computation of average balances.

(2)

Yields ontax-exempt securities have been computed using an income tax rate of 21% for 2018 and 35% for prior years.

   Six months ended June 30 
   2019  2018 

(Dollars in thousands)

  Average
Balance		   Interest
Income/
Expense		   Yield/
Rate		  Average
Balance		   Interest
Income/
Expense		   Yield/
Rate		 

Interest-earning assets:

           

Loans and loans held for sale (1)

  $128,008   $3,694    5.86%  $120,750   $3,308    5.53% 

Securities—taxable

   3,510    39    2.23%   4,694    49    2.08% 

Securities—tax-exempt (2)

   8,095    82    2.69%   8,360    82    2.62% 

Interest bearing bank deposits

   13,749    164    2.40%   9,978    81    1.64% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total interest-earning assets

   153,362    3,979    5.30%   143,782    3,521    4.98% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities:

           

Deposits:

           

Interest bearing demand

  $12,872    22    0.34%   11,439    19    0.33% 

Savings and money market

   45,273    237    1.06%   41,594    124    0.60% 

Time deposits—retail

   48,889    450    1.85%   51,454    374    1.47% 

Time deposits—wholesale

   2,145    18    1.65%   —      —      —  % 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

   109,179    727    1.34%   104,488    517    1.00% 

FHLB advances

   2,012    26    2.62%   2,210    29    2.61% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

   111,191    753    3.94%   106,698    546    1.03% 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Net interest income and margin

    $3,226    4.31%    $2,975    4.21% 
    

 

 

   

 

 

    

 

 

   

 

 

 

(1)

Average loan balances are shown net of unearned income and loans on nonaccrual status have been included in the computation of average balances.

(2)

Yields ontax-exempt securities have been computed using an income tax rate of 21% for 2018 and 35% for prior years.

Table 2—Volume and Rate Variance Analysis

   Years ended December 31, 2018 vs. 2017 
   Net
Change		  Due to change in 

(Dollars in thousands)

 Rate (2)  Volume (2) 

Interest income:

    

Loans and loans held for sale

  $417   202   215 

Securities—taxable

   (16)   8   (24) 

Securities—tax-exempt (1)

   4   (13)   17 

Interest bearing bank deposits

   98   59   39 
  

 

 

  

 

 

  

 

 

 

Total interest income

  $503   256   247 
  

 

 

  

 

 

  

 

 

 

Interest expense:

    

Deposits:

    

Interest Bearing Demand

  $4   (1)   5 

Savings and money market

   29   54   (25) 

Certificates of deposits

   109   86   23 
  

 

 

  

 

 

  

 

 

 

Total interest-bearing deposits

   142   139   3 

FHLB advances

   13   (2)   15 
  

 

 

  

 

 

  

 

 

 

Total interest expense

   155   137   18 
  

 

 

  

 

 

  

 

 

 

Net Change

  $348   119   229 
  

 

 

  

 

 

  

 

 

 

(1)

Yields ontax-exempt securities have been computed using an income tax rate of 21% for 2018 and 35% for prior years.

(2)

Changes that are not solely a result of volume or rate have been allocated to volume.

   Six months ended June 30, 2019 vs. 2018 
   Net
  Change  		  Due to change in 

(Dollars in thousands)

   Rate (2)       Volume (2)   

Interest income:

     

Loans and loans held for sale

  $386   227    159 

Securities—taxable

   (10)   3    (13) 

Securities—tax-exempt (1)

   —     3    (3) 

Interest bearing bank deposits

   82   45    37 
  

 

 

  

 

 

   

 

 

 

Total interest income

  $458   278    180 
  

 

 

  

 

 

   

 

 

 

Interest expense:

     

Deposits:

     

Interest Bearing Demand

  $3   1    2 

Savings and money market

   113   101    12 

Time deposits—retail

   75   96    (21) 

Time deposits—wholesale

   18   —      18 
  

 

 

  

 

 

   

 

 

 

Total interest-bearing deposits

   209   198    11 

FHLB advances

   (3)   —      (3) 
  

 

 

  

 

 

   

 

 

 

Total interest expense

   206   198    8 
  

 

 

  

 

 

   

 

 

 

Net Change

  $252   80    172 
  

 

 

  

 

 

   

 

 

 

(1)

Yields ontax-exempt securities have been computed using an income tax rate of 21% for 2018 and 35% for prior years.

(2)

Changes that are not solely a result of volume or rate have been allocated to volume.

Table 3—Loan Portfolio Composition

   December 31 

(In thousands)

  2018   2017 

Commercial and industrial

  $21,145    26,468 

Construction and land development

   16,583    15,370 

Commercial real estate

   54,608    44,371 

Residential real estate

   33,067    33,004 

Consumer installment

   2,370    2,380 
  

 

 

   

 

 

 

Total loans

   127,773    121,593 

Less: unearned income

   280    237 
  

 

 

   

 

 

 

Loans, net of unearned income

   127,493    121,356 

Less: allowance for loan losses

   2,006    2,256 
  

 

 

   

 

 

 

Loans, net

  $125,487    119,100 
  

 

 

   

 

 

 

   2019   2018 

(In thousands)

  June 30   March 31   December 31   September 30   June 30 

Commercial and industrial

  $29,647    28,695    21,145    26,188    25,327 

Construction and land development

   17,961    16,470    16,583    18,989    18,317 

Commercial real estate

   46,823    47,032    54,608    44,301    43,621 

Residential real estate

   33,321    33,446    33,067    33,041    33,792 

Consumer installment

   2,705    2,706    2,370    2,421    2,425 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

   130,457    128,349    127,773    124,940    123,482 

Less: unearned income

   162    131    280    233    246 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans, net of unearned income

  $130,295    128,218    127,493    124,707    123,236 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Table 4—Loan Maturities and Sensitivities to Changes in Interest Rates

 

 

   December 31, 2018 

(Dollars in thousands)

  1 year
or less		   1 to 5
years		   After 5
years		   Total   Adjustable
Rate		   Fixed
Rate		   Total 

Commercial and industrial

  $10,041    11,104    —      21,145    14,341    6,804    21,145 

Construction and land development

   14,156    2,427    —      16,583    7,502    9,081    16,583 

Commercial real estate

   13,950    31,607    9,051    54,608    23,372    31,236    54,608 

Residential real estate

   9,322    22,074    1,671    33,067    7,216    25,851    33,067 

Consumer installment

   828    1,428    114    2,370    51    2,319    2,370 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $48,297    68,640    10,836    127,773    52,482    75,291    127,773 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Table 5—Allowance for Loan Losses and Nonperforming Assets

   Year ended December 31 

(Dollars in thousands)

      2018          2017     

Allowance for loan losses:

   

Balance at beginning of period

  $2,256   1,554 

Charge-offs:

   

Commercial and industrial

   109   1,191 

Construction and land development

   —     2 

Consumer installment

   3   50 
  

 

 

  

 

 

 

Total charge-offs

   112   1,243 
  

 

 

  

 

 

 

Recoveries:

   

Commercial and industrial

   15   63 

Construction and land development

   85   —   

Residential real estate

   —     83 

Consumer installment

   2   46 
  

 

 

  

 

 

 

Total recoveries

   102   192 
  

 

 

  

 

 

 

Net recoveries (charge-offs)

   (10)   (1,050) 

Provision for loan losses

   (240)   1,752 
  

 

 

  

 

 

 

Ending balance

  $2,006   2,256 
  

 

 

  

 

 

 

as a % of loans

   1.60%   1.86 

as a % of nonperforming loans

   54.04%   27.88 

Net (recoveries) charge-offs as % of average loans

   0.01%   0.89 
  

 

 

  

 

 

 

Nonperforming assets:

   

Nonaccrual/nonperforming loans

  $1,084   629 

Other real estate owned

   121   258 
  

 

 

  

 

 

 

Total nonperforming assets

  $1,205   887 
  

 

 

  

 

 

 

as a % of loans and other real estate owned

   0.94%   0.73% 

as a % total assets

   0.79%   0.61% 

Nonperforming loans as a % of total loans

   0.85%   0.52% 

   Quarters ended 

(Dollars in thousands)

  June 30,
2019		  March 31,
2019		  December 31,
2018		  September 30,
2018		  June 30,
2018		 

Allowance for loan losses:

      

Balance at beginning of period

  $2,006   2,006   2,256   2,256   2,256 

Charge-offs:

      

Commercial and industrial

   —     —     109   31   —   

Consumer installment

   9   —     3   3   3 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total charge-offs

   9   0   112   34   3 

Recoveries:

      

Commercial and industrial

   6   6   15   6   6 

Construction and land development

   —     —     85   85   85 

Consumer installment

   1   —     2   2   2 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total recoveries

   7   6   102   93   93 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net recoveries (charge-offs)

   2   6   (10)   59   90 

Provision for loan losses

   77   39   (240)   (400)   47 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance

  $2,081  $2,051   2,006   1,915   2,393 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

as a % of loans

   1.60%   1.60   1.57   1.53   1.94 

as a % of nonperforming loans

   57.90%   58.80   54.04   66.06   63.89 

Net (recoveries) charge-offs as a % of average loans

   (0.01)%   (0.02)%   0.01%   (0.06)%   (0.15) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Table 6—Allocation of goodsAllowance for Loan Losses

   December 31 
   2018   2017 

(Dollars in thousands)

  Amount   %*   Amount   %* 

Commercial and industrial

  $295    0.24   $379    0.32 

Agricultural & Other

   485    0.39    615    0.52 

Real estate

   1,234    0.98    1,209    1.02 

Consumer installment

   (8)    (0.01)    53    0.05 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

  $2,006    1.60   $2,256    1.91 
  

 

 

   

 

 

   

 

 

   

 

 

 

*

Loan balance in each category expressed as a percentage of total loans.

  June 30,
2019		  March 31,
2019		  December 31,
2018		  September 30,
2018		  June 30,
2018		 

(Dollars in thousands)

 Amount  %*  Amount  %*  Amount  %*  Amount  %*  Amount  %* 

Commercial and industrial

 $5   0.00  $5   0.00  $(36)   (0.03)  $(59)   (0.05)  $7   0.01 

Agricultural & Other

  9   0.01   9   0.01   (58)   (0.05)   (97)   (0.08)   11   0.01 

Real estate

  24   0.02   24   0.02   (144)   (0.11)   (240)   (0.19)   28   0.02 

Consumer installment

  1   0.00   1   0.00   (2)   0.00   (4)   0.00   1   0.00 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total allowance for loan losses

 $39   0.03  $39   0.03  $(240)   (0.19)  $47   0.04  $47   0.04 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

*

Loan balance in each category expressed as a percentage of total loans.

Table 7—CDs and services, increases in inflation generally have resulted in increased interest rates. In addition, inflation affects financial institutions’ increased costOther Time Deposits of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and stockholders’ equity. Commercial and other loan originations and refinancings tend to slow as interest rates increase, and could reduce earnings from such activities.

$250,000 or More

Index to Financial Statements

(Dollars in thousands)

 June 30,
2019		  December 31,
2018		 

Maturity of:

  

3 months or less

 $1,077  $2,339 

Over 3 months through 6 months

  7,490   6,817 

Over 6 months through 12 months

  4,272   6,620 

Over 12 months

  1,315   944 
 

 

 

  

 

 

 

Total CDs and other time deposits of $250,000 or more

 $14,154  $16,720 
 

 

 

  

 

 

 

Table 8—Performance Ratio

   2019   2018 

(in percentages

  June 30  March 31   December 31   September 30   June 30 

Performance ratios:

         

Return on average equity

   15.22%   18.52    15.16    16.20    13.00 

Return on average assets

   1.52%   1.85    1.43    1.51    1.20 

Dividend payout ratio

   —%   —      17.80    —      —   

SUPERVISION AND REGULATION

General

Bank holding companies and banks are regulated extensively under both federal and state law. The bank regulatory framework is intended primarily for the protection of depositors, the deposit insurance system, and the banking system, and not for the protection of shareholders or any other group. Both River Bank & Trust and KeystoneTrinity Bank are Alabama banking corporations, and River Financial and KeystoneTrinity are Alabama corporations which are registered as bank holding companies for their subsidiary banks.with the Federal Reserve. Unless indicated otherwise, the regulatory requirements discussed below for River Financial and River Bank & Trust would generally apply as well to KeystoneTrinity and KeystoneTrinity Bank, respectively. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on the business of River Financial and River Bank & Trust.

River Financial

River Financial is registered as a bank holding company with the Federal Reserve. River Financial is subject to examination, regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended. River Financial is required to file annual reports and such additional information as the Federal Reserve may require.

Federal and state laws regulate River Financial’s corporate governance, its investment authority, its manner of doing business, its employment practices, its consumer privacy policies and procedures, its relationship with River Bank & Trust and its other affiliates, its ability to merge with, acquire, or be acquired by other entities, its requisite minimum capital and the forms of capital, its payment of dividends or other distributions, the types of businesses in which it can engage, and many other aspects of its business.

River Bank & Trust

River Bank & Trust is chartered by the Alabama State Banking Department. River Bank & Trust is also a member of the Federal Deposit Insurance Corporation (the “FDIC”) and its deposits are insured, as provided by law, by the FDIC through the Deposit Insurance Fund. River Bank & Trust is subject to supervision, regulation, and examination by the FDIC and Alabama State Banking Department. River Bank & Trust is also subject to various requirements and restrictions under federal and state law, including capital adequacy requirements, requirements to maintain reserves against deposits, requirements under the Community Reinvestment Act, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon and limitations on the types of investments that may be made, activities that may be engaged in, and types of services that may be offered. The operations of River Bank & Trust are also affected by various consumer laws and regulations, including those relating to equal credit opportunity, truth in lending disclosures, truth in savings disclosures, debt collection laws, privacy regulations, and regulation of consumer lending practices. In addition to the impact of direct regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy.

Strict compliance at all times with state and federal banking laws, as well as other laws, is and will continue to be required. River Bank & Trust believes that the experience of its executive management will assist it in its continuing efforts to achieve the requisite level of compliance. Certain provisions of state law may be preempted by existing and future federal laws, rules and regulations, and no prediction can be made as to the impact of preemption on state law or the regulation of River Bank & Trust thereunder.

Payment of Dividends

River Financial is a legal entity separate and distinct from River Bank & Trust. River Financial’s principal source of cash flow, including cash flow to pay dividends to its stockholders, is dividends River Bank & Trust

Index to Financial Statements

pays to River Financial as River Bank & Trust’s sole stockholder. Statutory and regulatory limitations apply to River Bank & Trust’s payment of dividends to us as well as to our payment of dividends to our stockholders. The policy of the Federal Reserve that a bank holding company should serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength. The Federal Reserve also has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be consistent with the corporation’s capital needs, asset quality and overall financial condition. River Financial’s ability to pay dividends is also subject to the provisions of Alabama corporate law.

The Alabama State Banking Department also regulates River Bank & Trust’s dividend payments. Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the bank’s surplus is equal to at least 20% of its capital. A bank is also required by Alabama law to obtain the prior approval of the Alabama Superintendent of Banks for its payment of dividends if the total of all dividends declared by a bank in any calendar year will exceed the total of (1) the bank’s net earnings (as defined by statute) for that year, plus (2) its retained net earnings for the preceding two years, less any required transfers to surplus. In addition, no dividends, withdrawals or transfers may be made from the bank’s surplus without the prior written approval of the Superintendent.

River Financial and River Bank & Trust’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit bank holding companies and banks from engaging in unsafe or unsound practices in conducting their business. The payment of dividends, depending on the financial condition of a bank holding company and of its subsidiary bank, could under certain circumstances be deemed an unsafe or unsound practice, and therefore restricted. River Financial does not anticipate paying any dividends for the foreseeable future.

Under the Federal Deposit Insurance Act, an FDIC-insured depository institution may not make any capital distributions (including the payment of dividends) or pay any management fees to its holding company if it is undercapitalized or if such payment would cause it to become undercapitalized.

Restrictions on Acquisitions and Certain Activities

As a bank holding company subject to the Bank Holding Company Act, River Financial must obtain prior Federal Reserve approval for bank acquisitions and is generally limited to engaging in banking or bank-related activities. River Financial must obtain prior approval of the Federal Reserve before (1) acquiring, directly or indirectly (except in certain limited circumstances), ownership or control of more than 5% of the voting stock of a bank, (2) acquiring all or substantially all of the assets of a bank, or (3) merging or consolidating with another bank holding company. The Bank Holding Company Act also generally limits the business in which a bank holding company may engage to banking, managing or controlling banks, and furnishing or performing services for River Bank & Trustsa bank that it controls. Similar restrictions exist under regulations of the Alabama State Banking Department and the FDIC with respect to activities that are determined by the Alabama State Banking Department and FDIC not to be incidental to the business of banking.

The Federal Reserve may require that a bank holding company terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt.

Index to Financial Statements

Under certain circumstances, a bank holding company must file written notice and obtain approval from the Federal Reserve prior to purchasing or redeeming its equity securities.

Moreover, poor examination ratings, lower capital ratios than peer group institutions, regulatory concerns regarding management, controls, assets, operations, or other factors can all potentially result in practical limitations on the ability of a bank or bank holding company to engage in new activities, grow, acquire new businesses, repurchase its stock or pay dividends, or to continue to conduct existing activities.

Bank Holding Company Expected to be Source of Financial Strength for Bank Subsidiary

Under Federal Reserve policy and the Federal Deposit Insurance Act, River Financial is expected to act as a source of financial strength to, and to commit resources to support, River Bank & Trust. This support may be required at times when, absent such Federal Reserve policy, River Financial may not be inclined to provide it. In addition, any capital loans by a bank holding company to a bank subsidiary are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Moreover, as a shareholder of River Bank & Trust, River Financial would rank low relative to other stakeholders of River Bank & Trust in the event that River Bank & Trust were liquidated. Depositors of River Bank & Trust, and the FDIC as their subrogee, would likely be entitled to priority over creditors of River Bank & Trust, including River Financial, in the event of a liquidation of River Bank & Trust.

Capital Adequacy

The various federal bank regulators, including the Federal Reserve and FDIC, have adopted risk-based capital requirements for assessing bank and bank holding company capital adequacy. These standards establish minimum capital standards in relation to the relative credit risk of assets and off-balance sheet exposures. Capital is classified into two tiers. Tier I capital consists generally of two components: common shareholders’ equity Tier 1 capital (consisting of common stock and noncumulativerelated surplus, retained earnings, and limited amounts of minority interests that are in the form of common stock) and additional Tier 1 capital (includes other perpetual instruments historically included in Tier 1 such asnon-cumulative perpetual preferred stock (subject to certain limitations)stock) and is reduced by goodwill and certain other intangible assets. Tier II capital generally includes the allowance for possible loan losses (subject to certain limitations). The risk-based capital guidelines require financial institutions to maintain specific defined credit risk factors and apply them to their assets which results in risk-adjusted assets. These guidelines are only minimum standards and regulators expect bank holding companies and banks to maintain capital well above these minimum requirements. Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business, including in certain circumstances, the appointment of a receiver.

The capital standards impose the following minimum capital requirements:requirements on River Bank & Trust: (i) a ratio of common equity tier 1 capital to total risk-weighted assets of 4.5%, (ii) a ratio of tier 1 capital to total risk-weighted assets of 6%, (iii) a ratio of total capital to total risk-weighted assets of 8%, and (iv) a ratio of tier 1 capital to adjusted average total assets of 4%. In addition to these minimum capital requirements, the regulations establish a capital conservation buffer. Specifically, banking organizations would need to hold common equity tier 1 capital in excess of their minimum risk-based capital ratios by at least 2.5% of risk-weighted assets in order to avoid limits on capital distributions (including dividend payments, discretionary payments on tier 1 instruments, and stock buybacks) and certain discretionary bonus payments to executive officers. Thus, when including the 2.5% capital conservation buffer, a bank’s minimum ratio of common equity tier 1 capital to risk-weighted assets becomes 7%, its minimum ratio of tier 1 capital to total risk-weighted assets becomes 8.5%, and its minimum ratio of total capital to risk-weighted assets becomes 10.5%. River Financial is currently not subject to the Federal Reserve’s consolidated minimum capital requirements at the holding company level. Rather it is currently subject to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, which includes provisions governing the amount of debt that can be incurred by a holding company to fund acquisitions and imposing maximum parent companydebt-to-equity ratios.

The federal banking agencies proposed a rule in November 2018 that, if adopted, would allow bank holding companies and banks with less than $10.0 billion in total consolidated assets and limited amounts of certain types of assets and off balance sheet exposures and a bank leverage ratio of greater than 9% to elect to use the Community Bank Leverage Ratio (“CBLR”) framework. A community banking organization electing to use the CBLR framework would have a simplified capital conservation buffer requirement for 2015 is 0regime and for 2016 willwould be .625%considered well capitalized as long as it had a leverage ratio of greater than 9% and will be phased in to 2.5% by 2019.adequately capitalized with a leverage ratio of at least 7.5%.

Index to Financial Statements

Prompt Corrective Action and Other Consequences of Capital Adequacy

The Federal Deposit Insurance Act requires, among other things, that the federal banking regulators take prompt corrective action with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. Under the Federal Deposit Insurance Act, insured depository institutions are divided into five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under applicable regulations, an institution is defined to be well capitalized if it has a common equity tier 1 capital ratio of at least 6.5%, a Leverage Ratio of at least 5%, a Tier 1 Risk-Based Capital ratioRatio of at least 8%, and a Total Risk-Based Capital ratio of at least 10%, and it is not subject to a directive, order or written agreement to meet and maintain specific capital levels. An institution is defined to be adequately capitalized if it has a common equity tierTier 1 capital ratio of at least 4.5%, a Leverage Ratio of at least 4%, a Tier 1 Risk-Based Capital ratio of at least 6%, and a Total Risk-Based Capital ratioRatio of at least 8%, and it does not meet the definition of a well-capitalized bank. An institution will be considered undercapitalized if it has a common equity tierTier 1 capital ratio of less than 4.5%,; or a Leverage Ratio less than 4% or a Tier 1 Risk-Based Capital Ratio of less than 6% or a Total Risk-Based Capital Ratio of less than 8%. An institution is defined to be significantly undercapitalized if it has a Total Risk-Based Capital ratio of less than 6% or a Tier 1 Risk-Based Capital ratioRatio of less than 4%, or a Leverage Ratio of less than 3% or a common equity tierTier 1 capital ratio of less than 3%. Finally, an institution will be considered critically undercapitalized if it fails to maintain a level of tangible equity exceeding 2% of total assets. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

The Federal Deposit Insurance Act generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of dividends) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve. In addition, undercapitalized depository institutions are subject to, among other things, growth limitations and are required to submit capital restoration plans. An insured depository institution’s holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan, for the plan to be accepted by the applicable federal regulatory authority. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan or fails to implement its plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, sell to another bank or bank holding company, requirements to reduce total assets, restrictions on interest rates paid on deposits, orders to replace the Boardboard of Directorsdirectors or management and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator, generally within ninety (90) days of the date on which they become critically undercapitalized, and are subject to other restrictions.

Business activities may be influenced by an institution’s capital classification. For example, only a “well capitalized” depository institution may accept brokered deposits without prior regulatory approval and an “adequately capitalized” institution may accept such deposits only with prior regulatory approval.

General Regulatory Considerations

Under the Federal Deposit Insurance Corporation Improvement Act, (“FDICIA”),or FDICIA, all insured institutions must undergo regularon-site examination by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC and the appropriate agency (and state supervisor when applicable). FDICIA also requires the

Index to Financial Statements

federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to: (i) internal controls, information systems and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset quality.

In response to perceived needs in financial institution regulation, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989. That statute, called FIRREA, provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default.

FIRREA provides that financial institutions and their affiliated parties (such as officers and directors) may be subject to civil money penalties for certain types of violations and misconduct. In addition, the FDIC has been granted enhanced authority to withdraw or to suspend deposit insurance in certain cases. The banking regulators have not been reluctant to use the enforcement authorities provided under FIRREA. Further, regulators have broad power to issue cease and desist orders that may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts or take other actions as determined by the ordering agency to be appropriate.

River Bank & Trust is subject to certain restrictions on extensions of credit to executive officers, directors, certain principal stockholders and their related interests. For example, such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.

Community Reinvestment Act

The federal law known as the Community Reinvestment Act, (“CRA”)or CRA, requires that each insured depository institution shall be evaluated by its primary federal regulator with respect to its record in meeting the credit needs of its local community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility.

A bank’s compliance with its CRA obligations is based on a performance-based evaluation system that bases CRA ratings on an institution’s lending, service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve will review the CRA assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. In connection with its assessment of CRA performance, the appropriate bank regulatory agency assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” As of its most recent CRA examination, dated June 12, 2017, River Bank & Trust was rated “satisfactory.“Satisfactory.”

USA Patriot Act

After the terrorist attacks of September 11, 2001, Congress enacted broad anti-terrorism legislation called the “UnitedUnited and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,” which is generally known as the “USAUSA Patriot Act.” Title III of the USA Patriot Act requires financial institutions, including River Financial and River Bank & Trust, to help prevent, detect and prosecute international money laundering and the financing of terrorism. The Department of the Treasury has adopted additional requirements to further implement Title III.

Index to Financial Statements

The law is intended to enhance the powers of the federal government and law enforcement organizations to combat terrorism, organized crime and money laundering. The USA Patriot Act materially amended and expanded the application of the existing Bank Secrecy Act. It provided enhanced measures regarding customer identity, new suspicious activity reporting rules and enhanced anti-money laundering programs. Under the USA Patriot Act, each financial institution is required to establish and maintain anti-money laundering compliance and due diligence programs, which include, at a minimum, the development of internal policies, procedures, and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs. In addition, the USA Patriot Act requires River Bank & TrustTrust’s regulatory agencies to consider the record of a bank or bank holding company in combating money laundering activities in their evaluation of bank and bank holding company merger or acquisition transactions.

The U.S. Treasury Department has issued regulations under the USA Patriot Act. The regulations state that a depository institution will be deemed in compliance with the USA Patriot Act provided it continues to comply with the current Bank Secrecy Act regulations. Under these regulations, a mechanism has been established for law enforcement to communicate names of suspected terrorists and money launderers to financial institutions, in return for securing the ability to promptly locate accounts and transactions involving those suspects. Financial institutions receiving names of suspects must search their account and transaction records for potential matches and report positive results to the Financial Crimes Enforcement Network, (“FinCEN”).or FinCEN. Each financial institution must designate a point of contact to receive information requests. These regulations outline how financial institutions can share information concerning suspected terrorist and money laundering activity with other financial institutions under protection from the statutory safe harbor from liability, provided each financial institution notifies FinCEN of its intent to share information.

The Department of the Treasury has also adopted regulations intended to prevent money laundering and terrorist financing through correspondent accounts maintained by U.S. financial institutions on behalf of foreign banks. Financial institutions are required to take reasonable steps to ensure that they are not providing banking services directly or indirectly to foreign shell banks.

Guidance on Commercial Real Estate Concentrations

Lending operations that involve concentrations of commercial real estate loans are subject to enhanced scrutiny by federal banking regulators. Regulators have issued guidance with respect to the risks posed by commercial real estate lending concentrations. Commercial real estate loans generally include land development, construction loans and loans secured by multifamily property and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property, but it excludes owner-occupied real estate. The guidance prescribes the following guidelines for examiners to help identify institutions that are potentially exposed to concentration risk and may warrant greater supervisory scrutiny:

 

Total loans for construction, land development and other land represent 100 percent100% or more of an institution’s total capital; or

 

Total commercial real estate loans represent 300 percent300% or more of an institution’s total capital.

At December 31, 2018, River Bank & Trust’s ratio of construction, land development and other land loans to total risk-based capital was 88%, and its ratio of total commercial real estate loans excluding owner-occupied commercial real estate loans (as defined in the guidance) to total risk-based capital was 162%.

FDIC Insurance Assessments

The FDIC has adopted a risk-based assessment system for insured depositary institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The assessment rate is based on a combination factors, including capital adequacy and supervisory risk.

The FDIC may terminate the deposit insurance of a bank if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC.

Index to Financial Statements

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. This new law has changed and is changing in significant ways the current bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requiresrequired various federal agencies to adopt a broad range of new implementing rules and regulations and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.regulations. The following summarizes just a few of the provisions of the Dodd-Frank Act.

The Dodd-Frank Act changeschanged the types of instruments that are eligible for tier I capital treatment at the holding company-level. It also calls for the Federal Reserve to apply to bank holding companies the same minimum leverage and risk-based capital standards that apply to banks under the Federal Deposit Insurance Act’s prompt corrective action standards.

The Dodd-Frank Act eliminateseliminated the federal prohibitions on paying interest on demand deposits effective one year after the date of its enactment, thus allowing businesses to have interest-bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on our interest expense.

The Dodd-Frank Act requires fees charged by banks for debit card transactions, commonly referred to as interchange fees, to be both “reasonable and proportional” to the cost incurred by the card issuer and authorizes the Federal Reserve to implement regulations with respect to this requirement. It is anticipated that this will have a negative impact on the revenue of financial institutions.

The Dodd-Frank Act also broadensbroadened the base for FDIC insurance assessments. Assessments are based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor.

The Dodd-Frank Act created a new Bureau of Consumer Financial Protection with broad powers to supervise and enforce consumer protection laws. The Bureau will havehas broad rule-making authority for a wide range of consumer protection laws that apply to all banks, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Bureau will havehas examination and enforcement authority over all banks with more than $10$10.0 billion in assets. Banks with less than $10$10.0 billion in assets will continue to be examined for compliance with consumer laws by their primary bank regulator.

Current Expected Credit Loss (“CECL”)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that will replace the current approach under GAAP for establishing the allowance for loan losses, which generally considers only past events and current conditions. This new standard, referred to as Current Expected Credit Loss (“CECL”), requires financial institutions to project a loan’s lifetime losses at origination, as opposed to the current framework which allows adjustments to the provision for loan and lease losses when losses are assessed as probable in an existing loan. At this time, we do not know and cannot reasonably quantify the impact of the

adoption of CECL from the current incurred loss method. The new standard is expected to generally result in increases to allowance levels and will require the application of the revised methodology to existing financial assets through aone-time adjustment to retained earnings upon initial effectiveness. In December 2018, the FDIC, Federal Reserve and Office of the Comptroller of the Currency issued a final rule to allow a banking organization to elect to phase in the regulatory capital impact over a three-year period.

Other Legislation and Regulation

Other legislative and regulatory proposals regarding changes in banking and the regulation of banks, thrifts and other financial institutions are considered from time to time by the executive branch of the federal government, Congress and various state governments. It cannot be predicted whether any of such legislative or regulatory proposals will be adopted and, if adopted, how these will affect River Financial and River Bank & Trust.

Monetary and Fiscal Policy

Banking is a business which depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on its loans to customers and its securities holdings generally constitutes the major portion of a bank’s earnings. Thus, the earnings and growth of River Bank & Trust will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies,

Index to Financial Statements

particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open-market dealings in United States government securities, the discount rate at which members may borrow, and reserve requirements on deposits and funds availability regulations. These instruments are used in varying combinations to influence the overall growth of bank loans, investments and deposits and also affect interest rates charged on loans or paid on deposits. The policies of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and will continue to do so in the future. The nature and timing of any future changes in Federal Reserve policies and their impact on River Bank & Trust cannot be predicted.

Index to Financial Statements

EXPERTS

The consolidated financial statements of River Financial as of December 31, 20142018 and 2013,2017, and for the years then ended, have been included herein in reliance upon the reports of Porter Keadle Moore,Mauldin & Jenkins, LLC, independent registered public accounting firm, appearing elsewhere herein and upon authority of said firm as experts in accounting and auditing.

The consolidated audited financial statements of Keystone Bancshares,Trinity Bancorp, Inc. as of and for the year ended December 31, 2018, the consolidated audited balance sheet of Trinity Bancorp, Inc. as of December 31, 2014,2017 and 2013,the audited financial statements of Trinity Bank as of and for the years then ended December 31, 2017 and 2016 have been included herein in reliance upon the reports of MauldinBrunson, Wilkerson, Bowden & Jenkins, LLC,Associates, P.C. an independent public accounting firm, appearing elsewhere herein, and upon authority of said firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of the River Financial common stock to be issued in connection with the merger will be passed upon for River Financial by Jones Walker LLP, Birmingham, Alabama, River Financial’s outside legal counsel. Jones Walker LLP also provides legal advice to River Financial on a regular basis. A tax opinion with respect to the merger will be rendered by Jones Day, counsel to Trinity (or, if Jones Day is unwilling or unable to issue the opinion, a reasonably acceptable alternative counsel).

WHERE YOU CAN FIND MORE INFORMATION

River Financial has filed with the SEC a registration statement on Form S-4 that registers the distribution of the shares of River Financial common stock to be issued to holders of KeystoneTrinity common stock in connection with the merger. This proxy statement / prospectus is a part of that registration statement and constitutes a prospectus of River Financial and a proxy statement of KeystoneTrinity for the Keystone specialTrinity meetings. It also constitutes a proxy statement of River Financial for the River Financial shareholder meeting.

River Financial currently does not filefiles reports with the SEC. River Financial does, however, provideSEC under Section 15(d) of the Securities and Exchange Act of 1934, including annual reports including audited financialon Form 10-K, quarterly reports on Form 10-Q and periodic reports on Form 8-K. The SEC maintains an internet website that contains reports, proxy information statements, as requested, to its shareholders in connection with its annual meeting. You may inspect or copy any materials River Financial filesand other information regarding issuers that file electronically with the SEC at the Public Reference Room at the SEC at Room 1580, 100 F. Street, N.E., Washington, D.C. 20549. For a fee, you may also obtain copies of these materials by writing to the Public Reference Section of the Commission at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the operation of the SEC public reference room.www.sec.gov. Any public filings River Financial makes are also available to the public from commercial document retrieval services and at the SEC’s internet web site maintained bywebsite. River Bank & Trust’s internet address is www.riverbankandtrust.com. River Financial makes available free of charge on the SEC at www.sec.gov.“Investor Relations” page of River Bank & Trust’s internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form-K, and any amendments to those reports as soon as reasonably practical after such reports are electronically filed with or furnished to the SEC.

Neither River Financial nor KeystoneTrinity has authorized anyone to give any information or make any representation about the merger or our companies that is different from, or in addition to, that contained in this document or in any of the materials that have been incorporated in this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.

The representations, warranties and covenants described in this document and included in the merger agreement were made only for purposes of the merger agreement and as of specific dates, are solely for the benefit of River Financial and Keystone,Trinity, may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between River Financial and KeystoneTrinity rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to investors. You should not

Index to Financial Statements

rely on the representations, warranties or covenants or any description thereof as characterizations of the actual state of facts or condition of River Financial, KeystoneTrinity or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by River Financial or Keystone.Trinity. The representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this proxy statement / prospectus and in the documents incorporated by reference into this proxy statement / prospectus.

Index to Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(AUDITED (AUDITED AND UNAUDITED)

 

RIVER FINANCIAL CORPORATION

River Financial CorporationPage  

1.

River Financial Corporation Audited Consolidated Financial Statements as of and for the years ended December 201431, 2018 and 2013

2017		  

a.

Report of Independent Registered Public Accounting FirmAuditor’s Report

   F-2 

Consolidated Financial Statements:

b.		 

Consolidated Statements of Financial ConditionPosition

   F-3 

c.

Consolidated Statements of Income

   F-4 

d.

Consolidated Statements of Comprehensive Income

   F-5 

e.

Consolidated Statements of Changes in Stockholders’ Equity

   F-6 

f.

Consolidated Statements of Cash Flows

   F-7 
g.

Notes to Consolidated Financial Statements

   F-8 - F-44

2.

River Financial Corporation Unaudited Interim Consolidated Financial Statements as of June 30, 2019F-45 - F-68

Trinity Bancorp, Inc. and Trinity BankPage  

1.

Trinity Bancorp, Inc. Audited Consolidated Financial Statements as of December 31, 2018F-69 
a.Independent Auditor’s ReportF-69

Unaudited

b.Consolidated Balance SheetF-71
c.Consolidated Statement of IncomeF-72
d.Consolidated Statement of Comprehensive IncomeF-74
e.Consolidated Statement of Stockholders’ EquityF-75
f.Consolidated Statement of Cash FlowsF-76
g.Notes to Financial Statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and March 31, 2014

F-77
h.Schedules  

Consolidated Interim Financial Statements:

 i.

Consolidated Statements of Financial ConditionSchedule I—Consolidating Schedule—Balance Sheets

   F-39F-103 

ii.Consolidated Schedule II—Consolidating Schedule—Statements of Income

   F-40F-104 

iii.Consolidated Statements of Comprehensive IncomeSchedule III—Consolidating Entries

   F-41F-106

2.

Trinity Bancorp, Inc. Audited Consolidated Balance Sheet as of December 31, 2017F-107 

a.

Consolidated Statement of Changes in Stockholders’ EquityIndependent Auditor’s Report

   F-42F-107 

b.

Consolidated Statements of Cash FlowsBalance Sheet

   F-43F-109 

c.

Notes to the Consolidated Financial Statements

   F-44F-110

3.

Trinity Bank Financial Statements as of December 31, 2017 and 2016*F-133 
a.Independent Auditor’s ReportF-133
b.Balance SheetF-135
c.Statement of IncomeF-136
d.Statement of Comprehensive IncomeF-138
e.Statement of Stockholders’ EquityF-139
f.Statement of Cash FlowsF-140
g.Notes to Financial StatementsF-142

KEYSTONE BANCSHARES, INC.4.

 

AuditedTrinity Bancorp, Inc. Unaudited Interim Financial Statements as of and for the years ended December 31, 2014 and 2013

Independent Auditor’s ReportJune 30, 2019

   F-58F-172 

Consolidated Financial Statements:5.

 

Consolidated Balance SheetsTrinity Bancorp, Inc. Unaudited Interim Financial Statements as of June 30, 2018

   F-59

Consolidated Statements of Income

F-60

Consolidated Statements of Comprehensive Income

F-61

Consolidated Statements of Stockholders’ Equity

F-62

Consolidated Statements of Cash Flows

F-63

Notes to Consolidated Financial Statements

F-64

Unaudited Financial Statements as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014

Consolidated Interim Financial Statements:

Consolidated Balance Sheets

F-95

Consolidated Statements of Income

F-96

Consolidated Statements of Comprehensive Income

F-97

Consolidated Statements of Cash Flows

F-98

Notes to Consolidated Financial Statements

F-99F-175 

*

Because Trinity Bancorp, Inc. was incorporated in mid-2017, audited financial statements of Trinity Bank as of December 31, 2017 and 2016 are bring provided.

Index to Financial Statements

LOGOLOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

River Financial Corporation and subsidiarySubsidiary

Prattville, Alabama

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of River Financial Corporation and subsidiarySubsidiary (the Company) as of December 31, 20142018 and 2013,2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years then ended. in thetwo-year period ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in thetwo-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion,We have served as the consolidated financial statements referred to above present fairly, in all material respects, the financial position of River Financial Corporation and subsidiary as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.Company’s auditor since 2016.

 

LOGO

Atlanta, GeorgiaLOGO

July 31, 2015Birmingham, Alabama

235 Peachtree Street NE  |  Suite 1800  |  Atlanta, Georgia 30303  |  Phone 404.588.4200  |  Fax 404.588.4222March 19, 2019

Index to Financial Statements

LOGO

RIVER FINANCIAL CORPORATION

Consolidated Statements of Financial Condition

(in thousands except share data)

 

  December 31,   December 31,
2018		 December 31,
2017		 
  2014 2013 
Assets   

Cash and due from banks

  $16,171,393   $14,274,907    $13,834  $14,669 

Interest-bearing deposits in banks

   6,017,615   101,008     32,253  889 

Federal funds sold

   3,180,000   16,045,000     1,420   —   
  

 

  

 

   

 

  

 

 

Cash and cash equivalents

 25,369,008   30,420,915     47,507  15,558 

Certificates of deposit in banks

 1,992,000   2,241,000     6,166  5,214 

Securities available-for-sale

 130,284,506   154,455,714     228,630  193,289 

Loans, net of deferred fees

 265,137,387   237,511,671  

Loans held for sale

   2,619  3,858 

Loans, net of unearned income

   711,262  547,121 

Less allowance for loan losses

 (3,777,887)  (3,700,762)    (6,577)  (4,881) 
  

 

  

 

   

 

  

 

 

Net loans

 261,359,500   233,810,909     704,685  542,240 

Premises and equipment, net

 12,699,283   12,527,959     26,827  21,809 

Accrued interest receivable

 1,597,361   1,553,151     3,260  2,499 

Bank owned life insurance

 9,665,862   5,489,591     20,563  19,991 

Foreclosed assets

 2,339,741   427,009     496  1,546 

Deferred income taxes

 119,592   1,583,256     1,181  1,977 

Core deposit intangible

   5,583  1,560 

Goodwill

   18,293  10,050 

Other assets

 1,277,513   973,760     4,654  3,701 
  

 

  

 

   

 

  

 

 

Total assets

$446,704,366  $443,483,264    $1,070,464  $823,292 
  

 

  

 

   

 

  

 

 
Liabilities and Stockholders’ Equity   

Noninterest-bearing deposits

 88,839,075   89,706,096    $241,274  $185,171 

Interest-bearing deposits

 298,992,368   305,611,216     657,433  514,690 
  

 

  

 

   

 

  

 

 

Total deposits

 387,831,443   395,317,312     898,707  699,861 
  

 

  

 

 

Short-term debt

 8,042,903   9,261,184  

Long-term debt

 6,000,000   0  

Securities sold under agreements to repurchase

   7,975  13,865 

Federal Home Loan Bank advances

   20,000  10,000 

Federal funds purchased

   —    1,153 

Note payable

   26,963  5,357 

Accrued interest payable and other liabilities

 799,202   649,913     5,343  3,107 
  

 

  

 

   

 

  

 

 

Total liabilities

 402,673,548   405,228,409     958,988  733,343 
  

 

  

 

   

 

  

 

 

Common stock ($1 par value; 5,000,000 shares authorized; 3,057,612 and 3,048,612 issued; 2,998,837 and 2,988,066 shares outstanding, respectively

 3,057,612   3,048,612  

Common stock related to 401(k) Employee Stock Ownership Plan

   1,343  950 
  

 

  

 

 
Stockholders’ Equity   

Common stock ($1 par value; 10,000,000 shares authorized; 5,692,123 and 5,113,951 shares issued; 5,687,914 and 5,098,068 shares outstanding, respectively)

   5,692  5,114 

Additional paid in capital

 35,174,678   35,045,655     79,604  64,935 

Retained earnings

 5,991,279   2,807,428     29,460  22,388 

Accumulated other comprehensive income

 606,334   (1,829,269) 

Treasury stock at cost (58,775 and 60,546 shares, respectively)

 (799,085)  (817,571) 

Accumulated other comprehensive loss

   (3,167)  (2,116) 

Treasury stock at cost (4,209 and 15,883 shares, respectively)

   (113)  (372) 

Common stock related to 401(k) Employee Stock Ownership Plan

   (1,343)  (950) 
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

 44,030,818   38,254,855     110,133  88,999 
  

 

  

 

   

 

  

 

 

Total equity

   111,476  89,949 
  

 

  

 

 

Total liabilities and stockholders’ equity

$446,704,366  $443,483,264    $1,070,464  $823,292 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

LOGO

RIVER FINANCIAL CORPORATION

Consolidated Statements of Income

(in thousands except per share data)

 

  For The Years Ended December 31,   For the Years Ended
December 31,		 
           2014                     2013            2018 2017 

Interest income:

       

Loans, including fees

  $12,628,729    $12,340,816    $32,812  $27,891 

Taxable securities

   2,134,434     1,924,130     2,734  2,938 

Nontaxable securities

   677,280     428,882     853  1,130 

Federal funds sold

   9,531     20,604     11   —   

Other interest income

   23,742     25,280     275  211 
  

 

   

 

   

 

  

 

 

Total interest income

 15,473,716   14,739,712     36,685  32,170 
  

 

   

 

   

 

  

 

 

Interest expense:

   

Deposits

 1,243,616   1,503,764     3,650  2,229 

Short term borrowings

 16,595   20,602  

Long term borrowings

 13,413   0  

Securities sold under agreements to repurchase

   38  28 

Federal Home Loan Bank advances

   490  101 

Federal funds purchased

   18  13 

Note payable

   485  249 
  

 

   

 

   

 

  

 

 

Total interest expense

 1,273,624   1,524,366     4,681  2,620 
  

 

   

 

   

 

  

 

 

Net interest income

 14,200,092   13,215,346     32,004  29,550 

Provision for loan losses

 1,056,960   957,109     1,960  1,740 
  

 

   

 

   

 

  

 

 

Net interest income after provision for loan losses

 13,143,132   12,258,237     30,044  27,810 
  

 

   

 

   

 

  

 

 

Noninterest income:

   

Service charges and fees

 1,795,873   1,536,495     3,465  2,949 

Investment brokerage revenue

   136  58 

Mortgage operations

 173,557   227,400     2,293  1,895 

Bank owned life insurance income

 176,271   172,239     569  1,086 

Net gain on sale of investment securities

 20,034   142,205  

Net gain (loss) on sale of investment securities

   (48)  5 

Other noninterest income

 300,873   220,762     426  316 
  

 

   

 

   

 

  

 

 

Total noninterest income

 2,466,608   2,299,101     6,841  6,309 
  

 

   

 

   

 

  

 

 

Noninterest expense:

   

Salaries and employee benefits

 5,630,533   5,308,291     14,016  12,097 

Occupancy expenses

 829,464   813,740     1,534  1,399 

Equipment rentals, depreciation, and maintenance

 469,557   491,811     916  841 

Telephone and communications

   274  261 

Advertising and business development

 430,851   308,040     658  625 

Data processing

 537,456   532,002     3,527  1,689 

Foreclosed assets, net

 81,483   285,925     200  163 

Federal deposit insurance and other regulatory assessments

 301,001   283,938     342  333 

Legal and other professional services expense

 255,129   302,207  

Check card processing expense

 266,394   242,797  

Legal and other professional services

   798  505 

Other operating expense

 1,804,742   1,672,531     3,731  3,392 
  

 

   

 

   

 

  

 

 

Total noninterest expense

 10,606,610   10,241,282     25,996  21,305 
  

 

   

 

   

 

  

 

 

Net income before income taxes

 5,003,130   4,316,056  

Income before income taxes

   10,889  12,814 

Provision for income taxes

 1,523,349   1,365,508     2,383  4,519 
  

 

   

 

   

 

  

 

 

Net income

$3,479,781  $2,950,548    $8,506  $8,295 
  

 

   

 

   

 

  

 

 

Basic net earnings per common share

$1.16  $0.98    $1.63  $1.63 

Diluted net earnings per common share

$1.13  $0.96    $1.60  $1.60 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

LOGO

RIVER FINANCIAL CORPORATION

Consolidated Statements of Comprehensive Income

(in thousands)

 

  For The Years Ended December 31,   For the Years Ended
December 31,		 
           2014                   2013            2018 2017 

Net income

  $3,479,781   $2,950,548    $8,506  $8,295 

Other comprehensive income, net of tax:

   

Other comprehensive income (loss), net of tax:

   

Investment securities available-for-sale:

      

Net unrealized gains (losses)

   4,012,827   (4,463,051)    (1,452)  592 

Reclassification adjustments for net gains realized in net income

   (20,034)  (142,205) 

Income tax effect

   365  (219) 

Reclassification adjustments for net (gains) losses realized in net income

   48  (5) 

Income tax effect

   1,557,190   (1,796,049)    (12)  2 
  

 

  

 

   

 

  

 

 

Other comprehensive income (loss)

 2,435,603   (2,809,207)    (1,051)  370 
  

 

  

 

   

 

  

 

 

Comprehensive income

$5,915,384  $141,341    $7,455  $8,665 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

LOGO

RIVER FINANCIAL CORPORATION

Consolidated Statements of Changes in Stockholders’ Equity

For The Years Ended December 31, 2014(in thousands except share and 2013per share data)

 

  Common
Stock		  Additional
Paid In Capital		  Retained
Earnings
(Accumulated
Deficit)		  Accumulated
Other
Comprehensive
Income
(Loss)		  Treasury
Stock		  Total
Stockholders’
Equity		 

Balance at December 31, 2012

 $3,048,612   $35,014,466   $(143,120)  $979,938   $    $38,899,896  

Net income

    2,950,548      2,950,548  

Other comprehensive income (loss)

     (2,809,207)    (2,809,207) 

Purchase of treasury shares (60,546 shares)

      (817,571)   (817,571) 

Stock compensation expense

   31,189       31,189  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2013

 3,048,612   35,045,655   2,807,428   (1,829,269)  (817,571)  38,254,855  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 3,479,781   3,479,781  

Other comprehensive income

 2,435,603   2,435,603  

Exercise of stock options

 9,000   93,000   32,750   134,750  

Purchase of treasury shares (11,218 shares)

 (157,070)  (157,070) 

Sale of treasury shares (12,989 shares)

 9,099   142,806   151,905  

Dividends declared ($.10 per share)

 (295,930)  (295,930) 

Stock compensation expense

 26,924   26,924  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014

$3,057,612  $35,174,678  $5,991,279  $606,334  $(799,085) $44,030,818  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Common
Stock		  Additional
Paid In
Capital		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income (Loss)		  Treasury
Stock		  Common
Stock
Related
to ESOP		  Total
Stockholders’
Equity		 

Balance at December 31, 2016

 $5,091  $64,656  $15,032  $(2,153)  $(176)  $(623)  $81,827 

Net income

  —     —     8,295   —     —     —     8,295 

Other comprehensive income

  —     —     —     370   —     —     370 

Exercise of stock options and warrants (25,096 shares)

  19   136   —     —     108   —     263 

Issuance of common stock (4,204 shares)

  4   81   —     —     —     —     85 

Purchase of treasury shares (25,056 shares)

  —     —     —     —     (579)   —     (579) 

Sale of treasury shares (12,967 shares)

  —     6   —     —     275   —     281 

Remeasurement of deferred income taxes reclassified to retained earnings

  —     —     333   (333)   —     —     —   

Dividends declared ($0.25 per share)

  —     —     (1,272)   —     —     —     (1,272) 

Stock compensation expense

  —     56   —     —     —     —     56 

Change for KSOP related shares

  —     —     —     —     —     (327)   (327) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2017

  5,114   64,935   22,388   (2,116)   (372)   (950)   88,999 

Net income

  —     —     8,506   —     —     —     8,506 

Other comprehensive loss

  —     —     —     (1,051)   —     —     (1,051) 

Shares exchanged with Peoples Southern Bank shareholders (222,360 shares)

  223   5,782   —     —     —     —     6,005 

Exercise of stock options and warrants (28,450 shares)

  28   289   —     —     —     —     317 

Issuance of common stock (327,362 shares)

  327   8,505   —     —     —     —     8,832 

Purchase of treasury shares (5,544 shares)

  —     —     —     —     (146)   —     (146) 

Sale of treasury shares (17,218 shares)

  —     25   —     —     405   —     430 

Dividends declared ($0.27 per share)

  —     —     (1,434)   —     —     —     (1,434) 

Stock compensation expense

  —     68   —     —     —     —     68 

Change for KSOP related shares

  —     —     —     —     —     (393)   (393) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2018

 $5,692  $79,604  $29,460  $(3,167)  $(113)  $(1,343)  $110,133 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

LOGO

RIVER FINANCIAL CORPORATION

Consolidated Statements of Cash Flows

(in thousands)

 

  For The Years Ended
December 31,		   For the Years
Ended December 31,		 
  2014 2013   2018 2017 

Cash Flows From (Used For) Operating Activities:

      

Net Income

  $3,479,781   $2,950,548    $8,506  $8,295 

Adjustments to reconcile net income to net cash provided by operating activities:

      

Provision for loan losses

   1,056,960   957,109     1,960  1,740 

Provision for losses on foreclosed assets

   60,000   195,000     120  145 

Amortization of securities available-for-sale

   1,433,651   1,463,386     1,676  2,325 

Accretion of securities available-for-sale

   (3,090)  (22,579)    (143)  (32) 

Realized net gain on securities available-for-sale

   (20,034)  (142,205) 

Accretion of acquired loans

   (1,241)  (2,334) 

Realized net (gain) loss on securitiesavailable-for-sale

   48  (5) 

Amortization of deferred loan fees

   (192,790)  (171,037)    (1,068)  (1,054) 

Amortization of core deposit intangible

   627  559 

Stock compensation expense

   26,924   31,189     68  56 

Bank owned life insurance income

   (176,271)  (172,239)    (569)  (1,086) 

Depreciation and amortization of premises and equipment

   514,417   545,613     1,055  946 

Loss (gain) on sale of foreclosed assets

   9,661   (5,961) 

Deferred income tax (benefit)

   (93,526)  151,459  

(Gain) loss on sale of foreclosed assets

   20  (72) 

Deferred income tax expense

   (684)  1,159 

(Increase) decrease in operating assets and (decrease) increase in operating liabilities:

      

Loans held-for-sale

   (163,265)  449,225     1,239  3,876 

Accrued interest receivable

   (44,210)  (210,960)    120  (123) 

Other assets

   22,212   631,236     60  52 

Accrued interest payable and other liabilities

   149,289   613,737     749  (487) 
  

 

  

 

   

 

  

 

 

Net cash from operating activities

 6,059,709   7,263,521     12,543  13,960 
  

 

  

 

   

 

  

 

 

Cash Flows From (Used For) Investing Activities:

   

Maturity of certificate of deposit

 249,000   0  

Maturities of certificate of deposit

   1,494  498 

Sales of certificate of deposit

   1,940  

Purchases of certificate of deposit

   (984)  (249) 

Activity in securities available-for-sale:

   

Sales

 20,839,727   29,313,331     59,907  13,251 

Maturities, payments, calls

 29,433,813   37,764,489     30,419  28,225 

Purchases

 (23,520,066)  (100,057,206)    (27,697)  (53,105) 

Loan principal originations, net

 (30,674,839)  (14,778,826)    (107,195)  (30,816) 

Net cash received in acquisition

   22,227   —   

Proceeds from sale of foreclosed assets

 279,685   1,052,653     1,228  2,190 

Payment to PSB shareholders

   (24,497)   —   

Purchases of premises and equipment

 (685,741)  (322,930)    (767)  (1,285) 

(Purchase) sale of restricted equity securities, net

 (162,700)  53,300  

Sale (purchases) of restricted equity securities, net

   (682)  (509) 

Proceeds from bank owned life insurance

   —    1,260 

Purchase of bank owned life insurance

 (4,000,000)  0     —    (5,000) 
  

 

  

 

   

 

  

 

 

Net cash used for investing activities

 (8,241,121)  (46,975,189)    (44,607)  (45,540) 
  

 

  

 

   

 

  

 

 

Cash Flows From (Used For) Financing Activities:

   

Net (decrease) increase in deposits

 (7,485,869)  20,595,749  

Net (decrease) increase in short-term borrowings

 (1,218,281)  1,384,859  

Proceeds from issuance of long term debt

 6,000,000   0  

Net increase (decrease) in deposits

   31,451  (5,052) 

Net increase (decrease) in securities sold under agreements to repurchase

   (5,890)  831 

Proceeds from Federal Home Loan Bank advances

   110,000  50,000 

Repayment of Federal Home Loan Bank advances

   (100,000)  (40,000) 

Proceeds from issuance of note payable

   27,000   —   

Repayment of note payable

   (5,394)  (1,071) 

Federal funds purchased

   (1,153)  1,153 

Proceeds from issuance of common stock

   8,832  85 

Proceeds from exercise of common stock options and warrants

 134,750   0     317  263 

Purchase of treasury stock

 (157,070)  (817,571)    (146)  (579) 

Sale of treasury stock

 151,905   0     430  281 

Cash dividends

 (295,930)  0     (1,434)  (1,272) 
  

 

  

 

   

 

  

 

 

Net cash from financing activities

 (2,870,495)  21,163,037     64,013  4,639 
  

 

  

 

   

 

  

 

 

Net Decrease In Cash And Cash Equivalents

 (5,051,907)  (18,548,631) 

Net Change In Cash And Cash Equivalents

   31,949  (26,941) 

Cash and Cash Equivalents At Beginning Of Period

 30,420,915   48,969,546     15,558  42,499 
  

 

  

 

   

 

  

 

 

Cash and Cash Equivalents At End Of Period

$25,369,008  $30,420,915    $47,507  $15,558 
  

 

  

 

   

 

  

 

 

Supplemental Disclosures Of Cash Flows Information:

   

Cash Payments For:

   

Interest paid to depositors

 1,249,927   1,511,978    $3,596  $2,243 

Interest paid on borrowings

 29,893   20,602    $727  $372 

Income taxes

 1,596,982   943,542    $3,058  $3,830 

Supplemental Schedule Of Noncash Investing and Financing Activities:

Non-cash investing and financing activities:

   

Assets acquired in merger

  $199,380  $—   

Liabilities assumed in merger

  $168,880  $—   

Transfer of loans to foreclosed assets

 2,262,078   689,887    $318  $2,658 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

RIVER FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTSNotes to Consolidated Financial Statements

DECEMBER 31, 2014 and 2013

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(1) Summary of Significant Accounting Policies

OrganizationBasis of Presentation —

The consolidated financial statements include the accounts of River Financial Corporation (“Corporation”(the “Company”) and its wholly-owned banking subsidiary, bank, River Bank &and Trust (“Bank”RB&T”, the “Bank”) provide banking. All material intercompany accounts and mortgagetransactions have been eliminated in consolidation. The Bank provides a full range of commercial and consumer banking services to markets primarily to thein Alabama, including metropolitan Montgomery, Alabama metropolitan areaLee County, Autauga County, Elmore County, Tallapoosa County, Chilton County, Mobile County, Baldwin County, and surrounding countiesEtowah County in Alabama. RB&T is primarily regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Alabama Banking Department. The Bank undergoes periodic examinations by these regulatory agencies. The Company is regulated by the Federal Reserve Bank (“FRB”) and is also subject to periodic examinations.

The accounting principles followed by the Company, and reporting policiesthe method of the Corporationapplying these principles, conform to thewith accounting principles generally accepted in the United States of America (“GAAP”) and towith general practicepractices within the banking industry.

River Financial Corporation was formed to be the bank holding company of River Bank & Trust. Effective close of business on November 30, 2012, the Corporation and the Bank entered into an Agreement of Reorganization and Share Exchange (the Agreement) pursuant to which the Bank became a wholly-owned subsidiary of the Corporation. The Agreement provided for the exchange of 100% of the issued and outstanding shares of the Bank’s common stock for shares of the Corporation’s common stock.

In June 2010, River Bank & Trust formed River Region Properties, LLC, a single member entity. In August 2010, River Region Properties, LLC purchased an undivided 50% interest in River Centre, an office building in Montgomery, Alabama. The Bank leases a significant portion of that building for use as its East Montgomery banking office. River Region Properties, LLC is wholly-owned by River Bank & Trust.

Consolidation — The consolidated financial statements include the accounts of the Corporation, the Bank, and River Region Properties, LLC. Significant intercompany transactions have been eliminated in the consolidation.

Use of estimates — In preparing financial statements in conformity with accounting principles generally accepted in the United States of America,GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as ofin the date of the balance sheet and reported amounts of revenue and expenses during the reporting period.consolidated financial statements. Actual results could differ significantly from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term relateinclude, but are not limited to, the determination of the allowance for loan losses.losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Cash and Cash Equivalents

Cash equivalents include amounts due from banks, interest-bearing deposits with the Federal Reserve Bank of Atlanta (“FRB”), Federal Home Loan Bank (“FHLB”), correspondent banks, and federal funds sold. Generally, federal funds are sold forone-day periods. The Company is required to maintain average reserve balances with the FRB or in cash. At December 31, 2018 and 2017, the Company’s reserve requirements were approximately $2.39 million and $2.43 million, respectively.

Investment Securities

The determinationCompany classifies its securities in one of three categories: trading,available-for-sale, orheld-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term.Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. All securities not included in trading orheld-to- maturity are classified asavailable-for-sale. At December 31, 2018 and 2017, all securities are classified asavailable-for-sale.

Available-for-sale securities are recorded at fair value.Held-to-maturity securities are recorded at cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses, net of the adequacyrelated tax effect, on securitiesavailable-for-sale are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer.

Management evaluates investment securities for other-than-temporary impairment on a quarterly basis. A decline in the market value of any investment below cost that is deemed other- than-temporary is charged to earnings for the decline in value deemed to be credit related and a new cost basis in the security is established. The decline in value attributed tonon-credit related factors is recognized in other comprehensive income (loss).

Premiums and discounts are amortized or accreted over the life of the related securities as adjustments to the yield. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

Other Investments

Other investments include FRB stock, FHLB stock and other investments that do not have a readily determinable market value. These investments are carried at cost, which approximates fair value.

Loans and Allowance for Loan Losses

Loans are stated at the principal amount outstanding, net of the allowance for loan losses and unearned fees. Interest on loans is recognized as income based upon the applicable rate applied to the daily outstanding principal balance using the simple interest method. The past due or delinquency status of a loan is determined based on estimates thatcontractual payment terms.

Nonrefundable loan fees and costs incurred for loans are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains appraisals for significant collateral. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors and other related to regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that the estimated losses on loans may change materially in the near term.

Concentrations of credit risk — Most of the Corporation’s activities are with customers located within central Alabama. The types of securities that the Corporation invests in are discussed in Note 3. The types of lending that the Corporation engages in are discussed in Note 4. The Corporation has a lending concentration in commercial real estate loans and construction and land development loans.

Cash and cash equivalents — For purposes of the statement of cash flows, cash and cash equivalents include cash and balances due from banks and federal funds sold, all of which have original maturities of 90 days or less.

Index to Financial Statements

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

Securities available-for-sale — Securities classified as available-for-sale are those debt securities that the Corporation intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Corporation’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available-for-sale are recorded at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of other comprehensive income, net of the related deferred tax effect.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains or losses on the sale of investment securities are based on the net proceeds and amortized cost of the securities sold, using the specific identification method. Declines in fair value of securities below their cost that are other than temporary are reflected as realized losses. In determining whether other than temporary impairment exists, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than costs, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management evaluates securities for other than temporary impairment at least on a quarterly basis and more frequently when economic or market concerns warrant such evaluation.

Restricted equity securities — Restricted equity securities are investments that are restricted in marketability. The Corporation’s restricted equity securities consists of stock in the Federal Home Loan Bank of Atlanta (FHLB). No readily available market exists for this stock.

The Bank, as a member of the FHLB system, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. At its discretion, the FHLB may declare dividends on the stock. Management reviews the stock for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.

Loans held for sale — Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. In 2014 and 2013, the aggregate cost approximated estimated fair value and a valuation allowance was not required.

Loans — The Corporation grants mortgage, commercial, and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout central Alabama. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustmentin income over the life of the related loan yield using the interest method.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Loans are typically charged-off no later than 120 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Payments received on nonaccrual loans are generally applied to principal. However, based on

Index to Financial Statements

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)

management’s assessment of the ultimate collectability of a nonaccrual loan, interest income may be recognized on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for loan losses — The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated values of any underlying collateral, levels and trends in losses and delinquencies, and prevailing economic conditions. In analyzing the adequacy of the allowance for loan losses, management utilizes a comprehensive loan grading system to determine the risk potential in the portfolio and also considers the results of independent third party credit reviews. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired for which an allowance is established when the discounted cash flows, the collateral value, or observable market price of the impaired loan is lower than the carrying value of the loan. The general component covers non-impaired loans and is based on historical charge-off experience adjusted for various qualitative factors.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation over the most recent 3 years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentration.loans.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unableall amounts due according to collect all scheduled payments of principal and interest from the borrower in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generallyagreement will not be collected. Impaired loans are not classified as impaired. Management determines the significance of payment delays and payment shortfallsmeasured based on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for larger balance loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s obtainableobservable market price, or at the fair value of the collateral of the loan if the loan is collateral dependent. Payments receivedAccrual of interest is discontinued on impaireda loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that collection of interest is doubtful. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged to interest income on loans. Generally, payments on nonaccrual loans are generally applied to principal. When a borrower has demonstrated the capacity to service the debt for a reasonable period of time, management may elect to resume the accrual of interest on the loan.

ImpairedAll other loans include nonperforming loans but also include loans modified in troubled debt restructurings where concessions have been grantedare deemed to borrowers experiencing financial difficulties.be unimpaired and are grouped into various homogeneous risk pools utilizing regulatory reporting classifications. The concessions granted generally involveBank’s historical loss factors are calculated for each of these risk pools based on the modification of termsnet losses experienced as a percentage of the average loans outstanding. The time periods utilized in these historical loss factor calculations are subjective and vary according to management’s estimate of the impact of current economic cycles. As every loan such as changes in payment schedule or interest rate, which generally would not otherwise be considered. In determining whetherhas a borrower is experiencing financial

Index to Financial Statements

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

difficulties,risk of loss, minimum loss factors are estimated based on long term trends for the Bank, considers if the borrower is in payment defaultbanking industry, and the economy. The greater of the calculated historical loss factors or would be in payment defaultthe minimum loss factors are applied to the unimpaired loan amounts currently outstanding for the risk pool and included in the foreseeable future without the modification, the borrower declared or is in the processanalysis of declaring bankruptcy, the borrower’s projected cash flows will not be sufficient to service any of its debt, or the borrower cannot obtain funds from sources other than the Bank at a market rate for debt with similar characteristics. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are being reported as troubled debt restructurings. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on nonaccrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual.

Larger balance loans are individually evaluated for impairment. Smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify smaller balance loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Under current accounting standards, the Corporation must present several additional disclosures relating to loans and the allowance for loan losses. In addition, certain qualitative adjustments may be included by management as additional loss factors applied to the unimpaired loan risk pools. These adjustments may include, among other things, changes in loan policy, loan administration, loan, geographic, or industry concentrations, loan growth rates, and experience levels of our lending officers. The data is broken out into two subsets, portfolio segmentloss allocations for specifically impaired loans, smaller impaired loans not specifically measured for impairment, and class. The portfolio segment level is defined asunimpaired loans are totaled to determine the level where financing receivables are aggregated in developing the Corporation’s systematic method for calculating itstotal required allowance for loan losses. This total is compared to the current allowance on the Bank’s books and adjustments made accordingly by a charge or credit to the provision for loan losses.

The class levelallowance for loan losses is the second level at which credit information will be presented and represents the categorization of financing related receivables atestablished through a slightly less aggregated level than the portfolio segment level. The following portfolio segments have been identified: Commercial Real Estate, Residential Real Estate, Construction and Land Development, Commercial, and Consumer.

Commercial real estate consists of borrowings secured by owner-occupied, non-owner-occupied, and farmland real estate. Repayment of these loans is dependent upon rental income or the subsequent sale of the propertyprovision for loans secured by non-owner-occupied commercial real estate and by cash flows from business operations for owner-occupied commercial real estate. Loans for which the source of repayment is rental income are primarily impacted by local economic conditions which dictate occupancy rates and the amount of rent charged. Commercial real estate loans that are dependent on cash flows from operations can also be adversely affected by current market conditions for their product or service.

Residential real estate loans consist of loans to individuals for the purchase of their primary residences with repayment primarily through wage or other income sources of the individual borrower. The Corporation’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.

Construction and land development loans include real estate secured construction and land development loans which are made to acquire land or finance development preparatory to erecting residential or commercial structures. The full value of the collateral does not exist at the time the loan is granted and completion of the project within specified costs and time limits results in additional risk. Repayment of these loans is dependent upon rental income or the subsequent sale of the property.

Commercial loans consist of borrowings for commercial purposes to individuals, corporations, partnerships, sole proprietorships, and other business enterprises. Commercial loans are generally secured by business assets such as equipment, accounts receivable, inventory, or any other asset excluding real estate and generally made to finance capital expenditures or operations. Commercial loans also include loans to finance agricultural

Index to Financial Statements

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

production and other loans to farmers. The Corporation’s risk exposure is related to deterioration in the value of collateral securing the loan should foreclosure become necessary. Generally, business assets used or produced in operations do not maintain their value upon foreclosure which may require the Corporation to write down the value significantly to sell.

Consumer loans are comprised of loans to individuals both unsecured and secured by automobiles or other personal assets. These loans typically have maturities of five years or less with repayment dependent on individual wages and income. The risk of loss on consumer loans is elevated as the collateral securing these loans, if any, rapidly depreciate in value or may be worthless and/or difficult to locate if repossession is necessary.

Off-balance sheet credit related financial instruments — In the ordinary course of business, the Corporation may enter into commitments to extend credit, including commitments under commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.

Foreclosed assets — Assets acquired through foreclosure or other proceedings are initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost. After foreclosure, valuations are periodically performed by management and the assets are carried at the lower of cost or fair value less estimated costs of disposal. Any write-down to fair value at the time of transfer to foreclosed assets islosses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance represents an amount which, in management’s judgment, will be adequate to absorb probable losses on existing loans that may become uncollectible.

Management assesses the adequacy of its allowance for loan losses at the end of each calendar quarter. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectibility

of loans. These evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrower’s ability to pay, overall portfolio quality, and review of specific problem loans.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Property is evaluated regularlySuch agencies may require the Company to ensurerecognize additions to the recorded amount is supported by its current fair value and provisions for foreclosed asset losses to reduce the carrying amount to fair value less estimated costs to disposeallowance based on judgments that are recorded as necessary. Revenue and expense from the operationsdifferent than those of foreclosed assets and provisions for foreclosed asset losses are netted and included as a separate line item under noninterest expenses.management.

PremisesConcentrations of Credit Risk

The Company originates primarily commercial, commercial real estate, residential real estate, and equipment — Landconsumer loans to customers in its primary market areas in Alabama listed above. The ability of the majority of the Company’s customers to honor their contractual loan obligations is carried at cost. Other premises and equipment are carried at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computeddependent on the straight-line method over the estimated useful liveseconomy in these areas. Seventy-seven percent of the assetsCompany’s loan portfolio is secured by real estate, of which the majority is secured by real estate in the Company’s market areas. The Company, according to regulatory restrictions, may not generally extend credit to any single borrower or group of related borrowers on a secured basis in excess of 20% of capital, as defined, or $22.1 million, or on an unsecured basis in excess of 10% of capital, as defined, or $11 million. However, the expected termsCompany has established internal policies that may further limit the extension of the leases if shorter. The estimated useful life for buildings is generally 40 years and generally 3credit to 25 years for furniture and equipment. Expected terms include lease option periods to the extent that the exerciseany single borrower or group of such options is reasonably assured.

Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and lossesrelated borrowers depending on dispositions are included in current operations.their credit worthiness.

Transfers of financial assetsFinancial Assets —

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation,Company, i.e. put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the CorporationCompany does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Advertising costsMortgage LoansHeld-for-Sale — Advertising costs

Mortgage loansheld-for-sale are carried at the lower of aggregate cost or estimated market value. Gains and losses on loansheld-for-sale are included in the determination of income for the period in which the sales occur. At December 31, 2018 and 2017, the cost of loansheld-for-sale approximates the market value.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Major additions and improvements are charged to the property accounts while replacements, maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred.

Employee benefit plan — The Corporation provides a 401(k), which covers substantially allcurrently. When property is retired or otherwise disposed of, the Corporation’s employees whocost and related accumulated depreciation are eligible, asremoved from the accounts and the resulting gain or loss, if any, is recognized. Depreciation expense is computed using the straight-line method over the following estimated useful lives. The useful estimated useful life for buildings is generally 40 years. The estimated useful life for furniture and equipment is generally 3-25 years.

Other Real Estate and Repossessed Assets

Other real estate represents properties acquired through or in lieu of loan foreclosure and is initially recorded at fair value less estimated disposal costs. Costs of improvements are capitalized, whereas costs relating to ageholding other real estate and length of service. A participant may elect to make contributions up to $17,500 of the participant’s annual compensationvaluation adjustments are expensed. Revenue and expenses from operations and changes in 2014 and 2013.valuation allowance are included in net expenses from other real estate.

Business Combinations

The Corporation makes matching contributions up to 3% of each participant’s annual compensation and the Corporation matches 50% of the next 2% contributed by the employee. Contributions to the plan by the Corporation were $143,745 and $136,038 in the years ended December 31, 2014 and 2013, respectively.

Index to Financial Statements

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock compensation plan — The CorporationCompany accounts for its stock based compensation plan based on FASB ASC 718,Compensation — Stock Compensation, which requires recognizing expense for options granted equal tobusiness combinations under the grant-dateacquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805,Business Combinations. The Company recognizes the full fair value of the unvested amounts over their remaining vesting period. The Corporation estimatesassets acquired and liabilities assumed and immediately expenses transaction costs. There is no separate recognition of the value of its stock options using the calculated valueacquired allowance for loan losses on the grant date. The Corporation measures compensation cost of employee stock options based onacquirer’s balance sheet as credit-related factors are incorporated directly into the calculated value instead of fair value because it is not practical to estimate the volatility of its share price. The calculated value method requires that a volatility assumption used in an option-pricing model be based on the historical volatility of an appropriate industry sector index.

The Corporation uses the Black-Scholes model to estimate the calculated value of its share-based payments. The volatility assumption used in the Black-Scholes model was estimated based on other similar community banking organizations in Alabama.

Compensation cost has been measured using the calculated value of the award onnet tangible and intangible assets acquired. If the grantamount of consideration exceeds the fair value of assets purchased less the fair value of liabilities assumed, goodwill is recorded. Alternatively, if the amount by which the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid, a gain (“bargain purchase gain”) is recorded. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Results of operations of the acquired business are included in the statement of income from the effective date of the acquisition. Additional information regarding acquisitions is provided in Note 2.

Goodwill and is recognizedIntangible Assets

Goodwill represents the excess of cost over the periodfair value of the employeenet assets purchased in business combinations. Goodwill is required to provide servicesbe tested annually for impairment or whenever events occur that may indicate that the award.

Bank-owned life insurance — Bank-owned life insurance consistsrecoverability of investments in life insurance policies on certain officers.the carrying amount is not probable. In the event of impairment, the amount by which the carrying amount exceeds the fair value is charged to earnings. The policies are carried at their net cash surrender value. ChangesCompany performs its annual test for impairment in the policy value are recorded as an adjustment to the carrying valuefourth quarter of each year.

Intangible assets consist of core deposit premiums acquired in connection with the corresponding amount recognized as non-interest income or expense. Earnings on these policiesbusiness combinations and are based on the net earningsestablished value of acquired customer deposits. The core deposit premium is initially recognized based on a valuation performed as of the consummation date and is amortized over an estimated useful life of three to ten years. Amortization periods are reviewed annually in connection with the annual impairment testing of goodwill.

Purchased Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. When the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments, the difference between contractually required payments at acquisition and the cash surrender value policies.flows expected to be collected at acquisition is referred to as thenon-accretable difference. The Company must estimate expected cash flows at each reporting date. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows result in a reversal of the provision for loan losses to the extent of prior provisions and adjustment to accretable discount if no prior provisions have been made. This increase in accretable discount will have a positive impact on interest income. In addition, purchased loans without evidence of credit deterioration are also handled under this method.

Income taxesTaxes — The Corporation accounts for income taxes in accordance with

Income tax expense is the total of the current year income tax accounting guidance (FASB ASC 740,Income Taxes) which sets out a consistent framework to determinedue or refundable and the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Corporation determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense (benefit) results from changeschange in deferred tax assets and liabilities between periods.liabilities. Deferred tax assets and liabilities are recognized if it’s more likely than not, based onfor the technical merits, thatfuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50%. Abases and operating loss and tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.

The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.credit carryforwards. Deferred tax assets and liabilities are reducedmeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Any interest and penalties incurred in connection with income taxes are recorded as a component of other operating expenses in the consolidated financial statements.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by asuch asset is required. A valuation allowance if, based onis provided for the weightportion of evidence available,the deferred tax asset when it is more likely than not that some portion or all of athe deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

The CorporationCompany currently evaluates income tax positions judged to be uncertain. A loss contingency reserve is accrued if it is probable that the tax position will be challenged, it is probable that the future resolution of the challenge will confirm that a loss has been incurred, and the amount of such loss can be reasonably estimated.

Stock-Based Compensation

The Company accounts for its stock-based compensation plans using a fair value-based method of accounting, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.

Accumulated Other Comprehensive Income

At December 31, 2018 and 2017, accumulated other comprehensive income (loss) consisted of net unrealized gains (losses) on investment securitiesavailable-for-sale.

Revenue Recognition

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, and investment securities, and revenue related to the sale of residential mortgages in the secondary market, as these activities are subject to other GAAP discussed elsewhere within our disclosures. The Company recognizes interestrevenue from these activities as it is earned based on contractual terms, as transactions occur, or as services are provided and penaltiescollectability is reasonably assured. Descriptions of the major revenue-generating activities that are within the scope of ASC 606, which are presented in the accompanying statements of income as components ofnon-interest income are as follows:

Service Charges and Fees – these represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed. Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

Investment Brokerage Revenue – retail brokerage fees are received from a third party broker-dealer, for which the Company acts as an agent, as part of a revenue-sharing agreement for fees earned from customers that are referred to the third party. These fees are for transactional and advisory services and are paid by the third party on a monthly or quarterly basis and recognized ratably throughout the quarter as the Company’s performance obligation is satisfied.

Bank Card Fees – bank card related fees primarily includes interchange income taxesfrom client use of consumer and business debit cards. Interchange income is a fee paid by a merchant bank to the card-issuing bank through the

interchange network. Interchange fees are set by the credit card associations and are based on cardholder purchase volumes. The Company records interchange income as transactions occur. This income is included in other noninterest expense.income on the consolidated statements of income.

Gains and Losses from the Sale of Bank Owned Property – the performance obligation in the sale of other real estate owned typically will be the delivery of control over the property to the buyer. If the Company is not providing the financing of the sale, the transaction price is typically identified in the purchase and sale agreement. However, if the Company provides seller financing, the Company must determine a transaction price, depending on if the sale contract is at market terms and taking into account the credit risk inherent in the arrangement.

Othernon-interest income primarily includes items such as mortgage banking fees (gains from the sale of residential mortgage loans held for sale), bank-owned life insurance, and safe deposit box fees none of which are subject to the requirements of ASC 606.

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affects the determination of the amount and timing of revenue from the above-described contracts with clients.

The Company has applied ASC 606 using the modified retrospective approach effective on January 1, 2018 to all existing contracts with clients covered under the scope of the standard. The Company did not have an aggregate effect of modification resulting from adoption of ASC 606, and no financial statement line items were affected by this change in accounting standard.

Net Earnings per common shareCommon Share —

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. The weighted average number of common shares outstanding was 2,992,315 and 3,015,928 for the years ended December 31, 2014 and 2013, respectively. Diluted earnings per share are computed by dividing net income by the sum of the weighted averageweighted-average number of shares of common stock outstanding andduring the year. Diluted earnings per common share are computed by dividing net income by the effect of the issuance of potential common shares that are dilutive and by the sum of the weighted-average number of shares of common stock outstanding. Anti-dilutive potential common shares are excluded from the diluted earnings per share computation. At December 31, 2018 and 2017, there were no antidilutive potential common shares.

The fullyreconciliation of the components of basic and diluted weighted

Index to Financial Statements

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)earnings per share is as follows (amounts in thousands, except per share amounts):

 

   For the Year Ended
December 31,		 
   2018   2017 

Net income available to common shareholders

  $8,506   $8,295 

Weighted average common shares outstanding

   5,217,348    5,095,305 

Dilutive effect of stock options

   93,726    84,797 

Diluted common shares

   5,311,074    5,180,102 

Basic earnings per common share

  $1.63   $1.63 

Diluted earnings per common share

  $1.60   $1.60 

average number of common shares outstanding was 3,086,740 and 3,065,688Segment Reporting

ASC Topic 280 “Segment Reporting,” provides for the years ended December 31, 2014identification of reportable segments on the basis of distinct business units and 2013, respectively. Potential common shares consisttheir financial information to the extent such units are reviewed by an entity’s chief decision maker (which can be an individual or group of stock options. Stock options are described more fully in Note 12, Stock Compensation Plan.management persons). ASC Topic 280 permits aggregation or combination of segments that have similar characteristics. In the Company’s operations, each bank branch is viewed by management as being a separately identifiable business or segment from the

Comprehensive income — Comprehensive income consists

perspective of net incomemonitoring performance and other comprehensive income. Other comprehensive income includes unrealized gains on securities available-for-sale, and unrealized losses related to factors other than credit on debt securities, if any, which are also recognized as separate components of equity. For the years ended December 31, 2014 and 2013, the only component of other comprehensive income was unrealized gains and losses on securities available for sale.

Fair value measurements — Fair valuesallocation of financial instrumentsresources. Although the branches operate independently and are estimated using relevant marketmanaged and monitored separately, each is substantially similar in terms of business focus, type of customers, products, and services. Accordingly, the Company’s consolidated financial statements reflect the presentation of segment information and other assumptions,on an aggregated basis in one reportable segment.

Reclassifications

Certain 2017 amounts have been reclassified to conform to the presentation used in 2018. These reclassifications had no material effect on the operations, financial condition or cash flows of the Company.

Advertising

Advertising costs are expensed as more fully disclosed in Note 18. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.incurred.

RecentRecently Issued Accounting Pronouncements—

In January 2014,February 2016, the FASB amended existing guidanceissued ASU2016-02, Leases (Topic 842). This will require lessees to clarify whenrecognize assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a creditor should be consideredliability to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an in substance repossession or foreclosure occurs,make lease payments (the lease liability) and a creditor is consideredright of use asset representing its right to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1)use the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required.underlying asset for lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendment should be applied at the Corporationbeginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. We conducted a review of our existing lease contracts and recorded agross-up of our balance sheet of approximately $2.2 million as a result of recognizing lease liabilities and corresponding right of use assets for operating leases upon adoption as of January 1, 2019. The adoption of this guidance will not result in material changes to the recognition of operating lease expense.

In June 2016, the FASB issued ASU2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance will apply to most financial assets measured at amortized cost and certain other instruments including loans, debt securities held to maturity, net investments in leases andoff-balance-sheet credit exposures. The guidance will replace the current incurred loss accounting model that delays recognition of a loss until it is probable a loss has been incurred with an expected loss model that reflects expected credit losses based upon a broader range of estimates including consideration of past events, current conditions and supportable forecasts. The guidance also eliminates the current accounting model for purchased credit impaired loans and debt securities. For securities available for sale, credit losses are to be recognized as allowances rather than reductions in the amortized cost of the securities, which will requirere-measurement of the related allowance at each reporting period. The guidance includes enhanced disclosure requirements intended to help financial statement users better understand estimates and judgments used in estimating credit losses. The guidance is effective for fiscal years beginning after December 15, 2014.2019, including interim periods within those fiscal years. Our implementation efforts continued throughout 2018, assessing credit loss forecasting models and processes against the new guidance. In the first quarter of 2019 we will begin running the expected loss model along with our current model. While we continue to evaluate the impact the new guidance will have on our financial position and results of operations, we currently expect the new guidance may result in an increase to our allowance for credit losses given the change to estimated losses over the contractual life of the loan portfolio. The amount of any change to our allowance is still under review and will depend, in part, upon the composition of our loan portfolio at the adoption date as well as economic conditions and loss forecasts at that date.

In January 2017, FASB issued ASU2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of this standarda reporting unit’s goodwill with the carrying amount of that goodwill.

In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU2017-04 is not expected to have a material effecteffective prospectively for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company adopted ASU2017-04 in 2017 and based on the Corporation’s financial statements.Company’s annual goodwill impairment test performed as of December 31, 2017 and 2018 under ASU2017-04, the fair value of its reporting units exceeded the carrying value and, therefore, the related goodwill was not impaired.

In August 2014,March 2017, the FASB issued ASU 2014-14, Troubled2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Restructurings by Creditors (Subtopic 310-40)Securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company does not believe that this ASU will have an impact on its financial position or results of operations.

In February 2018, FASB issued ASU2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): ClassificationReclassification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure,Tax Effects from Accumulated Other Comprehensive Income.” ASU2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017. ASU2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which requires, if certain conditions are met,the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (loss), rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU2018-02 allow an entity to derecognizemake a mortgage loan with a government guarantee upon foreclosure andreclassification from accumulated other comprehensive income (loss) to recognize a separate other receivable. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.

The guidance is effectiveretained earnings for the Corporationstranded tax effects, which is the difference between the historical corporate income tax rate of 34% and the newly enacted corporate income tax rate of 21%. ASU2018-02 is effective for fiscal years beginning after December 15, 2014.31, 2018; however, public business entities are allowed to early adopt the amendments of ASU2018-02. As a result of there-measurement of the Company’s deferred tax assets following the enactment of the Tax Reform Act, accumulated other comprehensive loss included $333 thousand of stranded tax effects at December 31, 2017. The adoptionCompany early adopted the amendments of2018-02 as of December 31, 2017 and made the election to reclassify the stranded tax effects from accumulated other comprehensive loss to retained earnings at December 31, 2017.

(2) Business Combination

On October 31, 2018, the Company completed its merger with PSB Bancshares, Inc. (“PSB”), a bank holding company headquartered in Clanton, Alabama. At that time, PSB’s wholly-owned banking subsidiary, Peoples Southern Bank was merged with and into RB&T. Peoples Southern Bank had a total of three banking locations located in Clanton, and Thorsby, Alabama. Upon consummation of the acquisition, PSB was merged with and

into the Company, with the Company as the surviving entity in the merger. PSB’s common shareholders received sixty (60) shares of the Company’s common stock and $6,610.00 in cash in exchange for each share of PSB’s common stock. The Company paid cash totaling $24.5 million and issued 222,360 shares of the Company’s common stock. The aggregate estimated value of the consideration given was approximately $30.5 million. The Company recorded $8.2 million of goodwill, which is nondeductible for tax purposes, as this standard is not expectedacquisition was a nontaxable transaction. Merger expenses of approximately $1.84 million were charged directly to have a material effect on the Corporation’s financial statements.

NOTE 2 — RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS:other noninterest expenses.

The Bank is required to maintain average balances on hand oracquisition of PSB was accounted for using the acquisition method of accounting in accordance with the Federal Reserve Bank. At December 31, 2014ASC 805,Business Combinations. Assets acquired, liabilities assumed and 2013,consideration exchanged were recorded at their respective acquisition date fair values. Determining the required reserve amount was $1,300,000 and $545,000, respectively.

Index to Financial Statements

NOTE 3 — SECURITIES:

Debt securities have been classified in the statements of financial condition according to management’s intent. The amortized cost and fair value of securities, with gross unrealized gainsassets and losses at December 31, 2014liabilities is a complicated process involving significant judgment regarding methods and 2013, wereassumptions used to calculate estimated fair values. Fair values are preliminary and are subject to refinement for up to one year after the closing date of the acquisition as follows (in thousands):

   Amortized Cost   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

December 31, 2014:

        

Securities available-for-sale:

        

Residential mortgage-backed

  $72,578    $478    $(247)   $72,809  

U.S. govt. sponsored enterprises

   31,467     128     (314)    31,281  

State, county, and municipal

   24,246     1,004     (57)    25,193  

Corporate debt obligations

   1,000     2     —       1,002  
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

$129,291  $1,612  $(618) $130,285  
  

 

 

   

 

 

   

 

 

   

 

 

 
   Amortized Cost   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

December 31, 2013:

        

Securities available-for-sale:

        

Residential mortgage-backed

  $94,618    $252    $(1,294)   $93,576  

U.S. govt. sponsored enterprises

   40,035     23     (1,227)    38,831  

State, county, and municipal

   21,802     55     (806)    21,051  

Corporate debt obligations

   1,000     —       (2)    998  
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

$157,455  $330  $(3,329) $154,456  
  

 

 

   

 

 

   

 

 

   

 

 

 

The amortized cost andadditional information regarding the closing date fair value of debt securities by contractual maturity at December 31, 2014 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.values becomes available.

   Amortized Cost   Fair Value 
   (In Thousands) 

Securities available-for-sale

    

After one year through five years

  $6,106    $6,126  

After five years through ten years

   11,985     11,994  

After ten years

   38,622     39,356  
  

 

 

   

 

 

 
 56,713   57,476  

Residential mortgage-backed securities

 72,578   72,809  
  

 

 

   

 

 

 

Totals

$129,291  $130,285  
  

 

 

   

 

 

 

Securities with a carrying value of $21,941,801 and $22,494,687 were pledged as collateral on public deposits at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013 the carrying amount of securities pledged to secure repurchase agreements was $16,109,523 and $14,264,375, respectively.

Index to Financial Statements

NOTE 3 — SECURITIES: (continued)

The proceeds and gross gains and losses from sales of available for sale securities for the years ended December 31, 2014 and 2013 are as follows (in thousands):

   Year ended December 31: 
       2014           2013     

Realized Gains (Losses)-Securities Sales:

    

Gross gains

  $148    $250  

Gross losses

   (128)    (108) 
  

 

 

   

 

 

 

Investment securities gains, net

$20  $142  
  

 

 

   

 

 

 

Proceeds from sales of investment securities

$20,840  $29,313  
  

 

 

   

 

 

 

The following table showspresents the gross unrealized lossesassets acquired and liabilities assumed of PSB as of October 31, 2018, at their fair value estimates (amounts in thousands, except per share data):

   As Recorded By
Peoples Southern
Bank		  Fair Value
Adjustments		      As Recorded
By the Company		 

Cash and cash equivalents

  $22,227  $—      $22,227 

Bank owned certificates of deposit

   3,449   (34)   (a)    3,415 

Investment securities

   100,887   55   (b)    100,942 

Loans, net of unearned income

   55,934   (715)   (c)    55,219 

Allowance for loan losses

   (1,005)   1,005   (d)    —   
  

 

 

  

 

 

    

 

 

 

Net loans

   54,929   290     55,219 

Premises and equipment, net

   1,562   3,744   (e)    5,306 

Deferred income taxes, net

   215   (2,048)   (f)    (1,833) 

Core deposit intangible

   —     4,650   (g)    4,650 

Other assets

   1,211   —       1,211 
  

 

 

  

 

 

    

 

 

 

Total assets

  $184,480  $6,657    $191,137 
  

 

 

  

 

 

    

 

 

 

Noninterest-bearing deposits

  $112,524  $—      $112,524 

Interest-bearing deposits

   54,902   (30)   (h)    54,872 
  

 

 

  

 

 

    

 

 

 

Total deposits

   167,426   (30)     167,396 

Other liabilities

   1,317   167   (i)    1,484 
  

 

 

  

 

 

    

 

 

 

Total liabilities

   168,743   137     168,880 
  

 

 

  

 

 

    

 

 

 

Net identifiable assets acquired over liabilities assumed

   15,737   6,520     22,257 

Goodwill

   —     8,243     8,243 
  

 

 

  

 

 

    

 

 

 

Net assets acquired over liabilities assumed

  $15,737  $14,763    $30,500 
  

 

 

  

 

 

    

 

 

 

(a)

Adjustment reflects the fair value adjustment of the certificates of deposit in banks at acquisition date.

(b)

Adjustment reflects the fair value adjustment of theavailable-for-sale portfolio at acquisition date.

(c)

Adjustment reflects the fair value adjustment of the acquired loan portfolio at the acquisition date.

(d)

Adjustment reflects the elimination of PSB’s allowance for loan losses.

(e)

Adjustment reflects the fair value adjustment on PSB’s offices.

(f)

Adjustment reflects the recording of the net deferred tax asset (liability) created by the purchase adjustments.

(g)

Adjustment reflects the recording of the core deposit intangible asset.

(h)

Adjustment reflects the fair value adjustment of the time deposits at acquisition date.

(i)

Adjustment reflects the fair value adjustment for other liabilities.

Consideration:

  

Number of shares of PSB common stock outstanding at October 31, 2018

   3,706 

Per share exchange ratio

   60 
  

 

 

 

Number of shares of RFC common stock issued

   222,360 

RFC common stock price per share on October 31, 2018

  $27 
  

 

 

 

Fair value of RFC common stock issued

  $6,003 
  

 

 

 

Number of shares of PSB common stock outstanding at October 31, 2018

   3,706 

Cash consideration each PSB share is entitled to receive

  $6,610 
  

 

 

 

Total cash consideration (in thousands)

  $24,497 

Total stock consideration (in thousands)

  $6,003 

Total cash consideration (in thousands)

   24,497 
  

 

 

 

Total purchase price for PSB (in thousands)

  $30,500 
  

 

 

 

The discounts on loans will be accreted to interest income over the life of the loans using the level yield method. The core deposit intangible asset will be amortized over a ten year life on an accelerated basis.

The following unaudited supplemental pro forma information is presented to show estimated results assuming PSB was acquired as of the beginning of the earliest period presented. These unaudited pro forma results are not necessarily indicative of the operating results the Company would have achieved had it completed the acquisition as of January 1, 2017 and should not be considered as representative of future operating results (amounts in thousands).

   For The Year Ended
December 31,		 
   2017 

Net interest income—pro forma (unaudited)

  $34,521 

Net earnings—pro forma (unaudited)

  $9,219 

Diluted earnings per common share—pro forma (unaudited)

  $1.71 

In many cases, determining the fair value of the Corporation’s investmentsacquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations is related to the fair valuation of acquired loans. Acquired loans are initially recorded at their acquisition date fair values. The carryover of the allowance for loan losses is prohibited, as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions including the remaining life of the acquired loans, estimated prepayments, estimated value of the underlying collateral and net present value of cash flows expected to be collected. Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the acquirer will be unable to collect all contractually required payments are specifically identified and analyzed. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized in interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as thenon- accretable discount. Thenon-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan.

Loans at the acquisition date are presented in the following table at fair value (amounts in thousands).

   Acquired
Impaired
Loans		   Acquired
Performing
Loans		   Total
Acquired
Loans		 

Residential real estate

  $342   $19,092   $19,434 

Commercial real estate

   463    13,521    13,984 

Construction and land development

   158    4,140    4,298 

Commercial

   2    11,194    11,196 

Consumer

   95    6,212    6,307 
  

 

 

   

 

 

   

 

 

 

Total loans

  $1,060   $54,159   $55,219 
  

 

 

   

 

 

   

 

 

 

Loans at the acquisition date are presented in the following table at the gross contractual amount receivable (amounts in thousands).

   Acquired
Impaired
Loans		   Acquired
Performing
Loans		   Total
Acquired
Loans		 

Residential real estate

  $388   $19,122   $19,510 

Commercial real estate

   669    13,656    14,325 

Construction and land development

   202    4,172    4,374 

Commercial

   2    11,339    11,341 

Consumer

   99    6,285    6,384 
  

 

 

   

 

 

   

 

 

 

Total loans

  $1,360   $54,574   $55,934 
  

 

 

   

 

 

   

 

 

 

There was a total of $62 thousand accreted to income from the acquired loan portfolio for the year ended December 31, 2018.

(3) Investment Securities

Investment securitiesavailable-for-sale at December 31, 2018 and 2017 are as follows (amounts in thousands):

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

December 31, 2018:

        

Securitiesavailable-for-sale:

        

Residential mortgage-backed

  $108,915   $45   $(4,027)   $104,933 

U.S. govt. sponsored enterprises

   63,833    367    (278)    63,922 

State, county, and municipal

   57,417    219    (476)    57,160 

Corporate debt obligations

   2,670    7    (62)    2,615 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $232,835   $638   $(4,843)   $228,630 
  

 

 

   

 

 

   

 

 

   

 

 

 

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

December 31, 2017:

        

Securitiesavailable-for-sale:

        

Residential mortgage-backed

  $125,768   $23   $(2,819)   $122,972 

U.S. govt. sponsored enterprises

   13,176    8    (185)    12,999 

State, county, and municipal

   55,339    511    (349)    55,501 

Corporate debt obligations

   1,831    11    (25)    1,817 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $196,114   $553   $(3,378)   $193,289 
  

 

 

   

 

 

   

 

 

   

 

 

 

Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Details concerning investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and lengthas of time that individual securities have been in a continuous loss position at December 31, 20142018 and 2013. Available-for-sale securities that have been in a continuous unrealized loss position2017 are as follows (in(amounts in thousands):

 

  Less Than 12 Months   More Than 12 Months   Total  Less Than 12 Months More Than 12 Months Total 
  Fair Value   Unrealized
Losses		   Fair Value   Unrealized
Losses		   Fair Value   Unrealized
Losses		  Fair Value Unrealized
Losses		 Fair Value Unrealized
Losses		 Fair Value Unrealized
Losses		 

December 31, 2014:

            

December 31, 2018:

      

Securities available-for-sale:

                  

Residential mortgage-backed

  $3,407    $14    $22,415    $233    $25,822    $247   $6,003  $27  $88,502  $4,000  $94,505  $4,027 

U.S. govt. sponsored enterprises

   6,053     20     13,231     294     19,284     314   9,786  13  8,116  265  17,902  278 

State, county & municipal

   1,616     19     1,724     38     3,340     57   19,043  149  13,880  327  32,923  476 

Corporate debt obligations

 516  3  332  59  848  62 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Totals

$11,076  $53  $37,370  $565  $48,446  $618   $35,348  $192  $110,830  $4,651  $146,178  $4,843 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

December 31, 2013:

December 31, 2017:

      

Securities available-for-sale:

      

Residential mortgage-backed

$61,696  $1,161  $10,051  $133  $71,747  $1,294   $43,811  $445  $75,046  $2,374  $118,857  $2,819 

U.S. govt. sponsored enterprises

 36,026   1,057   1,772   170   37,798   1,227   8,630  60  3,698  125  12,328  185 

State, county & municipal

 13,465   567   2,451   239   15,916   806   14,535  130  14,559  219  29,094  349 

Corporate debt

 998   2   —     —     998   2  

Corporate debt obligations

 1,000   —    355  25  1,355  25 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Totals

$112,185  $2,787  $14,274  $542  $126,459  $3,329   $67,976  $635  $93,658  $2,743  $161,634  $3,378 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

At December 31, 2014, thirty-one (31) debt2018, one hundred fifty-five out of three hundred one securities had unrealized losses with aggregate depreciation of 1.27% from the Bank’s amortized cost basis. These unrealized losses relate principallywere in a loss position due primarily to currentchanging interest rates for similar types of securities. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.rates. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. BecauseAs management had the Bank does not intendability and intent to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may behold debt securities until maturity, the Bank does not consider those investmentsno declines were deemed to be other-than-temporarily impaired at December 31, 2014.

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES:

The composition of net loansother than temporary as of December 31, 20142018 and 2013 follows (in thousands):

   2014   2013 

Residential real estate:

    

Closed-end 1-4 family — first lien

  $49,198    $33,193  

Closed-end 1-4 family — junior lien

   1,638     2,015  

Multi-family

   5,455     5,496  

Equity lines of credit

   16,433     14,031  
  

 

 

   

 

 

 

Total residential real estate

 72,724   54,735  
  

 

 

   

 

 

 

Commercial real estate:

Nonfarm nonresidential

 90,657   89,629  

Farmland

 8,496   10,072  
  

 

 

   

 

 

 

Total commercial real estate

 99,153   99,701  
  

 

 

   

 

 

 

Construction and land development:

Residential

 6,792   5,150  

Other

 18,187   19,233  
  

 

 

   

 

 

 

Total construction and land development

 24,979   24,383  
  

 

 

   

 

 

 

Commercial loans:

Other commercial loans

 49,156   43,060  

Agricultural

 676   708  

State, county, and municipal loans

 5,987   3,175  
  

 

 

   

 

 

 

Total commercial loans

 55,819   46,943  
  

 

 

   

 

 

 

Consumer loans

 12,912   12,109  
  

 

 

   

 

 

 

Total gross loans

 265,587   237,871  

Allowance for loan losses

 (3,778)  (3,701) 

Net deferred loan fees

 (449)  (359) 
  

 

 

   

 

 

 

Net loans

$261,360  $233,811  
  

 

 

   

 

 

 

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

2017.

The following tables present the contractual agingproceeds and gross gains and gross losses from sales of the recorded investment (accrued interest has been excluded because of its insignificance) in past due loans as of December 31, 2014 and 2013 (amounts in thousands):

   Accruing Loans         

As of December 31, 2014

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total
Loans		 

Mortgage loans on real estate:

          

Residential

  $55,702    $358    $—      $231    $56,291  

Commercial real estate

   98,397     462     294     —       99,153  

Construction and land development

   24,879     —       100     —       24,979  

Equity lines of credit

   16,097     —       —       336     16,433  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 195,075   820   394   567   196,856  

Commercial loans

 55,588   189   30   12   55,819  

Consumer loans

 12,821   65   —     26   12,912  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$263,484  $1,074  $424  $605  $265,587  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Accruing Loans         

As of December 31, 2013

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total
Loans		 

Mortgage loans on real estate:

          

Residential

  $40,392    $287    $—      $25    $40,704  

Commercial real estate

   98,125     702     175     699     99,701  

Construction and land development

   23,560     —       —       823     24,383  

Equity lines of credit

   13,524     160     —       347     14,031  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 175,601   1,149   175   1,894   178,819  

Commercial loans

 46,888   40   —     15   46,943  

Consumer loans

 11,996   101   —     12   12,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$234,485  $1,290  $175  $1,921  $237,871  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Corporation uses a numerical credit risk rating system from 1 to 8 to assess the credit risk inherent in its loan portfolio with loans rated a 1 having the lowest credit risk and loans rated 8 having the highest credit risk. Loans with credit risk ratings of 1 to 5 are considered passing grade or acceptable quality. Loans with credit risk ratings of 6 to 8 are considered to have less than acceptable credit quality. Among other factors, the Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt as structured such as current financial information, historical payment experience, credit documentation, collateral identification and valuation, public information, and current economic trends. The Corporation analyzes loans individually by classifying the loans as to credit risk. Risk ratings are reviewed through various channels including the loan approval process, the loan reporting process, the external loan review process and through the regulatory review process. The Corporation uses the following definitions for risk ratings:

Loan Grade 1 — Excellent

Loans graded Excellent exhibit strong financial condition indicated by profitability, positive trends in financial ratios, excellent repayment capabilities, very conservatively leveraged balance sheets with substantial verifiable net worth. Both primary and secondary sources of repayment should be dependable and well defined. The borrower should have the ability to access a wide range of financing alternatives. Financial statements should be of superior quality and must be produced in a timely manner. The borrower should be in a non-cyclical industry that is less at risk in an economic downturn or less subject to fierce competitive factors. Loans graded Excellent should be secured by the Bank’s certificate of deposit, U.S. Government guaranties or U.S Government securities.

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

Loan Grade 2 — Minimal Risk

These loans are to the most creditworthy customers. Borrower is judged to be of very high quality. Repayment is considered very strong, with very little susceptibility to the economic cycle or changes in the business environment. The borrower has exceptional financial ratios and operating trends including continuing increasing positive earnings history, substantial cash flow for debt service, capital base is exceptionally strong and a very high level of liquidity. Primary and secondary repayment sources are well defined and easily identifiable. Debt could be refinanced with little if any difficulty. Management has an excellent ability and track record, long term stability and experience, and an excellent reputation in the industry. Collateral is generally liquid or a readily marketable asset and, in any case, the collateral margin leaves minimal room for loss.

Loan Grade 3 — Above Average

These loans are to borrowers who maintain sound condition and favorable operating results with typical cyclical adjustments, with the overall financial condition of the borrower considered good to above average. Management has strong ability and track record and is both stable and experienced. The borrower’s historical performance is considered above average. Financial ratios and operating trends are solid with continued positive earnings, sufficient cash flow coverage for debt service and sound capital base with leverage ratios at normal industry standards. Primary repayment source is well-defined and easily identifiable. Secondary repayment source is considered strong without reliance on endorsers or guarantors. Future prospects for the company are considered good.

Loan Grade 4 — Average

These are loans to borrowers that do not require more than normal officer attention and are determined capable of repaying their indebtedness as agreed. Generally, collateral is acceptable and adequate. Financial information is acceptable and banking decisions can be made based on the information. Financial condition is secure, with overall trends showing continued stability. Profitability is positive and stable, cash flow trends are positive and capital base is adequate. Management may or may not have adequate experience but can be relied upon. Loans meet credit and policy requirements and contain no unusual elements of risk.

Loan Grade 5 — Marginally Acceptable

Loans rated Marginally Acceptable generally exhibit the following characteristics. Cash flows are sufficient to satisfy debt service requirements in the case of a start-up or turn around and it must be within expected projection tolerances. Leverage is above a comfortable level and/or the company is undercapitalized. Some declining trends exist in margins, ratios and/or cash flow. Weaknesses in financial performance are mitigated by one or more offsetting strengths. Underwriting standards are somewhat weak at inception and/or terms are subsequently relaxed versus policy. Although profits do not appear to justify, large owner withdrawals or compensations are taken. Management is satisfactory, but profitability may be affected by tax considerations, extraordinary events, or mistakes in business strategy. Primary borrowing relationship is with another lender or borrower has minimum deposit accounts. Guarantors have strong net worth but assets may be concentrated in real estate.

Loan Grade 6 — Special Mention

A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the asset or in the bank’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

Included in this loan grade are both individuals and/or businesses that are vulnerable to downturns in economic conditions. The sale of the customer’s products could be adversely impaired due to current economic conditions. Once the economic conditions improve, the loan grade should improve provided the customer’s loan is current and the borrower’s financial condition has not deteriorated.

These loans have one or more deficiencies, which if not corrected could lead to the deterioration of the credit. Characteristics often found in this type of loan include excessive financial leverage; minimal or negative net worth; margins and financial ratios are below industry average; downward trends in profitability and cash flow are evident; some delinquencies may exist; adequate financial statements are not produced and/or provided timely; or uncooperative attitude exists; frequently has unexpected needs for working capital or term financing; serious documentation deficiencies which might significantly impact the bank’s position if uncorrected. Loan officers must identify these loans early so that corrective action may be implemented to prevent further deterioration.

Loan Grade 7 — Substandard

Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledge, 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 Corporation will sustain some loss if the deficiencies are not corrected.

Characteristics often found in this type of loan include long history of past dues; losses have eroded net worth so that the survivability of the business is in question; cash flows are well below amount needed to meet scheduled obligations; collateral values reflect some deficiency or sources of repayments are believed to offer only marginal protection at best; violations of financial covenants or loan policy are significant and difficult to correct; financial information is poor in quality, stale and not meaningful for analysis; loan has been placed on non-accrual.

Loan Grade 8 — Doubtful

Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

Characteristics often found in this type loan include cash flow or working capital seriously deficient; significant negative trends existing in several areas; bank will have to rely on the liquidation of collateral or payments from guarantors; business is on the verge of closing and being sold or liquidated; at least 50% of the loan will be charged off if collateral and guarantors are sole source of repayment; prospects for alternative financing sources are nil.

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

As of December 31, 2014 and 2013, based on the most recent analysis performed, the risk categories of loans by class of loans are as follows (amounts in thousands):

   Accruing Loans         

As of December 31, 2014

  Pass   Special
Mention		   Substandard   Nonaccrual
Loans		   Total Loans 

Mortgage loans on real estate:

          

Residential

  $47,200    $7,868    $992    $231    $56,291  

Commercial real estate

   88,838     8,113     2,202     0     99,153  

Construction and land development

   21,131     3,680     168     0     24,979  

Equity lines of credit

   15,287     785     25     336     16,433  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 172,456   20,446   3,387   567   196,856  

Commercial loans

 52,327   3,294   186   12   55,819  

Consumer loans

 11,346   441   1,099   26   12,912  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$236,129  $24,181  $4,672  $605  $265,587  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Accruing Loans         

As of December 31, 2013

  Pass   Special
Mention		   Substandard   Nonaccrual
Loans		   Total Loans 

Mortgage loans on real estate:

          

Residential

  $30,751    $9,312    $616    $25    $40,704  

Commercial real estate

   87,774     8,005     3,223     699     99,701  

Construction and land development

   19,376     4,078     106     823     24,383  

Equity lines of credit

   12,776     796     112     347     14,031  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 150,677   22,191   4,057   1,894   178,819  

Commercial loans

 40,916   5,958   54   15   46,943  

Consumer loans

 10,443   515   1,139   12   12,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$202,036  $28,664  $5,250  $1,921  $237,871  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

Activity in the allowance for loans lossessecuritiesavailable-for-sale for the years ended December 31, 20142018 and 20132017 are as follows (in thousands):

   Year ended December 31: 
           2018                   2017         

Realized Gains (Losses)-Securities Sales:

    

Gross gains

  $381   $63 

Gross losses

   (429)    (58) 
  

 

 

   

 

 

 

Investment securities gains (losses), net

  $(48)   $5 
  

 

 

   

 

 

 

Proceeds from sales of investment securities

  $59,907   $13,251 
  

 

 

   

 

 

 

At December 31, 2018 and 2017, securities with a carrying value of approximately $61.5 million and $28.5 million, respectively, were pledged to secure public deposits as required by eachlaw. At December 31, 2018 and 2017, the carrying value of securities pledged to secure repurchase agreements was approximately $16.5 million and $20 million, respectively.

The amortized cost and estimated fair value of securitiesavailable-for-sale at December 31, 2018, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

   Amortized Cost   Fair Value 

Securitiesavailable-for-sale

    

Less than 1 year

  $17,094   $17,092 

1 to 5 years

   55,924    56,000 

5 to 10 years

   23,597    23,733 

After 10 years

   27,305    26,872 
  

 

 

   

 

 

 
   123,920    123,697 

Residential mortgage-backed securities

   108,915    104,933 
  

 

 

   

 

 

 

Totals

  $232,835   $228,630 
  

 

 

   

 

 

 

(4) Loans

Major classifications of loans at December 31, 2018 and 2017 are summarized as follows (in thousands):

   December 31, 2018  December 31, 2017 
   Amount  % of Total  Amount  % of Total 

Residential real estate:

     

Closed-end1-4 family—first lien

  $162,249   23.0%  $115,776   21.4% 

Closed-end1-4 family—junior lien

   5,739   0.8%   4,969   0.9% 

Multi-family

   16,938   2.4%   16,977   3.1% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total residential real estate

   184,926   26.2%   137,722   25.4% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Commercial real estate:

     

Nonfarm nonresidential

   209,391   29.7%   173,443   32.0% 

Farmland

   10,417   1.5%   7,782   1.4% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total commercial real estate

   219,808   31.2%   181,225   33.4% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Construction and land development:

     

Residential

   39,680   5.6%   25,830   4.8% 

Other

   62,430   8.9%   40,734   7.5% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total construction and land development

   102,110   14.5%   66,564   12.3% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Home equity lines of credit

   39,040   5.5%   35,833   6.6% 

Commercial loans:

     

Other commercial loans

   112,927   16.0%   95,896   17.7% 

Agricultural

   1,743   0.2%   1,581   0.3% 

State, county, and municipal loans

   19,756   2.9%   8,332   1.5% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total commercial loans

   134,426   19.1%   105,809   19.5% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Consumer loans

   33,867   4.8%   23,231   4.3% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total gross loans

   714,177   101.3%   550,384   101.5% 

Allowance for loan losses

   (6,577)   -0.9%   (4,881)   -0.9% 

Net deferred loan fees and discounts

   (2,915)   -0.4%   (3,263)   -0.6% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loans

  $704,685   100.0%  $542,240   100.0% 
  

 

 

  

 

 

  

 

 

  

 

 

 

For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at

which an entity develops and documents a systematic method for determining its allowance for loan losses. There are three primary loan portfolio segments that include real estate, commercial, and consumer. A class is as follows:

  Real Estate Mortgage Loans          
(In Thousands) Residential  Commercial  Construction
and Land
Development		  Home Equity
Lines
Of Credit		  Commercial  Consumer  Total 

Allowance for Loan Losses

       

Balance — January 1, 2014

 $181   $1,674   $663   $435   $535   $213   $3,701  

Provision for loan losses

  157    267    169    25    122    317    1,057  

Loan charge-offs

  (34)   (690)   (258)   (26)   (126)   (97)   (1,231) 

Loan recoveries

  —      16    54    2    120    59    251  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2014

$304  $1,267  $628  $436  $651  $492  $3,778  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Real Estate Mortgage Loans          
(In Thousands) Residential  Commercial  Construction
and Land
Development		  Home Equity
Lines Of
Credit		  Commercial  Consumer  Total 

Allowance for Loan Losses

       

Balance — January 1, 2013

 $138   $1,228   $1,180   $442   $468   $418   $3,874  

Provision for loan losses

  149    476    107    (9)   237    (3)   957  

Loan charge-offs

  (171)   (30)   (657)   —      (214)   (239)   (1,311) 

Loan recoveries

  65    —      33    2    44    37    181  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2013

$181  $1,674  $663  $435  $535  $213  $3,701  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

generally determined based on the initial measurement attribute, risk characteristic of the loan, and the Company’s method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include residential real estate, commercial real estate, construction and land development and home equity lines of credit. The portfolio segments ofnon-real estate commercial loans and consumer loans have not been further segregated by class.

The following table presentsdescribe risk characteristics relevant to each of the portfolio segments:

Real estate—As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:

Residential real estate and home equity lines of credit are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Commercial real estate loans include both owner-occupied commercial real estate loans and other commercial real estate loans secured by income producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans secured by farmland are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Construction and land development loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.

Commercial loans—The commercial loan portfolio segment includes commercial and industrial loans, agricultural loans and loans to state and municipalities. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows or tax revenues. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.

Consumer loans—The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans which includes the unpaid principal balance, net of partial charge-offs (accrued interest has been excluded because of its insignificance)by portfolio segment and based on impairment method as of December 31, 20142018 and 2013 (in2017 (amounts in thousands). The acquired loans are not included in the allowance for loan losses calculation, as these loans are recorded at fair value and there has been no further indication of credit deterioration that would require an additional provision.

 

  Evaluated Individually For
Impairment		  Evaluated Collectively For
Impairment		  Totals 

December 31, 2014

 Recorded
Investment		  Allowance  Recorded
Investment		  Allowance  Recorded
Investment		  Allowance 

Mortgage loans on real estate:

      

Residential

 $1,036   $—     $55,255   $304   $56,291   $304  

Commercial real estate

  2,173    623    96,980    644    99,153    1,267  

Construction and land development

  100    45    24,879    583    24,979    628  

Equity lines of credit

  336    336    16,097    100    16,433    436  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total mortgage loans on real estate

 3,645   1,004   193,211   1,631   196,856   2,635  

Commercial loans

 179   181   55,640   470   55,819   651  

Consumer loans

 1,054   300   11,858   192   12,912   492  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Loans

$4,878  $1,485  $260,709  $2,293  $265,587  $3,778  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Evaluated Individually For
Impairment		  Evaluated Collectively For
Impairment		  Totals 

December 31, 2013

 Recorded
Investment		  Allowance  Recorded
Investment		  Allowance  Recorded
Investment		  Allowance 

Mortgage loans on real estate:

      

Residential

 $572   $23   $40,132   $158   $40,704   $181  

Commercial real estate

  3,802    1,101    95,899    573    99,701    1,674  

Construction and land development

  924    115    23,459    548    24,383    663  

Equity lines of credit

  347    347    13,684    88    14,031    435  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total mortgage loans on real estate

 5,645   1,586   173,174   1,367   178,819   2,953  

Commercial loans

 26   28   46,917   507   46,943   535  

Consumer loans

 1,110   19   10,999   194   12,109   213  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Loans

$6,781  $1,633  $231,090  $2,068  $237,871  $3,701  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Real Estate Mortgage Loans             
Allowance for Loan Losses Residential  Commercial  Construction
and Land
Development		  Home Equity
Lines
Of Credit		  Commercial  Consumer  Total 

Balance – December 31, 2017

 $1,167  $1,604  $606  $333  $954  $217  $4,881 

Provision for loan losses

  438   453   298   69   566   136   1,960 

Loan charge-offs

  (41)   (109)   —     (20)   (284)   (48)   (502) 

Loan recoveries

  15   13   38   12   139   21   238 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance – December 31, 2018

 $1,579  $1,961  $942  $394  $1,375  $326   6,577 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance:

       

Individually evaluated for impairment

 $507  $54  $8  $—    $143  $13  $725 

Collectively evaluated for impairment

 $1,072  $1,907  $934  $394  $1,232  $313  $5,852 

Loans:

       

Individually evaluated for impairment

 $2,008  $1,925  $158  $100  $262  $54  $4,507 

Collectively evaluated for impairment

 $182,586  $217,445  $101,799  $38,940  $134,163  $33,726  $708,659 

Acquired loans with deteriorated credit quality

 $332  $438  $153  $—    $1  $87  $1,011 

Percent of loans in each category to total loans

  25.9%   30.8%   14.3%   5.5%   18.8%   4.7%   100.0% 

  Real Estate Mortgage Loans          
Allowance for Loan Losses Residential  Commercial  Construction
and Land
Development		  Home Equity
Lines
Of Credit		  Commercial  Consumer  Total 

Balance – December 31, 2016

 $602  $1,456  $731  $190  $829  $199  $4,007 

Provision for loan losses

  573   440   (112)   239   487   113   1,740 

Loan charge-offs

  (32)   (308)   (24)   (100)   (466)   (109)   (1,039) 

Loan recoveries

  24   16   11   4   104   14   173 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance – December 31, 2017

 $1,167  $1,604  $606  $333  $954  $217  $4,881 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance:

       

Individually evaluated for impairment

 $526  $187  $11  $—    $174  $10  $908 

Collectively evaluated for impairment

 $641  $1,417  $595  $333  $780  $207  $3,973 

Loans:

       

Individually evaluated for impairment

 $2,611  $2,295  $168  $100  $301  $87  $5,562 

Collectively evaluated for impairment

 $135,111  $178,930  $66,396  $35,733  $105,508  $23,144  $544,822 

Percent of loans in each category to total loans

  25.1%   32.9%   12.1%   6.5%   19.2%   4.2%   100.0% 

Index

The Bank individually evaluates for impairment all loans that are on nonaccrual status. Additionally, all troubled debt restructurings are individually evaluated for impairment. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral-dependent. Management may also elect to apply an additional collective reserve to groups of impaired loans based on current economic or market factors. Interest payments received on impaired loans are generally applied as a reduction of the outstanding principal balance.

The following tables present the Corporation’s recorded investment in impaired loans by class of loans as of December 31, 2014, which includes the unpaid principal balance, net of partial charge-offs. Accrued interest has been excluded2018 and 2017 (amounts in thousands). The purchased credit-impaired loans are not included in these tables because of its insignificance (in thousands).they are carried at fair value and accordingly have no related associated allowance.

 

   Recorded
Investment		   Impaired Loans
With No Related
Allowance		   Impaired Loans
With Related
Allowance		   Related
Allowance for
Loan Losses		 

Impaired Loans on Non-accrual Status

        

Mortgage loans on real estate:

        

Residential

  $204    $204    $—      $—    

Commercial real estate

   —       —       —       —    

Construction and land development

   —       —       —       —    

Equity lines of credit

   336     —       336     336  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 540   204   336   336  

Commercial loans

 —     —     —     —    

Consumer loans

 —     —     —     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$540  $204  $336  $336  
  

 

 

   

 

 

   

 

 

   

 

 

 
   Recorded
Investment		   Impaired Loans
With No Related
Allowance		   Impaired Loans
With Related
Allowance		   Related
Allowance for
Loan Losses		 

Impaired Loans on Accrual Status

        

Mortgage loans on real estate:

        

Residential

  $832    $832    $—      $—    

Commercial real estate

   2,173     1,075     1,098     623  

Construction and land development

   100     —       100     45  

Equity lines of credit

   —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 3,105   1,907   1,198   668  

Commercial loans

 179   —     179   181  

Consumer loans

 1,054   —     1,054   300  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$4,338  $1,907  $2,431  $1,149  
  

 

 

   

 

 

   

 

 

   

 

 

 
   Recorded
Investment		   Impaired Loans
With No Related
Allowance		   Impaired Loans
With Related
Allowance		   Related
Allowance for
Loan Losses		 

Total Impaired Loans

        

Mortgage loans on real estate:

        

Residential

  $1,036    $1,036    $—      $—    

Commercial real estate

   2,173     1,075     1,098     623  

Construction and land development

   100     —       100     45  

Equity lines of credit

   336     —       336     336  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 3,645   2,111   1,534   1,004  

Commercial loans

 179   —     179   181  

Consumer loans

 1,054   —     1,054   300  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$4,878  $2,111  $2,767  $1,485  
  

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

December 31, 2018

                    
Nonaccruing Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential

  $1,519   $1,519   $118   $1,401   $505 

Commercial real estate

   423    142    142    —      —   

Construction and land development

   —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   1,942    1,661    260    1,401    505 

Home equity lines of credit

   —      —      —      —      —   

Commercial loans

   143    143    —      143    143 

Consumer loans

   —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $2,085   $1,804   $260   $1,544   $648 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following tables present the Corporation’s recorded investment in impaired loans as of December 31, 2013, which includes the unpaid principal balance, net of partial charge-offs. Accrued interest has been excluded because of its insignificance (in thousands).

Accruing Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential

  $489   $489   $370   $119   $2 

Commercial real estate

   1,783    1,783    965    818    54 

Construction and land development

   221    158    —      158    8 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   2,493    2,430    1,335    1,095    64 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

   119    119    119    —      —   

Consumer loans

   54    54    29    25    13 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $2,766   $2,703   $1,583   $1,120   $77 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 Recorded
Investment		 Impaired Loans
With No Related
Allowance		 Impaired Loans
With Related
Allowance		 Related
Allowance for
Loan Losses		 

Impaired Loans on Non-accrual Status

    

Mortgage loans on real estate:

    

Residential

 $—     $—     $—     $—    

Commercial real estate

 699    —     699   370  

Construction and land development

 823   647   176   68  

Equity lines of credit

 347    —     347   347  
 

 

  

 

  

 

  

 

 

Total mortgage loans on real estate

 1,869   647   1,222   785  

Commercial loans

 —     —     —     —    

Consumer loans

 —     —     —     —    
 

 

  

 

  

 

  

 

 

Total Loans

$1,869  $647  $1,222  $785  
 

 

  

 

  

 

  

 

 
 Recorded
Investment		 Impaired Loans
With No Related
Allowance		 Impaired Loans
With Related
Allowance		 Related
Allowance for
Loan Losses		 

Impaired Loans on Accrual Status

    

Mortgage loans on real estate:

    

Residential

 $572   $437   $135   $23  

Commercial real estate

 3,103   706   2,397   731  

Construction and land development

 101    —     101   47  

Equity lines of credit

  —      —      —      —    
 

 

  

 

  

 

  

 

 

Total mortgage loans on real estate

 3,776   1,143   2,633   801  

Commercial loans

 26   —     26   28  

Consumer loans

 1,110   510   600   19  
 

 

  

 

  

 

  

 

 

Total Loans

$4,912  $1,653  $3,259  $848  
 

 

  

 

  

 

  

 

 
 Recorded
Investment		 Impaired Loans
With No Related
Allowance		 Impaired Loans
With Related
Allowance		 Related
Allowance for
Loan Losses		 

Total Impaired Loans

      Unpaid
Principal
Balance		   Recorded
Investment		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

              

Residential

 $572   $437   $135   $23    $2,008   $2,008   $488   $1,520   $507 

Commercial real estate

 3,802   706   3,096   1,101     2,206    1,925    1,107    818    54 

Construction and land development

 924   647   277   115     221    158    —      158    8 

Equity lines of credit

 347    —     347   347  
 

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 5,645   1,790   3,855   1,586     4,435    4,091    1,595    2,496    569 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

 26   —     26   28     262    262    119    143    143 

Consumer loans

 1,110   510   600   19     54    54    29    25    13 
 

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

$6,781  $2,300  $4,481  $1,633    $4,851   $4,507   $1,843   $2,664   $725 
 

 

  

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

 

Index to Financial Statements

NOTE 4 — LOANS AND ALLOWANCE FOR LOAN LOSSES: (continued)

December 31, 2017

                    
Nonaccruing Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential

  $1,767   $1,767   $350   $1,417   $526 

Commercial real estate

   500    328    328    —      —   

Construction and land development

   —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   2,267    2,095    678    1,417    526 

Home equity lines of credit

   —      —      —      —      —   

Commercial loans

   —      —      —      —      —   

Consumer loans

   204    54    54    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $2,471   $2,149   $732   $1,417   $526 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Accruing Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential

  $844   $844   $844   $—     $—   

Commercial real estate

   1,968    1,967    540    1,427    187 

Construction and land development

   232    168    —      168    11 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   3,044    2,979    1,384    1,595    198 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

   300    301    127    174    174 

Consumer loans

   33    33    —      33    10 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $3,477   $3,413   $1,611   $1,802   $382 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential

  $2,611   $2,611   $1,194   $1,417   $526 

Commercial real estate

   2,468    2,295    868    1,427    187 

Construction and land development

   232    168    —      168    11 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   5,311    5,074    2,062    3,012    724 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

   300    301    127    174    174 

Consumer loans

   237    87    54    33    10 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $5,948   $5,562   $2,343   $3,219   $908 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the average recorded investment in impaired loans and the interest income recognized on impaired loans in the years ended December 31, 20142018 and 20132017 by loan category (in thousands).

 

  2014   2013   Year Ended
December 31, 2018		   Year Ended
December 31, 2017		 
  Recorded
Investment		   Interest
Income		   Recorded
Investment		   Interest
Income		   Average
Recorded
Investment		   Interest
Income		   Average
Recorded
Investment		   Interest
Income		 

Mortgage loans on real estate:

                

Residential real estate

  $928    $76    $458    $46    $2,020   $23   $2,209   $50 

Commercial real estate

   2,822     95     3,600     133     2,117    92    3,027    80 

Construction and land development

   568     7     1,459     9     163    8    181    10 

Equity lines of credit

   428     1     464     4  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 4,746   179   5,981   192     4,300    123    5,417    140 

Home equity lines of credit

   100    6    100    6 

Commercial loans

 132   9   93   4     268    9    498    15 

Consumer loans

 1,124   44   1,158   65     60    3    116    1 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

$6,002  $232  $7,232  $261    $4,728   $141   $6,131   $162 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

NOTEFor the years ended December 31, 2018 and 2017, the Bank did not recognize a material amount of interest income on impaired loans.

The following tables present the aging of the recorded investment in past due loans andnon-accrual loan balances as of December 31, 2018 and 2017 by class of loans (amounts in thousands).

   Accruing Loans         

As of December 31, 2018

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total Loans 

Mortgage loans on real estate:

          

Residential

  $181,252   $1,528   $19   $2,127   $184,926 

Commercial real estate

   219,578    68    —      162    219,808 

Construction and land development

   101,993    23    —      94    102,110 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   502,823    1,619    19    2,383    506,844 

Home equity lines of credit

   38,891    24    —      125    39,040 

Commercial loans

   134,066    217    —      143    134,426 

Consumer loans

   33,544    234    —      89    33,867 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $709,324   $2,094   $19   $2,740   $714,177 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

                                                                      
   Accruing Loans         

As of December 31, 2017

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total Loans 

Mortgage loans on real estate:

          

Residential

  $134,565   $857   $410   $1,890   $137,722 

Commercial real estate

   180,826    —      —      399    181,225 

Construction and land development

   66,275    221    —      68    66,564 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   381,666    1,078    410    2,357    385,511 

Home equity lines of credit

   35,591    152    10    80    35,833 

Commercial loans

   105,081    728    —      —      105,809 

Consumer loans

   22,906    175    1    149    23,231 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $545,244   $2,133   $421   $2,586   $550,384 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Bank categorizes 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. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for their risk ratings:

Accruing Loans—Special Mention: Weakness exists that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. Collateral values generally afford adequate coverage but may not be immediately marketable.

Substandard: Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

Doubtful: Specific weaknesses characterized as Substandard that are severe enough to make collection in full unlikely. There is no reliable secondary source of full repayment. Loans classified as doubtful will usually be placed onnon-accrual, analyzed and fully or partially charged off based on a review of any collateral and other relevant factors.

Nonaccrual: Specific weakness characterized as Doubtful that are severe enough for the loan to be placed on nonaccrual status because collection of all contractual principal and interest payments is considered unlikely.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be “Pass” rated loans. As of December 31, 2018 and 2017, and based on the most recent analyses performed, the risk category of loans by class of loans is as follows (amounts in thousands):

As of December 31, 2018

  Pass   Special
Mention		   Substandard   Doubtful   Total 

Mortgage loans on real estate:

          

Residential

  $179,132   $2,435   $3,270   $89   $184,926 

Commercial real estate

   212,421    4,609    2,778    —      219,808 

Construction and land development

   101,612    49    449    —      102,110 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   493,165    7,093    6,497    89    506,844 

Home equity lines of credit

   38,530    285    225    —      39,040 

Commercial loans

   131,449    2,612    343    22    134,426 

Consumer loans

   33,269    330    268    —      33,867 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $696,413   $10,320   $7,333   $111   $714,177 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2017

  Pass   Special
Mention		   Substandard   Doubtful   Total 

Mortgage loans on real estate:

          

Residential

  $132,914   $1,390   $3,418   $—     $137,722 

Commercial real estate

   175,208    4,238    1,779    —      181,225 

Construction and land development

   65,656    750    158    —      66,564 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   373,778    6,378    5,355    —      385,511 

Home equity lines of credit

   35,580    14    203    36    35,833 

Commercial loans

   103,137    2,234    438    —      105,809 

Consumer loans

   22,865    58    308    —      23,231 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $535,360   $8,684   $6,304   $36   $550,384 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Troubled Debt Restructurings (TDR):

At December 31, 2018 and 2017, loans totaling $3.3 million and $2.4 million, respectively, were classified as TDRs and impaired. The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. The Company restructured 5 — FORECLOSED ASSETS:loans totaling $823 thousand in 2018 and 1 loan totaling $57 thousand in 2017.

During the year ended December 31, 2018 there was one residential real estate loan with a balance of $54 thousand and one commercial loan with a balance of $143 thousand that were modified within the previous twelve months that were in default of their modified terms. During the year ended December 31, 2017 there were no loans that were modified within the previous twelve months that were in default of their modified terms.

(5) Premises and Equipment

Major classifications of premises and equipment as of December 31, 2018 and 2017 are summarized as follows (amounts in thousands):

   December 31, 
   2018   2017 

Land and improvements

  $6,555   $6,123 

Buildings and improvements

   20,736    15,967 

Leasehold improvements

   678    658 

Furniture, equipment, and vehicle

   4,951    4,099 
  

 

 

   

 

 

 

Total

   32,920    26,847 

Accumulated depreciation

   (6,093)    (5,038) 
  

 

 

   

 

 

 

Premises and equipment, net

  $26,827   $21,809 
  

 

 

   

 

 

 

Depreciation expense amounted to approximately $1.1 million in 2018 and $946 thousand in 2017.

(6) Foreclosed assets

Other real estate and certain other assets acquired in foreclosure are carried at the lower of the recorded investment in the loan or fair value less estimated costs to sell the property. There was a total of approximately $276 thousand in residential real estate foreclosures for December 31, 2018 and $323 thousand residential in real estate foreclosures for December 31, 2017. An analysis of foreclosed properties for the years ended December 31, 20142018 and 20132017 follows (in thousands):.

 

  Year ended December 31, 
  2014   2013       2018           2017     

Balance at beginning of year

  $427    $979    $1,546   $1,151 

Transfers from loans

   2,262     690     318    2,658 

Foreclosed property sold

   (289)    (1,047)    (1,248)    (2,118) 

Write-downs of foreclosed property

   (60)    (195) 

Write-down of foreclosed property

   (120)    (145) 
  

 

   

 

   

 

   

 

 

Balance at end of year

$2,340  $427    $496   $1,546 
  

 

   

 

   

 

   

 

 

Expenses applicable to foreclosed assets for the years ended December 31, 20142018 and 20132017 include the following (amounts in thousands).

   Year ended December 31, 
       2018           2017     

Net (gain) loss on sales of foreclosed assets

  $20   $(72) 

Write-down of foreclosed property

   120    145 

Operating expenses, net of rental income

   60    90 
  

 

 

   

 

 

 

Total

  $200   $163 
  

 

 

   

 

 

 

(7) Deposits

The following table sets forth the major classifications of deposits at December 31, 2018 and 2017 (in thousands):

 

   2014   2013 

Net loss (gain) on sales of foreclosed assets

  $10    $(6) 

Write-down of foreclosed property

   60     195  

Operating expenses, net of rental income

   12     97  
  

 

 

   

 

 

 

Total

$82  $286  
  

 

 

   

 

 

 
   December 31, 
   2018   2017 

Demand deposits,non-interest bearing

  $241,274   $185,171 

Demand deposits, interest bearing

   239,463    195,792 

Money market accounts

   200,143    153,732 

Savings deposits

   55,733    29,441 

Time certificates of $250,000 or more

   47,251    37,045 

Other time certificates

   114,843    98,680 
  

 

 

   

 

 

 

Totals

  $898,707   $699,861 
  

 

 

   

 

 

 

NOTE 6 — OTHER ASSETS:

The following is a summary of other assets at December 31, 2014 and 2013 (in thousands):

   2014   2013 

Prepaid expenses

  $295    $321  

Loans held for sale

   163     —    

Restricted equity securities

   669     507  

Other

   151     146  
  

 

 

   

 

 

 

Totals

$1,278  $974  
  

 

 

   

 

 

 

Index to Financial Statements

NOTE 7 — PREMISES AND EQUIPMENT, NET:

The major classes of premises and equipment and the total accumulated depreciation asAs of December 31, 2014 and 2013 are as follows (in thousands):

   2014   2013 

Land and improvements

  $3,480    $3,064  

Buildings and improvements

   8,884     8,746  

Leasehold improvements

   640     640  

Furniture, equipment, and vehicle

   2,970     2,930  
  

 

 

   

 

 

 

Total

 15,974   15,380  

Accumulated depreciation

 (3,275)  (2,852) 
  

 

 

   

 

 

 

Premises and equipment, net

$12,699  $12,528  
  

 

 

   

 

 

 

Depreciation expense for the years ended December 31, 2014 and 2013 totaled $514,417 and $545,613, respectively.

NOTE 8 — DEPOSITS:

The composition of deposits as of December 31, 2014 and 2013 is as follows (in thousands):

   2014   2013 

Demand deposits, non-interest bearing

  $88,839    $89,706  

Demand deposits, interest bearing

   118,644     116,597  

Money market accounts

   71,708     69,933  

Savings deposits

   9,494     7,353  

Time certificates of $250,000 or more

   17,168     19,559  

Other time certificates

   81,978     92,169  
  

 

 

   

 

 

 

Totals

$387,831  $395,317  
  

 

 

   

 

 

 

At December 31, 2014,2018, the scheduled maturities of certificates of time deposit are as follows for certificates of deposit less than $250 thousand and for certificates of deposit (“CDs”) of $250 thousand or more (in thousands):

 

2015

$72,205  

2016

$16,611  

2017

$8,542  

2018

$769  

2019

$1,019  
  

 

 

 

Total

$99,146  
  

 

 

 

CDs Less Than $250,000

 

2019

  $83,811 

2020

   16,136 

2021

   7,553 

2022

   5,569 

2023

   1,774 

Maturing after 2023

   —   
  

 

 

 

Total

  $114,843 
  

 

 

 

NOTE 9 — SHORT-TERM BORROWINGS:

CDs $250,000 or more

 

2019

  $34,089 

2020

   2,251 

2021

   5,835 

2022

   3,530 

2023

   1,546 

Maturing after 2023

   —   
  

 

 

 

Total

  $47,251 
  

 

 

 

(8) Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreement to repurchase — Securities sold under agreement to repurchase are sold for one business day only. Securities sold under these agreementsarrangements are held in safekeeping by the Bank’s primary correspondent bank and may not be pledged,

assigned, sold, or otherwise transferred or utilized by the customer. Interest rates on securities sold under repurchase agreement to repurchase are determined daily by the Bank.

Securities sold under repurchase agreements to repurchase amounted to $8,042,903were $8 million and $9,261,184$13.9 million at December 31, 20142018 and 2013,2017, respectively. The agreements arewere secured by debtinvestment securities with a fair value of approximately $16,110,000$16.5 million and $14,264,000$20 million at December 31, 20142018 and 2013,2017, respectively. The weighted average interest rate paid on these agreements was 0.15%0.37% and 0.22% during the years ended December 31, 2014 and 2013, respectively.

Index to Financial Statements

NOTE 9 — SHORT-TERM BORROWINGS: (continued)

Federal funds purchased — At December 31, 2014 the Bank had a federal fund lines available of $13,000,000 with various correspondent banks. There were no federal funds purchased at December 31, 2014 or 2013.

NOTE 10 — LONG-TERM BORROWINGS:

The Bank is a member of the Federal Home Loan Bank and may borrow short-term and long-term funds up to 20% of the Bank’s total assets. Pursuant to collateral agreements with the Federal Home Loan Bank, all borrowings are secured by a blanket lien on qualified collateral, which includes a variable percentage of commercial real estate loans, multifamily real estate loans, one to four family residential real estate loans, and home equity lines of credit. The qualifying amount of the loans pledged as collateral was approximately $71,227,000 and $84,271,000 as of December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, the Bank had approximately and $23,461,000 and $31,177,000 available to borrow from the Federal Home Loan Bank.

At December 31, 2014, the Bank had fixed rate FHLB advances outstanding of $6,000,000 with a weighted average interest rate of .69%. $2,000,000 of the FHLB advances mature in 2015. The remaining $4,000,000 of the FHLB advances mature in 2016.

NOTE 11 — INCOME TAXES:

The provision for income taxes consists of the following0.21% for the years ended December 31, 20142018 and 20132017.

(9) Federal Home Loan Bank and Other Borrowings

At December 31, 2018, the Company had outstanding advances from the FHLB that are summarized as follows (in thousands):

 

   2014   2013 

Current income taxes:

    

Federal

  $1,445    $1,095  

State

   172     120  
  

 

 

   

 

 

 

Total current income tax expense

 1,617   1,215  

Deferred income tax expense

 (94)  151  
  

 

 

   

 

 

 

Total income tax expense

$1,523  $1,366  
  

 

 

   

 

 

 
December 31, 2018: 
Advance               Maturity                           Rate                          Rate Type             
$                        10,000    1/16/2019    2.44%   Fixed 
 10,000    1/28/2019    2.48%   Fixed 

 

 

      
$                        20,000      

 

 

      
December 31, 2017: 
Advance               Maturity                           Rate                          Rate Type             
$                          5,000    1/22/2018    1.26%   Fixed 
 5,000    2/12/2018    1.38%   Fixed 

 

 

      
$                        10,000      

 

 

      

At December 31, 2018 and 2017, the Company had outstanding unfunded standby letters of credit with the FHLB totaling approximately $5.1 million and $1.6 million, respectively.

The Company had pledged under blanket floating liens approximately $268 million and $203 million in residential first mortgage loans, home equity lines of credit, commercial real estate loans, and loans secured by multi-family real estate as security for these advances, letters of credit, and possible future advances as of December 31, 2018 and 2017, respectively. The value of the pledged collateral, when using appropriate discount percentages as prescribed by the FHLB, equals or exceeds the advances and unfunded letters of credit outstanding. At December 31, 2018 and 2017, the Company had approximately $116.8 million and $95.5 million of additional borrowing capacity under its borrowing arrangement with the FHLB.

On December 31, 2015, the Company entered into a loan agreement with SouthPoint Bank of Birmingham, Alabama for $7.5 million. The loan proceeds were drawn and received by the Company on January 4, 2016. The loan proceeds were used to fund the payment of the cash consideration to the Keystone shareholders of $7.3 million in accordance with the merger agreement and for general corporate purposes. The loan carried a variable interest rate equal to the Wall Street Journal Prime Rate. The loan was secured by all of the common stock of the Bank. The balance at December 31, 2017 was $5.4 million. The loan was paid in full during 2018.

On October 31, 2018, the Company entered into a loan agreement with CenterState Bank for $27 million. The loan proceeds were drawn and received by the Company on October 31, 2018. The loan proceeds were used to fund the payment of the cash consideration to the PSB shareholders of $24.5 million in accordance with the merger agreement and for general corporate purposes. The loan carries a fixed interest rate of 6%. The loan is secured by all of the common stock of the Bank. The balance at December 31, 2018 was $27 million. The bank will have principal and interest payments due quarterly beginning in January 2019. The final principal payment will be paid at October 30, 2025. The terms of the loan agreement require the Bank to maintain a classified assets to tier 1 capital plus ALLL ratio not to exceed 40%, a tier 1 leverage ratio of at least 8%, a total risk-based ratio

of at least 12%, and a fixed charge coverage ratio of at least 1:3:1 times. The loan agreement also requires the Bank to maintain at least $2 million in liquid assets at all times during the term of the loan.

Principal payments on the CenterState Bank loan are due as follows:

2019

  $3,202 

2020

   3,400 

2021

   3,608 

2022

   3,830 

2023

   4,065 

Afterward

   8,858 
  

 

 

 

Total

  $26,963 
  

 

 

 

The Company had available lines of credit for overnight federal funds borrowings totaling $38.5 million and $28.5 million at December 31 2018, and 2017, respectively. At December 31, 2018, the Company had no outstanding federal funds purchased balance. At December 31, 2017, the Company had an outstanding federal funds purchased balance of $1.2 million with an interest rate of 2.20%.

(10) Income Taxes

The Tax Cuts and Jobs Act (the “Act”), which was enacted on December 22, 2017, made key changes to the U.S. tax law, including the reduction of the U.S. federal corporate tax rate from 34% to 21%. As ASC 740,Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 21%. The deferred tax expense recorded related to the remeasurement of net deferred tax assets atwas $545 thousand in 2017. Additionally, the deferred tax effects on the unrealized holding losses for available for sale securities was also remeasured as a component of deferred income tax expense in the amount of $333 thousand in 2017.

The components of income tax expense for the years ended December 31, 20142018 and 2013 consist of the following2017 are as follows (in thousands):

 

   2014   2013 

Deferred tax assets:

    

Unamortized organizational costs

  $125    $145  

Allowance for loan losses

   909     872  

Deferred loan fees

   173     137  

Foreclosed asset expenses

   34     31  

Net unrealized loss on securities available for sale

   —       1,170  

Other

   25     34  
  

 

 

   

 

 

 

Total deferred tax assets

 1,266   2,389  
  

 

 

   

 

 

 

Deferred tax liabilities:

Net unrealized gain on securities available-for-sale

 (388)  —    

Depreciation

 (758)  (806) 
  

 

 

   

 

 

 

Total deferred tax liabilities

 (1,146)  (806) 
  

 

 

   

 

 

 

Net deferred tax (liabilities) assets

$120  $1,583  
  

 

 

   

 

 

 
   2018   2017 

Current

  $3,282   $3,360 

Deferred

   (899)    281 

Change in federal income tax rate

     878 
  

 

 

   

 

 

 

Total income tax expense

  $2,383   $4,519 
  

 

 

   

 

 

 

Index to Financial Statements

NOTE 11 — INCOME TAXES: (continued)

Income taxes from continuing operations for financial reporting purposes differs from amountsThe difference between income tax expense and the amount computed by applying the statutory federal income tax rate of 34%to income before taxes for the years ended December 31, 20142018 and 20132017 is as shown in the following tablefollows (in thousands):

 

  2014 2013   2018 2017 

Net income before taxes

  $5,003   $4,316    $10,889  $12,814 

Statutory federal tax rate

   34%  34%    21%  34% 
  

 

  

 

   

 

  

 

 

Tax on income at statutory federal income tax rate

 1,701   1,467  

Tax on income at statutory federal tax rate

   2,287  4,357 

Increase (decrease) resulting from:

   

Federal income tax benefit of state income taxes

 (57)  (40)    (92)  (156) 

Tax exempt income on loans

   (95)  (82) 

Tax exempt income on investments

   (178)  (384) 

Tax exempt income from bank-owned life insurance

 (60)  (58)    (120)  (144) 

Tax exempt interest on loans

 (25)  —    

Tax exempt interest on investments

 (230)  (145) 

Tax exempt death benefits from bank-owned life insurance

   —    (226) 

Nondeductible expenses

 22   22     143  66 

Change in federal income tax rate

   —    878 

State income tax

 172   120     438  460 

Other

   —    (250) 
  

 

  

 

   

 

  

 

 

Income taxes from continuing operations

$1,523  $1,366  

Total

  $2,383  $4,519 
  

 

  

 

   

 

  

 

 

Effective tax rate

 30.4%  31.6% 

The Corporationfollowing summarizes the components of deferred taxes at December 31, 2018 and its subsidiary files income tax returns in the federal jurisdiction and the State of Alabama. With few exceptions, the tax returns of the Bank for years before 2011 are no longer subject to federal or state and local income tax examinations by tax authorities.2017 (in thousands).

NOTE 12 — COMMITMENTS AND CONTINGENCIES:

   2018   2017 

Deferred tax assets:

    

Loans and allowance for loan losses

  $1,937   $1,517 

Accrued expenses

   219    —   

Deferred compensation

   600    282 

Unrealized losses on investment securities available-for-sale

   1,062    709 

Other

   485    497 
  

 

 

   

 

 

 

Total deferred tax assets

   4,303    3,005 
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Core deposit intangible

   (1,400)    (391) 

Depreciation

   (1,717)    (602) 

Other

   (5)    (35) 
  

 

 

   

 

 

 

Total deferred tax liabilities

   (3,122)    (1,028) 
  

 

 

   

 

 

 

Net deferred income tax assets

  $1,181   $1,977 
  

 

 

   

 

 

 

(11) Commitments

Credit-related financial instruments — The CorporationCompany is a party to credit-related financial instruments with off-balance sheetoff-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and standby letters of credit. Such commitmentsThose instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statementbalance sheet. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial condition.instruments.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation followsCompany uses the same credit policies in making commitments and conditional obligations as it does foron-balance-sheet instruments. The following is a summary ofIn most cases, the Corporation’s commitments as ofCompany requires collateral or other security to support financial instruments with credit risk.

Financial instruments whose contract amount represents credit risk at December 31, 20142018 and 20132017 were as follows (in thousands):

 

   2014   2013 

Commitments to extend credit

  $63,219    $56,245  

Standby letters of credit

   2,482     2,482  
  

 

 

   

 

 

 

Totals

$65,701  $58,727  
  

 

 

   

 

 

 
   2018   2017 

Commitments to extend credit

  $146,462   $142,878 

Stand-by and performance letters of credit

   5,412    2,268 
  

 

 

   

 

 

 

Total

  $151,874   $145,146 
  

 

 

   

 

 

 

Commitments to extend credit are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected tomay expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The CorporationCompany evaluates each customer’s creditworthiness on acase-by-case basis. The amount of collateral obtained upon an extension of credit, if deemed necessary by the Corporation upon extension of credit,Company, is based on management’s credit evaluationevaluation. The type of the party. Collateralcollateral held varies but may include accounts receivable, crops, livestock, inventory, propertyunimproved and equipment, residentialimproved real estate, and income-producing commercial properties.

Index to Financial Statements

NOTE 12 — COMMITMENTS AND CONTINGENCIES: (continued)

certificates of deposit, or personal property.

Standby and performance letters of credit are conditional commitments issued by the CorporationCompany to guarantee the performance of a customer to a third party. Those letters of creditguarantees are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year.local businesses. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation generally holds collateral supporting those commitments. Collateral held varies, as specified above, and is required in instances that the Corporation deems necessary.

The CorporationCompany has guaranteed certain credit cards issued to customers through the Corporation’s primary correspondent bank. The credit risk involved in these guarantees is essentially the sameentered into operating lease agreements for four branch locations and various office equipment. Total rent expense for 2018 and 2017 was approximately $452 thousand and $393 thousand, respectively. Future minimum rent on operating leases as that involved in extending loan facilities to customers. Collateral held varies, as specified above, and is required in instances that the Bank deems necessary. The guaranteed amount atof December 31, 20142018 is as follows (in thousands):

2019

  $609 

2020

   588 

2021

   541 

2022

   523 

2023

   533 

Thereafter

   958 
  

 

 

 

Total

  $3,752 
  

 

 

 

(12) Employee Benefit Plans

Equity Incentive Plan

During 2015, the Company adopted the River Financial Corporation 2015 Equity Incentive Plan (the “2015 Equity Incentive Plan”). These Equity Incentive Plans were adopted to provide a means of enhancing and 2013 was approximately $473,300encouraging the recruitment and $492,600, respectively.retention of individuals on whom the success of the Company depends.

At December 31, 2014The 2015 Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock unit awards, and 2013,restricted stock awards. A total of 300,000 shares were reserved for possible issuance under the carrying amount2015 Equity Incentive Plan. The maximum term of liabilities related togrants under the Corporation’s obligation to perform under financial standby letters of credit was insignificant. The Corporation has not been required to perform on any financial standby letters of credit,plan is ten years and the Corporation has not incurred any losses on financial standby lettersplan expires ten years after the adoption date.

A summary of creditactivity in the outstanding stock options for the years ended December 31, 20142018 and 2013.2017 is presented below:

 

Lease commitments —
   Shares   Weighted
Average
Exercise
Price		   Weighted
Average
Remaining
Contractual
Term (years)		   Range of Exercise
Prices		 

Outstanding at January 1, 2018

   268,375   $14.77    5.87   

Granted

   85,500    26.89     

Exercised

   (28,450)    11.16     
  

 

 

   

 

 

     

Outstanding at December 31, 2018

   325,425   $18.27    6.52   $8.40 to $27.00 
  

 

 

   

 

 

   

 

 

   

Exercisable at December 31, 2018

   150,525   $14.29    4.26   $8.40 to $27.00 
  

 

 

   

 

 

   

 

 

   

Outstanding at January 1, 2017

   267,425   $14.11    6.27   

Granted

   20,500    20.43     

Exercised

   (19,550)    11.73     
  

 

 

   

 

 

     

Outstanding at December 31, 2017

   268,375   $14.77    5.87   $8.00 to $22.75 
  

 

 

   

 

 

   

 

 

   

Exercisable at December 31, 2017

   142,575   $13.28    3.98   $8.00 to $22.75 
  

 

 

   

 

 

   

 

 

   

The Corporation leases buildings, property, office furniture,total fair value of shares underlying the options which vested during the years ended December 31, 2018 and equipment under various operating leases. Rent expense2017, was approximately $357,000$874 thousand and $339,000$951 thousand, respectively. The intrinsic value of options exercised during the years ended December 31, 2018 and 2017 was $365 thousand and $250 thousand, respectively. The aggregate intrinsic value of total options outstanding and exercisable options at December 31, 2018 was $1.86 million and $1.46 million, respectively. Cash received from options exercised for the year ended December 31, 2018 was $317 thousand. There was no income tax benefit recognized for the exercise of options for the years ended December 31, 20142018 and 2013.

Future minimum rental commitments under non-cancellable leases are2017 as follows:

2015

$522,915  

2016

 526,598  

2017

 524,982  

2018

 509,982  

2019

 516,529  

2020 and thereafter

 2,197,972  
  

 

 

 

Totals

$4,798,978  
  

 

 

 

Financial instruments with concentration of credit risk — Concentration by geographic location — The Corporation makes commercial, residential, and consumer loans to customers in Autauga, Elmore, Montgomery, and the adjoining counties in central Alabama. A substantial portion of the Corporation’s customers’ abilities to honor their contracts is dependent on the business and local economy in central Alabama.

Concentration of credit: The Corporation maintains its cash accounts at the Federal Home Loan Bank and various commercial banks that are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per institution. The Corporation’s management monitors these institutions on a quarterly basis to determine that the institutions meet well-capitalized guidelines as established by the FDIC and various asset quality and profitability information. In addition, federal funds sold are not insured or guaranteed by other parties.

Correspondent lending agreements — The Corporation has entered into correspondent lending agreements with various mortgage lenders. The agreements provide that the Corporation intends to, from time to time, offer to the mortgage lender for funding, conventional mortgage loans which the Corporation has originated and for which it has obtained credit and appraisal documentation. Such agreements do not commit the Corporation to offer mortgage loans to the mortgage lender or obligate the mortgage lender to accept any loan applications offered. However, the Corporation, in submitting loans to the mortgage lender for funding, agrees to comply with the pertinent requirements and warranties of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Housing Administration, Department of Veterans Affairs, and any other requirements of the mortgage lender.

Index to Financial Statements

NOTE 13 — STOCK COMPENSATION PLAN:

Under the Corporation’s Employee Stock Option Plan, the Corporation may grantall options to its directors, officers, and employees for up to 375,000 shares of common stock. Bothexercised were incentive stock options and non-qualifiedoptions.

As of December 31, 2017, unvested stock options may be granted under the Plan. The exercise price of each option equals the market price of the Corporation’s stock on the date of grant, and an option’s maximum term is 10 years. Vesting periods are five years from the date of grant. For the years ended December 31, 2014 and 2013, the Corporation recognized $26,924 and $31,189, respectively, in compensation expense for stock options. At December 31, 2014,totaled 125,800. During 2018, there was $39,535 of unrecognized compensation expense related towere 85,500 stock options that will be recognized over the next three years.

A summarywere granted and 36,400 stock options that vested resulting in unvested stock options of stock option activity174,900 as of December 31, 2014 and 2013, and changes during the year then ended is presented below:2018.

   Shares   Weighted
Average
Exercise Price		   Weighted
Average
Remaining
Contractual
Term (years)		 

Outstanding at January 1, 2014

   250,000    $11.75     4.96  

Granted

   0     0.00    

Exercised

   (11,500)    11.72    

Forfeited

   (13,500)    12.61    
  

 

 

   

 

 

   

Outstanding at December 31, 2014

 225,000  $11.71   3.99  
  

 

 

   

 

 

   

 

 

 

Exercisable at December 31, 2014

 174,500  $11.32   3.02  
  

 

 

   

 

 

   

 

 

 

Outstanding at January 1, 2013

 227,000  $11.67   5.38  

Granted

 30,000   12.47  

Exercised

 0   0.00  

Forfeited

 (7,000)  12.11  

Outstanding at December 31, 2013

 250,000  $11.75   4.96  
  

 

 

   

 

 

   

 

 

 

Exercisable at December 31, 2013

 170,300  $11.13   3.62  
  

 

 

   

 

 

   

 

 

 

The stock options granted in 20132018 and 2017 have a weighted average calculated value of $1.15.$3.85 and $2.22, respectively. The dividend yield is the estimated dividend we expect to pay over the next four or five years. The expected life is calculated as themid-point between the weighted-average time to vesting and the contractual maturity. The expected volatility is the approximate industry average for small bank and holding companies. The risk free interest rate is the U.S. Treasury rate on the day of the option grant for a term equal to the expected life of the option. The calculated value of each option grant is estimated on the date of grant using the Black-Scholes option-pricingoption pricing model with the following weighted-averageweighted average assumptions:

 

Dividend yield (after three years)

1.50% 

Expected life in years

7

Expected volatility

10.00% 

Risk free interest rate

1.41% 
   2018  2017 

Dividend yield (after three years)

   1.50%   1.50% 

Expected life in years

   7   7 

Expected volatility

   10.00%   10.00% 

Risk free interest rate

   3.05%   2.07% 

The Company recognized $68 thousand and $56 thousand in compensation expense related to performance share awards during 2018 and 2017, respectively. As of December 31, 2018, there was approximately $412 thousand of unrecorded compensation expense related to the performance share awards which is expected volatility is based on similar community banks in Alabama. to be recognized over a weighted average period of 1.8 years.

Defined Contribution Plan

The risk-free interest rates for periods within the contractual lifeCompany provides a 401(k) employee stock ownership plan, which covers substantially all of the awardsCompany’s employees who are based on the U.S. Treasury rate in effect at the timeeligible, as to age and length of service. A participant may elect to make contributions up to $18,500 and $18,000 of the grant.participant’s annual compensation in 2018 and 2017. The expected life is based on historical exercise experience. The dividend yield assumption is based onCompany makes contributions up to 3% of each participant’s annual compensation and the Corporation’s expectation of dividend payouts over the contractual lifeCompany matches 50% of the awards.

Effective November 30, 2012,next 2% contributed by the Corporation was formedemployee. Contributions to the plan by Company were approximately $341 thousand and entered into an Agreement of Reorganization$306 thousand in 2018 and Share Exchange (the Agreement) with the Bank pursuant to which the Bank became a wholly-owned subsidiary2017, respectively. Outstanding shares of the Corporation. The Agreement provided for the exchange of 100% of the issued and outstanding shares of Bank’sCompany’s common stock allocated to participants at December 31, 2018 and 2017 totaled 68,889 and 53,715 respectively, and there were no unallocated shares. These shares are treated as outstanding for purposes of calculating earnings per share and dividends on these shares are included in the Consolidated Statements of Stockholders’ Equity.

The Company’s KSOP includes a put option for shares of the Corporation’sCompany’s common stock. As partstock distributed from the KSOP. Shares are distributed from the KSOP primarily to separated vested participants and certain eligible participants who elect to diversify their account balances. Since the Company’s common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value during two put option periods following the distribution of the agreement,shares from the Corporation

Index to Financial Statements

NOTE 13 — STOCK COMPENSATION PLAN (Continued):

agreed thatKSOP. The first put option period is within sixty days following the Bank may obligate the Corporation’s common stock. As partdistribution of the agreement,shares from the Corporation agreed thatKSOP. The second put option period begins on the Bank may obligate the Corporation to issue sharesfirst day of the Corporation’s stock pursuantfifth month of the plan year for a sixty day period. The fair value of distributed shares subject to the exerciseput option totaled $0 as of any optionsDecember 31, 2018 and December 31, 2017. The cost of the KSOP shares totaled $1.37 million and $950 thousand as of December 31, 2018 and December 31, 2017, respectively. Due to the Company’s obligation under the Employee Stock Option Plan. As a resultput option, the distributed shares and KSOP shares are classified as temporary equity in the mezzanine section of the Agreement, all outstanding options were in effect transferred toconsolidated statements of financial condition and totaled $1.37 million and $950 thousand as of December 31, 2018 and December 31, 2017, respectively. The fair value of the Corporation.KSOP shares totaled $1.65 million and $1.32 million as of December 31, 2018 and December 31, 2017, respectively.

NOTE 14 — STOCK WARRANTS:(13) Stock Warrants

On April 3, 2006,December 31, 2015, the Bank issued 325,000Company assumed the outstanding stock warrants of Keystone. These warrants were issued to the initial organizers of Keystone in 2007. At the Bank for their involvement in the organizationtime of the Bank. Vesting periods are five years frommerger the datewarrants were converted under the terms of grant. Therethe merger. A total of 36,000 warrants were no stock warrants issued during 2014 or 2013. These warrants haveassumed with an exercise price of $10 a share and expire$8.00 per share. These warrants expired on April 3, 2016.March 1, 2017. During 2016, warrants for 29,750 shares were exercised. At December 31, 2014 and 2013, 135,0002016, the remaining 6,250 shares were vested and exercisable. During 2014 and 2013, no stock2017, the remaining - warrants were exercised. There were no warrants exercised in 2018. None of the warrants hadhave been forfeitedforfeited. No compensation expense is required by accounting principles generally accepted in the United State of America to be recorded in connection with these stock warrants.

(14) Related Party Transactions

The Company conducts transactions with its directors and executive officers, including companies in which such directors and executive officers have a beneficial interest, in the normal course of business. It is the Company’s policy to comply with federal regulations that require that loan and deposit transactions with directors and executive officers be made on substantially the same terms as ofthose prevailing at the time for comparable loans and deposits to other persons. At December 31, 2014.2018 and 2017, deposits from directors, executive officers and their related interests aggregated approximately $5.7 million and $4 million, respectively. These deposits were taken in the normal course of business at market interest rates.

NOTE 15 — RESTRICTIONS ON TRANSFERS OF FUNDS:

The Corporation’s principal sourcefollowing is a summary of fundsactivity for dividend payments is dividends received from the Bank. Statutory limits are placed onrelated party loans for 2018 and 2017 (in thousands):

   2018   2017 

Balance at beginning of year

  $8,369   $9,551 

New loans

   11,097    15,690 

Repayments

   14,145    16,872 
  

 

 

   

 

 

 

Balance at end of year

  $5,321   $8,369 
  

 

 

   

 

 

 

(15) Regulatory Matters

Banking regulations limit the amount of dividends banks canthat the Banks may pay without prior bankapproval of the regulatory authority approval. Asauthorities. These restrictions are based on the level of December 31, 2014regulatory classified assets, the prior years’ net earnings, and 2013, the maximum amount the Bank could dividendratio of equity capital to the Corporation without prior bank regulatory authority approval was approximately $4,387,000 and $3,844,000, respectively. In addition to dividend restrictions, federal statutes prohibit unsecured loans from banks to bank holding companies.

NOTE 16 — MINIMUM REGULATORY CAPITAL REQUIREMENTS:total assets.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capitalcertain adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under regulatory accounting practices.practices must be met. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, the federal bank regulatory agencies issued final rules implementing the Basel III regulatory capital framework as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rules took effect for the Bank on January 1, 2015, subject to a transition period for certain parts of the rules. The rules revise the minimum capital requirements and adjust the prompt corrective action thresholds applicable to financial institutions under the agencies’ jurisdiction. The rules revise the regulatory capital elements, add a new common equity Tier 1 capital ratio, increase the minimum Tier 1 capital ratio requirements, and implement a new capital conservation buffer. The rules also permit certain banking organizations to retain, through aone-time election, the existing treatment of accumulated other comprehensive income. The Bank has made the election to retain the existing treatment for accumulated other comprehensive income.

The rules are intended to provide an additional measure of a bank’s capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically maintain capital against such“off-balance sheet” activities as loans sold with recourse, loan commitments, guarantees, and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loan loss reserves and other forms of equity, such as preferred stock, that may be included in capital. Certain items, such as goodwill and other intangible assets, are deducted from capital in arriving at the various regulatory capital measures, such as common equity Tier 1 capital, Tier 1 capital, and total risk-based capital.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of totalTotal and Tier I capital1 Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital1 Capital (as defined) to average assets (as defined). Management believes, as of December 31, 20142018 and 2013,2017, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2014,2018 and 2017, the most recent notification from the Federal Deposit Insurance Corporationregulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I1 risk-based and Tier I1 leverage ratios as set forth in the following table.table below. There are no conditions or events since that notification that management believes have changed the institution’sBank’s category.

Index

The following table presents the Bank’s capital amounts and ratios with the required minimum levels for capital adequacy purposes including the phase in of the capital conservation buffer under Basel III and minimum levels to Financial Statements

NOTE 16 — MINIMUM REGULATORY CAPITAL REQUIREMENTS: (continued)

be well capitalized (as defined) under the regulatory prompt corrective action regulations.

The Bank’s actual capital amounts (in thousands) and ratios are also presented in the tables (amounts in thousands).table below.

 

As of December 31, 2018:

  Actual Required For Capital
Adequacy Purposes		 To Be Well Capitalized
Under Prompt Corrective
Action Regulations		 
  Actual Required For Capital
Adequacy Purposes		 To Be Well Capitalized
Under Prompt Corrective
Action Regulations		   Amount   Ratio Amount   Ratio     Amount           Ratio     
  Amount   Ratio Amount (a)   Ratio (a) Amount (a)   Ratio (a)��

As of December 31, 2014:

          

Total Capital (To Risk-Weighted Assets)

  $45,913     15.65%  $23,470     >=8.00%  $29,337     >=10.00%   $115,721    14.253%  $80,174    >= 9.875%  $81,189    >= 10.000% 

Common Equity Tier 1 Capital (To Risk- weighted Assets)

   109,144    13.443%  51,758    >= 6.375%  $52,773    >= 6.500% 

Tier 1 Capital (To Risk-Weighted Assets)

   42,232     14.40%  11,731     >=4.00%  17,597     >=6.00%    109,144    13.443%  63,936    >= 7.875%  $64,951    >= 8.000% 

Tier 1 Capital (To Average Assets)

   42,232     9.68%  17,451     >=4.00%  21,814     >=5.00%    109,144    14.006%  31,172    >= 4.000%  $38,965    >= 5.000% 

As of December 31, 2013:

          

Total Capital (To Risk-Weighted Assets)

  $43,122     15.79%  $21,848     >=8.00%  $27,310     >=10.00% 

Tier 1 Capital (To Risk-Weighted Assets)

   39,705     14.54%  10,923     >=4.00%  16,384     >=6.00% 

Tier 1 Capital (To Average Assets)

   39,705     9.25%  17,170     >=4.00%  21,462     >=5.00% 

 

(a)The amount and rates provided are minimums under the regulations.

As of December 31, 2017:

  Actual  Required For Capital
Adequacy Purposes		  To Be Well Capitalized
Under Prompt Corrective
Action Regulations		 
   Amount   Ratio  Amount   Ratio      Amount           Ratio     

Total Capital (To Risk-Weighted Assets)

  $89,604    14.325%  $57,859    >= 9.250%  $62,551    >= 10.000% 

Common Equity Tier 1 Capital (To Risk- weighted Assets)

   84,724    13.545%   35,967    >= 5.750%  $40,658    >= 6.500% 

Tier 1 Capital (To Risk-Weighted Assets)

   84,724    13.545%   45,349    >= 7.250%  $50,040    >= 8.000% 

Tier 1 Capital (To Average Assets)

   84,724    10.429%   32,497    >= 4.000%  $40,621    >= 5.000% 

NOTE 17 — TRANSACTIONS WITH RELATED PARTIES:

The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, significant stockholders, principal officers, their immediate families, and affiliated companies in which they are principal stockholders (commonly referred to as related parties). In management’s opinion, these loans and transactions were on the same terms as those for comparable loans and transactions with non-related parties.

Aggregate loan transactions with related parties for the years ended December 31, 2014 and 2013 were as follows:

   2014   2013 

Balance at beginning of year

  $15,394    $15,109  

New loans

   21,406     6,266  

Repayments

   (18,506)    (5,981) 
  

 

 

   

 

 

 

Balance at end of year

$18,294  $15,394  
  

 

 

   

 

 

 

Maximum balance during year

$22,189  $21,180  

Deposits from related parties held by the Bank at December 31, 2014 and 2013 were approximately $8,292,000 and $12,897,000, respectively.

As of December 31, 2014 and 2013, the Bank had approximately $3,209,000 and $3,983,000, respectively, of securities sold under repurchase agreements to a company with which a director of the Bank is affiliated. The agreement was made in the ordinary course of business and on substantially the same terms, including interest rate and collateral, as those available at the same time for comparable transactions with other persons.

All insurance policies purchased during 2014 and 2013 with the exception of bank owned life insurance policies, were purchased from an insurance company owned by a director and shareholder of the Bank. The premiums paid for these policies totaled $88,382 and $97,935 for 2014 and 2013, respectively.

NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS:

Determination of fair value — The Bank has adopted accounting guidance related to fair value measurements and disclosures (FASB ASC 820,(16) Fair Value Measurements and Disclosures). Disclosures

The Bank usesCompany utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance withSecuritiesavailable-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, other real estate, and repossessed assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets.

Fair Value Measurements and Disclosures topic of FASB ASC, the fair value

Index to Financial Statements

NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):

of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.Hierarchy

The 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 market 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 this guidance, the BankCompany groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value.

Fair value hierarchy These levels are:

Level 1:1 – Valuation is based onupon quoted prices for identical instruments traded in active markets for identical assets or liabilities in active markets that the reporting entity had the ability to access at the measurement date. Level assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.markets.

Level 2:2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based onupon quoted prices for similar assetsinstruments in active markets, quoted prices for identical or liabilities; quoted pricessimilar instruments in markets that are not active; or other inputs thatactive, and model- based valuation techniques for which all significant assumptions are observable or can be corroborated byin the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market data for substantially the full term ofparticipants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Level 3: ValuationFollowing is a description of valuation methodologies used for assets and liabilities recorded or disclosed at fair value.

Cash and Cash Equivalents

For disclosure purposes, for cash, due from banks, interest-bearing deposits, and federal funds sold, the carrying amount is a reasonable estimate of fair value.

Certificates of Deposits in Banks

For disclosure purposes, for certificates of deposits in banks, the carrying amount is a reasonable estimate of fair value.

SecuritiesAvailable-for-Sale

Securitiesavailable-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on unobservable inputsan active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are supportedtraded by littledealers or nobrokers in activeover-the-counter market activityfunds. Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Investments

For disclosure purposes, the carrying amount of other investments approximates their fair value.

Loans and Mortgage LoansHeld-for-Sale

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. When a loan is identified as individually impaired, management measures impairment using one of three methods. These methods include collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2018 and 2017, impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral, or loans that are significantcharged down according to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair valuecollateral, require significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant toclassification in the fair value measurement.

The following methods and assumptions were used by the Bank in estimating fair value disclosures for financial instruments:

Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate their fair values.

Securities available-for-sale — The fair value of securities are obtained from a third party who utilizes quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Index to Financial Statements

NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):

Restricted equity securities — It is not practical to determinehierarchy. When the fair value of restricted equity securities due to restrictions placed on transferability.

Mortgage loans held-for-sale — Fair values of mortgage loans held for sale arethe collateral is based on commitments on hand from investors or prevailingan observable market prices.

Loans receivable — For variable-rate loans that reprice frequently and have no significant change in credit risk,price, the Company records the impaired loan as nonrecurring Level 2. When the fair values arevalue is based on carrying values. Thean appraised value, the Company records the impaired loan as nonrecurring Level 3.

For disclosure purposes, the fair value of fixed-rate loans is estimated by discounting the future cash flows using discounted cash flow analyses and using interestthe current rates currently being offered forat which similar loans would be made to borrowers with similar terms to borrowerscredit ratings. For variable rate loans, the carrying amount is a reasonable estimate of similar credit quality.fair value. Mortgage loansheld-for-sale are carried at cost, which is a reasonable estimate of fair value.

CashBank Owned Life Insurance

For disclosure purposes, the fair value of the cash surrender value of life insurance policies is equivalent to the carrying value.

Accrued Interest Receivable — The

For disclosure purposes, the fair value of the accrued interest on investments and loans is the carrying value.

Foreclosed Assets

Other real estate properties and miscellaneous repossessed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of bank-owned life insurance approximatesthe collateral or management’s estimation of the value of the collateral. When the fair value becauseof the investmentcollateral is carried at cash surrenderbased on an observable market price, the Company records the foreclosed asset as nonrecurring Level 2. When fair value is based on an appraised value or management’s estimate of value, the Company records the foreclosed asset as determined by the insurer.nonrecurring Level 3.

Deposit liabilitiesDeposits — The

For disclosure purposes, the fair values disclosed forvalue of demand deposits, interest-bearing demand deposits, money market accounts, and savings accounts and certain money market deposits are, by definition, equal tois the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings — The carrying amounts of borrowings under repurchase agreements and other short-term borrowings maturing within 90 days approximate their fair values.

Accrued interest — The carrying amounts of accrued interest approximate fair value.

Long-term borrowings —date. The fair value of long-term borrowingsfixed-rate maturity certificates of deposit is estimated by discounting the future cash flows using discounted cash flow analyses using interestthe rates currently offered for borrowingdeposits of similar remaining maturities.

Accrued Interest Payable

For disclosure purposes, the fair value of the accrued interest payable on deposits is the carrying value.

Federal Home Loan Bank Advances

For disclosure purposes, the fair value of the FHLB advances is based on the quoted value for similar remaining maturities provided by the FHLB.

Federal Funds Purchased

For disclosure purposes, the fair value of federal funds purchased is the carrying value.

Note Payable

For disclosure purposes, the fair value of the fixed rate note payable is the carrying value.

Commitments to Extend Credit and Standby Letters of Credit

Because commitments to extend credit and standby letters of credit are generally short-term and made using variable rates, the carrying value and estimated fair value associated with similar maturity.these instruments are immaterial.

Assets and liabilities measuredLiabilities Recorded at fair valueFair Value on a recurring basisRecurring Basis —

The onlytable below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis are our securities available-for-sale. Information relatedas of December 31, 2018 and 2017. There were no transfers between levels during 2018 or 2017 (in thousands).

   Fair Value Measurements At Reporting Date Using: 

December 31, 2018:

  Fair Value   Quoted Prices
In Active
Markets For
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Securitiesavailable-for-sale:

        

Residential mortgage-backed

  $104,933   $—     $104,933   $—   

U.S. government agencies

   63,922    —      63,922    —   

State, county, and municipal

   57,160    —      57,160    —   

Corporate obligations

   2,615    —      2,615    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $228,630   $—     $228,630   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

   Fair Value Measurements At Reporting Date Using: 

December 31, 2017:

  Fair Value   Quoted Prices
In Active
Markets For
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Securitiesavailable-for-sale:

        

Residential mortgage-backed

  $122,972   $—     $122,972   $—   

U.S. government agencies

   12,999    —      12,999    —   

State, county, and municipal

   55,501    —      55,501    —   

Corporate obligations

   1,817    —      1,817    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $193,289   $—     $193,289   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to the Corporation’stime, to measure certain assets and liabilities measured at fair value on a recurringnonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at December 31, 2014 and 2013 is as follows (amounts in thousands):

   Fair Value Measurements At Reporting Date Using:

December 31, 2014

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		  Significant Other
Observable
Inputs (Level 2)		   Significant
Unobservable
Inputs (Level 3)

Securities available-for-sale:

        

Residential mortgage -backed

  $72,809      $72,809    

U.S. government agencies

   31,281       31,281    

State, county, and municipal

   25,193       25,193    

Corporate obligations

   1,002       1,002    
  

 

 

   

 

  

 

 

   

 

Totals

$130,285  $130,285  
  

 

 

   

 

  

 

 

   

 

Index to Financial Statements

NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):

   Fair Value Measurements At Reporting Date Using:

December 31, 2013

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		  Significant
Other Observable
Inputs (Level 2)		   Significant
Unobservable
Inputs
(Level 3)

Securities available-for-sale:

        

Residential mortgage -backed

  $93,576      $93,576    

U.S. government agencies

   38,831       38,831    

State, county, and municipal

   21,051       21,051    

Corporate obligations

   998       998    
  

 

 

   

 

  

 

 

   

 

Totals

$154,456  $154,456  
  

 

 

   

 

  

 

 

   

 

the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis — The Corporation has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. The following table presents the financial instruments carried on the balance sheet by caption and by levelincluded in the fair value hierarchy, for which a non-recurring change in fair value has been recordedtable below as of December 31, 20142018 and 20132017 (in thousands):.

 

  Fair Value Measurements At Reporting Date Using:   Fair Value Measurements At Reporting Date Using: 

December 31, 2014

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2018:

  Fair Value   Quoted Prices
In Active
Markets For
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $3,393        $3,393    $3,782   $—     $—     $3,782 

Foreclosed assets

   2,340         2,340     496    —      —      496 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Totals

$5,733  $—    $—    $5,733    $4,278   $—     $—     $4,278 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

December 31, 2013

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $5,148        $5,148  

Foreclosed assets

   427         427  
  

 

   

 

   

 

   

 

 

Totals

$5,575  $—    $—    $5,575  
  

 

   

 

   

 

   

 

 

   Fair Value Measurements At Reporting Date Using: 

December 31, 2017:

  Fair Value   Quoted Prices
In Active
Markets For
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $4,654   $—     $—     $4,654 

Foreclosed assets

   1,546    —      —      1,546 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $6,200   $—     $—     $6,200 
  

 

 

   

 

 

   

 

 

   

 

 

 

The CorporationCompany has estimated the fair values of these assets using Level 3 inputs, specifically the appraised value of the collateral. Impaired loan balances represent those collateral dependent impaired loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the impaired loan for the amount of the credit loss. The decrease in specific allowances assigned to impaired loansCompany had no Level 3 assets measured at fair value on a recurring basis at December 31, 2018 or 2017. For Level 3 assets measured at fair value on anon-recurring basis as of December 31, 2018 and 2017 for the valuation technique, we used appraisals. For the significant unobservable input, we used appraisal discounts and the weighted average input of 15-20% was $148,000 and $661,000used. This is for the years ended December 31, 20142018 and 2013, respectively.2017.

Index to Financial Statements

NOTE 18 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):

The estimated fair values and related carrying or notional amounts,values of the Corporation’sCompany’s financial instruments for the years endedat December 31, 20142018 and 2013 are2017 were as follows (amounts in thousands):

 

  December 31, 2014   December 31, 2013       Estimated Fair Value 
  Carrying
Amount		   Fair Value   Carrying
Amount		   Fair Value 

December 31, 2018:

  Carrying
Amount		   Level 1   Level 2   Level 3 

Financial assets:

                

Cash and cash equivalents

  $25,369    $25,369    $30,421    $30,421    $47,507   $47,507   $—     $—   

Certificates of deposit in banks

   6,166    —      6,166    —   

Securities available-for-sale

   130,285     130,285     154,456     154,456     228,630    —      228,630    —   

Restricted equity securities

   669     669     507     507     1,941    —      —      1,941 

Loans receivable

   261,360     262,102     233,811     234,571     704,685    —      699,076    3,782 

Loans held for sale

   2,619    —      2,619    —   

Bank owned life insurance

   9,666     9,666     5,490     5,490     20,563    —      20,563    —   

Accrued interest receivable

   1,597     1,597     1,553     1,553     3,260    —      3,260    —   

Financial liabilities:

                

Deposits

   387,831     381,735     395,317     390,749     898,707    —      861,683    —   

Short-term borrowings

   8,043     8,043     9,261     9,261  

Long-term borrowings

   6,000     6,024     —       —    

Accrued interest payable

   462    —      462   

Securities sold under agreements to repurchase

   7,975    —      7,975    —   

Federal Home Loan Bank advances

   20,000      19,999   

Federal funds purchased

   —        —     

Note payable

   26,963    —      26,963    —   

The estimated fair values

       Estimated Fair Value 

December 31, 2017:

  Carrying
Amount		   Level 1   Level 2   Level 3 

Financial assets:

        

Cash and cash equivalents

  $15,558   $15,558   $—     $—   

Certificates of deposit in banks

   5,214    —      5,214    —   

Securitiesavailable-for-sale

   193,289    —      193,289    —   

Restricted equity securities

   1,259    —      —      1,259 

Loans receivable

   542,240    —      536,701    4,654 

Loans held for sale

   3,858    —      3,858    —   

Bank owned life insurance

   19,991    —      19,991    —   

Accrued interest receivable

   2,499    —      2,499    —   

Financial liabilities:

        

Deposits

   699,861    —      675,871    —   

Accrued interest payable

   121      121   

Securities sold under agreements to repurchase

   13,865    —      13,865    —   

Federal Home Loan Bank advances

   10,000      9,997   

Federal funds purchased

   1,153    —      1,153    —   

Note payable

   5,357      5,357   

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the standby letters of credit and loan commitments on which the committed interest rate is less than the current market rate are insignificant at December 31, 2014 and 2013.

The Corporation assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Corporation’sCompany’s financial instruments, will change when interest rate levels changefair value estimates are based on many judgments. These estimates are subjective in nature and that change mayinvolve uncertainties and matters of significant judgment and therefore cannot be either favorable or unfavorabledetermined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existingon- andoff-balance sheet financial instruments without attempting to estimate the Corporation. Management attempts to match maturitiesvalue of anticipated future business and the value of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed-rate obligationsthat are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed-rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling-rate environment. Management monitors rates and maturities ofnot considered financial instruments. Significant assets and liabilities that are not considered financial instruments include mortgage banking operations, deferred income taxes and attempts to minimize interest rate risk by adjusting terms of new loanspremises and deposits and by investing in securities with terms that mitigateequipment. In addition, the Corporation’s overall interest rate risk.

NOTE 19 — SUBSEQUENT EVENTS:

The Corporation has evaluated all events subsequenttax ramifications related to the balance sheetrealization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

(17) River Financial Corporation (Parent Company Only) Financial Information

STATEMENTS OF FINANCIAL CONDITION

(in thousands)

   December 31, 
   2018  2017 

Assets

   

Cash

  $10,130  $1,619 

Investment in River Bank & Trust

   128,452   93,593 

Deferred income taxes

   4   9 

Other assets

   180   91 
  

 

 

  

 

 

 

Total assets

  $138,766  $95,312 
  

 

 

  

 

 

 

Liabilities

   

Note payable

  $26,963  $5,357 

Accrued expenses

   327   6 
  

 

 

  

 

 

 

Total liabilities

   27,290   5,363 
  

 

 

  

 

 

 

Common stock related to 401(k) Employee Stock Option Plan

   1,371   950 
  

 

 

  

 

 

 

Stockholders’ equity

   

Common stock

   5,692   5,114 

Additional paid in capital

   79,604   64,935 

Retained earnings

   29,460   22,388 

Accumulated other comprehensive loss

   (3,167)   (2,116) 

Treasury stock, at cost

   (113)   (372) 

Common stock related to 401(k) Employee Stock Option Plan

   (1,371)   (950) 
  

 

 

  

 

 

 

Total stockholders’ equity

   110,105   88,999 

Total equity

   111,476   89,949 
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $138,766  $95,312 
  

 

 

  

 

 

 

STATEMENTS OF INCOME

(in thousands)

   Year Ended December 31, 
       2018          2017     

Cash dividends from River Bank & Trust

  $3,750  $2,250 

Other income

   22   —   
  

 

 

  

 

 

 

Total income

   3,772   2,250 

Interest expense – note payable

   485   249 

Legal and other professional fees

   394   101 

Data processing expense

   77   4 

Stockholders’ meeting expense

   12   11 

Other expenses

   61   10 
  

 

 

  

 

 

 

Total expenses

   1,029   375 
  

 

 

  

 

 

 

Net income before tax benefit

   2,743   1,875 

Applicable income tax benefit

   (182)   (134) 
  

 

 

  

 

 

 

Net income before undistributed net income of River Bank & Trust

   2,925   2,009 

Equity in undistributed net income of River Bank & Trust

   5,581   6,286 
  

 

 

  

 

 

 

Net income

  $8,506  $8,295 
  

 

 

  

 

 

 

STATEMENTS OF CASH FLOWS

(in thousands)

   Year Ended December 31, 
        2018            2017      

Net income

  $8,506  $8,295 

Adjustments to reconcile net income to net cash provided by operating activities:

   

Equity in undistributed net income of River Bank & Trust

   (5,581)   (6,286) 

Deferred income tax

   5   7 

(Increase) decrease in operating assets and (decrease) increase in operating liabilities:

   

Other assets

   (89)   26 

Accrued expenses and other liabilities

   321   5 
  

 

 

  

 

 

 

Net cash provided by operating activities

   3,162   2,047 

Cash Flows used for investing activities:

   

Net cash received in acquisition

   241   —   

Payments to Peoples Southern Bank shareholders

   (24,497)   —   
  

 

 

  

 

 

 

Net cash used in investing activities

   (24,256)   —   

Cash flow from financing activities:

   

Proceeds from note payable

   27,000   —   

Payments on note payable

   (5,394)   (1,071) 

Proceeds from exercise of common stock options and warrants

   317   263 

Proceeds from issuance of common stock

   8,832   85 

Purchase of treasury stock

   (146)   (579) 

Sale of treasury stock

   430   281 

Cash dividends

   (1,434)   (1,272) 
  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   29,605   (2,293) 

Net change in cash

   8,511   (246) 

Cash at beginning of year

   1,619   1,865 
  

 

 

  

 

 

 

Cash at end of year

  $10,130  $1,619 
  

 

 

  

 

 

 

(18) Goodwill and Intangible Assets

At the close of business on October 31, 2018, the Company recorded goodwill of $8.2 million associated with the PSB merger. In addition to the goodwill recorded for the PSB merger, the Company recorded a core deposit intangible asset of approximately $4.65 million. The core deposit intangible asset is amortized using an accelerated method over ten years from the date of the merger. Amortization expense of $153 thousand was recorded in 2018.

At the close of business December 31, 2014, through the date these financial statements were available to be issued.

On May 12 & 13, 2015, the Corporation entered intoCompany recorded goodwill of $9.41 million associated with the Keystone merger. During 2016, an Agreement and Planadjustment of Merger (the “Merger Agreement”) with Keystone Bancshares, Inc. (“Keystone”),$640 thousand was made to increase the holding companyamount of Keystone Bank. Pursuantgoodwill. The adjustment was made to the termsvalue of stock options and warrants assumed in the Merger Agreement, Keystone will be merged with and intomerger. The adjustments were made following the Corporation, withCompany’s review of additional information that existed at the Corporation surviving the merger. After the merger, Keystone Bank will be merged with and into the Bank, with the Bank survivingtime of the merger. The transactions contemplated byadjustment to goodwill increased shareholders’ equity $640 thousand. In addition to the Merger Agreement are expected to be completed during 2015 and are contingent on customary conditions, including regulatory approval andgoodwill recorded for Keystone, the approvalCompany recorded a core deposit intangible asset of approximately $2.8 million. The core deposit intangible asset is amortized using an accelerated method over eight years from the date of the shareholdersmerger. Amortization expense of both$474 thousand and $559 thousand was recorded in 2018 and 2017, respectively.

Changes to the Corporation and Keystone.

Under the termscarrying amount of the Merger Agreement, Keystone shareholders will receive, for each of their shares, one share of the Corporation’s common stock and $4.00 in cash. The Corporation expects to record goodwill and intangible assets of approximately $10 million related to this acquisition. The Corporation is not able to make the remaining disclosures required by purchase accounting standards as management has not yet completed the initial accounting for this business combination.

Index to Financial Statements

NOTE 20 — PARENT COMPANY FINANCIAL STATEMENTS

The following information presents the condensed statement of condition as of December 31, 2014 and 2013, and statements of income and cash flows of the River Financial Corporation for the years ended December 31, 20142018 and 2013.2017 are provided in the following table.

 

   2014   2013 

Condensed Statements of Financial Condition

    

Assets

    

Cash

  $1,192,858    $372,946  

Investment in River Bank & Trust

   42,837,960     37,875,769  

Income taxes receivable

   —       6,140  
  

 

 

   

 

 

 

Total assets

$44,030,818  $38,254,855  
  

 

 

   

 

 

 

Stockholders’ equity

$44,030,818  $38,254,855  
  

 

 

   

 

 

 
   2018   2017 

Balance at beginning of year

  $10,050   $10,050 

Goodwill from current year PSB acquisition

   8,243   
  

 

 

   

 

 

 

Balance at end of year

  $18,293   $10,050 
  

 

 

   

 

 

 

A summary of core deposit intangible assets as of December 31, 2018 and 2017 is set forth below.

 

   2014  2013 

Condensed Statement of Income

   

Cash dividends from River Bank & Trust

  $1,000,000   $1,000,000  
  

 

 

  

 

 

 

Total income

 1,000,000   1,000,000  

Legal and other professional fees

 18,280   36,809  

Stockholders’ meeting expense

 10,637   11,974  

Other expenses

 1,209   183  
  

 

 

  

 

 

 

Total expenses

 30,126   48,966  
  

 

 

  

 

 

 

Net income before tax benefit

 969,874   951,034  

Applicable income tax benefit

 (10,243)  (17,141) 
  

 

 

  

 

 

 

Net income before undistributed net income of River Bank & Trust

 980,117   968,175  

Equity in undistributed net income of River Bank & Trust

 2,499,664   1,982,373  
  

 

 

  

 

 

 

Net income

$3,479,781  $2,950,548  
  

 

 

  

 

 

 
   2018   2017 

Gross carrying amount

  $7,413   $2,763 

Less: accumulated amortization

   (1,830)    (1,203) 
  

 

 

   

 

 

 

Net carrying amount

  $5,583   $1,560 
  

 

 

   

 

 

 

Estimated amortization expenses related to the core deposit intangible assets for the next five years are as follows:

 

   2014  2013 

Condensed Statement of Cash Flows

   

Net income

  $3,479,781   $2,950,548  

Adjustments to reconcile net income to net cash provided by operating activities:

   

Equity in undistributed net income of River Bank & Trust of River Bank & Trust

   (2,499,664)   (1,982,373) 

Decrease (Increase) in income taxes receivable

   6,140    (10,528) 
  

 

 

  

 

 

 

Net cash provided by operating activities

 986,257   957,647  

Cash flow from financing activities:

Proceeds from exercise of common stock options and warrants

 134,750   —    

Purchase of treasury stock

 (157,070)  (817,571) 

Sale of treasury stock

 151,905   —    

Cash dividends

 (295,930)  —    
  

 

 

  

 

 

 

Net cash used in financing activities

 (166,345)  (817,571) 

Net increase in cash

 819,912   140,076  

Cash at beginning of year

 372,946   232,870  
  

 

 

  

 

 

 

Cash at end of year

$1,192,858  $372,946  
  

 

 

  

 

 

 
   Keystone   PSB   Total 

2019

  $388   $865   $1,253 

2020

   303    772    1,075 

2021

   217    680    897 

2022

   132    588    720 

2023

   46    496    542 

Afterward

     1,096    1,096 
  

 

 

   

 

 

   

 

 

 
  $1,086   $4,497   $5,583 
  

 

 

   

 

 

   

 

 

 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

IndexThere were no disagreements with accountants regarding accounting and financial disclosure matters during the year ended December 31, 2018.

Item 9.A Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has carried out an evaluation under the supervision and with participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even the effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018, the Company’s disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in reports that if files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining internal control over financial reporting (as defined in Rule13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with the authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control Integrated Framework (2013). Based on its assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2018.

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

RIVER FINANCIAL CORPORATION

Consolidated Statements of Financial Condition

(in thousands except share data)

 

  March 31,
2015
Unaudited		 December 31,
2014
Audited		   June 30, 2019
Unaudited		 December 31, 2018
Audited		 
Assets   

Cash and due from banks

  $12,726   $16,171    $16,992  $13,834 

Interest-bearing deposits in banks

   278   6,018     23,493  32,253 

Federal funds sold

   3,985   3,180     18,020  1,420 
  

 

  

 

   

 

  

 

 

Cash and cash equivalents

 16,989   25,369     58,505  47,507 

Certificates of deposit in banks

 1,743   1,992     5,683  6,166 

Securities available-for-sale

 124,834   130,284  

Loans, net of deferred fees

 277,095   265,137  

Securitiesavailable-for-sale, at fair value

   220,486  228,630 

Loans held for sale

   6,005  2,619 

Loans, net of unearned income

   748,926  711,262 

Less allowance for loan losses

 (3,925)  (3,778)    (7,104)  (6,577) 
  

 

  

 

   

 

  

 

 

Net loans

 273,170   261,359     741,822  704,685 

Premises and equipment, net

 13,304   12,699     28,972  26,827 

Accrued interest receivable

 1,461   1,597     3,422  3,260 

Bank owned life insurance

 9,741   9,666     20,843  20,563 

Foreclosed assets

 2,196   2,340     277  496 

Deferred income taxes

 73   120  

Deferred income taxes, net

   44  1,181 

Core deposit intangible

   4,934  5,583 

Goodwill

   18,293  18,293 

Other assets

 1,541   1,278     7,970  4,654 
  

 

  

 

   

 

  

 

 

Total assets

$445,052  $446,704    $1,117,256  $1,070,464 
  

 

  

 

   

 

  

 

 
Liabilities and Shareholders’ Equity   

Noninterest-bearing deposits

 86,676   88,839    $258,697  $241,274 

Interest-bearing deposits

 299,131   298,992     698,673  657,433 
  

 

  

 

   

 

  

 

 

Total deposits

 385,807   387,831     957,370  898,707 
  

 

  

 

 

Short-term debt

 7,289   8,043  

Long-term debt

 6,000   6,000  

Securities sold under agreements to repurchase

   7,149  7,975 

Federal Home Loan Bank advances

   —    20,000 

Note payable

   25,388  26,963 

Accrued interest payable and other liabilities

 1,207   799     7,678  5,343 
  

 

  

 

   

 

  

 

 

Total liabilities

 400,303   402,673     997,585  958,988 
  

 

  

 

   

 

  

 

 

Common stock ($1 par value; 5,000,000 shares authorized; 3,057,612 and 3,057,612 issued; 2,993,137 and 2,998,837 shares outstanding, respectively

 3,058   3,058  

Additional paid in capital

 35,181   35,175  

Common stock related to 401(k) Employee Stock Ownership Plan

   1,599  1,343 
  

 

  

 

 
Stockholders’ Equity   

Common stock ($1 par value; 10,000,000 shares authorized; 5,707,848 and 5,692,123 shares issued; 5,705,082 and 5,687,914 shares outstanding, respectively)

   5,708  5,692 

Additionalpaid-in capital

   79,776  79,604 

Retained earnings

 6,531   5,991     32,899  29,460 

Accumulated other comprehensive income

 864   606  

Treasury stock at cost (64,475 and 58,775 shares, respectively)

 (885)  (799) 

Accumulated other comprehensive gain (loss)

   1,365  (3,167) 

Treasury stock at cost (2,766 and 4,209 shares, respectively)

   (77)  (113) 

Common stock related to 401(k) Employee Stock Ownership Plan

   (1,599)  (1,343) 
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

 44,749   44,031     118,072  110,133 
  

 

  

 

   

 

  

 

 

Total equity

   119,671  111,476 
  

 

  

 

 

Total liabilities and stockholders’ equity

$445,052  $446,704    $1,117,256  $1,070,464 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Income

(in thousands except per share data)

 

  For the Three Months
Ended March 31,		  For the Three Months Ended:
June 30,		 For the Six Months Ended:
June 30,		 
      2015           2014          2019         2018         2019         2018     

Interest income:

        

Loans, including fees

  $3,287    $3,064   $9,910  $7,956  $19,661  $15,282 

Taxable securities

   463     566   1,146  553  2,243  1,178 

Nontaxable securities

   177     166   354  163  699  367 

Federal funds sold

   1     2   66   —    76   —   

Other interest income

   5     6   156  44  307  88 
  

 

   

 

  

 

  

 

  

 

  

 

 

Total interest income

 3,933   3,804   11,632  8,716  22,986  16,915 
  

 

   

 

 

Interest expense:

    

Deposits

 291   324   1,680  817  3,163  1,399 

Short term borrowings

 4   5  

Long term borrowings

 10   4  

Short-term borrowings

 11  12  24  22 

Federal Home Loan Bank advances

  —    106  29  167 

Note payable

 392  62  791  122 
  

 

   

 

  

 

  

 

  

 

  

 

 

Total interest expense

 305   333   2,083  997  4,007  1,710 
  

 

   

 

  

 

  

 

  

 

  

 

 

Net interest income

 3,628   3,471   9,549  7,719  18,979  15,205 

Provision for loan losses

 139   264   540  480  1,080  960 
  

 

   

 

  

 

  

 

  

 

  

 

 

Net interest income after provision for loan losses

 3,489   3,207   9,009  7,239  17,899  14,245 
  

 

   

 

  

 

  

 

  

 

  

 

 

Noninterest income:

    

Service charges and fees

 454   381   1,200  845  2,286  1,605 

Investment brokerage revenue

 28  16  45  58 

Mortgage operations

 63   52   666  697  1,089  1,107 

Bank owned life insurance income

 75   42   141  143  280  283 

Net gain on sale of investment securities

 5   11  

Net gain (loss) on sale of investment securities

 (3)  1  (3)  3 

Other noninterest income

 129   47   75  71  210  185 
  

 

   

 

  

 

  

 

  

 

  

 

 

Total noninterest income

 726   533   2,107  1,773  3,907  3,241 
  

 

   

 

  

 

  

 

  

 

  

 

 

Noninterest expense:

    

Salaries and employee benefits

 1,526   1,368   4,310  3,548  8,330  6,917 

Occupancy expenses

 217   212   495  391  974  733 

Equipment rentals, depreciation, and maintenance

 113   126   260  213  536  471 

Telephone and communications

 91  72  169  121 

Advertising and business development

 123   81   121  227  329  347 

Data processing

 135   130   720  429  1,407  846 

Foreclosed assets, net

 36   28   57  67  123  90 

Federal deposit insurance and other regulatory assessments

 79   79   96  78  194  160 

Legal and other professional services expense

 83   58  

Other operating expense

 538   479  

Legal and other professional services

 252  173  429  283 

Other operating expenses

 1,262  878  2,495  1,696 
  

 

   

 

  

 

  

 

  

 

  

 

 

Total noninterest expense

 2,850   2,561   7,664  6,076  14,986  11,664 
  

 

   

 

  

 

  

 

  

 

  

 

 

Net income before income taxes

 1,365   1,179  

Income before income taxes

 3,452  2,936  6,820  5,822 

Provision for income taxes

 406   367   732  671  1,451  1,298 
  

 

   

 

  

 

  

 

  

 

  

 

 

Net income

$959  $812   $2,720  $2,265  $5,369  $4,524 
  

 

   

 

  

 

  

 

  

 

  

 

 

Basic net earnings per common share

$0.32  $0.27   $0.48  $0.44  $0.94  $0.88 

Diluted net earnings per common share

$0.31  $0.26   $0.47  $0.43  $0.93  $0.87 

Dividends per common share

 $—    $—    $0.33  $0.28 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)

 

  For the Three Months
Ended March 31,		  For the Three Months Ended
June 30,		 For the Six Months Ended
June 30,		 
      2015         2014          2019         2018         2019         2018     

Net income

  $959   $812   $2,720  $2,265  $5,369  $4,524 

Other comprehensive income, net of tax:

   

Other comprehensive income (loss), net of tax:

    

Investment securities available-for-sale:

       

Net unrealized gains (losses)

   428   1,176   3,243  (315)  6,048  (2,672) 

Income tax effect

 (814)  79  (1,518)  671 

Reclassification adjustments for net gains realized in net income

   (5)  (11)  3  (1)  3  (3) 

Income tax effect

   165   455   (1)   —    (1)  1 
  

 

  

 

  

 

  

 

  

 

  

 

 

Other comprehensive income (loss)

 258   710  

Other comprehensive income (loss), net of tax

 2,431  (237)  4,532  (2,003) 
  

 

  

 

  

 

  

 

  

 

  

 

 

Comprehensive income

$1,217  $1,522   $5,151  $2,028  $9,901  $2,521 
  

 

  

 

  

 

  

 

  

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

RIVER FINANCIAL CORPORATION

Unaudited Consolidated StatementStatements of Changes in Stockholders’ Equity

(in thousands except share and per share data)

 

  Common
Stock		  Additional
Paid In
Capital		  Retained
Earnings
(Accumulated
Deficit)		  Accumulated
Other
Comprehensive
Income (Loss)		  Treasury Stock  Total
Stockholders’
Equity		 

Balance at December 31, 2014

 $3,058   $35,175   $5,991   $606   $(799)  $44,031  

Net income

    959      959  

Other comprehensive income

    $258     258  

Purchase of treasury shares

      (86)   (86) 

Dividends declared

    (419)     (419) 

Stock compensation expense

   6       6  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at March 31, 2015

$3,058  $35,181  $6,531  $864  $(885) $44,749  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Common
Stock		  Additional
Paid In
Capital		  Retained
Earnings		  Accumulated
Other
Comprehensive
Gain (Loss)		  Treasury
Stock		  Common
Stock
Related to
KSOP		  Total
Stockholders’
Equity		 

Balance at December 31, 2018

 $5,692  $79,604  $29,460  $(3,167)  $(113)  $(1,343)  $110,133 

Net income

  —     —     5,369   —     —     —     5,369 

Other comprehensive income, net of tax

  —     —     —     4,532   —     —     4,532 

Exercise of stock options and warrants (15,725 shares)

  16   126   —     —     —     —     142 

Purchase of treasury stock (10,096 shares)

  —     —     —     —     (283)   —     (283) 

Sale of treasury shares (11,539 shares)

  —     (42)   —     —     319   —     277 

Dividends declared ($0.33 per share)

  —     —     (1,882)   —     —     —     (1,882) 

Adoption of lease standard

    (48)      (48) 

Stock-based compensation expense

  —     88   —     —     —     —     88 

Change for KSOP related shares

  —     —     —     —     —     (256)   (256) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at June 30, 2019

 $5,708  $79,776  $32,899  $1,365  $(77)  $(1,599)  $118,072 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

   For the Three Months
Ended March 31,		 
   2015  2014 

Cash Flows From (Used For) Operating Activities:

   

Net Income

  $959   $812  

Adjustments to reconcile net income to net cash provided by operating activities:

   

Provision for loan losses

   139    264  

Provision for losses on foreclosed assets

   36    15  

Amortization of securities available-for-sale

   343    350  

Accretion of securities available-for-sale

   (1)   (1) 

Realized net gain on securities available-for-sale

   (5)   (11) 

Amortization of deferred loan fees

   (56)   (48) 

Stock compensation expense

   6    9  

Bank owned life insurance income

   (75)   (42) 

Depreciation and amortization of premises and equipment

   126    138  

(Gain) loss on sale of foreclosed assets

   (10)   7  

Deferred income tax (benefit)

   (118)   (142) 

(Increase) decrease in operating assets and (decrease) increase in operating liabilities:

   

Accrued interest receivable

   136    87  

Other assets

   —      29  

Accrued interest payable and other liabilities

   149    533  
  

 

 

  

 

 

 

Net cash from operating activities

 1,629   2,000  
  

 

 

  

 

 

 

Cash Flows From (Used For) Investing Activities:

Maturity of certificate of deposit

 249   —    

Activity in securities available-for-sale:

Sales

 3,425   11,729  

Maturities, payments, calls

 8,580   10,059  

Purchases

 (6,469)  (9,235) 

Loan principal originations, net

 (11,893)  (3,518) 

Proceeds from sale of foreclosed assets

 116   59  

Purchases of premises and equipment

 (731)  (2) 

Purchase of restricted equity securities, net

 (3)  (275) 
  

 

 

  

 

 

 

Net cash (used for) provided by investing activities

 (6,726)  8,817  
  

 

 

  

 

 

 

Cash Flows From (Used For) Financing Activities:

Net decrease in deposits

 (2,024)  (20,221) 

Net (decrease) increase in short-term borrowings

 (754)  1,831  

Proceeds from issuance of long term debt

 —     8,500  

Proceeds from exercise of common stock options and warrants

 —     102  

Purchase of treasury stock

 (86)  —    

Cash dividends

 (419)  (296) 
  

 

 

  

 

 

 

Net cash from financing activities

 (3,283)  (10,084) 
  

 

 

  

 

 

 

Net (Decrease) Increase In Cash And Cash Equivalents

 (8,380)  733  

Cash and Cash Equivalents At Beginning Of Period

 25,369   30,421  
  

 

 

  

 

 

 

Cash and Cash Equivalents At End Of Period

$16,989  $31,154  
  

 

 

  

 

 

 

Supplemental Disclosures Of Cash Flows Information:

Cash Payments For:

Interest paid to depositors

$297  $334  

Interest paid on borrowings

 14   9  

   For the Six Months
Ended June 30,		 
   2019  2018 

Cash Flows From (Used For) Operating Activities:

   

Net Income

  $5,369  $4,524 

Adjustments to reconcile net income to net cash from operating activities:

   

Provision for loan losses

   1,080   960 

Provision for losses on foreclosed assets

   89   60 

Amortization of securitiesavailable-for-sale

   763   885 

Accretion of securitiesavailable-for-sale

   (256)   (12) 

Realized net (gain) loss on securitiesavailable-for-sale

   3   (3) 

Accretion of discount on acquired loans

   (544)   (770) 

Amortization of deferred loan fees

   (736)   (627) 

Amortization of core deposit intangible asset

   649   248 

Stock-based compensation expense

   88   28 

Bank owned life insurance income

   (280)   (283) 

Depreciation and amortization of premises and equipment

   673   494 

Loss on sale of foreclosed assets

   17   17 

Deferred income tax benefit

   (384)   (520) 

(Increase) decrease in operating assets and (decrease) increase in operating liabilities:

   

Loansheld-for-sale

   (3,386)   (2,615) 

Accrued interest receivable

   (162)   277 

Other assets

   (3,943)   (528) 

Accrued interest payable and other liabilities

   2,287   266 
  

 

 

  

 

 

 

Net cash from operating activities

   1,327   2,401 
  

 

 

  

 

 

 

Cash Flows From (Used For) Investing Activities:

   

Sales of certificate of deposit

   —     1,452 

Maturity of certificate of deposit

   494   1,247 

Purchase of certificate of deposit

   —     (249) 

Activity in securitiesavailable-for-sale:

   

Sales

   21,801   38,000 

Maturities, payments, calls

   23,240   14,521 

Purchases

   (31,366)   (1,591) 

Loan principal originations, net

   (36,937)   (67,156) 

Proceeds from sale of foreclosed assets

   113   763 

Purchases of premises and equipment

   (2,818)   (166) 

Sale (purchase) of restricted equity securities, net

   628   (862) 
  

 

 

  

 

 

 

Net cash used for investing activities

   (24,845)   (14,041) 
  

 

 

  

 

 

 

Cash Flows From (Used For) Financing Activities:

   

Net increase in deposits

   58,663   18,541 

Net decrease in securities sold under agreements to repurchase

   (826)   (6,125) 

Proceeds from Federal Home Loan Bank advances

   —     50,000 

Repayment of Federal Home Loan Bank advances

   (20,000)   (30,000) 

Repayment of note payable

   (1,575)   (536) 

Federal funds purchased

   —     (1,153) 

Proceeds from exercise of common stock options and warrants

   142   291 

Purchase of treasury stock

   (283)   (32) 

Sale of treasury stock

   277   225 

Cash dividends

   (1,882)   (1,433) 
  

 

 

  

 

 

 

Net cash from financing activities

   34,516   29,778 
  

 

 

  

 

 

 

Net Change In Cash And Cash Equivalents

   10,998   18,138 

Cash and Cash Equivalents At Beginning Of Period

   47,507   15,558 
  

 

 

  

 

 

 

Cash and Cash Equivalents At End Of Period

  $58,505  $33,696 
  

 

 

  

 

 

 

Supplemental Disclosures Of Cash Flows Information:

   

Cash Payments For:

   

Interest paid to depositors

  $3,116  $1,392 

Interest paid on borrowings

  $873  $164 

Income taxes

  $1,380  $837 

Non-cash investing and financing activities:

   

Transfer of loans to foreclosed assets

  $—    $308 

Initial recognition of operating leaseright-of-use assets

  $2,172  $—   

Initial recognition of operating lease liabilities

  $2,237  $—   

The accompanying notes are an integral part of these financial statements.

Index to Financial Statements

River Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(amounts in thousands, except share and per share data)

Note 1 —– Basis of Presentation

General

The unaudited consolidated financial statements include the accounts of River Financial Corporation (“River” or the “Company”) and its wholly-ownedwholly owned subsidiary, River Bank & Trust (“Bank”). The Bank provides a full range of commercial and consumer banking services primarily in the Montgomery, Alabama metropolitan area, Autauga, Chilton, Elmore, Etowah, Lee and Tallapoosa counties and surrounding counties in Alabama. The Bank is primarily regulated by the Federal Deposit Insurance Corporation (“FDIC”) and undergoes periodic examinations by this regulatory agency and the Alabama Banking Department. The Company is regulated by the Federal Reserve Bank (“FRB”) and is also subject to periodic examinations.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly River Financial Corporation’s consolidated balance sheets,statements of financial condition, statements of income, statements of comprehensive income, statements of changes in stockholders’ equity and statements of cash flows for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany accounts and transactions are eliminated.have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

The accountingThese interim consolidated financial statements have been prepared in accordance with the rules and reporting policiesregulations of River conform tothe Securities and Exchange Commission and, therefore, certain information and note disclosures normally presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practice within the banking industry.have been omitted or abbreviated. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotesnotes as of December 31, 2018, which are contained elsewhere in this Joint Proxy Statement-Prospectus.the Company’s Annual Report on Form10-K for the year ended December 31, 2018

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Riverthe Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for loan losses, foreclosed asset valuations, useful lives for depreciation and amortization, fair value of financial instruments, deferred taxes, and contingencies. Estimates that are particularly susceptible to significant change for Riverthe Company include the determination of the allowance for loan losses, investment securities impairment, and the assessment of deferred tax assets and liabilities, and therefore are critical accounting policies. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in our markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

Index to Financial Statements

Note 2 —– Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income by the effect of the issuance of potential common shares that are dilutive and by the sum of the weighted-average number of shares of common stock outstanding. All shares owned by the Company’s 401(k) Employee Stock Ownership Plan (KSOP) are included in the earnings per share calculations.

The reconciliation of the components of the basic and diluted earnings per share is as follows:follows (amounts in thousands):

 

  For the Three Months
Ended March 31,		   For the Three Months
Ended June 30,		   For the Six Months
Ended June 30,		 
  2015   2014   2019   2018   2019   2018 

Net earnings available to common shareholders

  $959    $812    $2,720   $2,265   $5,369   $4,524 

Weighted average common shares outstanding

   2,995,231     2,995,566     5,703,463    5,124,140    5,701,062    5,117,956 

Dilutive effect of stock options

   58,398     36,188     91,225    84,384    92,491    87,605 

Dilutive effect of stock warrants

   50,625     38,571  

Diluted common shares

   3,104,254     3,070,325     5,794,688    5,208,524    5,793,553    5,205,561 

Basic earnings per common share

  $0.32    $0.27    $0.48   $0.44   $0.94   $0.88 

Diluted earnings per common share

  $0.31    $0.26    $0.47   $0.43   $0.93   $0.87 

Note 3 —– Investment Securities

Securities available for saleavailable-for-sale at March 31, 2015June 30, 2019 and December 31, 20142018 are as follows:follows (amounts in thousands):

 

  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

March 31, 2015

        

June 30, 2019:

        

Securities available-for-sale:

                

Residential mortgage-backed

  $74,400    $632    $(220)   $74,812    $110,379   $504   $(1,245)   $109,638 

U.S. govt. sponsored enterprises

   22,955     196     (168)    22,983     50,282    1,170    (45)    51,407 

State, county, and municipal

   25,061     1,018     (44)    26,035     55,824    1,519    (30)    57,313 

Corporate debt obligations

   1,000     4     —       1,004     2,155    11    (38)    2,128 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Totals

$123,416  $1,850  $(432) $124,834    $218,640   $3,204   $(1,358)   $220,486 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

December 31, 2014

        

Securities available-for-sale:

        

Residential mortgage-backed

  $72,578    $478    $(247)   $72,809  

U.S. govt. sponsored enterprises

   31,467     127     (314)    31,280  

State, county, and municipal

   24,246     1,004     (57)    25,193  

Corporate debt obligations

   1,000     2     —       1,002  
  

 

   

 

   

 

   

 

 

Totals

$129,291  $1,611  $(618) $130,284  
  

 

   

 

   

 

   

 

 

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

December 31, 2018:

        

Securitiesavailable-for-sale:

        

Residential mortgage-backed

  $108,915   $45   $(4,027)   $104,933 

U.S. govt. sponsored enterprises

   63,833    367    (278)    63,922 

State, county, and municipal

   57,417    219    (476)    57,160 

Corporate debt obligations

   2,670    7    (62)    2,615 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $232,835   $638   $(4,843)   $228,630 
  

 

 

   

 

 

   

 

 

   

 

 

 

Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Index to Financial Statements

Details concerning investment securities with unrealized losses as of March 31, 2015June 30, 2019 and December 31, 20142018 are as follows:follows (amounts in thousands):

 

  Less Than 12 Months   More Than 12 Months   Total   Less Than 12 Months   More Than 12 Months   Total 
  Fair Value   Unrealized
Losses		   Fair Value   Unrealized
Losses		   Fair Value   Unrealized
Losses		   Fair
Value		   Unrealized
Losses		   Fair Value   Unrealized
Losses		   Fair Value   Unrealized
Losses		 

March 31, 2015:

            

June 30, 2019:

            

Securities available-for-sale:

                        

Residential mortgage-backed

  $8,593    $32    $19,261    $188    $27,854    $220    $2,539   $4   $69,860   $1,241   $72,399   $1,245 

U.S. govt. sponsored enterprises

   —       —       9,320     168     9,320     168     —      —      2,998    45    2,998    45 

State, county & municipal

   2,373     17     829     27     3,202     44     863    2    6,011    28    6,874    30 

Corporate debt

   —       —       —       —       —       —    

Corporate debt obligations

   —      —      360    38    360    38 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Totals

$10,966  $49  $29,410  $383  $40,376  $432    $3,402   $6   $79,229   $1,352   $82,631   $1,358 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

December 31, 2014:

December 31, 2018:

            

Securities available-for-sale:

            

Residential mortgage-backed

$3,407  $14  $22,415  $233  $25,822  $247    $6,003   $27   $88,502   $4,000   $94,505   $4,027 

U.S. govt. sponsored enterprises

 6,053   20   13,231   294   19,284   314     9,786    13    8,116    265    17,902    278 

State, county & municipal

 1,616   19   1,724   38   3,340   57     19,043    149    13,880    327    32,923    476 

Corporate debt

 —     —     —     —     —     —    

Corporate debt obligations

   516    3    332    59    848    62 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Totals

$12,118  $65  $36,328  $553  $48,446  $618    $35,348   $192   $110,830   $4,651   $146,178   $4,843 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

As of March 31, 2015,June 30, 2019, management does not consider securities with unrealized losses to be other-than-temporarily impaired. The unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. RiverThe Company has the ability and intent to hold its securities for a period of time sufficient to allow for a recovery in fair value. There were no other-than-temporary impairments charged to earnings during the threesix months ended MarchJune 30, 2019 or 2018. The Company owned a total of 55 securities with unrealized losses of $1.36 million at June 30, 2019. As of June 30, 2019 and December 31, 2015 or 2014.2018, securities with a carrying value of approximately $66.7 million and $61.5 million, respectively, were pledged to secure public deposits as required by law. At June 30, 2019 and December 31, 2018, the carrying value of securities pledged to secure repurchase agreements was approximately $15.7 million and $16.5 million, respectively.

During the threesix months ended March 31 2015, RiverJune 30, 2019, the Company sold investment securities for proceeds of $3,425$21.8 million and realized gainslosses of $5.$3 thousand. During the threesix months ended March 31, 2014, RiverJune 30, 2018, the Company sold investment securities for proceeds of $11,729$38.0 million and realized gains of $11.$3 thousand.

The amortized cost and estimated fair value of securitiesavailable-for-sale at MarchJune 30, 2019 and December 31, 2015,2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities for residential mortgage backed securities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. These securities are therefore not presented by maturity classification.

 

  After 1 Through 5 Years  After 5 Through 10 Years  After 10 Years  Total 
    Amortized  
Cost		  Fair
  Value  		    Amortized  
Cost		  Fair
  Value  		    Amortized  
Cost		  Fair
  Value  		    Amortized  
Cost		  Fair
  Value  		 

Securities available for sale:

        

Residential mortgage backed

 $1,751   $1,759   $6,998   $7,072   $65,651   $65,981   $74,400   $74,812  

U.S. govt. sponsored agencies

  6,093    6,144    6,883    6,959    9,979    9,880    22,955    22,983  

State, county and municipal

  —      —      1,058    1,085    24,003    24,951    25,061    26,036  

Corporate debt

  —      —      1,000    1,004    —      —      1,000    1,004  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

$7,844  $7,903  $15,939  $16,120  $99,633  $100,812  $123,416  $124,835  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   June 30, 2019   December 31, 2018 
   Amortized
Cost		   Fair Value   Amortized
Cost		   Fair Value 
   (In Thousands)   (In Thousands) 

Securitiesavailable-for-sale

        

Less than 1 year

  $13,500   $13,546   $17,094   $17,092 

1 to 5 years

   48,706    49,776    55,924    56,000 

5 to 10 years

   15,072    15,655    23,597    23,733 

After 10 years

   30,983    31,871    27,305    26,872 
  

 

 

   

 

 

   

 

 

   

 

 

 
   108,261    110,848    123,920    123,697 

Residential mortgage-backed securities

   110,379    109,638    108,915    104,933 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $218,640   $220,486   $232,835   $228,630 
  

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

Note 4 —– Loans, Allowance for Loan Losses and Credit Quality

Major classifications of loans at March 31, 2015June 30, 2019 and December 31, 20142018 are summarized as follows:follows (amounts in thousands):

 

  June 30, 2019 December 31, 2018 
  March 31, 2015   December 31, 2014   Amount % of Total Amount % of Total 

Residential real estate:

         

Closed-end 1-4 family — first lien

   53,627     49,198  

Closed-end 1-4 family — junior lien

   1,583     1,638  

Closed-end1-4 family – first lien

  $172,862  23.3%  $162,249  23.0% 

Closed-end1-4 family – junior lien

   6,576  0.9%  5,739  0.8% 

Multi-family

   5,497     5,456     16,729  2.3%  16,938  2.4% 

Equity lines of credit

   17,160     16,433  
  

 

   

 

   

 

  

 

  

 

  

 

 

Total residential real estate

 77,867   72,725     196,167  26.5%  184,926  26.2% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Commercial real estate:

     

Nonfarm nonresidential

 94,070   90,657     228,572  30.8%  209,391  29.7% 

Farmland

 8,928   8,496     8,994  1.2%  10,417  1.5% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Total commercial real estate

 102,998   99,153     237,566  32.0%  219,808  31.2% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Construction and land development:

     

Residential

 6,999   6,791     46,629  6.3%  39,680  5.6% 

Other

 19,707   18,187     62,973  8.5%  62,430  8.9% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Total construction and land development

 26,706   24,978     109,602  14.8%  102,110  14.5% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Home equity lines of credit

   41,905  5.6%  39,040  5.5% 

Commercial loans:

     

Other commercial loans

 51,494   49,156     105,012  14.2%  112,927  16.0% 

Agricultural

 554   676     1,767  0.2%  1,743  0.2% 

State, county, and municipal loans

 6,280   5,986     21,553  2.9%  19,756  2.9% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Total commercial loans

 58,328   55,818     128,332  17.3%  134,426  19.1% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Consumer loans

 11,689   12,912     37,743  5.1%  33,867  4.8% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Total gross loans

 277,588   265,586     751,315  101.3%  714,177  101.3% 

Allowance for loan losses

 (3,925)  (3,778)    (7,104)  -1.0%  (6,577)  -0.9% 

Net deferred loan fees

 (493)  (449) 

Net deferred loan fees and discounts

   (2,389)  -0.3%  (2,915)  -0.4% 
  

 

   

 

   

 

  

 

  

 

  

 

 

Net loans

 273,170  $261,359    $741,822  100.0%  $704,685  100.0% 
  

 

   

 

   

 

  

 

  

 

  

 

 

The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general trade area. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market. Portfolio segments utilized by the Bank are identified below. Relevant risk characteristics for these portfolio segments generally include debt service coverage,loan-to-value ratios and financial performance onnon-consumer loans and credit scores,debt-to-income, collateral type andloan-to-value ratios for consumer loans.

For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. There are three primary loan portfolio segments that include real estate, commercial, and consumer. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and the Company’s method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include residential real estate, commercial real estate, construction and land development and home equity lines of credit. The portfolio segments ofnon-real estate commercial loans and consumer loans have not been further segregated by class.

Index

The following describe risk characteristics relevant to Financial Statements

each of the portfolio segments:

Real estate – As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:

Residential real estate and home equity lines of credit are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Commercial real estate loans include both owner-occupied commercial real estate loans and other commercial real estate loans secured by income producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans secured by farmland are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Construction and land development loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.

Commercial loans – The commercial loan portfolio segment includes commercial and industrial loans, agricultural loans and loans to state and municipalities. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows or tax revenues. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.

Consumer loans – The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the periods indicated:indicated below (amounts in thousands). Acquired loans are not included in the allowance for loan losses calculation, as these loans are recorded at fair value and there has been no further indication of credit deterioration that would require an additional provision.

 

 Real Estate Mortgage Loans        Real Estate Mortgage Loans         
Allowance for Loan Losses Residential Commercial Commercial
and Land
Development		 Home Equity
Lines
Of Credit		 Commercial Consumer Total  Residential Commercial Construction
and Land
Development		 Home Equity
Lines Of
Credit		 Commercial Consumer Total 

Balance — December 31, 2014

 $304   $1,267   $627   $437   $652   $491   $3,778  

Provision for loan losses

 (33)  (59)  (90)  (7)  448   (120)  139  

Balance – December 31, 2018

 $1,579  $1,961  $942  $394  $1,375  $326  $6,577 

Provision(credit) for loan losses

 197  457  106  (23)  244  99  1,080 

Loan charge-offs

  —      —      —      —      —     (17)  (17)  (587)   —     —     —    (121)  (101)  (809) 

Loan recoveries

  —      —     1    —     12   12   25   7  99  8  50  68  24  256 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance — March 31, 2015

$271  $1,208  $538  $430  $1,112  $366  $3,925  

Balance – June 30, 2019

 $1,196  $2,517  $1,056  $421  $1,566  $348  $7,104 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Ending balance:

       

Individually evaluated for impairment

 —     583   40   333   777   —     1,733   $17  $51  $2  $—    $308  $—    $378 

Collectively evaluated for impairment

 271   625   498   97   335   366   2,192   1,179  2,466  1,054  421  1,258  348  6,726 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 $1,196  $2,517  $1,056  $421  $1,566  $348  $7,104 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Loans:

       

Individually evaluated for impairment

 1,385   2,569   160   358   1,270   86   5,828   $1,298  $2,342  $152  $319  $422  $27  $4,560 

Collectively evaluated for impairment

 59,322   100,429   26,546   16,802   57,058   11,603   271,760   194,566  235,170  109,390  41,586  127,851  37,670  746,233 

Acquired loans with deteriorated credit quality

 303  54  60   —    59  46  522 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 $196,167  $237,566  $109,602  $41,905  $128,332  $37,743  $751,315 
 Real Estate Mortgage Loans        

 

  

 

  

 

  

 

  

 

  

 

  

 

 
Allowance for Loan Losses Residential Commercial Construction
and Land
Development		 Home Equity
Lines
Of Credit		 Commercial Consumer Total 

Balance — December 31, 2013

 $181   $1,674   $663   $435   $535   $213   $3,701  

Provision for loan losses

 56   3   4   11   (83)  273   264  

Loan charge-offs

 (18)   —     (91)  (26)  (15)  (17)  (167) 

Loan recoveries

  —      —      —      —     84   22   106  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance — March 31, 2014

$219  $1,677  $576  $420  $521  $491  $3,904  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Ending balance:

Individually evaluated for impairment

 37   1,168   111   344   25   300   1,985  

Collectively evaluated for impairment

 182   509   465   76   496   191   1,919  

Loans:

Individually evaluated for impairment

 700   4,032   1,143   478   23   1,054   7,430  

Collectively evaluated for impairment

 43,646   94,988   23,835   14,105   47,309   9,838   233,721  

The

  Real Estate Mortgage Loans             
Allowance for Loan Losses Residential  Commercial  Construction
and Land
Development		  Home Equity
Lines Of
Credit		  Commercial  Consumer  Total 

Balance – December 31, 2017

 $1,167  $1,604  $606  $333  $954  $217  $4,881 

Provision for loan losses

  207   305   156   41   232   19   960 

Loan charge-offs

  —     —     —     (20)   (75)   (30)   (125) 

Loan recoveries

  13   5   26   12   86   12   154 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance – June 30, 2018

 $1,387  $1,914  $788  $366  $1,197  $218  $5,870 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance:

       

Individually evaluated for impairment

 $525  $202  $13  $—    $146  $8  $894 

Collectively evaluated for impairment

  862   1,712   775   366   1,051   210   4,976 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $1,387  $1,914  $788  $366  $1,197  $218  $5,870 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Loans:

       

Individually evaluated for impairment

 $2,003  $2,194  $163  $100  $269  $63  $4,792 

Collectively evaluated for impairment

  149,713   192,208   85,331   37,779   122,557   25,662   613,250 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 $151,716  $194,402  $85,494  $37,879  $122,826  $25,725  $618,042 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Among other loans, the Bank individually evaluates for impairment all nonaccrual loans that are on nonaccrual status. Additionally, alland troubled debt restructurings are individually evaluated for impairment.restructured loans. A loan is considered impaired when, based on current events and circumstances it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Management may also elect to apply an additional collective reserve to groups of impaired loans based on current economic or market factors. Interest payments received on impaired loans are generally applied as a reduction of the outstanding principal balance.

IndexAll other loans are deemed to Financial Statements
be unimpaired and are grouped into various homogeneous risk pools utilizing regulatory reporting classifications. The Bank’s historical loss factors are calculated for each of these risk pools based on the net losses experienced as a percentage of the average loans outstanding. The time periods utilized in these historical loss factor calculations are subjective and vary according to management’s estimate of the impact of current economic cycles. As every loan has a risk of loss, minimum loss factors are estimated based on long term trends for the Bank, the banking industry, and the economy. The greater of the calculated historical loss factors or the minimum loss factors are applied to the unimpaired loan amounts currently outstanding for the risk pool and included in the analysis of the allowance for loan losses. In addition, certain qualitative adjustments may be included by management as additional loss factors applied to the unimpaired loan risk pools. These adjustments may include, among other things, changes in loan policy, loan administration, loan, geographic, or industry concentrations, loan growth rates, and experience levels of our lending officers. The loss allocations for specifically impaired loans, smaller impaired loans not specifically measured for impairment, and unimpaired loans are totaled to determine the total required allowance for loan losses. This total is compared to the current allowance on the Bank’s books and adjustments made accordingly by a charge or credit to the provision for loan losses.

The following table presents impaired loans by class of loans as of March 31, 2015.June 30, 2019 (amounts in thousands).

 

  Total Impaired
Loans		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Related
Allowance for
Loan Losses		 

Nonaccruing Impaired Loans

          Unpaid
Principal
Balance		   Recorded
Investment		   Impaired
Loans
With No
Allowance		   Impaired
Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate

        

Residential

   378     378     —       —    

Mortgage loans on real estate:

          

Residential real estate

  $1,398   $813   $700   $113   $17 

Commercial real estate

   —       —       —       —       —      —      —      —      —   

Construction and land development

   —       —       —       —       —      —      —      —      —   

Equity lines of credit

   333     —       333     333  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 711   378   333   333     1,398    813    700    113    17 

Home equity lines of credit

   219    219    219    —      —   

Commercial loans

 —     —     —     —       139    139    —      139    139 

Consumer loans

 —     —     —     —       —      —      —      —      —   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

 711   378   333   333    $1,756   $1,171   $919   $252   $156 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  Total Impaired
Loans		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Related
Allowance for
Loan Losses		 

Accruing Impaired Loans

        

Mortgage loans on real estate

        

Residential

   821     821     —       —    

Commercial real estate

   2,540     1,059     1,481     583  

Construction and land development

   94     —       94     40  

Equity lines of credit

   —       —       —       —    
  

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 3,455   1,880   1,575   623  

Commercial loans

 1,229   —     1,229   778  

Consumer loans

 —     —     —     —    
  

 

   

 

   

 

   

 

 

Total Loans

 4,684   1,880   2,804   1,401  
  

 

   

 

   

 

   

 

 
  Total Impaired
Loans		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Related
Allowance for
Loan Losses		 

Total Impaired Loans

        

Mortgage loans on real estate

        

Residential

   1,199     1,199     —       —    

Commercial real estate

   2,540     1,059     1,481     583  

Construction and land development

   94     —       94     40  

Equity lines of credit

   333     —       333     333  
  

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 4,166   2,258   1,908   956  

Commercial loans

 1,229   —     1,229   778  

Consumer loans

 —     —     —     —    
  

 

   

 

   

 

   

 

 

Total Loans

 5,395   2,258   3,137   1,734  
  

 

   

 

   

 

   

 

 

Accruing Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired
Loans
With No
Allowance		   Impaired
Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential real estate

  $485   $485   $368   $117   $—   

Commercial real estate

   2,342    2,342    1,539    803    51 

Construction and land development

   215    152    —      152    2 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   3,042    2,979    1,907    1,072    53 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

   283    283    114    169    169 

Consumer loans

   27    27    27    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $3,452   $3,389   $2,148   $1,241   $222 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements
Total Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired
Loans
With No
Allowance		   Impaired
Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential real estate

  $1,883   $1,298   $1,068   $230   $17 

Commercial real estate

   2,342    2,342    1,539    803    51 

Construction and land development

   215    152    —      152    2 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   4,440    3,792    2,607    1,185    70 

Home equity lines of credit

   319    319    319    —      —   

Commercial loans

   422    422    114    308    308 

Consumer loans

   27    27    27    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $5,208   $4,560   $3,067   $1,493   $378 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents impaired loans by class of loans as of December 31, 2014.2018 (amounts in thousands). Purchased credit-impaired loans are not included in these tables because they are carried at fair value and accordingly have no related associated allowance.

 

  Total Impaired
Loans		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Related
Allowance for
Loan Losses		 

Nonaccruing Impaired Loans

          Unpaid
Principal
Balance		   Recorded
Investment		   Impaired
Loans
With No
Allowance		   Impaired
Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate

        

Residential

   204     204     —       —    

Mortgage loans on real estate:

          

Residential real estate

  $1,519   $1,519   $118   $1,401   $505 

Commercial real estate

   —       —       —       —       423    142    142    —      —   

Construction and land development

   —       —       —       —       —      —      —      —      —   

Equity lines of credit

   336     —       336     336  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 540   204   336   336     1,942    1,661    260    1,401    505 

Home equity lines of credit

   —      —      —      —      —   

Commercial loans

 —     —     —     —       143    143    —      143    143 

Consumer loans

 —     —     —     —       —      —      —      —      —   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

 540   204   336   336    $2,085   $1,804   $260   $1,544   $648 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  Total Impaired
Loans		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Related
Allowance for
Loan Losses		 

Accruing Impaired Loans

        

Mortgage loans on real estate

        

Residential

   832     698     134     —    

Commercial real estate

   2,173     670     1,503     623  

Construction and land development

   100     —       100     45  

Equity lines of credit

   —       —       —       —    
  

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 3,105   1,368   1,737   668  

Commercial loans

 179   —     179   181  

Consumer loans

 1,054   —     1,054   300  
  

 

   

 

   

 

   

 

 

Total Loans

 4,338   1,368   2,970   1,149  
  

 

   

 

   

 

   

 

 
  Total Impaired
Loans		   Impaired Loans
With No
Allowance		   Impaired Loans
With
Allowance		   Related
Allowance for
Loan Losses		 

Total Impaired Loans

        

Mortgage loans on real estate

        

Residential

   1,036     902     134     —    

Commercial real estate

   2,173     670     1,503     623  

Construction and land development

   100     —       100     45  

Equity lines of credit

   336     —       336     336  
  

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 3,645   1,572   2,073   1,004  

Commercial loans

 179   —     179   181  

Consumer loans

 1,054   —     1,054   300  
  

 

   

 

   

 

   

 

 

Total Loans

 4,878   1,572   3,306   1,485  
  

 

   

 

   

 

   

 

 

Accruing Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired
Loans
With No
Allowance		   Impaired
Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential real estate

  $489   $489   $370   $119   $2 

Commercial real estate

   1,783    1,783    965    818    54 

Construction and land development

   221    158    —      158    8 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   2,493    2,430    1,335    1,095    64 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

   119    119    119    —      —   

Consumer loans

   54    54    29    25    13 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $2,766   $2,703   $1,583   $1,120   $77 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements
Total Impaired Loans  Unpaid
Principal
Balance		   Recorded
Investment		   Impaired
Loans
With No
Allowance		   Impaired
Loans
With
Allowance		   Allowance
for Loan
Losses		 

Mortgage loans on real estate:

          

Residential real estate

  $2,008   $2,008   $488   $1,520   $507 

Commercial real estate

   2,206    1,925    1,107    818    54 

Construction and land development

   221    158    —      158    8 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   4,435    4,091    1,595    2,496    569 

Home equity lines of credit

   100    100    100    —      —   

Commercial loans

   262    262    119    143    143 

Consumer loans

   54    54    29    25    13 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $4,851   $4,507   $1,843   $2,664   $725 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the average recorded investment in impaired loans and the interest income recognized on impaired loans in the threesix months ended March 31, 2015June 30, 2019 and the three months ended March 31, 20142018 by loan category.category (amounts in thousands).

 

  Three Months Ended
March 31, 2015		   Three Months Ended
March 31, 2014		   Six Months Ended
June 30, 2019		   Six Months Ended
June 30, 2018		 
  Average
Recorded
Investment		   Ending
Recorded
Investment		   Interest
Income		   Average
Recorded
Investment		   Ending
Recorded
Investment		   Interest
Income		   Average
Recorded
Investment		   Ending
Recorded
Investment		   Interest
Income		   Average
Recorded
Investment		   Ending
Recorded
Investment		   Interest
Income		 

Mortgage loans on real estate:

                        

Residential real estate

  $1,211    $1,199    $16    $636    $700    $11    $1,810   $1,298   $13   $2,260   $2,003   $26 

Commercial real estate

   2,371     2,540     28     3,917     4,032     36     2,269    2,342    60    2,252    2,194    46 

Construction and land development

   131     94     1     1,034     1,143     2     155    152    4    166    163    4 

Equity lines of credit

   347     333     —       412     478     —    
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 4,060   4,166   45   5,999   6,353   49     4,234    3,792    77    4,678    4,360    76 

Home equity lines of credit

   248    319    3    100    100    3 

Commercial loans

 714   1,229   11   551   1,077   16     370    422    9    288    269    5 

Consumer loans

 563   —     —     555   —     —       171    27    3    100    63    2 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

$5,337  $5,395  $56  $7,105  $7,430  $65    $5,023   $4,560   $92   $5,166   $4,792   $86 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

The following tables present the aging of past due loans andnon-accrual loan balances as of March 31, 2015June 30, 2019 and December 31, 2014,2018, by class of loans.loans (amounts in thousands).

 

  Accruing Loans           Accruing Loans         

As of March 31, 2015

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total
Loans		 

As of June 30, 2019

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total
Loans		 

Mortgage loans on real estate:

                    

Residential

  $59,764    $539    $—      $404    $60,707  

Residential real estate

  $193,380   $1,007   $30   $1,750   $196,167 

Commercial real estate

   102,649     58     291     —       102,998     236,703    755    —      108    237,566 

Construction and land development

   26,423     283     —       —       26,706     108,889    100    —      613    109,602 

Equity lines of credit

   16,791     36     —       333     17,160  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

 205,627   916   291   737   207,571     538,972    1,862    30    2,471    543,335 

Home equity lines of credit

   41,462    105    —      338    41,905 

Commercial loans

 57,971   347   —     10   58,328     127,268    925    —      139    128,332 

Consumer loans

 11,538   102   18   31   11,689     37,140    438    —      165    37,743 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

$275,136  $1,365  $309  $778  $277,588    $744,842   $3,330   $30   $3,113   $751,315 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

   Accruing Loans         

As of December 31, 2014

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total
Loans		 

Mortgage loans on real estate:

          

Residential

  $55,702    $358    $—      $231    $56,291  

Commercial real estate

   98,397     462     294     —       99,153  

Construction and land development

   24,879     —       100     —       24,979  

Equity lines of credit

   16,097     —       —       336     16,433  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

 195,075   820   394   567   196,856  

Commercial loans

 55,588   189   30   12   55,819  

Consumer loans

 12,821   65   —     26   12,912  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

$263,484  $1,074  $424  $605  $265,587  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Accruing Loans         

As of December 31, 2018

  Current   30-89 Days
Past Due		   90+ Days
Past Due		   Nonaccrual
Loans		   Total
Loans		 

Mortgage loans on real estate:

          

Residential real estate

  $181,252   $1,528   $19   $2,127   $184,926 

Commercial real estate

   219,578    68    —      162    219,808 

Construction and land development

   101,993    23    —      94    102,110 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   502,823    1,619    19    2,383    506,844 

Home equity lines of credit

   38,891    24    —      125    39,040 

Commercial loans

   134,066    217    —      143    134,426 

Consumer loans

   33,544    234    —      89    33,867 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $709,324   $2,094   $19   $2,740   $714,177 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Bank categorizes loans in 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,

Index to Financial Statements

public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for its risk ratings:

Special Mention —– Weakness exists that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. Collateral values generally afford adequate coverage but may not be immediately marketable.

Substandard —– Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

Doubtful —- Specific weaknesses characterized as Substandard that are severe enough to make collection in full unlikely. There is no reliable secondary source of full repayment. Loans classified as doubtful will be placed onnon-accrual, analyzed and fully or partiallycharged-off based on review of collateral and other relevant factors.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. As of March 31, 2015June 30, 2019 and December 31, 2014,2018, and based on the most recent analysis performed as of those dates, the risk category of loans by class of loans is as follows:follows (amounts in thousands):

 

  Accruing Loans         
  Pass   Special
Mention		   Substandard   Nonaccrual
Loans		   Total
Loans		 

As of March 31, 2015

          

As of June 30, 2019

  Pass   Special
Mention		   Substandard   Doubtful   Total 

Mortgage loans on real estate:

                    

Residential

  $52,469    $6,853    $981    $404    $60,707  

Residential real estate

  $190,865   $2,546   $2,756   $—     $196,167 

Commercial real estate

   92,774     7,655     2,569     —       102,998     230,887    4,099    2,580    —      237,566 

Construction and land development

   23,123     3,423     160     —       26,706     108,874    9    719    —      109,602 

Equity Lines of Credit

   16,267     535     25     333     17,160  
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

   184,633     18,466     3,735     737     207,571     530,626    6,654    6,055    —      543,335 

Home equity lines of credit

   41,409    58    438    —      41,905 

Commercial loans

   54,201     2,857     1,260     10     58,328     126,505    1,232    595    —      128,332 

Consumer loans

   11,412     190     56     31     11,689     37,056    390    297    —      37,743 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total Loans

  $250,246    $21,513    $5,051    $778    $277,588    $735,596   $8,334   $7,385   $—     $751,315 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  Accruing Loans         
  Pass   Special
Mention		   Substandard   Nonaccrual
Loans		   Total
Loans		 

As of December 31, 2014

          

Mortgage loans on real estate:

          

Residential

  $47,200    $7,868    $992    $231    $56,291  

Commercial real estate

   88,838     8,113     2,202     —       99,153  

Construction and land development

   21,131     3,680     168     —       24,979  

Equity Lines of Credit

   15,287     785     25     336     16,433  
  

 

   

 

   

 

   

 

   

 

 

Total mortgage loans on real estate

   172,456     20,446     3,387     567     196,856  

Commercial loans

   52,327     3,294     186     12     55,819  

Consumer loans

   11,346     441     1,099     26     12,912  
  

 

   

 

   

 

   

 

   

 

 

Total Loans

  $236,129    $24,181    $4,672    $605    $265,587  
  

 

   

 

   

 

   

 

   

 

 

As of December 31, 2018

  Pass   Special
Mention		   Substandard   Doubtful   Total 

Mortgage loans on real estate:

          

Residential real estate

  $179,132   $2,435   $3,270   $89   $184,926 

Commercial real estate

   212,421    4,609    2,778    —      219,808 

Construction and land development

   101,612    49    449    —      102,110 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans on real estate

   493,165    7,093    6,497    89    506,844 

Home equity lines of credit

   38,530    285    225    —      39,040 

Commercial loans

   131,449    2,612    343    22    134,426 

Consumer loans

   33,269    330    268    —      33,867 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans

  $696,413   $10,320   $7,333   $111   $714,177 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 5 —– Fair Value Measurements and Disclosures

RiverThe Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securitiesavailable-for-sale are recorded at fair value on a recurring

Index to Financial Statements

basis. Additionally, from time to time, Riverthe Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate and repossessedforeclosed assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

RiverThe Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 —– Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 —– Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 —– Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded or disclosed at fair value.

Cash and cash equivalents — The– For disclosure purposes, for cash, due from banks, interest-bearing deposits and federal funds sold, the carrying amountsamount is a reasonable estimate of cash and short-term instruments approximate their fair values.value.

Certificates of deposit – For disclosure purposes, the carrying amount of certificates of deposit is a reasonable estimate of fair value.

Securitiesavailable-for-sale — The– Securitiesavailable-for-sale are recorded at fair value of securities are obtained fromon a third party who utilizesrecurring basis. Fair value measurement is based upon quoted prices, on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively onif available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the specificsecurity’s credit rating, repayment assumptions and other factors such as credit loss assumptions. Level 1 securities but ratherinclude those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by relying on the securities’ relationship to other benchmark quoted securities.dealers or brokers in activeover-the-counter market funds. Level 2 securities included mortgage-backed securities issued by government sponsored enterprises and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Restricted equity securities —– It is not practical to determine the fair value of restricted equity securities due to restrictions placed on transferability.

Loans receivableand mortgage loansheld-for-sale — For variable-rate– The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. When a loan is identified as individually impaired, management measures impairment using one of three methods. These methods include collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. As of June 30, 2019 and December 31, 2018, impaired loans were evaluated based on the fair value of the collateral. Impaired loans for which an allowance is established based on the fair value of collateral, or loans that reprice frequently and have no significant changewere charged down according to the fair value of collateral, require classification in credit risk,the fair values arevalue hierarchy. When the fair value of the collateral is based on carrying values. Thean observable market price, the Company records the impaired loan as nonrecurring Level 2. When the fair value is based on an appraised value, the Company records the impaired loan as nonrecurring Level 3.

For disclosure purposes, the fair value of fixed-ratefixed rate loans is estimated by discounting the future cash flows using discounted cash flow analyses and using interestthe current rates currently being offered forat which similar loans would be made to borrowers with similar terms to borrowerscredit ratings. For variable rate loans, the carrying amount is a reasonable estimate of similar credit quality.fair value. Mortgage loansheld-for-sale are carried at cost, which is a reasonable estimate of fair value.

CashBank owned life insurance – For disclosure purposes, the fair value of life insurance — The carrying value of bank-owned life insurance approximates fair value because the investment is carried at cash surrender value of bank owned life insurance policies is equivalent to the carrying value.

Accrued interest receivable – For disclosure purposes, the fair value of the accrued interest on investments and loans is the carrying value.

Foreclosed assets – Other real estate properties and miscellaneous repossessed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Company records the foreclosed asset as determined bynonrecurring Level 2. When fair value is based on an appraised value or management’s estimate of value, the insurer.Company records the foreclosed asset as nonrecurring Level 3.

Deposit liabilities — The– For disclosure purposes, the fair values disclosedvalue for demand deposits, savings accounts, and certain money market deposits are, by definition, equal tois the amount payable on demand at the reporting date (that is, their carrying amounts).date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedulefor deposits of aggregated expected monthly maturities on time deposits.similar remaining maturities.

Short-term borrowingsAccrued interest payable — The– For disclosure purposes, the fair value of the accrued interest payable on deposits is the carrying value.

Securities sold under agreements to repurchase – For disclosure purposes, the carrying amounts of borrowingssecurities sold under repurchase agreements and other short-term borrowings maturing within 90 daysto repurchase approximate their fair values.

Long-term borrowingsFederal Home Loan Bank advances — The– For disclosure purposes the fair value of long-term borrowingsFederal Home Loan Bank advances is estimated using discounted cash flow analyses using interest rates offered for borrowings with similar maturities.

Accrued interestFederal funds purchased — The– For disclosure purposes, the fair value of federal funds purchased is the carrying amountsvalue.

Note payable – For disclosure purposes the carrying amount of accrued interest approximatethe fixed rate note payable approximates fair value.

Commitments to extend credit and standby letters of credit – Because commitments to extend credit and standby letters of credit are generally short-term and made using variable rates, the carrying value and estimated fair value associated with these instruments are immaterial.

Index to Financial Statements

Assets and liabilities measured at fair value on a recurring basis — – The only assets and liabilities measured at fair value on a recurring basis are our securitiesavailable-for-sale. There were no transfers between levels during the period. Information related to River’sthe Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2015June 30, 2019 and December 31, 20142018 is as follows: (amounts in thousands)

 

   Fair Value Measurements At Reporting Date Using: 

March 31, 2015

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Securities available-for-sale:

        

Residential mortgage-backed

  $74,813      $74,813    

U.S. government agencies

   22,982       22,982    

State, county, and municipal

   26,035       26,035    

Corporate obligations

   1,004       1,004    
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $124,834    $—      $124,834    $—    
  

 

 

   

 

 

   

 

 

   

 

 

 
   Fair Value Measurements At Reporting Date Using: 

December 31, 2014

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Securities available-for-sale:

        

Residential mortgage-backed

  $72,809      $72,809    

U.S. government agencies

   31,280       31,280    

State, county, and municipal

   25,193       25,193    

Corporate obligations

   1,002       1,002    
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $130,284    $—      $130,284    $—    
  

 

 

   

 

 

   

 

 

   

 

 

 
   Fair Value Measurements At Reporting Date Using: 

June 30, 2019

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Securitiesavailable-for-sale:

        

Residential mortgage -backed

  $109,638   $—     $109,638   $—   

U.S. government sponsored enterprises

   51,407    —      51,407    —   

State, county, and municipal

   57,313    —      57,313    —   

Corporate debt obligations

   2,128    —      2,128    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $220,486   $—     $220,486   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

   Fair Value Measurements At Reporting Date Using: 

December 31, 2018

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Securitiesavailable-for-sale:

        

Residential mortgage -backed

  $104,933   $—     $104,933   $—   

U.S. government sponsored enterprises

   63,922    —      63,922    —   

State, county, and municipal

   57,160    —      57,160    —   

Corporate debt obligations

   2,615    —      2,615    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $228,630   $—     $228,630   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

Assets measured at fair value on a nonrecurring basis — River has – The Company may be required, from time to time, to measure certain assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. The following table presentsnonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the financial instruments carriedlower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on the balance sheet by caption and by levela nonrecurring basis are included in the fair value hierarchy, for which a non-recurring change in fair value has been recordedtable below as of March 31, 2015June 30, 2019 and December 31, 2014:2018 (amounts in thousands):

 

   Fair Value Measurements At Reporting Date Using: 

March 31, 2015

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Impaired loans

  $5,395        $5,395  

Foreclosed assets

   2,196         2,196  
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $7,591    $—      $—      $7,591  
  

 

 

   

 

 

   

 

 

   

 

 

 

  Fair Value Measurements At Reporting Date Using:   Fair Value Measurements At Reporting Date Using: 

December 31, 2014

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable
Inputs (Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

June 30, 2019

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Impaired loans

  $4,878        $4,878    $4,182   $—     $—     $4,182 

Foreclosed assets

   2,340         2,340     277    —      —      277 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Totals

  $7,218    $—      $—      $7,218    $4,459   $—     $—     $4,459 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Index to Financial Statements

December 31, 2018

  Fair Value   Quoted Prices In
Active Markets
For Identical
Assets (Level 1)		   Significant Other
Observable Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

Impaired loans

  $3,782   $—     $—     $3,782 

Foreclosed assets

   496    —      —      496 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $4,278   $—     $—     $4,278 
  

 

 

   

 

 

   

 

 

   

 

 

 

RiverThe Company has estimated the fair values of these assets using Level 3 inputs, specifically the appraised value of the collateral. Impaired loan balances represent those collateral dependent impaired loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the impaired loan for the amount of the credit loss.

The estimated fair values, and related carrying or notional amounts, of River’sthe Company’s financial instruments as of March 31, 2015June 30, 2019 and December 31, 20142018 are as follows:follows (amounts in thousands):

 

   March 31, 2015   December 31, 2014 
   Carrying
Amount		   Fair Value   Carrying
Amount		   Fair Value 

Financial assets:

        

Cash and cash equivalents (Level 1)

   16,989    $16,989     25,369    $25,369  

Securities available-for-sale (Level 2)

   124,834     124,834     130,284     130,284  

Restricted equity securities (Level 3)

   672     NA     669     NA  

Loans receivable (Level 2)

   273,170     274,560     261,359     262,102  

Bank owned life insurance (Level 2)

   9,741     9,741     9,666     9,666  

Accrued interest receivable (Level 2)

   1,461     1,461     1,597     1,597  

Financial liabilities:

        

Deposits (Level 2)

   385,807     380,595     387,831     381,735  

Short-term borrowings (Level 2)

   7,289     7,289     8,043     8,043  

Long-term borrowings (Level 2)

   6,000     6,011     6,000     6,024  
       Estimated Fair Value 

June 30, 2019

  Carrying
Amount		   Level 1   Level 2   Level 3 

Financial assets:

        

Cash and cash equivalents

  $58,505   $58,505   $—     $—   

Certificates of deposit in banks

   5,683    —      5,683    —   

Securitiesavailable-for-sale

   220,486    —      220,486    —   

Loansheld-for-sale

   6,005    —      6,005    —   

Restricted equity securities

   1,324    —      —      1,324 

Loans receivable

   741,822    —      747,839    4,182 

Bank owned life insurance

   20,843    —      20,843    —   

Accrued interest receivable

   3,422    —      3,422    —   

Financial liabilities:

        

Deposits

   957,370    —      930,511    —   

Accrued interest payable

   480    —      480    —   

Securities sold under agreements to repurchase

   7,149    —      7,149    —   

Note payable

   25,388    —      25,388    —   

       Estimated Fair Value 

December 31, 2018

  Carrying
Amount		   Level 1   Level 2   Level 3 

Financial assets:

        

Cash and cash equivalents

  $47,507   $47,507   $—     $—   

Certificates of deposit in banks

   6,166    —      6,166    —   

Securitiesavailable-for-sale

   228,630    —      228,630    —   

Loansheld-for-sale

   2,619    —      2,619    —   

Restricted equity securities

   1,941    —      —      1,941 

Loans receivable

   704,685    —      699,076    3,782 

Bank owned life insurance

   20,563    —      20,563    —   

Accrued interest receivable

   3,260    —      3,260    —   

Financial liabilities:

        

Deposits

   898,707    —      861,683    —   

Accrued interest payable

   462    —      462    —   

Securities sold under agreements to repurchase

   7,975    —      7,975    —   

Federal Home Loan Bank advances

   20,000    —      19,999    —   

Note payable

   26,963    —      26,963    —   

The estimated fair values of the standby letters of credit and loan commitments on which the committed interest rate is less than the current market rate are insignificant at March 31, 2015June 30, 2019 and December 31, 2014.2018.

RiverThe Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of River’sthe Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to River.the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed-rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed-rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling-rate environment. Management monitors rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Corporation’sCompany’s overall interest rate risk.

Note 6 – Recently Issued Accounting Pronouncements

IndexIn February 2016, the FASB issued ASUNo. 2016-02,“Leases.” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and 2) aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard.All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASUNo. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. As the Company elected the transition option provided in ASUNo. 2018-11 (see below), the modified retrospective approach was applied on January 1, 2019 (as opposed to January 1, 2018). The Company also elected certain relief options offered in ASU2016-02 including the package of practical expedients, the option not to separate lease andnon-lease components and instead to account for them as a single lease component, and the option not to recognizeright-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). The Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment ofright-of-use assets. The Company has several lease agreements, such as branch locations, which are considered operating leases, and therefore, were not previously recognized on the Company’s consolidated statements of condition. The new guidance requires these lease agreements to be recognized on the consolidated statements of condition as aright-of-use asset and a corresponding lease liability. The new guidance did not have a material impact on the consolidated statements of income or the consolidated statements of cash flows. See Note 9Leases for more information.

In July 2018, the FASB issued ASUNo. 2018-11,“Leases—Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASUNo. 2016-02. Specifically, under the amendments in ASU2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease andnon-lease components when certain conditions are met. The amendments have the same effective date as ASU2016-02 (January 1, 2019 for the Company). The Company adopted ASU2018-11 on its required effective date of January 1, 2019 and elected both transition options mentioned above. ASU2018-11 did not have a material impact on the Company’s Consolidated Financial Statements

KEYSTONE BANCSHARES, INC.Statements.

AND SUBSIDIARY

In June 2016, the FASB issued ASU2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance will apply to most financial assets measured at amortized cost and certain other instruments including loans, debt securities held to maturity, net investments in leases andoff-balance-sheet credit exposures. The guidance will replace the current incurred loss accounting model that delays recognition of a loss until it is probable a loss has been incurred with an expected loss model that reflects expected credit losses based upon a broader range of estimates including consideration of past events, current conditions and supportable forecasts. The guidance also eliminates the current accounting model for purchased credit impaired loans and debt securities. For securities available for sale, credit losses are to be recognized as allowances rather than reductions in the amortized cost of the securities, which will requirere-measurement of the related allowance at each reporting period. The guidance includes enhanced disclosure requirements intended to help financial statement users better understand estimates and judgments used in estimating credit losses. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. On July 17, 2019, the FASB proposed a delay in the implementation date for this ASU for small SEC reporting companies, from the first quarter of 2020 to the first quarter of 2023. Management will monitor the progress of the proposed implementation date delay and will implement this ASU when the required implementation date is determined by the FASB. Our implementation efforts continued throughout 2018, assessing credit loss forecasting models and processes against the new guidance. In the first quarter of 2019 we began running the expected loss model along with our current model. While we continue to evaluate the impact the new guidance will have on our financial position and results of operations, we currently expect the new guidance may result in an increase to our allowance for credit losses given the change to estimated losses over the contractual life of the loan portfolio. The amount of any change to our allowance is still under review and will depend, in part, upon the composition of our loan portfolio at the adoption date as well as economic conditions and loss forecasts at that date.

CONSOLIDATED FINANCIAL REPORTIn January 2017, FASB issued ASU2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for GoodwillImpairment.” ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. ASU2017-04 is effective prospectively for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company adopted ASU2017-04 in 2017 and based on the Company’s annual goodwill impairment test performed as of December 31, 2017 and 2018 under ASU2017-04, the fair value of its reporting units exceeded the carrying value and, therefore, the related goodwill was not impaired.

DECEMBERIn March 2017, the FASB issued ASU2017-08, Receivables – Nonrefundable Fees and Other Costs(Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied on a modified retrospective

basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The ASU did not have an impact on the Company’s financial position or results of operations.

Note 7 – Defined Contribution Plan

The Company provides a 401(k) employee stock ownership plan (KSOP), which covers substantially all of the Company’s employees who are eligible, as to age and length of service. A participant may elect to make contributions up to $19 thousand and $18.5 thousand of the participant’s annual compensation in 2019 and 2018, respectively. The Company makes contributions up to 3% of each participant’s annual compensation and the Company matches 50% of the next 2% contributed by the employee. Contributions to the plan by Company were approximately $208 thousand and $175 thousand for the six months ended June 30, 2019 and 2018, respectively. Outstanding shares of the Company’s common stock allocated to participants at June 30, 2019 and December 31, 2014

2018 totaled 79,332 and 68,889 shares respectively, and there were no unallocated shares. These shares are treated as outstanding for purposes of calculating earnings per share and dividends on these shares are included in the Consolidated Statements of Stockholders’ Equity.

IndexThe Company’s KSOP includes a put option for shares of the Company’s common stock distributed from the KSOP. Shares are distributed from the KSOP primarily to separate vested participants and certain eligible participants who elect to diversify their account balances. Since the Company’s common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value during two put option periods following the distribution of the shares from the KSOP. The first put option period is within sixty days following the distribution of the shares from the KSOP. The second put option period begins on the first day of the fifth month of the plan year for a sixty day period. The fair value of distributed shares subject to the put option totaled $0 as of June 30, 2019 and December 31, 2018. The cost of the KSOP shares totaled $1.60 million and $1.34 million as of June 30, 2019 and December 31, 2018, respectively. Due to the Company’s obligation under the put option, the distributed shares and KSOP shares are classified as temporary equity in the mezzanine section of the consolidated statements of financial condition and totaled $1.60 million and $1.34 million as of June 30, 2019 and December 31, 2018, respectively. The fair value of the KSOP shares totaled $2.04 million and $1.65 million as of June 30, 2019 and December 31, 2018, respectively.

Note 8 – Acquisition

On June 5, 2019, the Company announced the signing of a definitive agreement providing for the merger of Trinity Bancorp, Inc. with and into River Financial Statements

KEYSTONE BANCSHARES, INC.Corporation. Concurrent with the merger of River Financial Corporation and Trintiy Bancorp, Inc., Trinity Bank will be merged with and into River Bank & Trust.

AND SUBSIDIARYUnder the terms of the definitive agreement, shareholders of Trinity Bancorp, Inc. immediately prior to the effective time of the merger will receive in exchange for each outstanding share of Trinity Bancorp, Inc. common stock held .44627 shares of River Financial Corporation common stock and approximately $3.50 in cash. Based on the 1,741,053 shares of Trinity Bancorp, Inc. common stock issued and outstanding as of June 5, 2019, River Financial Corporation will issue 776,979 shares of River Financial Corporation common stock and make cash payments to Trinity Bancorp, Inc. shareholders of approximately $6.1 million. The transaction is subject to customary closing conditions, including receipt of regulatory approvals and approval by Trinity Bancorp, Inc. shareholders. The merger is expected to close in the fourth quarter of 2019.

CONSOLIDATED FINANCIAL REPORTOn October 31, 2018, the Company completed its merger with PSB Bancshares, Inc. (“PSB”), a bank holding company headquartered in Clanton, Alabama. At that time, PSB’s wholly-owned banking subsidiary, Peoples Southern Bank was merged with and into RB&T. Peoples Southern Bank had a total of three banking locations located in Clanton, and Thorsby, Alabama. Upon consummation of the acquisition, PSB was merged with and into the Company, with the Company as the surviving entity in the merger. PSB’s common shareholders received sixty (60) shares of the Company’s common stock and $6,610 in cash in exchange for each share of PSB’s

DECEMBER 31, 2014

common stock. The Company paid cash totaling $24.5 million and issued 222,360 shares of the Company’s common stock. The aggregate estimated value of the consideration given was approximately $30.5 million. The Company recorded $8.2 million of goodwill, which is nondeductible for tax purposes, as this acquisition was a nontaxable transaction. Merger expenses of approximately $1.84 million were charged directly to other noninterest expenses.

TABLE OF CONTENTSThe acquisition of PSB was accounted for using the acquisition method of accounting in accordance with ASC 805,Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

Note 9 – Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASUNo. 2016-02“Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

Lessee Accounting

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2028. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the consolidated statements of condition as aright-of-use (“ROU”) asset and a corresponding lease liability.

The following table represents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition.

LeaseRight-of-Use Assets

  

Classification on Consolidated Statement of Condition

  June 30, 2019 

Operating leaseright-of-use assets

  

Other Assets

  $2,044 

Lease Liabilities

  

Classification on Consolidated Statement of Condition

  June 30, 2019 

Operating lease liabilities

  

Accrued interest payable and other liabilities

  $2,114 

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.

 

   PageJune 30, 2019 

INDEPENDENT AUDITOR’S REPORTWeighted-average remaining lease term for operating leases

   F-587.45 Years 

FINANCIAL STATEMENTSWeighted-average discount rate for operating leases

  6.00% 

Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2019 were as follows:

   Operating Leases 

June 30, 2019—June 30, 2020

  $388 

July 1, 2020—June 30, 2021

   371 

July 1, 2021—June 30, 2022

   355 

July 1, 2022—June 30, 2023

   355 

July 1, 2023—June 30, 2024

   341 

Afterward

   839 
  

 

 

 

Total future minimum lease payments

   2,649 

Amounts representing Interest

   (535) 
  

 

 

 

Present value of net future minimum lease payments

  $2,114 
  

 

 

 

Consolidated balance sheets

LOGO		  F-59

Consolidated statements of incomeWalter P. Wilkerson, Jr., CPA

F-60

Consolidated statements of comprehensive incomeJohn O. Bowden, CPA*

F-61

Consolidated statements of stockholders’ equityMisty K. Tindol, CPA

F-62

Consolidated statements of cash flowsJackie L. Smith, CPA

F-63

Notes to consolidated financial statementsHerbert A. Barr, CPA (Retired)

F-64-F-94

T. Winston Brunson, CPA (Retired)

529 Boll Weevil Circle

P.O. Box 311710

Enterprise, Alabama 36331-1710

Telephone: (334) 347-9509

Fax: (334) 393-2194

website: www.bwbcpas.com

Index to Financial Statements

LOGO

INDEPENDENT AUDITOR’S REPORTIndependent Auditor’s Report

To the Audit Committee

    and Board of Directors Trinity

Keystone Bancshares,Bancorp, Inc.

Auburn,Dothan, Alabama

We have audited the accompanying consolidated financial statements ofKeystone Bancshares, Trinity Bancorp, Inc. and its Subsidiary,, which comprise the consolidated balance sheetssheet as of December 31, 2014 and 2013,2018, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the yearsyear then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit. We conducted our auditsaudit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

American Institute of Certified Public Accountants/ Alabama Society of Certified Public Accountants

Florida Institute of Certified Public Accountants*/ Private Companies Practice Section

The Audit Committee and

Board of Directors Trinity

Bancorp, Inc.

Page 2

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Keystone Bancshares,Trinity Bancorp, Inc. and its Subsidiary as of December 31, 2014 and 2013,2018, and the results of their operations and their cash flows for the yearsyear then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Consolidating Information in Schedules I, II and III

LOGO

Birmingham, Alabama

May 14, 2015Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information in Schedules I, II and III is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

 

LOGOMay 8, 2019/s/ Brunson, Wilkerson, Bowden & Associates, P.C.

Brunson, Wilkerson, Bowden & Associates, P.C. Enterprise, Alabama

Trinity Bancorp, Inc.

Dothan, Alabama

IndexConsolidated Balance Sheet

December 31, 2018

ASSETS

  

Cash and Cash Equivalents

  

Cash and Due From Banks

  $9,728,816 

Interest-Bearing Deposits in Other Banks

   28,541 
  

 

 

 

Total Cash and Cash Equivalents

  $9,757,357 

Investment Securities

  

Securities Available-for-Sale, at Fair Value

   12,598,597 

Other Securities, at Cost

   332,750 

Loans, Less Allowance for Loan Losses of $2,005,977

   125,487,276 

Bank Premises and Equipment

   2,520,133 

Foreclosed Properties

   121,419 

Accrued Interest and Other Assets

   924,765 

Deferred Tax Asset

   662,705 
  

 

 

 

TOTAL ASSETS

  $152,405,002 
  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

LIABILITIES

  

Deposits:

  

Interest Bearing

  $105,751,447 

Non-interest Bearing

   28,784,860 
  

 

 

 

Total Deposits

  $134,536,307 

FHLB Advances

   2,062,332 

Accrued Interest and Other Liabilities

   705,925 
  

 

 

 

Total Liabilities

  $137,304,564 
  

 

 

 

STOCKHOLDERS’ EQUITY

  

Common Stock (voting; par value $1 per share; 10,000,000 Shares Authorized; 1,741,696 Issued and Outstanding

  $1,741,696 

Additional Paid-In Capital

   11,623,111 

Retained Earnings

   2,065,380 

Accumulated Other Comprehensive Income

   (274,649) 

Treasury Stock, at Cost

   (55,100) 
  

 

 

 

Total Stockholders’ Equity

  $15,100,438 
  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $152,405,002 
  

 

 

 

See accompanying notes to financial statements

Trinity Bancorp, Inc.

Dothan, Alabama

Consolidated Statement of Income

For the Year Ended December 31, 2018

INTEREST INCOME

  

Interest and Fees on Loans

  $6,801,480 

Interest on Investment Securities:

  

Obligations of Other U.S. Government Agencies and Corporations

   102,588 

Obligations of States and Political Subdivisions

   163,989 

Other Securities

   14,184 

Other Interest Income

   178,102 
  

 

 

 

Total Interest Income

  $7,260,343 
  

 

 

 

INTEREST EXPENSE

  

Interest on Deposits:

  

Demand

  $39,835 

Savings

   303,462 

Time, $100,000 and Over

   573,992 

Other Time

   209,886 

Interest on FHLB Advances

   57,076 
  

 

 

 

Total Interest Expense

  $1,184,251 
  

 

 

 

NET INTEREST INCOME

  $6,076,092 

PROVISION FOR LOAN LOSSES

   (240,500) 
  

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

  $6,316,592 
  

 

 

 

NONINTEREST INCOME

  

Service Fees

  $304,367 

Other Operating Income

   79,394 
  

 

 

 

Total Noninterest Income

  $383,761 
  

 

 

 

See accompanying notes to financial statements

Trinity Bancorp, Inc.

Dothan, Alabama

Consolidated Statement of Income

For the Year Ended December 31, 2018

NONINTEREST EXPENSE

  

Salaries and Employee Benefits

  $1,970,006 

Occupancy and Equipment Expenses

   738,781 

Supervisory Assessments

   105,000 

Professional Fees

   122,421 

Supplies and Printing

   15,648 

Other Real Estate Expenses

   105,611 

Other Operating Expenses

   782,881 
  

 

 

 

Total Noninterest Expense

  $3,840,348 
  

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

  $2,860,005 

PROVISION FOR INCOME TAXES

   710,449 
  

 

 

 

NET INCOME

  $2,149,556 
  

 

 

 

EARNINGS PER SHARE

  $1.234 
  

 

 

 

DILUTED EARNINGS PER SHARE

  $1.231 
  

 

 

 

Trinity Bancorp, Inc.

Dothan, Alabama

Consolidated Statement of Comprehensive Income

For the Year Ended December 31, 2018

NET INCOME

  $2,149,556 
  

 

 

 

Other Comprehensive Income (Loss):

  

Changes in Net Unrealized Gains on Securities

  

Available for Sale, Net Income Taxes of $33,472

  $(88,245) 

Reclassification Adjustments for Gains Realized, Net Income Taxes

   —   
  

 

 

 

Other Comprehensive Income (Loss)

  $(88,245) 
  

 

 

 

TOTAL COMPREHENSIVE INCOME

  $2,061,311 
  

 

 

 

See accompanying notes to financial statements

Trinity Bancorp, Inc.

Dothan, Alabama

Consolidated Statement of Stockholders’ Equity

  Common
Stock		  Additional
Paid-In
Capital		  Retained
Earnings/
(Deficit)		  Accumulated
Other
Comprehensive
Income		  Treasury
Stock		  Total
Stockholders’
Equity		 

BALANCES, DECEMBER 31, 2017

 $1,744,196  $11,623,111  $264,163  $(186,404)  $(36,425)  $13,408,641 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME

      

Net Income

 $—    $—    $2,149,556  $—    $—    $2,149,556 

Other Comprehensive Income, Net of Tax:

      

Change in Unrealized Gain (Loss) on Securities Available-for-Sale, Net of Deferred Income Tax

  —     —     —     ( 88,245)   —     ( 88,245) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Comprehensive Income (Loss)

 $—    $—    $2,149,556  $(88,245)  $—    $2,061,311 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Shares Issued

  —     —     —     —     —     —   

Shares Repurchased

  ( 2,500)   —     —     —     (18,675)   ( 21,175) 

Dividends Declared on Common Stock $0.20 per Share

  —     —     ( 348,339)   —     —     ( 348,339) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

BALANCES, DECEMBER 31, 2018

 $1,741,696  $11,623,111  $2,065,380  $(274,649)  $(55,100)  $15,100,438 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to financial statements

Trinity Bancorp, Inc.

Dothan, Alabama

Consolidated Statement of Cash Flows

For the Year Ended December 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES

  

Net Income

  $2,149,556 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

  

Provision for Loan Losses

   (240,500) 

Deferred Income Taxes (Benefits)

   46,700 

Depreciation

   154,847 

Investment Gains

   —   

(Gain) Loss on Sale of Foreclosed Assets

   (84,697) 

Loss on Sale of Assets

   2,233 

Net Amortization of Securities

   95,587 

Writedown of Foreclosed Assets

   105,932 

Change in Operating Assets and Liabilities:

  

Accrued Interest and Other Assets

   248,224 

Accrued Interest and Other Liabilities

   444,570 
  

 

 

 

Net Cash Provided By Operating Activities

  $2,922,452 
  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

  

Purchases of Investment Securities Available-for-Sale

  $—   

Proceeds from Maturities, Prepayments and Calls of Investment Securities Available-for-Sale

   604,507 

Purchases of Other Securities

   (9,800) 

Net Increase in Loans

   (6,146,443) 

Purchases of Bank Premises and Equipment

   (143,643) 

Proceeds from Sale of Foreclosed Assets

   115,220 
  

 

 

 

Net Cash Used By Investing Activities

  $(5,580,159) 
  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

  

Net Increase in Deposits

  $3,864,111 

Proceeds from Sale of Common Stock

   (21,175) 

Dividends Paid on Common Stock

   (348,339) 

Net Increase in FHLB Advances

   (197,824) 
  

 

 

 

Net Cash Provided By Financing Activities

  $3,296,773 
  

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

  $639,066 

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

   9,118,291 
  

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

  $9,757,357 
  

 

 

 

RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET

  

Cash and Due from Banks

  $9,728,816 

Interest-Bearing Deposits in Other Banks

   28,541 
  

 

 

 

TOTAL CASH AND CASH EQUIVALENTS, END OF YEAR

  $9,757,357 
  

 

 

 

Supplemental Cash Flow Information:

  

Interest Paid

  $1,169,432 
  

 

 

 

Taxes Paid

  $202,716 
  

 

 

 

Schedule of Noncash Investing and Financing Activities:

  

Loan Charge-Offs

  $111,889 
  

 

 

 

Foreclosure of Assets

  $—   
  

 

 

 

See accompanying notes to financial statements

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBERDecember 31, 2014 AND 20132018

Note 1—Summary of Significant Accounting Policies

   2014   2013 
Assets    

Cash and due from banks

  $3,752,445    $3,376,066  

Interest bearing deposits in banks

   15,378,443     21,307,569  

Federal funds sold

   1,003,392     1,001,095  
  

 

 

   

 

 

 

Cash and cash equivalents

 20,134,280   25,684,730  

Securities available for sale

 39,441,849   38,798,069  

Restricted equity securities

 609,000   661,700  

Loans held for sale

 703,247   689,100  

Loans, net of deferred fees

 164,487,462   155,837,425  

Less allowance for loan losses

 2,369,952   2,344,830  
  

 

 

   

 

 

 

Loans, net

 162,117,510   153,492,595  

Premises and equipment

 6,444,418   6,623,779  

Bank owned life insurance and annuity

 6,359,993   6,223,083  

Other real estate owned

 1,273,217   641,332  

Other assets

 2,011,638   2,132,367  
  

 

 

   

 

 

 

Total assets

$239,095,152  $234,946,755  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity

Liabilities:

Deposits

Noninterest-bearing

$25,056,059  $22,837,007  

Interest-bearing

 179,503,139   179,923,859  
  

 

 

   

 

 

 

Total deposits

 204,559,198   202,760,866  

Other borrowings

 6,500,000   6,575,640  

Other liabilities

 1,082,546   1,603,431  
  

 

 

   

 

 

 

Total liabilities

 212,141,744   210,939,937  
  

 

 

   

 

 

 

Commitments and contingencies (Note 10)

Stockholders’ equity:

Preferred stock, $1 par value, 2,000,000 shares authorized; none issued and outstanding

 —     —    

Common stock, $1 par value, 5,000,000 shares authorized; 1,788,792 and 1,763,792 shares issued and outstanding, respectively

 1,788,792   1,763,792  

Capital surplus

 16,031,628   15,803,488  

Retained earnings

 9,079,565   6,840,945  

Accumulated other comprehensive income (loss)

 53,423   (401,407) 
  

 

 

   

 

 

 

Total stockholders’ equity

 26,953,408   24,006,818  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$239,095,152  $234,946,755  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2014 AND 2013

   2014   2013 

Interest income:

    

Loans, including fees

  $8,759,774    $8,777,646  

Taxable securities

   197,411     143,329  

Nontaxable securities

   818,902     841,681  

Federal funds sold

   24,080     26,482  

Deposits in banks

   228,624     222,526  
  

 

 

   

 

 

 

Total interest income

 10,028,791   10,011,664  
  

 

 

   

 

 

 

Interest expense:

Deposits

 1,347,850   1,674,863  

Other borrowings

 73,167   42,000  
  

 

 

   

 

 

 

Total interest expense

 1,421,017   1,716,863  
  

 

 

   

 

 

 

Net interest income

 8,607,774   8,294,801  

Provision for loan losses

 425,000   380,000  
  

 

 

   

 

 

 

Net interest income after provision for loan losses

 8,182,774   7,914,801  
  

 

 

   

 

 

 

Other income:

Service charges on deposit accounts

 234,938   270,292  

Mortgage origination fees

 953,138   942,251  

Net gain on sale of securities available for sale

 157,544   368,184  

Other operating income

 333,237   255,297  
  

 

 

   

 

 

 

Total other income

 1,678,857   1,836,024  
  

 

 

   

 

 

 

Other expenses:

Salaries and employee benefits

 3,769,694   3,480,145  

Equipment and occupancy expenses

 476,849   382,871  

Other operating expenses

 1,990,107   2,093,882  
  

 

 

   

 

 

 

Total other expenses

 6,236,650   5,956,898  
  

 

 

   

 

 

 

Income before income tax expense

 3,624,981   3,793,927  

Income tax expense

 1,033,603   1,116,333  
  

 

 

   

 

 

 

Net income

$2,591,378  $2,677,594  
  

 

 

   

 

 

 

Basic earnings per share

$1.46  $1.48  
  

 

 

   

 

 

 

Diluted earnings per share

$1.44  $1.47  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2014 AND 2013

   2014  2013 

Net income

  $2,591,378   $2,677,594  
  

 

 

  

 

 

 

Other comprehensive income (loss):

Unrealized holding gains (losses) on securities available for sale arising during the period net of tax (benefit) of $287,872 and $(391,331), respectively

 558,809   (759,642) 

Reclassification adjustment for gains on sales of securities realized in net income, net of tax of $53,565 and $125,183, respectively

 (103,979)  (243,001) 
  

 

 

  

 

 

 

Other comprehensive income (loss)

 454,830   (1,002,643) 
  

 

 

  

 

 

 

Comprehensive income

$3,046,208  $1,674,951  
  

 

 

  

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2014 AND 2013

  Common Stock  Capital
Surplus		  Retained
Earnings		  Accumulated
Other
Comprehensive
Income
(Loss)		  Total
Stockholders’
Equity		 
  Shares  Par Value     

Balance, December 31, 2012

  1,808,792   $1,808,792   $16,564,741   $4,299,011   $601,236   $23,273,780  

Net income

  —      —      —      2,677,594    —      2,677,594  

Dividends paid, $.075 per share

  —      —      —      (135,660)   —      (135,660) 

Stock-based compensation

  —      —      3,747    —      —      3,747  

Retirement of common stock

  (45,000)   (45,000)   (765,000)   —      —      (810,000) 

Other comprehensive loss

  —      —      —      —      (1,002,643)   (1,002,643) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2013

 1,763,792   1,763,792   15,803,488   6,840,945   (401,407)  24,006,818  

Net income

 —     —     —     2,591,378   —     2,591,378  

Dividends paid, $.20 per share

 —     —     —     (352,758)  —     (352,758) 

Stock-based compensation

 —     —     3,140   —     —     3,140  

Exercise of stock warrants

 25,000   25,000   225,000   —     —     250,000  

Other comprehensive income

 —     —     —     —     454,830   454,830  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2014

 1,788,792  $1,788,792  $16,031,628  $9,079,565  $53,423  $26,953,408  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2014 AND 2013

   2014  2013 

OPERATING ACTIVITIES

   

Net income

  $2,591,378   $2,677,594  

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation

   271,125    198,727  

Provision for loan losses

   425,000    380,000  

Net amortization on securities

   192,974    204,623  

Deferred income taxes

   (62,942)   200,223  

Stock-based compensation expense

   3,140    3,747  

Net gain on sale of securities available for sale

   (157,544)   (368,184) 

(Gain) loss on sale of other real estate owned

   (1,496)   126,330  

Decrease in interest receivable

   5,568    39,656  

Decrease in interest payable

   (15,397)   (66,238) 

Increase (decrease) in income taxes payable

   72,920    (167,442) 

Increase in bank owned life insurance and annuity

   (136,910)   (147,238) 

(Increase) decrease in loans held for sale

   (14,147)   1,159,450  

Write-down of other real estate owned

   25,533    114,575  

Net other operating activities

   175,388    208,826  
  

 

 

  

 

 

 

Net cash provided by operating activities

 3,374,590   4,564,649  
  

 

 

  

 

 

 

INVESTING ACTIVITIES

Purchases of securities available for sale

 (9,660,988)  (16,135,770) 

Proceeds from maturities of securities available for sale

 627,917   891,643  

Proceeds from sales of securities available for sale

 9,042,998   9,131,581  

Redemption of restricted equity securities

 52,700   33,500  

Net increase in loans

 (9,909,110)  (664,233) 

Purchase of premises and equipment

 (91,764)  (1,577,426) 

Proceeds from sales of other real estate owned

 203,273   925,757  
  

 

 

  

 

 

 

Net cash used in investing activities

 (9,734,974)  (7,394,948) 
  

 

 

  

 

 

 

FINANCING ACTIVITIES

Net increase in deposits

 1,798,332   13,128,925  

Proceeds from other borrowings

 —     6,575,640  

Repayment of other borrowings

 (75,640)  (6,500,000) 

Exercise of stock warrants

 250,000   —    

Payment to retire common stock

 (810,000)  —    

Dividends paid

 (352,758)  (135,660) 
  

 

 

  

 

 

 

Net cash provided by financing activities

 809,934   13,068,905  
  

 

 

  

 

 

 

Net (decrease) increase in cash and cash equivalents

 (5,550,450)  10,238,606  

Cash and cash equivalents at beginning of year

 25,684,730   15,446,124  
  

 

 

  

 

 

 

Cash and cash equivalents at end of year

$20,134,280  $25,684,730  
  

 

 

  

 

 

 

SUPPLEMENTAL DISCLOSURE

Cash paid during the year for:

Interest

$1,435,604  $1,783,101  

Income taxes

$1,026,846  $1,083,551  

NONCASH TRANSACTIONS

Other real estate owned acquired in settlement of loans

$859,195  $918,932  

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of BusinessOperations

Keystone Bancshares,Trinity Bancorp, Inc. (the “Company”“Bancorp”) is a bank holding company whose business is conducted byand its wholly-owned subsidiary KeystoneTrinity Bank (the “Bank” and together with the Bancorp, the “Company”). provides various and other financial services to individuals and corporate customers through its offices in Dothan and Enterprise, Alabama. The Bank’s primary deposit products are demand deposits, savings and certificates of deposit. Its primary lending products are commercial loans. As a state bank, the Bank is subject to regulation by the Alabama State Banking Department and the Federal Deposit Insurance Corporation.

Additionally, the Bank maintains correspondent banking relationships with regional correspondent banks. The Bank is a state-chartered commercial bank headquartereddoes not have any significant concentrations to any one industry or customer. Note 3 discusses the types of securities in Auburn, Lee County, Alabama with additional full service branch office locationswhich the Bank invests. Note 4 discusses the types of lending in Opelika, Alabama and Gadsden, Alabama. Thewhich the Bank provides a full range of banking services in its primary market areas of Lee and Etowah County and the surrounding areas.

Basis of Presentation and Accounting Estimatesengages.

The consolidated financial statements include the accountsaccounting and reporting policies and practices of the Company and the Bank. Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in conformity withconform to accounting principles generally accepted in the United States of America,America. The Company’s significant accounting policies are described below.

Principles of Consolidation

The accompanying consolidated financial statements includes the accounts of the Company and the Bank.

In consolidation, all significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements requires management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities asand disclosure of contingent assets and liabilities at the date of the balance sheet,consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thosethese estimates.

Material estimatesComprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are particularly susceptible to significant change in the near term relate to the determinationreported as a separate component of the allowance for loan losses, the valuation of other real estate owned, deferred taxes, and the fair value of financial instruments.

The determinationstockholders’ equity section of the adequacybalance sheets. Such items, along with net income, are components of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determinationcomprehensive income.

Presentation of estimated losses on other real estate owned, management obtains independent appraisals for significant collateral.

The Company’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

The Company has evaluated all transactions, events, and circumstances for consideration or disclosure through May 14, 2015, the date these consolidated financial statements were available to be issued, and has reflected or disclosed those items within the financial statements and related footnotes as deemed appropriate.

Cash, Due From Banks, and Cash Flows

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of collection, amounts due from banks,clearing) and interest-bearing deposits in banks with an original maturity of 90 days or less, and federal funds sold. Cash flows from loans, loans heldGenerally, federal funds are sold for sale, and deposits are reported net.one-day periods.

Index

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash, Due From Banks, and Cash FlowsNote 1—Summary of Significant Accounting Policies (Continued)

 

The Company is required to maintain average balancesInvestment Securities

Securities that are held principally for resale in cash or on deposit with the Federal Reserve Bank. The total of those reserve balances was approximately $749,000 and $519,000near term are recorded in the trading assets account at December 31, 2014 and 2013, respectively.fair value.

Securities

All classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are classified as “availablecarried at cost and adjusted for sale”amortization of premium and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are recognized in interest incomeaccretion of discount, computed using the interest method, over their contractual lives.

Securities classified as available-for-sale are equity securities with readily determinable fair values and those debt securities that the termsCompany intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movement in interest rates, changes in the maturity mix of the securities. Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. These securities are carried at estimated fair value based on information provided by a third party pricing service with any unrealized gains or losses excluded from net income and reported in accumulated other comprehensive income (loss), which is reported as a separate component of stockholders’ equity, net of the related deferred tax effect.

Dividend and interest income, including amortization of premium and accretion of discount arising at acquisition, from all categories of investment securities are included in interest income in the consolidated statements of income.

Gains and losses realized on the salesales of investment securities, are recorded on the trade date and are determined using the adjusted cost basis of the specific identification method.

The Company evaluatessecurities sold, are included in noninterest income in the consolidated statements of income. Additionally, declines in the estimated fair value of individual investment securities forbelow their cost that are other-than-temporary are reflected as realized losses in the statements of income. Factors affecting the determination of whether an other-than-temporary impairment using relevant accounting guidance specifyinghas occurred include, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near term prospects of the issuer, (iii) that (a) if the Company does not have the intentintend to sell a debt security prior to recoverythese securities, and (b)(iv) it is more likely than not that itthe Company will not havebe required to sell the debt security priorbefore a period of time sufficient to allow for any anticipated recovery the security would not be considered other-than-temporary impaired unless there is a credit loss that has occurred in the security. If management does not intend to sell the security and it is more likely than not that they will not have to sell the security before recovery of the cost basis, management will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income (loss).fair value.

Restricted Equity Securities

The Companystock is requiredstock from the Federal Home Loan Bank and First National Banker’s Bank, which are restricted as to maintain an investment in capital stock of various entities. Based on redemption provisions oftheir marketability. Because no ready market exists for these entities, the stock hasinvestments and they have no quoted market value, and isthe Bank’s investment in these stocks are carried at cost. At their discretion, these entities may declare dividends on the stock. Management reviews for impairment based on the ultimate recoverability of the cost basis in these stocks.of the stock.

Loans Held For Saleand Allowance for Loan Losses

Loans originatedThe Bank grants real estate, commercial, consumer and intended for sale in the secondary market are carried at the lower of cost or fair value. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs and fees are deferred at originationagricultural loans to customers. A substantial portion of the loan portfolio is represented by real estate loans throughout Houston and are recognized in noninterest income upon saleCoffee County and surrounding areas. The ability of the loan. The estimated fair value of loans held for saleBank’s debtors to honor their contracts is based on independent third party quoted prices.

Loansdependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity, or pay-off, generally are reported at their outstanding unpaid principal balances less deferred fees and costs on originated loans andadjusted for the allowance for loan losses.losses and any deferred fees or costs on originated loans. Interest income is accrued on the outstandingunpaid principal balance.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees net of certain direct origination costs of consumer and installment loans are recognized at the time the loan is placed on the books. Loan origination fees for all other loans are deferred and recognizedamortized as ana level yield adjustment over the respective term of the yield over the life of the loan using the straight-line method.loan.

The accrual of interest on the loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, or at the time the loan is 90 days past due unless the

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans (Continued)

loan credit is well-secured and in the process of collection. Loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrualnon-accrual or charged-off at an earlier date if collection of principal andor interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrualnon-accrual or charged offcharged-off is reversed against interest income or charged to the allowance, unless management believes that the accrual ofincome. The interest is recoverable through the liquidation of collateral. Interest income on nonaccrualthese loans is recognizedaccounted for on the cash basis or cost recovery method, until the loans are returnedqualifying for return to accrual status.accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for loan losses is established as estimated losses and are charged to earnings through a provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance is based on two basic principles of accounting: (i) FASB ASC 450,Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) FASB ASC 310,Receivables, which requires that losses on impaired loans be accrued based on the differences between the loan has been performing accordingbalance and either the value of collateral, if such loans are considered to be collateral dependent and in the contractual terms generally for a periodprocess of not less than six months.

collection, or the present value of future cash flows, or the loan’s value as observable in the secondary market. A loan is considered impaired when, it is probable, based on current information and events, the Company will be unablehas concerns about the ability to collect allthe scheduled payments of principal andor interest paymentswhen due in accordance withaccording to the contractual terms of the loan agreement. Loans, for which the terms have been modified at the borrower’s request, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company’s allowance for loan losses has three basic components: the specific allowance, the formula allowance and the pooled allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. As a result of the uncertainties inherent in the estimation process, management’s estimate of loan losses and the related allowance could change in the near term.

The specific allowance component is used to individually establish an allowance for loans identified for impairment testing. When impairment is identified, a specific reserve may be established based on the Bank’s calculation of the estimated loss embedded in the individual loan. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent losses. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment.

The formula allowance component is used for estimating the loss on internally risk rated loans exclusive of those identified as impaired. The loans meeting the Company’s internal criteria for

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

classification, such as special mention, substandard, doubtful and loss, as well as specifically identified impaired loans, are segregated from performing loans within the portfolio. These internally classified loans are then grouped by loan type. Each loan type is assigned an allowance factor based on management’s estimate of the associated risk, complexity and size of the individual loans within the particular loan category. Classified loans are assigned a higher allowance factor than non-classified loans due to management’s concerns regarding collectability or management’s knowledge of particular elements surrounding the borrower. Allowance factors increase with the worsening of the internal risk rating.

The pooled formula component is used to estimate the losses inherent in the pools of non-classified loans. These loans are then also segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, results of the loan review system and the effect of external factors (i.e. competition and regulatory requirements). Current economic conditions take into account the average unemployment rates for Houston County and Coffee County, Alabama, the State of Alabama and for the nation, with the most significance given to the Houston and Coffee County data. The allowance factors assigned differ by loan type.

Allowance factors and overall size of the allowance may change from period to period based on management’s assessment of the above-described factors and the relative weights given to each factor. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Bank to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. It is the Company’s policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs on loans are being amortized on the interest method over the term of the loan. Management considers loans impaired when, based on current information, it is probable that the Bank will not collect all principal or interest payments according to contractual terms. Loans are evaluated for impairment in accordance with the Company’s portfolio monitoring and ongoing risk assessment procedures. Management considers the financial condition of the borrower, cash flow of the borrower, payment status of the loan, and the value of collateral, if any, securing the loan. Loans that experience insignificant payment delays and payment shortfalls are not generally classified asconsidered impaired. Impaired loans areManagement determines the significance of payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Interest on accruing impaired loans

The Company’s charge-off policy states after all collection efforts have been exhausted and the loan is recognized as long as such loans do not meetdeemed to be a loss, it will be charged to the criteria for nonaccrual status. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Allowance for Loan Losses

TheBank’s established allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the uncollectibility oflosses. For unsecured loans, a loan balancethat is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believesover 90 days past due or one in which Management deems no longer collectible will be adequatecharged-off. For secured loans, at the time that Management deems a loan no longer collectible, the Company will take action to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherentrepossess the collateral if in the balance ofCompany’s best interest and to liquidate the loan portfolio. The allowance for loan lossescollateral as soon as possible. Once the collateral is evaluated on a regular basis by management and is based upon management’s periodic review ofliquidated, the uncollectibility of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower’s ability to pay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.remaining deficiency will be charged-off.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loan pools and is based on historical loss experience adjusted for other qualitative factors.

Trinity Bancorp, Inc.

IndexDothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

 

The Company’s loan pools include commercial real estate loans, real estate construction and land development loans, residential real estate loans, other real estate loans, commercial loans, and consumer loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors. The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the quality of loan review system; (6) the experience and ability of lending personnel and management; (7) effectivenessIf liquidation of the Company’s loan policiescollateral is expected to take an extended period of time, Management will estimate the expected loss amount and procedures; (8) changescharge off that amount.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Bank has entered into commitments to extend credit, commitments under standby letters of credit, and unfunded commitments under lines of credit. Such financial instruments are recorded when they are funded.

Foreclosed Properties

Foreclosed properties include properties that have been acquired in collateral values. The total allowance established for each loan pool represents the product of the historical loss ratio and the total dollar amount of the loans in the pool.

Troubled Debt Restructurings

The Company designates loan modifications as troubled debt restructurings (“TDRs”) when for economic and legal reasons related to the borrower’s financial difficulties, it grants a concession to the borrower that it would not otherwise consider. The restructuringcomplete or partial satisfaction of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Company considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the borrower is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy and (iv) the borrower’s projected cash flow is sufficient to satisfy contractual payments due under the original terms of the loan without a modification.

The Company considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Company include the borrower’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Company would generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a temporary period of interest-only payments, and (iv) a reduction in the contractual payment amount for either a short period or remaining term of the loan.

Premises and Equipment

Land is carried at cost. Premises and equipmentdebt. These properties are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

Years

Buildings

39

Furniture and equipment

3-7

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Other Real Estate Owned

Other real estate owned acquired through, or in lieu of, loan foreclosure is held for sale and is initially recorded at fair value less selling costs.on the date of acquisition. Any write-down to fair valuewrite-downs at the time of transfer to other real estate owned isacquisition are charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and theacquisition, a valuation allowance is established, if necessary, to report these assets are carried at the lower of (a) fair value minus estimated costs to sell or (b) cost. Gains and losses realized on the sale, and any adjustments resulting from periodic re-evaluation of the property are included in noninterest income or expense, as appropriate. Net costs of maintaining and operating the properties are expensed as incurred.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method based on the estimated useful lives of the assets or the expected terms of the leases, if shorter.

Expenditures for improvements, which extend the life of an asset, are capitalized and depreciated over the asset’s remaining useful life. Gains or losses realized on the disposition of properties and equipment are reflected in the statements of income. Expenditures for repairs and maintenance are charged to operating expenses as incurred.

Valuation of Long-lived Assets

The Company accounts for the valuation of long-lived assets under FASB ASC 360,Property, Plant and Equipment. This guidance requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount orof an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount of fair value, less costs to sell. Costs of improvements are capitalized, whereas costs relating to holding other real estate owned and subsequent write-downs to the value are expensed.

Income Taxes

TheProvisions for income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paidare based on taxes payable or refundedrefundable for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determinesyear and deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of thetemporary differences between the bookamount of taxable income and pretax financial income and

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 1—Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

between the tax basesbasis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted changes inincome tax rates and laws are recognized inapplicable to the period in which they occur.

Deferred income tax expense results from changes inthe deferred tax assets and liabilities between periods. Deferredare expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. In addition, deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based onwhen, in the weightopinion of evidence available,management, it is more likely than not that some portion or all of athe deferred tax assetassets will not be realized.

Stock-Based Compensation

Stock compensation accounting guidance requiresThe Company does not have uncertain tax positions that are deemed material, and did not recognize any adjustments for unrecognized tax benefits. The Company’s policy is to recognize interest and penalties on income taxes in other noninterest expense. The Company remains subject to examination for income tax returns for the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock warrants and options.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-Based Compensation (Continued)

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. A Black-Scholes model is used to estimate the fair value of stock warrants and options.years ending after December 31, 2014.

Earnings Per Share

Basic earnings per share are computed by dividing netrepresent income available to common stockholders divided by the weighted average number of shares of common stockshares outstanding during the period. The weighted average number of common shares outstanding used to calculate earnings per share was 1,741,696 for the year ended December 31, 2018.

Diluted earnings per share are computed by dividing net income by the sum of the weighted average number ofreflect additional common shares of common stockthat would have been outstanding andif dilutive potential common shares.shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares consist of organizer stock warrants andthat may be issued by the Bank relate solely to outstanding stock options. Organizer stock warrantsThe dilutive shares outstanding used to calculate diluted earnings per share were 1,746,393 for the year ended December 31, 2018.

Fair Value Measurements

The Company follows the guidance of FASB ASC 825,Financial Instruments, and stock optionsFASB ASC 820,Fair Value Measurement. This guidance permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are described more fullynot adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was $33,388 for the year ended December 31, 2018.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 8, Employee and Director Benefits.1—Summary of Significant Accounting Policies (Continued)

A reconciliation

Compensated Absences

Employees of the numeratorsBank are entitled to paid vacation, paid sick days and denominatorspersonal days off, depending on job classifications, length of service, and other factors. It is impractical to estimate the earnings per common shareamount of compensation for future absences, accordingly, no liability has been recorded in the financial statements. The Bank’s policy is to recognize the costs of compensated absences when actually paid to employees.

Subsequent Events

The Company has evaluated the accompanying financial statements for subsequent events and earnings per common share assuming dilution computations istransactions through May 8, 2019, the date these financial statements were available for issue, based on FASB ASC 855,Subsequent Events,and has determined that no material subsequent events have occurred that would affect the information presented below.in the accompanying financial statements or require additional disclosure.

   Years Ended December 31, 
   2014   2013 

Weighted-average common shares outstanding

   1,770,042     1,808,792  
  

 

 

   

 

 

 

Net income

$2,591,378  $2,677,594  
  

 

 

   

 

 

 

Basic earnings per share

$1.46  $1.48  
  

 

 

   

 

 

 

Weighted-average common shares outstanding

 1,770,042   1,808,792  

Dilutive effects of assumed conversions and exercise of stock options and warrants

 27,117   13,919  
  

 

 

   

 

 

 

Weighted-average common and dilutive potential common shares outstanding

 1,797,159   1,822,711  
  

 

 

   

 

 

 

Net income

$2,591,378  $2,677,594  
  

 

 

   

 

 

 

Diluted earnings per share

$1.44  $1.47  
  

 

 

   

 

 

 

Comprehensive IncomeNew Authoritative Accounting Guidance

The Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2016-01,Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update make targeted improvements to generally accepted accounting principles generally require that(GAAP) as follows: (1) Require equity investments to be measured at fair value with changes in fair value recognized revenue, expenses, gains and losses be included in net income. Although certain changes(2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value. (3) Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. (4) Require public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes. (5) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This ASU will be effective for financial institutions other than public business entities for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not expect the guidance to have a material impact on its financial statements.

The FASB issued ASU 2016-02,Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification and creating Topic 842,Leases. Leasing is utilized by many entities. It is a means of gaining access to assets, of obtaining financing, and/or of reducing an entity’s exposure to the full risks of asset ownership. The prevalence of leasing, therefore, means that it is important to users of financial statements have a complete and understandable picture of an entity’s leasing activities. Previous lease accounting was criticized for failing to meet the needs of users of financial statements because it did not always provide a faithful representation of leasing transactions. In particular, it did not require lessees to recognize assets and liabilities such arising from operating leases on the balance sheet. As a result, there had been long-standing requests from many users of financial statements and others to change the accounting requirements so that lessees would be required to recognize the rights and obligations resulting from leases

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 1—Summary of Significant Accounting Policies (Continued)

New Authoritative Accounting Guidance (Continued)

as unrealized gainsassets and liabilities. This ASU will be effective for financial institutions other than public business entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. At this time, the Company has not determined the impact of this Update on its financial statements.

The FASB issued ASU 2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Current GAAP requires anincurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. Users of financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet theprobable threshold. The main objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on availablefinancial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU will be effective for salefinancial institutions other than public business entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. At this time, the Company has not determined the impact of this Update on its financial statements.

The FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which made the following changes that may affect the Company: (1) Debt Prepayment or Debt Extinguishment Costs: Cash payments for debt prepayment or debt extinguishment costs should be classified as cash flows for financing activities. (2) Proceeds from the Settlement of Bank-Owned Life Insurance Policies: Cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash flows from investing activities. The cash payments for premiums on bank-owned policies may be classified as cash flows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this ASU will be effective for entities other than public business entities for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not expect the guidance to have a material impact on its financial statements.

The FASB issued ASU No. 2017-08,Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities. This Update shortens the amortization period for certain callable debt securities are reportedheld at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. Under prior guidance, entities were generally required to amortize premiums on individual, non-pooled callable debt securities as a separate componentyield adjustment over the contractual life of the equity sectionsecurity. This Update does not change the accounting for callable debt securities held at a discount. This Update will be effective for entities other than public business entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, with early adoption permitted. At this time, the Company has not determined the impact of the balance sheet, such items, along with net income, are components of comprehensive income.this Update on its financial statements.

Fair Value of Financial Instruments

Trinity Bancorp, Inc.

Fair values of financial instruments are estimates using relevant market information and other assumptions, as more fully disclosed in Note 13. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Dothan, Alabama

IndexNotes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018

 

NOTE 2.SECURITIES

Note 2—Due from Accounts

The Bank maintains its cash accounts at various commercial banks in Alabama and Florida. The amounts by which cash and cash equivalents exceed Federal Deposit Insurance Corporation (FDIC) insurance coverage was approximately $8,123,005 at December 31, 2018. Management monitors these bank accounts and does not expect to incur any losses from such accounts.

Note 3—Investments

The amortized cost and fair value of securities, with gross unrealized gains and losses, are summarizedwere as follows:

 

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair
Value		 

Securities Available for Sale

       

December 31, 2014:

       

U.S. Government sponsored agencies

  $780,182    $1,181    $(8,891)  $772,472  

U.S. Government sponsored mortgage-backed securities

   1,471,557     43,614     —      1,515,171  

State and municipal securities

   34,918,126     430,159     (231,185)   35,117,100  

Corporate bonds

   2,191,038     —       (153,932)   2,037,106  
  

 

 

   

 

 

   

 

 

  

 

 

 

Total securities available for sale

$39,360,903  $474,954  $(394,008) $39,441,849  
  

 

 

   

 

 

   

 

 

  

 

 

 

December 31, 2013:

U.S. Government sponsored agencies

$776,824  $—    $(20,074) $756,750  

U.S. Government sponsored mortgage-backed securities

 639,235   4,376   —     643,611  

State and municipal securities

 34,931,114   263,871   (843,705)  34,351,280  

Corporate bonds

 3,059,090   27,432   (40,094)  3,046,428  
  

 

 

   

 

 

   

 

 

  

 

 

 

Total securities available for sale

$39,406,263  $295,679  $(903,873) $38,798,069  
  

 

 

   

 

 

   

 

 

  

 

 

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

Securities Available for Sale

        

Mortgage Backed Securities

  $609,266   $618   $20,218   $589,666 

U.S. Government Securities

   3,702,449    —      55,878    3,646,571 

Certificates of Deposit

   250,000    —      —      250,000 

Municipal Securities

   8,415,708    885    304,233    8,112,360 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $12,977,423   $1,503   $380,329   $12,598,597 
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company had noOther securities pledged ason the balance sheet are comprised of $233,000 in FHLB stock at December 31, 20142018 and 2013.$99,750 in First National Banker’s Bank stock at December 31, 2018.

Gross gainsAt December 31, 2018 securities with a carrying value of approximately $7,572,082, respectively, were pledged to secure public deposits and losses on securities available for sale consist of the following:other purposes required or permitted by law.

   Years Ended December 31, 
           2014                   2013         

Gross gains on sales of securities

  $185,836    $368,184  

Gross losses on sales of securities

   (28,292)    —    
  

 

 

   

 

 

 
$157,544  $368,184  
  

 

 

   

 

 

 

The amortized cost and fair valuevalues of debt securities as of December 31, 2014 by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid with or without penalty. Therefore, these securities are not included by maturity class in the following summary:at December 31, 2018 was as follows:

 

   Securities Available for Sale 
   Amortized
Cost		   Fair
Value		 

Due in one year or less

  $1,696,981    $1,673,628  

Due from one to five years

   17,300,979     17,290,931  

Due from five to ten years

   12,779,726     12,859,352  

Due after ten years

   6,111,660     6,102,767  

Mortgage-backed securities

   1,471,557     1,515,171  
  

 

 

   

 

 

 
$39,360,903  $39,441,849  
  

 

 

   

 

 

 

   Cost   Fair Value 

Due in one to five years

  $3,358,720   $3,311,839 

Due in over five to ten years

   5,199,305    5,001,962 

Due in over ten years

   4,419,398    4,284,796 
  

 

 

   

 

 

 

Total

  $12,977,423   $12,598,597 
  

 

 

   

 

 

 

IndexFor the years ended December 31, 2018, proceeds from sales of securities available for sale amounted to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS$340,430. Gross realized gains and losses on available for sale securities were as follows:

 

NOTE 2.

Gross Realized Gains

  SECURITIES (Continued)$—  

Related Income Taxes

—  

Net Realized Gains After Related Income Taxes

$—  

Restricted equity securities consist of the following:

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 3—Investments (Continued)

 

   December 31, 
   2014   2013 

Federal Home Loan Bank of Atlanta

  $504,000    $556,700  

First National Banker’s Bankshares, Inc.

   105,000     105,000  
  

 

 

   

 

 

 
$609,000  $661,700  
  

 

 

   

 

 

 

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of the Company’s securitiesBank’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2014 and 2013.position.

Available for sale securities that have been in a continuous unrealized loss position are as follows:

 

   Less Than Twelve Months   Over Twelve Months     
   Gross
Unrealized
Losses		  Fair
Value		   Gross
Unrealized
Losses		  Fair
Value		   Total
Unrealized
Losses		 

December 31, 2014:

      

U.S. Government sponsored agencies

  $—     $—      $(8,891)  $545,616    $(8,891) 

State and municipal securities

   (74,387)   8,870,804     (156,798)   6,678,184     (231,185) 

Corporate bonds

   (57,320)   428,665     (96,612)   1,608,441     (153,932) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total temporarily impaired debt securities

$(131,707) $9,299,469  $(262,301) $8,832,241  $(394,008) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

December 31, 2013:

U.S. Government sponsored agencies

$(20,074) $756,750  $—    $—    $(20,074) 

State and municipal securities

 (665,901)  19,115,760   (177,804)  3,581,798   (843,705) 

Corporate bonds

 (22,218)  981,478   (17,876)  1,337,754   (40,094) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total temporarily impaired debt securities

$(708,193) $20,853,988  $(195,680) $4,919,552  $(903,873) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
December 31, 2018:                  
  Less Than 12 Months  12 Months or More  Total 
  Fair Value  Unrealized
Loss		  Fair Value  Unrealized
Loss		  Fair Value  Unrealized
Loss		 

U.S. Government Securities

 $—    $—    $3,646,571  $55,878  $3,646,571  $55,878 

Municipal Securities

  968,115   16,728   7,043,766   287,505   8,011,881   304,233 

Mortgage Backed Securities

  —     —     567,333   20,218   567,333   20,218 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totals

 $968,115  $16,728  $11,257,670  $363,601  $12,225,785  $380,329 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

U.S. Government Securities

The unrealized losses on sixty-seventhe investments in U.S. government obligations and direct obligations of U.S. government agencies were caused by interest rate changes.increases. The contractual term of the investments does not permit the issuer to settle the security at a price less than the amortized cost basis of the investments. Because the CompanyBank does not intend to sell the investments and it is not more likely than not that the CompanyBank will be required to sell the investments before recovery of their amortized cost bases,basis, which may be maturity, the CompanyBank does not consider thosethese investments to be other-than-temporarily impaired at December 31, 2014.2018.

Other-Than-Temporary Impairment

Trinity Bancorp, Inc.

UponDothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 4—Loans

The segments of loans for December 31, 2018 were as follows:

Real Estate

  

Construction, Land Development and Other Land Loans

  $16,582,882 

Secured by 1-4 Family Residential Properties

   33,066,619 

Secured by Multi-Family Residential Properties

   2,170,664 

Secured by Nonfarm, Nonresidential Properties

   34,138,276 

Farmland

   9,537,800 

Commercial and Industrial Loans

   20,586,013 

Consumer Loans

   2,370,438 

Agricultural and Other

   8,760,924 
  

 

 

 

Total Loans

  $127,213,616 

Less: Unearned Interest and Fees

   279,637 

Allowance for Loan Losses

   (2,005,977) 
  

 

 

 

Loans, Net

  $125,487,276 
  

 

 

 

The Bank’s goal is to mitigate risks from an unforeseen threat to the loan portfolio as a result of an economic downturn or other negative influences. Plans that aid in mitigating these potential risks in managing the loan portfolio include: enforcing loan policies and procedures, evaluating the borrower’s business plan through the loan term, identifying and monitoring primary and alternative sources of repayment, and obtaining adequate collateral to mitigate loss in the event of liquidation. Specific reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is used to estimate potential loss exposure and to provide a measuring system for setting general and specific reserve allocations.

Real Estate Loans

Residential Real Estate loans are loans to finance family residential units that will house from one to four families. Construction and Development loans are loans for acquisition, development, and construction and are secured by the real estate involved. Construction and Development loans are short-term loans that will be made to local and experienced contractors who have a good reputation in the community and are licensed by the state in which they work. At the end of the construction project, the loan will either convert to a permanent mortgage or be repaid by the property being sold. The loans will at all times be secured by the property and the owner of the project. Other real estate loans are secured by commercial real estate, multifamily residential properties, and other nonresidential properties.

Commercial and Industrial Loans

Commercial and Industrial loans are loans to businesses (i.e., sole proprietorships, partnerships, limited liability companies, corporations and not-for-profit and faith-based organizations) for commercial, industrial, or professional purposes. As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 4—Loans (Continued)

Consumer Loans

Consumer loans (installment and home equity) are loans to individuals for household, family, and other personal (non-business) purposes.

Agricultural and Other Loans

Agricultural and other loans are generally made to farmers for various purposes related to crops, livestock, related equipment/machinery, and other farm operations. Repayment is primarily dependent on the Company evaluatespersonal income of the borrower(s) and income from farming operations, which can be impacted by economic and other market conditions. As a general practice, the Bank takes as collateral a security interest in the underlying crops, livestock, equipment, etc. Such loans are monitored via inspections and/or evaluations, as applicable.

An analysis of the change in allowance for impairment underloan losses is as follows:

December 31, 2018:

   Real
Estate		  Commercial
and
Industrial		  Consumer  Ag. & Other  Total 

Beginning Balance

  $1,209,314  $378,667  $53,203  $614,900  $2,256,084 

Provision

   (60,125)   (60,125)   (60,124)   (60,125)   (240,499) 

Charge-Offs

   (11)   (30,237)   (3,033)   (78,608)   (111,889) 

Recoveries

   84,697   6,887   2,023   8,674   102,281 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending Balance

  $1,233,875  $295,192  $(7,931)  $484,841  $2,005,977 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Individually Evaluated for Impairment:

      

Recorded Investment

  $1,383,627  $7,168  $44,167  $195,794  $1,630,756 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

  $—    $—    $—    $—    $—   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Collectively Evaluated for Impairment:

      

Recorded Investment

  $91,852,254  $19,793,237  $2,193,891  $7,822,622  $121,662,004 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

  $1,233,875  $295,192  $(7,931)  $484,841  $2,005,977 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The Bank categorizes loans into risk categories based on relevant information about the accounting guidanceability 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.

The Bank analyzes loans individually by classifying the loans as to credit risk. Loans classified as watch or lower are reviewed monthly by the Bank for investments in debt and equity securities. The Company routinely conducts periodic reviews to identify and evaluate each investment securityfurther deterioration or improvement to determine if they are appropriately classified and whether an other-than-temporary impairment has occurred. Inputs includedthere is any impairment. All loans are graded upon initial issuance. Further, commercial loans are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as when a loan becomes past due, the Bank will determine the appropriate loan grade.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 4—Loans (Continued)

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the evaluation process may include geographic concentrations, credit ratings, and other performance indicatorsworthiness of the underlying asset. There were no securities inborrower; or (c) the Company’s portfolio considered impairedcustomer contacts the Bank for a modification. In these circumstances, the loan is specifically evaluated for potential classification as of and for the years ended December 31, 2014 and 2013.

to special mention, substandard, doubtful or even charge-off.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSInternally assigned loan grades are defined as follows:

 

NOTE 3.1.

Excellent—Loans in this category are to persons or entities of unquestioned financial strength, highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the bank expects performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by certificates of deposit and savings accounts with appropriate holds placed on accounts are to be rated as “1”.

 LOANS2.

Above Average—These are loans to persons or entities with strong financial condition and above average liquidity that have previously satisfactorily handled their obligations with the bank. Collateral securing the bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements on which repayment is satisfactory may be included in this category.

Portfolio Segments and Classes

The composition of loans, excluding loans held for sale, is summarized as follows:
3.

Average—Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this category. Overall these loans are basically sound.

 

   December 31, 
   2014   2013 

Real estate mortgages:

    

Construction and land development

  $21,380,449    $16,034,808  

1-4 family residential

   62,974,532     58,569,584  

Commercial

   50,302,886     47,971,905  

Other

   5,272,858     7,426,953  

Commercial

   14,637,364     16,598,880  

Consumer

   10,126,817     9,396,752  
  

 

 

   

 

 

 
 164,694,906   155,998,882  

Deferred loan fees

 (207,444)  (161,457) 

Allowance for loan losses

 (2,369,952)  (2,344,830) 
  

 

 

   

 

 

 

Loans, net

$162,117,510  $153,492,595  
  

 

 

   

 

 

 

For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. There are three loan portfolio segments that include real estate, commercial, and consumer. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and an entity’s method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include construction and land development, 1-4 family residential, commercial, and other. The portfolio segments of non-real estate commercial loans and consumer loans have not been segregated by class.

The following describe risk characteristics relevant to each of the portfolio segments:

Real Estate — As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:
4.

Marginal—These loans bear the same characteristics of an Average (class 3) grade in that they are to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service the debt and net worth comprised mainly of fixed assets. Overall these loans are basically sound. However, these loans may possess characteristics considered a higher degree of risk. These characteristics may include the loan being of a speculative nature in that the repayment source is dependent upon cash flow derived from future sales of collateral or term financing from a third party source. These loans may also have a higher loan-to-value due to a deterioration of collateral value or higher debt-to-income as a result of deterioration in over-all financial condition of borrower.

 

Construction and land development loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.
5.

Watch—Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the bank, but in recent months has either been late, delinquent in making payments or made sporadic payments. While the bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weak financial statement and repayment ability, but the collateral appears to limit exposure. This class includes loans to established borrowers that are reasonably well margined by collateral, but where potential for improvement in financial capacity appears limited.

1-4 family residential loans, which include home equity lines of credit, are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Commercial loans include owner-occupied commercial real estate loans and loans secured by income producing properties such as multi-family housing. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the business. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties.

Other real estate mortgage loans include real estate loans secured by farmland and other. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Index

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2018

Note 4—Loans (Continued)

 

NOTE 3.6.

Substandard—These loans are inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of this category does not have to exist in the individual asset.

 LOANS (Continued)7.

Doubtful—A loan classified as doubtful has all the weaknesses inherent in the substandard loan with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collection in full in a reasonable period of time; if in fact, there is permanent impairment in the collateral securing the loan. These loans are in a workout status and have a defined workout strategy.

Portfolio Segments and Classes

8.

Loss—Loan is no longer bankable.

The table below illustrates the carrying amount of loans by credit quality indicator:

  December 31, 2018 
  Pass
1-4		  Watch
5		  Substandard
6		  Doubtful
7		  Loss
8		  Total 

Real Estate Construction, Land Development and Other Land

 $15,681,467  $405,415  $496,000  $—    $—    $16,582,882 

Secured by 1-4 Family Residential Properties

  31,795,429   1,145,759   125,431   —     —     33,066,619 

Secured by Multi-Family Residential Properties

  2,170,664   —     —     —     —     2,170,664 

Secured by Nonfarm, Nonresidential Properties

  31,494,335   721,794   1,922,147   —     —     34,138,276 

Farmland

  9,097,638   155,032   285,131   —     —     9,537,801 

Commercial and Industrial

  20,172,682   400,593   12,738   —     —     20,586,013 

Consumer

  2,265,107   61,163   44,167   —     —     2,370,437 

Agricultural and Other

  7,519,049   1,052,358   189,517   —     —     8,760,924 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 $120,196,371  $3,942,114  $3,075,131  $—    $—    $127,213,616 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

As of December 31, 2018, there were no loans with credit quality of 7 or 8.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 4—Loans (Continued)

 

Commercial — The commercial loan portfolio segment includes commercial, financial, and agricultural loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthinessAge analysis of the underlying borrower, particularly cash flows from the borrowers’ business operations.

Consumer — The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management

Credit Administration and the Special Assets Manager are both involved in the credit risk management process and assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. The Company has taken a number of measures to manage the portfolios and reduce risk, particularly in the more problematic portfolios.

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by a comprehensive Loan Policy that provides for a consistent and prudent approach to underwriting and approval of credit. Within the Board approved Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. Allpast due loans are individually underwritten, risk-rated, approved, and monitored.as follows:

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios. Loan Review and Credit Administration establish a timely schedule and scope for loan reviews. These reviews ensure such loans have proper risk ratings and accrual status, and if necessary, ensure loans are transferred to the Special Assets manager.December 31, 2018:

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Chief Credit Officer, the Officers Loan Committee, and the Directors Loan Committee.

  Accruing Loans       
  30-89
Days		  90+
Days		  Total Past
Due		  Current  Nonaccrual  Total
Loans		 

Real Estate Construction, Land Development and Other Land

 $—    $—    $—    $16,582,882  $—    $16,582,882 

Secured by 1-4 Family Residential Properties

  48,013   —     48,013   32,913,060   105,546   33,066,619 

Secured by Multi-Family Residential Properties

  —     —     —     2,170,664   —     2,170,664 

Secured by Nonfarm, Nonresidential Properties

  —     —     —     33,543,080   595,196   34,138,276 

Farmland

  —     —     —     9,271,300   266,500   9,537,800 

Commercial and Industrial

  6,196   —     6,196   20,579,817   —     20,586,013 

Consumer

  47,284   —     47,284   2,323,154   —     2,370,438 

Agricultural and Other

  63,188   —     63,188   8,580,426   117,310   8,760,924 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
 $164,681  $—    $164,681  $125,964,383  $1,084,552  $127,213,616 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The following categories are utilized by managementis a summary of information pertaining to analyze and manage the credit quality and risk of the loan portfolio:impaired loans:

December 31, 2018:

 

Pass — includes obligations where the probability of default is considered low.
  With no Related
Allowance Recorded		  With an Allowance Recorded 
  Recorded
Investment		  Unpaid
Contractual
Principal
Balance		  Recorded
Investment		  Unpaid
Contractual
Principal
Balance		  Related
Allowance		 

Real Estate:

     

Construction, Land Development and Other Land

 $—    $—    $496,000  $496,000  $12,250 

Secured by 1-4 Family Residential Properties

  —     —     25,931   25,931   2,531 

Secured by Nonfarm, Nonresidential Properties

  —     —     595,196   595,196   95,196 

Farmland

  —     —     266,500   266,500   14,820 

Commercial and Industrial

  —     —     7,168   7,168   7,168 

Consumer

  —     —     44,167   44,167   18,367 

Agricultural and Other

  —     —     195,794   195,794   34,099 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending Balance

 $—    $—    $1,630,756  $1,630,756  $184,431 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Special Mention — includes obligations that exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects or credit position at a future date. These loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Index

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018

NOTE 3.LOANS (Continued)

Credit Risk ManagementNote 4—Loans (Continued)

 

Substandard — includes obligations with defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

Doubtful — includes obligations with all the weaknesses found in substandard loans with the added provision that the weaknesses make collection of debt in full, based on currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the loan, the loans’ classification as loss is deferred until a more exact status may be determined. There are no loans rated doubtful in the Company’s portfolio as of December 31, 2014 and 2013.

Loss — includes obligations incapable of repayment. Such loans are considered uncollectible and of such little value, that continuance as an active asset is not warranted. Loans determined to be a loss are charged-off at the date of loss determination. Consequently, there are no loans with a loss rating in the Company’s portfolio as of December 31, 2014 and 2013 as all such loans have been charged-off.

The following tables summarize the risk category of the Company’s loan portfolio based upon on the most recent analysis performed as of December 31, 2014 and 2013.

   Pass   Special Mention   Substandard   Doubtful   Total 
   (Dollars in Thousands) 

December 31, 2014

          

Real estate mortgages:

          

Construction and land development

  $20,303    $99    $979    $—      $21,381  

1-4 family residential

   60,232     1,928     814     —       62,974  

Commercial

   47,017     1,478     1,808     —       50,303  

Other

   5,205     —       68     —       5,273  

Commercial

   13,926     363     348     —       14,637  

Consumer

   9,859     209     59     —       10,127  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

$156,542  $4,077  $4,076  $—    $164,695  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

Real estate mortgages:

Construction and land development

$14,167  $344  $1,524  $—    $16,035  

1-4 family residential

 56,995   662   913   —     58,570  

Commercial

 45,237   1,228   1,507   —     47,972  

Other

 7,225   —     202   —     7,427  

Commercial

 16,064   404   131   —     16,599  

Consumer

 9,124   203   69   —     9,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

$148,812  $2,841  $4,346  $—    $155,999  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.LOANS (Continued)

Past Due Loans

A loan is considered past due if any required principal and interest payments have not been received as ofimpaired, in accordance with the date such payments were required to be made under the terms of the loan agreement. Generally, management places loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. The following tables present the aging of the recorded investment in loans as of December 31, 2014 and 2013:

       Past Due Status (Accruing Loans)         
   Current   30-59
Days		   60-89
Days		   90+ Days   Total Past
Due		   Nonaccrual   Total 
   (Dollars in Thousands) 

December 31, 2014

              

Real estate mortgages:

              

Construction and land development

  $21,216    $133    $—      $—      $133    $32    $21,381  

1-4 family residential

   62,248     270     —       339     609     117     62,974  

Commercial

   49,772     531     —       —       531     —       50,303  

Other

   5,273     —       —       —       —       —       5,273  

Commercial

   14,262     156     —       148     304     71     14,637  

Consumer

   10,010     88     —       6     94     23     10,127  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

  $162,781    $1,178    $—      $493    $1,671    $243    $164,695  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2013

              

Real estate mortgages:

              

Construction and land development

  $15,293    $137    $75    $—      $212    $530    $16,035  

1-4 family residential

   58,243     150     —       —       150     177     58,570  

Commercial

   47,535     —       —       —       —       437     47,972  

Other

   7,299     —       —       —       —       128     7,427  

Commercial

   16,491     108     —       —       108     —       16,599  

Consumer

   9,319     —       13     35     48     29     9,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

  $154,180    $395    $88    $35    $518    $1,301    $155,999  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.LOANS (Continued)

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2014 and 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

   Real Estate  Commercial  Consumer  Total 
   (Dollars in Thousands) 

December 31, 2014

     

Allowance for loan losses:

     

Balance, beginning of year

  $2,027   $205   $113   $2,345  

Provision (credit) for loan losses

   232    170    23    425  

Loans charged off

   (203)   (212)   (22)   (437) 

Recoveries of loans previously charged off

   33    4    —      37  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, end of year

$2,089  $167  $114  $2,370  
  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance: individually evaluated for impairment

$25  $—    $—    $25  

Ending balance: collectively evaluated for impairment

 2,064   167   114   2,345  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total ending balance

$2,089  $167  $114  $2,370  
  

 

 

  

 

 

  

 

 

  

 

 

 

Loans:

Ending balance: individually evaluated for impairment

$1,211  $—    $22  $1,233  

Ending balance: collectively evaluated for impairment

 138,720   14,637   10,105   163,462  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total ending balance

$139,931  $14,637  $10,127  $164,695  
  

 

 

  

 

 

  

 

 

  

 

 

 

December 31, 2013

Allowance for loan losses:

Balance, beginning of year

$2,013  $228  $137  $2,378  

Provision (credit) for loan losses

 426   (32)  (14)  380  

Loans charged off

 (414)  (6)  (21)  (441) 

Recoveries of loans previously charged off

 2   15   11   28  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, end of year

$2,027  $205  $113  $2,345  
  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance: individually evaluated for impairment

$32  $—    $—    $32  

Ending balance: collectively evaluated for impairment

 1,995   205   113   2,313  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total ending balance

$2,027  $205  $113  $2,345  
  

 

 

  

 

 

  

 

 

  

 

 

 

Loans:

Ending balance: individually evaluated for impairment

$2,212  $—    $29  $2,241  

Ending balance: collectively evaluated for impairment

 127,792   16,599   9,367   153,758  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total ending balance

$130,004  $16,599  $9,396  $155,999  
  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.LOANS (Continued)

Impaired Loans

A loan held for investment is considered impairedimpairment accounting guidance (FASBASC 310-10-35-16), when based on current information and events, it is probable that the CompanyBank will be unable to collect all amounts due (both principal and interest) according tofrom the borrower in accordance with the contractual terms of the loan agreement. loan.

The following tables detail the Company’saverage net investment in impaired loans by portfolio classand interest income recognized and received on impaired loans are as of follows:

December 31, 2014 and 2013:2018:

 

  Recorded
Investment		  Unpaid
Principal
Balance		  Related
Allowance		  Average
Recorded
Investment		  Interest
Income
Recognized
in Year		 
  (Dollars in Thousands) 

December 31, 2014

     

With no related allowance recorded:

     

Real estate mortgages:

     

Construction and land development

 $32   $32   $—     $35   $—    

1-4 family residential

  117    117    —      121    —    

Commercial

  —      —      —      —      —    

Other

  —      —      —      —      —    

Commercial

  —      —      —      —      —    

Consumer

  22    22    —      25    —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total with no allowance recorded:

 171   171   —     181   —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

With allowance recorded:

Real estate mortgages:

Construction and land development

 —     —     —     —     —    

1-4 family residential

 —     —     —     —     —    

Commercial

 1,062   1,062   25   1,067   73  

Other

 —     —     —     —     —    

Commercial

 —     —     —     —     —    

Consumer

 —     —     —     —     —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total with an allowance recorded:

 1,062   1,062   25   1,067   73  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total impaired loans:

$1,233  $1,233  $25  $1,248  $73  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

December 31, 2013

With no related allowance recorded:

Real estate mortgages:

Construction and land development

$530  $530  $—    $370  $—    

1-4 family residential

 176   176   —     147   8  

Commercial

 308   308   —     205   —    

Other

 128   128   —     85   —    

Commercial

 —     —     —     —     —    

Consumer

 29   29   —     30   1  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total with no allowance recorded:

 1,171   1,171   —     837   9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

With allowance recorded:

Real estate mortgages:

Construction and land development

 —     —     —     —     —    

1-4 family residential

 —     —     —     —     —    

Commercial

 1,070   1,070   32   356   19  

Other

 —     —     —     —     —    

Commercial

 —     —     —     —     —    

Consumer

 —     —     —     —     —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total with an allowance recorded:

 1,070   1,070   32   356   19  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total impaired loans:

$2,241  $2,241  $32  $1,193  $28  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   Average Recorded
Investment		   Interest Income
Recognized		   Interest Income
Received		 

Real Estate:

      

Construction, Land Development and Other Land

  $496,000   $15,568   $16,021 

Secured by 1-4 Family

   25,931    1,494    1,575 

Secured by Nonfarm, Nonresidential Properties

   595,196    32,763    33,336 

Farmland

   133,250    13,894    15,043 

Commercial and Industrial

   7,168    605    650 

Consumer

   11,042    2,703    2,657 

Agricultural and Other

   39,159    13,800    16,629 
  

 

 

   

 

 

   

 

 

 

Total

  $1,307,746   $80,827   $85,911 
  

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.LOANS (Continued)

Troubled Debt Restructurings

At December 31, 2014 and 2013, loans that were classified asInformation on Troubled Debt Restructurings “TDRs” totaled $1,177,914 and $1,246,384, respectively, and have been included in impaired loans. The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.

The Company did not have any loans modified as a TDR during(TDR’s) for the year ended December 31, 2014.2018 is as follows:

December 31, 2018:

   Number
of
Contracts		   Pre-Modification
Outstanding
Recorded
Investment		   Post-Modification
Outstanding
Recorded
Investment		 

Commercial and Industrial

   —     $—     $—   

Commercial Real Estate

   2    882,443    887,686 

Residential Real Estate

   —      —      —   
  

 

 

   

 

 

   

 

 

 
   2   $882,443   $887,686 
  

 

 

   

 

 

   

 

 

 

One troubled debt restructured loan shown above was modified during 2017 with the following terms. A loan in the amount of $602,026 was converted to interest only payments for three months in the prior year. This same loan later was modified to reduce the interest rate. The loan was renewed for twelve months in late 2018.

One troubled debt restructured loan shown above was modified during 2018 with the following table summarizesterms. A loan in the loans that wereamount of $291,205 was renewed at 6% for six months with payments at $1,600 per month for five months and a balloon payment at maturity.

At December 31, 2018 there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a troubled debt restructuring.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 5—Bank Premises and Equipment

A summary of the cost and accumulated depreciation of bank premises and equipment as a TDR duringof December 31, 2018 is as follows:

Land

  $787,891 

Construction in Progress

   16,465 

Buildings and Improvements

   2,031,858 

Equipment, Furniture and Fixtures

   775,707 

Autos

   32,229 
  

 

 

 
  $3,644,150 

Accumulated Depreciation

   (1,124,017) 
  

 

 

 

Total Bank Premises and Equipment, Net

  $2,520,133 
  

 

 

 

Depreciation expense amounted to $154,847 for the year ended December 31, 2013 and were in compliance with the modified terms:2018.

Note 6—Deposits

   Troubled Debt Restructurings 
   Number of
Loans		   Recorded
Investment
Prior to
Modification		   Recorded
Investment
After
Modification		   Impact on
the
Allowance
for Loan
Losses		 
   (Dollars in Thousands) 

December 31, 2013

        

Real estate mortgages:

        

Construction and land development

   —      $—      $—      $—    

1-4 family residential

   2     176     176     —    

Commercial

   1     1,070     1,070     32  

Other

   —       —       —       —    

Commercial

   —       —       —       —    

Consumer

   —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 3  $1,246  $1,246  $32  
  

 

 

   

 

 

   

 

 

   

 

 

 

During 2014 and 2013 no troubled debt restructurings subsequently defaulted from their modified terms.

Related Party Loans

In the ordinary course of business, the Company has granted loans to certain related parties, including directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans are as follows:

   Years Ended December 31, 
   2014   2013 

Balance, beginning of year

  $4,470,881    $4,689,735  

Advances

   1,016,174     2,679,186  

Repayments

   (3,994,038)    (2,898,040) 
  

 

 

   

 

 

 

Balance, end of year

$1,493,017  $4,470,881  
  

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.OTHER REAL ESTATE OWNED

A summary of other real estate owned is presented as follows:

   Years Ended December 31, 
   2014   2013 

Balance, beginning of year

  $641,332    $889,062  

Transfer in from loans

   859,195     918,932  

Sales proceeds

   (203,273)    (925,757) 

Write-downs

   (25,533)    (114,575) 

Net gain (loss) on sales

   1,496     (126,330) 
  

 

 

   

 

 

 

Balance, end of year

$1,273,217  $641,332  
  

 

 

   

 

 

 

Expenses related to other real estate owned is included in other operating expenses and include the following:

   Years Ended December 31, 
   2014   2013 

Net (gain) loss on sales

  $(1,496)   $126,330  

Write-downs

   25,533     114,575  

Operating expenses, net of rental income

   82,176     34,128  
  

 

 

   

 

 

 
$106,213  $275,033  
  

 

 

   

 

 

 

NOTE 5.PREMISES AND EQUIPMENT

Premises and equipment is summarized as follows:

   December 31, 
   2014   2013 

Land and land improvements

  $2,100,983    $2,100,983  

Buildings

   4,430,861     4,427,036  

Furniture and equipment

   1,301,364     1,213,424  
  

 

 

   

 

 

 
 7,833,208   7,741,443  

Accumulated depreciation

 (1,388,790)  (1,117,664) 
  

 

 

   

 

 

 
$6,444,418  $6,623,779  
  

 

 

   

 

 

 

Depreciation expense for the years ended December 31, 2014 and 2013 totaled $271,125 and $198,727, respectively.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 20142018 and 20132016 was $32,338,447$36,054,844 and $35,421,801, respectively. Asare included in interest-bearing deposits in the balance sheet. Certificates of deposit and other time deposits issued in denominations that meet or exceed the FDIC insurance limit of $250,000 or more at December 31, 2014 and 2013, the Company had $4,962,000 in brokered time deposits. 2018 totaled $16,719,580.

The scheduled maturities of time deposits at December 31, 2014 are as follows:

 

2015

$34,830,693  

2016

 11,265,358  

2017

 2,930,231  

2018

 4,572,251  

2019

 2,685,578  

Thereafter

 1,240,000  
  

 

 

 
$57,524,111  
  

 

 

 

Within One Year

  $23,563,632 

Over One Year Through Three Years

   22,342,414 

After Three Years Through Five Years

   4,011,146 
  

 

 

 

Total

  $49,917,192 
  

 

 

 

At December 31, 2014 and 2013, overdraft demand and savings deposits reclassifiedNote 7—Borrowings

During 2018, the Bank had no sales of securities under agreements to loans totaled $12,671 and $16,402, respectively.repurchase the same securities.

NOTE 7.OTHER BORROWINGS

Other borrowings consistLong-term debt consisted of the following:

 

   December 31, 
   2014   2013 

Advances from the Federal Home Loan Bank of Atlanta, payable August 27, 2015 with interest payable monthly at fixed rates from ..95% to 1.31%.

  $6,500,000    $6,500,000  

Advance from a commercial bank under a $250,000 line of credit with interest payable monthly at the rate of 3.00%; advance was repaid in 2014 and the line was cancelled.

   —       75,640  
  

 

 

   

 

 

 
 6,500,000   6,575,640  
  

 

 

   

 

 

 

FHLB borrowings; variable interest rate, currently at the rate of 2.31% - 2.78%; collateralized by a blanket lien on the Bank’s 1 to 4 family residential mortgage loans totaling $4,187,581 as of December 31, 2018

  $2,062,332 

Advances fromThe Bank has established credit availability in the Federal Home Loan Bank are secured by certain qualifying mortgage loansamount of 25% of the Bank’s total assets with eligible collateral value totaling approximately $25,886,000. The Company may borrow an additional $19,386,000 under these collateral arrangements asthe FHLB of Atlanta. As of December 31, 2014.2018, the Bank would be able to access an additional $35,467,168 of FHLB credit products based on the Bank’s current financial and operational conditions and the pledging of sufficient collateral. As of December 31, 2018, the Bank had $2,062,332 in outstanding advances.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 7—Borrowings (Continued)

At December 31, 2014,2018 the Company has accommodations which allowBank also had three unsecured federal fund lines of credit with other financial institutions enabling the purchase of federal funds from several correspondent banks on an overnight basis at prevailing overnight market rates. These accommodations are subjectBank to various restrictions as to their term and availability, and in most cases, must be repaid in less than a month. At December 31, 2014 and 2013, the Company had no amounts outstanding under these arrangements. The Company may borrow up to $21,200,000 under these$7,500,000, with interest determined at the time of draw. The arrangements asare reviewed annually for renewal of each credit line. As of December 31, 2014.2018, the Bank had no outstanding advances.

NOTE 8.EMPLOYEE AND DIRECTOR BENEFITS

Organizer Stock WarrantsNote 8—Income Taxes

In recognitionAllocation of the effortsfederal and financial risks undertaken by the Company’s organizers, the Company granted each organizer an opportunity to purchase a number of shares of the Company’s common stock. The warrants vest over a five year period from the date of grantstate income taxes between current and are exercisable in

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.EMPLOYEE AND DIRECTOR BENEFITS (Continued)

Organizer Stock Warrants (Continued)

whole or in part during the ten year period following the grant date, at an exercise price equal to $10 per share. The warrants are nontransferable, but shares issued pursuant to the exercise of warrants will be transferable, subject to compliance with applicable securities laws. The date of grant was March 2, 2007.

Other pertinent information related to the warrantsdeferred portions is as follows:

 

   Number   Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Term		 

Year Ended December 31, 2014:

      

Warrants outstanding, beginning of year

   80,000    $10.00    

Granted

   —       —      

Exercised

   (25,000)    10.00    
  

 

 

   

 

 

   

Warrants outstanding, end of year

 55,000  $10.00   2.25 years  
  

 

 

   

 

 

   

Exercisable, end of year

 55,000  $10.00   2.25 years  
  

 

 

   

 

 

   

Year Ended December 31, 2013:

Warrants outstanding, beginning of year

 80,000  $10.00  

Granted

 —     —    

Exercised

 —     —    
  

 

 

   

 

 

   

Warrants outstanding, end of year

 80,000  $10.00   3.25 years  
  

 

 

   

 

 

   

Exercisable, end of year

 80,000  $10.00   3.25 years  
  

 

 

   

 

 

   

Stock Options

The Company sponsors a stock option plan which grants directors, key employees and others options to purchase shares of common stock of the Company. Options may be granted as incentive stock options or nonqualified stock options depending on the eligibility of the recipient. Option prices and terms are determined by a committee appointed by the Board of Directors. The plan provides for a total of 50,000 options to purchase common shares of the Company of which 10,500 are available to grant as of December 31, 2014.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.EMPLOYEE AND DIRECTOR BENEFITS (Continued)

Stock Options (Continued)

Other pertinent information related to the options is as follows:

   Number   Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Term		 

Year Ended December 31, 2014:

      

Options outstanding, beginning of year

   39,500    $10.06    

Granted

   —       —      

Exercised

   —       —      

Forfeited

   —       —      
  

 

 

   

 

 

   

Options outstanding, end of year

 39,500  $10.06   3.0 years  
  

 

 

   

 

 

   

Exercisable, end of year

 37,500  $10.04   2.8 years  
  

 

 

   

 

 

   

Year Ended December 31, 2013:

Options outstanding, beginning of year

 47,500  $10.05  

Granted

 —     —    

Exercised

 —     —    

Forfeited

 (8,000)  10.00  
  

 

 

   

 

 

   

Options outstanding, end of year

 39,500  $10.06   4.0 years  
  

 

 

   

 

 

   

Exercisable, end of year

 36,500  $10.03   3.9 years  
  

 

 

   

 

 

   

For the years ended December 31, 2014 and 2013, $3,140 and $3,747, respectively, was recognized as stock-based compensation expense. As of December 31, 2014 there was $3,663 of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of approximately one year.

Profit Sharing Plan

The Company sponsors a 401(k) profit sharing plan covering substantially all employees. Contributions to the plan charged to expense for the years ended December 31, 2014 and 2013 were $89,645 and $84,285, respectively.

Supplemental Executive Benefits and Retirement Agreements

The Company has a Supplemental Executive Retirement Plan (the “SERP”) that is a nonqualified, executive benefit plan, which provides certain designated directors and executive officers additional benefits in the future, usually at retirement, in return for continued satisfactory performance. The cost of the Plan is being offset from earnings from life insurance policies which are more fully described below. The Company has recorded in other liabilities on the consolidated balance sheets as of December 31, 2014 and 2013, a liability of $494,436 and $349,833, respectively, for the present value of the future benefits to be paid under the SERP. Expense related to the SERP totaled $144,603 and $129,125 in 2014 and 2013, respectively.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.EMPLOYEE AND DIRECTOR BENEFITS (Continued)

Bank Owned Life Insurance and Annuity

Bank owned life insurance and annuity are as follows:

   December 31, 
   2014   2013 

Bank Owned Life Insurance

  $4,629,396    $4,496,721  

Life Insurance Annuity

   1,730,597     1,726,362  
  

 

 

   

 

 

 
$6,359,993  $6,223,083  
  

 

 

   

 

 

 

Investments in bank-owned life insurance programs are recorded at their respective cash surrender values. These life insurance programs include endorsement split-dollar life insurance arrangements wherein the Company owns and controls the insurance policies. The Company has an agreement with the insured to split the policy benefits between the Company and the insured designated beneficiary. The Company has recognized a liability totaling $21,188 and $11,718 as of December 31, 2014 and 2013, respectively, for endorsement split-dollar arrangements that provide benefits to employees that extend to postretirement periods. The net interest earned on the related policies totaled $132,675 and $141,593 for the years ended December 31, 2014 and 2013, respectively.

In addition, the Company has purchased a life insurance annuity that will be used to fund retirement agreements to three executives that will be paid subsequent to their retirement. Income from the annuity totaled $4,235 and $5,645 for the years ended December 31, 2014 and 2013, respectively.

NOTE 9.INCOME TAXES

The allocation of income tax expense between current and deferred income taxes is as follows:

   Years Ended December 31, 
   2014   2013 

Current

  $1,096,545    $916,110  

Deferred

   (62,942)    200,223  
  

 

 

   

 

 

 

Income tax expense

$1,033,603  $1,116,333  
  

 

 

   

 

 

 

The Company’s income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

   Years Ended December 31, 
   2014   2013 

Income tax expense at federal statutory rate

  $1,232,494    $1,289,935  

State income taxes

   93,924     103,712  

Tax-free income

   (277,458)    (272,695) 

Other

   (15,357)    (4,619) 
  

 

 

   

 

 

 

Income tax expense

$1,033,603  $1,116,333  
  

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.INCOME TAXES (Continued)

Current Tax Provision:

  

Federal

  $534,996 

State

   128,751 

Deferred Tax Benefit

   46,702 

Deferred Tax Allowance

   —   
  

 

 

 

Total

  $710,449 
  

 

 

 

The components of deferred income taxestax assets and deferred income tax liabilities are as follows:

 

   December 31, 
   2014   2013 

Deferred income tax assets:

    

Loan loss reserves

  $685,768    $696,552  

Pre-opening and organization expenses

   97,827     110,505  

Stock-based compensation

   80,711     80,711  

Deferred loan fees

   79,430     61,822  

Other real estate owned

   25,407     17,106  

Deferred compensation

   197,432     138,438  

Securities available for sale

   —       206,784  

Nonaccrual interest

   20,337     41,223  
  

 

 

   

 

 

 
 1,186,912   1,353,141  
  

 

 

   

 

 

 

Deferred income tax liabilities:

Securities available for sale

 27,523   —    

Depreciation

 161,469   182,379  

Other

 1,632   3,109  
  

 

 

   

 

 

 
 190,624   185,488  
  

 

 

   

 

 

 

Net deferred income tax assets

$996,288  $1,167,653  
  

 

 

   

 

 

 

Deferred Tax Assets

  

Net Operating Loss Carry Forward

  $—   

Provision for Loan Losses

   470,458 

Organization Costs

   43,594 

Write-Down of Foreclosed Assets

   29,131 

Deferred Loan Fees

   42,187 

Nonaccrual Interest

   3,053 

Unrealized Loss on Securities Available for Sale

   104,177 
  

 

 

 
  $692,600 

Deferred Tax Liabilities

  

Depreciation

   (29,895) 
  

 

 

 

Net Deferred Tax Asset before Valuation Allowance

  $662,705 

Valuation Allowance

   (  —  ) 
  

 

 

 

Net Deferred Tax Asset

  $662,705 
  

 

 

 

The federal and stateBank files income tax returns in the United States federal jurisdiction and Alabama. With few exceptions, the Bank is no longer subject to United States federal, state and local income tax examinations by tax authorities for years before 2015. As of December 31, 2018, the Bank had no uncertain tax positions, or interest and penalties, that qualify for either recognition or disclosure in the financial statements.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. Corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the corporate alternative minimum tax, restricting deductions for meals and entertainment and allowing expensing of certain capital expenditures. U.S. GAAP requires that the impact of tax legislation be recognized in

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 8—Income Taxes (Continued)

the period in which the law was enacted. The Bank recognized the impact of this legislation in the year ended December 31, 2017.

On February 14, 2018, FASB issued ASU 2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard provides entities an option to reclassify certain “stranded tax effects” resulting from the recent U.S. Tax reform from accumulated other comprehensive income to retained earnings. The standard is effective for all entites in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Under ASC 740, the enactment of the Company for 2011, 2012,Tax Cuts and 2013 are subjectJobs Act on December 22, 2017 requires an entity to examination, generally for three years after theyremeasure all U.S. deferred income taxes using the new 21% tax rate as opposed to the previous corporate income tax rate of 35%. The cumulative deferred income tax adjustment is recognized as a component of income tax expense from continuing operations. However, deferred income taxes originally recognized through other comprehensive income were filed.initially measured at the previous income tax rate of 35%. Therefore, recognizing the cumulative tax rate adjustment through income tax expense would result in a disproportionate tax balance remaining in accumulated other comprehensive income (AOCI) (i.e., “stranded tax effect”) that would be recycled to earning in future periods. The Bank elected to early implement ASU 2018-02 and made the election to reclassify the income tax effects resulting from the Tax Reform Act from AOCI to retained earnings during year ended December 31, 2017.

NOTE 10.COMMITMENTS AND CONTINGENCIES

Loan CommitmentsNote 9—Off-Balance Sheet Activities

The CompanyBank is a party to credit related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. TheySuch commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit are variable rate instruments.

The Company’sBank’s exposure to credit loss in the event of nonperformance by the other partyparties to the financial instrument for these commitments to extend credit is represented by the contractual amount of those instruments.these commitments. The Company usesBank follows the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the Company’s commitments is as follows:

The following financial instruments were outstanding whose contract amounts represent credit risk:

 

   December 31, 
   2014   2013 

Commitments to extend credit

  $34,476,853    $17,220,946  

Letters of credit

   389,643     361,843  
  

 

 

   

 

 

 
$34,866,496  $17,582,789  
  

 

 

   

 

 

 

Commitments to Extend Credit

  $820,211 

Unfunded Commitments Under Lines of Credit

  $18,161,826 

Standby Letters of Credit

  $340,000 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since manyMany of the commitments are expected

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.COMMITMENTS AND CONTINGENCIES (Continued)

Loan Commitments (Continued)

to expire without being drawn upon,upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the CompanyBank upon extension of credit, is based on management’s credit evaluation of the party.evaluation. Collateral held varies but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; accounts receivable, inventory,receivable; inventory; property and equipment, residential real estate andequipment; personal residences; income-producing commercial properties.properties and land under development. Personal guarantees are also obtained to provide added security for certain commitments.

Letters

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 9—Off-Balance Sheet Activities (Continued)

Unfunded commitments under commercial lines-of-credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines-of-credit are uncollateralized until advanced and usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the CompanyBank to guarantee the performance of a customer to a third party. Those guaranteesletters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loansloan facilities to customers. Collateral held varies as specified aboveThe Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other security is required in instances which the Company deemsdeemed necessary.

At December 31, 2014 and 2013, the carrying amount of liabilities relatedNote 10—Legal Contingencies

Various legal claims also arise from time to the Company’s obligation to perform under letters of credit was insignificant. The Company has not been required to perform on any letters of credit, and the Company has not incurred any losses on letters of credit for the years ended December 31, 2014 and 2013.

Contingencies

Intime in the normal course of business the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements.

NOTE 11.CONCENTRATIONS OF CREDIT

The Company originates primarily commercial, commercial real estate, residential real estate, and consumer loans to customers in Lee and Etowah County and surrounding areas. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in these areas.

Eighty-five percent of the Company’s loan portfolio is secured by real estate, of which, a substantial portion is secured by real estate in the Company’s market area. The other concentrations of credit by type of loan are set forth in Note 3.

The Company, according to regulatory restrictions, may not extend credit to any single borrower or group of related borrowers in excess of 20% of capital, as defined, for secured borrowers or approximately $5,846,000 and 10% of capital, as defined, for unsecured borrowers or approximately $2,923,000.

NOTE 12.REGULATORY MATTERS

Federal and state banking regulations place certain restrictions on the payment of dividends by the Bank to the Company. The total amount of dividends which may be paid by the Bank in any calendar year shall not exceed the total of its net earnings (as defined by state banking regulations) of that year combined with its retained net earnings of the preceding two years. For 2015, the Bank will have approximately $3,974,000 of net retained earnings from the previous two years available for dividend payments plus its net earnings for 2015.

The Bank is also subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.REGULATORY MATTERS (Continued)

possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, as defined, and of Tier I capital to average assets, as defined. Management believes, as of December 31, 2014 and 2013, the Bank met all capital adequacy requirements to which it is subject.

As of December 31, 2014, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage (average assets) ratios as set forth in the following table.

   Actual  For Capital
Adequacy
Purposes		  To Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 
   (Dollars in Thousands) 

December 31, 2014:

          

Total Capital to Risk Weighted Assets

  $29,120     16.12%  $ 14,455     8.00%  $18,068     10.00% 

Tier I Capital to Risk Weighted Assets

  $26,860     14.87%  $7,227     4.00%  $10,841     6.00% 

Tier I Capital to Average Assets

  $26,860     11.18%  $9,612     4.00%  $12,015     5.00% 

December 31, 2013:

          

Total Capital to Risk Weighted Assets

  $26,687     15.15%  $14,089     8.00%  $17,611     10.00% 

Tier I Capital to Risk Weighted Assets

  $24,484     13.90%  $7,045     4.00%  $10,567     6.00% 

Tier I Capital to Average Assets

  $24,484     10.38%  $9,437     4.00%  $11,796     5.00% 

In December 2010, the Basel Committee on Bank Supervision (“BCBS”) finalized a set of international guidelines for determining regulatory capital known as “Basel III.” In July 2013, the federal bank regulators approved final regulatory capital rules implementing BCBS’s December 2010 capital framework as well as certain provisions of the Dodd-Frank Act. The new capital rules under Basel III also substantially revise the risk-based capital requirements applicable to banking institutions as compared to the general risk-based capital rules now in effect. The new capital rules revise the components of capital and address other issues affecting the numerator in regulatory capital ratios. The new capital rules also address asset risk weights and other issues affecting the denominator in regulatory capital ratios and replace the existing general risk-weighting approach. The new capital rules are effective for the Bank on January 1, 2015 (subject to a phase-in period for various components).

The new capital rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.REGULATORY MATTERS (Continued)

Under the new capital rules, the minimum capital ratios as of January 1, 2015 will be as follows:

4.5% CET1 to risk-weighted assets;

6.0% Tier 1 capital (CET1 plus additional Tier 1 capital) to risk weighted assets; and

8.0% Total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

4.0% Tier 1 capital to total quarterly average assets, as defined, (leverage ratio).

The new capital rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios and will be subject to phase-in through January 1, 2019. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. When fully phased-in on January 1, 2019, the new capital rules will require the Bank to maintain such additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

The new capital rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1. Implementation of the deductions and other adjustments to CET1 will be subject to phase-in through January 1, 2019.

In addition, under the new capital rules, the Bank must maintain regulatory capital ratios of (i) CET1 to risk-weighted assets of at least 6.5%, (ii) Tier 1 capital to risk-weighted assets of at least 8.0%, (iii) Total capital to risk-weighted assets of at least 10.0% and (iv) Tier 1 capital to quarterly average assets (leverage ratio) of at least 5.0% to be considered well capitalized under the regulatory framework for prompt corrective action. These requirements are effective on January 1, 2015.

Management has evaluated all of the fully phased-in requirements of the new capital rules and the effects of these requirements on the Bank’s capital structure. Management does not believe that these new requirements will have a significant impact on regulatory capital of the Bank.

NOTE 13.FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with theFair Value Measurements and Disclosures topic (FASB ASC 820), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. 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. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Determination of Fair Value (Continued)

The 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 market 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.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 — Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on 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 for substantially the full term of the asset or liability.

Level 3 — Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and Cash Equivalents: The carrying amounts of cash and due from banks, interest-bearing deposits in banks and federal funds sold approximate fair value based on the short-term nature of the assets.

Securities: Where quoted prices are available in an active market, the Company classifies the securities within level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds and exchange-traded equities.

If quoted market prices are not available, the Company estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Fair Value Hierarchy (Continued)

instruments, which would generally be classified within level 2 of the valuation hierarchy, include government agency securities, corporate bonds, and state and municipal securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, the Company would classify those securities in level 3.

Restricted Equity Securities: The carrying amount of restricted equity securities with no readily determinable fair value approximates fair value based on the redemption provisions of the issuers which is cost.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair value for other fixed-rate loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Loans Held for Sale: The carrying amount of loans held for sale approximates their fair value.

Deposits: The fair values disclosed for demand deposits (for example, interest and noninterest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Other Borrowings: Current market rates for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value.

Accrued Interest: The carrying amounts of accrued interest approximate fair value.

Off-Balance Sheet Instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees charged to enter into such agreements.

Assets Measured at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:

       Fair Value Measurements Using 
   Assets
Measured at
Fair Value		   Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2014:

        

Available for sale securities

  $39,441,849    $—      $39,441,849    $—    

December 31, 2013:

        

Available for sale securities

  $38,798,069    $—      $38,798,069    $—    

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis

The following tables present the financial instruments carried on the balance sheet by caption and by level in the fair value hierarchy at December 31, 2014 and 2013 for which a nonrecurring change in fair value has been recorded.

   Carrying Value at December 31, 2014 
   Total   Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $1,037,700    $—      $—      $1,037,700  

Other real estate owned

   712,500     —       —       712,500  
  

 

 

   

 

 

   

 

 

   

 

 

 
$1,750,200  $—    $—    $1,750,200  
  

 

 

   

 

 

   

 

 

   

 

 

 

   Carrying Value at December 31, 2013 
   Total   Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $1,087,700    $—      $—      $1,087,700  

Other real estate owned

   544,432     —       —       544,432  
  

 

 

   

 

 

   

 

 

   

 

 

 
$1,632,132  $—    $—    $1,632,132  
  

 

 

   

 

 

   

 

 

   

 

 

 

Impaired Loans

Loans considered impaired under ASC 310-10-35,Receivables, are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Impaired loans had a carrying amount of $1,233,372 and $2,240,884, with a specific valuation allowance of $24,521 and $32,076 at December 31, 2014 and 2013, respectively. Of the impaired loan portfolio, $1,062,221 and $1,119,776 was carried at fair value as a result of charge-offs and specific

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis (Continued)

Impaired Loans (Continued)

valuation allowances resulting in a net carrying value of $1,037,700 and $1,087,700 at December 31, 2014 and 2013, respectively. The remaining $171,151 and $1,153,184 was carried at cost, as the fair value of the collateral on these loans exceeded the book value for each individual credit at December 31, 2014 and 2013, respectively. Charge-offs and changes in specific valuation allowances during 2013 on impaired loans carried at fair value resulted in additional provision for loan losses of $151,183, respectively. Charge-offs and changes in specific valuation allowances during 2014 on impaired loans carried at fair value did not result in additional provision for loan losses.

Other Real Estate Owned

Other real estate owned is adjusted to fair value upon transfer of the loans to other real estate owned. Subsequently, other real estate owned is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the other real estate owned as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the other real estate owned as nonrecurring Level 3.

Quantitative Disclosures for Level 3 Fair Value Measurements

The Company had no Level 3 assets measured at fair value on a recurring basis at December 31, 2014 or 2013.

For Level 3 assets measured at fair value on a non-recurring basis as of December 31, 2014, the significant unobservable inputs used in the fair value measurements are presented below.

   Carrying
Amount		   Valuation
Technique		   Significant
Unobservable
Input		  Weighted
Average
of Input		 

Nonrecurring:

       

Impaired loans

  $1,037,700     Appraisal     Appraisal discounts (%)   5-10% 

Other real estate owned

   712,500     Appraisal     Appraisal discounts (%)   5-10% 

For Level 3 assets measured at fair value on a non-recurring basis as of December 31, 2013, the significant unobservable inputs used in the fair value measurements are presented below.

   Carrying
Amount		   Valuation
Technique		   Significant
Unobservable
Input		  Weighted
Average
of Input		 

Nonrecurring:

       

Impaired loans

  $1,087,700     Appraisal     Appraisal discounts (%)   5-10% 

Other real estate owned

   544,432     Appraisal     Appraisal discounts (%)   5-10% 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Fair Value of Financial Instruments

The carrying amount and estimated fair value of the Company’s financial instruments were as follows:

   December 31, 
   2014   2013 
   Carrying
Amount		   Fair
Value		   Carrying
Amount		   Fair
Value		 
   (Dollars in Thousands) 

Financial assets:

        

Cash and cash equivalents

  $20,134    $20,134    $25,685    $25,685  

Securities available for sale

   39,442     39,442     38,798     38,798  

Restricted equity securities

   609     609     662     662  

Loans held for sale

   703     703     689     689  

Loans, net

   162,118     163,336     153,493     154,557  

Accrued interest receivable

   737     737     742     742  

Financial liabilities:

        

Deposits

  $204,559    $204,549    $202,761    $203,112  

Other borrowings

   6,500     6,589     6,576     6,659  

Accrued interest payable

   102     102     117     117  

NOTE 14.BUSINESS COMBINATIONS

During the second quarter of 2013, the shareholders’ approved the formation of Keystone Bancshares, Inc., a holding company for Keystone Bank, at the annual shareholders meeting. On October 1, 2013, each share of Keystone Bank’s $1 par value common stock was exchanged for one share of Keystone Bancshares, Inc.’s $1 par value common stock. The combination was accounted for by transferring the net assets of Keystone Bank to Keystone Bancshares, Inc. at the carrying amount. The net income of the Bank prior to the combination was approximately $2,012,000 and has been included in the consolidated statements of income.

On May 13, 2015, the Company approved a definitive agreement with River Financial Corporation and its subsidiary, River Bank & Trust, Prattville, Alabama (“River”), whereby the Company will merge with and into River for a total purchase price of approximately $36.7 million. Under the terms of the agreement, the Company’s shareholders will receive 1 share of River’s common stock valued at $16.00 per share and $4.00 in cash for each share of common stock they own. The merger is subject to various terms and conditions, including stockholder and regulatory approvals and is expected to close by the end of 2015.

NOTE 15.PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets of Keystone Bancshares, Inc. as of December 31, 2014 and 2013 and the condensed statements of income and cash flows for the year ended December 31, 2014 and the period from October 1, 2013, date of inception, to December 31, 2013.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15.PARENT COMPANY FINANCIAL INFORMATION (Continued)

CONDENSED BALANCE SHEETS

   2014   2013 

Assets

    

Cash

  $19,004    $37,623  

Investment in subsidiary

   26,913,228     24,037,580  

Other assets

   21,176     19,087  
  

 

 

   

 

 

 

Total assets

$26,953,408  $24,094,290  
  

 

 

   

 

 

 

Liabilities

Accounts payable

$—    $11,832  

Other borrowings

 —     75,640  
  

 

 

   

 

 

 

Total liabilities

 —     87,472  
  

 

 

   

 

 

 

Stockholders’ equity

 26,953,408   24,006,818  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$26,953,408  $24,094,290  
  

 

 

   

 

 

 

CONDENSED STATEMENTS OF INCOME

   2014  2013 

Income

   

Dividend income

  $427,758   $—    
  

 

 

  

 

 

 

Expenses

Salaries and benefits

 3,140   3,747  

Other

 6,147   49,849  
  

 

 

  

 

 

 

Total expenses

 9,287   53,596  
  

 

 

  

 

 

 

Income (loss) before income tax benefits and equity in undistributed earnings of subsidiary

 418,471   (53,596) 

Income tax benefits

 (2,090)  (19,087) 
  

 

 

  

 

 

 

Income (loss) before equity in undistributed earnings of subsidiary

 420,561   (34,509) 

Equity in undistributed earnings of subsidiary

 2,170,817   700,285  
  

 

 

  

 

 

 

Net income

$2,591,378  $665,776  
  

 

 

  

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15.PARENT COMPANY FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

   2014  2013 

OPERATING ACTIVITIES

   

Net income

  $2,591,378   $665,776  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

   

Equity in undistributed earnings of subsidiary

   (2,170,817)   (700,285) 

Stock-based compensation expense

   3,140    3,747  

Net other operating activities

   (13,922)   (7,255) 
  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

 409,779   (38,017) 
  

 

 

  

 

 

 

INVESTING ACTIVITIES

Investment in subsidiary

 (250,000)  —    
  

 

 

  

 

 

 

Net cash used in investing activities

 (250,000)  —    
  

 

 

  

 

 

 

FINANCING ACTIVITIES

Proceeds from other borrowings

 —     75,640  

Exercise of stock warrants

 250,000   —    

Dividends paid

 (352,758)  —    

Repayment of other borrowings

 (75,640)  —    
  

 

 

  

 

 

 

Net cash (used in) provided by financing activities

 (178,398)  75,640  
  

 

 

  

 

 

 

Net (decrease) increase in cash

 (18,619)  37,623  

Cash at beginning of period

 37,623   —    
  

 

 

  

 

 

 

Cash at end of year

$19,004  $37,623  
  

 

 

  

 

 

 

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2015 AND DECEMBER 31, 2014

(Dollars in Thousands, Except Per Share Amounts)

   2015   2014 
   (Unaudited)     
Assets    

Cash and due from banks

  $5,665    $3,752  

Interest bearing deposits in banks

   22,089     15,379  

Federal funds sold

   1,004     1,003  
  

 

 

   

 

 

 

Cash and cash equivalents

 28,758   20,134  

Securities available for sale

 36,312   39,442  

Restricted equity securities

 609   609  

Loans held for sale

 3,737   703  

Loans, net of deferred fees

 169,528   164,488  

Less allowance for loan losses

 2,460   2,370  
  

 

 

   

 

 

 

Loans, net

 167,068   162,118  

Premises and equipment

 6,382   6,444  

Bank owned life insurance and annuity

 6,392   6,360  

Other real estate owned

 1,153   1,273  

Other assets

 1,937   2,012  
  

 

 

   

 

 

 

Total assets

$252,348  $239,095  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity

Liabilities:

Deposits

Noninterest-bearing

$28,714  $25,056  

Interest-bearing

 187,779   179,503  
  

 

 

   

 

 

 

Total deposits

 216,493   204,559  

Other borrowings

 6,500   6,500  

Other liabilities

 1,572   1,083  
  

 

 

   

 

 

 

Total liabilities

 224,565   212,142  
  

 

 

   

 

 

 

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $1 par value, 2,000,000 shares authorized; none issued and outstanding

 —     —    

Common stock, $1 par value, 5,000,000 shares authorized; 1,788,792 and 1,788,792 shares issued and outstanding, respectively

 1,789   1,789  

Capital surplus

 16,033   16,032  

Retained earnings

 9,769   9,079  

Accumulated other comprehensive income

 192   53  
  

 

 

   

 

 

 

Total stockholders’ equity

 27,783   26,953  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$252,348  $239,095  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

   2015   2014 

Interest income:

    

Loans, including fees

  $2,243    $2,113  

Taxable securities

   29     59  

Nontaxable securities

   194     211  

Federal funds sold

   5     5  

Deposits in banks

   43     60  
  

 

 

   

 

 

 

Total interest income

 2,514   2,448  
  

 

 

   

 

 

 

Interest expense:

Deposits

 322   346  

Other borrowings

 19   14  
  

 

 

   

 

 

 

Total interest expense

 341   360  
  

 

 

   

 

 

 

Net interest income

 2,173   2,088  

Provision for loan losses

 98   45  
  

 

 

   

 

 

 

Net interest income after provision for loan losses

 2,075   2,043  
  

 

 

   

 

 

 

Other income:

Service charges on deposit accounts

 67   54  

Mortgage origination fees

 316   134  

Net gain on sale of securities available for sale

 25   55  

Other operating income

 89   64  
  

 

 

   

 

 

 

Total other income

 497   307  
  

 

 

   

 

 

 

Other expenses:

Salaries and employee benefits

 993   873  

Equipment and occupancy expenses

 115   111  

Other operating expenses

 476   467  
  

 

 

   

 

 

 

Total other expenses

 1,584   1,451  
  

 

 

   

 

 

 

Income before income tax expense

 988   899  

Income tax expense

 298   266  
  

 

 

   

 

 

 

Net income

$690  $633  
  

 

 

   

 

 

 

Basic earnings per share

$0.39  $0.36  
  

 

 

   

 

 

 

Diluted earnings per share

$0.38  $0.35  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

   2015  2014 

Net income

  $690   $633  
  

 

 

  

 

 

 

Other comprehensive income:

Unrealized holding gains on securities available for sale arising during the period net of tax of $80 and $125, respectively

 155   242  

Reclassification adjustment for gains on sales of securities realized in net income, net of tax of $9 and $19, respectively

 (16)  (36) 
  

 

 

  

 

 

 

Other comprehensive income

 139   206  
  

 

 

  

 

 

 

Comprehensive income

$829  $839  
  

 

 

  

 

 

 

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

   2015  2014 

OPERATING ACTIVITIES

   

Net income

  $690   $633  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

   

Depreciation

   64    66  

Provision for loan losses

   98    45  

Net amortization on securities

   30    46  

Stock-based compensation expense

   1    1  

Net gain on sale of securities available for sale

   (25)   (55) 

Gain on sale of other real estate owned

   (9)   —    

Decrease in interest receivable

   71    31  

Increase in interest payable

   14    3  

Increase in bank owned life insurance and annuity

   (32)   (34) 

(Increase) decrease in loans held for sale

   (3,034)   285  

Net other operating activities

   407    (397) 
  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

 (1,725)  624  
  

 

 

  

 

 

 

INVESTING ACTIVITIES

Purchases of securities available for sale

 (596)  (3,829) 

Proceeds from maturities of securities available for sale

 552   7  

Proceeds from sales of securities available for sale

 3,379   2,258  

Net (increase) decrease in loans

 (5,273)  806  

Purchase of premises and equipment

 (1)  (19) 

Proceeds from sales of other real estate owned

 354   —    
  

 

 

  

 

 

 

Net cash used in investing activities

 (1,585)  (777) 
  

 

 

  

 

 

 

FINANCING ACTIVITIES

Net increase in deposits

 11,934   4,658  
  

 

 

  

 

 

 

Net cash provided by financing activities

 11,934   4,658  
  

 

 

  

 

 

 

Net increase in cash and cash equivalents

 8,624   4,505  

Cash and cash equivalents at beginning of year

 20,134   25,685  
  

 

 

  

 

 

 

Cash and cash equivalents at end of year

$28,758  $30,190  
  

 

 

  

 

 

 

SUPPLEMENTAL DISCLOSURE

Cash paid during the year for:

Interest

$327  $356  

NONCASH TRANSACTIONS

Other real estate owned acquired in settlement of loans

$225  $—    

See Notes to Consolidated Financial Statements.

Index to Financial Statements

KEYSTONE BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Basis of Presentation and Accounting Estimates

Keystone Bancshares, Inc. (the “Company”) is a bank holding company whose business is conducted by its wholly-owned subsidiary, Keystone Bank (the “Bank”). The Bank is a state-chartered commercial bank headquartered in Auburn, Lee County, Alabama with additional full service branch office locations in Opelika, Alabama and Gadsden, Alabama. The Bank provides a full range of banking services in its primary market areas of Lee and Etowah County and the surrounding areas.

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reportedwill have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. It is suggested that these interim consolidated financial statements and notes be read in conjunction with the audited financial statements and notes included elsewhere in this Form S-4.

Critical Accounting Policies

Our most significant accounting policies are presented in the notes to the audited consolidated financial statements presented elsewhere in this joint proxy statement/prospectus. Certain accounting policies require management to make significant estimates and assumptions that have ano material effect on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. The estimates and assumptions used are basedBank’s financial statements.

Note 11—Shareholder’s Equity

Restrictions on historical experience and other factors that management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.

Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potential common shares. Potential common shares consist of organizer stock warrants and stock options.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Earnings Per Share (Continued)

A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations is presented below.

   Three Months Ended March 31, 
           2015                   2014         

Weighted-average common shares outstanding

   1,788,792     1,763,792  
  

 

 

   

 

 

 

Net income

$690  $633  
  

 

 

   

 

 

 

Basic earnings per share

$.39  $.36  
  

 

 

   

 

 

 

Weighted-average common shares outstanding

 1,788,792   1,763,792  

Dilutive effects of assumed conversions and exercise of stock options and warrants

 27,239   14,107  
  

 

 

   

 

 

 

Weighted-average common and dilutive potential common shares outstanding

 1,816,031   1,777,899  
  

 

 

   

 

 

 

Net income

$690  $633  
  

 

 

   

 

 

 

Diluted earnings per share

$.38  $.35  
  

 

 

   

 

 

 

SecuritiesDividends

The amortized cost and fair value of securities with gross unrealized gains and losses are summarized as follows:

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		  Fair
Value		 

Securities Available for Sale

       

March 31, 2015:

       

U.S. Government sponsored agencies

  $781     5     (6)   780  

U.S. Government sponsored mortgage-backed securities

   1,450     57     —      1,507  

State and municipal securities

   31,671     547     (169)   32,049  

Corporate bonds

   2,119     —       (143)   1,976  
  

 

 

   

 

 

   

 

 

  

 

 

 

Total securities available for sale

$36,021   609   (318)  36,312  
  

 

 

   

 

 

   

 

 

  

 

 

 

December 31, 2014:

U.S. Government sponsored agencies

$780  $2  $(9) $773  

U.S. Government sponsored mortgage-backed securities

 1,472   43   —     1,515  

State and municipal securities

 34,918   430   (231)  35,117  

Corporate bonds

 2,191   —     (154)  2,037  
  

 

 

   

 

 

   

 

 

  

 

 

 

Total securities available for sale

$39,361  $475  $(394) $39,442  
  

 

 

   

 

 

   

 

 

  

 

 

 

The Company had no securities pledged as of March 31, 2015 and December 31, 2014.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Securities (Continued)

The amortized cost and fair value of securities as of March 31, 2015 by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid with or without penalty. Therefore, these securities are not included by maturity class in the following summary:

   Securities Available for Sale 
       Amortized    
Cost		   Fair
    Value    		 

Due in one year or less

  $1,392    $1,293  

Due from one to five years

   15,720     15,830  

Due from five to ten years

   12,983     13,222  

Due after ten years

   4,476     4,460  

Mortgage-backed securities

   1,450     1,507  
  

 

 

   

 

 

 
$36,021  $36,312  
  

 

 

   

 

 

 

The following table shows the gross unrealized losses and fair value of the Company’s securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2015 and December 31, 2014.

Available for sale securities that have been in a continuous unrealized loss position are as follows:

   Less Than Twelve Months   Over Twelve Months   Total
Unrealized
Losses		 
   Gross
    Unrealized    
Losses		  Fair
    Value    		   Gross
Unrealized
Losses		  Fair
Value		   

March 31, 2015:

      

U.S. Government sponsored agencies

  $—     $—      $(6)  $548    $(6) 

State and municipal securities

   (16)   4,040     (153)   3,665     (169) 

Corporate bonds

   (38)   889     (105)   1,087     (143) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total temporarily impaired debt securities

$(54) $4,929  $(264) $5,300  $(318) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

December 31, 2014:

U.S. Government sponsored agencies

$—    $—    $(9) $546  $(9) 

State and municipal securities

 (74)  8,871   (157)  6,678   (231) 

Corporate bonds

 (57)  429   (97)  1,608   (154) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total temporarily impaired debt securities

$(131) $9,300  $(263) $8,832  $(394) 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

The unrealized losses on thirty-seven investments were caused by interest rate changes. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2015.

Upon acquisition of a security, the Company evaluates for impairment under the accounting guidance for investments in debt and equity securities. The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. Inputs

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Securities (Continued)

included in the evaluation process may include geographic concentrations, credit ratings, and other performance indicators of the underlying asset. There were no securities in the Company’s portfolio considered impaired as of and for the three months ended March 31, 2015 and for the year ended December 31, 2014.

Loans

Portfolio Segments and Classes

The composition of loans, excluding loans held for sale, is summarized as follows:

   March 31,
2015		   December 31,
2014		 

Real estate mortgages:

    

Construction and land development

  $24,885    $21,381  

1-4 family residential

   63,229     62,974  

Commercial

   52,444     50,303  

Other

   5,660     5,273  

Commercial

   13,396     14,637  

Consumer

   10,122     10,127  
  

 

 

   

 

 

 
 169,736   164,695  

Deferred loan fees

 (208)  (207) 

Allowance for loan losses

 (2,460)  (2,370) 
  

 

 

   

 

 

 

Loans, net

$167,068  $162,118  
  

 

 

   

 

 

 

For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. There are three loan portfolio segments that include real estate, commercial, and consumer. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and an entity’s method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include construction and land development, 1-4 family residential, commercial, and other. The portfolio segments of non-real estate commercial loans and consumer loans have not been segregated by class.

The following describe risk characteristics relevant to each of the portfolio segments:

Real Estate — As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:

Construction and land development loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.

1-4 family residential loans, which include home equity lines of credit, are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Commercial loans include owner-occupied commercial real estate loans and loans secured by income producing properties such as multi-family housing. Owner-occupied commercial real estate loans to

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Portfolio Segments and Classes (Continued)

operating businesses are long-term financing of land and buildings. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the business. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties.

Other real estate mortgage loans include real estate loans secured by farmland and other. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.

Commercial — The commercial loan portfolio segment includes commercial, financial, and agricultural loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the borrowers’ business operations.

Consumer — The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management

Credit Administration and the Special Assets Manager are both involved in the credit risk management process and assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. The Company has taken a number of measures to manage the portfolios and reduce risk, particularly in the more problematic portfolios.

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by a comprehensive Loan Policy that provides for a consistent and prudent approach to underwriting and approval of credit. Within the Board approved Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios. Loan Review and Credit Administration establish a timely schedule and scope for loan reviews. These reviews ensure such loans have proper risk ratings and accrual status, and if necessary, ensure loans are transferred to the Special Assets manager.

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Chief Credit Officer, the Officers Loan Committee, and the Directors Loan Committee.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Credit Risk Management (Continued)

The following categories are utilized by management to analyze and manage the credit quality and risk of the loan portfolio:

Pass — includes obligations where the probability of default is considered low.

Special Mention — includes obligations that exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects or credit position at a future date. These loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — includes obligations with defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

Doubtful — includes obligations with all the weaknesses found in substandard loans with the added provision that the weaknesses make collection of debt in full, based on currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the loan, the loans’ classification as loss is deferred until a more exact status may be determined. There are no loans rated doubtful in the Company’s portfolio as of March 31, 2015 and December 31, 2014.

Loss — includes obligations incapable of repayment. Such loans are considered uncollectible and of such little value, that continuance as an active asset is not warranted. Loans determined to be a loss are charged-off at the date of loss determination. Consequently, there are no loans with a loss rating in the Company’s portfolio as of March 31, 2015 and December 31, 2014 as all such loans have been charged-off.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Credit Risk Management (Continued)

The following tables summarize the risk category of the Company’s loan portfolio based upon on the most recent analysis performed as of March 31, 2015 and December 31, 2014.

   Pass   Special
Mention		   Substandard   Doubtful   Total 

March 31, 2015

          

Real estate mortgages:

          

Construction and land development

  $23,708    $259    $918    $—      $24,885  

1-4 family residential

   61,074     1,361     794     —       63,229  

Commercial

   49,180     1,464     1,800     —       52,444  

Other

   5,594     —       66     —       5,660  

Commercial

   13,105     144     147     —       13,396  

Consumer

   9,708     141     273     —       10,122  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

$162,369  $3,369  $3,998  $—    $169,736  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2014

Real estate mortgages:

Construction and land development

$20,303  $99  $979  $—    $21,381  

1-4 family residential

 60,232   1,928   814   —     62,974  

Commercial

 47,017   1,478   1,808   —     50,303  

Other

 5,205   —     68   —     5,273  

Commercial

 13,926   363   348   —     14,637  

Consumer

 9,859   209   59   —     10,127  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

$156,542  $4,077  $4,076  $—    $164,695  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Past Due Loans

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places loans on non-accrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. The following tables present the aging of the recorded investment in loans as of March 31, 2015 and December 31, 2014:

       Past Due Status (Accruing Loans)         
   Current   30-59
Days		   60-89
Days		   90+
Days		   Total Past
Due		   Nonaccrual   Total 

March 31, 2015

              

Real estate mortgages:

              

Construction and land development

  $24,853    $—      $—      $—      $—      $32    $24,885  

1-4 family residential

   61,557     1,443     38     —       1,481     191     63,229  

Commercial

   52,444     —       —       —       —       —       52,444  

Other

   5,660     —       —       —       —       —       5,660  

Commercial

   13,167     18     142     —       160     69     13,396  

Consumer

   9,992     84     25     —       109     21     10,122  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

$167,673  $1,545  $205  $—    $1,750  $313  $169,736  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Past Due Loans (Continued)

       Past Due Status (Accruing Loans)         
   Current   30-59
Days		   60-89
Days		   90+ Days   Total Past
Due		   Nonaccrual   Total 

December 31, 2014

              

Real estate mortgages:

              

Construction and land development

  $21,216    $133    $—      $—      $133    $32    $21,381  

1-4 family residential

   62,248     270     —       339     609     117     62,974  

Commercial

   49,772     531     —       —       531     —       50,303  

Other

   5,273     —       —       —       —       —       5,273  

Commercial

   14,262     156     —       148     304     71     14,637  

Consumer

   10,010     88     —       6     94     23     10,127  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total:

$162,781  $1,178  $—    $493  $1,671  $243  $164,695  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2015 and the year ended December 31, 2014. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

   Real Estate  Commercial  Consumer  Total 

March 31, 2015

     

Allowance for loan losses:

     

Balance, beginning of year

  $2,089   $167   $114   $2,370  

Provision (credit) for loan losses

   26    44    28    98  

Loans charged off

   (27)   —      (14)   (41) 

Recoveries of loans previously charged off

   29    4    —      33  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, end of period

$2,117  $215  $128  $2,460  
  

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance: individually evaluated for impairment

$21  $—    $—    $21  

Ending balance: collectively evaluated for impairment

 2,096   215   128   2,439  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total ending balance

$2,117  $215  $128  $2,460  
  

 

 

  

 

 

  

 

 

  

 

 

 

Loans:

Ending balance: individually evaluated for impairment

$1,733  $148  $21  $1,902  

Ending balance: collectively evaluated for impairment

 144,485   13,248   10,101   167,834  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total ending balance

$146,218  $13,396  $10,122  $169,736  
  

 

 

  

 

 

  

 

 

  

 

 

 

December 31, 2014

Allowance for loan losses:

Balance, beginning of year

$2,027  $205  $113  $2,345  

Provision (credit) for loan losses

 232   170   23   425  

Loans charged off

 (203)  (212)  (22)  (437) 

Recoveries of loans previously charged off

 33   4   —     37  
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, end of year

$2,089  $167  $114  $2,370  
  

 

 

  

 

 

  

 

 

  

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Allowance for Loan Losses (Continued)

   Real Estate   Commercial   Consumer   Total 

Ending balance: individually evaluated for impairment

  $25    $—      $—      $25  

Ending balance: collectively evaluated for impairment

   2,064     167     114     2,345  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total ending balance

$2,089  $167  $114  $2,370  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

Ending balance: individually evaluated for impairment

$1,211  $—    $22  $1,233  

Ending balance: collectively evaluated for impairment

 138,720   14,637   10,105   163,462  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total ending balance

$139,931  $14,637  $10,127  $164,695  
  

 

 

   

 

 

   

 

 

   

 

 

 

Impaired Loans

A loan held for investment is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail the Company’s impaired loans, by portfolio class as of March 31, 2015 and December 31, 2014:

   Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Income
Recognized
in Year		 

March 31, 2015

          

With no related allowance recorded:

          

Real estate mortgages:

          

Construction and land development

  $32    $32    $—      $32    $—    

1-4 family residential

   113     113     —       115     —    

Commercial

   531     531     —       531     9  

Other

   —       —       —       —       —    

Commercial

   148     148     —       148     3  

Consumer

   21     21     —       22     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with no allowance recorded:

 845   845   —     848   12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With allowance recorded:

Real estate mortgages:

Construction and land development

 —     —     —     —     —    

1-4 family residential

 —     —     —     —     —    

Commercial

 1,057   1,057   21   1,059   12  

Other

 —     —     —     —     —    

Commercial

 —     —     —     —     —    

Consumer

 —     —     —     —     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with an allowance recorded:

 1,057   1,057   21   1,059   12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans:

$1,902   1,902   21   1,907   24  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Impaired Loans (Continued)

   Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Income
Recognized
in Year		 

December 31, 2014

          

With no related allowance recorded:

          

Real estate mortgages:

          

Construction and land development

  $32    $32    $—      $35    $—    

1-4 family residential

   117     117     —       121     —    

Commercial

   —       —       —       —       —    

Other

   —       —       —       —       —    

Commercial

   —       —       —       —       —    

Consumer

   22     22     —       25     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with no allowance recorded:

 171   171   —     181   —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With allowance recorded:

Real estate mortgages:

Construction and land development

 —     —     —     —     —    

1-4 family residential

 —     —     —     —     —    

Commercial

 1,062   1,062   25   1,067   73  

Other

 —     —     —     —     —    

Commercial

 —     —     —     —     —    

Consumer

 —     —     —     —     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with an allowance recorded:

 1,062   1,062   25   1,067   73  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans:

$1,233  $1,233  $25  $1,248  $73  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Troubled Debt Restructurings

At March 31, 2015, loans that were classified as Troubled Debt Restructurings “TDRs” totaled $1,848, and have been included in impaired loans. At December 31, 2014, loans that were classified as Troubled Debt Restructurings “TDRs” totaled $1,178, and have been included in impaired loans. The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession.

The Company did not have any loans modified as a TDR during the three months ended March 31, 2014.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Loans (Continued)

Troubled Debt Restructurings (Continued)

The following table summarizes the loans that were modified as a TDR during the three months ended March 31, 2015 and were in compliance with the modified terms:

   Troubled Debt Restructurings 
   Number
of Loans		   Recorded
Investment
Prior to
Modification		   Recorded
Investment
After
Modification		   Impact on the
Allowance
for Loan
Losses		 

March 31, 2015

        

Real estate mortgages:

        

Construction and land development

   —      $—      $—      $—    

1-4 family residential

   —       —       —       —    

Commercial

   1     553     553     —    

Other

   —       —       —       —    

Commercial

   1     200     200     —    

Consumer

   —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 2  $753  $753  $—    
  

 

 

   

 

 

   

 

 

   

 

 

 

During 2015 and 2014 no troubled debt restructurings subsequently defaulted from their modified terms.

Organizer Stock Warrants

In recognition of the efforts and financial risks undertaken by the Company’s organizers, the Company granted each organizer an opportunity to purchase a number of shares of the Company’s common stock. The warrants vest over a five year period from the date of grant and are exercisable in whole or in part during the ten year period following the grant date, at an exercise price equal to $10 per share. The warrants are nontransferable, but shares issued pursuant to the exercise of warrants will be transferable, subject to compliance with applicable securities laws. The date of grant was March 2, 2007.

Other pertinent information related to the warrants is as follows:

   Number   Weighted-
Average
Exercise Price		   Weighted-Average
Remaining
Contractual Term		 

Three Months Ended March 31, 2015:

      

Warrants outstanding, beginning of year

   55,000    $10.00    

Granted

   —       —      

Exercised

   —       —      
  

 

 

   

 

 

   

Warrants outstanding, end of period

 55,000  $10.00   2.00 years  
  

 

 

   

 

 

   

Exercisable, end of period

 55,000  $10.00   2.00 years  
  

 

 

   

 

 

   

Year Ended December 31, 2014:

Warrants outstanding, beginning of year

 80,000  $10.00  

Granted

 —     —    

Exercised

 (25,000)  10.00  
  

 

 

   

 

 

   

Warrants outstanding, end of year

 55,000  $20.00   2.25 years  
  

 

 

   

 

 

   

Exercisable, end of year

 55,000  $10.00   2.25 years  
  

 

 

   

 

 

   

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Stock Options

The Company sponsors a stock option plan which grants directors, key employees and others options to purchase shares of common stock of the Company. Options may be granted as incentive stock options or nonqualified stock options depending on the eligibility of the recipient. Option prices and terms are determined by a committee appointed by the Board of Directors. The plan provides for a total of 50,000 options to purchase common shares of the Company of which 10,500 are available to grant as of March 31, 2015.

Other pertinent information related to the options is as follows:

   Number   Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Term		 

Three Months Ended March 31, 2015:

      

Options outstanding, beginning of year

   39,500    $10.06    

Granted

   —       —      

Exercised

   —       —      

Forfeited

   —       —      
  

 

 

   

 

 

   

Options outstanding, end of period

 39,500  $10.06   2.7 years  
  

 

 

   

 

 

   

Exercisable, end of year

 38,500  $10.05   2.6 years  
  

 

 

   

 

 

   

Year Ended December 31, 2014:

Options outstanding, beginning of year

 39,500  $10.06  

Granted

 —     —    

Exercised

 —     —    

Forfeited

 —     —    
  

 

 

   

 

 

   

Options outstanding, end of year

 39,500  $10.06   3.0 years  
  

 

 

   

 

 

   

Exercisable, end of year

 37,500  $10.04   2.8 years  
  

 

 

   

 

 

   

For the three months ended March 31, 2015 and 2014, $1 and $1, respectively, was recognized as stock-based compensation expense. As of March 31, 2015 there was $3 of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of approximately one year.

Regulatory Capital and Dividend Restrictions

Federal and state banking regulations place certain restrictions on the payment of dividends by the Bank to the Company. The total amount of dividends which may be paid bythat the Bank in any calendar year shall not exceed the total of its net earnings (as defined by state banking regulations) of that year combined with its retained net earnings of the preceding two years. For 2015, the Bank will have approximately $4,701 of net retained earningscan pay to Trinity Bancorp without approval from the previous two years available for dividend payments plusSuperintendent of Banks is limited to its net earnings for the remainder of 2015.current year plus its retained net earnings for the proceeding two years, less any required transfers to surplus. The Bank paid approximately $383,339 in dividends to Bancorp in 2017.

Capital

The Bank is also subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Regulatory Capital and Dividend Restrictions (Continued)

Bank must meet specific capital guidelines that involveinvolving quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capitalreporting requirements. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total, Tier Icommon equity, total, tier 1 capital and Common Equity Tier 1(as defined in the regulations) to risk-weighted assets as defined,(as defined), and of Tier Itier 1 capital (as defined) to average assets as defined.(as defined). Management believes, as of March 31, 2015 and December 31, 2014,2018 that the Bank metmeets all the capital adequacy requirements to which it is subject. Common Equity Tier 1 was first measured as of March 31, 2015 under the new Basel III capital rules as explained below.

As of March 31, 2015, theThe most recent notification from the Federal Deposit Insurance CorporationAlabama State Banking Department categorized the Bank as well capitalizedwell-capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Totalcommon equity risk-based, Tier I1 risk-based, and Tier Itier 1 leverage (average assets) ratios as set forth in the table. There are no conditions or events since the most recent notification that management believes

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 11—Shareholder’s Equity (Continued)

have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of December 31, 2018 are also present in the following table.

 

   Actual  For Capital
Adequacy
Purposes		  To Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 

March 31, 2015:

          

Total Capital to Risk Weighted Assets

  $29,676     15.24%  $15,578     8.00%  $19,472     10.00% 

Tier I Capital to Risk Weighted Assets

  $27,242     13.99%  $11,683     6.00%  $15,578     8.00% 

Common Equity Tier 1 to Risk Weighted Assets

  $27,242     13.99%  $11,069     4.50%  $15,989     6.50% 

Tier I Capital to Average Assets

  $27,242     11.07%  $9,839     4.00%  $12,299     5.00% 

December 31, 2014:

          

Total Capital to Risk Weighted Assets

  $29,120     16.12%  $14,455     8.00%  $18,068     10.00% 

Tier I Capital to Risk Weighted Assets

  $26,860     14.87%  $7,227     4.00%  $10,841     6.00% 

Common Equity Tier 1 to Risk Weighted Assets

   N/A     N/A    N/A     N/A    N/A     N/A  

Tier I Capital to Average Assets

  $26,860     11.18%  $9,612     4.00%  $12,015     5.00% 
   Actual  Capital Requirement  Minimum to Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   (Dollars in Thousands)  (Dollars in Thousands)  (Dollars in Thousands) 
   Amount   Ratio  Amount   Ratio  Amount   Ratio 

December 31, 2018:

          

Total Capital to Risk Weighted Assets

  $16,757    14.63%  $9,160    8.0%  $11,451    10.0% 

Tier 1 Capital to Risk Weighted Assets

  $15,319    13.38%  $6,870    6.0%  $9,160    8.0% 

Common Equity Tier 1 Capital

  $15,319    13.38%  $5,153    4.5%  $7,443    6.5% 

Leverage Capital to Average Total Assets

  $15,319    10.06%  $6,092    4.0%  $7,615    5.0% 

In December 2010, the Basel Committee on Bank Supervision (“BCBS”) finalized a set of international guidelines for determining regulatory capital known as “Basel III.” In JulyNote 12—Employee Benefit Plans

Beginning in 2013, the federal bank regulators approved final regulatory capital rules implementing BCBS’s December 2010 capital framework as well asBank maintains a 401(K) plan covering employees meeting certain provisions of the Dodd-Frank Act.eligibility requirements. The new capital rules under Basel III also substantially revise the risk-based capital requirements applicable to banking institutions as compared to the general risk-based capital rules now in effect. The new capital rules revise the components of capital and address other issues affecting the numerator in regulatory capital ratios. The new capital rules also address asset risk weights and other issues affecting the denominator in regulatory capital ratios and replace the existing general risk-weighting approach. The new capital rules were effective for the BankBank’s 401(K) plan was updated on January 1, 2015 (subject to a phase-in periodSafe Harbor Match 401(K) Plan. Employees may make voluntary contributions to the Plan through payroll deductions on a pre-tax basis. The Bank automatically matches up to 4% of employee contributions each payroll. The Bank expensed contributions to the Plan in the amount of $48,373 in 2018.

Note 13—Stock Options and Warrants

In 2012, the Bank issued 99,051 warrants to investors in connection with a stock offering. The warrants entitle the investor to purchase voting common stock, par value of $1, at a price of $4.50 per share if exercised on or before the date that is five years following the date of the warrant, and $5.25 per share, if exercised after the date that is five years from the date of the warrant and before the date that is ten years following the date of the warrant. During 2017, 94,355 of these warrants were exercised. Outstanding warrants of 4,697 were transferred to the Bank’s holding company.

Note 14—Related Party Transactions

In the normal course of banking business, loans are made to officers and directors of the Bank, as well as to their affiliates. Such loans are made in the ordinary course of business with substantially the same terms (including interest rates and collateral) as those prevailing at the time for various components).comparable transactions with other persons. They do not involve more than normal risk of collectability or present other unfavorable features. Annual activity consisted of the following:

The new capital rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly

Beginning Balance

  $5,014,406 

New Loans

   1,886,447 

Repayments

   (719,578) 
  

 

 

 

Ending Balance

  $6,181,275 
  

 

 

 

Interest Collected on Related Party Loans

  $201,026 
  

 

 

 

Deposits from related parties held by requiring that most deductions/adjustments tothe Bank totaled $8,376,453 December 31, 2018.

Index

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Regulatory Capital and Dividend Restrictions (Continued)December 31, 2018

 

regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations. The Bank’s CET1 consists of its common stock, capital surplus and retained earnings.

The new capital rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios and will be subject to phase-in through January 1, 2019. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. When fully phased-in on January 1, 2019, the new capital rules will require the Bank to maintain such additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

In addition, under the new capital rules, the Bank must maintain regulatory capital ratios of (i) CET1 to risk-weighted assets of at least 6.5%, (ii) Tier 1 capital to risk-weighted assets of at least 8.0%, (iii) Total capital to risk-weighted assets of at least 10.0% and (iv) Tier 1 capital to quarterly average assets (leverage ratio) of at least 5.0% to be considered well capitalized under the regulatory framework for prompt corrective action. These requirements were effective on January 1, 2015.

Note 15—Fair Value Measurements

FASB ASC 825,Determination of Fair ValueFinancial Instruments,

permits entities to measure many financial instruments and certain other items at fair value. The Company uses fair value measurementsobjective is to record fair value adjustmentsimprove financial reporting by providing entities with the opportunity to certainmitigate volatility in reported earnings caused by measuring related assets and liabilities anddifferently without having to determine fair value disclosures. In accordance with theFair ValueMeasurements and Disclosures topic (FASB ASC 820),apply complex hedge accounting provisions. The election to use the fair value ofoption is available when an entity first recognizes a financial instrumentasset or financial liability or upon entering into a Bank commitment. Subsequent changes must be recorded in earnings.

FASB ASC 820,Fair Value Measurement, clarifies that fair value is an exit price, representing the priceamount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fairparticipants. Under this guidance, fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market pricesmeasurements 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. Accordingly, theadjusted for transaction costs. This guidance establishes a fair value estimates may not be realized in an immediate settlement ofhierarchy that prioritizes the instrument.

The 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 market 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 multipleinputs to 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.

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

Fair Value Measurements (Continued)

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determinemeasure fair value.

Level 1 — Valuation is based on The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities that(Level 1 measurements) and the reporting entity haslowest priority to unobservable inputs (Level 3 measurements). The three levels of the ability to access at the measurement date. fair value hierarchy under this guidance are described below.

Level 11: Valuations for assets and liabilities generally include debt and equity securities that are traded in an active exchange market.markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 22: — Valuation is based onValuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than quotedLevel 1 prices, included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based onsuch as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assetassets or liability.liabilities.

Level 33: —
Valuation is based on unobservableUnobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorizationlevel within the valuationfair value hierarchy is based uponon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions weredescribes valuation methodologies used by the Company in estimatingfor assets measured at fair value disclosures for financial instruments:

Cash and Cash Equivalents: The carrying amounts of cash and due from banks, interest-bearing deposits in banks and federal funds sold approximate fair value based on the short-term nature of the assets.value:

Securities Available for Sale: —Where quoted prices are available in an active market, the Company classifies the securities are classified within levelLevel 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities.

If quoted market prices are not available, the Company estimatesthen fair values are estimated by using pricing models, andquoted prices of securities with similar characteristics, or discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads.flows. Examples of such instruments, which would generally be classified within levelLevel 2 of the valuation hierarchy, include government agency securities, corporate bonds,certain collateralized mortgage and statedebt obligations and municipalcertain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the Company would classify those securitiesvaluation hierarchy. Securities classified within Level 3 include certain residual interests in level 3.securitizations and other less liquid securities.

Restricted Equity SecuritiesImpaired Loans: The carrying amount—Estimates of restricted equity securities with no readily determinable fair value approximatesare determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Bank’s management related to values of properties in the Bank’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value based on the redemption provisions of the issuers which is cost.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair valueestimates for other fixed-rateimpaired loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.classified as Level 3.

Index

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)December 31, 2018

(Unaudited)

Note 15—Fair Value Measurements (Continued)

Fair Value Hierarchy (Continued)

 

Loans Held for SaleForeclosed Assets: The carrying amount—Estimates of loans held for sale approximates their fair value.

Deposits: The fair values disclosed for demand deposits (for example, interestare determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and noninterest checking, savings,the knowledge and certain typesexperience of moneythe Bank’s senior lending officers related to values of properties in the Bank’s market accounts) are, by definition, equal toareas. These officers take into consideration the amount payable on demand attype, location and occupancy of the reporting date (thatproperty as well as current economic conditions in the area the property is their carrying amounts). Fair values for fixed-rate certificateslocated in assessing estimates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Other Borrowings: Current market rates for debt with similar terms and remaining maturities are used to estimatefair value. Accordingly, the fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer quotesestimates for the identical liability when tradedforeclosed real estate are classified as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value.

Accrued Interest: The carrying amounts of accrued interest approximate fair value.

Off-Balance Sheet Instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees charged to enter into such agreements.

Assets Measured at Fair Value on a Recurring BasisLevel 3.

Assets measured at fair value on a recurring basis are summarized below:

 

       Fair Value Measurements Using 
   Assets
Measured at
Fair Value		   Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

March 31, 2015:

        

Available for sale securities

  $36,312    $—      $36,312    $—    

December 31, 2014:

        

Available for sale securities

  $39,442    $—      $39,442    $—    
   Fair Value Measurements at Reporting Date Using 
   Total   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2018:

        

Securities Available for Sale

        

Mortgage Backed Securities

  $589,666   $—     $589,666   $—   

U.S. Government Securities

   3,646,571    —      3,646,571    —   

Certificates of Deposit

   250,000    —      250,000    —   

Municipal Securities

   8,112,360    —      8,112,360    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $12,598,597   $—     $12,598,597   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

No securities were transferred in or out of Level 1, Level 2 or Level 3 during 2018.

IndexThe Bank has no non-financial assets or non-financial liabilities measured at fair value on a recurring basis.

Assets measured at fair value on a nonrecurring basis are summarized below:

   Fair Value Measurements at Reporting Date Using 
   Fair Value   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2018:

        

Impaired Loans

  $1,630,756   $—     $—     $1,630,756 

Foreclosed Assets

   121,419    —      —      121,419 

Impaired loans include those loans for which the collateral value is less than the carrying amount resulting in a write down to fair value. Loan impairment is reported when full payment under the loan terms is not expected. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. When an impaired loan is determined to be collateral dependent, the fair value is determined through the utilization of a third-party appraisal, estimate of market value by licensed appraisers or local real estate brokers. The types of collateral influence the frequency of

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)December 31, 2018

(Unaudited)

Note 15—Fair Value Measurements (Continued)

 

Assets Measuredobtaining updated appraisals. Based on experience, current appraisals are discounted 10%—12% for estimated costs associated with foreclosures and costs to sell. If a loan is evaluated for impairment and the appraisal is outdated, a new appraisal is ordered. After the new appraisal is obtained, the analysis is updated to reflect the new valuation. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan is confirmed.

Foreclosed assets totaling $227,351 for the year ended December 31, 2018 were re-measured at Fair Value on a Nonrecurring Basisfair value, resulting in impairment losses of $105,932 for the year ended December 31, 2018.

The following tablestable presents detailed information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2017. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input utilized at December 31, 2018, is included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.

Nonrecurring fair value measurements are summarized below:

   Fair Value
12/31/18		   Valuation
Technique		   Unobservable
Input		   Quantitative
Range of
Unobservable
Input		 

Impaired Loans

  $1,630,756    (1)    (2)    10%-12% 

Foreclosed Loans

  $121,419    (3)    (4)    6%-10% 

(1)

Multiple data points, including discount to appraised value of collateral based on recent market activity.

(2)

Appraisal compatibility adjustment (discount).

(3)

Discount to appraised value of property or net present value of future cash flows based on recent market activity for sales of similar properties.

(4)

Appraisal compatibility adjustment (discount).

Non-recurring fair value measurements using significant unobservable inputs:

Impaired

Loans—Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point for non-performing loans is the appraisal value of the underlying collateral to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.

Foreclosed

Assets—Foreclosed property and other real estate under contract for sale are valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Financial Statements

December 31, 2018

Note 16—Fair Value of Financial Instruments

In accordance with the disclosure requirement of FASB ASC 825,Financial Instruments,the estimated fair values of the Bank’s financial instruments are as follows:

           Fair Value Measurements 
   Carrying
Amount		   Fair Value   Quoted
Prices
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs (Level 3)		 

December 31, 2018:

          

FINANCIAL ASSETS

          

Cash and Cash Equivalents

  $9,757,357   $9,757,357   $9,757,357   $—     $—   

Investment Securities

          

Available for Sale

   12,598,597    12,598,597    —      12,598,597    —   

Restricted Stock

   332,750    332,750    —      332,750    —   

Net Loans

   125,487,276    125,487,276    —      —      125,487,276 

FINANCIAL LIABILITIES

          

Deposits

  $134,536,307   $134,536,307   $—     $—     $134,536,307 

FHLB Advances

   2,062,332    2,062,332    —      —      2,062,332 

The following methods and assumptions were used to estimate the fair value disclosures for financial instruments as of December 31, 2018:

Cash and Cash Equivalents—The fair value of cash and cash equivalents is estimated to approximate the carrying amounts.

Investment securities and restricted stock—Fair values are based on quoted market prices, except for certain restricted stocks where fair value equals par value because of certain redemption restrictions.

Loans—The fair value of loans is estimated to approximate the carrying amounts.

Deposits—The fair value of deposits is estimated to approximate the carrying amounts.

FHLB Advances—The fair value of FHLB advances is estimated to approximate the carrying amounts.

Schedules

Trinity Bancorp, Inc. and Subsidiary

Dothan, Alabama

Schedule 1—Consolidating Schedule—Balance Sheets

December 31, 2018

  Trinity
Bancorp, Inc.		  Trinity Bank  Eliminations
Debit (Credit)		  Total 

ASSETS

    

Cash and Cash Equivalents

    

Cash and Due From Banks

 $382,349  $9,346,467  $—    $9,728,816 

Interest-Bearing Deposits in Other Banks

  —     28,541   —     28,541 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total Cash and Cash Equivalents

 $382,349  $9,375,008  $—    $9,757,357 

Investment Securities

    

Securities Available-for-Sale, at Fair Value

  —     12,598,597   —     12,598,597 

Other Securities, at Cost

  —     332,750   —     332,750 

Investment in Subsidiary (Equity Method)

  15,044,760   —     (15,044,760)   —   

Loans, Less Allowance for Loan Losses of $2,005,977

  —     125,487,276   —     125,487,276 

Bank Premises and Equipment

  —     2,520,133   —     2,520,133 

Foreclosed Properties

  —     121,419   —     121,419 

Accrued Interest and Other Assets

  —     924,765   —     924,765 

Deferred Tax Asset

  21,668   641,037   —     662,705 
 

 

 

  

 

 

  

 

 

  

 

 

 

TOTAL ASSETS

 $15,448,777  $152,000,985  $(15,044,760)  $152,405,002 
 

 

 

  

 

 

  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

LIABILITIES

    

Deposits:

    

Interest Bearing

 $—    $105,751,447  $—    $105,751,447 

Non-interest Bearing

  —     28,784,860   —     28,784,860 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total Deposits

 $—    $134,536,307  $—    $134,536,307 

FHLB Advances

  —     2,062,332   —     2,062,332 

Accrued Interest and Other Liabilities

  348,339   357,586   —     705,925 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total Liabilities

 $348,339  $136,956,225  $—    $137,304,564 
 

 

 

  

 

 

  

 

 

  

 

 

 

STOCKHOLDERS’ EQUITY

    

Common Stock (voting; par value $1 per share; 10,000,000 Shares Authorized; 1,741,696 Shares Issued and Outstanding)

 $1,741,696  $1,749,196  $(1,749,196)  $1,741,696 

Additional Paid-In Capital

  100   11,623,111   ( 100)   11,623,111 

Retained Earnings/(Deficit)

  13,688,391   1,947,102   (13,570,113)   2,065,380 

Accumulated Other Comprehensive Income

  (274,649)   (274,649)   274,649   (274,649) 

Treasury Stock, at Cost

  (55,100)   —     —     (55,100) 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total Stockholders’ Equity

 $15,100,438  $15,044,760  $(15,044,760)  $15,100,438 
 

 

 

  

 

 

  

 

 

  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $15,448,777  $152,000,985  $(15,044,760)  $152,405,002 
 

 

 

  

 

 

  

 

 

  

 

 

 

Note: See Schedule 3 for description of eliminations.

Trinity Bancorp, Inc. and Subsidiary

Dothan, Alabama

Schedule 2—Consolidating Schedule—Statements of Income

For the Year Ended December 31, 2018

   Trinity
Bancorp, Inc.		  Trinity Bank  Eliminations
Debit (Credit)		  Total 

INTEREST INCOME

     

Interest and Fees on Loans

  $—    $6,801,480  $—    $6,801,480 

Interest on Investment Securities:

     

Obligations of Other U.S. Government Agencies and Corporations

   —     102,588   —     102,588 

Obligations of States and Political Subdivisions

   —     163,989   —     163,989 

Other Securities

   —     14,184   —     14,184 

Other Interest Income

   —     178,102   —     178,102 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Interest Income

  $—    $7,260,343  $—    $7,260,343 
  

 

 

  

 

 

  

 

 

  

 

 

 

INTEREST EXPENSE

     

Interest on Deposits:

     

Demand

  $—    $39,835  $—    $39,835 

Savings

   —     303,462   —     303,462 

Time, $100,000 and Over

   —     573,992   —     573,992 

Other Time

   —     209,886   —     209,886 

Interest on FHLB Advances

   —     57,076   —     57,076 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Interest Expense

  $—    $1,184,251  $—    $1,184,251 
  

 

 

  

 

 

  

 

 

  

 

 

 

NET INTEREST INCOME

  $—    $6,076,092  $—    $6,076,092 

PROVISION FOR LOAN LOSSES

   —     (240,500)   —     (240,500) 
  

 

 

  

 

 

  

 

 

  

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR

     

LOAN LOSSES

  $—    $6,316,592  $—    $6,316,592 
  

 

 

  

 

 

  

 

 

  

 

 

 

NONINTEREST INCOME

     

Service Fees

  $—    $304,367  $—    $304,367 

Other Operating Income

   —     79,394   —     79,394 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Noninterest Income

  $—    $383,761  $—    $383,761 
  

 

 

  

 

 

  

 

 

  

 

 

 

Note: See Schedule 3 for description of eliminations.

Trinity Bancorp, Inc. and Subsidiary

Dothan, Alabama

Schedule 2—Consolidating Schedule—Statements of Income

For the Year Ended December 31, 2018

   Trinity
Bancorp, Inc.		  Trinity Bank  Eliminations
Debit (Credit)		  Total 

NONINTEREST EXPENSE

     

Salaries and Employee Benefits

  $—    $1,970,006  $—    $1,970,006 

Occupancy and Equipment Expenses

   —     738,781   —     738,781 

Supervisory Assessments

   —     105,000   —     105,000 

Professional Fees

   —     122,421   —     122,421 

Supplies and Printing

   —     15,648   —     15,648 

Other Real Estate Expenses

   —     105,611   —     105,611 

Other Operating Expenses

   286   782,595   —     782,881 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Noninterest Expense

  $286  $3,840,062  $—    $3,840,348 
  

 

 

  

 

 

  

 

 

  

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

  $(286)  $2,860,291  $—    $2,860,005 

Undistributed Earnings of Subsidiary

   2,151,447   —     (2,151,447)   —   

PROVISION FOR INCOME TAXES

   1,605   708,844   —     710,449 
  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCOME

  $2,149,556  $2,151,447  $(2,151,447)  $2,149,556 
  

 

 

  

 

 

  

 

 

  

 

 

 

Trinity Bancorp, Inc.

Dothan, Alabama

Schedule 3—Consolidating Entries

For the Year Ended December 31, 2018

   Debit   Credit 

Equity in Earnings of Subsidiary

  $2,151,447   

Investment in Trinity Bank

    $2,151,447 

(To eliminate current earnings of Trinity Bank)

    

Accumulated Other Comprehensive Income (AOCI)

    $274,649 

Investment in Trinity Bank

  $274,649   

(To eliminate AOCI of Trinity Bank)

    

Additional Paid in Capital

  $100   

Investment in Trinity Bank

    $100 

(To eliminate additional paid in capital)

    

Retained Earnings

  $11,418,666   

Investment in Trinity Bank

    $11,418,666 

(To eliminate prior years cumulative gains of Trinity Bank)

    

Common Stock

  $1,749,196   

Investment in Trinity Bank

    $1,749,196 

(To eliminate Common Stock issued and outstanding of Trinity Bank)

    

LOGO

Walter P. Wilkerson, Jr., CPA

John O. Bowden, CPA*

Misty K. Tindol, CPA

Jackie L. Smith, CPA

Herbert A. Barr, CPA (Retired)

T. Winston Brunson, CPA (Retired)

529 Boll Weevil Circle

P.O. Box 311710

Enterprise, Alabama 36331-1710

Telephone: (334) 347-9509

Fax: (334) 393-2194

website: www.bwbcpas.com

Independent Auditor’s Report

To the Audit Committee

    and Board of Directors

Trinity Bancorp, Inc. Dothan,

Alabama

We have audited the accompanying consolidated balance sheet of Trinity Bancorp, Inc. (an Alabama Banking Corporation) and its Subsidiary as of December 31, 2017, the end of the initial accounting period of the Company, and the related notes.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this consolidated financial statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statement that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on this consolidated financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statement is free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

American Institute of Certified Public Accountants/Alabama Society of Certified Public Accountants

Florida Institute of Certified Public Accountants*/Private Companies Practice Section

The Audit Committee

and Board of Directors

Trinity Bancorp, Inc.

Page 2

Opinion

In our opinion, the consolidated balance sheet referred to above present fairly, in all material respects, the financial position of Trinity Bancorp, Inc. and its Subsidiary as of December 31, 2017, in accordance with accounting principles generally accepted in the United States of America.

Correction of Error

Note 13 to the financial statements, Stock Options and Warrants, was corrected to remove reference to 2006 options issued by Trinity Bank and to remove reference to warrants expiring without exercise. Our opinion is not modified with respect to this matter.

November 20, 2018

/s/ Brunson, Wilkerson, Bowden & Associates, P.C.

Brunson, Wilkerson, Bowden & Associates, P.C.

Enterprise, Alabama

Trinity Bancorp, Inc.

Dothan, Alabama

Consolidated Balance Sheet

December 31, 2017

ASSETS

  

Cash and Cash Equivalents

  

Cash and Due From Banks

  $9,039,464 

Interest-Bearing Deposits in Other Banks

   78,827 
  

 

 

 

Total Cash and Cash Equivalents

  $9,118,291 

Investment Securities

  

SecuritiesAvailable-for-Sale, at Fair Value

   13,420,406 

Other Securities, at Cost

   322,950 

Loans, Less Allowance for Loan Losses of $2,256,084

   119,100,333 

Bank Premises and Equipment

   2,533,570 

Foreclosed Properties

   257,874 

Accrued Interest and Other Assets

   1,172,989 

Deferred Tax Asset

   675,935 
  

 

 

 

TOTAL ASSETS

  $146,602,348 
  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

LIABILITIES

  

Deposits:

  

Interest Bearing

  $102,916,434 

Non-interest Bearing

   27,755,762 
  

 

 

 

Total Deposits

  $130,672,196 

FHLB Advances

   2,260,156 

Accrued Interest and Other Liabilities

   261,355 
  

 

 

 

Total Liabilities

  $133,193,707 
  

 

 

 

STOCKHOLDERS’ EQUITY

  

Common Stock (voting; par value $1 per share; 11,000,000 Shares Authorized; 1,744,196 Shares Issued and Outstanding)

  $1,744,196 

AdditionalPaid-In Capital

   11,623,111 

Retained Earnings/(Deficit)

   264,163 

Accumulated Other Comprehensive Income

   (186,404) 

Treasury Stock, 5,000 Shares, at Cost

   (36,425) 
  

 

 

 

Total Stockholders’ Equity

  $13,408,641 
  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $146,602,348 
  

 

 

 

See accompanying notes to financial statements.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 1—Summary of Significant Accounting Policies

Nature of Operations

Trinity Bancorp, Inc. (the “Bancorp”) and its wholly-owned subsidiary Trinity Bank (the “Bank” and together with the Bancorp, the “Company) provides a variety of financial services to individuals and corporate customers through its offices in Dothan and Enterprise, Alabama. The Bank’s primary deposit products are demand deposits, savings and certificates of deposit. Its primary lending products are commercial loans. As a state bank, the Bank is subject to regulation by the Alabama State Banking Department and the Federal Deposit Insurance Corporation.

Additionally, the Bank maintains correspondent banking relationships with regional correspondent banks. The Bank does not have any significant concentrations to any one industry or customer. Note 3 discusses the types of securities in which the Bank invests. Note 4 discusses the types of lending in which the Bank engages. The Bank does not have any significant concentrations to any one industry or customer.

The accounting and reporting policies and practices of the Company conform to accounting principles generally accepted in the United States of America. The Company’s significant accounting policies are described below.

Principles of Consolidation

The accompanying consolidated financial statement includes the accounts of the Company and the Bank.

In consolidation, all significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of this consolidated financial statement required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement. Actual results could differ from these estimates.

Investment Securities

Securities that are held principally for resale in the near term are recorded in the trading assets account at fair value.

Securities classified asheld-to-maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost and adjusted for amortization of premium and accretion of discount, computed using the interest method, over their contractual lives.

Securities classified asavailable-for-sale are equity securities with readily determinable fair values and those debt securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified asavailable-for-sale would be based on various factors, including significant movement in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. These securities are carried at estimated fair value based on information provided by a third party pricing service with any unrealized gains or losses excluded from net income and reported in accumulated other comprehensive

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 1—Summary of Significant Accounting Policies (Continued)

Investment Securities (Continued)

income (loss), which is reported as a separate component of stockholders’ equity, net of the related deferred tax effect.

Restricted stock is stock from the Federal Home Loan Bank and First National Banker’s Bank, which are restricted as to their marketability. Because no ready market exists for these investments and they have no quoted market value, the Bank’s investment in these stocks are carried at cost. Management reviews for impairment based on the ultimate recoverability of the cost basis of the stock.

Loans and Allowance for Loan Losses

The Bank grants real estate, commercial, consumer and agricultural loans to customers. A substantial portion of the loan portfolio is represented by real estate loans throughout Houston and Coffee County and surrounding areas. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity, orpay-off, generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on the loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Loans are typicallycharged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed onnon-accrual orcharged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed onnon-accrual orcharged-off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for loan losses is established as estimated losses and are charged to earnings through a provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance is based on two basic principles of accounting: (i) FASB ASC 450,Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) FASB ASC 310,Receivables, which requires that losses on impaired loans be accrued based on the differences between the loan balance and either the value of collateral, if such loans are considered to be collateral dependent and in the process of collection, or the present value of future cash flows, or the loan’s value as observable in the secondary market. A loan is considered impaired when, based on current information and events, the Bank has concerns about the ability to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant delays and payment shortfalls

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Bank’s allowance for loan losses has three basic components: the specific allowance, the formula allowance and the pooled allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. As a result of the uncertainties inherent in the estimation process, management’s estimate of loan losses and the related allowance could change in the near term.

The specific allowance component is used to individually establish an allowance for loans identified for impairment testing. When impairment is identified, a specific reserve may be established based on the Bank’s calculation of the estimated loss embedded in the individual loan. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent losses. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment.

The formula allowance component is used for estimating the loss on internally risk rated loans exclusive of those identified as impaired. The loans meeting the Company’s internal criteria for classification, such as special mention, substandard, doubtful and loss, as well as specifically identified impaired loans, are segregated from performing loans within the portfolio. These internally classified loans are then grouped by loan type. Each loan type is assigned an allowance factor based on management’s estimate of the associated risk, complexity and size of the individual loans within the particular loan category. Classified loans are assigned a higher allowance factor thannon-classified loans due to management’s concerns regarding collectability or management’s knowledge of particular elements surrounding the borrower. Allowance factors increase with the worsening of the internal risk rating.

The pooled formula component is used to estimate the losses inherent in the pools ofnon-classified loans. These loans are then also segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, results of the loan review system and the effect of external factors (i.e. competition and regulatory requirements). Current economic conditions take into account the average unemployment rates for Houston County and Coffee County, Alabama, the State of Alabama and for the nation, with the most significance given to the Houston and Coffee County data. The allowance factors assigned differ by loan type.

Allowance factors and overall size of the allowance may change from period to period based on management’s assessment of the above-described factors and the relative weights given to each factor. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Bank to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. It is the Bank’s policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs on loans are being amortized on the interest method over the term of the loan.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

Management considers loans impaired when, based on current information, it is probable that the Bank will not collect all principal or interest payments according to contractual terms. Loans are evaluated for impairment in accordance with the Bank’s portfolio monitoring and ongoing risk assessment procedures. Management considers the financial condition of the borrower, cash flow of the borrower, payment status of the loan, and the value of collateral, if any, securing the loan. Loans that experience insignificant payment delays and payment shortfalls are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The Bank’scharge-off policy states after all collection efforts have been exhausted and the loan is deemed to be a loss, it will be charged to the Bank’s established allowance for loan losses. For unsecured loans, a loan that is over 90 days past due or one in which Management deems no longer collectible will becharged-off. For secured loans, at the time that Management deems a loan no longer collectible, the Bank will take action to repossess the collateral if in the Bank’s best interest and to liquidate the collateral as soon as possible. Once the collateral is liquidated, the remaining deficiency will becharged-off. If liquidation of the collateral is expected to take an extended period of time, Management will estimate the expected loss amount and charge off that amount.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Bank has entered into commitments to extend credit, commitments under standby letters of credit, and unfunded commitments under lines of credits. Such financial instruments carriedare recorded when they are funded.

Foreclosed Properties

Foreclosed properties include properties that have been acquired in complete or partial satisfaction of a debt. These properties are initially recorded at fair value on the date of acquisition. Any write-downs at the time of acquisition are charged to the allowance for loan losses. Subsequent to acquisition, a valuation allowance is established, if necessary, to report these assets at the lower of (a) fair value minus estimated costs to sell or (b) cost.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method based on the estimated useful lives of the assets or the expected terms of the leases, if shorter.

Expenditures for improvements, which extend the life of an asset, are capitalized and depreciated over the asset’s remaining useful life.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 1—Summary of Significant Accounting Policies (Continued)

Valuation of Long-lived Assets

The Bank accounts for the valuation of long-lived assets under FASB ASC 360,Property, Plant and Equipment. This guidance requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount of fair value, less costs to sell.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. In addition, deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company does not have uncertain tax positions that are deemed material, and did not recognize any adjustments for unrecognized tax benefits. The Bank remains subject to examination for income tax returns for the years ending after December 31, 2014.

Fair Value Measurements

The Company follows the guidance of FASB ASC 825,Financial Instruments, and FASB ASC 820,Fair Value Measurement. This guidance permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Compensated Absences

Employees of the Bank are entitled to paid vacation, paid sick days and personal days off, depending on job classifications, length of service, and other factors. It is impractical to estimate the amount of compensation for future absences, accordingly, no liability has been recorded in the financial statements. The Bank’s policy is to recognize the costs of compensated absences when actually paid to employees.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 1—Summary of Significant Accounting Policies (Continued)

Subsequent Events

The Company has evaluated the accompanying financial statements for subsequent events and transactions through November 20, 2018, the date these financial statements were available for issue, based on FASB ASC 855,Subsequent Events,and has determined that no material subsequent events other than those described below have occurred that would affect the information presented in the accompanying financial statements or require additional disclosure.

After the date of the balance sheet but prior to the date of issuance of the financial statements, management became aware of an apparent fraud associated with the borrower/guarantor on one loan relationship. As a result, it became doubtful that the loan guarantees or collateral could be relied upon for repayment. Management determined that the loan should becharged-off as of December 31, 2017. The amount of thecharge-off was $1,099,523.

After the date of the balance sheet but prior to the date of issuance of the financial statement, management became aware that a borrower had been denied it’s claims under U.S. Government Disaster Program. As a result, management deemed the loan to be Substandard at December 31, 2017 and wrote the remaining collateral to zero. The full amount of the loan was specifically reserved. The amount charged to loan loss was $503,066. This loan was subsequently paid in full through third-party financing.

Note 2—Due from Accounts

The Bank maintains its cash accounts at various commercial banks in Alabama and Florida. The amounts by which cash and cash equivalents exceed Federal Deposit Insurance Corporation (FDIC) insurance coverage was approximately $7,634,580 at December 31, 2017. Management monitors these bank accounts and does not expect to incur any losses from such accounts.

Note 3—Investments

The amortized cost and fair value of securities, with gross unrealized gains and losses, were as follows:

December 31, 2017:

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

Securities Available for Sale

        

Mortgage Backed Securities

  $697,000   $111   $7,469   $689,642 

U.S. Government Securities

   3,882,016    —      34,968    3,847,048 

Certificates of Deposit

   250,000    —      —      250,000 

Municipal Securities

   8,848,499    5,332    220,115    8,633,716 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $13,677,515   $5,443   $262,552   $13,420,406 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other securities on the balance sheet are comprised of $223,200 in FHLB stock at December 31, 2017 and $99,750 in First National Banker’s Bank stock at December 31, 2017.

At December 31, 2017 securities with a carrying value of approximately $7,019,480 were pledged to secure public deposits and for other purposes required or permitted by captionlaw.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 3—Investments (Continued)

The amortized cost and fair values of debt securities by level incontractual maturity at December 31, 2017 were as follows:

December 31, 2017:

   Cost   Fair Value 

Due in one to five years

  $2,383,728   $2,366,180 

Due in over five to ten years

   4,383,473    4,321,640 

Due in over ten years

   6,910,314    6,732,586 
  

 

 

   

 

 

 

Total

  $13,677,515   $13,420,406 
  

 

 

   

 

 

 

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value hierarchy at March 31, 2015of the Bank’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

Available for sale securities that have been in a continuous unrealized loss position are as follows:

December 31, 20142017:

   Less Than 12 Months   12 Months or More   Total 
   Fair
Value		   Unrealized
Loss		   Fair
Value		   Unrealized
Loss		   Fair
Value		   Unrealized
Loss		 

U.S. Government Securities

  $2,223,172   $17,344   $1,623,876   $17,624   $3,847,048   $34,968 

Municipal Securities

   2,769,349    52,366    4,635,430    167,749    7,404,779    220,115 

Mortgage Backed Securities

   299,132    2,086    368,058    5,383    667,190    7,469 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $5,291,653   $71,796   $6,627,364   $190,756   $11,919,017   $262,552 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which a nonrecurring change inthe fair value has been recorded.less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

U.S. Government Securities

The unrealized losses on the investments in U.S. government obligations and direct obligations of U.S. government agencies were caused by interest rate increases. The contractual term of the investments does not permit the issuer to settle the security at a price less than the amortized cost basis of the investments. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Bank does not consider these investments to be other-than-temporarily impaired at December 31, 2017.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

 

   Carrying Value at March 31, 2015 
   Total   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $1,035    $—      $—      $1,035  

Other real estate owned

   225     —       —       225  
  

 

 

   

 

 

   

 

 

   

 

 

 
$1,260  $—    $—    $1,260  
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 4—Loans

The segments of loans for December 31, 2017 were as follows:

 

   Carrying Value at December 31, 2014 
   Total   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

Impaired loans

  $1,038    $—      $—      $1,038  

Other real estate owned

   712     —       —       712  
  

 

 

   

 

 

   

 

 

   

 

 

 
$1,750  $—    $—    $1,750  
  

 

 

   

 

 

   

 

 

   

 

 

 

Real Estate

  

Construction, Land Development and Other Land Loans

  $14,948,855 

Secured by1-4 Family Residential Properties

   33,378,712 

Secured by Multi-Family Residential Properties

   2,648,253 

Secured by Nonfarm, Nonresidential Properties

   32,966,992 

Farmland

   8,970,115 

Commercial and Industrial Loans

   19,944,673 

Consumer Loans

   2,364,723 

Agricultural and Other

   6,371,515 
  

 

 

 

Total Loans

  $121,593,838 

Less: Unearned Interest and Fees

   (237,421) 

Allowance for Loan Losses

   (2,256,084) 
  

 

 

 

Loans, Net

  $119,100,333 
  

 

 

 

Impaired LoansThe Bank’s goal is to mitigate risks from an unforeseen threat to the loan portfolio as a result of an economic downturn or other negative influences. Plans that aid in mitigating these potential risks in managing the loan portfolio include: enforcing loan policies and procedures, evaluating the borrower’s business plan through the loan term, identifying and monitoring primary and alternative sources of repayment, and obtaining adequate collateral to mitigate loss in the event of liquidation. Specific reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is used to estimate potential loss exposure and to provide a measuring system for setting general and specific reserve allocations.

Real Estate Loans considered impaired under ASC 310-10-35,Receivables,

Residential Real Estate loans are loans to finance family residential units that will house from one to four families. Construction and Development loans are loans for acquisition, development, and construction and are secured by the real estate involved. Construction and Development loans are short-term loans that will be made to local and experienced contractors who have a good reputation in the community and are licensed by the state in which they work. At the end of the construction project, the loan will either convert to a permanent mortgage or be repaid by the property being sold. The loans will at all times be secured by the property and the owner of the project. Other real estate loans are secured by commercial real estate, multifamily residential properties, and other nonresidential properties.

Commercial and Industrial Loans

Commercial and Industrial loans are loans to businesses (i.e., sole proprietorships, partnerships, limited liability companies, corporations andnot-for-profit and faith-based organizations) for commercial, industrial, or professional purposes. As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 4—Loans (Continued)

Consumer Loans

Consumer loans (installment and home equity) are loans to individuals for household, family, and other personal(non-business) purposes.

Agricultural and Other Loans

Agricultural and other loans are generally made to farmers for various purposes related to crops, livestock, related equipment/machinery, and other farm operations. Repayment is primarily dependent on the personal income of the borrower(s) and income from farming operations, which can be impacted by economic and other market conditions. As a general practice, the Bank takes as collateral a security interest in the underlying crops, livestock, equipment, etc. Such loans are monitored via inspections and/or evaluations, as applicable.

An analysis of the change in allowance for loan losses is as follows:

December 31, 2017:

   Real
Estate		  Commercial
and
Industrial		  Consumer  Ag. & Other  Total 

Beginning Balance

  $1,100,799  $359,825  $19,105  $74,333  $1,554,062 

Provision

   37,500   37,500   37,500   1,640,089   1,752,589 

Charge-Offs

   (36,015)   (57,524)   (49,755)   (1,099,522)   (1,242,816) 

Recoveries

   107,030   38,866   46,353   —     192,249 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending Balance

  $1,209,314  $378,667  $ 53,203  $614,900  $2,256,084 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Individually Evaluated for Impairment:

      

Recorded Investment

  $629,884  $—    $57,001  $503,066  $1,189,951 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

  $—    $—    $—    $—    $—   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Collectively Evaluated for Impairment:

      

Recorded Investment

  $89,873,280  $19,875,306  $2,117,657  $4,864,046  $116,730,289 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

  $1,209,314  $378,667  $53,203  $614,900  $2,256,084 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The Bank categorizes 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.

The Bank analyzes loans individually by classifying the loans as to credit risk. Loans classified as watch or lower are reviewed monthly by the Bank for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further,

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 4—Loans (Continued)

commercial loans are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as when a loan becomes past due, the Bank will determine the appropriate loan grade.

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Bank for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard, doubtful or evencharge-off.

Internally assigned loan grades are defined as follows:

1.

Excellent—Loans in this category are to persons or entities of unquestioned financial strength, highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the bank expects performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by certificates of deposit and savings accounts with appropriate holds placed on accounts are to be rated as “1”.

2.

Above Average—These are loans to persons or entities with strong financial condition and above average liquidity that have previously satisfactorily handled their obligations with the bank. Collateral securing the bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements on which repayment is satisfactory may be included in this category.

3.

Average—Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this category. Overall these loans are basically sound.

4.

Marginal—These loans bear the same characteristics of an Average (class 3) grade in that they are to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service the debt and net worth comprised mainly of fixed assets. Overall these loans are basically sound. However, these loans may possess characteristics considered a higher degree of risk. These characteristics may include the loan being of a speculative nature in that the repayment source is dependent upon cash flow derived from future sales of collateral or term financing from a third party source. These loans may also have a higherloan-to-value due to a deterioration of collateral value or higherdebt-to-income as a result of deterioration inover-all financial condition of borrower.

5.

Watch—Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the bank, but in recent months has either been late, delinquent in making payments or made sporadic payments. While the bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weak financial statement and repayment ability, but the collateral appears to limit exposure. This class includes loans

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 4—Loans (Continued)

to established borrowers that are reasonably well margined by collateral, but where potential for improvement in financial capacity appears limited.

6.

Substandard—These loans are inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of this category does not have to exist in the individual asset.

7.

Doubtful—A loan classified as doubtful has all the weaknesses inherent in the substandard loan with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collection in full in a reasonable period of time; if in fact, there is permanent impairment in the collateral securing the loan. These loans are in a workout status and have a defined workout strategy.

8.

Loss—Loan is no longer bankable.

The table below illustrates the carrying amount of loans by credit quality indicator as of December 31, 2017:

   Pass
1-4		   Watch
5		   Substandard
6		   Doubtful
7		   Loss
8		   Total 

Real Estate Construction, Land Development and Other Land

  $14,636,936   $311,919   $—     $—     $—     $14,948,855 

Secured by1-4 Family Residential Properties

   32,238,832    1,085,349    54,531    —      —      33,378,712 

Secured by Multi-Family Residential Properties

   2,349,623    298,630    —      —      —      2,648,253 

Secured by Nonfarm, Nonresidential Properties

   30,295,653    661,861    2,009,478    —      —      32,966,992 

Farmland

   8,544,370    425,745    —      —      —      8,970,115 

Commercial and Industrial

   19,706,568    152,371    85,734    —      —      19,944,673 

Consumer

   2,224,283    75,564    64,876    —      —      2,364,723 

Agricultural and Other

   5,512,201    328,241    531,073    —      —      6,371,515 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $115,508,466   $3,339,680   $2,745,692   $—     $—     $121,593,838 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2017 there were no loans with credit quality of 7 or 8.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 4—Loans (Continued)

Age analysis of past due loans are as follows:

December 31, 2017:

   Accruing Loans         
   30-89
Days		   90+
Days		   Total Past
Due		   Current   Nonaccrual   Total
Loans		 

Real Estate Construction, Land Development and Other Land

  $—     $—     $—     $14,948,855   $—     $14,948,855 

Secured by1-4 Family Residential Properties

   —      —      —      33,351,857    26,855    33,378,712 

Secured by Multi-Family Residential Properties

   —      —      —      2,648,253    —      2,648,253 

Secured by Nonfarm, Nonresidential Properties

   290,283    —      290,283    32,074,500    602,209    32,966,992 

Farmland

   —      —      —      8,970,115    —      8,970,115 

Commercial and Industrial

   11,610    —      11,610    19,933,063    —      19,944,673 

Consumer

   20,108    —      20,108    2,344,615    —      2,364,723 

Agricultural and Other

   71,416    —      71,416    6,300,099    —      6,371,515 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $393,417   $—     $393,417   $120,571,357   $629,064   $121,593,838 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following is a summary of information pertaining to impaired loans:

December 31, 2017:

   With no Related
Allowance Recorded		   With an Allowance Recorded 
   Recorded
Investment		   Unpaid
Contractual
Principal
Balance		   Recorded
Investment		   Unpaid
Contractual
Principal
Balance		   Related
Allowance		 

Real Estate:

          

Construction, Land Development and Other Land

  $—     $—     $—     $—     $—   

Secured by1-4 Family Residential Properties

   —      —      27,675    27,675    4,275 

Secured by Nonfarm, Nonresidential Properties

   —      —      602,209    602,209    102,209 

Farmland

   —      —      —      —      —   

Commercial and Industrial

   —      —      —      —      —   

Consumer

   —      —      57,000    57,000    23,458 

Agricultural and Other

   —      —      503,066    503,066    503,066 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $—     $—     $1,189,950   $1,189,950   $633,008 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A loan is considered impaired, in accordance with the impairment accounting guidance (FASBASC 310-10-35-16), when based on current information and events, it is probable that the CompanyBank will be unable to collect all principal and interest paymentsamounts due from the borrower in accordance with the contractual terms of the loan.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 4—Loans (Continued)

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows:

December 31, 2017:

  Average
Recorded
Investment		  Interest
Income
Recognized		  Interest
Income
Received		 

Real Estate:

   

Construction, Land Development and Other Land

 $—    $—    $—   

Secured by1-4 Family

  27,675   1,578   1,870 

Secured by Nonfarm, Nonresidential Properties

  602,209   29,259   29,126 

Commercial and Industrial

  —     —     —   

Consumer

  9,500   3,664   3,940 

Agricultural and Other

  503,066   30,016   —   
 

 

 

  

 

 

  

 

 

 

Total

 $1,142,450  $64,517  $34,936 
 

 

 

  

 

 

  

 

 

 

Information on Troubled Debt Restructurings (TDR’s) for the year ended December 31, 2017 is as follows:

   Number
of
Contracts		   Pre-Modification
Outstanding
Recorded
Investment		   Post-Modification
Outstanding
Recorded
Investment		 

Commercial and Industrial

   —     $—     $—   

Commercial Real Estate

   1    602,209    602,209 

Residential Real Estate

   —      —      —   
  

 

 

   

 

 

   

 

 

 
   1   $602,209   $602,209 
  

 

 

   

 

 

   

 

 

 

The troubled debt restructured loan shown above were modified during 2017 with the following terms. A loan in the amount of $602,026 was converted to interest only payments for three months. This same loan later was modified to reduce the interest rate from 5.375% to 4.5%.

There were no loans as of December 31, 2017 that had been modified as troubled debt restructurings during 2017 and then subsequentlyre-defaulted in 2017.

At December 31, 2017 there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a troubled debt restructuring.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 5—Bank Premises and Equipment

A summary of the cost and accumulated depreciation of bank premises and equipment as of December 31, 2017 is as follows:

Land

  $787,891 

Construction in Progress

   5,375 

Buildings and Improvements

   1,999,422 

Equipment, Furniture and Fixtures

   869,220 

Autos

   72,212 
  

 

 

 
  $3,734,120 

Accumulated Depreciation

   (1,200,550) 
  

 

 

 

Total Bank Premises and Equipment, Net

  $2,533,570 
  

 

 

 

Note 6—Deposits

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2017 was $36,342,192 and are included in interest-bearing deposits in the balance sheet. Certificates of deposit and other time deposits issued in denominations that meet or exceed the FDIC insurance limit of $250,000 or more at December 31, 2017 totaled $15,317,091.

The scheduled maturities of time deposits as of December 31, 2017 are as follows:

Within One Year

  $21,998,963 

Over One Year Through Three Years

   17,809,827 

After Three Years Through Five Years

   10,154,373 
  

 

 

 

Total

  $49,963,163 
  

 

 

 

Note 7—Borrowings

During 2017, the Bank had no sales of securities under agreements to repurchase the same securities.

Long-term debt as of December 31, 2017 consisted of the following:

FHLB borrowings; variable interest rate, currently
at the rate of 2.31% – 2.78%; collateralized by a
blanket lien on the Bank’s 1 to 4 family residential
mortgage loans totaling $4,555,190, as of December 31, 2017.

  $2,260,156 

The Bank has established credit availability in the amount of 25% of the Bank’s total assets with the FHLB of Atlanta. As of December 31, 2017, the Bank would be able to access an additional $35,258,593 of FHLB credit products based on the Bank’s current financial and operational conditions and the pledging of sufficient collateral. As of December 31, 2017, the Bank had $2,260,156 in outstanding advances.

At December 31, 2017 the Bank also had three unsecured federal fund lines of credit with other financial institutions enabling the Bank to borrow up to $7,500,000, with interest determined at the time of draw. The

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 7—Borrowings (Continued)

arrangements are reviewed annually for renewal of each credit line. As of December 31, 2017, the Bank had no outstanding advances.

Note 8—Income Taxes

The components of deferred income tax assets included in other assets and deferred income tax liabilities included in accrued expenses and other liabilities as of December 31, 2017 are as follows:

Deferred Tax Assets

  

Net Operating Loss Carry Forward

  $—   

Provision for Loan Losses

   537,873 

Organization Costs

   55,723 

Write-Down of Foreclosed Assets

   —   

Deferred Loan Fees

   40,135 

Nonaccrual Interest

   967 

Unrealized Loss on Securities Available for Sale

   70,705 
  

 

 

 
  $705,403 
  

 

 

 

Deferred Tax Liabilities

  

Depreciation

   (29,468) 

Unrealized Gain on Securities Available for Sale

   —   
  

 

 

 

Net Deferred Tax Asset before Valuation Allowance

  $675,935 

Valuation Allowance

   ( —  ) 
  

 

 

 

Net Deferred Tax Asset

  $675,935 
  

 

 

 

The Bank files income tax returns in the United States federal jurisdiction and Alabama. With few exceptions, the Bank is no longer subject to United States federal, state and local income tax examinations by tax authorities for years before 2014. As of December 31, 2017, the Bank had no uncertain tax positions, or interest and penalties, that qualify for either recognition or disclosure in the financial statements.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S Corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the corporate alternative minimum tax, restricting deductions for meals and entertainment and allowing expensing of certain capital expenditures. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the company recorded a tax benefit of $241,705 due to the remeasurement of deferred tax assets and liabilities. We continue to examine the impact this tax legislation may have on the Bank.

On February 14, 2018, FASB issued ASU2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard provides entities an option to reclassify certain “stranded tax effects” resulting from the recent U.S. Tax reform from accumulated other comprehensive income to retained earnings. The standard is effective for all entites in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Under ASC 740, the enactment of the Tax Cuts and

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 8—Income Taxes (Continued)

Jobs Act on December 22, 2017 requires an entity to remeasure all U.S. deferred income taxes using the new 21% tax rate as opposed to the previous corporate income tax rate of 35%. The cumulative deferred income tax adjustment is recognized as a component of income tax expense from continuing operations. However, deferred income taxes originally recognized through other comprehensive income were initially measured at the previous income tax rate of 35%. Therefore, recognizing the cumulative tax rate adjustment through income tax expense would result in a disproportionate tax balance remaining in accumulated other comprehensive income (AOCI) (i.e., “stranded tax effect”) that would be recycled to earning in future periods. The Bank has elected to early implement ASU2018-02 and has made the election to reclassify the income tax effects resulting from the Tax Reform Act from AOCI to retained earnings. The amount of this reclassification is $33,424 and is a result of remeasurement of deferred taxes on the Bank’s unrealized gains/losses on available for sale securities. This reclassification occurred on a portfolio basis.

Note9—Off-Balance Sheet Activities

The Bank is a party to credit related financial instruments withoff-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other parties to the financial instrument for these commitments is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does foron-balance sheet instruments.

The following financial instruments were outstanding as of December 31, 2017 whose contract amounts represent credit risk:

Commitments to Extend Credit

  $854,150 

Unfunded Commitments Under Lines of Credit

  $13,591,055 

Standby Letters of Credit

  $405,000 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments are expected to expire without being drawn upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on acase-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; accounts receivable; inventory; property and equipment; personal residences; income-producing commercial properties and land under development. Personal guarantees are also obtained to provide added security for certain commitments.

Unfunded commitments under commerciallines-of-credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. Theselines-of-credit are uncollateralized and usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Bank is committed.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note9—Off-Balance Sheet Activities (Continued)

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other security is deemed necessary.

Note 10—Legal Contingencies

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Bank’s financial statements.

Note 11—Shareholder’s Equity

Restrictions on Dividends

The amount of dividends that the Bank can pay to the Bancorp without approval from the State Banking Superintendent is limited to its net earnings for the current year plus its retained net earnings for the proceeding two years, less any required transfers to surplus. The Bank paid approximately $150,000 in dividends to the Bancorp in 2017.

The Federal Reserve Board has established guidelines with respect to the maintenance of appropriate levels of capital by registered bank holding companies. Compliance with such standards, as presently in effect, or as they may be amended from time to time, could possibly limit the amount of dividends that the Company may pay in the future. In 1985, the Federal Reserve Board issued a policy statement on the payment of cash dividends by bank holding companies. In the statement, the Federal Reserve Board expressed its view that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income, or which could only be funded in ways that weaken the holding company’s financial health, such as by borrowing.

Restrictions on Lending from Subsidiary to Parent

Federal law imposes certain restrictions limiting the ability of the Bank to transfer funds to Bancorp in the forms of loans or advances. Section 23A of the Federal Reserve Act prohibits the Bank from making loans or advances to Bancorp in excess of 10 percent of its capital stock and surplus, as defined therein. There were no loans or advances outstanding at December 31, 2017.

Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certainoff-balance sheet items as calculated under regulatory reporting requirements. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 11—Shareholder’s Equity (Continued)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of common equity, total, tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2017, that the Bank meets all the capital adequacy requirements to which it is subject.

The most recent notification from the Alabama State Banking Department categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum common equity risk-based, Tier 1 risk-based, and tier 1 leverage ratios as set forth in the table. There are no conditions or events since the most recent notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of December 31, 2017, are also present in the following table.

   Actual  Capital Requirement  Minimum to Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   (Dollars in Thousands)  (Dollars in Thousands)  (Dollars in Thousands) 
     Amount       Ratio    Amount   Ratio  Amount   Ratio 

December 31, 2017:

          

Total Capital to Risk Weighted Assets

  $14,929    13.64%  $8,758    8.0%  $10,947    10.0% 

Tier 1 Capital to Risk Weighted Assets

  $13,550    12.38%  $6,568    6.0%  $8,758    8.0% 

Common Equity Tier 1 Capital

  $13,550    12.38%  $4,926    4.5%  $7,116    6.5% 

Leverage Capital to Average Total Assets

  $13,550    8.89%  $6,096    4.0%  $7,620    5.0% 

Note 12—Employee Benefit Plans

Beginning in 2013, the Bank maintains a 401(K) plan covering employees meeting certain eligibility requirements. The Bank’s 401(K) plan was updated on January 1, 2015 to a Safe Harbor Match 401(K) Plan. Employees may make voluntary contributions to the Plan through payroll deductions on apre-tax basis. The Bank automatically matches up to 4% of employee contributions each payroll.

Note 13—Stock Options and Warrants

In 2012, the Bank issued 99,051 warrants to investors in connection with a stock offering. The warrants entitle the investor to purchase voting common stock, par value of $1, at a price of $4.50 per share if exercised on or before the date that is five years following the date of the warrant, and $5.25 per share, if exercised after the date that is five years from the date of the warrant and before the date that is ten years following the date of the warrant. During 2017, 94,355 of these warrants were exercised. Outstanding warrants of 4,697 were transferred to the Bancorp.

Note 14—Related Party Transactions

In the normal course of banking business, loans are made to officers and directors of the Company, as well as to their affiliates. Such loans are made in the ordinary course of business with substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 14—Related Party Transactions (Continued)

persons. They do not involve more than normal risk of collectability or present other unfavorable features. Annual activity for the year ended December 31, 2017 consisted of the following:

Beginning Balance

  $4,338,492 

New Loans

   1,283,648 

Repayments

   (607,734) 
  

 

 

 

Ending Balance

  $5,014,406 
  

 

 

 

Deposits from related parties held by the Bank totaled $8,227,306 at December 31, 2017.

Note 15—Fair Value Measurements

FASB ASC 825,Financial Instruments,permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Bank commitment. Subsequent changes must be recorded in earnings.

FASB ASC 820,Fair Value Measurement,clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this guidance are described below.

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following describes valuation methodologies used for assets measured at fair value:

Securities Available for Sale—Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 15—Fair Value Measurements (Continued)

government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 include certain residual interests in securitizations and other less liquid securities.

Impaired Loans—Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Bank’s management related to values of properties in the Bank’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans are classified as Level 3.

Foreclosed Assets—Estimates of fair values are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Bank’s senior lending officers related to values of properties in the Bank’s market areas. These officers take into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, the fair value estimates for foreclosed real estate are classified as Level 3.

Assets measured at fair value on a recurring basis are summarized below:

   Fair Value Measurements at Reporting Date Using 
   Total   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2017:

        

Securities Available for Sale

        

Mortgage Backed Securities

  $689,642   $—     $689,642   $—   

U.S. Government Securities

   3,847,048    —      3,847,048    —   

Certificates of Deposit

   250,000    —      250,000    —   

Municipal Securities

   8,633,716    —      8,633,716    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $13,420,406   $—     $13,420,406   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

No securities were transferred in or out of Level 1, Level 2 or Level 3 during 2017.

The Bank has nonon-financial assets ornon-financial liabilities measured at fair value on a recurring basis.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 15—Fair Value Measurements (Continued)

Assets measured at fair value on a nonrecurring basis are summarized below:

   Fair Value Measurements at Reporting Date Using 
   Fair Value   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2017:

        

Impaired Loans

  $1,189,951   $—     $—     $1,189,951 

Foreclosed Assets

   257,874    —      —      257,874 

Impaired loans include those loans for which the collateral value is less than the carrying amount resulting in a write down to fair value. Loan impairment is reported when full payment under the loan terms is not expected. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. When an impaired loan is determined to be collateral dependent, the fair value is determined through the utilization of a third-party appraisal, estimate of market value by licensed appraisers or local real estate brokers. The types of collateral influence the frequency of obtaining updated appraisals. Based on experience, current appraisals are discounted 10% – 12% for estimated costs associated with foreclosures and costs to sell. If a loan is evaluated for impairment and the appraisal is outdated, a new appraisal is ordered. After the new appraisal is obtained, the analysis is updated to reflect the new valuation. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan is confirmed.

During 2017, certain foreclosed assets, upon initial recognition, werere-measured and reported at fair value through acharge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. Foreclosed assets measured at fair value upon initial recognition totaled $433,593 (utilizing Level 3 valuation inputs) for the year ended December 31, 2017 In connection with the measurement and initial recognition of the foregoing foreclosed assets, the Bank has recognized charge-offs of the allowance for possible loan losses totaling approximately $0 for the year ended December 31, 2017. Foreclosed assets totaling $421,903 for the year ended December 31, 2017 were notre-measured at fair value. Foreclosed assets totaling $363,801 for the year ended December 31, 2017 werere-measured at fair value, resulting in impairment losses of $3,344 for the year ended December 31, 2017.

The following table presents detailed information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2017. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input utilized at December 31, 2017, is included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 15—Fair Value Measurements (Continued)

Nonrecurring fair value measurements are summarized below:

   Fair Value
12/31/17		   Valuation
Technique		   Unobservable
Input		   Quantitative
Range of
Unobservable
Input

Impaired Loans

  $1,189,951    (1)    (2)   10%-12%

Foreclosed Loans

  $257,874    (3)    (4)   6%-10%

(1)

Multiple data points, including discount to appraised value of collateral based on recent market activity.

(2)

Appraisal compatibility adjustment (discount).

(3)

Discount to appraised value of property or net present value of future cash flows based on recent market activity for sales of similar properties.

(4)

Appraisal compatibility adjustment (discount).

Non-recurring fair value measurements using significant unobservable inputs:

Impaired Loans—Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point fornon-performing loans is the appraisal value of the underlying collateral to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.

Foreclosed Assets—Foreclosed property and other real estate under contract for sale are valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.

Note 16—Fair Value of Financial Instruments

In accordance with the disclosure requirement of FASB ASC 825,Financial Instruments,the estimated fair values of the Bank’s financial instruments are as follows:

           Fair Value Measurements 
   Carrying
Amount		   Fair Value   Quoted
Prices
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2017:

          

FINANCIAL ASSETS

          

Cash and Cash Equivalents

  $9,118,291   $9,118,291   $9,118,291   $—     $—   

Investment Securities

          

Available for Sale

   13,420,406    13,420,406    —      13,420,406    —   

Restricted Stock

   322,950    322,950    —      322,950    —   

Net Loans

   119,100,333    119,100,333    —      —      119,100,333 

FINANCIAL LIABILITIES

          

Deposits

  $130,672,196   $130,672,196   $—     $—     $130,672,196 

FHLB Advances

   2,260,156    2,260,156    —      —      2,260,156 

Trinity Bancorp, Inc.

Dothan, Alabama

Notes to Consolidated Financial Statement

December 31, 2017

Note 16—Fair Value of Financial Instruments (Continued)

The following methods and assumptions were used to estimate the fair value disclosures for financial instruments as of December 31, 2017:

Cash and Cash Equivalents—The fair value of cash and cash equivalents is estimated to approximate the carrying amounts.

Investment securities and restricted stock—Fair values are based on quoted market prices, except for certain restricted stocks where fair value equals par value because of certain redemption restrictions.

Loans—The fair value of loans is estimated to approximate the carrying amounts.

Deposits—The fair value of deposits is estimated to approximate the carrying amounts.

FHLB Advances—The fair value of FHLB advances is estimated to approximate the carrying amounts.

Note 17—Formation of Trinity Bancorp, Inc. and Share Exchange with Trinity Bank

During 2017, the Board of Directors of Trinity Bank approved the formation of aone-bank holding company, Trinity Bancorp, Inc. On May 24, 2017, Trinity Bancorp, Inc. was formed. The Company’s and the Bank’s respective Board of Directors approved a Reorganization Agreement and Share Exchange dated June 28, 2017 whereby 100% of the common stock of Trinity Bank would then be owned by Trinity Bancorp, Inc., and the Stockholders of Trinity Bank became Stockholders of Trinity Bancorp, Inc. The Articles of Share Exchange were effective August 15, 2017.

Note 18—Condensed Parent Company Information

Balance sheet at December 31, 2017:

ASSETS

Cash and Due from Banks

  $20,471 

Investment in Subsidiary (Equity Method)—Eliminated Upon Consolidation

   13,364,897 

Deferred Tax Asset

   23,273 
  

 

 

 

TOTAL ASSETS

  $13,408,641 
  

 

 

 

LIABILITIES AND STOCKHOLDER EQUITY

TOTAL LIABILITIES

  $—   

TOTAL STOCKHOLDERS EQUITY

   13,408,641 
  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

  $13,408,641 
  

 

 

 

LOGO

Walter P. Wilkerson, Jr., CPA

John O. Bowden, CPA*

Misty K. Tindol, CPA

Jackie L. Smith, CPA

Herbert A. Barr, CPA (Retired)

T. Winston Brunson, CPA (Retired)

529 Boll Weevil Circle

P.O. Box 311710

Enterprise, Alabama 36331-1710

Telephone: (334)347-9509

Fax: (334)393-2194

website: www.bwbcpas.com

Independent Auditor’s Report

To the Audit Committee

    and Board of Directors

Trinity Bank Dothan,

Alabama

We have audited the accompanying financial statements of Trinity Bank (an Alabama Banking Corporation), which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

American Institute of Certified Public Accountants / Alabama Society of Certified Public Accountants Florida Institute of Certified Public

Accountants*/Private Companies Practice Section

The Audit Committee

and Board of Directors

Trinity Bank

Page2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trinity Bank as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 8 to the financial statements, during the year ended December 31, 2017 the bank was required to recognize the impact of the Tax Cut and Jobs Act which resulted in remeasurement of deferred tax assets and liabilities. In addition, also as discussed in Note 8, the Bank has elected to early implement ASU2018-02,Reclassification of Certain Tax Effects from Accumulated Comprehensive Income.This resulted in the reclassification of certain “stranded tax effects” resulting from the Tax Cut and Jobs Act from accumulated other comprehensive income to retained earnings. Our opinion is not modified with respect to this matter.

Correction of Error

The fourth sentence of paragraph four of Note 8 to the financial statements, Income Taxes, was corrected to replace the word “benefit” with the word “provision”. Our opinion is not modified with respect to this matter.

June 15, 2018/s/ Brunson, Wilkerson, Bowden & Associates, P.C.

Brunson, Wilkerson, Bowden & Associates, P.C.

Enterprise, Alabama

Trinity Bank

Dothan, Alabama

Balance Sheets

   December 31, 
   2017  2016 

ASSETS

   

Cash and Cash Equivalents

   

Cash and Due From Banks

  $9,018,993  $6,944,962 

Interest-Bearing Deposits in Other Banks

   78,827   25,125 
  

 

 

  

 

 

 

Total Cash and Cash Equivalents

  $9,097,820  $6,970,087 

Investment Securities

   

SecuritiesAvailable-for-Sale, at Fair Value

   13,420,406   14,071,058 

Other Securities, at Cost

   322,950   258,450 

Loans, Less Allowance for Loan Losses of $2,256,084 and $1,554,062, Respectively

   119,100,333   110,776,286 

Bank Premises and Equipment

   2,533,570   2,494,431 

Foreclosed Properties

   257,874   785,705 

Accrued Interest and Other Assets

   1,172,989   728,260 

Deferred Tax Asset

   652,662   776,952 
  

 

 

  

 

 

 

TOTAL ASSETS

  $146,558,604  $136,861,229 
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

LIABILITIES

   

Deposits:

   

Interest Bearing

  $102,916,434  $100,418,554 

Non-interest Bearing

   27,755,762   22,229,088 
  

 

 

  

 

 

 

Total Deposits

  $130,672,196  $122,647,642 

FHLB Advances

   2,260,156   1,124,511 

Accrued Interest and Other Liabilities

   261,355   372,782 
  

 

 

  

 

 

 

Total Liabilities

  $133,193,707  $124,144,935 
  

 

 

  

 

 

 

STOCKHOLDERS’ EQUITY

   

Common Stock (voting; par value $1 per share; 10,000,000 Shares Authorized; 1,749,196 and 1,654,841 Shares Issued and Outstanding at December 31, 2017 and 2016, respectively)

  $1,749,196  $1,654,841 

AdditionalPaid-In Capital

   11,623,111   11,292,868 

Retained Earnings/(Deficit)

   178,994   29,842 

Accumulated Other Comprehensive Income

   (186,404)   (261,257) 
  

 

 

  

 

 

 

Total Stockholders’ Equity

  $13,364,897  $12,716,294 
  

 

 

  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $146,558,604   $136,861,229 
  

 

 

  

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Statements of Income

   For the Years Ended
December 31,		 
   2017   2016 

INTEREST INCOME

    

Interest and Fees on Loans

  $6,384,833   $5,949,308 

Interest on Investment Securities:

    

Obligations of Other U.S. Government Agencies and Corporations

   115,580    139,040 

Obligations of States and Political Subdivisions

   160,466    88,508 

Other Securities

   9,687    6,774 

Other Interest Income

   82,664    63,703 
  

 

 

   

 

 

 

Total Interest Income

  $6,753,230   $6,247,333 
  

 

 

   

 

 

 

INTEREST EXPENSE

    

Interest on Deposits:

    

Demand

  $35,578   $31,119 

Savings

   275,324    260,470 

Time, $100,000 and Over

   488,768    472,198 

Other Time

   185,025    200,356 

Interest on FHLB Advances

   43,921    7,584 
  

 

 

   

 

 

 

Total Interest Expense

  $1,028,616   $971,727 
  

 

 

   

 

 

 

NET INTEREST INCOME

  $5,724,614   $5,275,606 

PROVISION FOR LOAN LOSSES

   1,752,589    175,000 
  

 

 

   

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

  $3,972,025   $5,100,606 
  

 

 

   

 

 

 

NONINTEREST INCOME

    

Service Fees

  $289,708   $291,011 

Investment Gains

   747    1,297 

Gain on Sale of Foreclosed Assets

   82,639    18,265 

Other Operating Income

   59,827    216,740 
  

 

 

   

 

 

 

Total Noninterest Income

  $432,921   $527,313 
  

 

 

   

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Statements of Income

   For the Years Ended
December 31,		 
   2017   2016 

NONINTEREST EXPENSE

    

Salaries and Employee Benefits

  $2,007,217   $1,847,260 

Occupancy and Equipment Expenses

   779,817    725,481 

Supervisory Assessments

   105,000    106,442 

Professional Fees

   127,408    170,516 

Supplies and Printing

   20,570    20,635 

Loss on Other Real Estate Owned

   —      34,577 

Foreclosed Assets

   61,694    40,082 

Other Operating Expenses

   560,762    494,411 
  

 

 

   

 

 

 

Total Noninterest Expense

  $3,662,468   $3,439,404 
  

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

  $742,478   $2,188,515 

PROVISION FOR INCOME TAXES

   476,750    794,394 
  

 

 

   

 

 

 

NET INCOME

  $265,728   $1,394,121 
  

 

 

   

 

 

 

EARNINGS PER SHARE

  $0.15   $0.84 
  

 

 

   

 

 

 

DILUTED EARNINGS PER SHARE

  $0.15   $0.71 
  

 

 

   

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Statements of Comprehensive Income

   For the Years Ended
December 31,		 
   2017  2016 

NET INCOME

  $265,728  $1,394,121 
  

 

 

  

 

 

 

Other Comprehensive Income (Loss):

   

Changes in Net Unrealized Gains on Securities

   

Available for Sale, Net Income Taxes of $159,727 and $182,763, respectively

  $108,722  $(268,504) 

Reclassification Adjustments for Gains Realized, Net Income Taxes of $302 and $525, respectively

   (445)   (772) 
  

 

 

  

 

 

 

Other Comprehensive Income (Loss)

  $108,277  $(269,276) 
  

 

 

  

 

 

 

TOTAL COMPREHENSIVE INCOME

  $374,005  $1,124,845 
  

 

 

  

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Statements of Stockholders’ Equity

  Common
Stock		  Additional
Paid-In
Capital		  Retained
Earnings/
(Deficit)		  Accumulated
Other
Comprehensive
Income		  Total
Stockholders’
Equity		 

BALANCES, DECEMBER 31, 2015

 $1,654,841  $11,292,868  $(1,364,279)  $8,019  $11,591,449 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME

     

Net Income

 $—    $—    $1,394,121  $—    $1,394,121 

Other Comprehensive Income, Net of Tax:

     

Change in Unrealized Gain (Loss) on SecuritiesAvailable-for-Sale, Net of Deferred Income Tax

  —     —     —     (269,276)   (269,276) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Comprehensive Income (Loss)

 $—    $—    $1,394,121  $(269,276)  $1,124,845 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

BALANCES, DECEMBER 31, 2016

 $1,654,841  $11,292,868  $29,842  $(261,257)  $12,716,294 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME

     

Net Income

 $—    $—    $265,728  $—    $265,728 

Other Comprehensive Income, Net of Tax:

     

Change in Unrealized Gain (Loss) on SecuritiesAvailable-for-Sale, Net of Deferred Income Tax

  —     —     —     108,277   108,277 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Comprehensive Income (Loss)

 $—    $—    $265,728  $108,277  $374,005 

Reclassification Adjustment—Legislative Rate Change

  —     —     33,424   (33,424)   —   

Shares issued under stock option transactions

  94,355   330,243   —     —     424,598 

Cash Dividends

  —     —     (150,000)   —     (150,000) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

BALANCES, DECEMBER 31, 2017

 $1,749,196  $11,623,111  $178,994  $(186,404)  $13,364,897 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Statements of Cash Flows

   For the Years Ended December 31, 
   2017  2016 

CASH FLOWS FROM OPERATING ACTIVITIES

   

Net Income

  $265,728  $1,394,121 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

   

Provision for Loan Losses

   1,752,589   175,000 

Deferred Income Taxes (Benefits)

   50,589   190,462 

Depreciation

   180,501   172,784 

Investment Gains

   (747)   (1,297) 

(Gain) Loss on Sale of Foreclosed Assets

   (82,639)   (18,265) 

Loss on Sale of Assets

   1,392   790 

Net Amortization of Securities

   105,478   48,364 

Writedown of Foreclosed Assets

   3,344   34,577 

Change in Operating Assets and Liabilities:

   

Accrued Interest and Other Assets

   (444,729)   (116,878) 

Accrued Interest and Other Liabilities

   (111,427)   210,410 
  

 

 

  

 

 

 

Net Cash Provided By Operating Activities

  $1,720,079  $2,090,068 
  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

   

Purchases of Investment SecuritiesAvailable-for-Sale

  $(1,219,123)  $(9,283,756) 

Proceeds from Maturities, Prepayments and Calls of Investment SecuritiesAvailable-for-Sale

   1,947,022   3,542,115 

Purchases of Other Securities

   (64,500)   (52,100) 

Net Increase in Loans

   (10,510,229)   (10,642,615) 

Purchases of Bank Premises and Equipment

   ( 221,032)   (320,521) 

Proceeds from Sale of Foreclosed Assets

   1,040,719   566,197 
  

 

 

  

 

 

 

Net Cash Used By Investing Activities

  $(9,027,143)  $(16,190,680) 
  

 

 

  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

   

Net Increase in Deposits

  $8,024,554  $11,880,183 

Proceeds from Sale of Common Stock

   424,598   —   

Dividends Paid on Common Stock

   (150,000)   —   

Net Increase in FHLB Advances

   1,135,645   783,159 
  

 

 

  

 

 

 

Net Cash Provided By Financing Activities

  $9,434,797  $12,663,342 
  

 

 

  

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

  $2,127,733  $(1,437,270) 

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

   6,970,087   8,407,357 
  

 

 

  

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

  $9,097,820  $6,970,087 
  

 

 

  

 

 

 

RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET

   

Cash and Due from Banks

  $9,018,993  $6,944,962 

Interest-Bearing Deposits in Other Banks

   78,827   25,125 
  

 

 

  

 

 

 

TOTAL CASH AND CASH EQUIVALENTS, END OF YEAR

  $9,097,820  $6,970,087 
  

 

 

  

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Statements of Cash Flows

   For the Years Ended
December 31,		 
   2017   2016 

Supplemental Cash Flow Information:

 

  

Interest Paid

  $1,019,503   $968,547 
  

 

 

   

 

 

 

Taxes Paid

  $759,262   $615,507 
  

 

 

   

 

 

 

Schedule of Noncash Investing and Financing Activities:

    

Loan Charge-Offs

  $1,210,818   $55,708 
  

 

 

   

 

 

 

Foreclosure of Assets

  $433,593   $29,000 
  

 

 

   

 

 

 

See accompanying notes to financial statements.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies

Nature of Operations

Trinity Bank provides a variety of financial services to individuals and corporate customers through its offices in Dothan and Enterprise, Alabama. The Bank’s primary deposit products are demand deposits, savings and certificates of deposit. Its primary lending products are commercial loans. As a state bank, the Bank is subject to regulation by the Alabama State Banking Department and the Federal Deposit Insurance Corporation.

Additionally, the Bank maintains correspondent banking relationships with regional correspondent banks. The Bank does not have any significant concentrations to any one industry or customer. Note 3 discusses the types of securities in which the Bank invests. Note 4 discusses the types of lending in which the Bank engages. The Bank does not have any significant concentrations to any one industry or customer.

The accounting and reporting policies and practices of the Bank conform with accounting principles generally accepted in the United States of America. The Bank’s significant accounting policies are described below.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses onavailable-for-sale securities, are reported as a separate component of the stockholders’ equity section of the balance sheets. Such items, along with net income, are components of comprehensive income.

Presentation of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing) and interest-bearing deposits in banks with an original maturity of 90 days or less, and federal funds sold. Generally, federal funds are sold forone-day periods.

Investment Securities

Securities that are held principally for resale in the near term are recorded in the trading assets account at fair value with changes in fair value recorded in earnings.

Securities classified asheld-to-maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost and adjusted for amortization of premium and accretion of discount, computed using the interest method, over their contractual lives.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies (Continued)

Investment Securities (Continued)

Securities classified asavailable-for-sale are equity securities with readily determinable fair values and those debt securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified asavailable-for-sale would be based on various factors, including significant movement in interest rates, changes in the maturity mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. These securities are carried at estimated fair value based on information provided by a third party pricing service with any unrealized gains or losses excluded from net income and reported in accumulated other comprehensive income (loss), which is reported as a separate component of stockholders’ equity, net of the related deferred tax effect.

Dividend and interest income, including amortization of premium and accretion of discount arising at acquisition, from all categories of investment securities are included in interest income in the statements of income.

Gains and losses realized on sales of investment securities, determined using the adjusted cost basis of the specific securities sold, are included in noninterest income in the statements of income. Additionally, declines in the estimated fair value of individual investment securities below their cost that are other-than-temporary are reflected as realized losses in the statements of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near term prospects of the issuer, (iii) that the Bank does not intend to sell these securities, and (iv) it is more likely than not that the Bank will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value.

Restricted stock is stock from the Federal Home Loan Bank and First National Banker’s Bank, which are restricted as to their marketability. Because no ready market exists for these investments and they have no quoted market value, the Bank’s investment in these stocks are carried at cost. Management reviews for impairment based on the ultimate recoverability of the cost basis of the stock.

Loans and Allowance for Loan Losses

The Bank grants real estate, commercial, consumer and agricultural loans to customers. A substantial portion of the loan portfolio is represented by real estate loans throughout Houston and Coffee County and surrounding areas. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity, orpay-off, generally are reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on the loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Loans are typicallycharged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed onnon-accrual orcharged-off at an earlier date if collection of principal or interest is considered doubtful.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

All interest accrued but not collected for loans that are placed onnon-accrual orcharged-off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for loan losses is established as estimated losses and are charged to earnings through a provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance is based on two basic principles of accounting: (i) FASB ASC 450,Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) FASB ASC 310,Receivables, which requires that losses on impaired loans be accrued based on the differences between the loan balance and either the value of collateral, if such loans are considered to be collateral dependent and in the process of collection, or the present value of future cash flows, or the loan’s value as observable in the secondary market. A loan is considered impaired when, based on current information and events, the Bank has concerns about the ability to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. ImpairedFactors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Bank’s allowance for loan losses has three basic components: the specific allowance, the formula allowance and the pooled allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. As a result of the uncertainties inherent in the estimation process, management’s estimate of loan losses and the related allowance could change in the near term.

The specific allowance component is used to individually establish an allowance for loans canidentified for impairment testing. When impairment is identified, a specific reserve may be measuredestablished based on the Bank’s calculation of the estimated loss embedded in the individual loan. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent losses. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment.

The formula allowance component is used for estimating the loss on internally risk rated loans exclusive of those identified as impaired. The loans meeting the Company’s internal criteria for classification, such as special mention, substandard, doubtful and loss, as well as specifically identified impaired loans, are segregated from performing loans within the portfolio. These internally classified loans are then grouped by loan type. Each loan type is assigned an allowance factor based on management’s estimate of the associated risk, complexity and size of the individual loans within the particular loan category. Classified loans are assigned a higher allowance factor thannon-classified loans due to management’s concerns regarding collectability or management’s knowledge of particular elements surrounding the borrower. Allowance factors increase with the worsening of the internal risk rating.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

The pooled formula component is used to estimate the losses inherent in the pools ofnon-classified loans. These loans are then also segregated by loan type and allowance factors are assigned by management based on delinquencies, loss history, trends in volume and terms of loans, effects of changes in lending policy, the experience and depth of management, national and local economic trends, concentrations of credit, results of the loan review system and the effect of external factors (i.e. competition and regulatory requirements). Current economic conditions take into account the average unemployment rates for Houston County and Coffee County, Alabama, the State of Alabama and for the nation, with the most significance given to the Houston and Coffee County data. The allowance factors assigned differ by loan type.

Allowance factors and overall size of the allowance may change from period to period based on management’s assessment of the above-described factors and the relative weights given to each factor. In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Bank to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. It is the Bank’s policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs on loans are being amortized on the interest method over the term of the loan. Management considers loans impaired when, based on current information, it is probable that the Bank will not collect all principal or interest payments according to contractual terms. Loans are evaluated for impairment in accordance with the Bank’s portfolio monitoring and ongoing risk assessment procedures. Management considers the financial condition of the borrower, cash flow of the borrower, payment status of the loan, and the value of collateral, if any, securing the loan. Loans that experience insignificant payment delays and payment shortfalls are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected payments usingfuture cash flows discounted at the loan’s original effective rate as the discountinterest rate, the loan’s observableobtainable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The Bank’scharge-off policy states after all collection efforts have been exhausted and the loan is deemed to be a loss, it will be charged to the Bank’s established allowance for loan losses. For unsecured loans, a loan that is over 90 days past due or one in which Management deems no longer collectible will becharged-off. For secured loans, at the time that Management deems a loan no longer collectible, the Bank will take action to repossess the collateral if in the Bank’s best interest and to liquidate the collateral as soon as possible. Once the collateral is liquidated, the remaining deficiency will becharged-off. If liquidation of the collateral is expected to take an extended period of time, Management will estimate the expected loss amount and charge off that amount.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Bank has entered into commitments to extend credit, commitments under standby letters of credit, and unfunded commitments under lines of credit. Such financial instruments are recorded when they are funded.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies (Continued)

Foreclosed Properties

Foreclosed properties include properties that have been acquired in complete or partial satisfaction of a debt. These properties are initially recorded at fair value on the date of acquisition. Any write-downs at the time of acquisition are charged to the allowance for loan losses. Subsequent to acquisition, a valuation allowance is established, if necessary, to report these assets at the lower of (a) fair value minus estimated costs to sell or (b) cost. Gains and losses realized on the sale, and any adjustments resulting from periodicre-evaluation of the property are included in noninterest income or expense, as appropriate. Net costs of maintaining and operating the properties are expensed as incurred.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method based on the estimated useful lives of the assets or the expected terms of the leases, if shorter.

Expenditures for improvements, which extend the life of an asset, are capitalized and depreciated over the asset’s remaining useful life. Gains or losses realized on the disposition of properties and equipment are reflected in the statements of income. Expenditures for repairs and maintenance are charged to operating expenses as incurred.

Valuation of Long-lived Assets

The Bank accounts for the valuation of long-lived assets under FASB ASC 360,Property, Plant and Equipment. This guidance requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of impaired loans were primarilythe assets. Assets to be disposed of are reportable at the lower of the carrying amount of fair value, less costs to sell.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. In addition, deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Bank does not have uncertain tax positions that are deemed material, and did not recognize any adjustments for unrecognized tax benefits. The Bank’s policy is to recognize interest and penalties on income taxes in other noninterest expense. The Bank remains subject to examination for income tax returns for the years ending after December 31, 2013.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies (Continued)

Stock Compensation

Stock compensation accounting guidance (FASB ASC 718,Compensation – Stock compensation) requires that the compensation cost related to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Sholes model is used to estimate the fair value of the stock options.

Earnings Per Share

Basic earnings per share represent income available to common stockholders divided by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding used to calculate earnings per share was 1,749,196 for the years ended December 31, 2017 and 2016.

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. Potential common shares that may be issued by the Bank relate solely to outstanding stock options. The dilutive shares outstanding used to calculate diluted earnings per share were 1,749,196 and 1,975,954 for the years ended December 31, 2017 and 2016, respectively.

Fair Value Measurements

The Bank follows the guidance of FASB ASC 825,Financial Instruments, and FASB ASC 820,Fair Value Measurement. This guidance permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 1—Summary of Significant Accounting Policies (Continued)

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was $27,313 and $25,109 for the years ended December 31, 2017 and 2016, respectively.

Compensated Absences

Employees of the Bank are entitled to paid vacation, paid sick days and personal days off, depending on job classifications, length of service, and other factors. It is impractical to estimate the amount of compensation for future absences, accordingly, no liability has been recorded in the financial statements. The Bank’s policy is to recognize the costs of compensated absences when actually paid to employees.

Subsequent Events

The Bank has evaluated the accompanying financial statements for subsequent events and transactions through June 15, 2018, the date these financial statements were available for issue, based on FASB ASC 855,Subsequent Events,and has determined that no material subsequent events other than those described below have occurred that would affect the information presented in the accompanying financial statements or require additional disclosure.

After the date of the balance sheet but prior to the date of issuance of the financial statements, management became aware of an apparent fraud associated with the borrower/guarantor on one loan relationship. As a result, it became doubtful that the loan guarantees or collateral securingcould be relied upon for repayment. Management determined that the loan should becharged-off as of December 31, 2017. The amount of thecharge-off was $1,099,523.

After the date of the balance sheet but prior to the date of issuance of the financial statement, management became aware that a borrower had been denied it’s claims under U.S. Government Disaster Program. As a result, management deemed the loan to be Substandard at December 31, 2017 and wrote the remaining collateral to zero. The full amount of the loan was specifically reserved. The amount charged to loan loss was $503,066.

Note 2 – Due from Accounts

The Bank maintains its cash accounts at various commercial banks in Alabama and Florida. The amounts by which cash and cash equivalents exceed Federal Deposit Insurance Corporation (FDIC) insurance coverage was approximately $7,634,580 at December 31, 2017. Management monitors these loans.bank accounts and does not expect to incur any losses from such accounts.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 3—Investments

The amortized cost and fair value of securities, with gross unrealized gains and losses, were as follows:

December 31, 2017:

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

Securities Available for Sale

        

Mortgage Backed Securities

  $697,000   $111   $7,469   $689,642 

U.S. Government Securities

   3,882,016    —      34,968    3,847,048 

Certificates of Deposit

   250,000    —      —      250,000 

Municipal Securities

   8,848,499    5,332    220,115    8,633,716 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $13,677,515   $5,443   $262,552   $13,420,406 
  

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016:

   Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value 

Securities Available for Sale

        

Mortgage Backed Securities

  $1,491,287   $6,120   $21,366   $1,476,041 

U.S. Government Securities

   4,209,772    7,156    30,548    4,186,380 

Certificates of Deposit

   250,000    —      —      250,000 

Municipal Securities

   8,559,085    1,860    402,308    8,158,637 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $14,510,144   $15,136   $454,222   $14,071,058 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other securities on the balance sheet are comprised of $223,200 and $158,700 in FHLB stock at December 31, 2017 and 2016, respectively, and $99,750 in First National Banker’s Bank stock at December 31, 2017 and 2016.

At December 31, 2017 and 2016 securities with a carrying value of approximately $7,019,480 and $8,679,676, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

The amortized cost and fair values of debt securities by contractual maturity at December 31, 2017 and 2016 were as follows:

December 31, 2017:

   Cost   Fair Value 

Due in one to five years

  $2,383,728   $2,366,180 

Due in over five to ten years

   4,383,473    4,321,640 

Due in over ten years

   6,910,314    6,732,586 
  

 

 

   

 

 

 

Total

  $13,677,515   $13,420,406 
  

 

 

   

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 3—Investments (Continued)

December 31, 2016:

   Cost   Fair Value 

Due in one to five years

  $1,241,534   $1,242,213 

Due in over five to ten years

   4,773,494    4,651,939 

Due in over ten years

   8,495,116    8,176,906 
  

 

 

   

 

 

 

Total

  $14,510,144   $14,071,058 
  

 

 

   

 

 

 

For the years ended December 31, 2017 and 2016, proceeds from sales of securities available for sale amounted to $1,610,270 and $540,000, respectively. Gross realized gains and losses on available for sale securities were as follows:

   December 31, 
   2017   2016 

Gross Realized Gains

  $747   $1,297 

Related Income Taxes

   302    —   
  

 

 

   

 

 

 

Net Realized Gains After Related Income Taxes

  $445   $1,297 
  

 

 

   

 

 

 

In 2016, these gains were offset by net operating loss carryforwards from prior years for tax purposes.

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of the Bank’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

Available for sale securities that have been in a continuous unrealized loss position are as follows:

December 31, 2017:

   Less Than 12 Months   12 Months or More   Total 
   Fair
Value		   Unrealized
Loss		   Fair
Value		   Unrealized
Loss		   Fair
Value		   Unrealized
Loss		 

U.S. Government Securities

  $2,223,172   $17,344   $1,623,876   $17,624   $3,847,048   $34,968 

Municipal Securities

   2,769,349    52,366    4,635,430    167,749    7,404,779    220,115 

Mortgage Backed Securities

   299,132    2,086    368,058    5,383    667,190    7,469 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $5,291,653   $71,796   $6,627,364   $190,756   $11,919,017   $262,552 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

December 31, 2016:

   Less Than 12 Months   12 Months or More   Total 
   Fair
Value		   Unrealized
Loss		   Fair
Value		   Unrealized
Loss		   Fair
Value		   Unrealized
Loss		 

U.S. Government Securities

  $2,687,691   $30,548   $—     $—     $2,687,691   $30,548 

Municipal Securities

   7,759,072    402,307    —      —      7,759,072    402,307 

Mortgage Backed Securities

   1,095,074    21,366    —      —      1,095,074    21,366 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $11,541,837   $454,221   $—     $—     $11,541,837   $454,221 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 3—Investments (Continued)

Temporarily Impaired Securities (Continued)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

U.S. Government Securities

The unrealized losses on the investments in U.S. government obligations and direct obligations of U.S. government agencies were caused by interest rate increases. The contractual term of the investments does not permit the issuer to settle the security at a price less than the amortized cost basis of the investments. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Bank does not consider these investments to be other-than-temporarily impaired at December 31, 2017.

Note 4—Loans

The segments of loans for December 31, 2017 and 2016 were as follows:

  December 31, 
  2017  2016 

Real Estate

  

Construction, Land Development and Other Land Loans

 $14,948,855  $16,153,151 

Secured by1-4 Family Residential Properties

  33,378,712   31,244,991 

Secured by Multi-Family Residential Properties

  2,648,253   2,689,304 

Secured by Nonfarm, Nonresidential Properties

  32,966,992   28,081,634 

Farmland

  8,970,115   7,128,554 

Commercial and Industrial Loans

  19,944,673   21,650,029 

Consumer Loans

  2,364,723   2,013,558 

Agricultural and Other

  6,371,515   3,532,210 
 

 

 

  

 

 

 

Total Loans

 $121,593,838  $112,493,431 

Less: Unearned Interest and Fees

  (237,421)   (163,083) 

Allowance for Loan Losses

  (2,256,084)   (1,554,062) 
 

 

 

  

 

 

 

Loans, Net

 $119,100,333  $110,776,286 
 

 

 

  

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

The Bank’s goal is to mitigate risks from an unforeseen threat to the loan portfolio as a result of an economic downturn or other negative influences. Plans that aid in mitigating these potential risks in managing the loan portfolio include: enforcing loan policies and procedures, evaluating the borrower’s business plan through the loan term, identifying and monitoring primary and alternative sources of repayment, and obtaining adequate collateral to mitigate loss in the event of liquidation. Specific reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is used to estimate potential loss exposure and to provide a measuring system for setting general and specific reserve allocations.

Real Estate Loans

Residential Real Estate loans are loans to finance family residential units that will house from one to four families. Construction and Development loans are loans for acquisition, development, and construction and are secured by the real estate involved. Construction and Development loans are short-term loans that will be made to local and experienced contractors who have a good reputation in the community and are licensed by the state in which they work. At the end of the construction project, the loan will either convert to a permanent mortgage or be repaid by the property being sold. The loans will at all times be secured by the property and the owner of the project. Other real estate loans are secured by commercial real estate, multifamily residential properties, and other nonresidential properties.

Commercial and Industrial Loans

Commercial and Industrial loans are loans to businesses (i.e., sole proprietorships, partnerships, limited liability companies, corporations andnot-for-profit and faith-based organizations) for commercial, industrial, or professional purposes. As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

Consumer Loans

Consumer loans (installment and home equity) are loans to individuals for household, family, and other personal(non-business) purposes.

Agricultural and Other Loans

Agricultural and other loans are generally made to farmers for various purposes related to crops, livestock, related equipment/machinery, and other farm operations. Repayment is primarily dependent on the personal income of the borrower(s) and income from farming operations, which can be impacted by economic and other market conditions. As a general practice, the Bank takes as collateral a security interest in the underlying crops, livestock, equipment, etc. Such loans are monitored via inspections and/or evaluations, as applicable.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

An analysis of the change in allowance for loan losses is as follows:

December 31, 2017:

  Real
Estate		  Commercial
and
Industrial		  Consumer  Ag. & Other  Total 

Beginning Balance

 $1,100,799  $359,825  $19,105  $74,333  $1,554,062 

Provision

  37,500   37,500   37,500   1,640,089   1,752,589 

Charge-Offs

  (36,015)   (57,524)   (49,755)   (1,099,522)   (1,242,816) 

Recoveries

  107,030   38,866   46,353   —     192,249 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending Balance

 $1,209,314  $378,667  $53,203  $614,900  $2,256,084 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Individually Evaluated for Impairment:

     

Recorded Investment

 $629,884  $—    $57,001  $503,066  $1,189,951 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

 $—    $—    $—    $—    $—   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Collectively Evaluated for Impairment:

     

Recorded Investment

 $89,873,280  $19,875,306  $2,117,657  $4,864,046  $116,730,289 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

 $1,209,314  $378,667  $53,203  $614,900  $2,256,084 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

December 31, 2016:

  Real
Estate		  Commercial  Consumer  Ag. & Other  Total 

Beginning Balance

 $1,082,156  $303,928  $(19,449)  $30,583  $1,397,218 

Provision

  43,750   43,750   43,750   43,750   175,000 

Charge-Offs

  (25,107)   —     (30,601)   —     (55,708) 

Recoveries

  —     12,147   25,405   —     37,552 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending Balance

 $1,100,799  $359,825  $19,105  $74,333  $1,554,062 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Individually Evaluated for Impairment:

     

Recorded Investment

 $662,930  $5,725  $66,393  $—    $735,048 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

 $—    $—    $—    $—    $—   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Collectively Evaluated for Impairment:

     

Recorded Investment

 $83,748,386  $19,415,166  $1,751,164  $2,591,872  $107,506,588 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance in Allowance for Loan Losses

 $1,100,799  $359,825  $19,105  $74,333  $1,554,062 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The Bank categorizes 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.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

The Bank analyzes loans individually by classifying the loans as to credit risk. Loans classified as watch or lower are reviewed monthly by the Bank for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Further, commercial loans are typically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well as when a loan becomes past due, the Bank will determine the appropriate loan grade.

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Bank for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard, doubtful or evencharge-off.

Internally assigned loan grades are defined as follows:

1.

Excellent—Loans in this category are to persons or entities of unquestioned financial strength, highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the bank expects performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by certificates of deposit and savings accounts with appropriate holds placed on accounts are to be rated as “1”.

2.

Above Average—These are loans to persons or entities with strong financial condition and above average liquidity that have previously satisfactorily handled their obligations with the bank. Collateral securing the bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements on which repayment is satisfactory may be included in this category.

3.

Average—Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Closely held corporations or businesses where a majority of the profits are withdrawn by the owners or paid in dividends are included in this category. Overall these loans are basically sound.

4.

Marginal—These loans bear the same characteristics of an Average (class 3) grade in that they are to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service the debt and net worth comprised mainly of fixed assets. Overall these loans are basically sound. However, these loans may possess characteristics considered a higher degree of risk. These characteristics may include the loan being of a speculative nature in that the repayment source is dependent upon cash flow derived from future sales of collateral or term financing from a third party source. These loans may also have a higherloan-to-value due to a deterioration of collateral value or higherdebt-to-income as a result of deterioration inover-all financial condition of borrower.

5.

Watch—Borrowers who have marginal cash flow, marginal profitability or have experienced an unprofitable year and a declining financial condition characterize these loans. The borrower has in the past satisfactorily handled debts with the bank, but in recent months has either been late, delinquent in making payments or made sporadic payments. While the bank continues to be adequately secured,

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weak financial statement and repayment ability, but the collateral appears to limit exposure. This class includes loans to established borrowers that are reasonably well margined by collateral, but where potential for improvement in financial capacity appears limited.

6.

Substandard—These loans are inadequately protected by the sound worth and paying capacity of the borrower or the collateral pledged. Loss potential, while existing in the aggregate amount of this category does not have to exist in the individual asset.

7.

Doubtful—A loan classified as doubtful has all the weaknesses inherent in the substandard loan with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collection in full in a reasonable period of time; if in fact, there is permanent impairment in the collateral securing the loan. These loans are in a workout status and have a defined workout strategy.

8.

Loss—Loan is no longer bankable.

The table below illustrates the carrying amount of loans by credit quality indicator:

   December 31, 2017 
   Pass   Watch   Substandard   Doubtful   Loss     
   1-4   5   6   7   8   Total 

Real Estate Construction, Land Development and Other Land

  $14,636,936   $311,919   $—     $—     $—     $14,948,855 

Secured by1-4 Family Residential Properties

   32,238,832    1,085,349    54,531    —      —      33,378,712 

Secured by Multi-Family Residential Properties

   2,349,623    298,630    —      —      —      2,648,253 

Secured by Nonfarm, Nonresidential Properties

   30,295,653    661,861    2,009,478    —      —      32,966,992 

Farmland

   8,544,370    425,745    —      —      —      8,970,115 

Commercial and Industrial

   19,706,568    152,371    85,734    —      —      19,944,673 

Consumer

   2,224,283    75,564    64,876    —      —      2,364,723 

Agricultural and Other

   5,512,201    328,241    531,073    —      —      6,371,515 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $115,508,466   $3,339,680   $2,745,692   $—     $—     $121,593,838 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

   December 31, 2016 
   Pass   Watch   Substandard   Doubtful   Loss     
   1-4   5   6   7   8   Total 

Real Estate Construction, Land Development and Other Land

  $15,877,963   $214,284   $60,904   $—     $—     $16,153,151 

Secured by1-4 Family Residential Properties

   30,762,902    482,089    —      —      —      31,244,991 

Secured by Multi-Family Residential Properties

   2,372,499    316,805    —      —      —      2,689,304 

Secured by Nonfarm, Nonresidential Properties

   25,449,361    2,030,245    602,026    —      —      28,081,632 

Farmland

   6,956,603    171,951    —      —      —      7,128,554 

Commercial and Industrial

   21,357,636    286,669    5,725    —      —      21,650,030 

Consumer

   1,859,208    87,958    66,393    —      —      2,013,559 

Agricultural and Other

   3,532,210    —      —      —      —      3,532,210 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $108,168,382   $3,590,001   $735,048   $—     $—     $112,493,431 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2017 and 2016, there were no loans with credit quality of 7 or 8.

Age analysis of past due loans are as follows:

December 31, 2017:

   Accruing Loans         
   30-89   90+   Total Past           Total 
   Days   Days   Due   Current   Nonaccrual   Loans 

Real Estate Construction, Land Development and Other Land

  $—     $—     $—     $14,948,855   $—     $14,948,855 

Secured by1-4 Family Residential Properties

   —      —      —      33,351,857    26,855    33,378,712 

Secured by Multi-Family Residential Properties

   —      —      —      2,648,253    —      2,648,253 

Secured by Nonfarm, Nonresidential Properties

   290,283    —      290,283    32,074,500    602,209    32,966,992 

Farmland

   —      —      —      8,970,115    —      8,970,115 

Commercial and Industrial

   11,610    —      11,610    19,933,063    —      19,944,673 

Consumer

   20,108    —      20,108    2,344,615    —      2,364,723 

Agricultural and Other

   71,416    —      71,416    6,300,099    —      6,371,515 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $393,417   $—     $393,417   $120,571,357   $629,064   $121,593,838 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

December 31, 2016:

   Accruing Loans         
   30-89
Days		   90+
Days		   Total Past
Due		   Current   Nonaccrual   Total
Loans		 

Real Estate Construction, Land Development and Other Land

  $—     $—     $—     $16,092,247   $60,904   $16,153,151 

Secured by1-4 Family Residential Properties

   —      —      —      31,244,991    —      31,244,991 

Secured by Multi-Family Residential Properties

   —      —      —      2,689,304    —      2,689,304 

Secured by Nonfarm, Nonresidential Properties

   374,207    —      374,207    27,707,427    —      28,081,634 

Farmland

   —      —      —      7,128,554    —      7,128,554 

Commercial and Industrial

   —      —      —      21,650,029    —      21,650,029 

Consumer

   19,710    —      19,710    1,993,848    —      2,013,558 

Agricultural and Other

   —      —      —      3,532,210    —      3,532,210 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $393,917   $—     $393,917   $112,038,610   $60,904   $112,493,431 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following is a summary of information pertaining to impaired loans:

December 31, 2017:

   With no Related
Allowance Recorded		   With an Allowance Recorded 
   Recorded
Investment		   Unpaid
Contractual
Principal
Balance		   Recorded
Investment		   Unpaid
Contractual
Principal
Balance		   Related
Allowance		 

Real Estate:

          

Construction, Land Development and Other Land

  $—     $—     $—     $—     $—   

Secured by1-4 Family Residential Properties

   —      —      27,675    27,675    4,275 

Secured by Nonfarm, Nonresidential Properties

   —      —      602,209    602,209    102,209 

Farmland

   —      —      —      —      —   

Commercial and Industrial

   —      —      —      —      —   

Consumer

   —      —      57,000    57,000    23,458 

Agricultural and Other

   —      —      503,066    503,066    503,066 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $—     $—     $1,189,950   $1,189,950   $633,008 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

December 31, 2016:

   With no Related
Allowance Recorded		   With an Allowance Recorded 
   Recorded
Investment		   Unpaid
Contractual
Principal
Balance		   Recorded
Investment		   Unpaid
Contractual
Principal
Balance		   Related
Allowance		 

Real Estate:

          

Construction, Land Development and Other Land

  $60,904   $60,904   $—     $—     $—   

Secured by Nonfarm, Nonresidential Properties

   —      —      602,026    602,026    24,026 

Farmland

   —      —      —      —      —   

Commercial and Industrial

   —      —      5,725    5,725    5,725 

Consumer

   —      —      66,393    66,393    28,339 

Agricultural and Other

   —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $60,904   $60,904   $674,144   $674,144   $58,090 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC310-10-35-16), when based on current information and events, it is probable that the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows:

December 31, 2017:

   Average
Recorded
Investment		   Interest
Income
Recognized		   Interest
Income
Received		 

Real Estate:

      

Construction, Land Development and Other Land

  $—     $—     $—   

Secured by1-4 Family

   27,675    1,578    1,870 

Secured by Nonfarm, Nonresidential Properties

   602,209    29,259    29,126 

Commercial and Industrial

   —      —      —   

Consumer

   9,500    3,664    3,940 

Agricultural and Other

   503,066    30,016    —   
  

 

 

   

 

 

   

 

 

 

Total

  $1,142,450   $64,517   $34,936 
  

 

 

   

 

 

   

 

 

 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 4—Loans (Continued)

December 31, 2016:

   Average
Recorded
Investment		   Interest
Income
Recognized		   Interest
Income
Received		 

Real Estate:

      

Construction, Land Development and Other Land

  $60,904   $3,971   $—   

Secured by Nonfarm, Nonresidential Properties

   602,026    33,026    30,016 

Commercial and Industrial

   5,725    204    35 

Consumer

   16,598    3,171    2,711 

Agricultural and Other

   —      —      —   
  

 

 

   

 

 

   

 

 

 

Total

  $685,253   $40,372   $32,762 
  

 

 

   

 

 

   

 

 

 

Information on Troubled Debt Restructurings (TDR’s) for the years ended December 31, 2017 and 2016 is as follows:

December 31, 2017:

   Number of
Contracts		   Pre-Modification
Outstanding
Recorded
Investment		   Post-Modification
Outstanding
Recorded
Investment		 

Commercial and Industrial

           —     $—     $—   

Commercial Real Estate

   1    602,209    602,209 

Residential Real Estate

   —      —      —   
  

 

 

   

 

 

   

 

 

 
   1   $602,209   $602,209 
  

 

 

   

 

 

   

 

 

 

The Bank had no Troubled Debt Restructured (TDR’s) loans during the year ended December 31, 2016.

The troubled debt restructured loan shown above was modified during 2017 with the following terms. A loan in the amount of $602,026 was converted to interest only payments for three months. This same loan later was modified to reduce the interest rate from 5.375% to 4.5%.

There were no loans as of December 31, 2017 that had been modified as troubled debt restructurings during 2017 and then subsequentlyre-defaulted in 2017.

At December 31, 2017 there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a troubled debt restructuring.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 5—Bank Premises and Equipment

A summary of the cost and accumulated depreciation of bank premises and equipment as of December 31, 2017 and 2016 is as follows:

   December 31, 
   2017   2016 

Land

  $787,891   $749,491 

Construction in Progress

   5,375    13,670 

Buildings and Improvements

   1,999,422    1,875,003 

Equipment, Furniture and Fixtures

   869,220    806,279 

Autos

   72,212    71,708 
  

 

 

   

 

 

 
  $3,734,120   $3,516,151 

Accumulated Depreciation

   (1,200,550)    (1,021,720) 
  

 

 

   

 

 

 

Total Bank Premises and Equipment, Net

  $2,533,570   $2,494,431 
  

 

 

   

 

 

 

Depreciation expense amounted to $180,501 and $172,784 for the years ended December 31, 2017 and 2016, respectively.

Note 6—Deposits

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2017 and 2016 was $36,342,192 and $31,744,858, respectively and are included in interest-bearing deposits in the balance sheet. Certificates of deposit and other time deposits issued in denominations that meet or exceed the FDIC insurance limit of $250,000 or more at December 31, 2017 and 2016 totaled $15,317,091 and $11,648,408, respectively.

The scheduled maturities of time deposits are as follows:

   December 31, 
   2017   2016 

Within One Year

  $21,998,963   $17,432,846 

Over One Year Through Three Years

   17,809,827    11,261,462 

After Three Years Through Five Years

   10,154,373    16,577,053 
  

 

 

   

 

 

 

Total

  $49,963,163   $45,271,361 
  

 

 

   

 

 

 

Note 7—Borrowings

During 2017 and 2016, the Bank had no sales of securities under agreements to repurchase the same securities.

Long-term debt consisted of the following:

   December 31, 
   2017   2016 

FHLB borrowings; variable interest rate, currently at the rate of 2.31% - 2.78%; collateralized by a blanket lien on the Bank’s 1 to 4 family residential mortgage loans totaling $4,555,190, and $5,432,911 as of December 31, 2017 and 2016, respectively.

  $2,260,156   $1,124,511 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 7—Borrowings (Continued)

The Bank has established credit availability in the amount of 25% of the Bank’s total assets with the FHLB of Atlanta. As of December 31, 2017, the Bank would be able to access an additional $35,258,593 of FHLB credit products based on the Bank’s current financial and operational conditions and the pledging of sufficient collateral. As of December 31, 2017, the Bank had $2,260,156 in outstanding advances.

At December 31, 2017 the Bank also had three unsecured federal fund lines of credit with other financial institutions enabling the Bank to borrow up to $7,500,000, with interest determined at the time of draw. The arrangements are reviewed annually for renewal of each credit line. As of December 31, 2017, the Bank had no outstanding advances.

Note 8—Income Taxes

Allocation of federal and state income taxes between current and deferred portions is as follows:

   December 31, 
   2017   2016 

Current Tax Provision:

    

Federal

  $438,001   $556,711 

State

   15,020    47,884 

Deferred Tax Benefit

   23,729    189,799 

Deferred Tax Allowance

   —      —   
  

 

 

   

 

 

 

Total

  $476,750   $794,394 
  

 

 

   

 

 

 

The components of deferred income tax assets and deferred income tax liabilities are as follows:

   December 31, 
   2017   2016 

Deferred Tax Assets

    

Net Operating Loss Carry Forward

  $—     $—   

Provision for Loan Losses

   537,873    308,594 

Organization Costs

   32,450    63,290 

Write-Down of Foreclosed Assets

   —      227,244 

Deferred Loan Fees

   40,135    63,494 

Nonaccrual Interest

   967    —   

Unrealized Loss on Securities Available for Sale

   70,705    177,830 
  

 

 

   

 

 

 
  $682,130   $840,452 

Deferred Tax Liabilities

    

Depreciation

   (29,468)    (63,500) 

Unrealized Gain on Securities Available for Sale

   —      —   
  

 

 

   

 

 

 

Net Deferred Tax Asset before Valuation Allowance

  $652,662   $776,952 

Valuation Allowance

   (—  )    (—  ) 
  

 

 

   

 

 

 

Net Deferred Tax Asset

  $652,662   $776,952 
  

 

 

   

 

 

 

The Bank files income tax returns in the United States federal jurisdiction and Alabama. With few exceptions, the Bank is no longer subject to United States federal, state and local income tax examinations by tax

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 8—Income Taxes (Continued)

authorities for years before 2014. As of December 31, 2017, the Bank had no uncertain tax positions, or interest and penalties, that qualify for either recognition or disclosure in the financial statements.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S Corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the corporate alternative minimum tax, restricting deductions for meals and entertainment and allowing expensing of certain capital expenditures. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Bank recorded a tax provision of $241,705 due to the remeasurement of deferred tax assets and liabilities. We continue to examine the impact this tax legislation may have on the Bank.

On February 14, 2018, FASB issued ASU2018-02,Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard provides entities an option to reclassify certain “stranded tax effects” resulting from the recent U.S. Tax reform from accumulated other comprehensive income to retained earnings. The standard is effective for all entites in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Under ASC 740, the enactment of the Tax Cuts and Jobs Act on December 22, 2017 requires an entity to remeasure all U.S. deferred income taxes using the new 21% tax rate as opposed to the previous corporate income tax rate of 35%. The cumulative deferred income tax adjustment is recognized as a component of income tax expense from continuing operations. However, deferred income taxes originally recognized through other comprehensive income were initially measured at the previous income tax rate of 35%. Therefore, recognizing the cumulative tax rate adjustment through income tax expense would result in a disproportionate tax balance remaining in accumulated other comprehensive income (AOCI) (i.e., “stranded tax effect”) that would be recycled to earning in future periods. The Bank has elected to early implement ASU2018-02 and has made the election to reclassify the income tax effects resulting from the Tax Reform Act from AOCI to retained earnings. The amount of this reclassification is $33,424 and is a result of remeasurement of deferred taxes on the Bank’s unrealized gains/losses on available for sale securities. This reclassification occurred on a portfolio basis.

Note9—Off-Balance Sheet Activities

The Bank is a party to credit related financial instruments withoff-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other parties to the financial instrument for these commitments is represented by the contractual amount of these commitments. The Bank follows the same credit policies in making commitments as it does foron-balance sheet instruments.

The following financial instruments were outstanding whose contract amounts represent credit risk:

   December 31, 
   2017   2016 

Commitments to Extend Credit

  $854,150   $1,358,929 

Unfunded Commitments Under Lines of Credit

  $13,591,055   $21,053,057 

Standby Letters of Credit

  $405,000   $539,000 

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note9—Off-Balance Sheet Activities (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments are expected to expire without being drawn upon; accordingly, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on acase-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; accounts receivable; inventory; property and equipment; personal residences; income-producing commercial properties and land under development. Personal guarantees are also obtained to provide added security for certain commitments.

Unfunded commitments under commerciallines-of-credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. Theselines-of-credit are uncollateralized and usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral and obtains personal guarantees supporting those commitments for which collateral or other security is deemed necessary.

Note 10—Legal Contingencies

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Bank’s financial statements.

Note 11—Shareholder’s Equity

Restrictions on Dividends

The amount of dividends that the Bank can pay to Trinity Bancorp without approval from the Superintendent of Banks is limited to its net earnings for the current year plus its retained net earnings for the proceeding two years, less any required transfers to surplus. The Bank paid approximately $150,000 in dividends to Bancorp in 2017.

Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certainoff-balance sheet items as calculated under regulatory reporting requirements. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 11—Shareholder’s Equity (Continued)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of common equity, total, tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2017 and 2016, that the Bank meets all the capital adequacy requirements to which it is subject.

The most recent notification from the Alabama State Banking Department categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum common equity risk-based, Tier 1 risk-based, and tier 1 leverage ratios as set forth in the table. There are no conditions or events since the most recent notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of December 31, 2017 and 2016, are also present in the following table.

   Actual  Capital Requirement  Minimum to Be Well
Capitalized Under
Prompt Corrective
Action Provisions		 
   (Dollars in Thousands)  (Dollars in Thousands)  (Dollars in Thousands) 
     Amount       Ratio    Amount   Ratio  Amount   Ratio 

December 31, 2017:

          

Total Capital to Risk Weighted Assets

  $14,929    13.64%  $8,758    8.0%  $10,947    10.0% 

Tier 1 Capital to Risk Weighted Assets

  $13,550    12.38%  $6,568    6.0%  $8,758    8.0% 

Common Equity Tier 1 Capital

  $13,550    12.38%  $4,926    4.5%  $7,116    6.5% 

Leverage Capital to Average Total Assets

  $13,550    8.89%  $6,096    4.0%  $7,620    5.0% 

December 31, 2016:

          

Total Capital to Risk Weighted Assets

  $14,252    14.01%  $8,137    8.0%  $10,171    10.0% 

Tier 1 Capital to Risk Weighted Assets

  $12,978    12.76%  $6,102    6.0%  $8,136    8.0% 

Common Equity Tier 1 Capital

  $12,978    12.76%  $4,577    4.5%  $6,611    6.5% 

Leverage Capital to Average Total Assets

  $12,978    9.29%  $5,585    4.0%  $6,982    5.0% 

Note 12—Employee Benefit Plans

Beginning in 2013, the Bank maintains a 401(K) plan covering employees meeting certain eligibility requirements. The Bank’s 401(K) plan was updated on January 1, 2015 to a Safe Harbor Match 401(K) Plan. Employees may make voluntary contributions to the Plan through payroll deductions on a pre-tax basis. The Bank automatically matches up to 4% of employee contributions each payroll. The Bank expensed contributions to the Plan in the amount of $47,442 and $35,433 in 2017 and 2016, respectively.

Note 13—Stock Options and Warrants

In 2006, the Bank issued options to investors of the Bank for the placement of the initial investor’s personal funds at risk in connection with the organization of the Bank. The options entitle the investor to purchase voting common stock, par value of $1, at a price of $10 per share. Of the 222,064 options granted to investors, 222,064 options were fully vested as of December 31, 2009. Options awarded had no effect on the financial statements for the years ended December 31, 2017 or 2016.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 13—Stock Options and Warrants (Continued)

In 2012, the Bank issued 99,051 warrants to investors in connection with a stock offering. The warrants entitle the investor to purchase voting common stock, par value of $1, at a price of $4.50 per share if exercised on or before the date that is five years following the date of the warrant, and $5.25 per share, if exercised after the date that is five years from the date of the warrant and before the date that is ten years following the date of the warrant. During 2017, 94,355 of these warrants were exercised. Outstanding warrants of 4,697 were transferred to the Bank’s holding company.

Note 14—Stock Incentive Plans

The Bank established a stock incentive plan on February 23, 2006 for directors and certain key employees that provided for the granting of restricted stock, incentive and nonqualified options and performance shares. The total number of shares of stock subject to issuance under the plan could not exceed 95,000 shares. The Board of Directors determined the terms of the restricted stock and options granted. All options granted had a maximum term of ten years from the grant date, and the option price per share of options granted could not be less than the fair market value of the Bank’s common stock on the grant date. Incentive options granted to a ten percent or more stockholder—had a maximum term of five years from the grant date, and the option price per share of options granted could not be less than 110% of the fair market value of the Bank’s common stock on the grant date.

Performance shares awarded annually were subject to a calculation based on amounts and ratios reflected in the call report of the Bank at calendar year end and were subject to any adjustments determined by the Board of Directors. There were no performance shares awarded in 2016. As of the year ended December 31, 2016, performance shares of 2,860 had been awarded to employees since the inception of the stock incentive plan. The Bank’s stock incentive plan expired during the year ended December 31, 2016.

Note 15—Related Party Transactions

In the normal course of banking business, loans are made to officers and directors of the Bank, as well as to their affiliates. Such loans are made in the ordinary course of business with substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. They do not involve more than normal risk of collectability or present other unfavorable features. Annual activity consisted of the following:

   December 31, 
   2017   2016 

Beginning Balance

  $4,338,492   $4,489,323 

New Loans

   1,283,648    485,173 

Repayments

   (607,734)    (636,004) 
  

 

 

   

 

 

 

Ending Balance

  $5,014,406   $4,338,492 
  

 

 

   

 

 

 

Interest Collected on Related Party Loans

  $156,788   $164,601 
  

 

 

   

 

 

 

Deposits from related parties held by the Bank totaled $8,227,306 and $7,265,096 at December 31, 2017 and 2016, respectively.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 16—Fair Value Measurements

FASB ASC 825,Financial Instruments,permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a Bank commitment. Subsequent changes must be recorded in earnings.

FASB ASC 820,Fair Value Measurement,clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this guidance are described below.

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following describes valuation methodologies used for assets measured at fair value:

Securities Available for Sale – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 include certain residual interests in securitizations and other less liquid securities.

Impaired Loans – Estimates of fair value hierarchy. Collateral may beare determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determinesbrokers and the valueknowledge and experience of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combinationBank’s management related to values of approaches including comparable salesproperties in the Bank’s market areas. Management takes into consideration the type, location and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the dateoccupancy of the most recent appraisal, and/or management’s expertise and knowledgeproperty as well as current economic conditions in the area the property is located in assessing estimates of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. ImpairedAccordingly, fair value estimates for impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.classified as Level 3.

Index

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)December 31, 2017 and 2016

(Unaudited)

Note 16—Fair Value Measurements (Continued)

Foreclosed Assets Measured at Fair Value – Estimates of fair values are determined based on a Nonrecurring Basis (Continued)

Other Real Estate Owned

Othervariety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate owned is adjusted to fair value upon transferbrokers and the knowledge and experience of the loansBank’s senior lending officers related to other real estate owned. Subsequently, other real estate ownedvalues of properties in the Bank’s market areas. These officers take into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is carried at the lowerlocated in assessing estimates of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. WhenAccordingly, the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the otherestimates for foreclosed real estate ownedare classified as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the other real estate owned as nonrecurring Level 3.

Quantitative Disclosures for Level 3 Fair Value Measurements

The Company had no Level 3 assetsAssets measured at fair value on a recurring basis at March 31, 2015are summarized below:

   Fair Value Measurements at Reporting Date Using 
   Total   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2017:

��       

Securities Available for Sale Mortgage Backed Securities

  $689,642   $—     $689,642   $—   

U.S. Government Securities

   3,847,048    —      3,847,048    —   

Certificates of Deposit

   250,000    —      250,000    —   

Municipal Securities

   8,633,716    —      8,633,716    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $13,420,406   $—     $13,420,406   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

   Fair Value Measurements at Reporting Date Using 
   Total   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2016:

        

Securities Available for Sale Mortgage Backed Securities

  $1,476,041   $—     $1,476,041   $—   

U.S. Government Securities

   4,186,380    —      4,186,380    —   

Certificates of Deposit

   250,000    —      250,000    —   

Municipal Securities

   8,158,637    —      8,158,637    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $14,071,058   $—     $14,071,058   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

No securities were transferred in or December 31, 2014.

Forout of Level 1, Level 2 or Level 3 during 2017 or 2016.

The Bank has nonon-financialassets ornon-financial liabilities measured at fair value on a non-recurring basis as of Marchrecurring basis.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2015, the significant unobservable inputs used in the fair value measurements are presented below.2017 and 2016

Note 16—Fair Value Measurements (Continued)

 

   Carrying
Amount		   Valuation
Technique		   Significant
Unobservable
Input		 Weighted
Average of
Input		 

Nonrecurring:

       

Impaired loans

  $1,035     Appraisal    Appraisal discounts (%)  5-10% 

Other real estate owned

   225     Appraisal    Appraisal discounts (%)  5-10% 

For Level 3 assetsAssets measured at fair value on a non-recurringnonrecurring basis are summarized below:

   Fair Value Measurements at Reporting Date Using 
   Fair Value   Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2017:

        

Impaired Loans

  $1,189,951   $—     $—     $1,189,951 

Foreclosed Assets

   257,874    —      —      257,874 

December 31, 2016:

        

Impaired Loans

  $735,049   $—     $—     $735,049 

Foreclosed Assets

   785,705    —      —      785,705 

Impaired loans include those loans for which the collateral value is less than the carrying amount resulting in a write down to fair value. Loan impairment is reported when full payment under the loan terms is not expected. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. When an impaired loan is determined to be collateral dependent, the fair value is determined through the utilization of a third-party appraisal, estimate of market value by licensed appraisers or local real estate brokers. The types of collateral influence the frequency of obtaining updated appraisals. Based on experience, current appraisals are discounted 10% - 12% for estimated costs associated with foreclosures and costs to sell. If a loan is evaluated for impairment and the appraisal is outdated, a new appraisal is ordered. After the new appraisal is obtained, the analysis is updated to reflect the new valuation. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan is confirmed.

During 2017, certain foreclosed assets, upon initial recognition, werere-measured and reported at fair value through acharge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. Foreclosed assets measured at fair value upon initial recognition totaled $433,593 (utilizing Level 3 valuation inputs) for the year ended December 31, 2017 In connection with the measurement and initial recognition of the foregoing foreclosed assets, the Bank has recognized charge-offs of the allowance for possible loan losses totaling approximately $0 for the year ended December 31, 2017. Foreclosed assets totaling $421,903 for the year ended December 31, 2017 were notre-measured at fair value. Foreclosed assets totaling $363,801 for the year ended December 31, 2017 werere-measured at fair value, resulting in impairment losses of $3,344 for the year ended December 31, 2017.

The following table presents detailed information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2014,2017. The table includes the valuation techniques and the significant unobservable inputs usedutilized. The range of each unobservable input utilized at December 31, 2017, is included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the fair value measurements are presented below.significant unobservable input.

   Carrying
Amount		   Valuation
Technique		   Significant
Unobservable
Input		 Weighted
Average of
Input		 

Nonrecurring:

       

Impaired loans

  $1,038     Appraisal    Appraisal discounts (%)  5-10% 

Other real estate owned

   712     Appraisal    Appraisal discounts (%)  5-10% 

Trinity Bank

IndexDothan, Alabama

Notes to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)December 31, 2017 and 2016

(Unaudited)

Note 16—Fair Value Measurements (Continued)

 

Nonrecurring fair value measurements are summarized below:

   Fair Value
12/31/17		   Valuation
Technique		   Unobservable
Input		   Quantitative
Range of
Unobservable
Input		 

Impaired Loans

  $1,189,951    (1)    (2)    10%-12% 

Foreclosed Loans

  $257,874    (3)    (4)    6%-10% 

(1)

Multiple data points, including discount to appraised value of collateral based on recent market activity.

(2)

Appraisal compatibility adjustment (discount).

(3)

Discount to appraised value of property or net present value of future cash flows based on recent market activity for sales of similar properties.

(4)

Appraisal compatibility adjustment (discount).

Non-recurring fair value measurements using significant unobservable inputs:

Impaired Loans—Impaired loans are valued based on multiple data points indicating the fair value for each loan. The primary data point fornon-performing loans is the appraisal value of the underlying collateral to which a discount is applied. Management establishes this discount or comparability adjustment based on recent sales of similar property types. As liquidity in the market increases or decreases, the comparability adjustment and the resulting asset valuation are impacted.

Foreclosed Assets—Foreclosed property and other real estate under contract for sale are valued based on contract price. If no sales contract is pending for a specific property, management establishes a comparability adjustment to the appraised value based on historical activity considering proceeds for properties sold versus the corresponding appraised value. Increases or decreases in realization for properties sold impact the comparability adjustment for similar assets remaining on the balance sheet.

Trinity Bank

Dothan, Alabama

Notes to Financial Statements

December 31, 2017 and 2016

Note 17—Fair Value of Financial Instruments

In accordance with the disclosure requirement of FASB ASC 825,Financial Instruments,the estimated fair values of the Bank’s financial instruments are as follows:

           Fair Value Measurements 
   Carrying
Amount		   Fair
Value		   Quoted
Prices
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		 

December 31, 2017:

          

FINANCIAL ASSETS

          

Cash and Cash Equivalents

  $9,097,820   $9,097,820   $9,097,820   $—     $—   

Investment Securities

          

Available for Sale

   13,420,406    13,420,406    —      13,420,406    —   

Restricted Stock

   322,950    322,950    —      322,950    —   

Net Loans

   119,100,333    119,100,333    —      —      119,100,333 

FINANCIAL LIABILITIES

          

Deposits

  $130,672,196   $130,672,196   $—     $—     $130,672,196 

FHLB Advances

   2,260,156    2,260,156    —      —      2,260,156 

December 31, 2016:

          

FINANCIAL ASSETS

          

Cash and Cash Equivalents

  $6,970,087   $6,970,087   $6,970,087   $—     $—   

Investment Securities

          

Available for Sale

   14,071,058    14,071,058    —      14,071,058    —   

Restricted Stock

   258,450    258,450    —      258,450    —   

Net Loans

   110,776,286    110,776,286    —      —      110,776,286 

FINANCIAL LIABILITIES

          

Deposits

  $122,647,642   $122,647,642   $—     $—     $122,647,642 

FHLB Advances

   1,124,511    1,124,511    —      —      1,124,511 

The carrying amountfollowing methods and estimatedassumptions were used to estimate the fair value disclosures for financial instruments as of December 31, 2017 and 2016:

Cash and Cash Equivalents—The fair value of cash and cash equivalents is estimated to approximate the Company’s financial instruments, by level within thecarrying amounts.

Investment securities and restricted stock—Fair values are based on quoted market prices, except for certain restricted stocks where fair value hierarchy, were as follows:equals par value because of certain redemption restrictions.

   March 31, 2015   December 31, 2014 
   Carrying
Amount		   Fair
Value		   Fair
Value
Hierarchy		   Carrying
Amount		   Fair
Value		   Fair
Value
Hierarchy		 

Financial assets:

            

Cash and cash equivalents

  $28,758    $28,758     Level 1    $20,134    $20,134     Level 1  

Securities available for sale

   36,312     36,312     Level 2     39,442     39,442     Level 2  

Restricted equity securities

   609     609     Level 2     609     609     Level 2  

Loans held for sale

   3,737     3,737     Level 3     703     703     Level 3  

Loans, net

   167,068     170,390     Level 3     162,118     163,336     Level 3  

Accrued interest receivable

   665     665     Level 2     737     737     Level 2  

Financial liabilities:

            

Deposits

  $216,493    $216,523     Level 3    $204,559    $204,549     Level 3  

Other borrowings

   6,500     6,569     Level 2     6,500     6,589     Level 2  

Accrued interest payable

   116     116     Level 2     102     102     Level 2  

Business CombinationsLoans—The fair value of loans is estimated to approximate the carrying amounts.

Deposits—The fair value of deposits is estimated to approximate the carrying amounts.

FHLB Advances—The fair value of FHLB advances is estimated to approximate the carrying amounts.

Note 18—Formation of Trinity Bancorp, Inc. and Share Exchange with Trinity Bank

During 2017, the second quarterBoard of 2013, the shareholders’Directors of Trinity Bank approved the formation of Keystone Bancshares, Inc., aone-bank holding company, for Keystone Bank, at the annual shareholders meeting. On October 1, 2013, each share of Keystone Bank’s $1 par value common stock was exchanged for one share of Keystone Bancshares,Trinity Bancorp, Inc.’s $1 par value common stock. The combination was accounted for by transferring the net assets of Keystone Bank to Keystone Bancshares, Inc. at the carrying amount. The net income of the Bank prior to the combination was approximately $2,012 and has been included in the consolidated statements of income.

On May 13, 2015,24, 2017, Trinity Bancorp, Inc. was formed. The Company’s and the CompanyBank’s respective Board of Directors approved a definitive agreement with River Financial CorporationReorganization Agreement and its subsidiary, RiverShare Exchange dated

Trinity Bank & Trust, Prattville,

Dothan, Alabama (“River”), whereby the Company will merge with and into River for a total purchase price of approximately $36.7 million. Under the terms of the agreement, the Company’s shareholders will receive 1 share of River’s common stock valued at $16.00 per share and $4.00 in cash for each share of common stock they own. The merger is subject to various terms and conditions, including stockholder and regulatory approvals and is expected to close by the end of 2015.

IndexNotes to Financial Statements

December 31, 2017 and 2016

Note 18—Formation of Trinity Bancorp, Inc. and Share Exchange with Trinity Bank (Continued)

June 28, 2017 whereby 100% of the common stock of Trinity Bank would then be owned by Trinity Bancorp, Inc., and the Stockholders of Trinity Bank became Stockholders of Trinity Bancorp, Inc. The Articles of Share Exchange were effective August 15, 2017.

Trinity Bancorp, Inc. & Trinity Bank

Consolidated Balance Sheet

As of June 30, 2019

   Trinity
Bancorp, Inc.		  Trinity Bank  Eliminations
Debit (Credit)		  Total 

Assets

     

Cash and due from banks

  $102,403  $2,536,226  $—    $2,638,629 

Interest bearing deposits with banks

   —     14,772,581   —     14,772,581 

Investment Securities—Taxable

   —     3,283,221   —     3,283,221 

InvestmentSecurities—Tax-exempt

   —     7,721,016   —     7,721,016 

Investment in Subsidiary (Equity Method)

   16,510,734   —     (16,510,734)   —   

Loans, net of unearned income

   —     130,295,011   —     130,295,011 

Less: Allowance for loan losses

   —     (2,080,825)   —     (2,080,825) 

Premises and equipment, net

   —     2,493,966   —     2,493,966 

Accrued interest receivable

   —     675,808   —     675,808 

Other real estate

   —     121,419   —     121,419 

Other assets

   21,668   1,221,461   —     1,243,129 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Assets

  $16,634,805  $161,039,884  $(16,510,734)  $161,163,955 
  

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities

     

Non-Interest Bearing Deposits

  $—     30,906,609   —     30,906,609 

Interest bearing demand deposits

   —     12,340,194   —     12,340,194 

Savings and Money Market Deposits

   —     47,017,889   —     47,017,889 

Time Deposits—Retail

   —     49,077,569   —     49,077,569 

Time Deposits—Wholesale

   —     2,575,399   —     2,575,399 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Deposits

   —     141,917,660   —     141,917,660 

Accrued expenses and other liabilities

   14,142   648,699   —     662,841 

FHLB Advances

   —     1,962,791   —     1,962,791 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Liabilities

  $14,142  $144,529,150  $—    $144,543,292 

Equity

     

Common stock

  $1,745,853  $1,749,196  $(1,749,196)  $1,745,853 

AdditionalPaid-In-Capital

   20,062   11,623,111   (100)   11,643,073 

Retained earnings

   13,688,391   1,912,268   (13,535,279)   2,065,380 

Accumulated other comprehensive income (loss)

   23,482   23,482   (23,482)   23,482 

Net Income

   1,202,117   1,202,677   (1,202,677)   1,202,117 

Treasury Stock at Cost

   (59,242)   —     —     (59,242) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Equity

  $16,620,663  $16,510,734  $(16,510,734)  $16,620,663 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Liabilities & Equity

  $16,634,805  $161,039,884  $(16,510,734)  $161,163,955 
  

 

 

  

 

 

  

 

 

  

 

 

 

Book value per share

     $9.52 

Trinity Bancorp, Inc. & Trinity Bank

Consolidated Income Statement

For the Six Months Ended June 30, 2019

   Trinity
Bancorp, Inc.		  Trinity
Bank		   Eliminations
Debit (Credit)		  Total 

Interest Income

      

Interest on Loans

  $—     3,406,243   $—     3,406,243 

Fees on Loans

   —     287,827    —     287,827 

Interest on deposits with banks

   —     163,565    —     163,565 

Investment Securities—Taxable

   —     39,142    —     39,142 

InvestmentSecurities—Tax-exempt

   —     81,605    —     81,605 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Interest Income

   —     3,978,382    —     3,978,382 

Interest Expense

      

Interest bearing demand deposits

   —     21,798    —     21,798 

Savings and Money Market Deposits

   —     236,966    —     236,966 

Time Deposits—Retail

   —     449,602    —     449,602 

Time Deposits—Wholesale

   —     17,511    —     17,511 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Interest Expense on Deposits

   —     725,877    —     725,877 

FHLB Advances

   —     26,483    —     26,483 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Interest Expense

   —     752,360    —     752,360 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net Interest Income

   —     3,226,022    —     3,226,022 

Provision for loan losses

   —     77,241    —     77,241 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net In. Inc. After Prov. for Loan Losses

   —     3,148,781    —     3,148,781 

Non Interest Income

      

Service charges and fees

   —     76,485    —     76,485 

Other noninterest income

   —     272,502    —     272,502 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Non Interest Income

   —     348,987    —     348,987 

Non Interest Expense

      

Salaries and employee benefits

   —     975,893    —     975,893 

Occupancy

   —     402,093    —     402,093 

Other noninterest expense

   560   618,011    —     618,571 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Non Interest Expense

   560   1,995,997    —     1,996,557 
  

 

 

  

 

 

   

 

 

  

 

 

 

Income Before Taxes

   (560)   1,501,771    —     1,501,211 

Undistributed Earnings of Subsidiary

   1,202,677   —      (1,202,677)   —   

Income taxes

   —     299,094     299,094 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net Income

  $1,202,117  $1,202,677   $(1,202,677)  $1,202,117 
  

 

 

  

 

 

   

 

 

  

 

 

 

Basic earnings per share

      $0.689 

Diluted earnings per share

      $0.689 

Average shares outstanding—basic

       1,745,853 

Average shares outstanding—diluted

       1,745,853 

Trinity Bancorp, Inc.

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2019

  Common
Stock		  Additional
Paid-in-
capital		  Retained
Earnings/(Deficit)		  Accumulated
Other
Comprehensive
Income		  Treasury
Stock		  Total
Stockholders’
Equity		 

BALANCES, DECEMBER 31, 2018

 $1,741,696  $11,623,111  $2,065,380  $(274,649)  $(55,100)  $15,100,438 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME

      

Net Income

  —     —     1,202,117   —     —     1,202,117 

Other Comprehensive Income, Net of Tax:

  —     —     —     —     —    

Change in Unrealized Gain (Loss) on Securities

      

Available-for-sale, Net of Deferred Income Tax

  —     —     —     298,131   —     298,131 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Comprehensive Income (Loss)

  —     —     1,202,117   298,131   —     1,500,248 
      

 

 

 

Shares Issued (Warrants exercised)

  4,697   19,962   —     —     —     24,659 

Shares Repurchased

  (540)   —     —     —     (4,142)   (4,682) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

BALANCES, JUNE 31, 2019

 $1,745,853  $11,643,073  $3,267,497  $23,482  $(59,242)  $16,620,663 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Trinity Bancorp, Inc. & Trinity Bank

Consolidated Balance Sheet

As of June 30, 2018

   Trinity
Bancorp, Inc.		  Trinity Bank  Eliminations
Debit (Credit)		  Total 

Assets

     

Cash and due from banks

  $34,253  $3,231,626  $—    $3,265,879 

Interest bearing deposits with banks

   —     10,430,879   —     10,430,879 

Investment Securities—Taxable

   —     4,181,779   —     4,181,779 

InvestmentSecurities—Tax-exempt

   —     8,311,253   —     8,311,253 

Investment in Subsidiary (Equity Method)

   14,086,998   —     (14,086,998)   —   

Loans, net of unearned income

   —     123,323,726   —     123,323,726 

Less: Allowance for loan losses

   —     (2,392,991)   —     (2,392,991) 

Premises and equipment, net

   —     2,531,634   —     2,531,634 

Accrued interest receivable

   —     562,230   —     562,230 

Other real estate

   —     227,351   —     227,351 

Other assets

   23,273   1,165,382   —     1,188,655 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Assets

  $14,144,524  $151,572,869  $(14,086,998)  $151,630,395 
  

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities

     

Non-Interest Bearing Deposits

  $—    $28,244,122  $—    $28,244,122 

Interest bearing demand deposits

   —     12,224,733   —     12,224,733 

Savings and Money Market Deposits

   —     42,857,695   —     42,857,695 

Time Deposits—Retail

   —     51,918,856   —     51,918,856 

Time Deposits—Wholesale

   —     —     —     —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Deposits

   —     135,245,406   —     135,245,406 

Accrued expenses and other liabilities

   —     79,013   —     79,013 

FHLB Advances

   —     2,161,452   —     2,161,452 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Liabilities

  $—    $137,485,871  $—    $137,485,871 

Equity

     

Common stock

  $1,744,196  $1,749,196  $ (1,749,196)  $1,744,196 

AdditionalPaid-In-Capital

   100   11,623,111   (100)   11,623,111 

Retained earnings

   11,829,574   143,994   (11,767,005)   206,563 

Accumulated other comprehensive income (loss)

   (320,755)   (320,755)   320,755   (320,755) 

Net Income

   891,409   891,452   (891,452)   891,409 

Treasury Stock at Cost

   —       —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Equity

  $ 14,144,524  $14,086,998  $ (14,086,998)  $14,144,524 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total Liabilities & Equity

  $14,144,524  $ 151,572,869  $ (14,086,998)  $151,630,395 
  

 

 

  

 

 

  

 

 

  

 

 

 

Book value per share

     $8.11 

Trinity Bancorp, Inc. & Trinity Bank

Consolidated Income Statement

For the Six Months Ended June 30, 2018

   Trinity
Bancorp, Inc.		  Trinity Bank   Eliminations
Debit (Credit)		  Total 

Interest Income

      

Interest on Loans

  $—     3,015,760   $—     3,015,760 

Fees on Loans

   —     292,690    —     292,690 

Interest on deposits with banks

   —     81,106    —     81,106 

Investment Securities—Taxable

   —     48,916    —     48,916 

InvestmentSecurities—Tax-exempt

   —     81,981    —     81,981 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Interest Income

   —     3,520,453    —     3,520,453 

Interest Expense

      

Interest bearing demand deposits

   —     19,002    —     19,002 

Savings and Money Market Deposits

   —     124,400    —     124,400 

Time Deposits—Retail

   —     374,468    —     374,468 

Time Deposits—Wholesale

   —     0    —     0 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Interest Expense on Deposits

   —     517,870    —     517,870 

FHLB Advances

   —     29,051    —     29,051 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Interest Expense

   —     546,921    —     546,921 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net Interest Income

   —     2,973,532    —     2,973,532 

Provision for loan losses

   —     48,000    —     48,000 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net In. Inc. After Prov. for Loan Losses

   —     2,925,532    —     2,925,532 

Non Interest Income

      

Service charges and fees

   —     61,886    —     61,886 

Other noninterest income

   —     136,457    —     136,457 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Non Interest Income

   —     198,343    —     198,343 

Non Interest Expense

      

Salaries and employee benefits

   —     1,088,994    —     1,088,994 

Occupancy

   —     380,392    —     380,392 

Other noninterest expense

   43   477,850    —     477,893 
  

 

 

  

 

 

   

 

 

  

 

 

 

Total Non Interest Expense

   43   1,947,236    —     1,947,279 
  

 

 

  

 

 

   

 

 

  

 

 

 

Income Before Taxes

   (43)   1,176,639    —     1,176,596 

Undistributed Earnings of Subsidiary

   891,452   —      (891,452)   0 

Income taxes

   —     285,187    —     285,187 
  

 

 

  

 

 

   

 

 

  

 

 

 

Net Income

  $ 891,409  $891,452   $ (891,452)  $891,409 
  

 

 

  

 

 

   

 

 

  

 

 

 

Basic earnings per share

      $0.513 

Diluted earnings per share

      $0.512 

Average shares outstanding—basic

       1,741,696 

Average shares outstanding—diluted

       1,746,393 

Trinity Bancorp, Inc.

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2018

  Common
Stock		  Additional
Paid-in-capital		  Retained
Earnings/(Deficit)		  Accumulated
Other
Comprehensive
Income		  Treasury
Stock		  Total
Stockholders’
Equity		 

BALANCES, DECEMBER 31, 2017

  1,744,196   11,623,111   264,163   (186,404)   (36,425)   13,408,641 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME

      

Net Income

  —     —     891,409   —     —     891,409 

Other Comprehensive Income, Net of Tax:

  —     —     —     —     —     —   

Change in Unrealized Gain (Loss) on Securities

  —     —     —      —    

Available-for-sale, Net of Deferred Income Tax

     (134,351)    (134,351) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Comprehensive Income (Loss)

  —     —     891,409   (134,351)   —     757,058 
      

 

 

 

Shares Issued

  —     —     —     —     —     —   

Shares Repurchased

  (2,500)   —     —     —     (18,675)   (21,175) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

BALANCES, JUNE 30, 2018

  1,741,696   11,623,111   1,155,572   (320,755)   (55,100)   14,144,524 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

ANNEX A

ANNEX A

AGREEMENT AND PLAN OF MERGER

A-1Annex A

Index to Financial Statements

AGREEMENT AND PLAN OF MERGER

by and between

RIVER FINANCIAL CORPORATION

and

KEYSTONE BANCSHARES,TRINITY BANCORP, INC.

dated as of

May 13, 2015June 4, 2019

A-2Annex A

Index to Financial Statements

TABLE OF CONTENTS

 

Caption

    Page 

Article 1 NAME

   A-7A-5 

1.1

  Name   A-7A-5 

Article 2 MERGER — TERMS AND CONDITIONS

   A-7A-5 

2.1

  2.1Applicable LawThe Merger   A-7A-5 

2.2

  Corporate Existence   A-8A-6 

2.3

  Articles of Incorporation and Bylaws   A-8A-6 

2.4

  Resulting Corporation’s Officers and Board; Bylaw AmendmentsBoard   A-8A-6 

2.5

  Stockholder Approval   A-9A-6 

2.6

  Further Acts   A-9A-6 

2.7

  Effective Date and Closing   A-9A-6 

2.8

  Subsidiary Bank Merger   A-9A-7

2.9

Tax TreatmentA-7 

Article 3 CONVERSION OF ACQUIRED CORPORATION STOCK

   A-10A-7 

3.1

  Conversion of KeystoneTrinity Common Stock   A-10A-7 

3.2

  Surrender of KeystoneTrinity Common Stock   A-10A-7 

3.3

  Fractional Shares   A-11A-8 

3.4

  Adjustments   A-11A-8 

3.5

  River Financial Common Stock   A-11A-8 

3.6

  Dissenting Rights   A-11A-8 

Article 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF RIVER FINANCIAL

   A-12A-8 

4.1

  Organization   A-12A-9 

4.2

  Capital Stock   A-12A-9 

4.3

  Financial Statements; Taxes   A-9

4.4

Absence of Changes or EffectsA-11

4.5

No Conflict with Other InstrumentA-12 
4.4

4.6

  Absence of Material Adverse Effect   A-13A-12 
4.5No Conflict with Other InstrumentA-15
4.6Absence of Material Adverse EffectA-15

4.7

  Approval of AgreementAgreement; Requisite Consents   A-15A-12 

4.8

Tax TreatmentA-15
4.9Title and Related MattersA-15
4.10CommitmentsA-15�� 
4.11Charter and BylawsA-16
4.12

  Subsidiaries   A-16A-12 
4.13ContractsA-16
4.14

4.9

  Litigation   A-16A-12 
4.15Material Contract DefaultsA-16
4.16No Conflict with Other InstrumentA-16
4.17

4.10

  Compliance   A-17A-13 

4.11

  4.18Governmental Authorization  RegistrationA-13

4.12

Proxy Statement   A-17A-13 
4.19

4.13

  SEC Filings   A-17A-13 
4.20Form S-4A-17
4.21BrokersA-17
4.22Government AuthorizationA-17
4.23

4.14

  Absence of Regulatory CommunicationsCommunications; Filings   A-17A-13 
4.24InsuranceA-17
4.25Benefit PlansA-18
4.26Buy-Sell AgreementA-19
4.27

4.15

  Loans; Adequacy of Allowance for Loan Losses   A-19A-14 
4.28

4.16

  Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act and Flood Disaster Protection Act   A-20A-14 

A-3Annex A

Index to Financial Statements
4.29

4.17

  Bank Secrecy Act, Foreign Corrupt Practices Act and U.S.A. Patriot Act   A-20A-14 
4.30Environmental MattersA-20
4.31Collective BargainingA-21
4.32Labor DisputesA-21
4.33Derivative ContractsA-21
4.34Intellectual PropertyA-21
4.35Technology SystemsA-22
4.36

4.18

  Disclosure   A-22A-14 
4.37

4.19

  Community Reinvestment Act Compliance   A-22A-15 

4.20

  4.38Title and Related MattersA-15

4.21

Charter and BylawsA-15

4.22

Material Contract DefaultsA-15

4.23

InsuranceA-15

4.24

Environmental MattersA-15

4.25

Collective BargainingA-16

4.26

Labor DisputesA-17

4.27

Benefit PlansA-17

4.28

Derivative ContractsA-18

4.29

Intellectual PropertyA-18

4.30

Registration StatementA-18

4.31

Form S-4A-19

4.32

Intended Tax TreatmentA-19

4.33

Financial CapabilityA-19

4.34

BrokersA-19

4.35

  No Additional Representations   A-22A-19 

Article 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF KEYSTONETRINITY

   A-23A-19 

5.1

  Organization   A-23A-20 

5.2

  Capital Stock   A-23A-20 

5.3

  Subsidiaries   A-23A-20 

5.4

  Financial Statements; Taxes   A-20

5.5

Absence of Changes or EffectsA-21

5.6

Title and Related MattersA-22

5.7

CommitmentsA-23 

5.8

  5.5Charter and BylawsA-23

5.9

LitigationA-23

5.10

Material Contract DefaultsA-23

5.11

No Conflict with Other InstrumentA-23

5.12

Governmental AuthorizationA-23

5.13

Absence of Regulatory Communications; FilingsA-24

5.14

  Absence of Material Adverse Effect   A-24 

5.15

  5.6Insurance  Title and Related MattersA-24

5.16

Benefit PlansA-24

5.17

Buy-Sell Agreement   A-25 

5.18

  5.7Brokers  CommitmentsA-25

5.19

Approval of Agreement   A-26 

5.20

  5.8Charter and BylawsDisclosure   A-26 

5.21

  5.9LitigationProxy Statement   A-26 
5.10Material Contract DefaultsA-27
5.11No Conflict with Other InstrumentA-27
5.12Governmental AuthorizationA-27
5.13Absence of Regulatory Communications; FilingsA-27
5.14Absence of Material Adverse ChangeA-27
5.15InsuranceA-27
5.16Benefit PlansA-27
5.17Buy-Sell AgreementA-29
5.18BrokersA-29
5.19Approval of AgreementsA-29
5.20DisclosureA-29
5.21Proxy StatementA-29

5.22

  Loans; Adequacy of Allowance for Loan Losses   A-29A-26 

5.23

  Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act and Flood Disaster Protection Act   A-30A-26 

5.24

  Bank Secrecy Act, Foreign Corrupt Practices Act and U.S.A. Patriot Act   A-30A-27 

5.25

  Environmental Matters   A-30A-27 

5.26

  Collective Bargaining   A-31A-28 

5.27

  Labor Disputes   A-31A-28 

5.28

  Derivative Contracts   A-31A-28 

5.29

  Intellectual Property   A-31A-28 

5.30

  Technology Systems   A-32A-28 

5.31

  Community Reinvestment Act Compliance   A-32A-29 

5.32

  5.32Transaction CostsA-29

5.33

Termination PenaltiesA-29

5.34

  No Additional Representations   A-32A-29 

Article 6 ADDITIONAL COVENANTS

   A-32A-29 

6.1

  Additional Covenants of River Financial   A-32A-29 

6.2

  Additional Covenants of KeystoneTrinity   A-38A-34 

Article 7 MUTUAL COVENANTS AND AGREEMENTS

   A-41A-37 

7.1

  Best Efforts, Cooperation   A-41A-37 

7.2

  7.2Press ReleasePublic Announcements   A-42A-37 

7.3

  7.3Preparation of Proxy Statement and Registration StatementA-37

7.4

  Mutual Disclosure   A-42A-38 

7.4

7.5

  Access to Properties and Records   A-42A-38 

A-4Annex A

Index to Financial Statements
7.5

7.6

  Notice of Adverse Changes   A-42
7.6Plan of ReorganizationA-42
7.7Employment TermsA-42A-39 

Article 8 CONDITIONS TO OBLIGATIONS OF ALL PARTIES

   A-43A-39 

8.1

  Approval by Shareholders   A-43A-39 

8.2

  Regulatory Authority Approval   A-43A-39 

8.3

  Litigation   A-43A-39 

8.4

  Registration Statement   A-43
8.5Authorized SharesA-43
8.6Establishing the Number of Directors of River FinancialA-43A-39 

Article 9 CONDITIONS TO OBLIGATIONS OF KEYSTONETRINITY

   A-44A-40 

9.1

  Representations, Warranties and Covenants   A-44A-40 

9.2

  Adverse Changes   A-44A-40 

9.3

  Closing Certificate   A-44A-40 

9.4

  Fairness Opinion   A-45A-40 

9.5

  Other Matters   A-45A-41 

9.6

  Material Events   A-45A-41 

9.7

Accountant LetterA-45
9.8

  Tax Opinion   A-45A-41 
9.9

9.8

  No Superior Proposal   A-45
9.10DissentersA-45A-41 

Article 10 CONDITIONS TO OBLIGATIONS OF RIVER FINANCIAL

   A-45A-41 

10.1

  Representations, Warranties and Covenants   A-45A-41 

10.2

  Adverse Changes   A-45A-41 

10.3

  Closing Certificate   A-46A-41 

10.4

  10.4Support Agreements and Claims LettersA-42

10.5

  Other Matters   A-46A-42 
10.5

10.6

  Dissenters   A-46A-42 
10.6

10.7

  Material Events   A-46A-42 
10.7Accountant LetterA-46

10.8

Tax OpinionA-46
10.9

  Fairness Opinion   A-47A-42 

Article 11 TERMINATION OF REPRESENTATIONS AND WARRANTIES

   A-47A-42 

Article 12 NOTICES

   A-47A-43 

Article 13 AMENDMENT OR TERMINATION

   A-48A-44 

13.1

  Amendment   A-48A-44 

13.2

  Termination   A-48A-44 

13.3

  Damages   A-49A-45 

Article 14 DEFINITIONS

   A-50A-45 

Article 15 MISCELLANEOUS

   A-56A-52 

15.1

  Expenses   A-56A-52 

15.2

  Benefit and Assignment   A-57A-53 

15.3

  Governing Law   A-57A-53 

15.4

  Counterparts   A-57A-53 

15.5

  Headings   A-57A-53 

15.6

  Severability   A-57A-53 

15.7

  Construction   A-57A-53 

15.8

  Return of Information   A-57A-53 

15.9

  Equitable Remedies   A-57A-53 

15.10

  Attorneys’ Fees   A-57A-53 

15.11

  No Waiver   A-58A-54 

15.12

  Remedies Cumulative   A-58A-54 

15.13

  Entire Contract   A-58A-54 

Exhibit A – Bank Merger Agreement

A-5Annex A

Index to Financial Statements

EXHIBIT A—Agreement and Plan of Merger (Bank)

A-60

EXHIBIT B—Exhibit B – Support Agreement (Keystone)

A-64

EXHIBIT C—Support Agreement (River Financial)

A-67

Exhibit C – Claims Letter

A-6Annex A

Index to Financial Statements
Exhibit D – Employee Term Sheet

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the 13th4th day of May, 2015,June, 2019, by and betweenKEYSTONE BANCSHARES, TRINITY BANCORP, INC.(“Keystone”Trinity”), an Alabama corporation, andRIVERFINANCIAL CORPORATION (“River Financial”Financial”), an Alabama corporation.

WITNESSETH

WHEREAS, KeystoneTrinity operates as a bank holding company for its wholly owned subsidiary, KeystoneTrinity Bank (“Keystone Bank”Trinity Bank”), an Alabama banking corporation, with its principal office in Auburn,Dothan, Alabama; and

WHEREAS, River Financial operates as a bank holding company for its wholly owned subsidiary, River Bank & Trust (“River Bank”Bank”), an Alabama banking corporation, with its principal office in Prattville, Alabama; and

WHEREAS, the board of directors of KeystoneTrinity has (i) approved this Agreement and declared this Agreement and the transactions contemplated hereby, including the Merger (as defined herein), advisable and in the best interests of KeystoneTrinity and its shareholders, (ii) authorized and approved the execution, delivery and performance by KeystoneTrinity of this Agreement and the consummation of the transactions contemplated hereby, subject to the terms and conditions herein, and (iii) resolved and agreed to recommend approval of this Agreement by the shareholders of Keystone;Trinity entitled to vote; and

WHEREAS, the board of directors of River Financial has (i) approved this Agreement and declared this Agreement and the transactions contemplated hereby, including the Merger, (as defined herein), advisable and in the best interests of River Financial and its shareholders, (ii) authorized and approved the execution, delivery and performance by River Financial of this Agreement and the consummation of the transactions contemplated hereby, subject to the terms and conditions herein, and (iii) has approved the issuance of shares of River Financial Common Stock in connection with the Merger, and (iv) resolved and agreed to recommend approval of this Agreement by the shareholders of River Financial;Merger; and

WHEREAS, for U.S. federal income Tax purposes it is intended that each of the parties intends that, for federal income tax purposes,Merger and the Subsidiary Bank Merger (as defined herein) shall qualify as a reorganization“reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, of 1986, as amended, and by executing this Agreement is intended to adoptbe and is adopted as a plan“plan of reorganizationreorganization” for the Merger for purposes of Section 368(a)Sections 354 and 361 of the Code; and

WHEREAS, River Financial desires to acquire all of the issued and outstanding shares of common stock of Trinity in exchange for the Merger Consideration;

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties hereto agree as follows:

ARTICLE 1

NAME

1.1 NameName.. The name of the corporation resulting from the Merger shall be “River Financial Corporation.”

ARTICLE 2

MERGER — TERMS AND CONDITIONS

2.1 Applicable LawThe Merger.. On the Effective Date, KeystoneTrinity shall be merged (the “Merger”) with and into River Financial with River Financial as the surviving corporation (herein referred to as the “Resulting Corporation”“Resulting Corporation” whenever reference is made to it as of the time of Merger or thereafter). The Merger

2.2 Corporate Existence. On the Effective Date, the corporate existence of Trinity shall, be undertaken pursuant to the provisions of and with the effectas provided in the ABCL.ABCL, be merged into and continued in River Financial, as the Resulting Corporation in the Merger. The Resulting Corporation shall then be deemed to be the same corporation as Trinity and River Financial. The offices and facilities of KeystoneTrinity and of River Financial shall become the offices and facilities of the Resulting Corporation.

A-7Annex A

Index to Financial Statements

2.2 Corporate Existence. On the Effective Date, the corporate existence of Keystone and of River Financial shall, as provided in the ABCL, be merged into and continued in the Resulting Corporation, and the Resulting Corporation shall be deemed to be the same corporation as Keystone and River Financial. All rights, privileges, powers, franchises and interests of KeystoneTrinity and River Financial, respectively, in and to every type of property (real, personal and mixed) and choses in action shall be transferred to and vested in the Resulting Corporation by virtue of the Merger without any deed or other transfer. All liabilities, obligations, and indebtedness of every kind and description of Trinity and River Financial, respectively, as of the Effective Date shall be transferred to and assumed by the Resulting Corporation by virtue of the Merger without any separate assignment, assumption, or other transfer. The Resulting Corporation on the Effective Date, and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations and all other rights and interests as trustee, executor, administrator, transfer agent and registrar of stocks and bonds, guardian of estates, assignee, and receiver and in every other fiduciary capacity and in every agency, and capacity, in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by KeystoneTrinity and River Financial, respectively, immediately before the Effective Date.

2.3 Articles of Incorporation and BylawsBylaws.. On the Effective Date, and subject to Section 2.4,following the Merger, the articles of incorporation and bylaws of the Resulting Corporation shall be the articles of incorporation and bylaws of River Financial as they existed immediately before the Effective Date.

2.4 Resulting Corporation’s Officers and Board; Bylaw AmendmentsBoard..

(a) The board of directors of the Resulting Corporation on the Effective Date shall consist of seven (7) members, three (3) of which shall be directors of Keystone selected initially by the board of directors of Keystone prior to the Effective Date (“Legacy Keystone Directors”) and four (4) of which shall be directors of River Financial selected initially by the board of directors of River Financial, priorprovided that Brian McLeod, or such other designee selected by Trinity and reasonably acceptable to the Effective Date (“Legacy River Financial Directors”). Upon the Effective Date, the bylaws of River Financial, shall be revised to provide that through the fourth (4th) anniversary of the Effective Date of the Merger, all vacancies on the board of directors created by the cessation of service ofadded as a Legacy Keystone Director shall be filled by a nominee proposed by a majority of the remaining Legacy Keystone Directors, and all vacancies on the board of directors of River Financial created by the cessation of service of a Legacy River Financial Director shall be filled by a nominee proposed by a majority of the remaining Legacy River Financial Directors, and all directors so nominated and appointed or elected to the board of directors by proposal of the Legacy Keystone Directors shall be considered “Legacy Keystone Directors” and all directors so nominated and appointed or elected to the board of directors of River Financial by proposal of the Legacy River Financial Directors shall be considered “Legacy River Financial Directors.” Upon the Effective Date, Larry Puckett shall serve as Chairman of the Board of the Resulting Corporation, and Murray Neighbors shall serve as Vice-Chairman of the Board of the Resulting Corporation.

(b) Upon the Effective Date, the bylaws of River Financial shall be revised to provide that for the period of four years following the Effective Date, the following transactions shall require a vote of 65 percent of the existing members of the board of directors of River Financial:

(i) a merger or consolidation of River Financial with or into any other entity;

(ii) an acquisition of River Financial by a statutory exchange offer, tender offer, sale of all or substantially all the assets of River Financial or other comparable transaction;

(iii) a change in the Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer, President, Executive Vice President or Chief Financial Officer or a reduction in the compensation or benefits of any of the foregoing;

(iv) the declaration and payment of cash dividends;

(v) an increase in the size of the board of directors to more than seven (7) members; and

A-8Annex A

Index to Financial Statements

(vi) voluntary registration or deregistration at any time of the common stock of River Financial pursuant to the 1933 Act or the 1934 Act.

Any amendment to such provision shall also require a vote of 65 percent of the

existing members of the board of directors.

(c) In addition to any other executive officers the board of directors may from time to time designate, the following persons shall have the management positionsdirector of River Financial as of the Effective Date:

(i) Jimmy Stubbs — Chief Executive Officer

(ii) Ray Smith — President

(iii) Boles Pegues — Executive Vice President

(iv) Ken Givens — ChiefDate (Mr. McLeod or such other designee, the “Trinity Director”). The Trinity Director shall make a good faith effort to own or acquire 10,000 shares of River Financial OfficerCommon Stock within three years following the Effective Date.

2.5 Stockholder ApprovalApproval.. This Agreement shall be submitted to the shareholders of KeystoneTrinity at the Keystone Shareholders Meeting and to thea special or annual meeting of shareholders of River Financial at the River FinancialTrinity (the “Trinity Shareholders Meeting (together the “Shareholders Meetings””) to be held as promptly as practicable consistent with the satisfaction of the conditions set forth in this Agreement. Upon approval by the requisite vote of the shareholders of Keystone and River Financial,Trinity, as required by the ABCL, the Merger shall become effective as soon as practicable thereafter in the manner provided in Section 2.7 hereof.

2.6 Further ActsActs.. If, at any time after the Effective Date, the Resulting Corporation shall consider or be advised that any further assignments or assurances in law or any other acts are necessary or desirable (i) to vest, perfect, confirm or record, in the Resulting Corporation, title to and possession of any property or right of Keystone orTrinity acquired by River Financial acquired as a result of the Merger, or (ii) otherwise to carry out the purposes of this Agreement, Keystone and River Financial and theirthe proper officers and directors shallof the Resulting Corporation are fully authorized in the name of Trinity or River Financial to execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to, and possession of, such property or rights in the Resulting Corporation and otherwise to carry out the purposes of this Agreement; and the proper officers and directors of the Resulting Corporation are fully authorized in the name of Keystone or River Financial, or otherwise, to take any and all such action.Agreement.

2.7 Effective Date and ClosingClosing.. Subject to the terms of all requirements of Law and the conditions specified in this Agreement, the Merger shall become effective on the date and time specified in the Articles of Merger to be filed with the Secretary of State of the State of Alabama (such time being herein called the “Effective Date”“Effective Date”). Assuming all other conditions stated in this Agreement have been or will be satisfied (or waived) as of the Closing, the Closing shall take place at the offices of River Financial, in Prattville, Alabama, at 5:00 p.m. as to the Merger on a date specified by River Financial that shall be as soon as reasonably practicable after the later to occur of (i) the Stockholder Meetings orTrinity Shareholders Meeting, and (ii) receipt of all required regulatory approvals under Section 8.2 and the expiration of any applicable waiting periods, or at such other place and time, and in such manner, that the Parties may mutually agree. It is the intention of the Parties that if reasonably practical, the Closing shall take place on a month that is not the last day of a fiscal quarter.

2.8 Subsidiary Bank MergerMerger.. As soon as practicable after completion of the Effective Date, KeystoneMerger, Trinity Bank will merge with and into River Bank (herein referred to as the “Resulting Bank”“Resulting Bank” whenever reference is made to it as of the time of the Merger or thereafter) substantially in accordance with the terms of the Bank Merger Agreement set forth as Exhibit A hereto (the “Subsidiary“Subsidiary Bank Merger”Merger”). KeystoneTrinity will cooperate with River Financial, including the call of any special meetings of the board of directors of KeystoneTrinity Bank and the filing of any regulatory applications, in the execution and filing of appropriate documentation relating to such merger. The Bank Merger Agreement shall provide that the board of directors of the Resulting Bank shall consist of the members of each of Keystone Bank and River Bank as of the effective date of the Subsidiary Bank Merger. TheMerger,provided that Robbin Thompson, or such other designee selected by Trinity and reasonably acceptable to River Financial, shall be added as a director of River Bank as of the effective date of the Subsidiary Bank Merger (Mr. Thompson or such other designee, the “Trinity Bank Director”). The Trinity Bank Director shall make a good faith effort to own or acquire 10,000 shares of River Financial Common Stock within three years of the Effective Date.

2.9 Tax Treatment. It is intended that, for U.S. federal income Tax purposes, each of the Merger and the Subsidiary Bank Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and this Agreement is intended to be and is adopted as a “plan of reorganization” for the Merger for purposes of Sections 354 and 361 of the Code. Each of the Parties shall also provideuse its commercially reasonable efforts to cause the Merger and the Subsidiary Bank Merger to qualify for this treatment, including considering and negotiating in good faith such amendments to this Agreement as may reasonably be required in order to obtain such qualification (it being understood that in additionno Party will be required to agree to any such amendment). The Parties shall report the Merger and the other executive officerstransactions contemplated by this Agreement, including for U.S. federal income Tax purposes, in a manner consistent with such qualification unless, and then only to the board of directors

A-9Annex A

Indexextent, an alternative position is required pursuant to Financial Statements

may from timea final determination under applicable Law. No Party shall take any action or fail to time designate, the officerstake any action, or allow any affiliate to take any action or fail to take any action, that would reasonably be expected to prevent any of the Resulting Bank shall include Jimmy Stubbs as Chief Executive Officer, Ray Smith as President, Boles Pegues as Executive Vice President, Ken Givens as Chief Financial Officer, and that Larry Puckett shall serve as Chairman of the Board and Murray Neighbors shall serve as Vice Chairman of the Board.foregoing.

ARTICLE 3

CONVERSION OF ACQUIRED CORPORATION STOCK

3.1 Conversion of KeystoneTrinity Common StockStock..

(a) On the Effective Date, by virtue of the Merger and without any action on the part of River Financial or Trinity, or any of their shareholders, each share of common stock, par value $.01 per share of KeystoneTrinity (the “Keystone“Trinity Common Stock”Stock”) outstanding and held of record by Keystone’sTrinity’s shareholders shall be converted by operation of law and without any action by any holder thereof into the right to receive a combination of shares of River Financial Common Stock and cash (the “Merger Consideration”“Merger Consideration”) as specified below. Specifically, each outstanding share of KeystoneTrinity Common Stock shall (subject to sectionSection 3.4 and Section 3.6 hereof), be converted into $4.00$3.50 in cash and 1.0000.44627 shares of River Financial Common Stock (based on a cash value of $27.00 per whole share of River Financial Common Stock (subject to adjustment pursuant to Section 3.4, the “Cash Value”)),provided fractions of shares shall not be issued. Fractions will be paid in cash atbased on the rate of $20.00 per whole share (the “Cash Value”).Cash Value. Subject to Section 3.4 and Section 3.6 hereof, the total aggregate Merger Consideration shall be approximately $27,072,138. Shares of KeystoneTrinity Common Stock held by KeystoneTrinity (other than as fiduciary) shall automatically be canceled and retired and all rights with respect thereto shall cease to exist, and no consideration shall be delivered in exchange therefor.

(b) (i) On the Effective Date, River Financial shall assume all Keystone Options and Keystone Warrants outstanding, and each such Keystone Option and Keystone Warrant shall cease to represent a right to acquire Keystone common stock and shall, instead, represent the right to acquire 1.2500 shares of River Financial Common Stock for each one share of Keystone Common Stock subject to such Keystone Options and Keystone Warrants, provided that no fractions of shares of River Financial Common Stock shall be issued and the number of shares of River Financial Common Stock to be issued upon the exercise of Keystone Options and Keystone Warrants, if a fractional share exists, shall equal the number of whole shares obtained by rounding to the nearest whole number, giving account to such fraction, or by paying for such fraction in cash, based upon the Cash Value. The exercise price for the acquisition of River Financial Common Stock shall be the exercise price for each share of Keystone Common Stock subject to such Keystone Options or Keystone Warrants divided by 1.2500, adjusted appropriately for any rounding to whole shares. It is intended that the assumption by River Financial of the Keystone Options shall be undertaken in a manner that will not constitute a “modification” as defined in Section 424 of the Code as to any stock option which is an “incentive stock option.” The Keystone Disclosure Letter sets forth the names of all persons holding Keystone Options and Keystone Warrants, the number of shares of Keystone Common Stock subject to such Keystone Options and Keystone Warrants, the exercise price and the expiration date.

(ii) River Financial shall file at its expense a registration statement with the SEC on Form S-8 or such other appropriate form (including the Form S-4 to be filed in connection with the Merger) with respect to the shares of River Financial Common Stock to be issued pursuant to Keystone Options and Keystone Warrants, and shall use its reasonable best efforts to maintain the effectiveness of such registration statement for so long as River Financial is obligated to file such reports with the SEC under Section 15(d) or Section 12 of the 1934 Act. Such shares shall also be registered or qualified for sale under the securities laws of any state in which registration or qualification is necessary.

3.2 Surrender of KeystoneTrinity Common StockStock.. After On and after the Effective Date, each holder of an outstanding certificate or certificates which prior thereto represented shares of Keystone Common Stock who is entitled to receive River FinancialTrinity Common Stock shall be entitled, upon surrender to River Financial of a letter of transmittal, in form and substance mutually agreed upon by the Parties, together with such holder’s certificate or certificates representing shares of KeystoneTrinity Common Stock (or an affidavit or affirmation by such holder of the loss, theft, or destruction of such certificate or certificates in such form as River Financial or its transfer agent may reasonably require and an indemnity agreement if River Financial or its transfer agent reasonably requires, a bond of indemnity in form and amount, and

A-10Annex A

Index to Financial Statements

issued by such sureties, as River Financial may reasonably require),requires) to receive in exchange therefor a certificate or certificates

representing the number of whole shares of River Financial Common Stock and cash into and for which the shares of KeystoneTrinity Common Stock so surrendered shall have been converted, such certificates to be of such denominations and registered in such names as such holder may reasonably request. Until so surrendered and exchanged, each such outstanding certificate which, prior to the Effective Date, represented shares of KeystoneTrinity Common Stock and which is to be converted into River Financial Common Stockthe Merger Consideration shall for all purposes evidence ownership of the River Financial Common Stock (and cash) into and for which such shares shall have been so converted, except that no dividends or other distributions with respect to such River Financial Common Stock shall be made until the certificates previously representing shares of KeystoneTrinity Common Stock shall have been properly tendered.

3.3 Fractional SharesShares.. No fractional shares of River Financial Common Stock shall be issued, and each holder of shares of KeystoneTrinity Common Stock having a fractional interest arising upon the conversion of such shares into shares of River Financial Common Stock shall, at the time of surrender of the certificates previously representing KeystoneTrinity Common Stock, be paid by River Financial the Cash Value for such fractions.

3.4 AdjustmentsAdjustments.. In the event that prior to the Effective Date River Financial Common Stock shall be changed into a different number of shares or a different class of shares by reason of any recapitalization or reclassification, stock dividend, combination, stock split, or reverse stock split of the River Financial Common Stock, an appropriate and proportionate adjustment shall be made in the number of shares of River Financial Common Stock into which the KeystoneTrinity Common Stock shall be converted. In the event that, at any time or from time to time prior to the Effective Date, River Financial issues River Financial Common Stock at a price less than the Cash Value as initially set in Section 3.1 (other than as a result of the exercise of options to purchase River Financial Common Stock under River Financial option plans or other benefit plans or arrangements that are outstanding as of the date of this Agreement), the Cash Value shall automatically be downward adjusted to the lowest such issuance price.

3.5 River Financial Common StockStock.. The shares of River Financial Common Stock issued and outstanding immediately before the Effective Date shall continue to be issued and outstanding shares of the Resulting Corporation.

3.6 Dissenting RightsRights.. Any shareholder of Keystone or River FinancialTrinity who shall not have voted in favor of this Agreement and who has complied with the applicable procedures set forth in the ABCL, relating to rights of dissenting shareholders, shall be entitled to receive payment for the fair value of the Keystone Common Stock or River FinancialTrinity Common Stock held by such shareholder. If after the Effective Date, a dissenting shareholder of either Keystone or River FinancialTrinity fails to perfect, or effectively withdraws or loses his right to appraisal and payment for his shares of KeystoneTrinity Common Stock, River Financial shall issue and deliver the Merger Consideration to which such holder of shares of KeystoneTrinity Common Stock is entitled under Section 3.1 (without interest) upon surrender by such holder of the certificate or certificates representing shares of KeystoneTrinity Common Stock held by him or her or, in the case of River Financial, such shareholder shall retain such shares of River Financial Common Stock as to which such rights were not perfected.

her.

A-11Annex A

Index to Financial Statements

ARTICLE 4

REPRESENTATIONS, WARRANTIES AND COVENANTS OF RIVER FINANCIAL

Except as disclosed and set forth in the disclosure letter delivered by River Financial to KeystoneTrinity prior to the execution of this Agreement (the “River“River Financial Disclosure Letter”Letter”) (which sets forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in this Article 4, or to one or more of River Financial’s covenants contained herein (provided(provided that the mere inclusion of an item in the River Financial Disclosure Letter as an exception to a representation or warranty shall not be deemed an admission that such item represents a material exception or material fact, event or circumstance or

that such item has had or would have a Material Adverse Effect)), River Financial represents, warrants and covenants to and with KeystoneTrinity as follows:

4.1 Organization.Organization.

(a) River Financial is aan Alabama corporation and River Bank is an Alabama banking corporation, each duly organized, validly existing and in good standing under the Laws of the State of Alabama. Each of River Financial and River Bank has the necessary corporate powers to carry on its business as presently conducted and is qualified to do business in every jurisdiction in which the character and location of the Assets owned by it or the nature of the business transacted by it requires qualification, or in whichexcept where the failure to qualify could,would not reasonably be expected to have, individually or in the aggregate, have a Material Adverse Effect.Effect on River Financial.

(b) River Financial has no direct Subsidiaries other than River Bank, and there are no Subsidiaries of River Bank.Bank, other than River Regions Properties LLC. River Financial owns all of the issued and outstanding capital stock of River Bank free and clear of any liens, claims or encumbrancesLiens and River Bank owns all of the issued and outstanding membership interests of River Regions Properties LLC free and clear of any kind.Liens. All of the issued and outstanding shares of capital stock of River Bank and all of the issued and outstanding membership interests of River Regions Properties LLC have been validly issued and are fully paid and non-assessable. As of the date of this Agreement, there were 5,000,000 shares of common stock, par value $1.00 per share, authorized of River Bank, 3,043,612 of which are issued and outstanding and wholly owned by River Financial. River Bank has no arrangements or commitments obligating it to issue shares of its capital stock or any securities convertible into or having the right to purchase shares of its capital stock. River Regions Properties LLC has no arrangements or commitments obligating it to issue membership interests in it or any securities convertible into or having the right to purchase membership interests in it.

4.2 Capital Stock.Stock.

(a) The authorized capital stock of River Financial consists of 5,000,00010,000,000 shares of Common Stock, $1.00 par value per share (the “River Financial Common Stock”), of which as of March 30, 2015, 2,993,137the date of this Agreement, 5,703,547 shares were validly issued and outstanding, fully paid and nonassessable and are not subject to preemptive rights, and 380,000368,625 shares subject to options. Other than such options, River Financial does not have any arrangement or commitments obligating it to issue shares of its capital stock or any securities convertible into or having rights to purchase shares of its capital stock. All outstanding shares of its capital stock, and warrants. Subjectall outstanding options to Section 8.5 hereof, theacquire its capital stock, have been issued or granted, as applicable, in compliance in all material respects with all applicable securities Laws. The shares of River Financial Common Stock to be issued in the Merger are duly authorized and, when so issued, will be validly issued and outstanding, fully paid and nonassessable, will have been registered under the 1933 Act and will have been registered or qualified under the securities lawsfree and clear of all jurisdictions in which such registration or qualification is required, based upon information provided by Keystone.any Liens.

(b) The authorized capital stock of each Subsidiary of River Financial is validly issued and outstanding, fully paid and nonassessable, and each Subsidiary is wholly owned, directly or indirectly, by River Financial.

4.3 Financial Statements; Taxes.Taxes.

(a) River Financial has delivered or made available to KeystoneTrinity copies of the following financial statements of River Financial:Financial, as filed with the SEC:

(i) Consolidated balance sheetsstatements of financial condition (balance sheets) as of December 31, 2013, and2017, December 31, 2014;2018, and March 31, 2019;

(ii) Consolidated statements of operationsincome (operations) for each of the three years ended December 31, 2012, 20132016, 2017 and 2014;2018 and the quarter ended March 31, 2019;

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(iii) Consolidated statements of cash flows for each of the three years ended December 31, 2012, 20132016, 2017 and 2014;2018 and the quarter ended March 31, 2019;

(iv) Consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018; and

(v) Consolidated statements of changes in shareholders’stockholders’ equity for the three years ended December 31, 2012, 20132016, 2017 and 2014.2018 and the quarter ended March 31, 2019.

(b) All such financial statements are in all material respects in accordance with the books and records of River Financial and have been prepared in accordance with GAAP and SEC Regulation S-X applied on a consistent basis throughout the periods indicated, all as more particularly set forth in the notes to such statements. Each of the consolidated balance sheets presents fairly as of its date the consolidated financial condition of River Financial and its Subsidiaries. Except as and to the extent reflected or reserved against it in such balance sheets (including the notes thereto), neither River Financial nor River Bank had, as of the dates of such balance sheets, any material Liabilities or obligations (absolute or contingent) of a nature customarily reflected in a balance sheet or the notes thereto. The statements of consolidated income, shareholders’ equitycash flows, comprehensive income and changes in consolidated financial positionstockholders’ equity present fairly the results of operations, cash flows, comprehensive income and changes in financial positionstockholders’ equity of River Financial and its Subsidiaries for the periods indicated. The foregoing representations, insofar as they relate to any unaudited interim financial statements of River Financial which may be presented to Keystone,Trinity or that have been filed with the SEC, are subject in all cases to normal recurring year-end adjustments and the omission of footnote disclosure. All journal entries have been appropriately made in the books and records of River Financial.

(b)(c) All income and other material Tax returns required to be filed by or on behalf of a River Financial Company have been timely filed (or requests for extensions therefor have been timely filed and granted and have not expired), and all such returns filed are complete and accurate in all material respects. All Taxes shown on these returns to be due and all additional assessments received have been paid. The amounts recorded for Taxes on the balance sheets provided under Section 4.3(a)(i) are, to the Knowledge of River Financial, sufficient in all material respects for the payment of all unpaid federal, state, county, local, foreign orand other Taxes (including any interest or penalties) of all of the River Financial Companies accrued for or applicable to the period ended on the dates thereof, and all years and periods prior thereto and for which any River Financial Company may at such dates have been liable in its own right or as transferee of the Assets of, or as successor to, any other corporation or other party. No audit, examination or investigation is presently being conducted or, to the Knowledge of River Financial, threatened by any taxing authority which is likely to result in a material Tax Liability, no material unpaid Tax deficiencies or additional liabilitiesliability of any sort havehas been proposed by any governmental representative and no agreements for extension of time for the assessment of any material amount of Tax have been entered into by or on behalf of River Financial.any River Financial Company. No River Financial Company has withheld from its employees (and timely paid toexecuted an extension or waiver of any statute of limitations on the appropriate governmental entity) proper and accurate amounts for all periodsassessment or collection of any Tax due that is currently in material compliance with all Tax withholding provisions of applicable federal, state, foreign and local Laws (including without limitation, income, social security and employment Tax withholding for all types of compensation).effect.

(c)(d) Each River Financial Company has withheld from its employees (and timely paid to the appropriate government entity) proper and accurate amounts for all periods in material compliance with all Tax withholding provisions of applicable federal, state, foreign and local Laws (including without limitation, income, social security and employment Tax withholding for all types of compensation). Each River Financial Company is in material compliance with, and its records contain all information and documents (including properly completed IRS Forms W-9) reasonably necessary to comply with, all applicablematerial information reporting and Tax withholding requirements under federal, state and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Code.

4.4 Absence of Material Adverse Effect.Changes or Effects. Since the date of the most recent balance sheet provided under Section 4.3(a)(i) above, except in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement, no River Financial Company has:

(a) issued, delivered or agreed to issue or deliver any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury), or adjusted, split, reclassified any shares of River Financial Common Stock or any capital stock of any Subsidiary;

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the exercise, pursuant to their terms, of any options outstanding at the date of this Agreement or issued in the ordinary course;

(b) borrowed or agreed to borrow any funds or incurred, or become subject to, any Liability (absolute or contingent) except customary banking transactions and borrowings, obligations (including purchaseFHLB advances and purchases of federal funds) and Liabilities incurred in the ordinary course of business and consistent with past practice;

(c) paid any material obligation or Liability (absolute or contingent) other than current Liabilities reflected in or shown on the most recent balance sheet referred to in Section 4.3(a)(i) and current Liabilities incurred since that date in the ordinary course of business and consistent with past practice;

(d) declared or made, or agreed to declare or make, any payment of dividends or distributions of any Assets of any kind whatsoever to shareholders (except for inter-company dividends or distributions), or purchased or redeemed, or agreed to purchase or redeem except for purchases that may be used for ESOP purposes or isolated repurchases not material to River Financial, directly or indirectly, or otherwise acquire, any of its outstanding securities;securities, except for dividends and distributions paid in the ordinary course of business and consistent with past practice;

(e) except in the ordinary course of business, sold or transferred, or agreed to sell or transfer, any of its Assets, or canceled, or agreed to cancel, any debts or claims;

(f) except in the ordinary course of business, entered or agreed to enter into any agreement or arrangement granting any preferential rights to purchase any of its Assets, or requiring the consent of any party to the transfer and assignment of any of its Assets;

(g) suffered any Losses or waived any rights of value which in either event in the aggregate are materialwould have a Material Adverse Effect on River Financial considering its business as a whole;

(h) except in the ordinary course of business, made or permitted any amendment or termination of any Contract agreement or license to which it is a party if such amendment or termination is material considering its business as a whole or made any, or agreed to make, any capital expenditures in amounts exceeding $100,000 individually or $250,000 as a whole;

(i) except in accordance with normal and usual practice, made any accrual or arrangement for or payment of bonuses or special compensation of any kind or agreed to make any severance or termination pay to any present or former officer or employee;

(j) except in accordance with normal and usual practice, increased the rate of compensation payable to or to become payable to any of its officers or employees or made any material increase in any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement or other employee benefit plan, payment or arrangement made to, for or with any of its officers or employees;

(k) received notice or had Knowledge or reason to believe that any of its substantial customers has terminated or intends to terminate its relationship, which termination would have a Material Adverse Effect on its financial condition or results of operations, business, Assets or properties;operations;

(l) failed to operate its business in the ordinary course so as to preserve its business substantially intact and to preserve in a material way the goodwill of its customers and others with whom it has business relations; or

(m) entered into any other material transaction other than in the ordinary course of business; or

(n) agreed in writing, or otherwise, to take any action described in clauses (a) through (m) above.(l) above, excluding (k).

Between the date hereof and the Effective Date, no River Financial Company, without the express written approval of Keystone, will do any of the things listed in clauses (a) through (n) of this Section 4.4 except as permitted therein or as contemplated in this Agreement, and no River Financial Company will enter into or amend any material Contract, other than Loans or renewals thereof entered into in the ordinary course of business, without the express written consent of Keystone. Notwithstanding the foregoing, between the date hereof and the Effective Date, River Financial may issue, deliver or agree to issue or deliver shares of River Financial Common Stock to any person exercising River Financial options or warrants.

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4.5 No Conflict with Other InstrumentInstrument.. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in a breach of or constitute a Default (without regard to the giving of notice or the passage of time) under any material Contract indenture, mortgage, deed of trust or other material agreement or instrument to which River Financial or any of its Subsidiaries is a party or by which they or their Assets may be bound; will not conflict with any provision of the articles of incorporation or bylaws of River Financial or the articles of incorporation or bylaws of any of its Subsidiaries; and will not violate any provision of any Law regulation, judgment or decreeOrder binding on them or any of their Assets.

4.6 Absence of Material Adverse EffectEffect.. Since the date of the most recent balance sheet provided under Section 4.3(a)(i) above, there have been no events, changes or occurrences which have had or are reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on River Financial.

4.7 Approval of Agreement.Agreement; Requisite Consents.

(a) The board of directors of River Financial has approved this Agreement and the transactions contemplated by it and has authorized the execution and delivery by River Financial of this Agreement. This Agreement constitutes the legal, valid and binding obligation of River Financial, enforceable against it in accordance with its terms. Subject to theterms without any action, vote or approval by the shareholders of River Financial at the River Financial Shareholders Meeting andFinancial’s shareholders. Subject to the matters referred to in Section 8.2, River Financial has full power, authority and legal right to enter into this Agreement and to consummate the transactions contemplated by this Agreement. River Financial has no Knowledge of any fact or circumstance under which the appropriate regulatory approvals required by Section 8.2 will not be granted without the imposition of material conditions or material delays.

4.8 Tax Treatment.(b) No Consent, Permit, notice, or filing of or with any governmental entity is required to be obtained or made by River Financial has no present plan to sell or otherwise disposeits Subsidiaries in connection with the execution, delivery, and performance by River Financial of anythis Agreement or the consummation by it and its Subsidiaries of the Assetstransactions contemplated hereby, except for: (i) the filing of Keystone, subsequentArticles of Merger as contemplated by Section 2.7 with the Secretary of State of the State of Alabama; (ii) the filing with the SEC of the Form S-4 pursuant to Section 7.3 and the SEC’s declaration of its effectiveness under the 1933 Act, and (C) the filing of such reports under the 1934 Act as may be required in connection with this Agreement, the Merger, and River Financial intends to continueMerger Consideration, and the historic business of Keystone.

4.9 Title and Related Matters.

(a)Title. River Financial has good and marketable title to allother transactions contemplated by this Agreement; (iii) such Consents, if any, as may be required under the properties, interestsHSR Act or other antitrust Laws, in properties and Assets, real and personal,any case that are materialapplicable to the businessAgreement; (iv) such filings, Permits, Consents, if any, as may be required under applicable state securities or “blue sky” Laws and the securities Laws of River Financial, reflectedany foreign country; (v) the approvals described in Section 8.2; and (vi) such other Consents which if not obtained or made would not reasonably be expected to have, individually or in the most recent balance sheet referred to in Section 4.3(a)(i), or acquired after the date of such balance sheet (except properties, interests and Assets sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and other encumbrances referred to in the notes of such balance sheet, (ii) Liens for current Taxes not yet due and payable and (iii) such imperfections of title and easements as do not materially detract from or interfere with the present use of the properties subject thereto or affected thereby, or otherwise materially impair present business operations at such properties. To the Knowledge ofaggregate, a Material Adverse Effect on River Financial, the material structures and equipment of River Financial comply in all material respects with the requirements of all applicable Laws.

(b)Leases. The River Financial Disclosure Letter sets forth a list and description of all real and personal property owned or leased by any River Financial Company, either as lessor or lessee.

(c)Personal Property. The River Financial Disclosure Letter sets forth a depreciation schedule of each of River Financial Company’s fixed Assets as of December 31, 2014.

(d)Computer Hardware and Software. The River Financial Disclosure Letter contains a description of all agreements relating to data processing computer software and hardware now being used in the business operations of any River Financial Company. River Financial is not aware of any defects, irregularities or problems with any of its computer hardware or software which renders such hardware or software unable to satisfactorily perform the tasks and functions to be performed by them in the business of any River Financial Company.Financial.

4.10 Commitments. No River Financial Company is a party to any oral or written (i) Contracts for the employment of any officer or employee which is not terminable on 30 days’ (or less) notice; (ii) profit sharing, bonus, deferred compensation, savings, stock option, severance pay, pension or retirement plan, agreement or

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arrangement; (iii) loan agreement, indenture or similar agreement relating to the borrowing of money by any River Financial Company; (iv) guaranty of any obligation for the borrowing of money or otherwise, excluding endorsements made for collection, and guaranties made in the ordinary course of business; (v) collective bargaining agreement; (vi) agreement with any present or former officer, director or principal shareholder of any River Financial Company; or (vii) other Contract, agreement or other commitment which is material to the business, operations, property, prospects or Assets or to the condition, financial or otherwise, of any River Financial Company. Complete and accurate copies of all Contracts, plans and other items so listed have been made or will be made available to Keystone for inspection.

4.11 Charter and Bylaws. The River Financial Disclosure Letter contains true and correct copies of the articles of incorporation and bylaws of each River Financial Company, including all amendments thereto, as currently in effect. Except for changes required by this Agreement, there will be no changes in such articles of incorporation or bylaws prior to the Effective Date, without the prior written consent of Keystone.

4.124.8 Subsidiaries. Each Subsidiary of River Financial has been duly incorporated and is validly existing as a corporation in good standing under the Laws of the jurisdiction of its incorporation and each Subsidiary has been duly qualified as a foreign corporation to transact business and is in good standing under the Laws of each other jurisdiction in which it owns or leases properties, or conducts any business so as to require such qualification and in which the failure to be duly qualified could have a Material Adverse Effect upon River Financial and its Subsidiaries considered as one enterprise; and River Bank has its deposits fully insured by the Federal Deposit Insurance Corporation to the extent provided by the Federal Deposit Insurance Act; and the businesses of the non-bank Subsidiaries of River Financial are permitted to be subsidiaries of registered bank holding companies.Act.

4.13 Contracts. Neither River Financial nor any of its Subsidiaries is in violation of its respective articles of incorporation or bylaws or in Default in the performance or observance of any material obligation, agreement, covenant or condition contained in any Contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its property may be bound.

4.144.9 Litigation. Except as disclosed in or reserved for in River Financial’s financial statements, there is no Litigation (whether or not purportedly on behalf of River Financial) pending or, to the Knowledge of River

Financial, threatened against or affecting any River Financial Company (nor does River Financial have Knowledge of any facts which are likely to give rise to any such Litigation) at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which involves the possibility of any judgmentOrder or Liability not fully covered by an insurance policy in excess of a reasonablethe policy’s deductible amount or which mayis reasonably likely to have a Material Adverse Effect on River Financial, and no River Financial Company is in Default with respect to any judgment, order, writ, injunction, decree, award, ruleOrder or regulationLaw of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality, which Default would have a Material Adverse Effect on River Financial. To the Knowledge of River Financial, each River Financial Company has complied in all material respects with all material applicable Laws and regulations including those imposing Taxes, of any applicable jurisdiction and of all states, municipalities, other political subdivisions and Agencies, in respect of the ownership of its properties and the conduct of its business, which, ifexcept for such failures to so comply as would not complied with, wouldreasonably be expected to have a Material Adverse Effect on River Financial.

4.15 Material Contract Defaults4.10 Compliance.. No River Financial Company is in Default in any material respect under the terms of any material Contract, agreement, lease or other commitment which is or may be material to the business, operations, properties or Assets, or the condition, financial or otherwise, of such company and, to the Knowledge of River Financial, there is no event which, with notice or lapse of time, or both, may be or become an event of Default under any such material Contract, agreement, lease or other commitment in respect of which adequate steps have not been taken to prevent such a Default from occurring.

4.16 No Conflict with Other Instrument. The consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of or constitute a Default under any material

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Contract indenture, mortgage, deed of trust or other material agreement or instrument to which any River Financial Company is a party and will not conflict with any provision of the charter or bylaws of any River Financial Company.

4.17 Compliance. River Financial and its Subsidiaries, in the conduct of their businesses, have been and are to the Knowledge of River Financial, in material compliance with all material federal, state or local Laws applicable to their or the conduct of their businesses.

4.18 Registration4.11 Governmental Authorization. Each River Financial Company has all Permits and Consents that, to the Knowledge of River Financial, are legally required to enable any River Financial Company to conduct its business in all material respects as now conducted by each River Financial Company, except where the failure to have any such Permits and Consents would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on River Financial.

4.12 Proxy Statement. River Financial shall provide information to be used by Trinity in its Proxy Statement. At the time the Registration Statement becomes effective and at the time of the Keystone andTrinity Shareholders Meeting. Such information provided by River Financial Shareholders Meetings, the Registration Statement, including the Proxy Statement which shall constitute a part thereof, will comply in all material respects with the requirements of the 1933 Act and the rules and regulations thereunder, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Proxy Statement made in reliance upon and in conformity with information furnished in writing tomisleading.

4.13 SEC Filings. River Financial has filed timely all registration statements, prospectuses, schedules, forms, statements, proxy materials and reports (including, in each case, all exhibits and documents incorporated by Keystonereference) required to be filed or any of its representatives expressly for use infurnished by it with or to the Proxy Statement regardingSEC (collectively, the business of Keystone, its operations, Assets and capital.

4.19 “SEC FilingsDocuments”). As of their respective filing dates or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of this Agreement, River Financial does not file reportsthe last such amendment or superseding filing (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing or use, respectively), each of the SEC Documents complied as to form in all material respects with the SEC pursuant to Section 15(d) or Section 12applicable requirements of the 1933 Act, the 1934 Act, and the Sarbanes-Oxley Act of 2002, and the rules and regulations of the SEC thereunder applicable to such SEC Documents. None of the SEC Documents, including any financial statements, schedules, or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing), contained any other provision of Law.

4.20 Form S-4. The conditions for useuntrue statement of a registration statement on SEC Form S-4 set forthmaterial fact or omitted to state a material fact required to be stated therein or necessary in order to make the General Instructions on Form S-4 have been or will be satisfied with respect to River Financial andstatements therein, in light of the Registration Statement.

4.21 Brokers. All negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by River Financial directly with Keystone and without the intervention of any other person, either as a result of any act of River Financial or otherwise in such manner as to give rights to any valid claim against River Financial for finder’s fees, brokerage commissions or other like payments.

4.22 Government Authorization. River Financial and its Subsidiaries have all Permits that, tocircumstances under which they were made, not misleading. To the Knowledge of River Financial, none of the SEC Documents is the subject of ongoing SEC review or outstanding SEC investigation and its Subsidiaries,there are no outstanding or will be legallyunresolved comments received from the SEC with respect to any of the SEC Documents. No Subsidiary of River Financial is required to enable River Financialfile or furnish any of its Subsidiaries to conduct their businesses in all material respects as now conducted by each of them.forms, reports, or other documents with the SEC.

4.234.14 Absence of Regulatory CommunicationsCommunications; Filings.. Neither River Financial nor any of its Subsidiaries is subject to, or has received during the past twelve (12) months, any written communication directed specifically to it from any Agency to which it is subject or pursuant to which such Agency has imposed or has indicated it may impose any material restrictions on the operations of it or the business conducted by it or in which such Agency has raised a material question concerning the condition, financial or otherwise, of such company. All reports, records, registrations, statements, notices and other documents or information required to be filed or

furnished by River Financial and River Bank with any Agency (other than the SEC) have been duly and timely filed and, to the Knowledge of River Financial, all information and data contained in such reports, records or other documents are true, accurate, correct and complete in all material respects.

4.24 Insurance. Each River Financial Company has in effect insurance coverage and bonds with reputable insurers which, in respect to amounts, types and risks insured, management of River Financial reasonably believes to be adequate for the type of business conducted by such company. No River Financial Company is liable for any material retroactive premium adjustment. All insurance policies and bonds are valid, enforceable and in full force and effect, and no River Financial Company has received any notice of any material premium increase or cancellation with respect to any of its insurance policies or bonds. Within the last three years, no River Financial Company has been refused any insurance coverage which it has sought or applied for, and it has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire, upon

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terms and conditions as favorable as those presently in effect, other than possible increases in premiums that do not result from any extraordinary loss experience. All policies of insurance presently held or policies containing substantially equivalent coverage will be outstanding and in full force with respect to each River Financial Company at all times from the date hereof to the Effective Date.

4.25 Benefit Plans.

(a) All “employee benefit plans” (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus, incentive, deferred compensation, employee loan, and all other employee benefit plans, agreements, programs, policies or other arrangements, and whether or not subject to ERISA, under which any employee, former employee, director, officer, independent contractor or consultant of River Financial or its Subsidiaries has any present or future right to benefits or under which River Financial or its Subsidiaries has any present or future liability are referred to herein as the “River Financial Plans.” Each material River Financial Plan is identified in the River Financial Disclosure Letter.

(b) With respect to each material River Financial Plan, River Financial has furnished or made available to Keystone a current, accurate and complete copy thereof and, to the extent applicable: (i) any related trust agreement or other funding instrument; (ii) the most recent determination or opinion letter of the IRS, if applicable; (iii) the most recent summary plan description; (iv) any other written communication (or a description of any oral communication) by River Financial or its Subsidiaries to employees of River Financial or its Subsidiaries, including concerning the extent of any post-retirement medical or life insurance benefits provided under a River Financial Plan; and (v) for the most recent year (A) the Form 5500 and attached schedules, (B) audited financial statements and (C) actuarial valuation reports.

(c) With respect to each River Financial Plan, except to the extent that the inaccuracy of any of the representations set forth in this Section 4.25, individually or in the aggregate, have not had a Material Adverse Effect:

(i) each River Financial Plan has been established and administered in accordance with its terms and in compliance with the applicable provisions of ERISA and the Code and other applicable Law, and all contributions required to be made under the terms of any River Financial Plan have been timely made;

(ii) each River Financial Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination, advisory and/or opinion letter, as applicable, from the IRS that it is so qualified and, to the knowledge of River Financial, nothing has occurred, whether by action or failure to act, since the date of such letter that would reasonably be expected to cause the loss of such qualified status of such River Financial Plan;

(iii) there is no Litigation (including any investigation, audit or other administrative proceeding) by the Department of Labor, the Pension Benefit Guaranty Corporation (the “PBGC”), the IRS or any other Agency or by any plan participant or beneficiary pending or threatened relating to River Financial Plans, any fiduciaries thereof with respect to their duties to River Financial Plans or the assets of any of the trusts under any River Financial Plans (other than routine claims for benefits) nor are there facts or circumstances that exist that could reasonably give rise to any such Litigation. No written or oral communication has been received from the PBGC in respect of any River Financial Plan subject to Title IV of ERISA concerning the funded status of any such plan or any transfer of assets and liabilities from any such plan in connection with the transactions contemplated herein; and

(iv) no “reportable event” (as such term is defined in Section 4043 of ERISA) that could reasonably be expected to result in liability; no nonexempt “prohibited transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code); and no “accumulated funding deficiency” (as defined in

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Section 302 of ERISA and Section 412 of the Code) or failure to timely satisfy any “minimum funding standard” (within the meaning of Section 302 of ERISA or Sections 412 or 430 of the Code), in each case whether or not waived, has occurred with respect to any River Financial Plan.

(d) (i) Each River Financial Plan pursuant to which River Financial or any of its Subsidiaries could incur any current or projected liability in respect of post-employment or post-retirement health, medical, or life insurance benefits for current, former, or retired employees of River Financial or any of its Subsidiaries (except as required to avoid an excise tax under Section 4980B of the Code or otherwise except as may be required by applicable Law) (“retiree medical benefits”); and (ii) the provisions of each River Financial Plan which provide retiree medical benefits may be terminated at any time by River Financial or its Subsidiaries without liability to River Financial or its Subsidiaries.

(e) Neither River Financial nor any of its Subsidiaries is a party to any Contract that will, directly or in combination with other events, result, separately or in the aggregate, in the payment, acceleration or enhancement of any benefit as a result of the transactions contemplated by this Agreement, and neither the execution of this Agreement, River Financial shareholder approval of this Agreement nor the consummation of the transactions contemplated hereby will (A) result in severance pay or any increase in severance pay upon any termination of employment after the date of this Agreement; (B) accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation to, any of the River Financial Plans; (C) limit or restrict the right of River Financial to merge, amend, or terminate any of the River Financial Plans; (D) cause River Financial to record additional compensation expense on its income statement with respect to any outstanding stock option or other equity-based award; or (E) result in the payment of payments which would not be deductible under Section 280G of the Code.

4.26 Buy-Sell Agreement. To the Knowledge of River Financial, there are no agreements among any of its shareholders granting to any person or persons a right of first refusal in respect of the sale, transfer, or other disposition of shares of outstanding securities by any shareholder of River Financial, any similar agreement or any voting agreement or voting trust in respect of any such shares.

4.274.15 Loans; Adequacy of Allowance for Loan Losses.Losses.

(a)ALLL. All reserves for loan losses shown on the most recent financial statements furnished by River Financial have been calculated in accordance with GAAP and prudent and customary banking practices and are adequate in all material respects under GAAP to reflect the risk inherent in the loans of River Financial. Except as set forth in the River Financial Disclosure Letter, River Financial has no Knowledge of any fact which is likely to require a future material increase in the provision for loan losses or a material decrease in the loan loss reserve reflected in such financial statements.

(b)Validity. Each loan reflected as an Asset on the financial statements of River Financial is the legal, valid and binding obligation of the obligor of each loan, enforceable in accordance with its terms subject to the effect of bankruptcy, insolvency, reorganization, moratorium, or other similar lawsLaws relating to creditors’ rights generally and to general equitable principles and complies in all material respects with all Laws to which it is subject. River Financial does not have in its portfolio any loan exceeding its legal lending limit, or any loan to any insider in violation of Regulation O and River Financial has no known significant delinquent, substandard, doubtful, loss, nonperforming or problem loans. Each outstanding loan (including loans held for resale to investors) was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant loan files are being maintained, in all material respects in accordance with the relevant notes or other credit or security documents, the written underwriting standards of River Bank (and, in the case of loans held for resale to investors, the underwriting standards, if any, of the applicable investors) and with all applicable federal, state and local laws, regulations and rules.Laws. None of the agreements pursuant to which River Bank & Trust has sold loans or pools of loans or participations in loans or pools of loans contains any obligation to repurchase such loans or interests therein solely on account of a payment default by the obligor on any such loan.

loan, except that River Bank sells loans in the secondary market which are subject to customary repurchase terms.

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4.284.16 Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act and Flood Disaster Protection ActAct.. River Bank is in compliance in all material respects with the Fair Housing Act (42 U.S.C. § 3601 et seq.), the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq.), the Equal Credit Opportunity Act (15 U.S.C. § 1691 et seq.), and the Flood Disaster Protection Act (42 USC § 4002, et seq.), and all regulations promulgated thereunder. River Bank has not received any written notices of any violation of such actsLaws or any of the regulations promulgated thereunder, and it has not received any written notice of any, and to the Knowledge of River Bank, there is no, threatened administrative inquiry, proceeding or investigation with respect to its compliance with such laws.Laws.

4.294.17 Bank Secrecy Act, Foreign Corrupt Practices Act and U.S.A. Patriot ActAct.. River Bank is in material compliance with the Bank Secrecy Act (12 U.S.C. §§ 1730(d) and 1829(b)), the United States Foreign Corrupt Practices Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act, otherwise known as the U.S.A. Patriot Act, and all regulations promulgated thereunder. To the Knowledge of River Bank, River Bank has properly certified all foreign deposit accounts and, except as would not be expected to have a Material Adverse Effect on River Bank, has made all necessary taxTax withholdings on all of its deposit accounts; furthermore, to the Knowledge of River Bank, River Bank has timely and properly filed and maintained all requisite Currency Transaction Reports and other related forms, including any requisite Customs Reports required by any agency of the United States Treasury Department, including the IRS. To the Knowledge of River Bank, River Bank has timely filed all Suspicious Activity Reports with the Financial Institutions —– Financial Crimes Enforcement Network (U.S. Department of the Treasury) required to be filed by it pursuant to applicable Laws.

4.18 Disclosure. No representation or warranty, or any statement or certificate furnished or to be furnished to Trinity by River Financial, contains or will contain any untrue statement of a material fact, or omits or will

omit to state a material fact necessary to make the lawsstatements contained in this Agreement or in any such statement or certificate not misleading.

4.19 Community Reinvestment Act Compliance. River Bank is an insured depositary institution and has complied in all material respects with the Community Reinvestment Act of 1977 (“CRA”) and the rules and regulations referencedthereunder, and has a composite CRA rating of not less than “satisfactory.”

4.20 Title and Related Matters. River Financial has good and marketable title to all the properties, interest in this Section.properties and Assets, real, personal and mixed, that are owned by, and material to the business of, River Financial, and reflected in the most recent balance sheet referred to in Section 4.3(a)(i), or acquired after the date of such balance sheet (except properties, interests and Assets sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all Liens. To the Knowledge of River Financial, the material structures and equipment of each River Financial Company comply in all material respects with the requirements of all applicable Laws. River Financial is not aware of any defects, irregularities or problems with any of its computer hardware or software which renders such hardware or software unable to satisfactorily perform the tasks and functions to be performed by them in the business of any River Financial Company.

4.304.21 Charter and Bylaws. The River Financial Disclosure Letter contains true and correct copies of the articles of incorporation and bylaws of each River Financial Company, including all amendments thereto, as currently in effect. Except as may be required by Law or any Agency, there will be no changes in such articles of incorporation or bylaws prior to the Effective Date, without the prior written consent of Trinity.

4.22 Material Contract Defaults. No River Financial Company is in Default in any material respect under the terms of any material Contract which is or may be material to the business, operations, properties or Assets, or the condition, financial or otherwise, of such company and, to the Knowledge of River Financial, there is no event which, with notice or lapse of time, or both, may be or become an event of Default under any such material Contract in respect of which adequate steps have not been taken to prevent such a Default from occurring.

4.23 Insurance. Each River Financial Company has in effect insurance coverage and bonds with reputable insurers which, in respect to amounts, types and risks insured, management of River Financial reasonably believes to be adequate for the type of business conducted by such company. No River Financial Company is liable for any material retroactive premium adjustment. To the Knowledge of River Financial, all insurance policies and bonds are valid, enforceable and in full force and effect, and no River Financial Company has received any notice of any material premium increase or cancellation with respect to any of its insurance policies or bonds. Within the last three years, no River Financial Company has been refused any insurance coverage which it has sought or applied for, and it has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire, upon substantially similar terms and conditions as those presently in effect, other than possible increases in premiums that do not result from any extraordinary Loss experience. All policies of insurance presently held or policies containing substantially equivalent coverage will be outstanding and in full force with respect to each River Financial Company at all times from the date hereof to the Effective Date.

4.24 Environmental MattersMatters..

(a) Except for events or actions that do not constitute a Material Adverse Effect:Effect, to the Knowledge of River Financial:

(i)(a) neither River Financial’s conduct nor its operation or the conduct or operation of its Subsidiaries nor any condition of any real property presently or previously owned leased or operated by any of them (including(excluding in a fiduciary or agency capacity), violates or has violated Environmental Laws;

(ii)(b) there has been no release of any Hazardous Substance by River Financial or any of its Subsidiaries in any manner that has given or would reasonably be expected to give rise to any remedial obligation, corrective action requirement or liability under applicable Environmental Laws;

(iii)

(c) neither River Financial nor any of its Subsidiaries has received any written claims, notices, demand letters or requests for information (except for such claims, notices, demand letters or requests for information the subject matter of which has been resolved prior to the date of this Agreement) from any governmental entity or any other Person asserting that River Financial or any of its Subsidiaries or the operation or condition of any real property ever owned leased,or operated orby any of them (other than real property held as collateral or in a fiduciary capacity by any of themcapacity) are or were in violation of or otherwise are alleged to have liability under any Environmental Law, including responsibility (or potential responsibility) for the cleanup or other remediation of any pollutants, contaminants or hazardous or toxic wastes, substances or materials at, on, beneath or originating from any such real property;

(iv)(d) no Hazardous Substance has been disposed of, arranged to be disposed of, released or transported in violation of any applicable Environmental Law, or in a manner that has given rise to, or that would reasonably be expected to give rise to, any liability under any Environmental Law, from any current or former properties or facilities while owned or operated by River Financial or any of its Subsidiaries or as a result of any operations or activities of River Financial or any of its Subsidiaries at any location, and no other condition has existed or event has occurred with respect to River Financial or any of its Subsidiaries or any such properties or facilities that, with notice or the passage of time, or both, would be reasonably likely to result in liability under Environmental Laws, and, to the Knowledge of River Financial, Hazardous Substances are not otherwise present at or about any such properties or facilities in an amount or condition that has resulted in or would reasonably be expected to result in material Liability to KeystoneRiver Financial or any of its Subsidiaries under any Environmental Law;

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Index to Financial Statements

(v)(e) neither River Financial, its Subsidiaries nor any of their respective properties or facilities are subject to, or are, to River Financial’s Knowledge, threatened to become subject to, any material liabilities relating to any suite,suit, settlement, court order, administrative order, regulatory requirement, judgment or claim asserted or arising under any Environmental Law or any agreement relating to environmental liabilities; and

(vi)(f) no real property on which River Financial or any of its Subsidiaries holds a Lien violates or violated any Environmental Law and no condition has existed or event has occurred with respect to any such property that, with notice or the passage of time, or both, is reasonably likely to result in material liability under any Environmental Law.

(b)(g) As used herein, “Environmental Law”“Environmental Law” means any Law relating to:

(i) the protection, preservation or restoration of the environment (including air, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or

(ii) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling labeling, production, release or disposal of Hazardous Substances, including the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act, the Clean Air Act and the Occupational Safety and Health Act, regulations promulgated thereunder, and state counterparts to the foregoing.

(c)(h) As used herein, “Hazardous Substance”“Hazardous Substance” means any substance listed, defined, designated, classified or regulated as a waste, pollutant or contaminant or as hazardous, toxic, radioactive or dangerous or any other term of similar import under any Environmental Law, including petroleum.

4.314.25 Collective Bargaining.Bargaining. There are no labor contracts, collective bargaining agreements, letters of undertakings or other arrangements, formal or informal, between any River Financial Company and any union or labor organization covering any River Financial Company’s employees and none of said employees are represented by any union or labor organization.

4.324.26 Labor Disputes.Disputes. To the Knowledge of River Financial, each River Financial Company is in material compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours. No River Financial Company is or has been engaged in any unfair labor practice, and, to the Knowledge of River Financial, no unfair labor practice complaint against any River Financial Company is pending before the National Labor Relations Board. RelationsTo the Knowledge of River Financial, relations between management of each River Financial Company and the employees are amicable and there have not been, nor to the Knowledge of River Financial, are there presently, any attempts to organize employees, nor to the Knowledge of River Financial, are there plans for any such attempts.

4.27 Benefit Plans.

(a) All “employee benefit plans” (within the meaning of section 3(3) of ERISA) and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus, incentive, deferred compensation, employee loan, and all other employee benefit plans, agreements, programs, policies or other arrangements, and whether or not subject to ERISA, under which any employee, former employee, director, officer, independent contractor or consultant of River Financial or its Subsidiaries has any present or future right to benefits or under which River Financial or its Subsidiaries has made or is required to make payments, transfers, or contributions are referred to herein as “River Financial Plans”. Each material River Financial Plan is identified in the River Financial Disclosure Letter.

(b) With respect to each material River Financial Plan, River Financial has furnished or made available to Trinity a current, accurate and complete copy thereof and, to the extent applicable: (i) any related trust agreement or other funding instrument, (ii) the most recent determination or opinion letter of the IRS, if applicable, (iii) the most recent summary plan description, (iv) for the most recent year any other written communication (or a description of any material oral communication) by River Financial or its Subsidiaries to employees of River Financial or its Subsidiaries, including concerning the extent of any post-retirement medical or life insurance benefits provided under a River Financial Plan, and (v) for the most recent year (A) the Form 5500 and attached schedules, (B) audited financial statements and (C) actuarial valuation reports.

(c) With respect to each River Financial Plan, except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on River Financial:

(i) each River Financial Plan has been established and administered in material compliance with its terms and in material compliance with the applicable provisions of ERISA and the Code and other applicable Law, and all contributions required to be made under the terms of any River Financial Plan have been timely made;

(ii) each River Financial Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination, advisory and/or opinion letter, as applicable, from the IRS that it is so qualified and, to the Knowledge of River Financial, nothing has occurred, whether by action or failure to act, since the date of such letter that would reasonably be expected to cause the loss of such qualified status of each River Financial Plan;

(iii) there is no Litigation (including any investigation, audit or other administrative proceeding) by the Department of Labor, the PBGC, the IRS or any other Agency or by any plan participant or beneficiary pending or, to the Knowledge of River Financial, threatened relating to the River Financial Plans, any fiduciaries thereof with respect to their duties to River Financial Plans or the assets of any of the trusts under any River Financial Plans (other than routine claims for benefits) nor, to the knowledge of River Financial, are there facts or circumstances that exist that could reasonably give rise to any such Litigation. No written or oral communication has been received from the PBGC in respect of any River Financial Plan subject to Title IV of ERISA concerning the funded status of any such plan or any transfer of assets and liabilities from any such plan in connection with the transactions contemplated herein; and

(iv) none of the following have occurred, in each case whether or not waived: (i) any “reportable event” (as such term is defined in Section 4043 of ERISA); (ii) any nonexempt “prohibited transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code); and (iii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA and Section 412 of the Code) or failure to timely satisfy any “minimum funding standard” (within the meaning of Section 302 of ERISA or Sections 412 or 430 of the Code).

(d) The provisions of each River Financial Plan pursuant to which River Financial or any of its Subsidiaries could incur any current or projected liability in respect of post-employment or post-retirement health, medical, or life insurance benefits for current, former, or retired employees of River Financial or any of its Subsidiaries (except (i) as required to avoid an excise Tax under Section 4980B of the Code, (ii) as may be required by applicable Law, (iii) death or retirements benefits under any River Financial Plan that is intended to be qualified under Section 401(a) of the Code, or (iv) deferred compensation benefits reflected on the books of River Financial or its Subsidiaries) may be terminated at any time by River Financial or its Subsidiaries without liability to River Financial or its Subsidiaries.

(e) Neither River Financial nor any of its Subsidiaries is a party to any Contract that will, directly or in combination with other events, result, separately or in the aggregate, in the payment, acceleration or enhancement of any benefit under any River Financial Plan as a result of the transactions contemplated by this Agreement, and neither the execution of this Agreement, River Financial shareholder approval of this Agreement, nor the consummation of the transactions contemplated hereby will (A) result in severance pay or any increase in severance pay upon any termination of employment after the date of this Agreement, (B) accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation to, any of the River Financial Plans, (C) limit or restrict the right of River Financial to merge, amend, or terminate any of the River Financial Plans, (D) cause River Financial to record additional compensation expense on its income statement with respect to any outstanding stock option or other equity-based award, or (E) result in the payment of payments which would not be deductible under Section 280G of the Code.

4.334.28 Derivative Contracts.Contracts. No River Financial Company is a party to or has agreed to enter into a swap, forward, future, option, cap, floor or collar financial contract, or any other interest rate or foreign currency protection contract or derivative security not included in River Financial’s financial statements delivered under Section 4.3 hereof which is a financial derivative contract (including various combinations thereof).

4.344.29 Intellectual PropertyProperty.. Each River Financial Company owns or has a valid license to use all of the Intellectual Property used by such River Financial Company in the course of its business. Each River Financial Company is the owner of or has a license to any Intellectual Property sold or licensed to a third party by each River Financial Company in connection with the River Financial Company’s business operations, and the River Financial Company has the right to convey by sale or license any Intellectual Property so conveyed. No River Financial Company has received notice of Default under any of its Intellectual Property licenses. No proceedings have been instituted, or are pending or overtly threatened, that challenge the rights of a River Financial Company with respect to Intellectual Property used, sold or licensed by the River Financial Company in the course of its business, nor has any person claimed or alleged any rights to such Intellectual Property. To the Knowledge of

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Index to Financial Statements

River Financial, the conduct of each River Financial Company’s business does not infringe any Intellectual Property of any other person. No River Financial Company is obligated to pay any recurring royalties to any Person with respect to any such Intellectual Property. No River Financial Company is a party to any agreement to indemnify any Person against a claim of infringement of or misappropriation of any Intellectual Property.

4.35 Technology Systems4.30 Registration Statement..

(a) No action will be necessary as a result At the time the Registration Statement becomes effective, at the time of the transactions contemplated by this Agreement to enablemailing of the Proxy Statement, at the time of use of other proxy material, and at the electronic data processing, information, record keeping, communications, telecommunications, hardware, third party software, networks, peripherals, portfolio trading and computer systems, including any outsourced systems and processes, and Intellectual Property (collectively, the “Technology Systems”) that are used by the River Financial Company to be continued by Keystone to the same extent and in the same manner that it has been used by any River Financial Company.

(b) The Technology Systems (for a period of 24 months prior to the Effective Date) have not suffered unplanned disruption causing a Material Adverse Effect. Except for ongoing payments due under relevant third party agreements, the Technology Systems are free from any Liens. Access to business critical partstime of the Technology Systems isTrinity Shareholders Meeting, the Registration Statement, including the Proxy Statement which shall constitute a part thereof, will comply in all material respects with the requirements of the 1933 Act and the rules and regulations thereunder, will not shared with any third party.

(c) River Financial’s written disaster recovery and business continuity plan has previously been provided to Keystone.

(d) No River Financial Company has received notice of or is aware of any material circumstances including, without limitation, the execution of this Agreement, that would enable any third party to terminate any of such River Financial Company’s agreements or arrangements relating to the Technology Systems (including maintenance and support) other than rights contained in applicable contracts.

4.36 Disclosure. No representation or warranty, or any statement or certificate furnished or to be furnished to Keystone by River Financial, contains or will contain anyan untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements containedtherein, in the light of the circumstances under which they were made, not

misleading;provided,however, that the representations and warranties in this Agreementsubsection shall not apply to statements in or omissions from the Proxy Statement made in reliance upon and in conformity with information furnished in writing to River Financial by Trinity or any such statement or certificate not misleading.of its representatives expressly for use in the Proxy Statement regarding the business of Trinity, its operations, Assets and capital.

4.37 Community Reinvestment Act Compliance4.31 Form S-4.. The conditions for use of a registration statement on SEC Form S-4 set forth in the General Instructions on Form S-4 have been or will be satisfied with respect to River Bank is an insured depositary institution and has complied in all material respects with the Community Reinvestment Act of 1977 (“CRA”)Financial and the rulesRegistration Statement.

4.32 Intended Tax Treatment. No River Financial Company has taken or agreed to take any action, and regulations thereunder,to the Knowledge of River Financial there exists no fact or circumstance, that is reasonably likely to prevent or impede either the Merger or Subsidiary Bank Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

4.33 Financial Capability. River Financial has and haswill have prior to the Effective Time, sufficient funds to pay the aggregate cash portion of the Merger Consideration and to perform its other obligations contemplated by this Agreement.

4.34 Brokers. All negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by River Financial directly with Trinity and without the intervention of any other person, either as a composite CRA ratingresult of not less than “satisfactory.”any act of River Financial, or otherwise, in such manner as to give rise to any valid claim against River Financial for a finder’s fee, brokerage commission or other like payment.

4.384.35 No Additional Representations.Representations.

(a) Except for the representations and warranties made by River Financial in this Article 4, neither River Financial nor any other Person makes any express or implied representation or warranty with respect to River Financial or its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and River Financial hereby disclaims any such other representations or warranties.

(b) Notwithstanding anything contained in this Agreement to the contrary, River Financial acknowledges and agrees that none of KeystoneTrinity or any other Person has made or is making any representations or warranties relating to KeystoneTrinity whatsoever, express or implied, beyond those expressly given by KeystoneTrinity in Article 5 hereof, including any implied representation or warranty as to the accuracy or completeness of any information regarding KeystoneTrinity furnished or made available to River Financial or any of its representatives.

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Index to Financial Statements

ARTICLE 5

REPRESENTATIONS, WARRANTIES

AND COVENANTS OF KEYSTONETRINITY

Except as disclosed and set forth in the disclosure letter delivered by KeystoneTrinity to River Financial prior to the execution of this Agreement (the “Keystone“Trinity Disclosure Letter”Letter”) (which sets forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in this Article 5, or to one or more of Keystone’sTrinity’s covenants contained herein (provided(provided that the mere inclusion of an item in the KeystoneTrinity Disclosure Letter as an exception to a representation or warranty shall not be deemed an admission that such item represents a material exception or material fact, event or circumstance or that such item has had or

would have a Material Adverse Effect)), KeystoneTrinity represents, warrants and covenants to and with River Financial, as follows:

5.1 OrganizationOrganization.. Keystone Trinity is an Alabama corporation, and KeystoneTrinity Bank is an Alabama state banking corporation. Each KeystoneTrinity Company is duly organized, validly existing and in good standing under the respective Laws of its jurisdiction of incorporation and has all requisite power and authority to carry on its business as it is now being conducted and is qualified to do business in every jurisdiction in which the character and location of the Assets owned by it or the nature of the business transacted by it requires qualification, or in which theexcept where failure to qualify could,would not reasonably be expected to have, individually, or in the aggregate, have a Material Adverse Effect.Effect on Trinity.

5.2 Capital StockStock.. As of the date of this Agreement, the authorized capital stock of KeystoneTrinity consisted of 5,000,00010,000,000 shares of common stock, $1.00$.01 par value per share, 1,789,9921,741,053 shares of which are issued and outstanding. In addition, 39,500outstanding, and 1,000,000 shares of preferred stock, $.01 par value per share, zero shares of which are subject to Keystone Optionsissued and 53,800 shares are subject to Keystone Warrants.outstanding. All of such shares which are outstanding are validly issued, fully paid and nonassessable and not subject to preemptive rights. KeystoneTrinity does not have any arrangements or commitments obligating it to issue shares of its capital stock or any securities convertible into or having the right to purchase shares of its capital stock, except for Keystone Options and Keystone Warrants.stock.

5.3 Subsidiaries. KeystoneTrinity has no direct Subsidiaries other than KeystoneTrinity Bank, and there are no Subsidiaries of KeystoneTrinity Bank. KeystoneTrinity owns all of the issued and outstanding capital stock of KeystoneTrinity Bank free and clear of any liens, claims or encumbrances of any kind.Liens. All of the issued and outstanding shares of capital stock of KeystoneTrinity Bank have been validly issued and are fully paid and non-assessable. As of the date of this Agreement, there were 5,000,00010,000,000 shares of common stock, par value $1.00 per share, authorized of KeystoneTrinity Bank, 1,763,7921,749,196 of which are issued and outstanding and wholly owned by Keystone. KeystoneTrinity. Trinity Bank has no arrangements or commitments obligating it to issue shares of its capital stock or any securities convertible into or having the right to purchase shares of its capital stock.

5.4 Financial Statements; Taxes. Taxes.

(a) KeystoneTrinity has delivered to River Financial copies of the following financial statements of Keystone:Trinity or Trinity Bank (as applicable):

(i) Consolidated statements of financial conditionbalance sheets as of December 31, 20132017, December 31, 2018, and 2014;March 31, 2019;

(ii) Consolidated statements of income for each of the threetwo years ended December 31, 2012, 20132017 and 2014;2018 and the quarter ended March 31, 2019;

(iii) Consolidated statements of shareholders’comprehensive income for each of the two years ended December 31, 2017 and 2018 and the quarter ended March 31, 2019;

(iv) Consolidated statements of stockholders’ equity for each of the threetwo years ended December 31, 2012, 2013,2017, and 2014;2018 and the quarter ended March 31, 2019; and

(iv)(v) Consolidated statements of cash flows for the threetwo years ended June 30, 2011, 2012December 31, 2017 and 2013,2018 and for the nine monthsquarter ended September 30, 2014.March 31, 2019.

(b) All of the foregoing financial statements are in all material respects in accordance with the books and records of KeystoneTrinity and have been prepared in accordance with GAAP applied on a consistent basis throughout

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Index to Financial Statements

the periods indicated, except for changes required by GAAP, all as more particularly set forthmay be indicated in the notes to such statements. Each of such balance sheets presents fairly as of its date the financial condition of Keystone and there are no assets or liabilities of Keystone that would cause any material change in such financial statements.Trinity. Except as and to the extentfor Liabilities (i) reflected or reserved against it in such balance sheets (including the notes thereto), neither Keystone nor Keystone Bank(ii) incurred after such dates in the ordinary course of business consistent with past practice, (iii) incurred in connection with the transactions contemplated by this

Agreement, (iv) that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Trinity, Trinity had, as of the date of such balance sheets, any materialno Liabilities or obligations (absolute or contingent) of a nature customarily reflected in a balance sheet or the notes thereto. The statements of income, shareholders’comprehensive income, stockholders’ equity and cash flows present fairly the results of operation, comprehensive income, changes in shareholders’stockholders’ equity and cash flows of KeystoneTrinity for the periods indicated and there are no operations conducted by Keystone which would cause any material change to such statements.indicated. The foregoing representations, insofar as they relate to the unaudited interim financial statements of KeystoneTrinity which may be presented to River Financial, are subject in all cases to normal recurring year-end adjustments and the omission of footnote disclosure. All journal entries have been appropriately made in the books and records of Keystone.Trinity.

(b)(c) All income and other material Tax returns required to be filed by or on behalf of Keystonea Trinity Company have been timely filed (or requests for extensions therefor have been timely filed and granted and have not expired), and all such returns filed are complete and accurate in all material respects. All Taxes shown on these returns to be due and all additional assessments received have been paid. The amounts recorded for Taxes on the balance sheets provided under Section 5.4(a)(i) are, to the Knowledge of Keystone,Trinity, sufficient in all material respects for the payment of all unpaid federal, state, county, local, foreign and other Taxes (including any interest or penalties) of Keystoneall of the Trinity Companies accrued for or applicable to the period ended on the dates thereof, and all years and periods prior thereto and for which Keystoneany Trinity Company may at such dates have been liable in its own right or as a transferee of the Assets of, or as successor to, any other corporation or other party. No audit, examination or investigation is presently being conducted or, to the Knowledge of Keystone,Trinity, threatened by any taxing authority which is likely to result in a material Tax Liability, no material unpaid Tax deficiencies or additional liability of any sort has been proposed by any governmental representative and no agreements for extension of time for the assessment of any material amount of Tax have been entered into by or on behalf of Keystone. Keystoneany Trinity Company. No Trinity Company has not executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect.

(c)(d) Each KeystoneTrinity Company has withheld from its employees (and timely paid to the appropriate governmentalgovernment entity) proper and accurate amounts for all periods in material compliance with all Tax withholding provisions of applicable federal, state, foreign and local Laws (including without limitation, income, social security and employment Tax withholding for all types of compensation). Each KeystoneTrinity Company is in material compliance with, and its records contain all information and documents (including properly completed IRS Forms W-9) reasonably necessary to comply with, all applicablematerial information reporting and Tax withholding requirements under federal, state and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Code.

5.5 Absence of Material Adverse EffectChanges or Effects. Since the date of the most recent balance sheet provided under Section 5.4(a)(i) above, except in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement, no KeystoneTrinity Company has:

(a) issued, delivered or agreed to issue or deliver any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury, or adjusted, split, reclassified any shares of KeystoneTrinity Common Stock or any capital stock of any Subsidiary);, other than pursuant to the exercise, pursuant to its terms, of any warrant outstanding prior to the date of this Agreement;

(b) borrowed or agreed to borrow any funds or incurred, or become subject to, any Liability (absolute or contingent) except customary banking transactions and borrowings, obligations (including FHLB advances and purchase of federal funds) and Liabilities incurred in the ordinary course of business and consistent with past practice;

(c) paid any material obligation or Liability (absolute or contingent) other than current Liabilities reflected in or shown on the most recent balance sheet referred to in Section 5.4(a)(i) and current Liabilities incurred since that date in the ordinary course of business and consistent with past practice;

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(d) declared or made, or agreed to declare or make, any payment of dividends or distributions of any Assets of any kind whatsoever to shareholders (except for inter-company dividends or distributions), or purchased or redeemed, or agreed to purchase or redeem, directly or indirectly, or otherwise acquire, any of its outstanding securities;

(e) except in the ordinary course of business, sold or transferred, or agreed to sell or transfer, any of its Assets, or canceled, or agreed to cancel, any debts or claims;

(f) except in the ordinary course of business, entered or agreed to enter into any agreement or arrangement granting any preferential rights to purchase any of its Assets, or requiring the consent of any party to the transfer and assignment of any of its Assets;

(g) suffered any Losses or waived any rights of value which in either event in the aggregate are materialwould have a Material Adverse Effect on Trinity considering its business as a whole;

(h) except in the ordinary course of business, made or permitted any amendment or termination of any Contract agreement or license to which it is a party if such amendment or termination is material considering its business as a whole or made any, or agreed to make, any capital expenditures in amounts exceeding $25,000 individually or $100,000 as a whole;

(i) except in accordance with normal and usual practice, made any accrual or arrangement for or payment of bonuses or special compensation of any kind or agreed to make any severance or termination pay to any present or former officer or employee;

(j) except in accordance with normal and usual practice, increased the rate of compensation payable to or to become payable to any of its officers or employees or made any material increase in any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement or other employee benefit plan, payment or arrangement made to, for or with any of its officers or employees;

(k) received notice or had Knowledge or reason to believe that any of its substantial customers has terminated or intends to terminate its relationship, which termination would have a Material Adverse Effect on its financial condition or results of operations, business, Assets or properties;operations;

(l) failed to operate its business in the ordinary course so as to preserve its business substantially intact and to preserve in a material way the goodwill of its customers and others with whom it has business relations; or

(m) entered into any other material transaction other than in the ordinary course of business; or

(n) agreed in writing, or otherwise, to take any action described in clauses (a) through (m) above.(l) above, excluding (k).

Between the date hereof and the Effective Date, no Keystone Company, without the express written approval of River Financial, will do any of the things listed in clauses (a) through (n) of this Section 5.5 except as permitted therein or as contemplated in this Agreement, and no Keystone Company will enter into or amend any material Contract, other than Loans or renewals thereof entered into in the ordinary course of business, without the express written consent of River Financial. Notwithstanding the foregoing, between the date hereof and the Effective Date, Keystone may issue, deliver or agree to issue or deliver shares of Keystone Common Stock to any person exercising Keystone Options or Keystone Warrants.

5.6 Title and Related Matters.Matters.

(a)Title. KeystoneTrinity has good and marketable title to all the properties, interest in properties and Assets, real, personal, and personal,mixed, that are owned by, and material to the business of, Keystone,Trinity, and reflected in the most recent balance sheet referred to in Section 5.4(a)(i), or acquired after the date of such balance sheet (except properties, interests and Assets

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sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and other encumbrances referred to in the notes to such balance sheet, (ii) Liens for current Taxes not yet due and payable and (iii) such imperfections of title and easements as do not materially detract from or interfere with the present use of the properties subject thereto or affected thereby, or otherwise materially impair present business operations at such properties.Liens. To the Knowledge of Keystone,Trinity, the material structures and equipment of each KeystoneTrinity Company comply in all material respects with the requirements of all applicable Laws.

(b)Leases. The KeystoneTrinity Disclosure Letter sets forth a list and description of all real and material personal property owned or leased by any KeystoneTrinity Company, either as lessor or lessee.

(c)Personal Property. The KeystoneTrinity Disclosure Letter sets forth a depreciation schedule of each KeystoneTrinity Company’s fixed Assets as of December 31, 2014.2018.

(d)Computer Hardware and Software. The KeystoneTrinity Disclosure Letter contains a description of all agreementsmaterial Contracts relating to data processing computer software and hardware now being used in the business operations of any KeystoneTrinity Company. KeystoneTrinity is not aware of any defects, irregularities or problems with any of its computer hardware or software which renders such hardware or software unable to satisfactorily perform the material tasks and functions to be performed by them in the business of any KeystoneTrinity Company.

5.7 Commitments. No KeystoneTrinity Company is a party to any oral or written (i) Contracts for the employment of any officer or employee which is not terminable on 30 days’ (or less) notice, (ii) profit sharing, bonus, deferred compensation, savings, stock option, severance pay, pension or retirement plan, agreement or arrangement, (iii) loan agreement, indenture or similar agreement relating to the borrowing of money by any KeystoneTrinity Company (iv)(other than in connection with customary banking transactions and borrowing, obligations (including purchases of Federal funds), and Liabilities incurred in the ordinary course of business and consistent with past practice), (ii) guaranty of any obligation for the borrowing of money or otherwise, excluding endorsements made for collection, and guaranties made in the ordinary course of business, (v)(iii) collective bargaining agreement, (vi)or (iv) agreement with any present or former officer, director or principal shareholder of any KeystoneTrinity Company or (vii) other Contract, agreement or other commitment which is material to the business, operations, property, prospects or Assets or to the condition, financial or otherwise, of any Keystone Company.(other than a Trinity Plan). Complete and accurate copies of all Contracts, plans and other items so listed as exceptions to this representation in the Trinity Disclosure Letter have been made or will be made available to River Financial for inspection.

5.8 Charter and Bylaws. The KeystoneTrinity Disclosure Letter contains true and correct copies of the articles of incorporation and bylaws of each KeystoneTrinity Company, including all amendments thereto, as currently in effect. ThereExcept as may be required by Law or any Agency, there will be no changes in such articles of incorporation or bylaws prior to the Effective Date, without the prior written consent of River Financial.

5.9 Litigation.Litigation. Except as disclosed in or reserved for in Keystone’sTrinity’s financial statements, there is no Litigation (whether or not purportedly on behalf of Keystone)Trinity) pending or, to the Knowledge of Keystone,Trinity, threatened against or affecting any KeystoneTrinity Company (nor does KeystoneTrinity have Knowledge of any facts which are likely to give rise to any such Litigation) at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which involves the possibility of any judgmentOrder or Liability not fully covered by an insurance policy in excess of a reasonablethe policy’s deductible amount, or which mayis reasonably likely to have a Material Adverse Effect on Keystone,Trinity, and no KeystoneTrinity Company is in Default with respect to any judgment, order, writ, injunction, decree, award, ruleOrder or regulationLaw of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality, which Default would have a Material Adverse Effect on Keystone.Trinity. To the Knowledge of Keystone,Trinity, each KeystoneCompanyTrinity Company has complied in all material respects with all material applicable Laws and Regulations including those imposing Taxes, of any applicable jurisdiction and of all states, municipalities, other political subdivisions and Agencies, in respect of the ownership of its properties and the conduct of its business, which, ifexcept for such failures to so comply as would not complied with, wouldreasonably expected to have a Material Adverse Effect on Keystone.Trinity.

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5.10 Material Contract Defaults. No KeystoneTrinity Company is in Default in any material respect under the terms of any material Contract agreement, lease or other commitment which is or may be material to the business, operations, properties or Assets, or the condition, financial or otherwise, of such company and, to the Knowledge of Keystone,Trinity, there is no event which, with notice or lapse of time, or both, may be or become an event of Default under any such material Contract agreement, lease or other commitment in respect of which adequatereasonable steps have not been taken to prevent such a Default from occurring.

5.11 No Conflict with Other Instrument. The consummation of the transactions contemplated by this Agreement will not (i) result in the breach of any term or provision of or constitute a Default under any material Contract indenture, mortgage, deed of trust or other material agreement or instrument to which any KeystoneTrinity Company is a party, except for such breaches as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on Trinity, and will not(ii) conflict with any provision of the charter or bylaws of any KeystoneTrinity Company.

5.12 Governmental Authorization. Each KeystoneTrinity Company has all Permits that, to the Knowledge of Keystone,Trinity, are or will be legally required to enable any KeystoneTrinity Company to conduct its business in all material respects as now conducted by each Keystone Company.Trinity Company, except where the failure to have any such Permits would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on Trinity.

5.13 Absence of Regulatory Communications; Filings. No KeystoneTrinity Company is subject to, nor has any KeystoneTrinity Company received during the past twelve (12) months, any written communication directed specifically to it from any Agency to which it is subject or pursuant to which such Agency has imposed or has indicated it may impose any material restrictions on the operations of it or the business conducted by it or in which such Agency has raised any material question concerning the condition, financial or otherwise, of such company. All reports, records, registrations, statements, notices and other documents or information required to be filed or furnished by KeystoneTrinity and KeystoneTrinity Bank with any Agency have been duly and timely filed or furnished, except where failure to file or furnish would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect on Trinity, and, to the Knowledge of Keystone,Trinity, all information and data contained in such reports, records or other documents are true, accurate, correct and complete in all material respects.

5.14 Absence of Material Adverse ChangeEffect. To the Knowledge of Keystone,Trinity, since the date of the most recent balance sheet provided under Section 5.4(a)(i), there have been no events, changes or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on any KeystoneTrinity Company.

5.15 Insurance. Each KeystoneTrinity Company has in effect insurance coverage and bonds with reputable insurers which, in respect to amounts, types and risks insured, management of KeystoneTrinity reasonably believes to be adequate for the type of business conducted by such company. No KeystoneTrinity Company is liable for any material retroactive premium adjustment. AllTo the Knowledge of Trinity, all insurance policies and bonds are valid, enforceable and in full force and effect, and no KeystoneTrinity Company has received any notice of any material premium increase or cancellation with respect to any of its insurance policies or bonds. Within the last three years, no KeystoneTrinity Company has been refused any insurance coverage which it has sought or applied for, and it has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire, upon substantially similar terms and conditions as favorable as those presently in effect, other than possible increases in premiums that do not result from any extraordinary lossLoss experience. All policies of insurance presently held or policies containing substantially equivalent coverage will be outstanding and in full force with respect to each KeystoneTrinity Company at all times from the date hereof to the Effective Date. Trinity Bank has no bank owned life insurance.

5.16 Benefit Plans.Plans.

(a) All “employee benefit plans” (within the meaning of section 3(3) of ERISAERISA) and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus, incentive, deferred compensation, employee loan, and all other employee benefit plans, agreements, programs, policies or other arrangements, and whether or not subject to ERISA, under which any employee, former employee, director, officer, independent contractor or consultant of KeystoneTrinity or its Subsidiaries has any present or future right to benefits or under which KeystoneTrinity or its Subsidiaries has any presentmade or future liabilityis required to make payments, transfers, or contributions are referred to herein as the “Keystone Plans.“Trinity Plans”. Each material KeystoneTrinity Plan is identified in the KeystoneTrinity Disclosure Letter.

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(b) With respect to each material KeystoneTrinity Plan, KeystoneTrinity has furnished or made available to River Financial a current, accurate and complete copy thereof and, to the extent applicable: (i) any related trust agreement or other funding instrument, (ii) the most recent determination or opinion letter of the IRS, if applicable, (iii) the most recent summary plan description, (iv) for the most recent year any other written communication (or a description of any material oral communication) by KeystoneTrinity or its Subsidiaries to employees of KeystoneTrinity or its Subsidiaries, including concerning the extent of any post-retirement medical or life insurance benefits provided under a KeystoneTrinity Plan, and (v) for the most recent year (A) the Form 5500 and attached schedules, (B) audited financial statements and (C) actuarial valuation reports.

(c) With respect to each KeystoneTrinity Plan, except to the extent that the inaccuracy of any of the representations set forth in this Section 5.16,as would not reasonably be expected, individually or in the aggregate, to have not had a Material Adverse Effect:Effect on Trinity:

(i) each KeystoneTrinity Plan has been established and administered in accordancematerial compliance with its terms and in material compliance with the applicable provisions of ERISA and the Code and other applicable Law, and

all contributions required to be made under the terms of any KeystoneTrinity Plan prior to the Effective Date have been timely made;

(ii) each KeystoneTrinity Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination, advisory and/or opinion letter, as applicable, from the IRS that it is so qualified and, to the knowledgeKnowledge of Keystone,Trinity, nothing has occurred, whether by action or failure to act, since the date of such letter that would reasonably be expected to cause the loss of such qualified status of such Keystoneeach Trinity Plan;

(iii) there is no Litigation (including any investigation, audit or other administrative proceeding) by the Department of Labor, the PBGC, the IRS or any other Agency or by any plan participant or beneficiary pending or, to the Knowledge of Trinity, threatened relating to Keystonethe Trinity Plans, any fiduciaries thereof with respect to their duties to Keystonethe Trinity Plans or the assets of any of the trusts under any KeystoneTrinity Plans (other than routine claims for benefits) nor, to the knowledge of Trinity, are there facts or circumstances that exist that could reasonably give rise to any such Litigation. No written or oral communication has been received from the PBGC in respect of any KeystoneTrinity Plan subject to Title IV of ERISA concerning the funded status of any such plan or any transfer of assets and liabilities from any such plan in connection with the transactions contemplated herein; and

(iv) nonone of the following have occurred, in each case whether or not waived: (i) any “reportable event” (as such term is defined in Section 4043 of ERISA) that could reasonably be expected to result in liability; no; (ii) any nonexempt “prohibited transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code); and no(iii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA and Section 412 of the Code) or failure to timely satisfy any “minimum funding standard” (within the meaning of Section 302 of ERISA or Sections 412 or 430 of the Code), in each case whether or not waived, has occurred with respect to any Keystone Plan..

(d) (i) Each KeystoneThe provisions of each Trinity Plan pursuant to which KeystoneTrinity or any of its Subsidiaries could incur any current or projected liability in respect of post-employment or post-retirement health, medical, or life insurance benefits for current, former, or retired employees of KeystoneTrinity or any of its Subsidiaries (except (i) as required to avoid an excise Tax under Section 4980B of the Code, or otherwise except(ii) as may be required by applicable Law) (“retiree medical benefits”), and (ii)Law, (iii) death or retirement benefits under any Trinity Plan that is intended to be qualified under Section 401(a) of the provisionsCode, or (iv) deferred compensation benefits reflected on the books of each Keystone Plan which provide retiree medical benefitsTrinity or any of its Subsidiaries) may be terminated at any time by KeystoneTrinity or its Subsidiaries without liability to KeystoneTrinity or its Subsidiaries.

(e) Neither KeystoneTrinity nor any of its Subsidiaries is a party to any Contract that will, directly or in combination with other events, result, separately or in the aggregate, in the payment, acceleration or enhancement of any benefit under any Trinity Plan as a result of the transactions contemplated by this Agreement, and neither the execution of this Agreement, KeystoneTrinity shareholder approval of this Agreement, nor the consummation of the transactions contemplated hereby will (A) result in severance pay or any increase in severance pay upon any termination of employment after the date of this Agreement, (B) accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation to, any of the KeystoneTrinity Plans, (C) limit or

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restrict the right of KeystoneTrinity to merge, amend, or terminate any of the KeystoneTrinity Plans, (D) cause KeystoneTrinity to record additional compensation expense on its income statement with respect to any outstanding stock option or other equity-based award, or (E) result in the payment of payments which would not be deductible under Section 280G of the Code.

5.17 Buy-Sell Agreement. To the Knowledge of Keystone,Trinity, there are no agreements among any of its shareholders granting to any person or persons a right of first refusal in respect of the sale, transfer, or other disposition of shares of outstanding securities by any shareholder of Keystone,Trinity, any similar agreement or any voting agreement or voting trust in respect of any such shares.

5.18 Brokers.Brokers. All negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by KeystoneTrinity directly with River Financial and without the intervention of any other person, either as a result of any act of Keystone,Trinity, or otherwise, in such manner as to give rise to any valid claim against KeystoneTrinity for a finder’s fee, brokerage commission or other like payment.

5.19 Approval of AgreementsAgreement. The board of directors of KeystoneTrinity has approved this Agreement and the transactions contemplated by it and has authorized the execution and delivery by KeystoneTrinity of this Agreement. This Agreement constitutes the legal, valid and binding obligation of Keystone,Trinity, enforceable against it in accordance with its terms. Subject to the approval by the shareholders of KeystoneTrinity at the KeystoneTrinity Shareholders Meeting (to the extent required by applicable Law) and to the matters referred to in Section 8.2, KeystoneTrinity has full power, authority and legal right to enter into this Agreement, and, upon appropriate vote of the shareholders of KeystoneTrinity in accordance with this Agreement, KeystoneTrinity shall have full power, authority and legal right to consummate the transactions contemplated by this Agreement. KeystoneTrinity has no knowledgeKnowledge of any fact or circumstance under which the appropriate regulatory approvals required by Section 8.2 will not be granted without the imposition of material conditions or material delays.

5.20 Disclosure. No representation or warranty made by Trinity in this Agreement, nor any written statement or certificate furnished orrequired to be furnished to River Financial by Keystone,Trinity pursuant to this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make thesuch representations and warranties or such statements contained in this Agreement or in any such statement or certificatecertificates not misleading.

5.21 Proxy Statement. At the time the Registration Statement becomes effective, at the time of the mailing of the Proxy Statement, at the time of use of other proxy material, and at the time of the Keystone and River FinancialTrinity Shareholders Meetings,Meeting, the Proxy Statement will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;provided,however, that the representations and warranties in this sectionSection 5.21 shall only apply to statements in or omissions from the Proxy Statement relating to descriptions of the business of Keystone,Trinity, its Assets, properties, operations, and capital stock or to information furnished in writing by KeystoneTrinity or its representatives expressly for inclusion in the Registration StatementProxy Statement. For the avoidance of doubt, the representations and warranties in this Article 5 shall not apply to information furnished by River Financial or its representatives for inclusion in the Proxy Statement.

5.22 Loans; Adequacy of Allowance for Loan Losses.Losses.

(a)ALLL. All reserves for loan losses shown on the most recent financial statements furnished by KeystoneTrinity have been calculated in accordance with GAAP and prudent and customary banking practices and are adequate in all material respects under GAAP to reflect the risk inherent in the loans of Keystone. KeystoneTrinity. Trinity has no Knowledge of any fact which is likely to require a future material increase in the provision for loan losses or a material decrease in the loan loss reserve reflected in such financial statements.

(b)Validity. Each loan reflected as an Asset on the financial statements of KeystoneTrinity is the legal, valid and binding obligation of the obligor of each loan, enforceable in accordance with its terms subject to the effect of bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors’ rights generally and to general equitable principles and complies in all material respects with all Laws to which it is subject. KeystoneTrinity does not

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have in its portfolio any loan exceeding its legal lending limit, or any loan to any insider in violation of Regulation O, and KeystoneTrinity has no known significant delinquent, substandard, doubtful, loss, nonperforming or problem loans. Each outstanding loan (including loans held for resale to investors) was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant loan files are being maintained, in all material respects in accordance with the relevant notes or other credit or security documents, the written underwriting standards of KeystoneTrinity Bank (and, in the case of loans held for resale to investors, the underwriting standards, if any, of the applicable investors) and with all applicable federal, state and local laws, regulations and rules.Laws. None of the agreements pursuant to which KeystoneTrinity Bank has sold loans or pools of loans or participations in loans or pools of loans, to its Knowledge, contains any obligation to repurchase such loans or interests therein solely on account of a payment default by the obligor on any such loan.

5.23 Fair Housing Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act and Flood Disaster Protection Act. KeystoneTrinity Bank is in compliance in all material respects with the Fair Housing Act (42

U.S.C. § 3601 et seq.), the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq.), the Equal Credit Opportunity Act (15 U.S.C. § 1691 et seq.), and the Flood Disaster Protection Act (42 USC § 4002, et seq.), and all regulations promulgated thereunder. KeystoneTrinity Bank has not received any written notices of any violation of such actsLaws or any of the regulations promulgated thereunder, and it has not received any written notice of any, and to the Knowledge of KeystoneTrinity Bank there is no, threatened administrative inquiry, proceeding or investigation with respect to its compliance with such laws.Laws.

5.24 Bank Secrecy Act, Foreign Corrupt Practices Act and U.S.A. Patriot Act. KeystoneTrinity Bank is in material compliance with the Bank Secrecy Act (12 U.S.C. §§ 1730(d) and 1829(b)), the United States Foreign Corrupt Practices Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act, otherwise known as the U.S.A. Patriot Act, and all regulations promulgated thereunder. KeystoneTo the knowledge of Trinity, Trinity Bank has properly certified all foreign deposit accounts and, except as would not be expected to have a Material Adverse Effect, has made all necessary tax withholdings on all of its deposit accounts; furthermore, Keystoneto the knowledge of Trinity, Trinity Bank has timely and properly filed and maintained all requisite Currency Transaction Reports and other related forms, including any requisite Customs Reports required by any agency of the United States Treasury Department, including the IRS. KeystoneTo the knowledge of Trinity, Trinity Bank has timely filed all Suspicious Activity Reports with the Financial Institutions – Financial Crimes Enforcement Network (U.S. Department of the Treasury) required to be filed by it pursuant to the laws and regulations referenced in this Section.applicable Laws.

5.25 Environmental Matters. Except for events or actions that do not constitute a Material Adverse Effect:Effect, to the Knowledge of Trinity:

(a) neither Keystone’sTrinity’s conduct nor its operation or the conduct or operation of its Subsidiaries nor any condition of any real property presently or previously owned leased or operated by any of them (including(excluding in a fiduciary or agency capacity), violates or has violated Environmental Laws;

(b) there has been no release of any Hazardous Substance by KeystoneTrinity or any of its Subsidiaries in any manner that has given or would reasonably be expected to give rise to any remedial obligation, corrective action requirement or liability under applicable Environmental Laws;

(c) neither KeystoneTrinity nor any of its Subsidiaries has received any written claims, notices, demand letters or requests for information (except for such claims, notices, demand letters or requests for information the subject matter of which has been resolved prior to the date of this Agreement) from any Governmental Entitygovernmental entity or any other Person asserting that KeystoneTrinity or any of its Subsidiaries or the operation or condition of any real property ever owned leased,o operated orby any of them (other than real property held as collateral or in a fiduciary capacity by any of themcapacity) are or were in violation of or otherwise are alleged to have liability under any Environmental Law, including responsibility (or potential responsibility) for the cleanup or other remediation of any pollutants, contaminants or hazardous or toxic wastes, substances or materials at, on, beneath or originating from any such real property;

(d) no Hazardous Substance has been disposed of, arranged to be disposed of, released or transported in violation of any applicable Environmental Law, or in a manner that has given rise to, or that would reasonably be expected to give rise to, any liability under any Environmental Law, from any current or former properties or

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facilities while owned or operated by KeystoneTrinity or any of its Subsidiaries or as a result of any operations or activities of KeystoneTrinity or any of its Subsidiaries at any location, and no other condition has existed or event has occurred with respect to KeystoneTrinity or any of its Subsidiaries or any such properties or facilities that, with notice or the passage of time, or both, would be reasonably likely to result in liability under Environmental Laws, and, to the Knowledge of Keystone,Trinity, Hazardous Substances are not otherwise present at or about any such properties or facilities in an amount or condition that has resulted in or would reasonably be expected to result in material Liability to KeystoneTrinity or any of its Subsidiaries under any Environmental Law;

(e) neither Keystone,Trinity, its Subsidiaries nor any of their respective properties or facilities are subject to, or are, to Keystone’sTrinity’s Knowledge, threatened to become subject to, any liabilitiesmaterial Liabilities relating to any suite, settlement, court order, administrative order, regulatory requirement, judgment or claimOrder asserted or arising under any Environmental Law or any agreement relating to environmental liabilities;Liabilities; and

(f) no real property on which KeystoneTrinity or any of its Subsidiaries holds a Lien violates or violated any Environmental Law and no condition has existed or event has occurred with respect to any such real property that, with notice or the passage of time, or both, is reasonably likely to result in material liability under any Environmental Law.

5.26 Collective Bargaining. There are no labor contracts, collective bargaining agreements, letters of undertakings or other arrangements, formal or informal, between any KeystoneTrinity Company and any union or labor organization covering any KeystoneTrinity Company’s employees and none of said employees are represented by any union or labor organization.

5.27 Labor Disputes. To the Knowledge of Keystone,Trinity, each KeystoneTrinity Company is in material compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours. No KeystoneTrinity Company is or has been engaged in any unfair labor practice, and, to the Knowledge of Keystone,Trinity, no unfair labor practice complaint against any KeystoneTrinity Company is pending before the National Labor Relations Board. RelationsTo the knowledge of Trinity, relations between management of each KeystoneTrinity Company and the employees are amicable and there have not been, nor to the Knowledge of Keystone,Trinity, are there presently, any attempts to organize employees, nor to the Knowledge of Keystone,Trinity, are there plans for any such attempts.

5.28 Derivative Contracts. No KeystoneTrinity Company is a party to or has agreed to enter into a swap, forward, future, option, cap, floor or collar financial contract, or any other interest rate or foreign currency protection contract or derivative security not included in Keystone’sTrinity’s financial statements delivered under Section 5.4 hereof which is a financial derivative contract (including various combinations thereof).

5.29 Intellectual Property. Each KeystoneTrinity Company owns or has a valid license to use all of the Intellectual Property used by such KeystoneTrinity Company in the course of its business. Each KeystoneTrinity Company is the owner of or has a license to any Intellectual Property sold or licensed to a third party by each KeystoneTrinity Company in connection with the KeystoneTrinity Company’s business operations, and the KeystoneTrinity Company has the right to convey by sale or license any Intellectual Property so conveyed. No KeystoneTrinity Company has received notice of Default under any of its Intellectual Property licenses. No proceedings have been instituted, or are pending or overtly threatened, that challenge the rights of a KeystoneTrinity Company with respect to Intellectual Property used, sold or licensed by the KeystoneTrinity Company in the course of its business, nor has any person claimed or alleged any rights to such Intellectual Property. To the Knowledge of Keystone,Trinity, the conduct of each KeystoneTrinity Company’s business does not infringe any Intellectual Property of any other person. No KeystoneTrinity Company is obligated to pay any recurring royalties to any Person with respect to any such Intellectual Property. No Keystone Company is a party to any agreement to indemnify any Person against a claim of infringement of or misappropriation of any Intellectual Property.

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5.30 Technology Systems.Systems.

(a) No action will be necessary as a result of the transactions contemplated by this Agreement to enable the Technology Systems and computer systems that are used by any KeystoneTrinity Company to be continued by River Financial to the same extent and in the same manner that it has been used by any Keystone Company.Trinity Company except as provided in the applicable Contracts.

(b) The Technology Systems (for a period of 24 months prior to the Effective Date) have not suffered unplanned disruption causing a Material Adverse Effect. Except for ongoing payments due under relevant third party agreements and rights contained in applicable Contracts, the Technology Systems are free from any Liens. Access to business critical parts of the Technology Systems is not shared with any third party.

(c) Keystone’s written disaster recovery and business continuity plan has previously been provided to River Financial.

(d) No KeystoneTrinity Company has received notice of or is aware of any material circumstances including without limitation, the execution of this Agreement, that would enable any third party to terminate any of such KeystoneTrinity Company’s agreements or arrangements relating to the Technology Systems (including maintenance and support) other than rights contained in applicable contracts.Contracts.

5.31 Community Reinvestment Act Compliance. KeystoneTrinity Bank is an insured depository institution and has complied in all material respects with the Community Reinvestment Act of 1977 (“CRA”)CRA and the rules and regulations thereunder, and has a composite CRA rating of not less than “satisfactory.”

5.32 Transaction Costs. The Trinity Disclosure Letter sets forth an estimate of attorneys’ fees, investment banking fees, accounting fees and other costs or fees of Trinity and its Subsidiaries that, based upon reasonable inquiry, are expected to be paid or accrued through the Effective Date in connection with the Merger and the other transactions contemplated by this Agreement.

5.33 Termination Penalties. The Trinity Disclosure Letter sets forth a list of each Contract to which any Trinity Company is a party which, to the Knowledge of Trinity, contains a fee or penalty for early termination or deconversion in excess of $100,000.

5.34 No Additional Representations.Representations.

(a) Except for the representations and warranties made by KeystoneTrinity in this Article 5, neither KeystoneTrinity nor any other Person makes any express or implied representation or warranty with respect to River FinancialTrinity or its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and KeystoneTrinity hereby disclaims any such other representations or warranties.

(b) Notwithstanding anything contained in this Agreement to the contrary, KeystoneTrinity acknowledges and agrees that none of River Financial or any other Person has made or is making any representations or warranties relating to River Financial whatsoever, express or implied, beyond those expressly given by River Financial in Article 4 hereof, including any implied representation or warranty as to the accuracy or completeness of any information regarding River Financial furnished or made available to KeystoneTrinity or any of its representatives.

ARTICLE 6

ADDITIONAL COVENANTS

6.1 Additional Covenants of River Financial. River Financial covenants to and with KeystoneTrinity as follows:

(a)Operations. During the period from the date of this Agreement until the Effective Time, River Financial willshall, and shall cause each of its Subsidiaries, except as expressly contemplated by this Agreement, as required by applicable Law, or with the prior written consent of Trinity (which consent shall not be unreasonably withheld, conditioned, or delayed), to use its commercially reasonable efforts to conduct its business and the business of each River Financial Company in a manner consistent with its historic practice and will use its reasonable best efforts to maintain its relationships with its depositors, customers and employees. No River Financial Company will engage in any material transaction outside the ordinary course of business or make any material change in its accounting policies or methods of operation, nor willconsistent with past practice. To the extent consistent therewith, River Financial permitshall, and shall cause each of its Subsidiaries to, use its commercially reasonable efforts to preserve substantially intact its and its Subsidiaries’ business organization, to keep available the occurrenceservices of any changeits and its Subsidiaries’ current officers and employees, to preserve its and its Subsidiaries’ present relationships with customers, suppliers, distributors, licensors, licensees, and other Persons having business relationships with it. Without limiting the generality of the foregoing, between the date of this Agreement and the Effective Time, except as otherwise expressly contemplated by this Agreement, as set forth in the River Financial Disclosure Letter, as required by applicable Law, or event which would renderwith the prior written consent of Trinity (which consent shall not be unreasonably withheld, conditioned, or delayed), River Financial shall not, nor shall it permit any of its Subsidiaries to, take any action that, if taken during the representations and warranties in Article 4 hereof untrue in any material respect at and asperiod from the date of the most recent balance sheet provided under Section 4.3(a)(i) and the Effective DateTime (and not disclosed to Trinity in the River Financial Disclosure Letter), would constitute a breach of the representation in Section 4.4 or would be reasonably likely to materially delay or prevent the Merger. Notwithstanding the foregoing or anything else to the contrary in this Agreement, nothing contained in this Agreement gives Trinity, directly or indirectly, the right to control or direct any River Financial Company’s operations. The River Financial Companies shall exercise, consistent with the same effect as though such representationsterms and warranties had been made atconditions of this Agreement, complete control and as of such Effective Date.supervision over their respective businesses, assets, and operations.

(b)Registration Statement and OtherAgency Filings. As soon as reasonably practicable afterfollowing the executiondate of this Agreement, River Financial shall prepare all necessary and fileappropriate applications, notices, filings and other documents, including as described in Section 8.2 (collectively, “Regulatory Applications”) in order to obtain all requisite Agency approvals to consummate the transactions contemplated hereby, and to comply with the SECterms and conditions of all such approvals. In preparing the Registration Statement on Form S-4 (orRegulatory Applications, River Financial will provide Trinity with advance copies of the draft Regulatory Applications and any related correspondence, and give Trinity a reasonable opportunity to comment thereon. River Financial shall file such other form as may be appropriate) and all amendments and supplements thereto, in form reasonably

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satisfactory to Keystone and its counsel, with respect toRegulatory Applications within 20 days after the Common Stock to be issued pursuant todate of this Agreement. River Financial shall use reasonable good faith efforts to prepare all necessary filingskeep Trinity apprised of the status of any Regulatory Applications, and consult with Trinity in advance of any meeting or conference with any Agencies which may be necessary for approvalAgency in connection therewith. To the extent permitted by the applicable Agency, River Financial shall give Trinity and its counsel the opportunity to consummateattend and participate in any meetings and conferences with the transactions contemplatedAgency, in each case subject to applicable Law. River Financial shall promptly furnish Trinity with copies of written communications received by this Agreement and shall use its reasonable effortsit, from, or delivered by it, to, cause the Registration Statement to become effective under the 1933 Act as soon as reasonably practicable after the filing thereof and take any action required to be taken under other applicable securities lawsAgency in connection with the issuance of the shares of River Financial Common Stock upon consummation of the Merger. As soon as reasonably practicable after the execution of this Agreement, copies of all such filings shall be furnished in advance to Keystone and its counsel.Regulatory Applications.

(c)Shareholders Meeting; Best Efforts. River Financial will cause the River Financial Shareholders Meeting to be held for the purpose of approving the Merger and increasing the authorized number of shares of River Financial Common Stock as soon as practicable after the execution of this Agreement, and will use its best efforts to bring about the transactions contemplated by this Agreement, including shareholder approval of this Agreement and the increase in authorized shares, as soon as practicable unless this Agreement is terminated as provided herein. The board of directors of River Financial shall recommend adoption by the shareholders of River Financial of this Agreement, the increase in authorized shares, and the amendment of River Financial bylaws as set forth in Section 2.4 (the “River Financial Recommendation”). The board of directors of River Financial shall not withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to Keystone such recommendation or take any action or make any statement in connection with the River Financial Shareholders Meeting inconsistent with such recommendation (collectively, a “Change in the River Financial Recommendation”);provided the foregoing shall not prohibit accurate disclosure (and such disclosure shall not be deemed to be a Change in the River Financial Recommendation) of factual information regarding the business, financial condition or results of operations of River Financial or Keystone or the fact that an Acquisition Proposal has been made to River Financial, the identity of the party making such proposal or the material terms of such proposal (provided, that the board of directors of River Financial does not withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to Keystone its recommendation) in the Proxy Statement or otherwise, to the extent such information, facts, identity or terms is required to be disclosed under applicable law; and,providedfurther, that the board of directors of River Financial may make a Change in the River Financial Recommendation (x) pursuant to Section 6.1(i) hereof or (y) prior to the River Financial Shareholders Meeting if the board of directors of River Financial determines in good faith that a Material Adverse Effect has occurred with respect to Keystone. Notwithstanding any Change in the River Financial Recommendation, this Agreement shall be submitted to the shareholders of River Financial at the River Financial Shareholders Meeting for the purpose of adopting the Agreement and approving the Merger,provided that this Agreement shall not be required to be submitted to the shareholders of River Financial at the River Financial Shareholders Meeting if this Agreement has been terminated pursuant to Section 13.2 hereof.

(d)Blue Sky Permits. River Financial shall use its best efforts to obtain, prior to the effective date of the Registration Statement, all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by this Agreement.

(e)Financial Statements. Prior to the Effective Date, River Financial shall furnish to Keystone:Trinity:

(i) As soon as practicable and in any event within forty-five (45) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of operations of River Financial for such period and for the period beginning at the commencement of the fiscal year and ending at the end of such quarterly period, and a consolidated statement of financial condition of River Financial as of the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods ending in the preceding fiscal year, subject to changes resulting from year-end adjustments;

(ii) Promptly upon receipt thereof, copies of all audit reports and loan reviews submitted to River Financial by independent auditors or loan reviewers (other than the Agencies) in connection with (x) each annual, interim or special audit of the books of River Financial made by such auditors;auditors and (y) each loan review by the loan reviewers;

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(iii) As soon as practicable, copies of all such financial statements and reports as it shall send to its shareholders;

(iv) With reasonable promptness, such additional financial data, including copies of all journal entries, as Keystone may reasonably request;(d)Tax and

(v) Within 10 calendar days after the end of each month (or, if the financial statements referred to in clause (i) are not then available, as soon as possible thereafter) commencing with the next calendar month following the date of this Agreement and ending at the Effective Date, a written description of (a) any material non-compliance with the terms of this Agreement, together with its then current estimate of the out-of-pocket costs and expenses incurred or reasonably accruable in connection with the transactions contemplated by this Agreement; (b) the status, as of the date of the report, of all existing or threatened litigation against any River Financial Company; (c) copies of minutes of any meeting of the board of directors of any River Financial Company and any committee thereof occurring in the month for which such report is made, including all documents presented to the directors at such meetings; and (d) monthly financial statements, including a balance sheet and income statement.

(f)No Control of Keystone by River Financial. Notwithstanding any other provision hereof, until the Effective Date, the authority to establish and implement the business policies of Keystone shall continue to reside solely in Keystone’s officers and board of directors.

(g)Employee Benefit Matters.

(i) OnExcept as separately provided in Section 6.1(g), River Bank shall retain all employees of Trinity Bank for a period of nine (9) months following the Effective Date all employeesat their rate of any Keystone Company shall, at the Resulting Corporation’s option, either become employees of the Resulting Corporation or its Subsidiaries or be entitled to severance benefitspay in accordance with River Bank’s severance policyeffect as of the date of this Agreement (and receive creditEffective Date with benefits provided under River Bank’s existing benefit plans as set forth in subsection (d)(ii) below. Trinity Bank employees will have the opportunity to interview for the entire time heany open or she was annewly created positions at all River Bank locations. Any employee of KeystoneTrinity Bank not retained after such 9-month period will (A) receive his or its Subsidiaries).her rate of pay as of the termination date for a period of 120 days following termination and (B) be provided with at least 30 days’ written notice prior to the end of such 9-month period that the employee will not be retained. Notwithstanding any of the foregoing, any Trinity Bank employee may be terminated at any time for cause under River Bank policies and procedures without any compensation or severance benefits except for that which is provided under River Bank policies.

(ii) All employees of any KeystoneTrinity Company who become employees of the Resulting Corporation or its Subsidiaries on the Effective Date shall be entitled, to the extent permitted by applicable Law, to participate in all to the fullest extent permitted by applicable Law employee benefit plans, policies, programs, and arrangements of Resulting Corporation and its Subsidiaries to the same extent as, and at levels no less favorable than, similarly situated employees of River Financial and its Subsidiaries, except as stated otherwise in this section, and, shall be given past service credit under each such employee benefit plan, policy, program and arrangement after the Effective Date for their service with KeystoneTrinity or its Subsidiaries (or any predecessor thereto) prior to the Effective Date for all purposes. Employees of any KeystoneTrinity Company who become employees of the

Resulting Corporation or its Subsidiaries on the Effective Date shall be allowed to participate as of the Effective Date in the medical and dental benefits planplans of the Resulting Corporation and its Subsidiaries as new employees, and the time of employment ofemployees;provided, however, all such employees who are employed at least 30 hours per weekemployees’ past service with any KeystoneTrinity Company as of the Effective Date shall be counted as employment under such dental and medical plans of the Resulting Corporation and its subsidiariesSubsidiaries for all purposes, of calculatingincluding satisfying any 30 dayapplicable waiting period and pre-existing condition limitations. Without limiting the generality of the foregoing, to the extent permitted by applicable Law, the period of service with the appropriate KeystoneTrinity Company of all employees who become employees of the Resulting Corporation or its Subsidiaries on the Effective Date shall be recognized for all vesting and eligibility purposes underpurposes. Except as may be disclosed in the River Financial Disclosure Letter, no employee benefit plans of the Resulting Corporation and its subsidiaries.Subsidiaries restrict or limit the granting of full past-service credit with the Trinity Companies for all vesting and eligibility purposes, and without any waiting periods. In addition, if the Effective Date falls within an annual period of coverage under any group health plan of the Resulting Corporation and its Subsidiaries, each such KeystoneTrinity Company employee shall be given credit for covered expenses paid by that employee under comparable employee benefit plans of the KeystoneTrinity Company during the applicable coverage period through the Effective Date towards satisfaction of any annual deductible limitation and out-of-pocket maximum that may apply under that group health plan of the Resulting Corporation and its Subsidiaries.

(ii)(iii) In the event of any termination of any Keystone or its SubsidiaryTrinity Company health plan (a “Keystone health plan”“Trinity Health Plan”), River Financial and River Bank shall make available to the continuing employees of a KeystoneTrinity Company and their dependents, employer-provided health care coverage under health plans provided by River Financial and River Bank.Bank (the “River Financial Health Plans”). Unless such continuing employee affirmatively terminates coverage under a Keystone

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health planTrinity Health Plan prior to the time that the continuing employee becomes eligible to participate in the River FinancialBank health plan, no coverage of any continuing employees or their dependents shall terminate under any of the Keystone health plansTrinity Health Plans prior to the time such continuing employees and their dependents become eligible to participate in the health plans, programs and benefits common to all employees and their dependents of River Financial and River Financial Bank. In the event River FinancialBank terminates any Keystone health planTrinity Health Plan or consolidates any Keystone health planTrinity Health Plan with any River FinancialBank health plan on or after the Effective Date, individuals covered by the Keystone health planTrinity Health Plan shall be entitled to immediate coverage under a health planRiver Financial Health Plan in accordance with the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations issued thereunder, including limitations on pre-existing condition exclusions, nondiscrimination and special enrollment rights.

(iii)(iv) Consistent with subparagraph (i) above, promptly after the execution of this Agreement, River Financial, River Bank and KeystoneTrinity shall cooperate to develop, implement and communicate to key employees of KeystoneTrinity retention arrangements designed to retain the services of such key employees, as appropriate, through the Effective Date and thereafter until the date of Keystone’sTrinity’s operating systems and branch conversions, as determined by River Financial.Financial;provided, however, that Trinity shall not be required to incur any costs prior to the Effective Date in connection with any retention arrangements.

(iv)(v) Prior to the Effective Date, Keystone,Trinity will adopt, or will cause to be adopted, all necessary corporate resolutions to terminate the Trinity Bank 401(k) Plan (the “Trinity Qualified Plan”), effective as of no later than one day prior to Closing (but such termination may be contingent upon the Closing). Trinity shall provide River Financial with a copy of the resolutions duly adopted by Trinity Bank’s board of directors so terminating the Trinity Qualified Plan. Such termination shall provide that all participants in the Trinity Qualified Plan shall be fully vested in their account balances under such plan. Subject to applicable Law, River Financial or River Bank shall permit the employees of Trinity and followingTrinity Bank, who continue to be so employed by River Financial or River Bank after the Effective Date, to be eligible to participate (with no waiting period and with the Resulting Corporation,same employer matches as River Financial participants) in a 401(k) plan of River Financial or River Bank (the “River Qualified Plan”) effective on or promptly after the Effective Date and shall use their respective reasonable best efforts in good faithcause the River Qualified Plan to obtain a favorable determination letteraccept rollover contributions of “eligible rollover distributions” (within the meaning of Section 401(a)(31) of the Code, including participant loan notes) from the Internal Revenue ServiceTrinity Qualified Plan. In addition, prior to the Effective Date, Trinity shall submit to the IRS a complete Application for Determination for Terminating Plan on Form

5310, in accordance with IRS guidance and with all required user fees and documentation, with respect to the Keystone 401(k) Plan (the “Keystone qualified plan”).Trinity Qualified Plan.

(vi) Prior to the Effective Date, Keystone, and following the Effective Date, the Resulting Corporation, will adopt such amendments to the Keystone qualified plan as may be reasonably required by the IRS as a condition to granting such favorable determination letter on termination. Following the effective termination date of the Keystone qualified plan, neither Keystone, prior to the Effective Date, nor the Resulting Corporation, following the Effective Date, shall make any distribution from the Keystone qualified plan except (i) as may be required by applicable law, or (ii) in accordance with Keystone qualified plan’s terms regarding distributable events in the ordinary course other than due to the termination of such plan (e.g., due to retirements or terminations of employees), until receipt of such favorable determination letter. Any distributions may, at the recipient’s option, be rolled into a defined contribution plan of River Financial subjectshall deliver to River Financial’s discretion: (i) to reject any such rollover if it may reasonably jeopardize the qualified statusJones Day one or more officer’s certificates, dated as of River Financial’s qualified plan; and (ii) to reject non-cash rollovers or rollovers of plan loans. In the case of a conflict between the terms of this Section 6.1(g) and the terms of the Keystone qualified plan, the terms of the such plan shall control; provided, however, in the event of any such conflict, Keystone, before the Effective Date and signed by an officer of River Financial, in customary form and substance (the “River Financial Tax Representation Letter”), containing representations of River Financial and/or River Bank as shall be reasonably necessary or appropriate to enable Jones Day to render the Resulting Corporation, after the Effective Date, shall use their reasonable best efforts to cause such plan to be amended to conform to the requirements of thisopinion described in Section 6.1(g).9.7.

(h)(e)Indemnification, Exculpation and Insurance.

(i) FromFor a period of six (6) years from and after the Effective Date, in the event of any threatened or actual claim, action, suit, proceeding, or investigation, whether civil, criminal, or administrative, in which any Person who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Date, a director, officer, or officeremployee of Keystone or any of its Subsidiariesa Trinity Company (the “Indemnified Parties”“Indemnified Parties”) is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (A) the fact that he or she is or was a director, officer, or employee of Keystone, any of its Subsidiaries,a Trinity Company or any of its predecessors, or (B) this Agreement or any of the transactions contemplated hereby or thereby, whether in any case asserted or arising before or after the Effective Date, River Financial shall indemnify and hold harmless, to the fullest extent permitted by applicable law each such Indemnified Party against any Liability (including advancement of reasonable attorneys’ fees and expenses prior to the final disposition of any claim, suit, proceeding, or investigation to each Indemnified Party to the fullest extent permitted by lawapplicable Law upon receipt of any undertaking required by applicable law)Law), judgments, fines, and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding, or investigation.

(ii) River Financial agrees that all rights to indemnification and all limitations on Liability existing in favor of the directors, officers, and employees of Keystone and its Subsidiaries (the “Covered Parties”)Indemnified Parties as provided in their respectivethe organizational documents of each Trinity Company as in effect as of the date of this Agreement or in any

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indemnification agreement in existence on the date of this Agreement with Keystone or its Subsidiariesa Trinity Company with respect to matters occurring prior and up to the Effective Date shall survive the Merger and shall continue in full force and effect, and shall be honored by such entitiesthe Resulting Corporation or its Subsidiaries or their respective successors as if they were the indemnifying party thereunder, without any amendment thereto; provided, that nothing contained in this Section 6.1(h)6.1(e) shall be deemed to preclude any liquidation, consolidation, or merger after the Effective Date of any Keystone Subsidiaries of the Resulting Corporation, in which case all of such rights to indemnification and limitations on Liability shall be deemed to so survive and continue notwithstanding any such liquidation, consolidation, or merger. Without limiting the foregoing, in any case in which approval by River Financial is required to effectuate any indemnification, River Financial shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually agreed upon between River Financial and the Indemnified Party.

(iii) River Financial from and aftershall cause the Resulting Corporation to: (i) obtain as of the Effective Date will directly or indirectly cause the Persons who served as directors or officers“tail” insurance policies with a claims period of Keystone or its Subsidiaries immediately prior tosix years from the Effective Date to be covered by River Financial’s existing directors’ and officers’ liability insurance policy with respect to acts or omissions occurring prior to the Effective Date which were committed by such officers and directors in their capacity as such; provided, however, that (A) River Financial may substitute therefor policies of at least the same coverage and amounts and containing terms and conditions whichthat are not less advantageous than such policy, (B)to the Indemnified Parties, in each case with respect to claims arising out of or relating to events which occurred before or at the Effective Date (including in connection with the transactions contemplated by this Agreement);provided,however, in no event shall River Financialthe Resulting Corporation be required to expend more than 250% per yearan annual premium for such coverage in excess of coverage300% of the amount currently expendedlast annual premium paid by Keystone per year of coverage as ofthe Trinity Companies for such insurance prior to the date of this Agreement (the “maximum amount”“Maximum Amount”) to maintain or procure insurance coverage pursuant hereto, and (C) if. If, notwithstanding the use of commercially reasonable best efforts to do so, River Financialthe Resulting Corporation is unable to maintain or obtain the insurance called for by this Section 6.1(h)(iii)6.1(e), River Financialthe Resulting Corporation shall obtain as much comparable insurance as available forat a cost not exceeding an annual premium equal to the maximum amount.Maximum Amount. Such insurance coverage shall commence at the Effective Date and will be provided and prepaid for a period of no less than six years after the Effective Date.

(iv) Notwithstanding anythingAny Indemnified Party wishing to claim indemnification under this Section 6.1(e) shall promptly notify River Financial upon learning of any claim,provided that, failure to so notify shall not affect the obligation of River Financial under this Section 6.1(e), unless, and only to the contrary,extent that, River Financial is materially prejudiced in the directorsdefense of such claim as a consequence. In the event of any such claim (whether asserted or claimed prior to, at or after the Effective Date), (i) River Financial shall have the right to assume the defense thereof and officersRiver Financial shall not be liable to such Indemnified Parties for any legal expenses or other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if River Financial elects not to assume such defense or counsel for an Indemnified Party or advises that there are substantive issues which raise conflicts of Keystoneinterest between River Financial and the Indemnified Party under applicable attorney rules of professional responsibility, the Indemnified Party may retain counsel satisfactory to him or her, and River Financial shall pay all reasonable fees and expenses of such counsel for the Indemnified Party, (ii) the Indemnified Parties will cooperate in the defense of any such matter, (iii) River Financial shall not be liable for any settlement effected without its prior written consent, not to be unreasonably withheld, and (iv) River Financial shall have no obligation hereunder to any Indemnified Party if such indemnification would be in violation of any applicable federal or state banking Laws, or in the event that a federal or state banking agency or a court of competent jurisdiction shall determine finally and in a non-appealable order that indemnification of an Indemnified Party in the manner contemplated hereby is prohibited by applicable Laws, whether or not related to banking Laws.

(v) The obligations of the Resulting Corporation and its Subsidiaries shallunder this Section 6.1(e) will survive the consummation of the Merger and will not be entitledterminated or modified in such a manner as to coverage under River Financial’s directors’ and officers’ liability insurance with respect to acts or omissions occurring from and afteradversely affect any Indemnified Party without the Effective Date.

(v)consent of such affected Person. The Indemnified Parties are intended third-party beneficiaries of this Section 6.1(e), each of whom may enforce the provisions of this Section 6.1(h) are intended to be for6.1(e).

(vi) In the benefitevent the Resulting Corporation, or any of and shall be enforceable by, each Indemnified Party, each Covered Party, andits successors or assigns: (1) consolidates with or merges into any other Person coveredand shall not be the continuing or surviving corporation or entity in such consolidation or merger; or (2) transfers all or substantially all of its properties and assets to any Person, then, and in either such case, proper provision shall be made so that such successors and assigns assume all of the obligations set forth in this Section 6.1(e). The covenants contained in this Section 6.1(e) are not exclusive of any other rights to which any Indemnified Party is entitled, whether pursuant to Law, Contract, or otherwise. Nothing in this Agreement releases, waives, or impairs any rights to directors’ and officers’ insurance claims under any policy that is, has been or will be in existence with respect to any Trinity Company or its officers, directors, and employees, it being understood and agreed that the indemnification provided for in this Section 6.1(e) is not prior to, or in substitution for, any such claims under any such policies.

(f)Advisory Board. Following the Effective Date, River Bank shall establish a Wiregrass Region Advisory Board for its board of directors consisting of 8 members. The board shall undertake such advisory services as the board of directors of River Bank may reasonably request, including reviews of River Financial and River Bank’s financial information, undertaking business development activities, providing market insight and recommendations regarding loans consistent with ASBD and FDIC guidelines.

(g)Employment Terms. At the Effective Date, River Bank shall provide employment arrangements to Robbin Thompson, Joe Sanders, and Lori Nelson on the terms set forth in Exhibit D. Robbin Thompson shall receive a change in control agreement as of the Effective Date substantially on the terms set forth in the form of change in control agreement disclosed in the River Financial Disclosure Letter. Robbin Thompson, Joe Sanders, and Lori Nelson shall receive grants of incentive stock options on the terms set forth in Exhibit D pursuant to a stock option agreement in substantially the form disclosed in the River Financial Disclosure Letter. Except for the foregoing change in control agreement for Robbin Thompson, the employment arrangements set forth herein are the terms of employment but do not constitute an employment contract or obligation for continuing employment. Robbin Thompson, Joe Sanders, and Lori Nelson are each intended third party beneficiaries of this Section 6.1(g), each of whom may enforce the provisions of this Section 6.1(g).

6.2 Additional Covenants of Trinity. Trinity covenants to and with River Financial as follows:

(a)Operations. During the period from the date of this Agreement until the Effective Time, Trinity shall, and shall cause each of its Subsidiaries, except as expressly contemplated by this Agreement, as required by applicable Law, or with the prior written consent of River Financial (which consent shall not be unreasonably withheld, conditioned, or delayed), to use its commercially reasonable efforts to conduct its business in the ordinary course of business consistent with past practice. To the extent consistent therewith, Trinity shall, and shall cause each of its Subsidiaries to, use its commercially reasonable efforts to preserve substantially intact its and its Subsidiaries’ business organization, to keep available the services of its and its Subsidiaries’ current officers and employees, to preserve its and its Subsidiaries’ present relationships with customers, suppliers, distributors, licensors, licensees, and other Persons having business relationships with it. Without limiting the generality of the foregoing, between the date of this Agreement and the Effective Time, except as otherwise expressly contemplated by this Agreement, as set forth in the Trinity Disclosure Letter, as required by applicable Law, or with the prior written consent of River Financial (which consent shall not be unreasonably withheld, conditioned, or delayed), Trinity shall not, nor shall it permit any of its Subsidiaries to, take any action that, if taken during the period from the date of the most recent balance sheet provided under Section 5.4(a)(i) and the Effective Time (and not disclosed to River Financial in the Trinity Disclosure Letter), would constitute a breach of the representation in Section 5.5. Notwithstanding the foregoing or anything else to the contrary in this Agreement, nothing contained in this Agreement gives River Financial, directly or indirectly, the right to control or direct any Trinity Company’s operations prior to the Effective Time. Prior to the Effective Time, the Trinity Companies shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over their respective businesses, assets, and operations.

(b)Trinity Shareholders Meeting; Trinity Recommendation. Trinity will (i) cooperate with River Financial in the preparation of any regulatory filings and the Proxy Statement for Trinity, (ii) cause the Trinity Shareholders Meeting to be held for the purpose of approving the Merger as soon as practicable following the effectiveness of the Registration Statement, and (iii) use its commercially reasonable efforts to obtain shareholder approval of this Agreement (to the extent required by applicable Law and the Trinity articles of incorporation and bylaws), as soon as practicable unless this Agreement is terminated as provided herein. The board of directors of Trinity shall recommend adoption of this Agreement by the shareholders of Trinity (to the extent required by applicable Law and the Trinity articles of incorporation and bylaws) (the “Trinity Recommendation”), and shall not withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to River Financial such recommendation or take any action or make any statement in connection with the Trinity Shareholders Meeting inconsistent with such recommendation (collectively, a “Change in the Trinity Recommendation”);provided the foregoing shall not prohibit accurate disclosure (and such disclosure shall not be deemed to be a Change in the Trinity Recommendation) of factual information regarding the business, financial condition or results of operations of River Financial or Trinity or the fact that an Acquisition Proposal has been made to Trinity, the identity of the party making such proposal or the material terms of such proposal (provided, that the board of directors of Trinity does not withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to River Financial the Trinity Recommendation) in the Proxy Statement or otherwise, to the extent such information, facts, identity or terms is required to be disclosed under applicable Law; and,provided further, that the board of directors of Trinity may make a Change in the Trinity Recommendation (x) pursuant to Section 6.2(c) hereof or (y) prior to the Trinity Shareholders Meeting if the board of directors of Trinity determines in good faith that a Material Adverse Effect has occurred with respect to River Financial. Notwithstanding any Change in the Trinity Recommendation, this Agreement shall be submitted to the shareholders of Trinity at the Trinity Shareholders Meeting (to the extent required by applicable Law and his or her heirsthe Trinity articles of incorporation and representatives.bylaws) for the purpose of adopting the Agreement and approving the Merger,provided that this Agreement shall not be required to be submitted to the shareholders of Trinity at the Trinity Shareholders Meeting if this Agreement has been terminated pursuant to Section 13.2 hereof.

(i)

(c)No Solicitation by River FinancialTrinity.

(i) River FinancialTrinity shall not and shall cause its Subsidiaries and their directors, officers and employees not to, and shall use and cause its Subsidiaries to use theircommercially reasonable best efforts to cause their respective officers, directors, agents, counsel and financial advisers (collectively for purposes of this Section, 6.1(i), “Representatives”“Representatives”) not to, directly or indirectly, (A) solicit, initiate, endorse, or knowingly encourage or facilitate (including by way of furnishing non-public information) any inquiry, proposal or offer with respect to, or the making or completion of, any Acquisition Proposal, or any inquiry, proposal or offer (whether firm or hypothetical) that is reasonably likely to lead to any Acquisition Proposal, (B) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any non-public information or data with respect to, any Acquisition Proposal, (C) approve or recommend any Acquisition Proposal, or (D) approve or recommend, or propose publicly to approve or recommend, or execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement which directly or indirectly contains an Acquisition Proposal. River FinancialTrinity shall, and shall cause each of its Subsidiaries and the Representatives of River FinancialTrinity and its Subsidiaries to, (A) immediately cease and cause to be terminated all existing discussions or negotiations with any Person conducted heretofore with respect to any Acquisition Proposal, (B) request the prompt return or destruction of allexcept for any confidential information previously furnished in connection therewith and (C) not terminate, waive, amend, release or modify any provision of any confidentiality

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or standstill agreement relating to any Acquisition Proposal to which it or any of its Affiliates or Representatives is a party, and shall enforce the provisions of any such agreement. Notwithstanding the foregoing, if at any time following the date of this Agreement and prior to obtaining the River Financial shareholder approval, (1) River Financial receives an unsolicited written Acquisition Proposal that the River Financial board of directors believes in good faith to be bona fide, (2) such Acquisition Proposal was not the result of a violation of this Section 6.1(i), (3) the River Financial board of directors determines in good faith (after consultation with outside counsel and its financial advisor) that such Acquisition Proposal constitutes or is reasonably likely to result in a Superior River Financial Proposal and (4) the River Financial board of directors determines in good faith (after consultation with outside counsel) that the failure to take the actions referred to below in clause (x) or (y) of this Section 6.1(i) would violate its fiduciary duties under applicable Law, then River Financial may (and may authorize its Subsidiaries and its and their Representatives to) (x) furnish non-public information with respect to River Financial and its Subsidiaries to the Person making such Acquisition Proposal (and its representatives) pursuant to a customary confidentiality agreement containing terms substantially similar to, and no less favorable to River Financial than, those set forth in the confidentiality provisions of the Confidentiality Agreement entered into between Keystone and River Financial dated October 8, 2014;informational memorandum provided that any non-public information provided to any Person given such access shall have previously been provided to Keystone or shall be provided to Keystone prior to or concurrently with the time it is provided to such Person, (y) participate in discussions or negotiations with the Person making such Acquisition Proposal (and such Person’s representatives) regarding such Acquisition Proposal, and (z) terminate this Agreement pursuant to Section 13.2(g) to enter into a binding agreement with respect to such Acquisition Proposal that constitutes a Superior River Financial Proposal.

(ii) Prior to taking any action under Section 6.1(i)(i)(z), River Financial shall comply with the following obligations:

(A) within three (3) Business Days after notice to Keystone of receipt of an Acquisition Proposal pursuant to Section 6.1(i)(iii) of this Agreement, the River Financial board of directors shall determine in good faith (after consultation with outside counsel and its financial advisor) that such Acquisition Proposal is, or is reasonably likely to result in, a Superior River Financial Proposal and such Superior River Financial Proposal has been made and has not been withdrawn and continues to be a Superior River Financial Proposal; and

(B) within three (3) Business Days after notice to Keystone of receipt of an Acquisition Proposal pursuant to Section 6.2(i)(iii) of this Agreement, River Financial shall give Keystone at least ten (10) Business Days’ prior written notice of its intention to take such action (which notice shall specify the material terms and conditions of any such Superior River Financial Proposal, including the identity of the party making such Superior River Financial Proposal), and shall contemporaneously provide an unredacted copy of the relevant proposed transaction agreements with the party making such Superior River Financial Proposal to Keystone.

(C) River Financial shall negotiate, and shall cause its Representatives to negotiate, in good faith with Keystone during such notice period to the extent Keystone wishes to negotiate, to enable Keystone to revise the terms of this Agreement such that it would cause such Superior River Financial Proposal to no longer constitute a Superior River Financial Proposal. In the event of any material change to the terms of such Superior River Financial Proposal, River Financial shall, in each case, be required to deliver to Keystone a new written notice, the notice period shall have recommenced and River Financial shall be required to comply with its obligations under this Section 6.1(i) with respect to such new written notice, except that the deadline for such new written notice shall be reduced to three (3) Business Days (rather than five (5) Business Days referenced in clause (B) above).

(iii) In addition to the obligations of River Financial set forth in Sections 6.2(i)(i) and (ii), River Financial promptly (and in any event within 24 hours of receipt) shall advise Keystone in writing in the event River Financial or any of its Subsidiaries or Representatives receives (A) any Acquisition Proposal or (B) any request for non-public information (other than requests for information in the ordinary course of business

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Index to Financial Statements

consistent with past practice and unrelated to an Acquisition Proposal) or to engage in any negotiation that is reasonably likely to lead to or that contemplates an Acquisition Proposal, in each case together with the material terms and conditions of such Acquisition Proposal or request the identity of the Person making any such Acquisition Proposal or request. River Financial shall keep Keystone informed (orally and in writing) in all material respects on a timely basis of the status (including after the occurrence of any material amendment or modification) of any such Acquisition Proposal or request and shall provide Keystone with copies of all material documentation and correspondence related thereto. Without limiting any of the foregoing, River Financial shall promptly (and in any event within 24 hours) notify Keystone orally and in writing if it determines to begin providing non-public information or to engage in negotiations concerning an Acquisition Proposal pursuant to this Section 6.1(i) and shall in no event begin providing such information or engaging in such discussions or negotiations prior to providing such notice.

(j)Director Recommendation; Shareholder Support. Subject to Section 6.1(i) above, the members of the board of directors of River Financial agree to support publicly the Merger, and, in their capacities as shareholders, shall sign the Support Agreement set forth at Exhibit C as of the date of this Agreement.

(k)Financial Statements and Monthly Status Reports. Until the Effective Date, River Financial shall furnish to Keystone:

(i) As soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of operations of River Financial for such period and for the period beginning at the commencement of the fiscal year and ending at the end of such quarterly period, and a consolidated statement of financial condition of River Financial as of the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods ending in the preceding fiscal year, subject to changes resulting from year-end adjustments;

(ii) Promptly upon receipt thereof, copies of all audit reports submitted to River Financial by independent auditors in connection with each annual, interim or special audit of the books of River Financial or River Bank made by such accountants;

(iii) As soon as practicable, copies of all such financial statements and reports as it shall send to its shareholders and of such regular and periodic reports as River Financial may file with any Agency;

(iv) With reasonable promptness, such additional financial data, including copies of all journal entries, as Keystone may reasonably request; and

(v) Within 10 calendar days after the end of each month (or, if the financial statements referred to in clause (i) are not then available, as soon as possible thereafter) commencing with the next calendar month following the date of this Agreement and ending at the Effective Date, a written description of (a) any material non-compliance with the terms of this Agreement, together with its then current estimate of the out-of-pocket costs and expenses incurred or reasonably accruable in connection with the transactions contemplated by this Agreement; (b) the status, as of the date of the report, of all existing or threatened litigation against any River Financial Company; (c) copies of minutes of any meeting of the board of directors of any River Financial Company and any committee thereof occurring in the month for which such report is made, including all documents presented to the directors at such meetings; and (d) monthly financial statements, including a balance sheet and income statement.

6.2 Additional Covenants of Keystone. Keystone covenants to and with River Financial as follows:

(a)Operations. Keystone will conduct its business and the business of each Keystone Company in a manner consistent with its historic practice and will use its reasonable best efforts to maintain its relationships with its depositors, customers and employees. No Keystone Company will engage in any material transaction outside the ordinary course of business or make any material change in its accounting policies or methods of

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Index to Financial Statements

operation, nor will Keystone permit the occurrence of any change or event which would render any of the representations and warranties in Article 5 hereof untrue in any material respect at and as of the Effective Date with the same effect as though such representations and warranties had been made at and as of such Effective Date.

(b)Shareholders Meeting; Best Efforts. Keystone will cooperate with River Financial in the preparation of the Registration Statement and Proxy Statement and any regulatory filings and will cause the Keystone Shareholders Meeting to be held for the purpose of approving the Merger as soon as practicable after the Registration Statement is declared effective, and will use its best efforts to bring about the transactions contemplated by this Agreement, including shareholder approval of this Agreement, as soon as practicable unless this Agreement is terminated as provided herein. The board of directors of Keystone shall recommend adoption of this Agreement by the shareholders of Keystone (the “Keystone Recommendation”), and shall not withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to River Financial such recommendation or take any action or make any statement in connection with the Keystone Shareholders Meeting inconsistent with such recommendation (collectively, a “Change in the Keystone Recommendation”);provided the foregoing shall not prohibit accurate disclosure (and such disclosure shall not be deemed to be a Change in the Keystone Recommendation) of factual information regarding the business, financial condition or results of operations of River Financial or Keystone or the fact that an Acquisition Proposal has been made to Keystone, the identity of the party making such proposal or the material terms of such proposal (provided, that the board of directors of Keystone does not withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any manner adverse to River Financial its recommendation) in the Proxy Statement or otherwise, to the extent such information, facts, identity or terms is required to be disclosed under applicable law; and,providedfurther, that the board of directors of Keystone may make a Change in the Keystone Recommendation (x) pursuant to Section 6.2(c) hereof or (y) prior to the Keystone Shareholders Meeting if the board of directors of Keystone determines in good faith that a Material Adverse Effect has occurred with respect to River Financial. Notwithstanding any Change in the Keystone Recommendation, this Agreement shall be submitted to the shareholders of Keystone at the Keystone Shareholders Meeting for the purpose of adopting the Agreement and approving the Merger,provided that this Agreement shall not be required to be submitted to the shareholders of Keystone at the Keystone Shareholders Meeting if this Agreement has been terminated pursuant to Section 13.2 hereof.

(c)No Solicitation by Keystone.

(i) Keystone shall not and shall cause its Subsidiaries and their directors, officers and employees not to, and shall use and cause its Subsidiaries to use their reasonable best efforts to cause their respective officers, directors, agents, counsel and financial advisers (collectively for purposes of this Section 6.2(c), “Representatives”) not to, directly or indirectly, (A) solicit, initiate, endorse, or knowingly encourage or facilitate (including by way of furnishing non-public information) any inquiry, proposal or offer with respect to, or the making or completion of, any Acquisition Proposal, or any inquiry, proposal or offer (whether firm or hypothetical) that is reasonably likely to lead to any Acquisition Proposal, (B) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any non-public information or data with respect to, any Acquisition Proposal, (C) approve or recommend any Acquisition Proposal, or (D) approve or recommend, or propose publicly to approve or recommend, or execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement which directly or indirectly contains an Acquisition Proposal. Keystone shall, and shall cause each of its Subsidiaries and the Representatives of Keystone and its Subsidiaries to, (A) immediately cease and cause to be terminated all existing discussions or negotiations with any Person conducted heretofore with respect to any Acquisition Proposal, (B)date hereof, request the prompt return or destruction of all confidential information previously furnished in connection therewith and (C) not terminate, waive, amend, release or modify any provision of any confidentiality or standstill agreementContract relating to any Acquisition Proposal to which it or any of its Affiliates or Representatives is a party, and shall enforce the provisions of any such agreement.Contract.

(ii) Notwithstanding the foregoing, if at any time following the date of

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this Agreement and prior to obtaining the KeystoneTrinity shareholder approval, (1) KeystoneTrinity receives an unsolicited written Acquisition Proposal that the KeystoneTrinity board of directors believes in good faith to be bona fide, (2) such Acquisition Proposal was not the result of a violation of this Section, 6.2(c), (3) the KeystoneTrinity board of directors determines in good faith (after consultation with outside counsel and its financial advisor) that such Acquisition Proposal constitutes or is reasonably likely to result in a Superior Keystone Proposal and (4) the KeystoneTrinity board of directors determines in good faith (after consultation with outside counsel) that the failure to take the actions referred to below in clause (x) or (y) of this Section 6.2(c) would violate its fiduciary duties under applicable Law, then KeystoneTrinity may (and may authorize its Subsidiaries and its and their Representatives to) (x) furnish non-public information with respect to KeystoneTrinity and its Subsidiaries to the Person making such Acquisition Proposal (and its representatives) pursuant to a customary confidentiality agreementContract containing terms substantially similar to, and no less favorable to KeystoneTrinity than, those set forth in the confidentiality provisions of the Confidentiality Agreement entered into between KeystoneTrinity and River Financial dated October 8, 2014; December 19, 2018 (the “Confidentiality Agreement”);provided that any non-public information provided to any Person given such access shall have previously been provided to River Financial or shall be provided to River Financial prior to or concurrently with the time it is provided to such Person, (y) participate in discussions or negotiations with the Person making such Acquisition Proposal (and such Person’s representatives) regarding such Acquisition Proposal, and (z) terminate this Agreement pursuant to Section 13.2(e) to enter into a binding agreement with respect to such Acquisition Proposal that constitutes a Superior Keystone Proposal.

(ii)(iii) Prior to taking any action under Section 6.2(c)(i)(ii)(z), KeystoneTrinity shall comply with the following obligations:

(A) within three (3)ten (10) Business Days after notice to River Financial of receipt of an Acquisition Proposal pursuant to Section 6.2(c)(iii)(iv) of this Agreement, the KeystoneTrinity board of directors shall determine in good faith (after consultation with outside counsel and its financial advisor) that such Acquisition Proposal is, or is reasonably likely to result in, a Superior Keystone Proposal and such Superior Keystone Proposal has been made and has not been withdrawn and continues to be a Superior Keystone Proposal after taking into account all adjustments to the terms of this Agreement that may be offered by River Financial pursuant to this Section 6.2(c);Section;

(B) within three (3)ten (10) Business Days after notice to River Financial of receipt of an Acquisition Proposal pursuant to Section 6.2(c)(iii)(iv) of this Agreement, KeystoneTrinity shall give River Financial at least five (5)ten

(10) Business Days’ prior written notice of its intention to take such action (which notice shall specify the material terms and conditions of any such Superior Keystone Proposal, including the identity of the party making such Superior Keystone Proposal), and shall contemporaneously provide an unredacted copy of the relevant proposed transaction agreements with the party making such Superior Keystone Proposal) to River Financial; and

(C) KeystoneTrinity shall negotiate, and shall cause its Representatives to negotiate, in good faith with River Financial during such notice period to the extent River Financial wishes to negotiate, to enable River Financial to revise the terms of this Agreement such that it would cause such Superior Keystone Proposal to no longer constitute a Superior Keystone Proposal. In the event of any material change to the terms of such Superior Keystone Proposal, KeystoneTrinity shall, in each case, be required to deliver to River Financial a new written notice, the notice period shall have recommenced and KeystoneTrinity shall be required to comply with its obligations under this Section 6.2(c) with respect to such new written notice, except that the deadline for such new written notice shall be reduced to three (3) Business Days (rather than five (5) Business Days referenced in clause (B) above).

(iii)(iv) In addition to the obligations of KeystoneTrinity set forth in Sections 6.2(c)(i)(ii), and (ii)(iii), KeystoneTrinity promptly (and in any event within 2448 hours of receipt) shall advise River Financial in writing in the event KeystoneTrinity or any of its Subsidiaries or Representatives receives (A) any Acquisition Proposal or (B) any request for non-public information (other than requests for information in the ordinary course of business consistent with past practice and unrelated to an Acquisition Proposal) or to engage in any negotiation that is reasonably likely to lead to or that contemplates an Acquisition Proposal, in each case together with the material terms and conditions of such Acquisition Proposal or request the identity of the Person making any such Acquisition Proposal or

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Index to Financial Statements

request. KeystoneTrinity shall keep River Financial informed (orally and in writing) in all material respects on a timely basis of the status (including after the occurrence of any material amendment or modification) of any such Acquisition Proposal or request and shall provide River Financial with copies of all material documentation and correspondence related thereto. Without limiting any of the foregoing, KeystoneTrinity shall promptly (and in any event within 2448 hours) notify River Financial orally and in writing if it determines to begin providing non-public information or to engage in negotiations concerning an Acquisition Proposal pursuant to this Section 6.2(c) and shall in no event begin providing such information or engaging in such discussions or negotiations prior to providing such notice.

(d)Director Recommendation; Shareholder SupportRecommendations. Subject to Section 6.2(c) above, the members of the board of directors of KeystoneTrinity agree to support publicly the Merger,Merger.

(e)Tax Documents. Prior to the Effective Date, Trinity shall (i) use commercially reasonable efforts in good faith to obtain the opinion described in Section 9.7 and in their capacities as shareholders, shall sign(ii) deliver to Jones Day (and any other applicable alternative counsel agreed by the Support Agreement set forth at Exhibit Bparties) one or more officer’s certificates, dated as of the dateEffective Date and signed by an officer of this Agreement.Trinity, in customary form and substance (the “Trinity Tax Representation Letter”), containing representations of Trinity and/or Trinity Bank as shall be reasonably necessary or appropriate to enable Jones Day (or if Jones Day is unwilling or unable to issue the opinion, the alternative counsel referenced in Section 9.7) to render the opinion described in Section 9.7.

(e)(f)Financial Statements and Monthly Status Reports. Until the Effective Date, KeystoneTrinity shall furnish to River Financial:

(i) As soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidatedunaudited statements of operations of KeystoneTrinity Bank for such period and for the period beginning at the commencement of the fiscal year and ending at the end of such quarterly period, and a consolidated statement of financial condition of KeystoneTrinity Bank as of the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods ending in the preceding fiscal year, subject to changes resulting from year-end adjustments;

(ii) Promptly upon receipt thereof, copies of all audit reports submitted to KeystoneTrinity by independent auditors in connection with each annual, interim or special audit of the books of KeystoneTrinity or KeystoneTrinity Bank made by such accountants;

(iii) As soon as practicable, copies of all such financial statements and reports as it shall send to its shareholders and of such regular and periodic reports as KeystoneTrinity may file with any Agency; and

(iv) With reasonable promptness, such additional financial data, including copies of all journal entries, as River Financial may reasonably request; and

(v) Within 10 calendar days after the end of each month (or, if the financial statements referred to in clause (i) are not then available, as soon as possible thereafter) commencing with the next calendar month following the date of this Agreement and ending at the Effective Date, a written description of (a) any material non-compliance with the terms of this Agreement, together with its then current estimate of the out-of-pocket costs and expenses incurred or reasonably accruable in connection with the transactions contemplated by this Agreement; (b) the status, as of the date of the report, of all existing or threatened litigation against any Keystone Company; (c) copies of minutes of any meeting of the board of directors of any Keystone Company and any committee thereof occurring in the month for which such report is made, including all documents presented to the directors at such meetings; and (d) monthly financial statements, including a balance sheet and income statement.request.

ARTICLE 7

MUTUAL COVENANTS AND AGREEMENTS

7.1 Best Efforts, Cooperation.Cooperation. Subject to the terms and conditions herein provided, River Financial and KeystoneTrinity each agrees to use its bestcommercially reasonable efforts promptly to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable under applicable Laws or otherwise, including without limitation, promptly making required deliveries of stockholder lists and stock transfer reports and attempting to obtain all necessary Consents and waivers and regulatory approvals, including the holding of any regular or

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Index to Financial Statements

special board meetings, to consummate and make effective, as soon as practicable, the transactions contemplated by this Agreement. The officers of each Party to this Agreement shall fully cooperate with officers and employees, accountants, counsel and other representatives of the other Parties not only in fulfilling the duties hereunder of the Party of which they are officers but also in assisting, directly or through direction of employees and other persons under their supervision or control, such as stock transfer agents for the Party, the other Parties requiring information which is reasonably available from such Party.

7.2 Press Release.Public Announcements Each Party hereto agrees that, unless approved. The initial press release with respect to this Agreement and the transactions contemplated hereby shall be a release mutually agreed to by the otherParties. Thereafter, neither Party in advance, such Party will notshall issue or make anya public announcement, issue any press release or other publicity or confirm any statements by any person not a party to this Agreementannouncement concerning the transactions contemplated hereby.hereby without providing the proposed public release or announcement to the other a reasonable time in advance for review, comment and the prior written consent of the other (which consent shall not be unreasonably withheld, conditioned, or delayed), except as may be required by applicable Law or Agency to which the relevant Party is subject or submits, in which case the Party required to make the release or announcement shall use its commercially reasonable efforts to allow the other reasonable time to comment on such release or announcement in advance of such issuance. Notwithstanding the foregoing, the restrictions set forth in this Section 7.2 shall not apply to any release or announcement made or proposed to be made in connection with and related to a Change in the Trinity Recommendation or pursuant to Sections 6.2(b) or (c).

7.3 Preparation of Proxy Statement and Registration Statement.

(a) In connection with the Trinity Shareholders’ Meeting, as soon as practicable following the date of this Agreement, the Parties shall cooperate in preparing and filing with the SEC the Registration Statement on Form S-4, including the Proxy Statement, for the registration of shares of River Financial Common Stock issuable to Trinity shareholders pursuant to Article 3. Each Party shall each use its commercially reasonable efforts to: (i) cause the Registration Statement to be declared effective under the 1933 Act as promptly as practicable after its filing; (ii) ensure that the Registration Statement complies in all material respects with the applicable provisions of the 1933 Act and the 1934 Act; and (iii) keep the Registration Statement effective for so long as necessary to complete the Merger. River Financial shall notify Trinity promptly of the time when the Registration Statement has become effective or any supplement or amendment to the Registration Statement has been filed, and of the issuance of any stop order or suspension of the qualification of the shares of River Financial Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction. Each

Party hereto reservesshall use its commercially reasonable efforts to: (A) cause the rightProxy Statement to makebe mailed to Trinity’s shareholders as promptly as practicable after the Registration Statement is declared effective under the 1933 Act, and (B) ensure that the Proxy Statement complies in all material respects with the applicable provisions of the 1933 Act and 1934 Act. River Financial shall also take any disclosure ifother action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under the 1933 Act, the 1934 Act, any applicable foreign or state securities or “blue sky” Laws, and the rules and regulations thereunder in connection with the issuance of River Financial Common Stock in the Merger, and Trinity shall furnish to River Financial all information concerning Trinity as may be reasonably requested in connection with any such actions.

(b) Each Party inshall furnish to the other all information concerning such Person and its reasonable discretion, deems such disclosureAffiliates required by Law. Inthe 1933 Act or the 1934 Act to be set forth in the Registration Statement or the Proxy Statement. Each Party shall promptly notify the other Party and cooperate to correct any information provided by it for use in the Registration Statement or the Proxy Statement if and to the extent that event, such information becomes false or misleading in any material respect. Each Party shall take all steps necessary to amend or supplement the Registration Statement or the Proxy Statement, as applicable, and to cause the Registration Statement or Proxy Statement, as so amended or supplemented, to be filed with the SEC and disseminated to the holders of Trinity Common Stock, in each case as and to the extent required by applicable Law.

(c) Each Party shall promptly provide the other and its counsel with any comments or other communications, whether written or oral, that the Party, or its counsel may receive from the SEC or its staff with respect to the Registration Statement or the Proxy Statement promptly after the receipt of such comments. Prior to the filing of the Registration Statement or the Proxy Statement with the SEC (including in each case any amendment or supplement thereto, except with respect to any amendments filed in connection with a Change in the Trinity Recommendation or pursuant to Section 6.2(b) or (c)) or the dissemination thereof to the holders of Trinity Common Stock, or responding to any comments of the SEC with respect to the Registration Statement or Proxy Statement, each Party shall provide to the other Party the text of such disclosure sufficiently in advance to enable the other Party to haveand its counsel a reasonable opportunity to review and comment thereon.on such Registration Statement, Proxy Statement, or response (including the proposed final version thereof) and any amendment, supplement or additional proxy materials, and each Party shall give reasonable and good faith consideration to any comments made by the other or its counsel.

7.37.4 Mutual Disclosure.Disclosure. Each Party hereto agrees to promptly furnish to each other Party hereto its public disclosures and filings not precluded from disclosure by Law including but not limited to Call Reports, Y-3 applications, reports on Form Y-6, quarterly or special reports to shareholders, Tax returns, SEC registration statements, filings and filings,reports, and similar documents.

7.4 7.5Access to Properties and Records. Subject to any regulatory prohibition and applicable Law and at least two Business Days’ advance notice, each Party hereto shall afford the officers and authorized representatives of the other Party fullreasonable access during normal business hours to the Assets, books and records of such Party in order that such other Party may have full opportunity to make such investigation as it shall desire of the affairs of such Party and shall furnish to such Party such additional financial and operating data and other information as to its businesses and Assets as shall be from time to time reasonably requested.requested,provided that any such access or investigation by a Party shall not interfere unnecessarily with normal operations of the other Party andprovided further that no environmental testing or investigation shall be performed after the date of this Agreement. Notwithstanding the foregoing, neither Party shall be required to provide access to or disclose confidential supervisory information or other information where such access or disclosure would jeopardize the protection of attorney-client privilege or contravene any Law (it being agreed that the Parties shall use their commercially reasonable efforts to cause such information to be provided in a manner that would not result in such jeopardy or contravention). All such information that may be obtained by any such Party will be held in confidence by such Party subject to the Confidentiality Agreement, will not be disclosed by such Party or any of its representatives except in accordance with this Agreement, and will not be used by such Party for any purpose other than the accomplishment of the Merger as provided herein. In addition, the Parties acknowledge and agree that the Confidentiality Agreement remains in full force and effect. Notwithstanding anything in this

Agreement to the contrary, nothing in this Agreement shall require any Party to provide information on such Party that would constitute “confidential supervisory information” or otherwise violate the provisions of 12 C.F.R. Part 309.

7.5 7.6Notice of Adverse Changes. Each Party agrees to give written notice promptly to the other Party upon becoming aware of the occurrence or impending occurrence of any event or circumstance relating to it or any of its Subsidiaries which (i) is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a material breach of any of its representations, warranties, or covenants contained herein, and to use its reasonable efforts to prevent or promptly to remedy the same.

7.6 Plan of Reorganization. The parties intend that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Code and that this Agreement constitute a “plan of reorganization” within the meaning of Section 1.368-2(g) of the income tax regulations promulgated under the Code. From and after the date of this Agreement and until the Effective Date, each of Keystone and River Financial shall use its commercially reasonable efforts to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken which action or failure to act could prevent the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. Following the Effective date, neither River Financial nor any Affiliate knowingly shall take any action, cause any action to be taken, fail to take any action, or cause any action to fail to be taken, which action or failure to act could prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

7.7 Employment Terms. As of the date of this Agreement, River Financial shall enter into new employment arrangements with Ray Smith and Boles Pegues, which shall be effective as of the Effective Date. In addition to the foregoing, and as a condition to Closing, River shall (i) enter into Change in Control Agreements with Ray Smith and Boles Pegues to be effective as of the Effective Date, on terms substantially similar to Jimmy Stubbs’ Change in Control Agreement with River Financial and (ii) without limiting River’s assumption of Keystone contracts generally, assume, at Closing, the Supplemental Executive Retirement Plans (SERP) and Split-Dollar Life Insurance Agreements that Keystone has with Ray Smith and Boles Pegues.

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ARTICLE 8

CONDITIONS TO OBLIGATIONS OF ALL PARTIES

The obligations of River Financial and KeystoneTrinity to cause the transactions contemplated by this Agreement to be consummated shall be subject to the satisfaction, in the solereasonable discretion of the Party relying upon such conditions, on or before the Effective Date of all the following conditions, except as such Parties may waive such conditions in writing:

8.1Approval by Shareholders. At the Keystone Shareholders Meeting, and the River FinancialTrinity Shareholders Meeting, this Agreement shall have been duly approved by the vote of the holders of not less than the requisite number of the issued and outstanding voting securities of each Party as is required by applicable Law and each Party’sTrinity’s articles of incorporation and bylaws.

8.2 Regulatory Authority Approval.Approval.

(a) Orders, Consents and approvals, in form and substance reasonably satisfactory to River Financial and Keystone,Trinity, shall have been entered by the Board of Governors of the Federal Reserve System, the FDIC and the ASBD and other appropriate Agencies (i) granting the authority necessary for the consummation of the transactions contemplated by this Agreement, including the Subsidiary Bank Merger, and (ii) satisfying all other requirements prescribed by Law. No Order, Consent or approval so obtained which is necessary to consummate the transactions as contemplated hereby shall be conditioned or restricted in a manner which in the reasonable good faith judgment of the board of directors of River Financial or the board of directors Keystoneof Trinity would so materially adversely impact the economic benefits of the transaction as contemplated by this Agreement so as to render inadvisable the consummation of the Merger.

(b) Each Party shall have obtained any and all other Consents required for consummation of the Merger (other than those referred to in Section 8.2(a) of this Agreement) for the preventing of any Default under any Contract or Permit of such Party which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on such Party. No Consent obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the board of directors of River Financial or the board of directors of KeystoneTrinity would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement so as to render inadvisable the consummation of the Merger.

8.3Litigation. There shall be no pending or threatened Litigation in any court or any pending or threatened proceeding by any governmental commission, board or Agency, with a viewthat is reasonably likely to seeking or in which itsucceed on is soughtmerits, that seeks to restrain or prohibit consummation of the transactions contemplated by this AgreementMerger or in which it is soughtseeks to obtain divestiture, rescission or damages in connection with the transactions contemplated by this Agreement and no investigation by any Agency shall be pending or threatened which might result in any such suit, action or other proceeding.Merger.

8.4Registration Statement. The Registration Statement shall have become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued and be in effect and no proceedings for that purpose shall have been initiated by the SEC and not withdrawn.

8.5 Authorized Shares. An amendment to the articles of incorporation of River Financial shall have been approved by the shareholders of River Financial at the River Financial Shareholders Meeting increasing the authorized shares of River Financial Common Stock from 5,000,000 shares to 15,000,000 shares.

8.6 Establishing the Number of Directors of River Financial. The shareholders of River Financial shall have approved the establishment of the number of directors of River Financial at seven.

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Index to Financial Statements

ARTICLE 9

CONDITIONS TO OBLIGATIONS OF KEYSTONETRINITY

The obligations of KeystoneTrinity to cause the transactions contemplated by this Agreement to be consummated shall be subject to the satisfaction on or before the Effective Date of all the following conditions except as KeystoneTrinity may waive such conditions in writing:

9.1Representations, Warranties and Covenants. Notwithstanding any investigation made by or on behalf of Keystone,Trinity, all representations and warranties of River Financial contained in this Agreement shall be true in all material respects on and as of the Effective Date as if such representations and warranties were made on and as of such Effective Date, and River Financial shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Effective Date, including amending its bylaws in accordance with Section 2.4 hereof.Date.

9.2Adverse Changes. There shall have been no changes after the date of the most recent balance sheet provided under Section 4.3(a)(i) hereof in the results of operations (as compared with the corresponding period of the prior fiscal year), Assets, Liabilities, financial condition or affairs of River Financial which in their total effect constitute a Material Adverse Effect, nor shall there have been any material changes in the Laws governing the business of River Financial which would impair the rights of Keystone or its shareholders pursuant to this Agreement.Effect.

9.3Closing Certificate.Certificate. In addition to any other deliveries required to be delivered hereunder, KeystoneTrinity shall have received a certificate from the CEO, President or a Vice President and from the Secretary or Assistant Secretary of River Financial dated as of the Closing certifying that:

(a) the board of directors of River Financial has duly adopted resolutions approving this Agreement and authorizing the consummation of the transactions contemplated by this Agreement and such resolutions have not been amended or modified and remain in full force and effect;

(b) the shareholders of River Financial have duly adopted resolutions approving the Merger and such resolutions have not been amended or modified and remain in full force and effect;

(c) each person executing this Agreement on behalf of River Financial is an officer of River Financial holding the office or offices specified therein and the signature of each person set forth on such certificate is his or her genuine signature;

(d)(c) the articles of incorporation and bylaws of River Financial remain in full force and effect and have not been amended or modified since the date of this Agreement except in accordance with this Agreement;

(e)(d) such persons have no Knowledge of a basis for any material claim, in any court or before any Agency or arbitration or otherwise against, by or affecting River Financial or the business, prospects, condition (financial or otherwise), or Assets of River Financial which would prevent the performance of this Agreement or the transactions contemplated by this Agreement or declare the same unlawful or cause the rescission thereof;

(f)(e) to such persons’ Knowledge, the Registration Statement and Proxy Statement delivered to Keystone’sTrinity’s shareholders, or any amendments or revisions thereto so delivered, as of the date thereof, did not contain or incorporate by reference any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made (it being understood that such Persons need not express a statement as to information concerning or provided by KeystoneTrinity for inclusion in such Registration Statement and Proxy Statement); and

(g)(f) River Financial is in compliance with the conditions set forth in Sections 9.1 and 9.2 above.

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9.4Fairness Opinion. KeystoneTrinity shall have received from Sandler O’NeillPorter White Capital, LLC prior to the mailingapproval by the Trinity board of the Proxy Statementdirectors a letter setting forth its opinion that the Merger Consideration to be received by the shareholders of KeystoneTrinity under the terms of this Agreement is fair to them from a financial point of view, and such opinion shall not have been withdrawn or materially modified as of the Effective Date.

9.5Other Matters. There shall have been furnished to such counsel for KeystoneTrinity certified copies of such corporate records of River Financial and copies of such other documents as such counsel may reasonably have requested for such purpose, including certificates of existence and good standing of River Financial and each Subsidiary of River Financial issued by the appropriate governmental Agency dated within 15 days of the Effective Date.

9.6Material Events. There shall have been no determination by the board of directors of KeystoneTrinity that the transactions contemplated by this Agreement have become impractical because of any state of war or declaration of a banking moratorium in the United States or a general suspension of trading on the NYSE.States.

9.7 Accountant Letter. River Financial shall deliver to Keystone a letter from River Financial’s independent public accountant, Porter Keadle & Moore, dated as of the Effective Date addressed to Keystone in form reasonably satisfactory to Keystone and customary in scope for comfort letters delivered by independent public accountants in connection with transactions similar to the Merger.

9.8 Tax Opinion. KeystoneTrinity shall have received a written opinion from Balch & Bingham, LLP,Jones Day, counsel to Keystone,Trinity (or, if Jones Day is unwilling or unable to issue the opinion, a written opinion of an alternative counsel reasonably acceptable to River Financial and Trinity), dated as of the Closing,Effective Date, in form and based on the facts, representations, assumptions and exclusions set forth or described in such opinion,substance reasonably acceptable to Trinity, to the effect that, on the basis of facts, representations and assumptions set forth in such opinion, the Merger will be treatedqualify as a reorganization within the meaning of Section 368(a) of the Code. Such counselCode (the “Trinity Tax Opinion”), which opinion shall not have been withdrawn or modified in any material respect and shall be entitledprovided to River Financial. In rendering such opinion, Jones Day (or if Jones Day is unwilling or unable to issue the opinion, such alternative counsel referenced above) may rely upon representation letters from each ofon the River Financial Tax Representation Letter and Keystone, in each case, in formTrinity Tax Representation Letter and substance reasonably satisfactory to such counsel. Each such representation letterother information as it considers relevant. Such opinion shall be dated asin a form customary for transactions of the date of such opinion. The opinion condition referredthis nature and shall be subject to in this Section 9.8 shall not be waivable after receipt of the Keystone Shareholder Approval, unless further approval of the shareholders of Keystone is obtained with appropriate disclosure.customary assumptions, qualifications and representations.

9.9 9.8No Superior Proposal. KeystoneTrinity shall not have received a Superior Proposal.

9.10 Dissenters. The number of shares as to which shareholders of either Keystone or River Financial have exercised dissenters’ rights of appraisal under Section 3.4 does not exceed 5 percent of the outstanding shares of common stock of Keystone or River Financial, in either case.

ARTICLE 10

CONDITIONS TO OBLIGATIONS OF RIVER FINANCIAL

The obligations of River Financial to cause the transactions contemplated by this Agreement to be consummated shall be subject to the satisfaction on or before the Effective Date of all of the following conditions except as River Financial may waive such conditions in writing:

10.1Representations, Warranties and Covenants.Covenants. Notwithstanding any investigation made by or on behalf of River Financial, all representations and warranties of KeystoneTrinity contained in this Agreement shall be true in all material respects on and as of the Effective Date as if such representations and warranties were made on and as of the Effective Date, and KeystoneTrinity shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Effective Date.

10.2Adverse Changes.Changes There. Subject to the Trinity Disclosure Letter, there shall have been no changes after the date of the most recent balance sheet provided under Section 5.4(a)(i) hereof in the results of operations (as compared with the corresponding period

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of the prior fiscal year), Assets, Liabilities, financial condition, or affairs of KeystoneTrinity which constitute a Material Adverse Effect, nor shall there have been any material changes in the laws governing the business of Keystone which would impair River Financial’s rights pursuant to this Agreement.Effect.

10.3Closing Certificate. In addition to any other deliveries required to be delivered hereunder, River Financial shall have received a certificate from KeystoneTrinity executed by the CEO, President, or Vice President and from the Secretary or Assistant Secretary of KeystoneTrinity dated as of the Closing certifying that:

(a) the board of directors of KeystoneTrinity has duly adopted resolutions approving this Agreement and authorizing the consummation of the transactions contemplated by this Agreement and such resolutions have not been amended or modified and remain in full force and effect;

(b) the shareholders of KeystoneTrinity have duly adopted resolutions approving the Merger and such resolutions have not been amended or modified and remain in full force and effect;

(c) each person executing this Agreement on behalf of KeystoneTrinity is an officer of KeystoneTrinity holding the office or offices specified therein and the signature of each person set forth on such certificate is his or her genuine signature;

(d) the articles of incorporation and bylaws of KeystoneTrinity and KeystoneTrinity Bank remain in full force and effect and have not been amended or modified since the date of this Agreement;

(e) to such persons’ Knowledge, the Proxy Statement delivered to Keystone’sTrinity’s shareholders, or any amendments or revisions thereto so delivered, as of the date thereof, did not contain or incorporate by reference any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made (it being understood that such persons need only express a statement as to information concerning or provided by KeystoneTrinity for inclusion in such Proxy Statement); and

(f) KeystoneTrinity is in compliance with the conditions of Sections 10.1 and 10.2 above.

10.4Support Agreements and Claims Letters. Each member of the Trinity board of directors that is a Trinity shareholder shall have delivered, in his or her capacity as a shareholder of Trinity, a support agreement substantially in the form attached as Exhibit B. Each member of the Trinity board of directors and the Trinity Bank board of directors, and each executive officer of Trinity and Trinity Bank, shall have delivered a claims letter substantially in the form attached as Exhibit C.

10.5Other Matters. There shall have been furnished to counsel for River Financial certified copies of such corporate records of KeystoneTrinity and copies of such other documents as such counsel may reasonably have requested for such purpose, including certificates of existence and good standing of KeystoneTrinity and each KeystoneTrinity Subsidiary issued by the appropriate governmental Agency and dated within 15 days of the Effective Date.

10.5 10.6Dissenters. The number of shares as to which shareholders of either Keystone or River FinancialTrinity have exercised dissenters’and perfected their rights of dissent and appraisal underas provided in the ABCL and Section 3.4 3.6 does not exceed 5 percent of the outstanding shares of common stock of Keystone or River Financial, in either case.Trinity.

10.6 10.7Material Events. There shall have been no determination by the board of directors of River Financial that the transactions contemplated by this Agreement have become impractical because of any state of war or declaration of a banking moratorium in the United States or general suspension of trading on the NYSE.

10.7 Accountant Letter. Keystone shall deliver to River Financial a letter from Keystone’s independent public accountant, Mauldin & Jenkins, dated as of the Effective Date addressed to River Financial in form reasonably satisfactory to River Financial and customary in scope for comfort letters delivered by independent public accountants in connection with transactions similar to the Merger.States.

10.8 Tax Opinion. River Financial shall have received a written opinion from Jones Walker LLP, counsel to River Financial, dated as of the Closing, and based on the facts, representations, assumptions and exclusions set forth or described in such opinion, to the effect that the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. Such counsel shall be entitled to rely upon representation letters from each of River Financial and Keystone, in each case, in form and substance reasonably satisfactory to such counsel. Each such representation letter shall be dated as of the date of such opinion.

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10.9 Fairness Opinion. River Financial shall have received from Stephens Inc.Sheshunoff & Co. prior to the mailingapproval by the River Financial board of the Proxy Statementdirectors a letter setting forth its opinion asthat the Merger Consideration to be paid under the terms of this Agreement is fair to the fairnessshareholders of River Financial from a financial point of view, to River Financial of the exchange ratio represented by the Merger Consideration to be paid for the shares of Keystone Common Stock under the terms of this Agreement and such opinion shall not have been withdrawn or materially modified as of the Effective Date.

ARTICLE 11

TERMINATION OF REPRESENTATIONS AND WARRANTIES

All representations and warranties provided in Articles 4 and 5 of this Agreement or in any closing certificate pursuant to Articles 9 and 10 shall be deemed only conditions to the Merger and shall terminate and be extinguished at and shall not survive the Effective Date. All covenants, agreements and undertakings required by this Agreement to be performed by any Party hereto following the Effective Date shall survive such Effective

Date and be binding upon such Party. If the Merger is not consummated, all representations, warranties, obligations, covenants, or agreements hereunder or in any certificate delivered hereunder relating to the transaction which is not consummated shall be deemed to be terminated or extinguished, except that the next to last sentence of Section 7.4,7.5, and Sections 6.1(e), 7.2, 6.2(c)13.2(e), 13.2(f), 13.3, Article 11, Article 15 and any applicable definitions of Article 14, shall survive. The Confidentiality Agreement shall survive any termination of this Agreement.

Items disclosed in the Exhibits and Schedules attached hereto or in any Disclosure Letter are incorporated into this Agreement and form a part of the representations, warranties, covenants or agreements to which they relate.

ARTICLE 12

NOTICES

All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile transmission,email, by registered or certified mail, postagepre-paid, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so received:

(a) If to Keystone:Trinity:

Ray SmithJ. Robbin Thompson

President and CEO

KeystoneTrinity Bank 1479

2394 E. University DriveWest Main St.

Auburn,Dothan, Alabama 3683036301

Telephone: (334) 466-2210702-2265

Email: RaySmith@keystonebank.usrobbinthompson@trinitybankusa.com

with copies to:

W. Brad NeighborsRalph F. MacDonald, III

Balch & Bingham LLPHeith D. Rodman

1901 Sixth Ave N,Jones Day

1420 Peachtree Street, N.E., Suite 1500800

Birmingham, Alabama 35203

Atlanta, Georgia 30309 Telephone: (205) 279-2940(404)581-3939

Email: bneighbors@balch.comcmacdonald@jonesday.com

Email: hdrodman@jonesday.com

or as may otherwise be specified by KeystoneTrinity in writing to River Financial.

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(b) If to River Financial:

Jimmy Stubbs

President and CEO

River Bank & Trust

2611 Legends Drive

Prattville, Alabama 36066

Telephone: (334)290-1012

Email: jstubbs@riverbankandtrust.com

with copies to:

Michael D. Waters, Esq.

Jones Walker LLP

1819 Fifth Ave N, Suite 1100

Birmingham, Alabama 35203

Telephone: (205)244-5210

EmailEmail: mwaters@joneswalker.com

or as may otherwise be specified in writing by River Financial to Keystone.Trinity.

ARTICLE 13

AMENDMENT OR TERMINATION

13.1Amendment. This Agreement may be amended by the written mutual consent of River Financial and KeystoneTrinity before or after approval of the transactions contemplated herein by the shareholders of either Party.Trinity.

13.2 TerminationTermination.. This Agreement may be terminated at any time prior to or on the Effective Date whether before or after action thereon by the shareholders of either Party,Trinity, as follows:

(a) by the mutual written consent of the respective boards of directors of KeystoneTrinity and River Financial;

(b) by the board of directors of either Party (provided(provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching Party of such breach and which breach would provide thenon-breaching Party the ability to refuse to consummate the Merger under the standard set forth in Section 10.1 of this Agreement in the case of River Financial and Section 9.1 of this Agreement in the case of Keystone;Trinity;

(c) by the board of directors of either Party (provided(provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any covenant or agreement contained in this Agreement to be performed on or before the date of termination which cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching Party of such breach, or if any of the conditions to the obligations of such Party contained in this Agreement in Article 9 as to KeystoneTrinity or Article 10 as to River Financial shall not have been satisfied in full;

(d) by the board of directors of either River Financial or KeystoneTrinity if all transactions contemplated by this Agreement shall not have been consummated on or prior to March 31, 20162020 if the failure to consummate the transactions provided for in this Agreement on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this Section 13.2(d); orSection;

(e) by Keystone,Trinity, if before the KeystoneTrinity Shareholders Meeting, the (i) board of directors of KeystoneTrinity authorizes Keystone,Trinity, subject to complying with Section 6.2(c), to enter into a binding written agreement

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concerning a transaction that constitutes a Superior Keystone Proposal,provided that, upon such termination pursuant hereto KeystoneTrinity shall pay promptly the sum of $300,000$810,000 to River Financial to reimburse River Financial for its expenses, and not as damages, incurred in connection with the Agreement.Agreement;

(f) by River Financial, if (a) the board of directors of KeystoneTrinity shall have recommended to the shareholders of KeystoneTrinity that they tender their shares in a tender or exchange offer commenced by anun-affiliated third party for more than 20% of the outstanding KeystoneTrinity Common Stock, (b) the board of directors of KeystoneTrinity shall have effected a Change in KeystoneTrinity Recommendation or recommended to the KeystoneTrinity shareholders acceptance or approval of a Superior KeystoneTrinity Proposal, (c) Keystone Trinity shall have notified River Financial in writing that KeystoneTrinity is prepared to accept a Superior KeystoneTrinity Proposal, or (d) the board of directors of KeystoneTrinity shall have resolved to do any of the foregoing,providedthat, upon such termination pursuant hereto KeystoneTrinity shall pay promptly the sum of $300,000$810,000 to River Financial to reimburse River Financial for its expenses, and not as damages, incurred in connection with the Agreement.Agreement;

(g) by River Financial, if before the River Financial Shareholders Meeting, the (i) board of directors of River Financial authorizes River Financial, subject to complying with Section 6.1(i), to enter into a binding written agreement concerning a transaction that constitutes a Superior River Financial Proposal, provided that, upon such termination pursuant hereto River Financial shall pay promptly the sum of $300,000 to Keystone to reimburse Keystone for its expenses, and not as damages, incurred in connection with the Agreement.

(h) by Keystone, if (a) the board of directors of Trinity or River Financial shall have recommended toif the Merger and this Agreement are not approved by the shareholders of Trinity entitled to vote;

(h) By River Financial that they tender their sharesif any condition set forth in a tenderArticles 8 or exchange offer commenced by an un-affiliated third party for more than 20%10 has not been satisfied as of the outstanding River Financial Common Stock, (b)Effective Date or if satisfaction of such condition is or becomes impossible (other than through the board of directorsfailure of River Financial shall have effected a Change into fully comply with its obligations hereunder) and River Financial Recommendationhas not waived such condition; or recommended to the River Financial shareholders acceptance

(i) By Trinity if any condition set forth in Articles 8 or approval of a Superior River Financial Proposal, (c) River Financial shall have notified Keystone in writing that River Financial is prepared to accept a Superior River Financial Proposal, or (d) the board of directors of River Financial shall have resolved to do any9 has not been satisfied as of the foregoing, provided that, uponEffective Date or if satisfaction of such termination pursuant hereto River Financial shall pay promptlycondition is or becomes impossible (other than through the sumfailure of $300,000Trinity to Keystone to reimburse Keystone forfully comply with its expenses,obligations hereunder) and Trinity has not as damages, incurred in connection with the Agreement.waived such condition.

13.3Damages. In the event of termination pursuant to Section 13.2, this Agreement shall become void and have no effect, except as provided in Article 11, and except that KeystoneTrinity and River Financial shall be liable for damages for any willful breach of warranty, representation, covenant or other agreement contained in this Agreement if the breach is the cause or basis for termination,provided that upon such termination Keystoneby Trinity or River Financial as applicable,pursuant to Sections 13.2(e) or (f) above, Trinity, shall promptly pay to the other PartyRiver Financial the sums set forth in Sectiontherein. Notwithstanding anything to the contrary, termination by Trinity or River Financial pursuant to Sections 13.2(e)-(h)(g) above as applicable.

shall not entitle either Party to damages.

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ARTICLE 14

DEFINITIONS

The following terms, which are capitalized in this Agreement, shall have the meanings set forth below for the purpose of this Agreement:

ABCL Alabama Business Corporation Law

ABCL

Alabama Business Corporation Law

ASBD

ASBD Means the Alabama State Banking Department

 

Acquisition Proposal  Shall mean, other than the transactions contemplated by this Agreement, any inquiry, proposal or offer with respect to a, or any, tender, exchange, or exchangecash offer to acquire 20% or more of the voting power in a Party or any of its Subsidiaries, any inquiry, proposal or offer with respect to a merger, consolidation, share exchange or other business combination involving a Party or any of its Subsidiaries or any other inquiry, proposal or offer to acquire, license, lease, exchange or transfer in any manner 20% or more of the voting power in, or 20% or more of the business, revenue, net income, assets or deposits of, a Party or any of its Subsidiaries, in

each case, whether in one or any series of related transactions and whether formfrom one Person or any “group” of Persons (as defined under Section 13(d) of the Exchange1934 Act).

Agencies

  

Shall mean, collectively, the Federal Trade Commission, the United States Department of Justice, the Board of the Governors of the Federal Reserve System, the FDIC, the ASBD, all state regulatory agencies having jurisdiction over the Parties and their respective Subsidiaries, HUD, the VA, the FHA, the GNMA, the FNMA, the FHLMC, the NYSE, and the SEC.

Agreement  

Shall mean this Agreement and Plan of Merger and the Exhibits Schedules and Disclosure Letters delivered pursuant hereto and incorporated herein by reference.

Assets  

Of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person’s business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located.

Bank Merger Agreement  Shall mean the merger agreement respecting KeystoneTrinity Bank and River Bank set forthprovided in Section 2.8.2.8 and Exhibit A hereto.
Business Day  

Means any day that is not a Saturday or Sunday or a day on which the offices of River Bankbanks in Alabama are authorized or required by Law or executive order to be closed.

Cash Value  

Has the meaning set forth in Section 3.1(a).

3.1.

Change in KeystoneTrinity Recommendation  

Has the meaning set forth in Section 6.2(b).

Change in River Financial RecommendationHas the meaning set forth in Section 6.1(c).

 

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Closing  

The submission of the certificates of officers, legal opinions and other actions required to be taken in order to consummate the Merger in accordance with this Agreement.

Code  

The Internal Revenue Code of 1986, as amended.

Common StockRiver Financial’s Common Stock authorized and defined in the articles of incorporation of River Financial, as amended.

Consent  

Any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit.

Confidentiality Agreement

Has the meaning set forth in Section 6.2(c)(ii).

Contract  Any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business.

Covered PartiesCRA  

Has the meaning set forth in Section 6.1(h)(ii).

4.19.

Default  

Shall mean (i) any breach or violation of or default under any Contract, Order or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Order or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any Liability under, any Contract, Order or Permit.

Effective Date  

Means the date and time at which the Merger becomes effective as defined in Section 2.7 hereof.

Environmental Laws  

Means the laws, regulations and governmental requirementsLaws referred to in Section 4.30(b)4.24(g) hereof.

ERISA  

The Employee Retirement Income Security Act of 1974, as amended.

Exchange ActShall have the meaning set forth in Section 6.2(c)(iv)(A).

Exhibits  

Shall mean the Exhibits attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto.

FDIC  Means the Federal Deposit Insurance Corporation.
GAAP  

Means United States generally accepted accounting principles applicable to banks and bank holding companies consistently applied during the periods involved.

Hazardous Substance  

Has the meaning set forth in Section 4.30(c)4.24(g).

Indemnified Parties  

Has the meaning set forth in Section 6.1(h)6.1(e).

 

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Intellectual Property  

Shall mean copyrights, patents, trademarks, service marks, service names, domain names, trade names, applications therefor, technology rights and licenses, computer software (including any source or object codes therefor or documentation relating thereto), trade secrets, franchises,know-how, inventions, and other intellectual property rights.

IRS  

United States Internal Revenue Service.

KeystoneKeystone Bancshares, Inc., an Alabama corporation, with its principal office in Auburn, Alabama.
Keystone BankKeystone Bank, an Alabama banking corporation with its principal office in Auburn, Alabama.
Keystone Common StockShares of common stock, par value $1.00 per share, of Keystone.
Keystone CompanyShall mean Keystone, Keystone Bank, any Subsidiary of Keystone or Keystone Bank, or any Person or entity acquired as a Subsidiary of Keystone or Keystone Bank in the future and owned by Keystone or Keystone Bank at the Effective Date.
Keystone Disclosure LetterHas the meaning set forth in Article 5.
Keystone OptionsMeans all options and rights outstanding to acquire Keystone Common Stock.
Keystone PlansHas the meaning set forth in Section 5.16(a).
Keystone RecommendationHas the meaning set forth in Section 6.2(b).
Keystone Shareholders MeetingThe special meeting of shareholders of Keystone called to approve this Agreement.
Keystone WarrantsMeans all outstanding warrants to acquire Keystone common stock.

Knowledge  Means the actual knowledge of any person and with respect to any party, the actual knowledge of the Chairman, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Chief Credit (or Lending) Officer, General Counsel or any Senior or Executive Vice President of River Financial or River Bank, as applicable, in the case of knowledge of River Financial, or of Keystone and KeystoneTrinity or Trinity Bank, as applicable, in the case of knowledge of Keystone.Trinity.

Law  

Any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities or business, including without limitation, those promulgated, interpreted or enforced by any Agency.

Legacy Keystone DirectorShall have the meaning set forth in Section 2.4(a).
Legacy River Financial DirectorShall have the meaning set forth in Section 2.4(a).

 

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Liability  

Any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including without limitation, costs of investigation, collection and defense), deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise.

Lien  

Any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest, other than (i) Liens for current property Taxes not yet due and payable, (ii) for depository institution Subsidiaries of a Party, pledges to secure deposits and other Liens incurred in the ordinary course of the banking business, (iii) Liens in the form of easements and restrictive covenants on real property which do not materially adversely affect the use of such property by the current owner thereof, and (iv) Liens which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on a Party.

Litigation  Any action, arbitration, complaint, criminal prosecution, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding but shall not include regular, periodic examinations of depository institutions and their Affiliates by Regulatory Authorities, relating to or affecting a Party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement relating to or affecting a Party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement.
Loss  

Any and all direct or indirect payments, obligations, recoveries, deficiencies, fines, penalties, interest, assessments, losses, diminution in the value of Assets, damages, punitive, exemplary or consequential damages (including, but not limited to, lost income and profits and interruptions of business), liabilities, costs, expenses (including without limitation, reasonable attorneys’ fees and expenses, and consultant’s fees and other costs of defense or investigation), and interest on any amount payable to a third party as a result of the foregoing.

material  For purposes of this Agreement shall be determined in light of the facts and circumstances of the matter in question;provided that any specific monetary amount stated in this Agreement shall determine materiality in that instance.

Material Adverse Effect  

(a) On a Party shall mean an event, change or occurrence which has a material adverse impact on (i) the financial position, Assets, business, or results of operations of such Party and its Subsidiaries, taken as a whole, or (ii) the ability of such Party to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement,provided that “material adverse effect” shall not be deemed to include the impact of (w) changes in banking and similar laws of general applicability or interpretations thereof by courts or

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governmental authorities, (x) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to banks and their holding companies, (y) actions and omissions of a Party (or any of its Subsidiaries) taken at the request of a Party with the prior informed consent of the other Party in contemplation of the transactions contemplated hereby, and (z) as a result of the Merger and compliance with the provisions of this Agreement on the operating performance of the Parties. Material Adverse Effect shall include a material reduction in book value of a Party between the date of this Agreement and the Effective Date.
Agreement.

  

(b) No representation or warranty of any Party hereto contained in Article 4 or Article 5 (other than the representations and warranties in (i) Section 4.1/Section 5.1 (Organization), Section 4.5/4.4/Section 5.11 (No Conflict with Other Instrument), and Section 4.2/Section 5.2 (Capital Stock), which shall be true and correct in all material respects, and (ii) Section 4.6/4.5/Section 5.5 (Absence of Material Adverse Effect), which shall be true and correct in all respects) shall be deemed untrue or incorrect, and no Party hereto shall be deemed to have breached a representation or warranty, as a consequence of the existence or absence of any fact, circumstance or event unless such fact, circumstance or event, individually or taken together with all other facts, circumstances or events inconsistent with any representation or warranty contained in Article 4 or Article 5, has had or is reasonably likely to have a Material Adverse Effect on such Party.

Maximum Amount

Has the meaning set forth in Section 6.1(e)(iii).

Merger  The merger of Keystone with River Financial as contemplated

Has the meaning set forth in this Agreement.

Section 2.1.

Merger Consideration  One share of River Financial Common Stock and $4.00 cash for each share of Keystone Common Stock as provided

Has the meaning set forth in Section 3.1(a) hereof.

3.1.

Order  

Any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency or Agency.

Party  Shall mean KeystoneTrinity or River Financial, and “Parties” shall mean both KeystoneTrinity and River Financial.
PBGC  

Shall mean the Pension Benefit Guaranty Corporation.

Permit  Any federal, state, local, and foreign governmental approval, authorization, certificate, easement filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be

binding upon or inure to the benefit of any Person or its securities, Assets or business.

Person  

A natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity.

 

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Index to Financial Statements
Proxy Statement  

The proxy statement used by Keystone and River FinancialTrinity to solicit the approval of each of its shareholders of the transactions contemplated by this Agreement, which shall include the prospectus of River Financial contained in the Registration Statement.

Agreement.

Registration Statement  

The registration statement on FormS-4, or such other appropriate form, to be filed with the SEC by River Financial, and which has been agreed to by Keystone,Trinity, to register the shares of River Financial Common Stock offered to shareholders of Keystone BankTrinity pursuant to this Agreement, including the Proxy Statement.

Regulatory Application

Has the meaning set forth in Section 6.1(b).

Representatives  

Shall have the meaning set forth in Section 6.2(c)(i).

Resulting Bank

Shall have the meaning set forth in Section 2.8.

Resulting Corporation  River Financial, as

Has the surviving corporation resulting from the Merger.

meaning set forth in Section 2.1.

River Bank  

River Bank & Trust, River Financial’s wholly owned Subsidiary Bank, an Alabama banking corporation, with its principal office in Prattville, Alabama.

River Financial  

River Financial Corporation, an Alabama corporation with its principal offices in Prattville, Alabama.

River Financial Common Stock

Has the meaning set forth in Section 4.2(a).

River Financial Company  

Shall mean River Financial, River Bank, any Subsidiary of River Financial or River Bank, or any Person or entity acquired as a Subsidiary of River Financial or River Bank in the future and owned by River Financial or River Bank at the Effective Date.

River Financial Disclosure Letter

Has the meaning set forth in Article 4.

River Financial Health Plans

Has the meaning set forth in Section 6.1(d)(iii).

River Financial Plans

Has the meaning set forth in Section 4.27(a).

River Financial Tax Representation Letter  Has the meaning set forth in Article 4.Section 6.1(d)(vi).
River FinancialQualified Plan

Has the meaning set forth in Section 6.1(d)(v).

SEC

United States Securities and Exchange Commission.

SEC Documents  Has the meaning set forth in Section 4.25(a).4.13

River Financial RecommendationHas the meaning set forth in Section 6.1(c).
River Financial Shareholders Meeting


The special meeting of shareholders of River Financial called to approve the Agreement.

RepresentativesShall have the meaning set forth in Section 6.2(c).
Resulting BankShall have the meaning set forth in Section 2.8.
Resulting CorporationHas the meaning set forth in Section 2.1.
SECUnited States Securities and Exchange Commission.
Subsidiaries  

Shall mean all those corporations, banks, associations, or other entities of which the entity in question owns or controls 5% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 5% or more of the outstanding equity securities is owned directly or indirectly by its parent;provided,however, there shall not be included any such entity acquired through foreclosure or any such entity the equity securities of which are owned or controlled in a fiduciary capacity.

 

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Index to Financial Statements
Subsidiary Bank Merger  

The merger of KeystoneTrinity Bank with River Bank as set forthprovided in Section 2.8.

2.8 and Exhibit A.

Superior Keystone Proposal  

Means any unsolicited bona fide written Acquisition Proposal (with the percentages set forth in the definition of such term changed from 20% to 50%) that the KeystoneTrinity board of directors determines in good faith (after consultation with outside counsel and its financial advisor), taking into account all legal, financial, regulatory and other aspects of the proposal and the Person (or group of Persons) making the proposal (including anybreak-up fees, expense reimbursement provisions and conditions to consummation), (i) if consummated would be more favorable to the shareholders of KeystoneTrinity from a financial point of view than the transactions contemplated by this Agreement (including taking into account any adjustment to the terms and conditions proposed by River Financial in response to such proposal pursuant to Section 6.2(c) or otherwise) and (ii) if accepted, is reasonably likely to be completed on the terms proposed on a timely basis.

Superior River Financial ProposalMeans any unsolicited bona fide written Acquisition Proposal (with the percentages set forth in the definition of such term changed from 20% to 50%) that the River Financial board of directors determines in good faith (after consultation with outside counsel and its financial advisor), taking into account all legal, financial, regulatory and other aspects of the proposal and the Person (or group of Persons) making the proposal (including any break-up fees, expense reimbursement provisions and conditions to consummation), (i) if consummated would be more favorable to the shareholders of River Financial from a financial point of view than the transactions contemplated by this Agreement (including taking into account the benefits of this Agreement, and the termination of this Agreement in lieu of such Superior River Financial Proposal) and (ii) if accepted, is reasonably likely to be completed on the terms proposed on a timely basis.
proposed.

Tax or Taxes  

Means any federal, state, county, local, foreign, and other taxes, levies, duties, tariffs, imposts, assessments, charges, fares, and impositions imposed by a governmental authority, including any net income, gross income, gross receipts, alternative oradd-on minimum, sales, use, business and occupation, business, professional and occupational license, value-added, trade, goods and services, ad valorem, franchise, profits, license, business royalty, withholding, payroll, employment, capital, excise, transfer, recording, severance, stamp, occupation, premium, property, asset, real estate transfer, environmental, custom duty, impost, obligation, assessment, levy, tariff or other tax or other like assessment or charge of any kind whatsoever, as well as any interest, penalties, additions to tax and penaltiesadditional amounts imposed thereon or with respect thereto.

Technology Systems  

Means electronic data processing, information, record keeping, communications, telecommunications, hardware, third party software, networks, peripherals, portfolio trading and computer systems, including any outsourced systems and processes, and Intellectual Property.

TrinityTrinity Bancorp, Inc., an Alabama corporation, with its principal office in Dothan, Alabama.

Trinity Bank

Trinity Bank, an Alabama banking corporation with its principal office in Dothan, Alabama.

Trinity Bank Director

Has the meaning set forth in Section 4.35.2.8

Trinity Common Stock

Has the meaning set forth in Section 3.1.

Trinity Company

Shall mean Trinity, Trinity Bank, any Subsidiary of Trinity or Trinity Bank, or any Person or entity acquired as a Subsidiary of Trinity or Trinity Bank in the future and owned by Trinity or Trinity Bank at the Effective Date.

Trinity Director

Has the meaning set forth in Section 2.4.

Trinity Disclosure Letter

Has the meaning set forth in Article 5.

Trinity Health Plan

Has the meaning set forth in Section 6.1(d)(iii).

Trinity Plans

Has the meaning set forth in Section 5.16(a).

Trinity Qualified Plan

Has the meaning set forth in Section 6.1(d)(v).

Trinity Recommendation

Has the meaning set forth in Section 6.2(b).

Trinity Shareholders’ Meeting

Has the meaning set forth in Section 2.5.

Trinity Tax Opinion

Has the meaning set forth in Section 9.7.

Trinity Tax Representation Letter

Has the meaning set forth in Section 6.2(e).

1933 Act  

The Securities Act of 1933, as amended.

1934 Act  The Securities Exchange Act of 1934, as amended.

ARTICLE 15

MISCELLANEOUS

15.1 Expenses.

(a) Each of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel. KeystoneTrinity shall pay its portion of the expenses of the printing and mailing of the Proxy Statement, andStatement. Notwithstanding the costsforegoing, upon consummation of the financial printerMerger, the Resulting Corporation shall pay any documentary, sales, use, real property transfer, real property gains, registration, value-added, transfer, stamp, recording and other similar Taxes, fees, and costs incurred by any River Financial or Trinity in connection with this Agreement and the filing of the Registration Statement, provided River Financial shall pay the SEC registration fee related to the registration of the River Financial Common Stock. The portion to be paid by Keystone shall be mutually agreed upon between Keystone and River Financial.transactions contemplated hereby.

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Index to Financial Statements

(b) Nothing contained in this Section 15.1 shall constitute or shall be deemed to constitute liquidated damages for the willful breach by a Party of the terms of this Agreement or otherwise limit the rights of the nonbreaching Party.

15.2 Benefit and Assignment.Assignment. Except as expressly contemplated hereby, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any Party hereto (whether by operation of Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

15.3 Governing Law. This Agreement shall be governed by, and construed in accordance with the Laws of the State of Alabama.

15.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to constitute an original. Each such counterpart shall become effective when one counterpart has been signed by each Party thereto.

15.5 Headings. The headings of the various articles and sections of this Agreement are for convenience of reference only and shall not be deemed a part of this Agreement or considered in construing the provisions thereof.

15.6 Severability. Any term or provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining terms and provisions thereof or affecting the validity or enforceability of such provision in any other jurisdiction, and if any term or provision of this Agreement is held by any court of competent jurisdiction to be void, voidable, invalid or unenforceable in any given circumstance or situation, then all other terms and provisions, being severable, shall remain in full force and effect in such circumstance or situation and the term or provision shall remain valid and in effect in any other circumstances or situation.

15.7 Construction. Use of the masculine pronoun herein shall be deemed to refer to the feminine and neuter genders and the use of singular references shall be deemed to include the plural and vice versa, as appropriate. The words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation.” Unless the context requires otherwise, reference in this Agreement to (i) a Contract means such Contract as amended, supplemented, or modified from time to time, and (ii) Law means such Law as amended from time to time and any successor legislation thereto and any regulations promulgated thereunder. No inference in favor of or against any Party shall be drawn from the fact that such Party or such Party’s counsel has drafted any portion of this Agreement.

15.8 Return of Information. In the event of termination of this Agreement prior to the Effective Date, each Party shall return to the other, without retaining copies thereof, all confidential ornon-public documents, work papers and other materials obtained from the other Party in connection with the transactions contemplated in this Agreement and shall keep such information confidential, not disclose such information to any other person or entity, and not use such information in connection with its business.

15.9 Equitable Remedies. The parties hereto agree that, in the event of a breach of this Agreement by either Party, the other Party may be without an adequate remedy at law owing to the unique nature of the contemplated transactions. In recognition thereof, in addition to (and not in lieu of) any remedies at law that may be available to the nonbreaching Party, thenon-breaching Party shall be entitled to obtain equitable relief, including the remedies of specific performance and injunction, in the event of a breach of this Agreement by the other Party, and no attempt on the part of thenon-breaching Party to obtain such equitable relief shall be deemed to constitute an election of remedies by thenon-breaching Party that would preclude thenon-breaching Party from obtaining any remedies at law to which it would otherwise be entitled.

15.10 Attorneys’ Fees. If any Party hereto shall bring an action at law or in equity to enforce its rights under this Agreement (including an action based upon a misrepresentation or the breach of any warranty, covenant, agreement or obligation contained herein), the prevailing Party in such action shall be entitled to

recover from the other Party its costs and expenses incurred in connection with such action (including fees, disbursements and expenses of attorneys and costs of investigation).

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Index to Financial Statements

15.11 No Waiver. No failure, delay or omission of or by any Party in exercising any right, power or remedy upon any breach or Default of any other Party shall impair any such rights, powers or remedies of the Party not in breach or Default, nor shall it be construed to be a waiver of any such right, power or remedy, or an acquiescence in any similar breach or Default; nor shall any waiver of any single breach or Default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any provisions of this Agreement must be in writing and be executed by the Parties to this Agreement and shall be effective only to the extent specifically set forth in such writing.

15.12 Remedies Cumulative. All remedies provided in this Agreement, by law or otherwise, shall be cumulative and not alternative.

15.13 Entire Contract. This Agreement and the documents and instruments referred to herein, including, but not limited to, the Confidentiality Agreement, constitute the entire contract between the parties to this Agreement and supersede all other understandings with respect to the subject matter of this Agreement.

[Signature Page to follow]

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Index to Financial Statements

IN WITNESS WHEREOF, KeystoneTrinity and River Financial have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written.

 

RIVER FINANCIAL CORPORATION
BY: 

/s/ Jimmy Stubbs

Name: Jimmy Stubbs
Name:Its: President and Chief Executive OfficerJimmy Stubbs
KEYSTONE BANCSHARES,Its:CEO

TRINITY BANCORP, INC.
BY: 

/s/ Ray Smith

J. Robin Thompson
Name: Ray Smith
Its: Chief Executive Officer

Name: A-59J. Robin Thompson
Its: Annex APres/CEO

IndexSignature Page to Financial Statements
Agreement and Plan of Merger

Exhibit A

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the “Plan”(this “Plan”) is made and entered into as of May 13, 2015June 4, 2019 by and between River Bank & Trust, an Alabama banking corporation (“River Bank”Bank”), which is wholly owned by River Financial Corporation, an Alabama corporation (“River Financial”), and KeystoneTrinity Bank, an Alabama banking corporation (the “Keystone Bank”(“Trinity Bank”), which is wholly owned by Trinity Bancorp, Inc. in order to provide for the merger of KeystoneTrinity Bank with and into River Bank under the charter of River Bank (the “Merger”“Merger”).

PREAMBLE

A majority of the respective Boards of Directors of KeystoneTrinity Bank and River Bank has approved this Plan and has authorized its execution and consummation.consummation, in connection with the Agreement and Plan of Merger between River Financial and Trinity dated as of June 4, 2019 (the “Parent Merger Agreement”).

AGREEMENT

In consideration of the premises and of the covenants contained herein, KeystoneTrinity Bank and River Bank hereby make, adopt and approve this Plan and prescribe the terms and conditions of the Merger and the mode of carrying the Merger into effect, as follows:

1.The Merger. KeystoneTrinity Bank shall be merged with and into River Bank under the articles of incorporation and charter of River Bank pursuant to the provisions of, and with the effects provided in the Alabama Banking Code and the Alabama Business Corporation Law. River Bank shall be the survivor of the Merger, and is hereinafter referred to as the “Continuing Bank” when reference is made to River Bank as of the Effective date of the Merger or thereafter.

2.Effective Date of the Merger. Subject to the terms and conditions of this Plan, and upon satisfaction of all legal requirements, the Merger shall become effective on the date and time (the “Effective Date”“Effective Date”) specified by River Bank, subject to and following the completion of the merger of Trinity with and into River Financial pursuant to the Parent Merger Agreement by filing appropriate articles of merger pursuant to Alabama law.

3.The Continuing Bank.

(a) On the Effective Date, the name of the Continuing Bank shall be “River Bank & Trust;” the articles of incorporation and bylaws of the Continuing Bank shall be the same as River Bank’s existing articles of incorporation and bylaws; the Continuing Bank’s main office shall be the main office of River Bank; and all offices, branches, agencies and facilities of KeystoneTrinity Bank and River Bank which were in lawful operation or whose establishment had been approved at the Merger’s Effective Date shall be retained and operated or established and operated as offices, branches, agencies and facilities of the Continuing Bank.

(b) On the Effective Date, all assets, rights, franchises and interests of KeystoneTrinity Bank and River Bank in and to every type of property (real, personal and mixed) and choses in action shall be transferred to and vested in the Continuing Bank by virtue of the Merger without any deed or other instrument of transfer to the Continuing Bank, and without any order or other action on the part of any court or otherwise; and the Continuing Bank shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, guardian of mentally incompetent persons, and committee of estates of lunatics, and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by KeystoneTrinity Bank and River Bank, respectively, immediately prior to the Effective Date.

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Index to Financial Statements

(c) On the Effective Date, the Continuing Bank shall be liable for all liabilities of KeystoneTrinity Bank and River Bank, and all deposits, debts, liabilities, obligations and contracts of KeystoneTrinity Bank and River Bank, respectively, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reserved against in the balance sheets, books of account or records of KeystoneTrinity Bank or River Bank, as the case may be, shall be those of the Continuing Bank, and shall not be released or impaired by the Merger; and all rights of creditors and other obligees and all liens on property of either KeystoneTrinity Bank or River Bank shall be preserved unimpaired.

4.Capital Stock.

(a) On the Effective Date, all shares of River Bank common stock shall continue to be issued and outstanding shares, and all shares of KeystoneTrinity Bank common stock issued and outstanding immediately prior to the Effective Date shall,ipsofacto,, without any action on the part of any holder thereof, or any other party, be canceled. All of the shares of issued and outstanding Continuing Bank common stock shall be allocated to and received by River Financial Corporation.

(b) On the Effective Date, the equity capitalization of KeystoneTrinity Bank existing immediately before the Effective Date shall be combined with the equity capitalization of River Bank existing immediately before the Effective Date, with the effect that the Continuing Bank shall have a capital structure after the Effective Date, in the aggregate, equal to the combined capital structures of KeystoneTrinity Bank and River Bank exitingexisting immediately before the Effective Date subject to any adjustments as may be required by GAAP.

5.Board of Directors; OfficersDirectors.

(a) On the Effective Date, the Board of Directors of the Continuing Bank shall consist of all persons who were directors of River Bank (the “River Bank legacy directors”) and Keystone Bank (the “Keystone Bank legacy directors”) immediately before the Effective Date, who shall continue to serve as directors until their successors are duly elected and qualified. Until the fourth (4th) anniversaryqualified,provided that Robbin Thompson, or such other designee selected by Trinity Bank and reasonably acceptable to River Bank, shall be added as a director as of the Effective date, any vacancy in the membership of the Board of Directors, whether by death, resignation or removal shall be filled by a person recommended by the River Bank legacy directors, if the vacancy occurs as a result of a River Bank legacy director vacating a position, or by a person recommended by the Keystone Bank legacy directors if the vacancy occurs as a result of a Keystone bank legacy director vacating a position. The size of the board shall not be increased during such period.

(b) The officers of the Continuing Bank shall include Jimmy Stubbs — Chief Executive Officer, Ray Smith — President, Boles Pegues — Executive Vice President, Ken Givens — Chief Financial Officer, Larry Puckett — Chairman of the Board and Murray Neighbors — Vice Chairman of the Board.Date.

6.Approvals. This Plan shall be submitted to the respective shareholders of KeystoneTrinity Bank and River Bank for ratification and confirmation in accordance with applicable provisions of law and the respective articles of incorporation and bylaws of KeystoneTrinity Bank and River Bank. KeystoneTrinity Bank and River Bank shall proceed expeditiously and cooperate fully in the procurement of any other consentsConsents and approvals and in the taking of any other action, and the satisfaction of all other requirements prescribed by law or otherwise necessary or appropriate for consummation of the Merger and any other transactions contemplated hereby, including, without limitation, approvals of the Alabama State Banking Department and the Federal Deposit Insurance Corporation.

7.Conditions Precedent to the Merger. The Merger, and the obligations of KeystoneTrinity Bank and River Bank to close the Merger, are subject to the following conditions, any of which, however, may be waived, to the extent permitted by law, by consent in writing executed by KeystoneTrinity Bank or River Bank.

(a) This Plan, and the Merger contemplated hereby, shall have been ratified and confirmed by vote of the respective shareholders of KeystoneTrinity Bank and River Bank as required by law;

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Index to Financial Statements

(b) All consentsConsents and approvals, including those of all regulatory agencies having jurisdiction, shall have been procured, and all other requirements prescribed by law and which are necessary for consummation of the Merger shall have been satisfied;

(c) The merger transaction provided for in the Agreement and Plan ofParent Merger between River Financial Corporation, the parent company of River Bank, and Keystone Bancshares, Inc., the parent company of Keystone Bank, dated May 13, 2015 (the “Parent Agreement”)Agreement shall have been consummated in accordance with the Parent Agreement.

8.Tax Matters. The parties agree that, for U.S. federal income Tax purposes, the Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as

amended (the “Code”), and this Agreement is intended to be and is adopted as a “plan of reorganization” for the Merger for purposes of Sections 354 and 361 of the Code andSection 1.368-2(g) of the Treasury Regulations. The parties will report the Merger and the other transactions contemplated by this Agreement, including for U.S. federal income Tax purposes, in a manner consistent with such qualification unless, and then only to the extent, an alternative position is required pursuant to a final determination under applicable Law. No party will take any action or fail to take any action, or allow any affiliate to take any action or fail to take any action, that would reasonably be expected to prevent any of the foregoing.

9.Termination. If:

(a) Any action, suit, proceeding or claim has been instituted, made or threatened related to the proposed transaction which shall make consummation of the Merger inadvisable in the opinion of the Board of Directors of KeystoneTrinity Bank or River Bank; or

(b) Any action, consent, or approval, governmental or otherwise, which is, or in the opinion of counsel for KeystoneTrinity Bank or River Bank may be, necessary to permit or enable the Continuing Bank, on and after the Merger, to conduct all or any part of the business and activities of KeystoneTrinity Bank as conducted or approved prior to the Effective date, shall not have been accomplished or obtained; or

(c) The Parent Agreement shall have been terminated;

then this Plan may be terminated and abandoned by KeystoneTrinity Bank or River Bank at any time before the Effective Date of the Merger, either before or after the shareholders’ vote, by giving written notice of such termination or abandonment to the other parties, such notice to be authorized or approved by a resolution adopted by the Board of Directors of the party giving the notice.

Upon termination by written notice as provided in this Section, this Plan shall be void and of no further force and effect, and there shall be no liability for such termination by reason of this Plan on the part of any party hereto, or the directors, officers, employees, agents, or shareholders of any of them.

9.10.Counterparts. This Plan may be executed in one or more identical counterparts, each of which when executed and delivered by the parties hereto shall be an original, but all of which together shall constitute a single agreement.

10.11.Amendment. KeystoneTrinity Bank and River Bank, by mutual consent of their respective Boards of Directors, to the extent permitted by law, may amend, modify, supplement and interpret this Plan in such manner as may be mutually agreed upon by them in writing at any time before or after adoption thereof by the respective shareholders of KeystoneTrinity Bank and River Bank.

[Remainder of page left blank intentionally]

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Index to Financial Statements

IN WITNESS WHEREOF, KeystoneTrinity Bank and River Bank have caused this Plan to be executed in counterparts by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first above written.

 

RIVER BANK AND TRUST

BY:

 

 Jimmy Stubbs
 

President and Chief Executive Officer

KEYSTONETRINITY BANK

BY:

 

Ray Smith

Chief Executive Officer

 A-63
 Annex APresident and CEO

IndexSignature Page to Financial Statements
Agreement and Plan of Merger (Bank Merger)

EXHIBIT B

FORM OF SUPPORT AGREEMENT

May 13, 2015June 4, 2019

River Financial Corporation

2611 Legends Drive

Prattville AL 36066

Gentlemen:

The undersigned is a director of Keystone Bancshares,Trinity Bancorp, Inc. (“Keystone”Trinity”) or KeystoneTrinity Bank (the “Bank”), or both, and is the beneficial owner of shares of common stock of KeystoneTrinity (“KeystoneTrinity Stock”).

KeystoneTrinity and River Financial Corporation (“River Financial”) have executed an Agreement and Plan of Merger dated as of May 13, 2015June 4, 2019 (the “Agreement”) pursuant to which KeystoneTrinity will merge with River Financial (the “Merger”). River Financial has requested the execution and delivery of this letter agreement (“letter agreement”) as a condition to its execution and deliveryconsummation of the transactions contemplated by the Agreement. In consideration of the substantial expenses that River Financial will incur in connection with the transactions contemplated by the Agreement and in order to induce River Financial to execute the Agreement and proceed to incur such expenses, the undersigned agrees and undertakes, in his or her capacity as a shareholder of KeystoneTrinity and not in his or her capacity as a director of KeystoneTrinity or Bank, as follows:

1. a)(a) The undersigned, while this letter agreement is in effect, shall vote or cause to be voted all of the shares of KeystoneTrinity Stock that the undersigned shall be entitled to so vote, whether such shares are beneficially owned by the undersigned on the date of this letter agreement or are subsequently acquired, whether pursuant to the exercise of stock options or otherwise, at the meeting of Keystone’sTrinity’s shareholders to be called and held following the date hereof, for the approval of the Agreement and the Merger. In addition, the undersigned shall vote the KeystoneTrinity Stock against any Acquisition Proposal (as defined in the Agreement) or any amendment to Keystone’sTrinity’s articles of incorporation or bylaws or other proposal which would in any manner delay, impede, frustrate, prevent or nullify the Agreement or the Merger.

b)(b) The undersigned hereby covenants and agrees that between the date hereof and the termination of this letter agreement pursuant to paragraph 5 below, the undersigned shall not transfer or offer to transfer or consent to any transfer of any or all of the KeystoneTrinity Stock without the prior written consent of River Financial, grant any proxy,power-of-attorney or other authorization or consent with respect to any or all of the KeystoneTrinity Stock or deposit any or all of the Keystoneundersigned’s Trinity Stock with a voting trust or enter into a voting agreement respecting the Keystoneundersigned’s Trinity Stock,provided that the undersigned may transfer any or all of the KeystoneTrinity Stock to any member of the undersigned’s immediate family, or upon the death of the undersigned, as long as the tranferreetransferee agrees in writing, in form and substance reasonably satisfactory to River Financial, to be bound by all of the terms of this letter agreement.

c)(c) The undersigned waives and agrees not to exercise any rights of appraisal.

2. The undersigned has had access, priordissent and appraisal with respect to the execution of this letter agreement, to the information the undersigned believes is needed and desired in connection with the evaluation of the Merger and has had, during the course of the transaction and prior to the execution of this letter agreement, the opportunity to ask questions of, and receive answers from, River Financial and each of its officers and legal counsel concerning River Financial’s business, management and financial affairs and the terms and conditions of the transactions contemplated by the Agreement and to review River Financial’s operations and business plan and to obtain additional information necessary to assess the transactions contemplated by this letter agreement and the Agreement.

Merger.

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Index to Financial Statements

3.2. The undersigned acknowledges and agrees that any remedy at law for breach of the foregoing provisions shall be inadequate and that, in addition to any other relief which may be available, River Financial shall be entitled to seek temporary and permanent injunctive relief.

4.3. The foregoing restrictions shall not apply to shares with respect to which the undersigned may have voting power as a fiduciary foror otherwise and on behalf of others. In addition, this letter agreement shall only

apply to actions taken by the undersigned in his or her capacity as a shareholder of KeystoneTrinity and shall not in any way limit or affect actions the undersigned may take in his or her capacity as director of Keystone.Trinity. Nothing in this letter agreement shall prevent the undersigned’s satisfaction of fiduciary duties as set forth in Section 6.2(c)6.2(d) of the Agreement, provided that the undersigned’s obligations hereunder shall not be affected by a Change in Trinity Recommendation (as defined in the Agreement) of the board of directors of KeystoneTrinity as to the Merger.

5.4. This letter agreement shall automatically terminate and have no further force or effect upon the earlier of (i) termination of the Agreement in accordance with its terms, or (ii) consummation of the Merger.

6.5. This letter agreement (and any claims, causes of action or disputes that may be based upon, arise out of or relate hereto or thereto to the transactions contemplated hereby and thereby, to the negotiation, execution or performance hereof or thereof, or to the inducement of any party to enter herein and therein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall in all respects be governed by, and construed in accordance with the laws of the State of Alabama, including all matters of construction, validity and performance, in each case without reference to any conflict of law rules that might lead to the application of the laws of any other jurisdiction.

7.6. This letter agreement, together with the Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this letter agreement. This letter agreement is not intended to and does not confer upon any person other than the parties any legal or equitable rights or remedies.remedies, whether as third party beneficiaries or otherwise. No representation, warranty, inducement, promise, understanding or condition not set forth in this letter agreement or the Agreement has been made or relied upon by any of the parties to this letter agreement.

8.7. Any provision of this letter agreement may be waived by the party benefited by the provision, but only in writing. The parties hereto may not amend or modify this letter agreement except in such manner as may be agreed upon by a written instrument executed by the parties hereto.

9. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law.8. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof.

A-65Annex A

Index to Financial Statements

IN WITNESS WHEREOF, the undersigned has executed this letter agreement as of the date first above written.

 

Very truly yours,

 

Signature

 

Name (please print)

Accepted and agreed to as of

the date first above written.

 

RIVER FINANCIAL CORPORATION
By:
Name:
Title:

Signature Page to Support Agreement

EXHIBIT C

FORM OF

CLAIMS LETTER

June 4, 2019

River Financial Corporation

2611 Legends Drive

Prattville, Alabama 36066

Ladies and Gentlemen:

This letter is delivered pursuant the Agreement and Plan of Merger, dated as of June 4, 2019 (the “Merger Agreement”), by and between River Financial Corporation (“River Financial”), and Trinity Bancorp, Inc., an Alabama corporation (“Trinity”).

Concerning claims which the undersigned may have against Trinity or any of its subsidiaries, including Trinity Bank (each, a “Trinity Entity”), in his or her capacity as an officer, director or employee of any Trinity Entity, and in consideration of the promises, and the mutual covenants contained herein and in the Merger Agreement and the mutual benefits to be derived hereunder and thereunder, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned, intending to be legally bound, hereby agrees as follows:

Section 1.Definitions. Unless otherwise defined in this letter, capitalized terms used in this letter have the meanings given to them in the Merger Agreement.

Section 2.Release of Certain Claims.

(a) The undersigned hereby releases and forever discharges, effective upon the consummation of the Merger pursuant to the Merger Agreement, each Trinity Entity, and each of their respective directors and officers (in their capacities as such), and their respective successors and assigns, and each of them (hereinafter, individually and collectively, the “Released Parties”) of and from any and all liabilities, claims, demands, debts, accounts, covenants, agreements, obligations, costs, expenses, actions or causes of action of every nature, character or description (collectively, “Claims”), which the undersigned, solely in his or her capacity as an officer, director or employee of any Trinity Entity has or claims to have, or previously had or claimed to have, in each case as of the Effective Date, against any of the Released Parties, whether or not in law, equity or otherwise, based in whole or in part on any facts, conduct, activities, transactions, events or occurrences known or unknown, matured or unmatured, contingent or otherwise (individually a “Released Claim,” and collectively, the “Released Claims”), except for (i) compensation for services that have accrued but have not yet been paid in the ordinary course of business consistent with past practice or other contract rights relating to severance, employment, benefits under Trinity Plans, stock options and restricted stock grants, which contracts or rights have been disclosed in writing to River Financial in the Trinity Disclosure Letter, Schedule I to this letter or otherwise in writing on or prior to the date of the Merger Agreement, and (ii) the items listed inSection 2(b) below.

(b) The parties acknowledge and agree that the Released Claims do not include any of the following:

(i) any Claims that the undersigned may have in any capacity other than as an officer, director or employee of any Trinity Entity, including, but not limited to, (A) Claims as a borrower under loan commitments and agreements between the undersigned and Trinity Bank, (B) Claims as a depositor under any deposit account with Trinity Bank, (C) Claims as a depositor of deposits issued by Trinity Bank,

(D) Claims on account of any services rendered by the undersigned in a capacity other than as an officer, director or employee of any Trinity Entity; (E) Claims in his or her capacity as a shareholder of Trinity, and (F) Claims as a holder of any checks or instruments issued by or drawn on Trinity Bank;

(ii) the Claims excluded inSection 2(a)(i) above;

(iii) any Claims that the undersigned may have under the Merger Agreement, including, but not limited to, any right to indemnification and any right to continuing coverage under directors’ and officers’ liability insurance policies; or

(iv) any right to indemnification that the undersigned may have under the articles of incorporation or bylaws of any Trinity Entity, under Alabama law or the Merger Agreement.

(v) any rights or Claims listed onSchedule I to this letter.

Section 3.Forbearance. The undersigned shall forever refrain and forebear from commencing, instituting or prosecuting any lawsuit, action, claim or proceeding before or in any court, regulatory, governmental, arbitral or other authority to collect or enforce any Released Claims which are released and discharged hereby.

Section 4.Miscellaneous.

(a) This letter shall be governed by, and interpreted and enforced in accordance with, the internal, substantive laws of the State of Alabama, without regard for conflict of law provisions.

(b) This letter contains the entire agreement between the parties with respect to the Released Claims released hereby, and the release of Claims contained in this letter supersedes all prior agreements, arrangement or understandings (written or otherwise) with respect to such Released Claims and no representation or warranty, oral or written, express or implied, has been made by or relied upon by any party hereto, except as expressly contained herein or in the Merger Agreement.

(c) This letter shall be binding upon and inure to the benefit of the undersigned and the Released Parties and their respective heirs, legal representatives, successors and assigns.

(d) This letter may not be modified, amended or rescinded except by the written agreement of the undersigned and the Released Parties, it being the express understanding of the undersigned and the Released Parties that no term hereof may be waived by the action, inaction or course of delaying by or between the undersigned or the Released Parties, except in strict accordance with this paragraph, and further that the waiver of any breach of the terms of this letter shall not constitute or be construed as the waiver of any other breach of the terms hereof.

(e) The undersigned represents, warrants and covenants that the undersigned is fully aware of the undersigned’s rights to discuss any and all aspects of this matter with any attorney chosen by him or her, and that the undersigned has carefully read and fully understands all the provisions of this letter, and that the undersigned is voluntarily entering into this letter.

(f) This letter shall become effective upon the consummation of the Merger on the Effective Date, and its operation to extinguish all of the Released Claims released hereby is not dependent on or affected by the performance ornon-performance of any future act by the undersigned or the Released Parties. If the Merger Agreement is terminated for any reason, this letter shall terminate simultaneously and shall be of no further force or effect.

(g) If any civil action, arbitration or other legal proceeding is brought for the enforcement of this letter, or because of an alleged dispute, breach, default or misrepresentation in connection with any provision of this letter,

the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees, court costs, sales and use taxes and all expenses even if not taxable as court costs (including, without limitation, all such fees, taxes, costs and expenses incident to arbitration, appellate, bankruptcy and post-judgment proceedings), incurred in that proceeding, in addition to any other relief to which such party or parties may be entitled. Attorneys’ fees shall include, without limitation, paralegal fees, investigative fees, administrative costs, sales and use taxes and all other charges billed by the attorney to the prevailing party (including any fees and costs associated with collecting such amounts).

(h) Each party acknowledges and agrees that any controversy which may arise under this letter is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this letter, or the transactions contemplated by this letter. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each party understands and has considered the implications of this waiver, (iii) each party makes this waiver voluntarily, and (iv) each party has been induced to enter into this letter by, among other things, the mutual waivers in this Section.

(i) Any civil action, counterclaim, proceeding, or litigation arising out of or relating to this letter shall be brought in state or federal courts in the United States District Court, Northern District of Alabama. Each party consents to the jurisdiction of such Alabama court in any such civil action, counterclaim, proceeding, or litigation and waives any objection to the laying of venue of any such civil action, counterclaim, proceeding, or litigation in such Alabama court. Service of any court paper may be effected on such party by mail, as provided in this letter, or in such other manner as may be provided under applicable laws, rules of procedure or local rules.

[Signature Page Follows]

Sincerely,

Signature of Director

Name of Director

Signature Page – Claims Letter

On behalf of River Financial Corporation, I hereby acknowledge receipt of this letter as of this          day of             , 2019.

RIVER FINANCIAL CORPORATION

By: 

 

Name: 

Jimmy Stubbs
Title: 

Chief Executive Officer

Signature Page – Claims Letter

Schedule I to Claims Letter

 

1.
A-66Annex A

Any and all rights under Trinity Plans.

Index

2.

[add any relevant items]

Schedule I to Financial Statements

Claims Letter

EXHIBIT D

EMPLOYEE TERM SHEET

Robbin Thompson

a.

President for the Wiregrass Region

b.

Annual salary of $162,450

c.

Participation in RB&T Relationship Manager annual bonus plan

d.

Change in control agreement equivalent to the of other Executive Officers other than Chief Executive Officer and President (in substantially the form set forth in the River Financial Disclosure Letter)

e.

Incentive stock options on 5,000 shares of River Financial Common Stock vested at 20% per year over the first five years at an exercise price equal to the fair market value of the stock at the date of the close of the proposed transaction (pursuant to an incentive option award agreement in substantially the form set forth in the River Financial Disclosure Letter)*

f.

An immediateone-time increase in annual salary equal to the annual amount of country club dues currently in effect at the date of the close of the proposed transaction

g.

Monthly car allowance in the net amount of $350

h.

Shall be a member of the Officers Loan Committee with the following loan approval authorities:

i. $500,000 for loans secured by first real estate mortgages

ii. $300,000 secured by other collateral

iii. $100,000 for unsecured loans and overdrafts.

i.

All other employee benefits in effect at the date of the close of the proposed transaction

Joe Sanders

a.

Senior Vice President for the Wiregrass Region

b.

Annual salary of $120,000

c.

Participation in RB&T Relationship Manager annual bonus plan

d.

Incentive stock options on 2,500 shares of River Financial Common Stock vested at 20% per year over the first five years at an exercise price equal to the fair market value of the stock at the date of the close of the proposed transaction (pursuant to an incentive option award agreement in substantially the form set forth in the River Financial Disclosure Letter)*

e.

An immediateone-time increase in annual salary equal to the annual amount of country club dues currently in effect at the date of the close of the proposed transaction

f.

Shall be a member of the Officers Loan Committee with the following loan approval authorities:

i. $250,000 for loans secured by first real estate mortgages

ii. $100,000 secured by other collateral

iii. $50,000 for unsecured loans and overdrafts.

g.

All other employee benefits in effect at the date of the close of the proposed transaction

Exhibit D

Lori Nelson

a.

Annual salary of $63,250

b.

Participation in RB&T Relationship Manager annual bonus plan

c.

Incentive stock options on 1,000 shares of River Financial Common Stock vested at 20% per year over the first five years at an exercise price equal to the fair market value of the stock at the date of the close of the proposed transaction (pursuant to an incentive option award agreement in substantially the form set forth in the River Financial Disclosure Letter)*

d.

All other employee benefits in effect at the date of the close of the proposed transaction

*

Number of shares of River Financial Common Stock and exercise price of the option subject to adjustment in accordance with Section 3.4 of the Agreement.

Exhibit D

Exhibit CANNEX B

SUPPORT AGREEMENTPorter White Capital

May 13, 2015June 4, 2019

Keystone Bancshares,Board of Directors

Trinity Bancorp, Inc.

2394 East University Drive1479 West Main Street

Auburn,Dothan, AL 3683036301

Gentlemen:Dear Members of the Board:

The undersigned is a director of River Financial CorporationPorter White Capital, LLC (“River Financial”PWC”, “we”, “us” or “our”) or River Bank & Trust (the “Bank”), or both, and is the beneficial owner of shares of common stock of River Financial (��River Financial Stock”).

Keystone Bancshares,understands that Trinity Bancorp, Inc. (“Keystone”TBI”) and River Financial Corporation (“RVRF”) have executedproposed to enter into an Agreement and Plan of Merger, dated as of May 13, 2015June 4, 2019 (the “Agreement”), pursuant to which KeystoneRVRF will mergeacquire TBI through the merger of TBI with River Financialand into RVRF (the “Merger”). Keystone has requestedFollowing the execution and delivery of this letter agreement (“letter agreement”) as a condition to its execution and delivery of the Agreement. In consideration of the substantial expenses that Keystone will incur in connection with the transactions contemplated by the Agreement and in order to induce Keystone to execute the Agreement and proceed to incur such expenses, the undersigned agrees and undertakes, in his or her capacity as a shareholder of River Financial and not in his or her capacity as a director of River Financial orMerger, TBI’s bank subsidiary, Trinity Bank, as follows:

1. a) The undersigned, while this letter agreement is in effect, shall vote or causeexpected to be voted all of the shares of River Financial Stock that the undersigned shall be entitled to so vote, whether such shares are beneficially owned by the undersigned on the date of this letter agreement or are subsequently acquired, whether pursuant to the exercise of stock options or otherwise, at the meeting of River Financial’s shareholders to be called and held following the date hereof, for the approval of the Agreement and the Merger. In addition, the undersigned shall vote the River Financial Stock against any Acquisition Proposal (as defined in the Agreement) or any amendment to River Financial’s articles of incorporation or bylaws or other proposal which would in any manner delay, impede, frustrate, prevent or nullify the Agreement or the Merger.

b) The undersigned hereby covenants and agrees that between the date hereof and the termination of this letter agreement pursuant to paragraph 5 below, the undersigned shall not transfer or offer to transfer or consent to any transfer of any or all of the River Financial Stock without the prior written consent of Keystone, grant any proxy, power-of-attorney or other authorization or consent with respect to any or all of the River Financial Stock or deposit any or all of the River Financial Stock with a voting trust or enter into a voting agreement respecting the River Financial Stock,provided that the undersigned may transfer any or all of the River Financial Stock to any member of the undersigned’s immediate family, or upon the death of the undersigned, as long as the tranferree agrees in writing, in form and substance reasonably satisfactory to Keystone, to be bound by all of the terms of this letter agreement.

c) The undersigned waives and agrees not to exercise any rights of appraisal.

2. The undersigned has had access, prior to the execution of this letter agreement, to the information the undersigned believes is needed and desired in connection with the evaluation of the Merger and has had, during the course of the transaction and prior to the execution of this letter agreement, the opportunity to ask questions of, and receive answers from, Keystone and each of its officers and legal counsel concerning Keystone’s business, management and financial affairs and the terms and conditions of the transactions contemplated by the Agreement and to review Keystone’s operations and business plan and to obtain additional information necessary to assess the transactions contemplated by this letter agreement and the Agreement.

A-67Annex A

Index to Financial Statements

3. The undersigned acknowledges and agrees that any remedy at law for breach of the foregoing provisions shall be inadequate and that, in addition to any other relief which may be available, Keystone shall be entitled to seek temporary and permanent injunctive relief.

4. The foregoing restrictions shall not apply to shares with respect to which the undersigned may have voting power as a fiduciary for others. In addition, this letter agreement shall only apply to actions taken by the undersigned in his or her capacity as a shareholder of River Financial and shall not in any way limit or affect actions the undersigned may take in his or her capacity as director of River Financial. Nothing in this letter agreement shall prevent the undersigned’s satisfaction of fiduciary duties as set forth in Section 6.1(i) of the Agreement, provided that the undersigned’s obligations hereunder shall not be affected by a Change in Recommendation (as defined in the Agreement) of the board of directors of River Financial as to the Merger.

5. This letter agreement shall automatically terminate upon the earlier of (i) termination of the Agreement in accordance with its terms, or (ii) consummation of the Merger.

6. This letter agreement (and any claims, causes of action or disputes that may be based upon, arise out of or relate hereto or thereto to the transactions contemplated hereby and thereby, to the negotiation, execution or performance hereof or thereof, or to the inducement of any party to enter herein and therein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall in all respects be governed by, and construed in accordance with the laws of the State of Alabama, including all matters of construction, validity and performance, in each case without reference to any conflict of law rules that might lead to the application of the laws of any other jurisdiction.

7. This letter agreement, together with the Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this letter agreement. This letter agreement is not intended to and does not confer upon any person other than the parties any legal or equitable rights or remedies. No representation, warranty, inducement, promise, understanding or condition not set forth in this letter agreement or the Agreement has been made or relied upon by any of the parties to this letter agreement.

8. Any provision of this letter agreement may be waived by the party benefited by the provision, but only in writing. The parties hereto may not amend or modify this letter agreement except in such manner as may be agreed upon by a written instrument executed by the parties hereto.

9. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof.

A-68Annex A

Index to Financial Statements

IN WITNESS WHEREOF, the undersigned has executed this letter agreement as of the date first above written.

Very truly yours,

Signature

Name (please print)

Accepted and agreed to as of

the date first above written.

KEYSTONE BANCSHARES, INC.

By:  

    Name:

    Title:

A-69Annex A

Index to Financial Statements

ANNEX B

ANNEX B

OPINION OF SANDLER O’NEILL + PARTNERS, LP

B-1Annex B

Index to Financial Statements

LOGO

May 12, 2015

Board of Directors

Keystone Bancshares, Inc.

2394 East University Drive

Auburn, AL 36830

Ladies and Gentlemen:

Keystone Bancshares, Inc. (“Keystone”) and River Financial Corporation (“River Financial”) intend to enter into an agreement and plan of merger (the “Agreement”) pursuant to which Keystone will mergemerged with and into River Financial (the “Merger”). Pursuant toBank & Trust, an Alabama state-chartered bank and wholly-owned subsidiary of RVRF.

In accordance with the terms of the merger, upon the effective date of the Merger,Agreement, each share of KeystoneTBI common stock issued and outstanding immediately prior to the Effective TimeDate shall becomecease to be outstanding and shall be converted into the right to receive: (i) 1.000$3.50 in cash and 0.44627 shares of RVRF common stock. Based on a cash value of $27.00 per whole share of River FinancialRVRF common stock, the total aggregate purchase consideration is $27.147 million (the “Stock Consideration”) and (ii) $4.00 in cash (the “Cash Consideration” and together with Stock Consideration, the “Merger Consideration”“Deal Value”). The other terms and conditions of the Merger are more fully set forth in the Agreement, and capitalized terms used herein without definition shall have the meanings assigned to them in the Agreement. You have1

TBI has requested that we render our opinion (the “Opinion”) to TBI’s board of directors as to the fairness, from a financial point of view, of the Merger ConsiderationDeal Value to be received by the holders of KeystoneTBI common stock.

Sandler O’Neill & Partners, L.P.,stock under the terms of the Agreement. PWC, as part of its investment banking business, is regularly engaged in the valuation of banks, bank holding companies and various other financial institutions and their securitiesservices companies in connection with mergers and acquisitions and valuations for corporate and other corporate transactions.purposes. In rendering this Opinion, we have acted on behalf of the board of directors of TBI and will receive a fee for this Opinion. We will also receive compensation for other advisory services related to the Merger which are not contingent upon the consummation of the Merger. TBI has also agreed to reimburse us for our reasonableout-of-pocket expenses and has agreed to indemnify us for certain liabilities arising out of our engagement by TBI in connection with this opinion,the Merger. During the past two years, we have reviewed,not provided advisory services to TBI or RVRF.

For purposes of this Opinion and in connection with our review of the proposed Merger, we have, among other things: (i) a draft of the Agreement, dated May 6, 2015; (ii) certain financial statements and other historical financial information of Keystone that we deemed relevant; (iii) certain financial statements and other historical financial information of River Financial that we deemed relevant; (iv) internal financial projections for Keystone for the years ending December 31, 2015 through December 31, 2017 as provided by the senior management of Keystone and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of Keystone; (v) internal financial estimates for River Financial for the years ending December 31, 2015 through December 31, 2017 as provided by the senior management of River Financial and an estimated long-term annual growth rate for the years thereafter as discussed with the senior management of River Financial and their financial advisor; (vi) the pro forma financial impact of the Merger on River Financial based on assumptions relating to transaction expenses, purchase accounting adjustments and cost savings as provided by the senior management of River Financial and its financial advisor; (vii) the pro forma financial impact of the Merger on River Financial based on the trading price for River Financial common stock, as mutually agreed upon and provided by the senior management of Keystone and River Financial; (viii) a comparison of certain financial and other information for Keystone and River Financial with similar publicly available information for certain other banking institutions, the securities of which are publicly traded; (ix) the terms and structures of other recent mergers and acquisition transactions in the banking sector; (x) the current market environment generally and in the banking sector in particular; and (xi) such other information, financial studies, analyses and investigations

LOGO

 

1.
B-2Annex B

Reviewed the terms of the Agreement;

Index to Financial Statements

2.

Participated in discussions with TBI management concerning TBI’s financial condition, asset quality and regulatory standing, capital position, historical and current earnings, and TBI’s future financial performance;

LOGO

1

This opinion was issued on June 4, 2019 and subsequently reissued solely to reflect an immaterial correction to the number of outstanding shares of TBI common stock and a corresponding increase in the Deal Value. The changes did not affect our analyses nor opinion.

15 Richard Arrington Jr Blvd N | Birmingham, AL 35203 | (205) 252-3681

Porter White Capital, LLC, Member FINRA

Page 2

 

3.

Participated in discussions with RVRF management concerning RVRF’s financial condition, asset quality and regulatory standing, capital position, historical and current earnings, and RVRF’s future financial performance;

and financial, economic and market criteria as we considered relevant. We also discussed with certain members of senior management of Keystone the business, financial condition, results of operations and prospects of Keystone and held similar discussions with the senior management of River Financial regarding the business, financial condition, results of operations and prospects of River Financial.

4.

Reviewed TBI’s or Trinity Bank’s audited financial statements for the years ended December 31, 2018, 2017, 2016 and 2015 and unaudited financial statements for the quarter ended March 31, 2019;

5.

Reviewed RVRF’s audited financial statements for the years ended December 31, 2018, 2017, 2016 and 2015 and unaudited financial statements for the quarter ended March 31, 2019;

6.

Reviewed certain financial forecasts and projections of TBI, prepared by its management;

7.

Reviewed certain financial forecasts and projections of RVRF, prepared by its management, as well as the estimated cost savings, revenue enhancements and related transaction expenses expected to result from the Merger;

8.

Analyzed certain aspects of TBI’s financial performance and condition and compared such financial performance with data of publicly-traded companies we deemed similar to TBI;

9.

Analyzed certain aspects of RVRF’s financial performance and condition and compared such financial performance with data of publicly-traded companies we deemed similar to RVRF;

10.

Compared the proposed financial terms of the Merger with the financial terms of certain other recent merger and acquisition transactions involving acquired companies that we deemed to be relevant to TBI; and

11.

Performed such other analyses and considered such other information, financial studies, investigations and financial, economic and market criteria as we deemed relevant.

In performinggiving our review,Opinion, we have assumed and relied, without independent verification, upon the accuracy and completeness of all of the financial and other information that was available to us from public sources, that washas been provided to us by KeystoneTBI, RVRF and River Financialtheir representatives and its financial advisor or that was otherwise reviewed by us and have assumed such accuracy and completeness for purposes of preparing this letter. We have further relied on the assurances of the management of Keystonepublicly available information for TBI and River FinancialRVRF that theywe reviewed. We are not aware of any facts or circumstances that would make any of such information inaccurate or misleadingexperts in any material respect. We did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Keystone or River Financial or any of their respective subsidiaries. With your consent, we did not make an independent evaluation of the trading price for River Financial common stock, as mutually agreed upon and provided by the senior management of Keystone and River Financial. We did not make an independent evaluation of the adequacy of the allowance for loan losses of Keystone and River Financial or the combined entity after the Merger and we have not reviewed any individual credit files relating to Keystone or River Financial. We have assumed, with your consent, that the respective allowances for loan losses and have not independently verified such allowances and have relied on and assumed that the aggregate allowances for both Keystone and River Financialloan losses set forth in the balance sheet of TBI or RVRF at March 31, 2019 are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used internal financial projectionscomplied fully with applicable law, regulatory policy and estimatessound banking practice as provided by the senior management of Keystone and River Financial, respectively, and an estimated long-term growth rate as discussed with the senior management of Keystone and River Financial, respectively, and River Financial’s financial advisor. Sandler O’Neill also received and used in its analyses certain assumptions of transaction costs, purchase accounting adjustments and expected cost savings which were provided by the senior management of River Financial and its financial advisor, as well as the trading price for River Financial common stock, as mutually agreed upon and provided by the senior management of Keystone and River Financial. With respect to those projections, estimates, assumptions and judgments, the respective managements of Keystone and River Financial confirmed to us that those projections, estimates, assumptions and judgments reflected the best currently available estimates, projections, assumptions and judgments of those respective managements of the futuredate of such financial performancestatements. We were not retained to, nor did we conduct a physical inspection of Keystone and River Financial, respectively, and we assumed that such performance would be achieved. We express no opinion as to such estimatesany of the properties or facilities of TBI or RVRF, did not make any independent evaluation or appraisal of the assumptions on which they are based. We have assumed that there has been no material change in the respective assets, financial condition, results of operations, businessliabilities or prospects of KeystoneTBI or RVRF, were not furnished with any such evaluation or appraisal, and River Financial since the date of the most recent financial data made available to us. We have also assumed in all respects material to our analysis that Keystone and River Financial would remain as a going concern for all periods relevant to our analyses. We express no opinion as todid not review any of the legal, accounting and tax matters relating to the Merger and any other transactions contemplated in connection therewith.

individual credit files. Our analyses and the views expressed herein areOpinion is necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to us, as of the date hereof. Events occurring afterWe express no opinion on matters of a legal, regulatory, tax or accounting nature or the date hereof could materially affectability of the Merger, as set forth in the Agreement, to be consummated. No opinion is expressed as to whether any alterative transaction might be more favorable to holders of TBI common stock than the Merger.

With respect to the financial projections for TBI and RVRF used by us in our views.analyses, managements of TBI and RVRF confirmed to us that those projections reflected their respective management’s best currently available estimates and judgments of the future financial performance of TBI and RVRF. We have not undertaken to update, revise, reaffirm or withdraw this letter or otherwise comment upon events occurring afterassumed that the date hereof.financial performance reflected in all projections and estimates used by us in our analyses would be achieved. We renderexpress no opinion as to such financial projections or estimates or the trading valuesassumptions on which they are based. We have also assumed that there has been no material change in the assets, financial condition, results of eachoperations, business or prospects of Keystone common stockTBI or RVRF since the date of the most recent financial statements made available to us, other than those changes which may have been provided by senior management of TBI and River Financial common stock at any time.RVRF. We have

 

B-3Annex B

Index15 Richard Arrington Jr Blvd N | Birmingham, AL 35203 | (205) 252-3681

Porter White Capital, LLC, Member FINRA

Page 3

assumed in all respects material to Financial Statements

LOGO

Weour analyses that TBI and RVRF will remain as going concerns for all periods relevant to our analyses, that all of the representations and warranties contained in the Agreement and all related agreements are true and correct, that each party to the agreements will perform all of the covenants required to be performed by such party under the agreements and that the conditions precedent in the agreements are not waived. Finally, with your consent, we have actedrelied upon the advice TBI received from its legal, accounting and tax advisors as Keystone’s financial advisor in connection withto all legal, accounting, regulatory and tax matters relating to the Merger and a significant portion of our fees are contingent upon the closing ofother transactions contemplated by the Merger. We also will receive a fee from Keystone for providing this opinion. Keystone has also agreed to indemnify us against certain liabilities arising out of our engagement.Agreement.

This letterOur Opinion as expressed herein is directed to the Board of Directors of Keystone in connection with its consideration of the Merger and does not constitute a recommendation to any shareholder of Keystone as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the Merger. Our opinion is directed onlylimited to the fairness, from a financial point of view, of the Merger ConsiderationDeal Value to be received by holders of KeystoneTBI common stock in connection with the Merger and does not address theTBI’s underlying business decision of Keystone to engage inproceed with the Merger, the relative meritsMerger. We have been retained on behalf of the Merger as comparedboard of directors of TBI and our Opinion does not constitute a recommendation to any other alternative business strategies that might exist for Keystone or the effectdirector of any other transaction in which Keystone might engage. This opinion shall not be reproduced or used for used for any other purposes, without Sandler O’Neill’s prior written consent. This Opinion has been approved by Sandler O’Neill’s fairness opinion committee. We do not express any opinionTBI as to how such director should vote with respect to the fairness ofAgreement. In rendering the Opinion, we express no opinions with respect to the amount or nature of theany compensation to be received in the Merger by Keystone’sany officers, directors or employees of TBI or any class of such persons relative to the compensationDeal Value to be received by the holders of TBI common stock in connection with the Merger or with respect to the fairness of any such compensation.

Except as provided in our financial advisory agreement dated April 24, 2019, this Opinion may not be disclosed, communicated, reproduced, disseminated, quoted or referred to at any time to any third party or in any manner or for any purpose whatsoever without our prior written consent. This letter is addressed and directed to the board of directors of TBI in its consideration of the Merger and is not intended to be and does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the Merger. The Opinion expressed herein is intended solely for the benefit of the board of directors of TBI and shareholders of TBI in connection with the matters addressed herein and may not be relied upon by any other shareholdersperson or entity or for any other purpose without our written consent. This Opinion was approved by principals of Keystone.PWC.

Based upon and subject to the foregoing, it is our opinion that as of the date hereof, the Merger ConsiderationDeal Value is fair to the holders of KeystoneTBI common stock from a financial point of view.

Very truly yours,

LOGOSincerely,

 

LOGO

Porter White Capital, LLC

 

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15 Richard Arrington Jr Blvd N | Birmingham, AL 35203 | (205) 252-3681

Porter White Capital, LLC, Member FINRA

ANNEX C

ANNEX C

OPINION OF STEPHENS INC.

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May 12, 2015

Board of Directors

River Financial Corporation

2611 Legends Drive

Prattville, Alabama 36066

MembersArticle 13 of the Board:Alabama Business Corporation Law

You have engaged us as a financial advisor in connection with the proposed merger of Keystone Bancshares, Inc. (the “Target”) with and into River Financial Corporation (the “Company”) (collectively, the “Transaction”), and you have requested our opinion (the “Opinion”) as to the fairness to the Company from a financial point of view of the Exchange Ratio. The terms and conditions of the Transaction are more fully set forth in an Agreement and Plan of Merger (the “Agreement”) expected to be dated May 13, 2015. Pursuant to the Agreement and for purposes of our Opinion, we have assumed that each share of common stock of the Target will be exchanged for 1.0 share of common stock of the Company and $4.00 Dollars in cash (the “Exchange Ratio”).

In connection with rendering our Opinion we have:

i.analyzed certain audited financial statements and management reports regarding the Company and the Target;

ii.analyzed certain internal financial statements and other financial and operating data (including financial projections for fiscal years 2015-2019) concerning the Company prepared by management of the Company;

iii.analyzed certain internal financial statements and other financial and operating data (including financial projections for fiscal years 2015-2017) concerning the Target prepared by management of the Target;

iv.reviewed the forecasted potential future cash flows of the Company and Target, including the excess capital available for distribution, as prepared by the Company and Target’s managements, respectively, and performed a discounted cash flow analysis utilizing these management assumptions and forecasts;

v.compared the financial contribution of each the Company and the Target of certain historical and projected financial information to the pro forma entity created by the Transaction relative the Exchange Ratio and each institutions’ pro forma ownership;

vi.compared the net present values based on the standalone discounted cash flow analyses of the Company and the Target relative to the Exchange Ratio;

vii.reviewed the financial terms, to the extent publicly available, of certain merger or acquisition transactions that we deemed relevant to our analysis of the Transaction;

viii.analyzed the Exchange Ratio relative to the Target’s tangible book value, last twelve months earnings and core deposits as of March 31, 2015;

ix.analyzed, on a pro forma basis, the impact of the Transaction on certain balance sheet, income statement and capitalization ratios of the Company;

x.analyzed, on a pro forma basis, the impact of the Transaction on the forecasted earnings per share, dividends per share, tangible book value per share and net present value per share of each the Company and the Target for the projected fiscal years ending December 31, 2015 - 2019;

xi.reviewed the most recent draft of the Agreement and related documents provided to us by the Company;

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xii.discussed with the management and board of directors of the Company the operations of and future business prospects for the Company and the Target and the anticipated financial consequences of the Transaction to the Company and the Target;

xiii.assisted in your deliberations regarding the material terms of the Transaction and your negotiations with Target; and

xiv.performed such other analyses and provided such other services as we have deemed appropriate.

We have relied on the accuracy and completeness of the information and financial data provided to us by the Company and the Target and of the other information reviewed by us in connection with the preparation of our Opinion, and our Opinion is based upon such information. We have not independently verified the accuracy or completeness of the information and financial data on which our Opinion is based. The management of the Company has assured us that they are not aware of any relevant information that has been omitted or remains undisclosed to us. We have not assumed any responsibility for making or undertaking an independent evaluation or appraisal of any of the assets or liabilities of the Company or of the Target, nor have we evaluated the solvency or fair value of the Company or of the Target under any laws relating to bankruptcy, insolvency or similar matters. In addition, we have not received or reviewed any individual credit files nor have we made an evaluation of the adequacy of the allowance for loan losses of the Company or the Target. We have not assumed any obligation to conduct any physical inspection of the properties or facilities of the Company or of the Target. With respect to the financial forecasts prepared by the management of the Company and the Target, respectively, we have assumed that such financial forecasts have been reasonably prepared and reflect the best currently available estimates and judgments of the managements of the Company and the Target as to the future financial performance of the Company and the Target and that the financial results reflected by such projections will be realized as predicted. We have also assumed that the representations and warranties contained in the Agreement and all related documents are true, correct and complete in all material respects.

As part of our investment banking business, we regularly issue fairness opinions and are continually engaged in the valuation of companies and their securities in connection with business reorganizations, private placements, negotiated underwritings, mergers and acquisitions and valuations for estate, corporate and other purposes. During the two years preceding the date of this letter, we have not received any investment banking fees from the Company or the Target. We are serving as financial adviser to the Company in connection with the Transaction, and are entitled to receive from the Company reimbursement of our expenses and a fee for our services as financial adviser to the Company, a significant portion of which is contingent upon the consummation of the Transaction. We are also entitled to receive a fee from the Company for providing our Opinion to the Company. The Company has also agreed to indemnify us for certain liabilities arising out of our engagement, including certain liabilities that could arise out of our providing this Opinion letter. In the ordinary course of business, Stephens Inc. and its affiliates at any time may hold long or short positions, and may trade or otherwise effect transactions as principal or for the accounts of customers, in debt or equity securities or options on securities of the Company or of any other participant in the Transaction.

We are not legal, accounting, regulatory or tax experts and we have relied solely, and without independent verification, on the assessments of the Company and its other advisors with respect to such matters. We have assumed, with your consent, that the Transaction will not result in any materially adverse legal, accounting, regulatory or tax consequences for the Company or the shareholders.

Our Opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to us as of, the date hereof. It should be understood that subsequent developments may affect this Opinion and that we do not have any obligation to update, revise or reaffirm this Opinion. We have assumed that the Transaction will be consummated on the terms of the latest draft of the Agreement provided to us, without material waiver or modification. We have assumed that in the course of obtaining the necessary regulatory, lending or other consents or approvals (contractual or otherwise) for the

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Transaction, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that would have a material adverse effect on the contemplated benefits of the Transaction to the Company or the shareholders.

This Opinion is for the use and benefit of the Board of Directors of the Company for the purposes of its evaluation of the Transaction. Our Opinion does not address the merits of the underlying decision by the Company to engage in the Transaction, the merits of the Transaction as compared to other alternatives potentially available to the Company or the relative effects of any alternative transaction in which the Company might engage, nor is it intended to be a recommendation to any person as to any specific action that should be taken in connection with the Transaction. This Opinion is not intended to confer any rights or remedies upon any other person. In addition, except as explicitly set forth in this letter, you have not asked us to address, and this Opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company. We have not been asked to express any opinion, and do not express any opinion, as to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or to any group of such officers, directors or employees, relative to the compensation to shareholders of the Company. Our fairness opinion committee has approved the Opinion set forth in this letter. Neither this Opinion nor its substance may be disclosed by you to anyone other than your advisors without our written permission. Notwithstanding the foregoing, this Opinion and a summary discussion of our underlying analyses and role as financial adviser to the Company may be included in communications to Stockholders of the Company, provided that we approve of the content of such disclosures prior to any filing, distribution or publication of such communications.

Based upon the foregoing and our general experience as investment bankers, and subject to the assumptions and qualifications stated herein, it is our opinion that the Exchange Ratio in the Transaction is fair to them from a financial point of view.

Very truly yours,
STEPHENS INC.

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ANNEX DAla. Code §§10A-2-13.01 –10A-2-13.32

ANNEX DDivision A: Right to Dissent and Obtain Payment for Shares

CODE OF ALABAMA

TITLE 10A. ALABAMA BUSINESS AND NONPROFIT ENTITIES CODE.

CHAPTER 2. BUSINESS CORPORATIONS.

ARTICLE 13. DISSENTERS’ RIGHTS.

DIVISION A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES.

§ 10A-2-13.01.Section 10A-2-13.01: Definitions.

(1) “Corporate action” means the filing of articles of merger or share exchange by the judge of probate or Secretary of State, or other action giving legal effect to a transaction that is the subject of dissenters’ rights.

(2) “Corporation” means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer.

(3) “Dissenter” means a shareholder who is entitled to dissent from corporate action underSection 10A-2-13.02 and who exercises that right when and in the manner required by Sections10A-2-13.20 through10A-2-13.28.

(4) “Fair Value,” with respect to a dissenter’s shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable.

(5) “Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans, or, if none, at a rate that is fair and equitable under all circumstances.

(6) “Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.

(7) “Beneficial shareholder” means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder.

(8) “Shareholder” means the record shareholder or the beneficial shareholder.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.02.10-2B-13.01; amended and renumbered by Act2009-513, p. 967, §139.)

Section 10A-2-13.02 Right to dissent.

(a) A shareholder is entitled to dissent from, and obtain payment of the fair value of his or her shares in the event of, any of the following corporate actions:

(1) Consummation of a plan of merger to which the corporation is a party (i) if shareholder approval is required for the merger bySection 10A-2-11.03 or the articles of incorporation and the shareholder is entitled to vote on the merger or (ii) if the corporation is a subsidiary that is merged with its parent underSection 10A-2-11.04;

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(2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan;

(3) Consummation of a sale or exchange by all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale;

(4) To the extent that the articles of incorporation of the corporation so provide, an amendment of the articles of incorporation that materially and adversely affects rights in respect to a dissenter’s shares because it:

(i) Alters or abolishes a preferential right of the shares;

(ii) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase of the shares;

(iii) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;

(iv) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or

(v) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash underSection 10A-2-6.04; or

(5) Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares.

(b) A shareholder entitled to dissent and obtain payment for shares under this chapter may not challenge the corporate action creating his or her entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.03.10-2B-13.02; amended and renumbered by Act2009-513, p. 967, §139.)

Section 10A-2-13.03: Dissent by nominees and beneficial owners.

(a) A record shareholder may assert dissenters’ rights as to fewer than all of the shares registered in his or her name only if he or she dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he or she asserts dissenters’ rights. The rights of a partial dissenter under this subsection are determined as if the shares to which he or she dissents and his or her other shares were registered in the names of different shareholders.

(b) A beneficial shareholder may assert dissenters’ rights as to shares held on his or her behalf only if:

(1) He or she submits to the corporation the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights; and

(2) He or she does so with respect to all shares of which he or she is the beneficial shareholder or over which he or she has power to direct the vote.

(Acts 1994,No. 94-245, p. 343, §1;§10-2B-13.03; amended and renumbered by Act2009-513, p. 967, §139.)

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DIVISION B. PROCEDURE FOR EXERCISE OF DISSENTERS’ RIGHTS.Division B: Procedure for Exercise of Dissenters’ Rights.

§ 10A-2-13.20.Section 10A-2-13.20: Notice of dissenters’ rights.

(a) If proposed corporate action creating dissenters’ rights underSection 10A-2-13.02 is submitted to a vote at a shareholders’ meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters’ rights under this article and be accompanied by a copy of this article.

(b) If corporate action creating dissenters’ rights underSection 10A-2-13.02 is taken without a vote of shareholders, the corporation shall (1) notify in writing all shareholders entitled to assert dissenters’ rights that the action was taken; and (2) send them the dissenters’ notice described inSection 10A-2-13.22.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.21.10-2B-13.20; amended and renumbered by Act2009-513, p. 967, §141.)

Section 10A-2-13.21: Notice of intent to demand payment.

(a) If proposed corporate action creating dissenters’ rights underSection 10A-2-13.02 is submitted to a vote at a shareholder’s meeting, a shareholder who wishes to assert dissenters’ rights (1) must deliver to the corporation before the vote is taken written notice of his or her intent to demand payment or his or her shares if the proposed action is effectuated; and (2) must not vote his or her shares in favor of the proposed action.

(b) A shareholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his or her shares under this article.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.22.10-2B-13.21; amended and renumbered by Act2009-513, p. 967, §141.)

Section 10A-2-13.22: Dissenters’ notice.

(a) If proposed corporate action creating dissenters’ rights underSection 10A-2-13.02 is authorized at a shareholders’ meeting, the corporation shall deliver a written dissenters’ notice to all shareholders who satisfied the requirements ofSection 10A-2-13.21.

(b) The dissenters’ notice must be sent no later than 10 days after the corporate action was taken, and must:

(1) State where the payment demand must be sent;

(2) Inform holders of shares to what extent transfer of the shares will be restricted after the payment demand is received;

(3) Supply a form for demanding payment;

(4) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 nor more than 60 days after the date the subsection (a) notice is delivered; and

(5) Be accompanied by a copy of this article.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.23.10-2B-13.22; amended and renumbered by Act2009-513, p. 967, §141.)

Section 10A-2-13.23: Duty to demand payment.

(a) A shareholder sent a dissenters’ notice described inSection 10A-2-13.22 must demand payment in accordance with the terms of the dissenters’ notice.

(b) The shareholder who demands payment retains all other rights of a shareholder until those rights are canceled or modified by the taking of the proposed corporate action.

(c) A shareholder who does not demand payment by the date set in the dissenters’ notice is not entitled to payment for his or her shares under this article.

(d) A shareholder who demands payment under subsection (a) may not thereafter withdraw that demand and accept the terms offered under the proposed corporate action unless the corporation shall consent thereto.

(Acts 1994,No. 94-245, p. 343, §1;§10-2B-13.23; amended and renumbered by Act2009-513, p. 967, §141.)

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§ 10A-2-13.24.Section 10A-2-13.24: Share restriction.

(a) Within 20 days after making a formal payment demand, each shareholder demanding payment shall submit the certificate or certificates representing his or her shares to the corporation for (1) notation thereon by the corporation that the demand has been made and (2) return to the shareholder by the corporation.

(b) The failure to submit his or her shares for notation shall, at the option of the corporation, terminate the shareholders’ rights under this article unless a court of competent jurisdiction, for good and sufficient cause, shall otherwise direct.

(c) If shares represented by a certificate on which notation has been made shall be transferred, each new certificate issued therefor shall bear similar notation, together with the name of the original dissenting holder of the shares.

(d) A transferee of the shares shall acquire by the transfer no rights in the corporation other than those which the original dissenting shareholder had after making demand for payment of the fair value thereof.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.25.10-2B-13.24; amended and renumbered by Act2009-513, p. 967, §141.)

Section 10A-2-13.25: Offer of payment.

(a) As soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall offer to pay each dissenter who complied withSection 10A-2-13.23 the amount the corporation estimates to be the fair value of his or her shares, plus accrued interest.

(b) The offer of payment must be accompanied by:

(1) The corporation’s balance sheet as of the end of a fiscal year ending not more than 16 months before the date of the offer, an income statement for that year, and the latest available interim financial statements, if any;

(2) A statement of the corporation’s estimate of the fair value of the shares;

(3) An explanation of how the interest was calculated;

(4) A statement of the dissenter’s right to demand payment underSection 10A-2-13.28; and

(5) A copy of this article.

(c) Each dissenter who agrees to accept the corporation’s offer of payment in full satisfaction of his or her demand must surrender to the corporation the certificate or certificates representing his or her shares in accordance with terms of the dissenters’ notice. Upon receiving the certificate or certificates, the corporation shall pay each dissenter the fair value of his or her shares, plus accrued interest, as provided in subsection (a). Upon receiving payment, a dissenting shareholder ceases to have any interest in the shares.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.26.10-2B-13.25; amended and renumbered by Act2009-513, p. 967, §141.)

Section 10A-2-13.26: Failure to take corporate action.

(a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment, the corporation shall release the transfer restrictions imposed on shares.

(b) If, after releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters’ notice underSection 10A-2-13.22 and repeat the payment demand procedure.

(Acts 1994,No. 94-245, p. 343, §1;§10-2B-13.26; amended and renumbered by Act2009-513, p. 967, §141.)

Section 10A-2-13.27: Reserved.

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Reserved.

§ 10A-2-13.28.

Section 10A-2-13.28: Procedure if shareholder dissatisfied with offer to payment.

(a) A dissenter may notify the corporation in writing of his or her own estimate of the fair value of his or her shares and amount of interest due, and demand payment of his or her estimate, or reject the corporation’s offer underSection 10A-2-13.25 and demand payment of the fair value of his or her shares and interest due, if:

(1) The dissenter believes that the amount offered underSection 10A-2-13.25 is less than the fair value of his or her shares or that the interest due is incorrectly calculated;

(2) The corporation fails to make an offer underSection 10A-2-13.25 within 60 days after the date set for demanding payment; or

(3) The corporation, having failed to take the proposed action, does not release the transfer restrictions imposed on shares within 60 days after the date set for demanding payment.

(b) A dissenter waives his or her right to demand payment under this section unless he or she notifies the corporation of his or her demand in writing under subsection (a) within 30 days after the corporation offered payment for his or her shares.

DIVISION C. JUDICIAL APPRAISAL OF SHARES.(Acts 1994,No. 94-245, p. 343, §1;§10-2B-13.28; amended and renumbered by Act2009-513, p. 967, §141.)

§ 10A-2-13.30.Division C: Judicial Appraisal of Shares.

Section 10A-2-13.30: Court action.

(a) If a demand for payment underSection 10A-2-13.28 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.

(b) The corporation shall commence the proceeding in the circuit court of the county where the corporation’s principal office, or, if none in this state, its registered office, is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.

(c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding as in an action against their shares, and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided under the Alabama Rules of Civil Procedure.

(d) After service is completed, the corporation shall deposit with the clerk of the court an amount sufficient to pay unsettled claims of all dissenters party to the action in an amount per share equal to its prior estimate of fair value, plus accrued interest, underSection 10A-2-13.25.

(e) The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.

(f) Each dissenter made a party to the proceeding is entitled to judgment for the amount the court finds to be the fair value of his or her shares, plus accrued interest. If the court’s determination as to the fair value of a dissenter’s shares, plus accrued interest, is higher than the amount estimated by the corporation and deposited with the clerk of the court pursuant to subsection (d), the corporation shall pay the excess to the dissenting

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shareholder. If the court’s determination as to fair value, plus accrued interest, of a dissenter’s shares is less than

the amount estimated by the corporation and deposited with the clerk of the court pursuant to subsection (d), then the clerk shall return the balance of funds deposited, less any costs underSection 10A-2-13.31, to the corporation.

(g) Upon payment of the judgment, and surrender to the corporation of the certificate or certificates representing the appraised shares, a dissenting shareholder ceases to have any interest in the shares.

(Acts 1994,No. 94-245, p. 343, §1; ;§ 10A-2-13.31.10-2B-13.30; amended and renumbered by Act2009-513, p. 967, §143.)

Section 10A-2-13.31: Court costs and counsel fees.

(a) The court in an appraisal proceeding commenced underSection 10A-2-13.30 shall determine all costs of the proceeding, including compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment underSection 10A-2-13.28.

(b) The court may also assess the reasonable fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:

(1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Sections10A-2-13.20 through10A-2-13.28; or

(2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter.

(c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefitted.

(Acts 1994,No. 94-245, p. 343, §1;§ 10A-2-13.32.10-2B-13.31; amended and renumbered by Act2009-513, p. 967, §143.)

Section 10A-2-13.32: Status of shares after payment.

Shares acquired by a corporation pursuant to payment of the agreed value therefor or to payment of the judgment entered therefor, as in this chapter provided, may be held and disposed of by the corporation as in the case of other treasury shares, except that, in the case of a merger or share exchange, they may be held and disposed of as the plan of merger or share exchange may otherwise provide.

(Acts 1994,No. 94-245, p. 343, §1;§10-2B-13.32; amended and renumbered by Act2009-513, p. 967, §143.)

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ANNEX E

ANNEX E

2015 Incentive Stock Compensation Plan

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RIVER FINANCIAL CORPORATION

2015 INCENTIVE STOCK COMPENSATION PLAN

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RIVER FINANCIAL CORPORATION

2015 INCENTIVE STOCK COMPENSATION PLAN

This 2015 Incentive Stock Compensation Plan is adopted of the 12th day of May, 2015, by River Financial Corporation, an Alabama corporation.

ARTICLE I

PURPOSE, SCOPE AND ADMINISTRATION OF THE PLAN

Section 1.01Purpose.The purpose of the Plan is to promote the long-term success of the Company by providing financial incentives to eligible persons who are in positions to make significant contributions toward such success. The Plan is designed to attract individuals of outstanding ability to employment with the Company, to encourage such persons to acquire a proprietary interest in the Company, and to render superior performance for the Company

Section 1.02Definitions.Unless the context clearly indicates otherwise, for purposes of the Plan the following terms have the respective meanings set forth below:

(a) “Affiliate” means a corporation or other entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with, River Financial Corporation.

(b) “Award” means the grant of Options, SARs, Restricted Stock or RSUs.

(c) “Award Agreement” means the agreement between the Company and a Grantee under which the Grantee is granted an Award pursuant to the Plan.

(d) “Board of Directors” means the Board of Directors of River Financial Corporation.

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Committee” means the Compensation Committee of the Board of Directors (or any successor committee thereto), which committee shall be composed of not less than two members of the Board of Directors, or in the absence of such Committee, the full Board of Directors.

(g) “Common Stock” means the common stock of River Financial Corporation, par value $1.00 per share, or such other class of shares or other securities to which the provisions of the Plan may be applicable by reason of the operation of Section 4.01.

(h) “Company” means River Financial Corporation, an Alabama corporation, and its majority owned subsidiaries including subsidiaries which become such after the date of adoption of the Plan.

(i) “Disability,” as applied to a Grantee, means that the Grantee (1) has established to the satisfaction of the Committee that the Grantee is disabled as defined by any applicable policy of the Company or standard determined by the Committee, and (2) has satisfied any requirement imposed by the Committee in regard to evidence of such disability.

(j) “Fair Market Value” of a share of Common Stock on any particular date means the average between the bid and ask prices quoted on such date by the National Daily Quotation Service, or on the National Association of Securities Dealers Automated Quotation System (the “NASDAQ”), or a registered securities exchange, if listed thereon. In the event that both bid and ask prices are not so quoted, then the Fair Market Value shall be the bid price determined by the National Association of Securities Dealers, Inc. (the “NASD”) local quotations

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committee as most recently published in a daily newspaper of general circulation in Autauga County, Alabama. In the event that no such bid price is published, then Fair Market Value shall be the fair market value as determined by the Board of Directors in good faith by the reasonable application of a reasonable valuation method and in accordance with Section 409A of the Code and the regulations and guidance thereunder.

(k) “Grant Date,” as used with respect to a particular Award means the date as of which such Award is granted by the Committee pursuant to the Plan.

(l) “Grantee” means the person to whom an Award is granted by the Committee pursuant to the Plan.

(m) “Incentive Stock Option” means an Option that qualifies as an incentive stock option as described in Section 422(b) of the Code.

(n) “Non-Qualified Stock Option” means any Option granted under this Plan, other than an Incentive Stock Option.

(o) “Option” means an option granted by the Committee pursuant to Sections 2.01, 2.02 or 2.03 of the Plan to purchase shares of Common Stock, which shall be designated at the time of grant as either an Incentive Stock Option or a Non-Qualified Stock Option, as provided in Section 2.01.

(p) “Option Period” means the period fixed by the Committee during which an Option may be exercised, provided that no Option shall, under any circumstances, be exercisable more than ten years after the Grant Date.

(q) “Plan” means the River Financial Corporation 2015 Incentive Stock Compensation Plan as set forth herein and as amended from time to time.

(r) “Restricted Stock” means shares of Common Stock, subject to certain restrictions, granted pursuant to Section 2.04(b) of the Plan.

(s) “Restricted Stock Unit” or “RSU” means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions granted pursuant to Section 2.04(c) of the Plan.

(t) “Retirement,” as applied to a Grantee, means the Grantee’s termination of employment in a manner which qualifies the Grantee to receive immediately payable retirement benefits under any retirement plan hereafter adopted by the Company, or which in the absence of any such retirement plan, is determined by the Committee to constitute retirement.

(u) “SAR” means a stock appreciation right granted pursuant to Section 2.04(a) of the Plan.

(v) “Section 409” means Section 409A of the Code, and the regulations and guidance thereunder.

Section 1.03Shares Available Under the Plan.

(a) The number of shares of Common Stock with respect to which Awards may be granted shall be 300,000 shares of Common Stock, subject to adjustment in accordance with the remaining provisions of this Section and the provisions of Section 4.01. The maximum number of shares of Common Stock that may be issued upon the exercise of Options intended to qualify as Incentive Stock Options under Section 422 of the Code shall be 300,000 shares. The maximum number of shares with respect to which an Award, including Options and SARs, may be granted to a single Grantee during any Company fiscal year may not exceed 40,000.

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(b) Any shares of Common Stock subject to an Award that is subsequently canceled, forfeited, or expires prior to exercise or realization, whether in full or in part, shall be available again for issuance or delivery under the Plan. If an Award, by its terms, may only be settled in cash, then the grant, vesting, payout, settlement, or forfeiture of such Award shall have no impact on the number of shares available for grant under the Plan.

(c) Any shares of Common Stock to be delivered by the Company pursuant to any Award may, at the discretion of the Board of Directors, be issued from the Company’s authorized but unissued shares of Common Stock, from any available treasury stock or from shares which have been made available under Section 1.03(b).

Section 1.04Administration of the Plan.

(a) Except as provided in Section 1.04(c), the Plan shall be administered by the Committee which shall have the authority to:

(i)Determine those persons to whom, and the times at which, Awards shall be granted and the number of shares of Common Stock to be subject to each such Award, taking into consideration (A) the nature of the services rendered by the particular person; (B) the person’s potential contribution to the long term success of the Company; and (C) such other factors as the Committee in its discretion shall deem relevant;

(ii)Interpret and construe the provisions of the Plan and to establish rules and regulations relating to it;

(iii)Prescribe the terms and conditions of the Award Agreements for the grant of Awards (which need not be identical) in accordance and consistent with the requirements of the Plan;

(iv)Amend the terms of outstanding Awards, including allowing adjustments to the duration of the Option Period, vesting requirements or other requirements related to such Awards;

(v)Determine, and certify, the satisfaction by a Grantee of any performance goals applicable to an Award; and

(vi)Make all other determinations necessary or advisable to administer the Plan in a proper and effective manner.

(b) All decisions and determinations of the Committee in the administration of the Plan and in response to questions or in connection with other matters concerning the Plan or any Award shall (whether or not so stated in the particular instance in the Plan) be final, conclusive, and binding on all persons, including, without limitation, the Company, the shareholders and directors of the Company, and any persons having any interest in any Awards which may be granted under the Plan.

(c) In all cases in which the Committee is authorized or directed pursuant to the Plan to take action, such action may be taken by the Board of Directors as a whole. It is the intention of the Plan that the Committee may be appointed by the Board of Directors for convenience and efficiency of administration and to satisfy any applicable provision of law.

Section 1.05Eligibility for Awards.The Committee shall designate, from time to time, the employees of the Company who are to be granted Awards. All salaried employees of the Company are eligible to participate.

Section 1.06Effective Date of Plan.Subject to the receipt of all required regulatory approvals, the Plan shall become effective upon its adoption by the Board of Directors, provided that any grant of Incentive Stock Options under the Plan prior to approval of the Plan by the shareholders of the Company is subject to such shareholder approval within twelve months of adoption of the Plan by the Board of Directors.

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ARTICLE II

AWARDS

Section 2.01Grant of Options.

(a) The Committee may, from time to time and subject to the provisions of the Plan, grant Options to employees under appropriate Award Agreements to purchase shares of Common Stock.

(b) The Committee may designate any Option which satisfies the requirements of Section 422 of the Code and Section 2.03 of the Plan as an Incentive Stock Option and may designate any other Option granted hereunder as a Non-Qualified Stock Option, or the Committee may designate a portion of an Option as an Incentive Stock Option (so long as that portion satisfies the requirements of Section 2.03) and the remaining portion as a Non-Qualified Stock Option. Any portion of an Option that is not designated as an Incentive Stock Option shall be a Non-Qualified Stock Option. A Non-Qualified Stock Option must satisfy the requirements of Section 2.02 of the Plan, but shall not be subject to the requirements of Section 2.03.

Section 2.02Option Requirements.

(a) An Option shall be evidenced by an Award Agreement specifying the number of shares of Common Stock that may be purchased upon its exercise and containing such terms and conditions not inconsistent with the Plan and based on such factors as the Committee shall determine, in its sole discretion, to be applicable to that particular Option.

(b) An Option shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee and stated in the Award Agreement.

(c) An Option shall expire by its terms at the expiration of the Option Period and shall not be exercisable thereafter.

(d) The Committee may specify in the Award Agreement the basis for the expiration or termination of the Option prior to the expiration of the Option Period.

(e) The Option price per share of Common Stock shall not be less than 100% of the Fair Market Value of a share of Common Stock on the Grant Date.

(f) Unless otherwise provide in an Award Agreement, an Option shall not be transferable other than by testamentary disposition or the laws of descent and distribution and shall be exercisable during the lifetime of the Grantee only by the Grantee, or in the event of the Grantee’s Disability and the Option remains exercisable, by his or her duly appointed guardian or other legal representative.

(g) A person electing to exercise an Option shall give written notice of such election to the Company in such form as the Committee may require, accompanied by payment in cash or in such other manner as may be approved by the Committee in an amount equal to the full purchase price of the shares of Common Stock for which the election is made. If permitted by the Committee, in its sole discretion, whether before or after the Grant Date, payment in full or in part may be made in the form of unrestricted Common Stock already owned by the Grantee or, except in the case of Incentive Stock Options, in the form of a withholding of sufficient shares of Common Stock otherwise issuable upon the exercise of the Option to constitute payment of the purchase price based, in each case, on the Fair Market Value of the Common Stock on the date the Option is exercised;provided that an election to make such payment in Common Stock or to have shares so withheld, in addition to being subject to the approval of the Committee, shall be irrevocable.

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Section 2.03Incentive Stock Option Requirements.

(a) Notwithstanding anything in the Plan or Award Agreement to the contrary, the following additional provisions in this Section 2.03 shall apply to the grant of stock options that are intended to qualify as Incentive Stock Options.

(b) Any Award Agreement reflecting the grant of an Incentive Stock Option under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain or be deemed to contain all provisions required in order to qualify the options as incentive stock options under Section 422 of the Code.

(c) All Incentive Stock Options must be granted within ten years from the date on which this Plan is adopted by the Board.

(d) No Incentive Stock Options shall be granted to any non-employee or to any participant who, at the time such option is granted, would own (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation, unless the Committee provides in the Award Agreement with any such individual that the Option price per share of Common Stock will not be less than 110% of the Fair Market Value of a share of Common Stock on the Grant Date and that the Option Period will not extend beyond five (5) years from the Grant Date.

(e) The aggregate Fair Market Value (determined with respect to each Incentive Stock Option as of the time such Incentive Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under the Plan or any other plan of the Company) shall not exceed $100,000. To the extent that such limitation is exceeded, the excess Options shall be treated as Non-Qualified Stock Options for federal income tax purposes.

(f) Notwithstanding anything in this Plan or the applicable Award Agreement to the contrary, the Company shall have no liability to the Grantee or any other person if an Option designated as an incentive stock option fails to qualify as such at any time.

Section 2.04Other Awards.

(a)SARs. The Company may grant stock appreciation rights subject to the provisions of this Plan and the applicable Award Agreement. A SAR shall constitute the right of the Grantee to receive an amount equal to the appreciation, if any, in the Fair Market Value of a share of Common Stock from the Grant Date of such right to the date of payment. Upon exercise of the SAR, the Company shall pay such amount in cash or shares of Common Stock of equivalent value or in some combination thereof (as determined by the Committee) as soon as practicable after the date on which such election is made in accordance with the Award Agreement evidencing the SAR. Compensation payable under the SAR shall not in any case be greater than the excess of the Fair Market Value of the Common Stock on the date the SAR is exercised over an amount specified on the Grant Date of the SAR (the SAR exercise price), with respect to a number of shares fixed on or before the Grant Date of the right. The SAR exercise price shall never be less than the Fair Market Value of the underlying Common Stock on the Grant Date of the SAR; and the SAR shall not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the SAR.

(b)Restricted Stock. The Company may grant shares of restricted Common Stock (“Restricted Stock”) under the Plan, subject to the provisions of this Plan and the applicable Award Agreement. Restricted Stock shall be subject to such vesting, forfeiture provisions and such other restrictive terms and conditions as may be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement and shall not be transferable until all such restrictions and conditions (other than securities law restrictions) have been

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satisfied. Restricted Stock shall be issued and delivered at the time of grant or at such other time as is determined by the Committee. Certificates evidencing shares of Restricted Stock shall bear a restrictive legend referencing the risk of forfeiture and the non-transferability of such shares. The Committee may, in its sole discretion, require the automatic deferral of dividends or reinvestment of dividends for the purchase of additional shares of Restricted Stock. During the period of restriction as set forth in the Award Agreement, the Participant owning shares of Restricted Stock may exercise full voting rights with respect to such shares.

(c)Restricted Stock Units. A restricted stock unit, or RSU, represents the right to receive from the Company on the respective scheduled vesting or settlement date for such RSU, one share of Common Stock. Restricted Stock Units shall be subject to such vesting, forfeiture provisions and such other restrictive terms and conditions as may be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement, including the right of the Grantee to dividend equivalents. RSUs shall not be transferable and a Grantee receiving RSUs shall have no rights as a shareholder with respect to the shares of Common Stock underlying such RSUs until such time as shares of Common Stock are issued to the Grantee.

(d)Performance Goals. In the case of Awards of Restricted Stock or RSUs that are intended to satisfy Code Section 162(m) and that are granted to participants who are “covered employees” under Code Section 162(m)(3), the applicable pre-established, objective performance goals are limited to one or more of the following: (i) interest income or interest income growth; (ii) net interest income or net interest income growth; (iii) net interest margin or net interest margin improvements; (iv) non-interest income or non-interest income growth; (v) reductions in non-interest expenses or improvement in the Company’s efficiency ratio; (vi) reductions in non-accrual loans or other problem assets; (vii) earnings before income taxes; (viii) net income; (ix) per share earnings; (x) increases in core deposits, either in absolute dollars or as a percentage of total deposits, or both; (xi) return on average equity; (xii) total stockholder return; (xiii) share price performance; (xiv) return on average assets or on various categories of assets; (xv) comparisons of selected Company performance metrics, including any of the metrics set forth in the preceding clauses, to the comparable metrics of a selected peer group of banking institutions or a stock index, as applicable; (xvi) individualized business or performance objectives established for the Grantee, or (xvii) any combination of the foregoing. The goals will state, in an objective formula or standards, the method for computing the amount of compensation payable if the goals are attained. The objective formula or standard will preclude discretion to increase the amount of compensation payable that would otherwise be due upon attainment of the goals. Such goals shall be pre-established by the Committee not later than ninety (90) days after the commencement of the performance period, provided the outcome is substantially uncertain at the time the goals are established and provided that the goals are established before 25 percent of the performance period has elapsed.

ARTICLE III

CHANGE OF CONTROL PROVISIONS

Section 3.01Change of Control.The following provisions shall apply in the event of a “Change of Control,” as defined in this Article III:

(a) In the event of a “Change of Control,” as defined in Section 3.01(b) below, unless otherwise specifically prohibited under applicable laws or by the rules and regulations of any governing governmental agency or as otherwise determined by the Committee in writing at or after the grant of awards hereunder, but prior to the occurrence of such Change of Control:

(i)any Awards awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested; and

(ii)

at the discretion of the Committee, the value of all outstanding Awards shall, to the extent determined by the Committee, be cashed out on the basis of the “Change of Control Price” (as defined in Section 3.01(d) below) as of the date the Change of Control occurs or such other date as the Committee

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may determine prior to the Change of Control in accordance with Section 409A, if applicable.

(b) For purposes of this Article III, a “Change of Control” means the happening of any of the following:

(i)when any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (other than the River Financial Corporation, any of its subsidiaries, or any Company employee benefit plan, including its trustee), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities;

(ii)the occurrence of any transaction or event relating to River Financial Corporation required to be described pursuant to the requirements of Item 6(e) of Schedule 14A of Regulation 14A of the Securities and Exchange Commission under the Exchange Act;

(iii)when, during any period of two (2) consecutive years during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board of Directors cease, for any reason other than death, to constitute at least a majority thereof, unless each director who was not a director at the beginning of such period was elected by, or on the recommendation of, at least two-thirds (2/3) of the directors at the beginning of such period;

(iv)the sale, transfer or other disposition of all or substantially all of the assets of the Company to any person other than an Affiliate of River Financial Corporation; or

(v)the occurrence of a transaction requiring stockholder approval for the acquisition of River Financial Corporation by an entity other than River Financial Corporation or any of its subsidiaries through purchase of assets, or by merger, or otherwise.

(c) Notwithstanding anything herein to the contrary, if an Award granted under this Plan is determined to be “deferred compensation” subject to Section 409A, and the payout of such Award is triggered by a Change of Control, no payout will be made on account of the Change of Control unless the event also constitute a “change in control event” within the meaning of Section 409A.

(d) For purposes of this Article III, “Change of Control Price” shall equal the amount determined by whichever of the following items is applicable:

(i)the per share price to be paid to shareholders of River Financial Corporation in any such merger, consolidation or other reorganization;

(ii)the price per share offered to shareholders of River Financial Corporation in any tender offer or exchange offer whereby a Change of Control takes place;

(iii)in all other events, the Fair Market Value per share of Common Stock into which Options or SARs being converted are exercisable, as determined by the Committee as of the date determined by the Committee to be the date of conversion of such Awards; or

(iv)in the event that the consideration offered to shareholders of River Financial Corporation in any transaction described in this Article III consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered that is other than cash.

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ARTICLE IV

GENERAL PROVISIONS

Section 4.01Adjustment Provisions.

(a) In the event of (i) any dividend payable in shares of Common Stock; (ii) any recapitalization, reclassification, split-up, or consolidation of, or other change in, the Common Stock; or (iii) an exchange of the outstanding shares of Common Stock, in connection with a merger, consolidation, share exchange, or other reorganization of or involving the Company or a sale by the Company of all or substantially all of its assets, for a different number or class of shares of stock or other securities of the Company or for shares of the stock or other securities of any other corporation (whether issued to the Company or to its shareholders); the number of shares of Common Stock available under the Plan pursuant to Section 1.03 shall be adjusted to appropriately reflect the occurrence of the event specified in clauses (i), (ii) or (iii) above and the Committee shall, in such manner as it shall determine in its sole discretion, appropriately adjust the number and class of shares or other securities which shall be subject to Awards and/or the purchase price per share which must be paid thereafter upon exercise of any Award. Any such adjustments made by the Committee shall be final, conclusive, and binding upon all persons, including, without limitation, the Company, the shareholders, and directors of the Company and any persons having any interest in any Awards which may be granted under the Plan.

(b) Except as provided in paragraph (a) immediately above, issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class shall not affect the Awards.

Section 4.02Termination of Employment; Acceleration of Vesting.Unless otherwise provided in an Award Agreement, the following conditions shall apply to Awards.

(a)Options. Upon termination of employment for any reason other than death, Disability, Retirement or a Change in Control, any Option held by the Grantee shall expire on the earlier of (i) the last day of the term of the Option, or (ii) the date that is three months after the date of termination of such employment. Upon termination of employment by reason of death, Disability or Retirement, the Option held by such Grantee shall expire on the earlier of (w) the last day of the term of the Option or (x) the date which is one year after the date of termination of such employment. Upon a Grantee’s termination of employment following a Change of Control and to the extent the Option remains outstanding following the Change of Control, the Option shall expire on its original expiration date. An installment of a Grantee’s Option shall not become exercisable on the otherwise applicable vesting date of such Option if the Grantee’s date of termination occurs on or before such vesting date. Notwithstanding the foregoing sentence, an Option shall become fully and immediately exercisable upon (y) the termination of employment due to death or Disability of the Grantee or (z) or the occurrence of a Change of Control.

(b)SARs. Upon termination of employment for any reason other than death, Disability, Retirement or a Change in Control, a SAR held by the Grantee shall expire on the earlier of (i) the last day of the term of the SAR or (ii) the date which is three months after the date of termination of such employment. Upon termination of employment by reason of death, Disability or Retirement, the SAR held by such Grantee shall expire on the earlier of (w) the last day of the term of the SAR or (x) the date which is one year after the date of termination of such employment. Upon a Grantee’s termination of employment following a Change of Control and to the extent the SAR remains outstanding following the Change of Control, the SAR shall expire on its original expiration date. An installment of a SAR shall not become exercisable on the otherwise applicable vesting date if the Grantee’s date of termination occurs before such vesting date. Notwithstanding the foregoing sentence, a SAR shall become fully and immediately exercisable upon (y) the termination of employment due to death or Disability of the Grantee or (z) the occurrence of a Change of Control.

(c)Restricted Stock. If the Grantee’s date of termination of employment does not occur during the restricted period set forth in the Award Agreement (the “restricted period”), then, at the end of the restricted period, the

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Grantee shall become vested in the shares of Restricted Stock and shall own the shares free of all restrictions otherwise imposed. The Grantee shall become vested in the shares of Restricted Stock, and become owner of the shares free of all restrictions otherwise imposed by the Award Agreement, prior to the end of the restricted period upon (y) the termination of employment due to death or Disability of the Grantee or (z) the occurrence of a Change of Control. Except as otherwise provided in this subsection 4.02(c), if the Grantee’s date of termination of employment occurs prior to the end of the restricted period, the Grantee shall forfeit the Restricted Stock as of the Grantee’s date of termination.

(d)Restricted Stock Units. If the Grantee’s date of termination of employment does not occur during the vesting period set forth in the Award Agreement (the “vesting period”), then, at the end of the vesting period, the Grantee shall become vested in the RSUs and the Company shall issue any shares of Common Stock due in connection with such RSUs. The Grantee shall become vested in the RSUs, and become owner of the shares free of all restrictions otherwise imposed by the Award Agreement, prior to the end of the vesting period upon (y) the termination of employment due to death or Disability of the Grantee or (z) the occurrence of a Change of Control. Except as otherwise provided in this subsection 4.02(d), if the Grantee’s date of termination of employment occurs prior to the end of the vesting period, the Grantee shall forfeit any unvested RSUs as of the Grantee’s date of termination.

(e)Forfeiture by Reason of Misconduct. Notwithstanding any other provision hereof to the contrary, if the Committee determines that a Grantee has committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty or deliberate disregard of any rules of the Company which results in loss, damage or injury to the Company, neither the Grantee nor his representative or estate shall be entitled to exercise any Award or receive payment for an Award. In making such determination, the Committee may give the Grantee an opportunity to appear before the Committee and present evidence on the Grantee’s behalf.

Section 4.03Section 409A. The Plan is intended to comply with, or otherwise be exempt from Section 409A. Accordingly, all provisions of the Plan shall be construed and interpreted to either be exempt from or comply with Section 409A. No payments provided for under the Plan that are subject to Section 409A may be accelerated unless such acceleration is permitted by Section 409A, nor shall a Grantee, directly or indirectly, designate the calendar year of payment for such an Award. No payments or benefits to be made to a Grantee under the Plan upon a termination of employment that are subject to Section 409A shall be made unless such termination of employment constitutes a “separation from service” as defined by Section 409A.

Notwithstanding any provision of this Plan to the contrary, if a Grantee is a “specified employee” at the time of separation from service, no payment or benefits to which he or she becomes entitled under this Plan as a result of his or her termination of employment that are subject to Section 409A shall be made or paid to him or her prior to the earlier of (i) the first day of the seventh month following the date of his or her separation from service due to such termination of employment or (ii) the date of his or her death, to the extent that such a delay in payment or benefits is required in order to avoid a prohibited distribution under Section 409A. Upon the expiration of such delay under Section 409A, the first payment to the Grantee will include all payments deferred under this Section 4.03 by reason of her or her status as a “specified employee.”

Payment of an Award may be deferred at the option of the Grantee if permitted in the Award Agreement; provided, however, that any such deferral arrangements must also comply with Section 409A.

Section 4.04No Rights as Shareholder or to Employment. No Grantee shall have any interest in or shareholder rights with respect to any shares of Common Stock which are subject to any Award until such shares have been issued and delivered to the Grantee, unless provided otherwise in the Award Agreement. Furthermore, the Plan shall not confer upon any Grantee any rights of employment with the Company, including without limitation, any right to continue in the employ of the Company, or affect the right of the Company to terminate the employment of a Grantee at any time, with or without cause.

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Section 4.05General Restrictions. Each Award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law; (ii) the consent or approval of any government regulatory body; or (iii) an agreement by the recipient of an Award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the issue or purchase of shares of Common Stock thereunder, such Award may not be consummated in whole or in part unless such listing, registration, qualification, consent, approval, or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. A Grantee shall agree, as a condition of receiving any Award, to execute any documents, make any representations, agree to restrictions on stock transferability, and take any actions which in the opinion of legal counsel to the Company are required by any applicable law, ruling, or regulation. The Company is in no event obligated to register any such shares, to comply with any exemption from registration requirements, or to take any other action which may be required in order to permit, or to remedy or remove any prohibition or limitation on, the issuance or sale of such shares to any Grantee or other authorized person.

Section 4.06Rights Unaffected.

(a) The existence of the Options shall not affect:

(i)the right or power of the Company or its shareholders to make adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure or its business;

(ii)any issue of bonds, debentures, preferred or prior preference stocks affecting the Common Stock or the rights thereof;

(iii)the dissolution or liquidation of the Company, or sale or transfer of any part of its assets or business; or

(iv)any other corporate act, whether of a similar character or otherwise.

(b) As a condition of grant, exercise, or lapse of restrictions on any Award the Company may, in its sole discretion, withhold or require the Grantee to pay or reimburse the Company for any taxes which the Company determines are required to be withheld (including, without limitation, any required FICA payments), in connection with the grant of or lapse of restrictions on the grant of or any exercise of an Award. Whenever payment or withholding of such taxes is required, the Grantee may satisfy the obligation, in whole or in part, by electing to deliver to the Company shares of Common Stock already owned by the Grantee or electing to have the Company withhold shares of Common Stock which would otherwise be delivered to the Grantee, in each case having a value equal to the minimum statutory amount required to be withheld. For these purposes, the value of the shares to be delivered or withheld is the Fair Market Value on the date that the amount of tax to be withheld is to be determined (the “tax date”).

(c) An election by a Grantee to deliver shares of Common Stock already owned by the Grantee or to have shares withheld (an “election”) must meet the following requirements in order to be effective:

(i)the election must be made prior to the tax date;

(ii)the election is irrevocable; and

(iii)the election may be disapproved by the Committee in its sole discretion.

Section 4.07Choice of Law. The validity, interpretation, and administration of the Plan, the Award Agreement, and of any rules, regulations, determinations, or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of the State of Alabama. Without limiting the generality of the foregoing, the period within which any action in connection with the Plan must be commenced shall be governed by the laws of the State of Alabama, without regard to the place where the act or omission complained of took place, the residence of any party to such action or the place where the action may be brought or maintained.

E-12Annex E

Index to Financial Statements

Section 4.08Amendment, Suspension, and Termination of Plan.

(a) The Plan may be terminated, suspended, or amended, from time to time, by the Board of Directors in such respects as it shall deem advisable;provided,however, that (i) any such amendment that would require shareholder approval in order to ensure compliance with any applicable rules or regulations; and (ii) any amendment that would change the maximum aggregate number of shares for which Awards may be granted under the Plan (except as required under any adjustments pursuant to Sections 1.03 and 4.01 of the Plan), shall be subject to approval of the shareholders of the Company.

(b) Notwithstanding any other provision herein contained, no Incentive Stock Options shall be granted on or after the tenth anniversary of the approval of the Plan by the Board of Directors and the Plan shall terminate and all Awards previously granted shall terminate, in the event and on the date of liquidation or dissolution of the Company.

(c) Whether before or after termination of the Plan, the Board of Directors has full authority in accordance with Section 4.08(a) to amend the Plan, effective for Awards which remain outstanding under the Plan.

Section 4.09Loans.The Company may at any time, consistent with applicable regulations, including Regulation O and any Company policy restricting or prohibiting loans to executive officers, lend to a Grantee any funds required in connection with any aspect of the Plan, including without limitation the exercise price and any taxes that must be paid or withheld.

Section 4.10Regulatory Capital Requirements.All Awards granted under this Plan are subject to the requirement that, notwithstanding any other provision of the Plan or the Award Agreement, the Company’s primary bank regulator shall at any time have the right to require the Grantee to exercise the Award or to forfeit the Award if not exercised or vested if the Company’s capital falls below minimum capital required as determined by the Company’s primary bank regulator.

Section 4.11Disclosures. A copy of this Plan shall be given to any Grantee. Any security issued pursuant to this Plan that is not registered under the Securities Act of 1933 or the Alabama Securities Act shall be deemed restricted within the meaning of Securities and Exchange Commission Rule 144, and certificates respecting such shares shall be marked with an appropriate legend indicating applicable restrictions on resale.

E-13Annex E

Index to Financial Statements

Through and including [●], 2015 (90 days after the date of this document) all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Index to Financial Statements

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

Alabama Business Corporation Law

The Alabama Business Corporation Law (“ABCL”), Sections10A-2-8.50 – 8.58, empowers a corporation to indemnify an individual who is a party to a proceeding because he or she is or was a director against liability incurred in the proceeding if:

 

he conducted himself in good faith;

 

he reasonably believed, in the case of conduct in his official capacity, that his conduct was in the best interests of the corporation, and, in all other cases, that his conduct was at least not opposed to the best interests of the corporation; and

 

in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.

The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the relevant standard of conduct.

Unless ordered by a court, a corporation may not indemnify a director in connection with:

 

a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or

 

in connection with any other proceeding with respect to conduct for which the director was adjudged liable on the basis that he received an improper benefit, whether or not involving action in his official capacity.

The ABCL further provides that a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding.

A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding because he is a director. The director must deliver to the corporation: (1) a signed written affirmation of his good faith belief that he has met the relevant standard of conduct described in the ABCL; and (2) his written undertaking to repay any funds advanced if he is not entitled to indemnification under the ABCL and it is ultimately determined under the ABCL that he has not met the relevant standard of conduct described in the ABCL. The undertaking required must be an unlimited general obligation of the director. It need not be secured and may be accepted without reference to the financial ability of the director to make repayment. A determination must also be made that the facts known to those making the determination would not preclude indemnification under the ABCL.

A corporation may not indemnify a director as described above unless authorized by:

the board of directors assuming the presence of a quorum or, if a quorum cannot be obtained, by a majority of the members of a committee of two or more qualified directors appointed by such a vote;

special legal counsel selected in accordance with the ABCL; or

the shareholders, but shares owned by or voted under the control of a director who at the time does not qualify as a qualified director may not be voted on the authorization.

Part II - 1

A corporation may also indemnify and advance expenses to officers and employees of the corporation who is a party to a proceeding because he is an officer to the same extent as for a director.

Part II - 1

Index to Financial Statements

River Financial Articles of Incorporation

The Articlesarticles of Incorporationincorporation of River Financial contain a provision which, subject to certain exceptions eliminates the liability of a director or officer to it or its shareholders for monetary damages for any breach of duty as a director or officer. This provision does not eliminate such liability to the extent the director or officer engaged in willful misconduct or a knowing violation of criminal law or of any federal or state securities law, including, without limitation, laws proscribing insider trading or manipulation of the market for any security.

River Financial Bylaws

Under its Bylaws,bylaws, River Financial must indemnify any persons who may be indemnified under the ABCL.

Insurance Coverage

River Financial maintains directors and officers insurance and other insurance to provide coverage for directors, officers and employees as part of their service for River Financial and River Bank & Trust.

Item 21. Exhibits and Financial Statement SchedulesSchedules.

The exhibits to this Registration Statement are listed in the exhibit index, which appears elsewhere herein and is incorporated herein by reference.

Item 22. UndertakingsUndertakings.

(a) The undersigned registrant hereby undertakes:

(a)

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement.

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement.

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(i)

To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually, or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(ii)

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually, or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(iii)

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(2)

That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

Part II - 2

Index to Financial Statements
(4)

That, prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(5) That every prospectus: (i) that is filed pursuant to paragraph (4) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(5)

That every prospectus: (i) that is filed pursuant to paragraph (4) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(6)

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the proxy statement/prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(b)

The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the proxy statement/prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

(c)

The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

 

Part II - 3

Index to Financial Statements

EXHIBIT INDEX

Exhibit No.

Description of Exhibit

    2.1*
Agreement and Plan of Merger, dated as of June 4, 2019, by and between River Financial Corporation and Trinity Bancorp, Inc. (attached as Annex A to the proxy statement/ prospectus, which is part of this registration statement).
    3.1Articles of Incorporation of River Financial Corporation, as amended, included as Exhibit 3.1 in the River Financial Corporation Form10-Q filed May 7, 2019 and incorporated herein by reference.
    3.2Bylaws of River Financial Corporation, as amended, included as Exhibit 3.2 in the River Financial Corporation10-K filed March 28, 2016 and incorporated herein by reference.
    4.1Article IV and Article V of the Articles of Incorporation, as amended, filed atExhibit 3.1 to the Registrants’ Form10-Q filed May 7, 2019, and Article II and Article VI of the bylaws, as amended, included asExhibit 3.2 of the Registrants’ Form10-K filed March 28, 2016, and incorporated herein by reference.
    5.1Opinion of Jones Walker LLP as to the legality of the shares of River Financial common stock to be issued in the merger.
    8.1Form of Opinion of Jones Day regarding tax matters.
  10.1River Financial 2006 Stock Compensation Plan filed as Exhibit 10.1 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.2River Financial Change in Control Agreement for Jimmy Stubbs filed as Exhibit 10.2 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.3River Financial Change in Control Agreement for Kenneth H. Givens filed as Exhibit 10.3 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.4River Financial Change in Control Agreement for Joel K. Winslett filed as Exhibit 10.4 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.5River Financial Change in Control Agreement for Ray Smith filed as Exhibit 10.5 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.6River Financial Change in Control Agreement for Boles Pegues filed as Exhibit 10.6 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.7Form of Change in Control Agreement for Robbin Thompson.
  10.8River Bank & Trust Form of Warrant Agreement, assumed by River Financial filed as Exhibit 10.9 to the Registrant’s Registration statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  10.9River Financial 2015 Incentive Stock Compensation Plan filed asAnnex E to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and the amendment thereto includedExhibit 10.2 in the River Financial Form10-Q filed May 7, 2019 and incorporated herein by reference.

Part II - 4

Exhibit No.

Description of Exhibit

  10.10Loan Agreement between River Financial Corporation and CenterState Bank filed as Exhibit 10.1 to the Registrant’s Form8-K/A filed November 2, 2018 and incorporated herein by reference.
  10.11*Agreement and Plan of Merger, dated as of July 10, 2018, by and among River Financial Corporation, River Acquisition Corporation and PSB Bancshares, Inc. filed as Exhibit 2.1 on Form8-K, filed on July 16, 2018 and incorporated herein by reference.
  21.1Subsidiaries of River Financial Corporation, filed as Exhibit 21.1 to the Registrant’s Registration Statement on FormS-4, registration no.333-205986 filed on July 31, 2015 and incorporated herein by reference.
  23.2Consent of Jones Walker LLP (included in Exhibit 5.1).
  23.3Consent of Jones Day (included in Exhibit 8.1).
  23.4Consent of Porter White.
  23.5Consent of Brunson, Wilkerson, Bowden & Associates, P.C.
  23.6Consent of Mauldin & Jenkins LLC.
  24.1Power of Attorney (included on the signature page of this registration statement).
  99.1Form of Proxy Card of Trinity Bancorp, Inc.
101Interactive Data Files.

*

Schedules omitted. Registrant agrees to furnish a copy of any omitted schedule to the SEC upon request.

Part II - 5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Prattville, State of Alabama, on July 31, 2015.August 21, 2019.

 

RIVER FINANCIAL CORPORATION

By:

 

      /s//s/ James M. Stubbs

         James M. Stubbs
         President and Chief Executive Officer
         (Duly Authorized Representative)

Part II - 6

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James M. Stubbs and Kenneth H. Givens, and each or either one of them, as his true and lawfullyattorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in his name, place and stead, in any and all capacities, to sign, execute, acknowledge, deliver, and file (a) with the Securities and Exchange Commission (or any other governmental or regulatory authority), any and all amendments (including post-effective amendments) to this Registration Statement on FormS-4, with any and all exhibits and any and all other documents required to be filed with respect thereto or in connection therewith, relating to the registration under the Securities Act of 1933 of common stock of River Financial Corporation to be issued in the merger between River Financial Corporation and Keystone Bancshares,Trinity Bancorp, Inc., authorized by resolutions adopted by the Board of Directors on May 12, 2015,June 4, 2019, and (b) with the securities agencies or officials of various jurisdictions, all applications, qualifications, registrations or exemptions relating to such offering under the laws of any such jurisdiction, including any amendments thereto or other documents required to be filed with respect thereto or in connection therewith, granting unto said agents and attorneys, and each of the, full power and authority to do an d perform each and every fact and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, and the undersigned hereby ratify and confirm all that said agents andattorneys-in-fact, or any of them may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated and on the date set forth below.

 

 /s//s/ James M. Stubbs

James M. Stubbs

  

CEO President and Director

(Principal Executive Officer)

 *

 /s//s/ Kenneth H. Givens

Kenneth H. Givens

  

Chief Financial Officer

(Principal Financial and Accounting Officer)

 *

 /s//s/ Larry Puckett

Larry Puckett

  

Director and Chairman of the Board

 *

 /s/ Lynn M. Carter/s/ John A. Freeman

Lynn M. CarterJohn A. Freeman

  

Director

 *

 /s//s/ Charles Herron

Charles Herron

  

Director

*

Part II - 4

Index to Financial Statements

 /s/ Jerry Kyser, Jr.

Jerry Kyser, Jr.

Director

 *

 /s//s/ Charles R. Shepherd MorrisMoore

Charles R. Shepherd MorrisMoore

  

Director

 *

/s/ W. Murray Neighbors

Jim L. RidlingW. Murray Neighbors

  

Director

 /s/ Dorothy H. Sanford

Dorothy H. Sanford

Director

 *

 /s/ David B./s/ Gerald R. Smith

David B.Gerald R. Smith

  

Director

 *

 /s/ Bolling P. Starke/s/ Jim L. Ridling

Bolling P. StarkeJim L. Ridling

  

Director

 *

 /s//s/ Vernon B. Taylor

Vernon B. Taylor

  

Director

 *

 /s/ David R. Thrasher

David R. Thrasher

*

DirectorAugust 21, 2019

*

 /s/ Adolph Weil III

Adolph Weil III

Director

*

*  July 31, 2015

 

Part II - 57

Index to Financial Statements

EXHIBIT INDEX

Exhibit No.

Description of Exhibit

  2.1Agreement and Plan of Merger, dated as of May 13, 2015, by and among River Financial Corporation and Keystone Bancshares, Inc. (attached as Annex A to the proxy statement/prospectus, which is part of this registration statement)
  3.1Articles of Incorporation of River Financial Corporation
  3.2Bylaws of River Financial Corporation
  5.1Opinion of Jones Walker LLP as to the legality of the shares of River Financial common stock to be issued in the merger
  8.1Form of Opinion of Jones Walker LLP regarding tax matters
  8.2Form of Opinion of Balch & Bingham LLP regarding tax matters
10.1River Financial 2006 Stock Compensation Plan
10.2River Financial Change in Control Agreement for Jimmy Stubbs
10.3River Financial Change in Control Agreement for Kenneth H. Givens
10.4River Financial Change in Control Agreement for Joel K. Winslett
10.5River Financial Proposed Change in Control Agreement for Ray Smith
10.6River Financial Proposed Change in Control Agreement for Boles Pegues
10.7River Financial Employment Term Sheet for Ray Smith
10.8River Financial Employment Term Sheet for Boles Pegues
10.9River Bank & Trust Form of Warrant Agreement, assumed by River Financial
10.10River Financial 2015 Incentive Stock Compensation Plan (included at Annex E to the proxy statement / prospectus, which is part of this registration statement)
21.1Subsidiaries of River Financial Corporation
23.1Consent of Porter Keadle Moore, LLC
23.2Consent of Jones Walker LLP (included in Exhibit 5.1)
23.3Consent of Stephens, Inc.
23.4Consent of Sandler O’Neill + Partners, LP
23.5Consent of Mauldin & Jenkins, LLC
23.6Consent of Balch & Bingham LLP
24.1Power of Attorney (included on the signature page of this registration statement)
99.1Form of Proxy Card of Keystone Bancshares, Inc.
99.2Form of Proxy Card of River Financial Corporation

Part II - 6