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RVRF River Financial

Filed: 9 Nov 21, 3:08pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021  

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number: 333-205986

 

RIVER FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

ALABAMA

 

46-1422125

( State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

2611 Legends Drive

Prattville, Alabama

 

36066

(Address of principal executive offices)

 

(Zip Code)

(334) 290-1012

“Registrant’s telephone number, including area code”  

 

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

None

None

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of October 31, 2021, the registrant had 6,550,651 shares of common stock, $1.00 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

5

 

Consolidated Statements of Financial Condition

5

 

Consolidated Statements of Income

6

 

Consolidated Statements of Comprehensive Income

7

 

Consolidated Statements of Changes in Stockholders’ Equity

8

 

Consolidated Statements of Cash Flows

9

 

Notes to Unaudited Consolidated Financial Statements

10

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4.

Controls and Procedures

52

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

56

Signatures

58

 

 

 

 

 

 


 

 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of River Financial Corporation (“we”, “our” or “us” on a consolidated basis) contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Such statements include projections, predictions, expectations or statements as to beliefs or future events or results or refer to other matters that are not historical facts. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. This may be especially true given the current environment of the COVID-19 pandemic.  The forward-looking statements contained in this report are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by words like “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “intend”, “believe”, “estimate”, “predict”, “potential”, or “continue” or the negative of those words and other comparable words. You should be aware that those statements reflect only our predictions. If known or unknown risks or uncertainties should materialize, or if any one or more of our material underlying assumptions should prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind when reading this report and not place undue reliance on these forward-looking statements. Factors that might cause such differences include, but are not limited to:

As set forth elsewhere in the risk factors referred to at Item 1A of Part II of this Form 10-Q, the COVID-19 pandemic could have adverse results on our financial condition and results of operations and other areas set forth in such risk factors.

The COVID-19 pandemic could exaggerate the negative consequences set forth in the following forward-looking statements and we have attempted to outline in the risk factor section of this Form 10-Q our best assessment of how such negative consequences may arise.  

Acquisition related factors:

 

The businesses of any bank acquired by us may not be integrated successfully or the integration may be more difficult, time-consuming or costly than expected;

 

The expected growth opportunities or costs savings from such transactions may not be fully realized or may take longer to realize than expected;

 

Revenues following such transactions may be lower than expected as a result of losses of customers or other reasons;

 

Deposit attrition, operating costs, customer loss and business disruption following such transactions, including difficulties in maintaining relationships with employees, may be greater than expected;

 

Governmental approvals of such transactions may not be obtained on the proposed terms or expected timeframe;

 

Reputational risks and the reaction of the companies’ customers to such transactions;

 

Diversion of management time on merger related issues.

Factors affecting our Bank generally:

 

Changes in asset quality and credit risk of our Bank;

 

Inflation;

 

Customer acceptance of our products and services;

 

Customer borrowing, repayment, investment and deposit practices;

 

The negative impact on profitability imposed on us by a compressed net interest margin on loans and other extensions of credit that affects our ability to lend profitably and to price loans effectively in the face of competitive pressures;

 

Our liquidity requirements could be adversely affected by changes in our assets and liabilities;

 

Our ability to attract, develop and retain qualified banking professionals;

 

Failure to attract or retain stable deposits at reasonable cost that is competitive with the larger international, national, and regional financial service providers with which we compete;

 

Significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters and other variables impacting the value of real estate;

 

The introduction, withdrawal, success and timing of business initiatives;

3


 

 

 

The impact, extent, and timing of technological changes;

 

A weakening of the economies in which we conduct operations may adversely affect our operating results;

 

The U.S. legal and regulatory framework, or changes in such framework, could adversely affect our operating results;

 

The interest rate environment may compress margins and adversely affect net interest income;

 

Competition from other financial services companies in our markets could adversely affect operations; and

 

Interruption in our business and the businesses of our customers caused by a downturn in the economy, possible weather-related conditions such as tornadoes or hurricanes, and the COVID-19 pandemic.

You should also consider carefully the risk factors referred to in Item 1A of Part II of this Form 10-Q, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. The risks discussed in this report are factors that, individually or in the aggregate, management believes could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider such disclosures to be a complete discussion of all potential risks or uncertainties. Factors not here or there listed may develop or, if currently extant, we may not have yet recognized them.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

RIVER FINANCIAL CORPORATION

Consolidated Statements of Financial Condition

(in thousands except share data)

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Unaudited

 

 

Audited

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

27,938

 

 

$

15,859

 

Interest-bearing deposits in banks

 

 

33,977

 

 

 

32,909

 

Federal funds sold

 

 

9,500

 

 

 

11,500

 

Cash and cash equivalents

 

 

71,415

 

 

 

60,268

 

 

 

 

 

 

 

 

 

 

Certificates of deposit in banks

 

 

3,660

 

 

 

4,155

 

Securities held-to-maturity, at amortized cost

 

 

10,936

 

 

 

-

 

Securities available-for-sale, at fair value

 

 

849,315

 

 

 

493,274

 

Loans held for sale

 

 

18,031

 

 

 

24,004

 

Loans, net of unearned income and discounts

 

 

1,237,731

 

 

 

1,186,582

 

Less allowance for loan losses

 

 

(20,047

)

 

 

(16,803

)

Net loans

 

 

1,217,684

 

 

 

1,169,779

 

Premises and equipment, net

 

 

35,609

 

 

 

32,501

 

Accrued interest receivable

 

 

6,945

 

 

 

6,799

 

Bank owned life insurance

 

 

44,851

 

 

 

29,016

 

Foreclosed assets

 

 

650

 

 

 

240

 

Deferred income taxes, net

 

 

4,021

 

 

 

1,625

 

Core deposit intangible

 

 

3,233

 

 

 

4,052

 

Goodwill

 

 

27,817

 

 

 

27,817

 

Restricted equity securities

 

 

1,482

 

 

 

1,777

 

Other assets

 

 

13,665

 

 

 

9,343

 

Total assets

 

$

2,309,314

 

 

$

1,864,650

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

568,220

 

 

$

436,885

 

Interest-bearing deposits

 

 

1,499,040

 

 

 

1,216,750

 

Total deposits

 

 

2,067,260

 

 

 

1,653,635

 

Securities sold under agreements to repurchase

 

 

9,432

 

 

 

13,653

 

Note payable

 

 

-

 

 

 

20,392

 

Subordinated debentures, net of loan costs

 

 

39,325

 

 

 

-

 

Accrued interest payable and other liabilities

 

 

10,286

 

 

 

8,790

 

Total liabilities

 

 

2,126,303

 

 

 

1,696,470

 

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

 

 

2,673

 

 

 

1,732

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock ($1 par value; 10,000,000 shares authorized; 6,562,885 and 6,528,764

   shares issued; 6,550,651 and 6,501,024 shares outstanding, respectively)

 

 

6,563

 

 

 

6,529

 

Additional paid-in capital

 

 

101,393

 

 

 

100,707

 

Retained earnings

 

 

70,427

 

 

 

53,391

 

Accumulated other comprehensive income

 

 

5,019

 

 

 

8,310

 

Treasury stock at cost (12,234 and 27,740 shares, respectively)

 

 

(391

)

 

 

(757

)

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

 

 

(2,673

)

 

 

(1,732

)

Total stockholders' equity

 

 

180,338

 

 

 

166,448

 

Total equity

 

 

183,011

 

 

 

168,180

 

Total liabilities and stockholders' equity

 

$

2,309,314

 

 

$

1,864,650

 

 

The accompanying notes are an integral part of these financial statements.

5


 

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Income

(in thousands except per share data)

 

 

 

For the Three Months Ended:

 

 

For the Nine Months Ended:

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

15,956

 

 

$

14,328

 

 

$

46,988

 

 

$

41,285

 

Taxable securities

 

 

2,093

 

 

 

1,105

 

 

 

5,119

 

 

 

3,829

 

Nontaxable securities

 

 

540

 

 

 

517

 

 

 

1,610

 

 

 

1,451

 

Federal funds sold

 

 

7

 

 

 

4

 

 

 

21

 

 

 

4

 

Other interest income

 

 

34

 

 

 

26

 

 

 

95

 

 

 

201

 

Total interest income

 

 

18,630

 

 

 

15,980

 

 

 

53,833

 

 

 

46,770

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

978

 

 

 

1,667

 

 

 

3,139

 

 

 

5,446

 

Short-term borrowings

 

 

3

 

 

 

2

 

 

 

8

 

 

 

14

 

Subordinated debentures

 

 

410

 

 

 

-

 

 

 

939

 

 

 

-

 

Note payable

 

 

-

 

 

 

333

 

 

 

242

 

 

 

1,029

 

Total interest expense

 

 

1,391

 

 

 

2,002

 

 

 

4,328

 

 

 

6,489

 

Net interest income

 

 

17,239

 

 

 

13,978

 

 

 

49,505

 

 

 

40,281

 

Provision for loan losses

 

 

1,187

 

 

 

2,916

 

 

 

3,558

 

 

 

7,798

 

Net interest income after provision for loan losses

 

 

16,052

 

 

 

11,062

 

 

 

45,947

 

 

 

32,483

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and fees

 

 

1,527

 

 

 

1,269

 

 

 

4,313

 

 

 

3,673

 

Investment brokerage revenue

 

 

70

 

 

 

43

 

 

 

195

 

 

 

128

 

Mortgage operations

 

 

1,946

 

 

 

1,555

 

 

 

5,354

 

 

 

3,917

 

Bank owned life insurance income

 

 

292

 

 

 

201

 

 

 

835

 

 

 

599

 

Net gain (loss) on sale of investment securities

 

 

-

 

 

 

-

 

 

 

7

 

 

 

(48

)

Other noninterest income

 

 

95

 

 

 

90

 

 

 

311

 

 

 

317

 

Total noninterest income

 

 

3,930

 

 

 

3,158

 

 

 

11,015

 

 

 

8,586

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,117

 

 

 

5,437

 

 

 

19,681

 

 

 

15,974

 

Occupancy expenses

 

 

598

 

 

 

592

 

 

 

1,776

 

 

 

1,759

 

Equipment rentals, depreciation, and maintenance

 

 

240

 

 

 

281

 

 

 

804

 

 

 

863

 

Telephone and communications

 

 

132

 

 

 

116

 

 

 

445

 

 

 

361

 

Advertising and business development

 

 

196

 

 

 

184

 

 

 

508

 

 

 

400

 

Data processing

 

 

740

 

 

 

681

 

 

 

2,169

 

 

 

2,155

 

Foreclosed assets, net

 

 

50

 

 

 

32

 

 

 

136

 

 

 

152

 

Federal deposit insurance and other regulatory assessments

 

 

331

 

 

 

265

 

 

 

880

 

 

 

548

 

Legal and other professional services

 

 

309

 

 

 

181

 

 

 

932

 

 

 

588

 

Other operating expenses

 

 

1,552

 

 

 

1,299

 

 

 

4,511

 

 

 

3,944

 

Total noninterest expense

 

 

11,265

 

 

 

9,068

 

 

 

31,842

 

 

 

26,744

 

Income before income taxes

 

 

8,717

 

 

 

5,152

 

 

 

25,120

 

 

 

14,325

 

Provision for income taxes

 

 

1,884

 

 

 

1,085

 

 

 

5,472

 

 

 

2,938

 

Net income

 

$

6,833

 

 

$

4,067

 

 

$

19,648

 

 

$

11,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings per common share

 

$

1.04

 

 

$

0.63

 

 

$

3.01

 

 

$

1.75

 

Diluted net earnings per common share

 

$

1.03

 

 

$

0.62

 

 

$

2.97

 

 

$

1.73

 

Dividends per common share

 

$

-

 

 

$

-

 

 

$

0.40

 

 

$

0.36

 

 

The accompanying notes are an integral part of these financial statements.

 

 

6


 

 

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

For the Three Months Ended

 

 

For the Nine  Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

6,833

 

 

$

4,067

 

 

$

19,648

 

 

$

11,387

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses)

 

 

1,752

 

 

 

1,179

 

 

 

(4,389

)

 

 

7,965

 

Income tax effect

 

 

(440

)

 

 

(296

)

 

 

1,103

 

 

 

(2,000

)

Reclassification adjustments for net (gains) losses realized in net income

 

 

-

 

 

 

-

 

 

 

(7

)

 

 

48

 

Income tax effect

 

 

-

 

 

 

-

 

 

 

2

 

 

 

(12

)

Other comprehensive income (loss), net of tax

 

 

1,312

 

 

 

883

 

 

 

(3,291

)

 

 

6,001

 

Comprehensive income

 

$

8,145

 

 

$

4,950

 

 

$

16,357

 

 

$

17,388

 

 

The accompanying notes are an integral part of these financial statements.

 

 

7


 

 

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Changes in Stockholders' Equity

(in thousands except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

Stock

 

 

Total

 

 

 

Common

 

 

Paid In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Related to

 

 

Stockholders'

 

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Stock

 

 

KSOP

 

 

Equity

 

Balance at December 31, 2020

 

$

6,529

 

 

$

100,707

 

 

$

53,391

 

 

$

8,310

 

 

$

(757

)

 

$

(1,732

)

 

$

166,448

 

Net income

 

 

-

 

 

 

-

 

 

 

19,648

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,648

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,291

)

 

 

-

 

 

 

-

 

 

 

(3,291

)

Exercise of stock options (34,121 shares)

 

 

34

 

 

 

555

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

589

 

Purchase of treasury stock (26,678 shares)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(824

)

 

 

-

 

 

 

(824

)

Sale of treasury shares (42,184 shares)

 

 

-

 

 

 

(9

)

 

 

-

 

 

 

-

 

 

 

1,190

 

 

 

-

 

 

 

1,181

 

Dividends declared ($0.40 per share)

 

 

-

 

 

 

-

 

 

 

(2,612

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,612

)

Stock-based compensation expense

 

 

-

 

 

 

140

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

140

 

Change for KSOP related shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(941

)

 

 

(941

)

Balance at September 30, 2021

 

$

6,563

 

 

$

101,393

 

 

$

70,427

 

 

$

5,019

 

 

$

(391

)

 

$

(2,673

)

 

$

180,338

 

 

The accompanying notes are an integral part of these financial statements.

 

 

8


 

 

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Nine  Months

 

 

 

Ended September 30,

 

 

 

2021

 

 

2020

 

Cash Flows From (Used For) Operating Activities:

 

 

 

 

 

 

 

 

Net Income

 

$

19,648

 

 

$

11,387

 

Adjustments to reconcile net income to net cash (used for) from operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,558

 

 

 

7,798

 

Provision for losses on foreclosed assets

 

 

90

 

 

 

91

 

Amortization of securities available-for-sale

 

 

5,621

 

 

 

2,898

 

Accretion of securities available-for-sale

 

 

(136

)

 

 

(173

)

Realized net (gain) loss on securities available-for-sale

 

 

(7

)

 

 

48

 

Accretion of discount on acquired loans

 

 

(54

)

 

 

(281

)

Accretion of deferred loan fees / costs

 

 

(2,280

)

 

 

(1,811

)

Amortization of core deposit intangible asset

 

 

819

 

 

 

967

 

Stock-based compensation expense

 

 

140

 

 

 

163

 

Bank owned life insurance income

 

 

(835

)

 

 

(599

)

Depreciation and amortization of premises and equipment

 

 

1,100

 

 

 

1,103

 

Gain on sale of foreclosed assets

 

 

(10

)

 

 

(2

)

Deferred income tax benefit

 

 

(1,295

)

 

 

(3,041

)

(Increase) decrease in operating assets and (decrease) increase in operating liabilities:

 

 

 

 

 

 

 

 

Loans held-for-sale

 

 

5,973

 

 

 

(15,183

)

Accrued interest receivable

 

 

(146

)

 

 

(2,250

)

Other assets

 

 

(4,322

)

 

 

(1,656

)

Accrued interest payable and other liabilities

 

 

1,498

 

 

 

(1,517

)

Net cash from (used for) operating activities

 

 

29,362

 

 

 

(2,058

)

Cash Flows From (Used For) Investing Activities:

 

 

 

 

 

 

 

 

Maturity of certificate of deposit

 

 

495

 

 

 

2,437

 

Purchase of certificate of deposit

 

 

-

 

 

 

(501

)

Activity in securities available-for-sale:

 

 

 

 

 

 

 

 

Sales of securities available-for-sale

 

 

4,383

 

 

 

14,499

 

Maturities, payments, calls of securities available-for-sale

 

 

100,461

 

 

 

62,702

 

Purchases of securities available-for-sale

 

 

(470,758

)

 

 

(183,880

)

Activity in securities held-to-maturity:

 

 

 

 

 

 

 

 

Purchases of securities held-to-maturity

 

 

(10,937

)

 

 

-

 

Loan principal originations, net

 

 

(49,758

)

 

 

(284,126

)

Proceeds from sale of foreclosed assets

 

 

141

 

 

 

1,334

 

Purchases of premises and equipment

 

 

(4,208

)

 

 

(1,172

)

Sale (purchase) of restricted equity securities, net

 

 

295

 

 

 

(127

)

Purchase of bank owned life insurance

 

 

(15,000

)

 

 

-

 

Net cash used for investing activities

 

 

(444,886

)

 

 

(388,834

)

Cash Flows From (Used For) Financing Activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

413,625

 

 

 

405,279

 

Net (decrease) increase in securities sold under agreements to repurchase

 

 

(4,221

)

 

 

1,559

 

Proceeds from issuance of subordinated debt, net of loan costs

 

 

39,325

 

 

 

-

 

Repayment of note payable

 

 

(20,392

)

 

 

(2,519

)

Proceeds from exercise of common stock options and warrants

 

 

589

 

 

 

181

 

Purchase of treasury stock

 

 

(824

)

 

 

(700

)

Sale of treasury stock

 

 

1,181

 

 

 

198

 

Cash dividends

 

 

(2,612

)

 

 

(2,343

)

Net cash from financing activities

 

 

426,671

 

 

 

401,655

 

Net Change In Cash And Cash Equivalents

 

 

11,147

 

 

 

10,763

 

Cash and Cash Equivalents At Beginning Of Period

 

 

60,268

 

 

 

45,455

 

Cash and Cash Equivalents At End Of Period

 

$

71,415

 

 

$

56,218

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures Of Cash Flows Information:

 

 

 

 

 

 

 

 

Cash Payments For:

 

 

 

 

 

 

 

 

Interest paid to depositors

 

$

3,228

 

 

$

5,528

 

Interest paid on borrowings

 

$

1,332

 

 

$

1,070

 

Income taxes

 

$

9,020

 

 

$

7,148

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Transfer of loans to foreclosed assets

 

$

630

 

 

$

490

 

The accompanying notes are an integral part of these financial statements.

9


 

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 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, Baldwin, Chilton, Coffee, Elmore, Etowah, Houston, Lee, Mobile, Morgan 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 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 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.

These interim consolidated financial statements have been prepared in accordance with the rules and regulations of the 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”) have been omitted or abbreviated. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes as of December 31, 2020, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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 the 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 the Company include the determination of the allowance for loan losses, investment securities impairment, and 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.

 

Note 2 – Reclassifications

Certain prior period amounts have been reclassified to conform to the presentation used in 2021. These reclassifications had no material effect on the operations, financial condition or cash flows of the Company.

10


 

Note 3 – 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 (amounts in thousands):

 

 

 

For the Three Months

 

 

For the Nine Months

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2021

 

 

 

2020

 

 

2021

 

 

 

2020

 

Net earnings available to common shareholders

 

$

6,833

 

 

$

4,067

 

 

$

19,648

 

 

$

11,387

 

Weighted average common shares outstanding

 

 

6,545,008

 

 

 

6,498,288

 

 

 

6,532,128

 

 

 

6,498,669

 

Dilutive effect of stock options

 

 

84,163

 

 

 

73,452

 

 

 

72,895

 

 

 

74,759

 

Diluted common shares

 

 

6,629,171

 

 

 

6,571,740

 

 

 

6,605,023

 

 

 

6,573,428

 

Basic earnings per common share

 

$

1.04

 

 

$

0.63

 

 

$

3.01

 

 

$

1.75

 

Diluted earnings per common share

 

$

1.03

 

 

$

0.62

 

 

$

2.97

 

 

$

1.73

 

 

 

Note 4 – Investment Securities

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2021 and December 31, 2020 (amounts in thousands):

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

615,955

 

 

$

3,929

 

 

$

(2,631

)

 

$

617,253

 

    U.S. treasury securities

 

 

97,474

 

 

 

52

 

 

 

(155

)

 

 

97,371

 

    U.S. govt. sponsored enterprises

 

 

26,381

 

 

 

835

 

 

 

-

 

 

 

27,216

 

    State, county, and municipal

 

 

93,552

 

 

 

4,740

 

 

 

(93

)

 

 

98,199

 

    Corporate debt obligations

 

 

9,225

 

 

 

69

 

 

 

(18

)

 

 

9,276

 

        Total available-for-sale

 

$

842,587

 

 

$

9,625

 

 

$

(2,897

)

 

$

849,315

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

    U.S. treasury securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    U.S. govt. sponsored enterprises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    State, county, and municipal

 

 

10,936

 

 

 

2

 

 

 

(119

)

 

 

10,819

 

    Corporate debt obligations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

        Total held-to-maturity

 

$

10,936

 

 

$

2

 

 

$

(119

)

 

$

10,819

 

11


 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

346,001

 

 

$

5,034

 

 

$

(438

)

 

$

350,597

 

    U.S. govt. sponsored enterprises

 

 

34,963

 

 

 

1,272

 

 

 

(4

)

 

 

36,231

 

    State, county, and municipal

 

 

98,026

 

 

 

5,220

 

 

 

(17

)

 

 

103,229

 

    Corporate debt obligations

 

 

3,166

 

 

 

51

 

 

 

-

 

 

 

3,217

 

        Total available-for-sale

 

$

482,156

 

 

$

11,577

 

 

$

(459

)

 

$

493,274

 

 

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.

The following table summarizes securities with unrealized and unrecognized losses as of September 30, 2021 and December 31, 2020 aggregated by major security type and length of time in a continuous unrealized or unrecognized loss position (amounts in thousands):

 

 

 

Less Than 12 Months

 

 

More Than 12 Months

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

253,923

 

 

$

2,583

 

 

$

8,664

 

 

$

48

 

 

$

262,587

 

 

$

2,631

 

    U.S. treasury securities

 

 

56,820

 

 

 

155

 

 

 

-

 

 

 

-

 

 

 

56,820

 

 

 

155

 

    U.S. govt. sponsored enterprises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    State, county & municipal

 

 

6,815

 

 

 

83

 

 

 

625

 

 

 

10

 

 

 

7,440

 

 

 

93

 

    Corporate debt obligations

 

 

3,033

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

3,033

 

 

 

18

 

      Total available-for-sale

 

$

320,591

 

 

$

2,839

 

 

$

9,289

 

 

$

58

 

 

$

329,880

 

 

$

2,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

    U.S. treasury securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    U.S. govt. sponsored enterprises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    State, county & municipal

 

 

9,484

 

 

 

119

 

 

 

-

 

 

 

-

 

 

 

9,484

 

 

 

119

 

    Corporate debt obligations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

      Total held-to-maturity

 

$

9,484

 

 

$

119

 

 

$

-

 

 

$

-

 

 

$

9,484

 

 

$

119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

125,431

 

 

$

438

 

 

$

-

 

 

$

-

 

 

$

125,431

 

 

$

438

 

    U.S. govt. sponsored enterprises

 

 

2,496

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

2,496

 

 

 

4

 

    State, county & municipal

 

 

2,945

 

 

 

17

 

 

 

-

 

 

 

-

 

 

 

2,945

 

 

 

17

 

Corporate debt obligations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

      Total available-for-sale

 

$

130,872

 

 

$

459

 

 

$

-

 

 

$

-

 

 

$

130,872

 

 

$

459

 

 

As of September 30, 2021, 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. The 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 0 other-than-temporary impairments charged to earnings during the nine months ended September 30, 2021 or 2020.  The Company owned a total of 88 securities with unrealized losses of $3.02 million at September 30, 2021. As of September 30, 2021 and December 31, 2020, securities with a carrying value of approximately $182.5 million and $129.0 million, respectively, were pledged to secure public deposits as required by law. At September 30, 2021 and December 31, 2020, the carrying value of securities pledged to secure repurchase agreements was approximately $19.9 million and $15.2 million, respectively.    

12


 

During the nine months ended September 30, 2021, the Company sold investment securities for proceeds of  $4.4 million and realized gains of $7 thousand.  During the nine months ended September 30, 2020, the Company sold investment securities for proceeds of $14.5 million and realized losses of $48 thousand.  

The amortized cost and estimated fair value of debt securities at September 30, 2021 and December 31, 2020, 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.  

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Less than 1 year

 

$

11,517

 

 

$

11,622

 

 

$

7,443

 

 

$

7,532

 

  1 to 5 years

 

 

84,491

 

 

 

85,511

 

 

 

31,821

 

 

 

33,227

 

  5 to 10 years

 

 

55,856

 

 

 

56,258

 

 

 

21,299

 

 

 

22,021

 

  After 10 years

 

 

74,768

 

 

 

78,671

 

 

 

75,592

 

 

 

79,897

 

 

 

 

226,632

 

 

 

232,062

 

 

 

136,155

 

 

 

142,677

 

  Residential mortgage-backed securities

 

 

615,955

 

 

 

617,253

 

 

 

346,001

 

 

 

350,597

 

    Total available-for-sale

 

$

842,587

 

 

$

849,315

 

 

$

482,156

 

 

$

493,274

 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Securities held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Less than 1 year

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

  1 to 5 years

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

  5 to 10 years

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

  After 10 years

 

 

10,936

 

 

 

10,819

 

 

 

-

 

 

 

-

 

 

 

 

10,936

 

 

 

10,819

 

 

 

-

 

 

 

-

 

  Residential mortgage-backed securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    Total held-to-maturity

 

$

10,936

 

 

$

10,819

 

 

$

-

 

 

$

-

 

 

13


 

 

Note 5 – Loans, Allowance for Loan Losses and Credit Quality

Major classifications of loans at September 30, 2021 and December 31, 2020 are summarized as follows (amounts in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Amount

 

 

% of Total

 

 

Amount

 

 

% of Total

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closed-end 1-4 family - first lien

 

$

295,527

 

 

 

24.3

%

 

$

252,528

 

 

 

21.6

%

Closed-end 1-4 family - junior lien

 

 

6,151

 

 

 

0.5

%

 

 

8,343

 

 

 

0.7

%

Multi-family

 

 

10,570

 

 

 

0.8

%

 

 

10,817

 

 

 

0.9

%

Total residential real estate

 

 

312,248

 

 

 

25.6

%

 

 

271,688

 

 

 

23.2

%

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonfarm nonresidential

 

 

341,837

 

 

 

28.1

%

 

 

317,279

 

 

 

27.1

%

Farmland

 

 

41,034

 

 

 

3.4

%

 

 

34,586

 

 

 

3.0

%

Total commercial real estate

 

 

382,871

 

 

 

31.5

%

 

 

351,865

 

 

 

30.1

%

Construction and land development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

89,556

 

 

 

7.4

%

 

 

71,784

 

 

 

6.1

%

Other

 

 

92,549

 

 

 

7.6

%

 

 

78,818

 

 

 

6.7

%

Total construction and land development

 

 

182,105

 

 

 

15.0

%

 

 

150,602

 

 

 

12.8

%

Home equity lines of credit

 

 

47,942

 

 

 

3.9

%

 

 

43,424

 

 

 

3.7

%

Commercial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other commercial loans

 

 

208,503

 

 

 

17.0

%

 

 

279,385

 

 

 

23.9

%

Agricultural

 

 

44,753

 

 

 

3.7

%

 

 

29,854

 

 

 

2.6

%

State, county, and municipal loans

 

 

23,528

 

 

 

1.9

%

 

 

25,922

 

 

 

2.2

%

Total commercial loans

 

 

276,784

 

 

 

22.6

%

 

 

335,161

 

 

 

28.7

%

Consumer loans

 

 

42,780

 

 

 

3.5

%

 

 

40,646

 

 

 

3.5

%

Total gross loans

 

 

1,244,730

 

 

 

102.1

%

 

 

1,193,386

 

 

 

102.0

%

Allowance for loan losses

 

 

(20,047

)

 

 

-1.6

%

 

 

(16,803

)

 

 

-1.4

%

Net discounts

 

 

(541

)

 

 

0.0

%

 

 

(1,010

)

 

 

-0.1

%

Net deferred loan fees

 

 

(6,458

)

 

 

-0.5

%

 

 

(5,794

)

 

 

-0.5

%

Net loans

 

$

1,217,684

 

 

 

100.0

%

 

$

1,169,779

 

 

 

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. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to-income, collateral type and loan-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 3 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 of non-real estate commercial loans and consumer loans have not been further 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:

 

Residential real estate and home equity lines of credit are repaid by various means such as through a borrower’s income, sale of the property, or rental income derived from the property.

 

14


 

 

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 through 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 states 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 by 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 by portfolio segment. It also includes 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 below (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.

 

 

 

Real Estate Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

Home Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Land

 

 

Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses

 

Residential

 

 

Commercial

 

 

Development

 

 

Of Credit

 

 

Commercial

 

 

Consumer

 

 

Total

 

Balance - December 31, 2020

 

$

1,676

 

 

$

6,807

 

 

$

1,749

 

 

$

268

 

 

$

5,897

 

 

$

406

 

 

$

16,803

 

Provision (credit) for loan losses

 

 

529

 

 

 

1,767

 

 

 

815

 

 

 

79

 

 

 

452

 

 

 

(84

)

 

 

3,558

 

Loan charge-offs

 

 

(105

)

 

 

(181

)

 

 

(2

)

 

 

-

 

 

 

(254

)

 

 

(56

)

 

 

(598

)

Loan recoveries

 

 

60

 

 

 

35

 

 

 

7

 

 

 

-

 

 

 

122

 

 

 

60

 

 

 

284

 

     Balance - September 30, 2021

 

$

2,160

 

 

$

8,428

 

 

$

2,569

 

 

$

347

 

 

$

6,217

 

 

$

326

 

 

$

20,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

33

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

186

 

 

$

66

 

 

$

285

 

Collectively evaluated for impairment

 

 

2,127

 

 

 

8,428

 

 

 

2,569

 

 

 

347

 

 

 

6,031

 

 

 

260

 

 

 

19,762

 

Total

 

$

2,160

 

 

$

8,428

 

 

$

2,569

 

 

$

347

 

 

$

6,217

 

 

$

326

 

 

$

20,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

658

 

 

$

2,020

 

 

$

-

 

 

$

303

 

 

$

186

 

 

$

66

 

 

$

3,233

 

Collectively evaluated for impairment

 

 

311,407

 

 

 

380,839

 

 

 

182,094

 

 

 

47,639

 

 

 

276,598

 

 

 

42,714

 

 

 

1,241,291

 

Acquired loans with deteriorated credit quality

 

 

183

 

 

 

12

 

 

 

11

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

206

 

Total

 

$

312,248

 

 

$

382,871

 

 

$

182,105

 

 

$

47,942

 

 

$

276,784

 

 

$

42,780

 

 

$

1,244,730

 

15


 

 

 

 

 

Real Estate Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

Home Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Land

 

 

Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses

 

Residential

 

 

Commercial

 

 

Development

 

 

Of Credit

 

 

Commercial

 

 

Consumer

 

 

Total

 

Balance - December 31, 2019

 

$

1,412

 

 

$

3,601

 

 

$

987

 

 

$

344

 

 

$

1,910

 

 

$

425

 

 

$

8,679

 

Provision (credit) for loan losses

 

 

175

 

 

 

3,008

 

 

 

699

 

 

 

(86

)

 

 

3,936

 

 

 

66

 

 

 

7,798

 

Loan charge-offs

 

 

(52

)

 

 

-

 

 

 

(59

)

 

 

-

 

 

 

(232

)

 

 

(94

)

 

 

(437

)

Loan recoveries

 

 

6

 

 

 

17

 

 

 

109

 

 

 

19

 

 

 

108

 

 

 

34

 

 

 

293

 

     Balance - September 30, 2020

 

$

1,541

 

 

$

6,626

 

 

$

1,736

 

 

$

277

 

 

$

5,722

 

 

$

431

 

 

$

16,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

31

 

 

$

17

 

 

$

-

 

 

$

-

 

 

$

335

 

 

$

84

 

 

$

467

 

Collectively evaluated for impairment

 

 

1,510

 

 

 

6,609

 

 

 

1,736

 

 

 

277

 

 

 

5,387

 

 

 

347

 

 

 

15,866

 

Total

 

$

1,541

 

 

$

6,626

 

 

$

1,736

 

 

$

277

 

 

$

5,722

 

 

$

431

 

 

$

16,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,029

 

 

$

3,562

 

 

$

137

 

 

$

408

 

 

$

440

 

 

$

84

 

 

$

5,660

 

Collectively evaluated for impairment

 

 

264,093

 

 

 

341,129

 

 

 

143,607

 

 

 

44,076

 

 

 

359,162

 

 

 

40,531

 

 

 

1,192,598

 

Acquired loans with deteriorated credit quality

 

 

324

 

 

 

885

 

 

 

7

 

 

 

-

 

 

 

54

 

 

 

15

 

 

 

1,285

 

Total

 

$

265,446

 

 

$

345,576

 

 

$

143,751

 

 

$

44,484

 

 

$

359,656

 

 

$

40,630

 

 

$

1,199,543

 

 

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 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. Impaired loans are generally placed on nonaccrual status and therefore interest payments received on impaired loans are generally applied as a reduction of the outstanding principal balance.

 

All other loans are deemed to 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.

 

Treatment of Pandemic-related Loan Modifications Pursuant to the CARES Act and Interagency Statement

 

Section 4013 of the CARES Act, enacted on March 27, 2020, provides that, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 pandemic declared by the President of the United States under the National Emergencies Act terminates (the “applicable period”), we may elect to suspend GAAP for loan modifications related to the pandemic that would otherwise be categorized as troubled debt restructurings (TDR) and suspend any determination of a loan modified as a result of the effects of the pandemic as being a TDR, including impairment for accounting purposes. The suspension is applicable for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019. The suspension is not applicable to any adverse impact on the credit of a borrower that is not related to the pandemic.

 

16


 

 

In addition, our banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the staff of the Financial Accounting Standards Board that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease losses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the pandemic as past due because of the deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual.

 

We have received requests from our borrowers for loan and lease deferrals and modifications including the deferral of principal payments or the deferral of principal and interest payments for terms generally around 90-180 days. Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower.  In total, the Bank placed approximately $167 million of loans on a loan deferral plan as part of COVID-19 modifications.  As of September 30, 2021, approximately $283 thousand of these loans remain on deferral. In accordance with Section 4013 of the CARES Act and the interagency statement, we have not accounted for such loans as TDRs, nor have we designated them as past due or nonaccrual.  The risk ratings for these loans are evaluated regularly and evaluated for impairment if deemed necessary.

17


 

The following table presents impaired loans by class of loans as of September 30, 2021 (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.

 

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 real estate

 

$

498

 

 

$

498

 

 

$

498

 

 

$

-

 

 

$

-

 

Commercial real estate

 

 

889

 

 

 

889

 

 

 

889

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total mortgage loans on real estate

 

 

1,387

 

 

 

1,387

 

 

 

1,387

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

201

 

 

 

201

 

 

 

201

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

186

 

 

 

186

 

 

 

-

 

 

 

186

 

 

 

186

 

Consumer loans

 

 

66

 

 

 

66

 

 

 

-

 

 

 

66

 

 

 

66

 

Total Loans

 

$

1,840

 

 

$

1,840

 

 

$

1,588

 

 

$

252

 

 

$

252

 

 

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

 

$

160

 

 

$

160

 

 

$

101

 

 

$

59

 

 

$

33

 

Commercial real estate

 

 

1,131

 

 

 

1,131

 

 

 

1,131

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total mortgage loans on real estate

 

 

1,291

 

 

 

1,291

 

 

 

1,232

 

 

 

59

 

 

 

33

 

Home equity lines of credit

 

 

102

 

 

 

102

 

 

 

102

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Loans

 

$

1,393

 

 

$

1,393

 

 

$

1,334

 

 

$

59

 

 

$

33

 

 

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

 

$

658

 

 

$

658

 

 

$

599

 

 

$

59

 

 

$

33

 

Commercial real estate

 

 

2,020

 

 

 

2,020

 

 

 

2,020

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total mortgage loans on real estate

 

 

2,678

 

 

 

2,678

 

 

 

2,619

 

 

 

59

 

 

 

33

 

Home equity lines of credit

 

 

303

 

 

 

303

 

 

 

303

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

186

 

 

 

186

 

 

 

-

 

 

 

186

 

 

 

186

 

Consumer loans

 

 

66

 

 

 

66

 

 

 

-

 

 

 

66

 

 

 

66

 

Total Loans

 

$

3,233

 

 

$

3,233

 

 

$

2,922

 

 

$

311

 

 

$

285

 

 

18


 

 

The following table presents impaired loans by class of loans as of December 31, 2020 (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.

 

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 real estate

 

$

633

 

 

$

633

 

 

$

523

 

 

$

110

 

 

$

34

 

Commercial real estate

 

 

1,014

 

 

 

1,014

 

 

 

1,014

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

432

 

 

 

432

 

 

 

432

 

 

 

-

 

 

 

-

 

Total mortgage loans on real estate

 

 

2,079

 

 

 

2,079

 

 

 

1,969

 

 

 

110

 

 

 

34

 

Home equity lines of credit

 

 

207

 

 

 

207

 

 

 

207

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer loans

 

 

82

 

 

 

82

 

 

 

-

 

 

 

82

 

 

 

82

 

Total Loans

 

$

2,368

 

 

$

2,368

 

 

$

2,176

 

 

$

192

 

 

$

116

 

 

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

 

$

166

 

 

$

166

 

 

$

104

 

 

$

62

 

 

$

36

 

Commercial real estate

 

 

2,070

 

 

 

2,070

 

 

 

2,070

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total mortgage loans on real estate

 

 

2,236

 

 

 

2,236

 

 

 

2,174

 

 

 

62

 

 

 

36

 

Home equity lines of credit

 

 

201

 

 

 

201

 

 

 

201

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

294

 

 

 

294

 

 

 

103

 

 

 

191

 

 

 

191

 

Consumer loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Loans

 

$

2,731

 

 

$

2,731

 

 

$

2,478

 

 

$

253

 

 

$

227

 

 

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

 

$

799

 

 

$

799

 

 

$

627

 

 

$

172

 

 

$

70

 

Commercial real estate

 

 

3,084

 

 

 

3,084

 

 

 

3,084

 

 

 

-

 

 

 

-

 

Construction and land development

 

 

432

 

 

 

432

 

 

 

432

 

 

 

-

 

 

 

-

 

Total mortgage loans on real estate

 

 

4,315

 

 

 

4,315

 

 

 

4,143

 

 

 

172

 

 

 

70

 

Home equity lines of credit

 

 

408

 

 

 

408

 

 

 

408

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

294

 

 

 

294

 

 

 

103

 

 

 

191

 

 

 

191

 

Consumer loans

 

 

82

 

 

 

82

 

 

 

-

 

 

 

82

 

 

 

82

 

Total Loans

 

$

5,099

 

 

$

5,099

 

 

$

4,654

 

 

$

445

 

 

$

343

 

 

19


 

 

The following table presents the average recorded investment in impaired loans and the interest income recognized on impaired loans in the nine months ended September 30, 2021 and 2020 by loan category (amounts in thousands).

 

 

 

Nine  Months Ended

 

 

Nine  Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

Average

 

 

Ending

 

 

 

 

 

 

Average

 

 

Ending

 

 

 

 

 

 

 

Recorded

 

 

Recorded

 

 

Interest

 

 

Recorded

 

 

Recorded

 

 

Interest

 

 

 

Investment

 

 

Investment

 

 

Income

 

 

Investment

 

 

Investment

 

 

Income

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

796

 

 

$

658

 

 

$

9

 

 

$

736

 

 

$

1,029

 

 

$

19

 

Commercial real estate

 

 

2,594

 

 

 

2,020

 

 

 

66

 

 

 

2,695

 

 

 

3,562

 

 

 

115

 

Construction and land development

 

 

175

 

 

 

-

 

 

 

-

 

 

 

141

 

 

 

137

 

 

 

5

 

Total mortgage loans on real estate

 

 

3,565

 

 

 

2,678

 

 

 

75

 

 

 

3,572

 

 

 

4,728

 

 

 

139

 

Home equity lines of credit

 

 

355

 

 

 

303

 

 

 

6

 

 

 

338

 

 

 

408

 

 

 

7

 

Commercial loans

 

 

264

 

 

 

186

 

 

 

5

 

 

 

416

 

 

 

440

 

 

 

15

 

Consumer loans

 

 

74

 

 

 

66

 

 

 

-

 

 

 

21

 

 

 

84

 

 

 

-

 

Total Loans

 

$

4,258

 

 

$

3,233

 

 

$

86

 

 

$

4,347

 

 

$

5,660

 

 

$

161

 

 

The following tables present the aging of loans and non-accrual loans as of September 30, 2021 and December 31, 2020, by class of loans (amounts in thousands).

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

Current

 

 

30-89 Days

Past Due

 

 

90+ Days

Past Due

 

 

Nonaccrual

Loans

 

 

Total Loans

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

310,467

 

 

$

725

 

 

$

100

 

 

$

956

 

 

$

312,248

 

Commercial real estate

 

 

380,918

 

 

 

1,064

 

 

 

-

 

 

 

889

 

 

 

382,871

 

Construction and land development

 

 

181,514

 

 

 

546

 

 

 

-

 

 

 

45

 

 

 

182,105

 

Total mortgage loans on real estate

 

 

872,899

 

 

 

2,335

 

 

 

100

 

 

 

1,890

 

 

 

877,224

 

Home equity lines of credit

 

 

47,583

 

 

 

121

 

 

 

-

 

 

 

238

 

 

 

47,942

 

Commercial loans

 

 

276,383

 

 

 

163

 

 

 

-

 

 

 

238

 

 

 

276,784

 

Consumer loans

 

 

42,459

 

 

 

149

 

 

 

23

 

 

 

149

 

 

 

42,780

 

Total Loans

 

$

1,239,324

 

 

$

2,768

 

 

$

123

 

 

$

2,515

 

 

$

1,244,730

 

 

 

 

Accruing Loans

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

Current

 

 

30-89 Days

Past Due

 

 

90+ Days

Past Due

 

 

Nonaccrual

Loans

 

 

Total Loans

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Residential real estate

 

$

268,650

 

 

$

1,188

 

 

$

386

 

 

$

1,464

 

 

$

271,688

 

  Commercial real estate

 

 

349,677

 

 

 

388

 

 

 

12

 

 

 

1,788

 

 

 

351,865

 

  Construction and land development

 

 

150,127

 

 

 

29

 

 

 

-

 

 

 

446

 

 

 

150,602

 

     Total mortgage loans on real estate

 

 

768,454

 

 

 

1,605

 

 

 

398

 

 

 

3,698

 

 

 

774,155

 

Home equity lines of credit

 

 

43,069

 

 

 

109

 

 

 

-

 

 

 

246

 

 

 

43,424

 

Commercial loans

 

 

334,881

 

 

 

188

 

 

 

-

 

 

 

92

 

 

 

335,161

 

Consumer loans

 

 

40,205

 

 

 

213

 

 

 

-

 

 

 

228

 

 

 

40,646

 

Total Loans

 

$

1,186,609

 

 

$

2,115

 

 

$

398

 

 

$

4,264

 

 

$

1,193,386

 

 

20


 

 

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, 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 on non-accrual, analyzed and fully or partially charged-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 September 30, 2021 and December 31, 2020, and based on the most recent analysis performed as of those dates, the risk category of loans by class of loans is as follows (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

307,406

 

 

$

3,368

 

 

$

1,474

 

 

$

-

 

 

$

312,248

 

Commercial real estate

 

 

369,475

 

 

 

7,311

 

 

 

6,085

 

 

 

-

 

 

 

382,871

 

Construction and land development

 

 

180,897

 

 

 

675

 

 

 

533

 

 

 

-

 

 

 

182,105

 

Total mortgage loans on real estate

 

 

857,778

 

 

 

11,354

 

 

 

8,092

 

 

 

-

 

 

 

877,224

 

Home equity lines of credit

 

 

47,435

 

 

 

30

 

 

 

477

 

 

 

-

 

 

 

47,942

 

Commercial loans

 

 

270,542

 

 

 

5,684

 

 

 

558

 

 

 

-

 

 

 

276,784

 

Consumer loans

 

 

42,240

 

 

 

275

 

 

 

264

 

 

 

1

 

 

 

42,780

 

Total Loans

 

$

1,217,995

 

 

$

17,343

 

 

$

9,391

 

 

$

1

 

 

$

1,244,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

266,173

 

 

$

3,616

 

 

$

1,899

 

 

$

-

 

 

$

271,688

 

Commercial real estate

 

 

340,652

 

 

 

6,918

 

 

 

4,295

 

 

 

-

 

 

 

351,865

 

Construction and land development

 

 

149,625

 

 

 

407

 

 

 

570

 

 

 

-

 

 

 

150,602

 

Total mortgage loans on real estate

 

 

756,450

 

 

 

10,941

 

 

 

6,764

 

 

 

-

 

 

 

774,155

 

Home equity lines of credit

 

 

42,879

 

 

 

59

 

 

 

486

 

 

 

-

 

 

 

43,424

 

Commercial loans

 

 

327,913

 

 

 

6,809

 

 

 

439

 

 

 

-

 

 

 

335,161

 

Consumer loans

 

 

39,929

 

 

 

360

 

 

 

357

 

 

 

-

 

 

 

40,646

 

Total Loans

 

$

1,167,171

 

 

$

18,169

 

 

$

8,046

 

 

$

-

 

 

$

1,193,386

 

 

21


 

 

Note 6 – Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-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, foreclosed assets, 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 Hierarchy

The 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.

The following 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 deposit in banks – For disclosure purposes, the carrying amount of certificates of deposit is a reasonable estimate of fair value.

Securities available-for-sale – Securities available-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, repayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. 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.

 

Restricted equity securities – It is not practical to determine the fair value of restricted equity securities due to restrictions placed on transferability.

 

Loans and mortgage loans held-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. As of September 30, 2021 and December 31, 2020, 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 were charged down according to the fair value of collateral, require classification in the fair value hierarchy. When the fair value of the collateral is based on an 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 rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value.  Mortgage loans held-for-sale are carried at cost, which is a reasonable estimate of fair value.

 

Bank owned life insurance – For disclosure purposes, the fair value of the cash surrender value of bank owned life insurance policies is equivalent to the carrying value.

 

22


 

 

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 nonrecurring Level 2. When the fair value is based on an appraised value or management’s estimate of value, the Company records the foreclosed asset as nonrecurring Level 3.

Deposit liabilities – For disclosure purposes, the fair value for demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.

 

Accrued interest payable 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 securities sold under agreements to repurchase approximate their fair values.

Federal Home Loan Bank advances – For disclosure purposes, the fair value of Federal Home Loan Bank advances is estimated using discounted cash flow analyses using interest rates offered for borrowings with similar maturities.

 

Federal funds purchased For disclosure purposes, the fair value of federal funds purchased is the carrying value.

Note payable – For disclosure purposes, the carrying amount of the adjustable rate note payable approximates fair value.

Subordinated debentures – For disclosure purposes, the fair value is estimated using a discounted cash flow calculation that applies interest rates currently being offered for similar subordinated debenture offerings.

 

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.


23


 

 

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 securities available-for-sale.  There were 0 transfers between levels during the period.  Information related to the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 is as follows: (amounts in thousands)

 

 

 

Fair Value Measurements At Reporting Date Using:

 

September 30, 2021

 

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

 

$

617,253

 

 

$

-

 

 

$

617,253

 

 

$

-

 

U.S. treasury securities

 

 

97,371

 

 

 

-

 

 

 

97,371

 

 

 

-

 

U.S. government sponsored enterprises

 

 

27,216

 

 

 

-

 

 

 

27,216

 

 

 

-

 

State, county, and municipal

 

 

98,199

 

 

 

-

 

 

 

98,199

 

 

 

-

 

Corporate debt obligations

 

 

9,276

 

 

 

-

 

 

 

9,276

 

 

 

-

 

Totals

 

$

849,315

 

 

$

-

 

 

$

849,315

 

 

$

-

 

 

 

 

Fair Value Measurements At Reporting Date Using:

 

December 31, 2020

 

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

 

$

350,597

 

 

$

-

 

 

$

350,597

 

 

$

-

 

U.S. government sponsored enterprises

 

 

36,231

 

 

 

-

 

 

 

36,231

 

 

 

-

 

State, county, and municipal

 

 

103,229

 

 

 

-

 

 

 

103,229

 

 

 

-

 

Corporate debt obligations

 

 

3,217

 

 

 

-

 

 

 

3,217

 

 

 

-

 

Totals

 

$

493,274

 

 

$

-

 

 

$

493,274

 

 

$

-

 

24


 

 

Assets measured at fair value on a nonrecurring basis – The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at 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 are included in the table below as of September 30, 2021 and December 31, 2020 (amounts in thousands):

 

 

 

Fair Value Measurements At Reporting Date Using:

 

September 30, 2021

 

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

 

$

2,948

 

 

$

-

 

 

$

-

 

 

$

2,948

 

Foreclosed assets

 

 

650

 

 

 

-

 

 

 

-

 

 

 

650

 

Totals

 

$

3,598

 

 

$

-

 

 

$

-

 

 

$

3,598

 

 

December 31, 2020

 

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

 

$

4,756

 

 

$

-

 

 

$

-

 

 

$

4,756

 

Foreclosed assets

 

 

240

 

 

 

-

 

 

 

-

 

 

 

240

 

Totals

 

$

4,996

 

 

$

-

 

 

$

-

 

 

$

4,996

 

 

The 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. For Level 3 assets measured at fair value on a non-recurring basis as of September 30, 2021 and December 31, 2020 for the valuation technique, we used appraisals.  For the significant unobservable input, we used appraisal discounts, and weighted average input of 15-20% was used for the period ended September 30, 2021 and December 31, 2020.

25


 

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments as of September 30, 2021 and December 31, 2020 are as follows (amounts in thousands):

 

 

 

 

 

 

 

Estimated Fair Value

 

September 30, 2021

 

Carrying Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

71,415

 

 

$

71,415

 

 

$

-

 

 

$

-

 

Certificates of deposit in banks

 

 

3,660

 

 

 

-

 

 

 

3,660

 

 

 

-

 

Securities held-to-maturity

 

 

10,936

 

 

 

-

 

 

 

10,819

 

 

 

-

 

Securities available-for-sale

 

 

849,315

 

 

 

-

 

 

 

849,315

 

 

 

-

 

Loans held-for-sale

 

 

18,031

 

 

 

-

 

 

 

18,031

 

 

 

-

 

Loans receivable

 

 

1,217,684

 

 

 

-

 

 

 

1,223,822

 

 

 

2,948

 

Accrued interest receivable

 

 

6,945

 

 

 

-

 

 

 

6,945

 

 

 

-

 

Bank owned life insurance

 

 

44,851

 

 

 

-

 

 

 

44,851

 

 

 

-

 

Restricted equity securities

 

 

1,482

 

 

 

-

 

 

 

-

 

 

 

1,482

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,067,260

 

 

 

-

 

 

 

2,027,608

 

 

 

-

 

Securities sold under agreements to repurchase

 

 

9,432

 

 

 

-

 

 

 

9,432

 

 

 

-

 

Subordinated debentures

 

 

39,325

 

 

 

-

 

 

 

40,917

 

 

 

-

 

Accrued interest payable

 

 

214

 

 

 

-

 

 

 

214

 

 

 

-

 

 

 

 

 

 

 

 

Estimated Fair Value

 

December 31, 2020

 

Carrying Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,268

 

 

$

60,268

 

 

$

-

 

 

$

-

 

Certificates of deposit in banks

 

 

4,155

 

 

 

-

 

 

 

4,155

 

 

 

-

 

Securities available-for-sale

 

 

493,274

 

 

 

-

 

 

 

493,274

 

 

 

-

 

Loans held-for-sale

 

 

24,004

 

 

 

-

 

 

 

24,004

 

 

 

-

 

Loans receivable

 

 

1,169,779

 

 

 

-

 

 

 

1,184,010

 

 

 

4,756

 

Accrued interest receivable

 

 

6,799

 

 

 

-

 

 

 

6,799

 

 

 

-

 

Bank owned life insurance

 

 

29,016

 

 

 

-

 

 

 

29,016

 

 

 

-

 

Restricted equity securities

 

 

1,777

 

 

 

-

 

 

 

-

 

 

 

1,777

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,653,635

 

 

 

-

 

 

 

1,640,680

 

 

 

-

 

Securities sold under agreements to repurchase

 

 

13,653

 

 

 

-

 

 

 

13,653

 

 

 

-

 

Note payable

 

 

20,392

 

 

 

-

 

 

 

20,392

 

 

 

-

 

Accrued interest payable

 

 

455

 

 

 

-

 

 

 

455

 

 

 

-

 

 

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 as of September 30, 2021 and December 31, 2020.

 

The 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 the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to 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 Company’s overall interest rate risk.

 

26


 

 

Note 7 – Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, “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 and off-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 require re-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 was previously effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. During 2019, the FASB approved to delay the implementation date for this ASU for small SEC reporting companies, from the first quarter of 2020 to the first quarter of 2023. 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.

 

Note 8 – 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 $19.5 thousand of the participant’s annual compensation in both 2021 and 2020. 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 the Company were approximately $439 thousand and $401 thousand for the nine months ended September 30, 2021 and 2020, respectively.  Outstanding shares of the Company’s common stock allocated to participants at September 30, 2021 and December 31, 2020 totaled 120,015 and 83,316 shares respectively, and there were 0 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 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 2 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 September 30, 2021 and December 31, 2020. The cost of the KSOP shares totaled $2.67 million and $1.73 million as of September 30, 2021 and December 31, 2020, 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 $2.67 million and $1.73 million as of September 30, 2021 and December 31, 2020, respectively. The fair value of the KSOP shares totaled $4.02 million and $2.42 million as of September 30, 2021 and December 31, 2020, respectively.

27


 

Note 9 – Loans Held for Sale

 

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a thirty day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of September 30, 2021 and December 31, 2020, respectively, were not material.

 

Note 10 – 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 ASU No. 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 a right-of-use (ROU) asset and a corresponding lease liability. The Company elected to use the optional transition method, which allowed for a modified retrospective method of adoption with an immaterial cumulative effect adjustment to retained earnings without restating comparable periods.  The Company also elected the relief package of practical expedients for which there is no requirement to reassess existence of leases, their classification, and initial direct costs.  The Company also applied the exemption for short-term leases with a term of less than one year and therefore we do not recognize a lease liability or right-of-use asset on the balance sheet but instead recognize lease payments as an expense over the lease term as appropriate.  

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.

 

Lease Right-of-Use Assets

 

Classification on Consolidated Statement of Condition

 

September 30, 2021

 

 

December 31, 2020

 

Operating lease right-of-use assets

 

Other Assets

 

$

1,750

 

 

$

1,636

 

 

 

 

 

 

 

 

 

 

 

 

Lease Liabilities

 

Classification on Consolidated Statement of Condition

 

September 30, 2021

 

 

December 31, 2020

 

Operating lease liabilities

 

Accrued interest payable and other liabilities

 

$

1,840

 

 

$

1,720

 


28


 

 

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.

 

 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Weighted-average remaining lease term for operating leases

 

5.77 Years

 

 

6.47 Years

 

Weighted-average discount rate for operating leases

 

 

6.00

%

 

 

6.00

%

 

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2021 are as follows:

 

 

 

 

Operating Leases

 

October 1, 2021 - September 30, 2022

 

 

 

$

432

 

October 1, 2022 - September 30, 2023

 

 

 

 

432

 

October 1, 2023 - September 30, 2024

 

 

 

 

375

 

October 1, 2024 - September 30, 2025

 

 

 

 

261

 

October 1, 2025 - September 30, 2026

 

 

 

 

229

 

Afterward

 

 

 

 

445

 

Total future minimum lease payments

 

 

2,174

 

Amounts representing interest

 

 

(334

)

Present value of net future minimum lease payments

 

$

1,840

 

 

 

 

 

 

 

 

 

29


 

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes thereto for the year ended December 31, 2020, which are contained in the Annual Report on Form 10-K for the year ended December 31, 2020. 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 our 2020 Annual Report on Form 10-K under “Part I, Item 1A - Risk Factors.” We assume no obligation to update any of these forward-looking statements.

 

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, yields, percentages and rates or when specifically identified. As used in this Item, the words “we,” “us,” “our,” the “Company,” “RFC,” “River” and similar terms refer to River Financial Corporation and its consolidated affiliate, unless the context indicates otherwise.

 

Current Developments regarding COVID-19

 

As a result of the COVID-19 pandemic, and the potential adverse effects it may have on our customers, including our loan and depositor relationships, we continue to assess how such developments could affect our business and operations.   We have taken the following steps to operate in an environment that is safe for both our employees and customers (and the public in general) and have implemented guidelines and programs to assist our customers and help ensure the safe and sound operation of our Bank.

 

Daily Operations

 

1.  We have established social distancing policies in keeping with federal and state of Alabama guidelines to help ensure the health of our employees.  To the extent possible, we have encouraged our employees to work remotely, and we believe such steps have been welcomed by, and helpful to, our employees.

 

2.  Currently, our lobbies at our main office and branches and public areas are open to walk-in business and other in-person visits by customers.   As long as our social distancing policies are being complied with, customers may, among other things, have in-person meetings at our facilities and access to their safe deposit boxes. We have installed plexiglass in lobby areas for employees that have regular contact with customers and masks are available for both employees and customers as needed.

 

3.  Our drive-through facilities at all our locations remain open for customer service, and we believe that the drive-through option for customers has worked well and minimized unnecessary contact or exposure.  All of our ATM locations are operative.

 

We expect to continue with the foregoing procedures until both the federal and state guidance provides comfort that a return to a more normal operation environment is advisable and we, too, are comfortable with such return.

 

Participation in Government Programs

 

We are participating in several government programs designed to assist customers, to bolster the economy and to provide protection for the Bank.

 

30


 

 

Paycheck Protection Program

 

The Bank has participated as a lender in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) as established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  The PPP was established under the CARES Act to provide unsecured low interest rate loans to small businesses that have been impacted by the COVID-19 pandemic.  The PPP loans are 100% guaranteed by the SBA.  The loans have a fixed interest rate of 1% and payments of interest and principal are deferred until the earlier of the date the SBA remits the forgiveness amount to the lender, the forgiveness application is denied, or if no forgiveness application is filed, ten months from the end of the covered period. If originated before June 5, 2020, loans mature two years from origination, and if origination occurred on or after June 5, 2020, loans mature five years from origination.  PPP loans are forgiven by the SBA (which makes forgiveness payments directly to the lender) to the extent the borrower uses the proceeds of the loan for certain purposes (primarily to fund payroll costs) during a certain time period following origination and maintains certain employee and compensation levels.  Lenders receive processing fees from the SBA for originating the PPP loans which are based on a percentage of the loan amount.  On December 27, 2020, legislation was enacted that renewed the PPP and allocated additional appropriations for both new first-time PPP loans under the existing PPP and second-draw PPP loans for certain eligible borrowers that had previously received a PPP loan. The PPP Program ended May 31, 2021, and no new loans under the program may be made after such date.  As of September 30, 2021, the Bank has approximately 1,233 PPP loans in the aggregate amount of approximately $66.1 million outstanding. At December 31, 2020, the Bank had approximately 2,188 PPP loans in the aggregate amount of approximately $139.1 million outstanding.

 

Our Business

 

We are a bank holding company headquartered in Prattville, Alabama. We engage in the business of banking through our wholly-owned banking subsidiary, River Bank & Trust, which we may refer to as the “Bank” or “River Bank.” Through the Bank, we provide a broad array of financial services to businesses, business owners, professionals, and consumers. As of September 30, 2021, we operated eighteen full-service banking offices in Alabama in the cities of Montgomery, Prattville, Millbrook, Wetumpka, Auburn, Opelika, Gadsden, Alexander City, Daphne, Clanton, Dothan, Enterprise, Thorsby, and Mobile, Alabama.  We also have a loan production office in Decatur, Alabama.

 

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 Third Quarter 2021 Results

 

Net income was $6.8 million in the quarter ended September 30, 2021, compared with $4.1 million in the quarter ended September 30, 2020. Several significant measures from the 2021 third quarter include:

 

Net interest margin (taxable equivalent) of 3.26%, compared with 3.48% for the third quarter of 2020.

 

Net interest income increase of $3.2 million for the quarter ended September 30, 2021, representing a 23.33% rate of increase over the quarter ended September 30, 2020.

 

Annualized return on average earning assets for the quarter ended September 30, 2021 of 1.29% compared with 1.01% for the quarter ended September 30, 2020.

 

Annualized return on average equity for the quarter ended September 30, 2021 of 15.76% compared with 10.23% for the quarter ended September 30, 2020.

 

Loan increase of $10,153 million during the quarter ended September 30, 2021, representing a 3.31% annualized growth rate.

 

Securities available-for-sale increase of $69.0 million during the quarter ended September 30, 2021, representing a 35.34% annualized increase for the quarter.

 

Deposit increase of $75.2 million during the quarter ended September 30, 2021, representing a 15.11% annualized growth rate.

31


 

 

Stockholders’ equity increase of $8.3 million during the quarter ended September 30, 2021 representing a 19.20% annualized increase.

 

Book value per share of $27.94 at September 30, 2021, compared with $25.87 per share at December 31, 2020.

 

Tangible book value per share of $23.20 at September 30, 2021, compared with $20.97 at December 31, 2020.

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, 2020, which are contained in our Annual Report filed on Form 10-K. 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, 2020, which are contained in our Annual Report on Form 10-K.

 

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 whether current tax law allows for the realization of recorded tax benefits.

 


32


 

 

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 nine months ended September 30, 2021 and 2020

 

The following is a narrative discussion and analysis of significant changes in our results of operations for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020.

 

Net Income

 

During the three months ended September 30, 2021, our net income was $6.8 million, compared to $4.1 million for the three months ended September 30, 2020, an increase of $2.7 million, or 68.01%. The primary reason for the increase in net income for the third quarter of 2021 as compared to the third quarter of 2020 was an increase in net interest income. During the three months ended September 30, 2021, net interest income was $17.2 million compared to $14.0 million for the three months ended September 30, 2020, an increase of $3.2 million, or 23.33%. This increase is a result of higher levels of loan and securities volume and other earning assets from organic growth as well as the recognition of origination fee income from the SBA Paycheck Protection Program. We were also able to lower interest expense by reducing deposit rates despite a significant amount of deposit growth during the period. The provision for loan losses also decreased approximately $1.7 million from the third quarter of 2020 to the third quarter of 2021.  The decrease in the provision for loan loss was a result of improving economic conditions as the local economy has improved.  Total noninterest income for the third quarter of 2021 was $3.9 million compared to $3.2 million for the quarter ended September 30, 2020. This increase in noninterest income was primarily the result of the $258 thousand increase in service charges and fees which was primarily due to deposit growth and a $391 thousand increase in secondary market mortgage operations income. Total noninterest expense in the third quarter of 2021 increased $2.2 million, or 24.23%, from the third quarter of 2020. The most significant increase was an increase of $1.7 million in salaries and employee benefits.  

 

During the nine months ended September 30, 2021, our net income was $19.6 million, compared to $11.4 million for the nine months ended September 30, 2020, an increase of $8.3 million, or 72.55%. The primary reason for the increase in net income for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was an increase in both net interest income and an increase in noninterest income. During this period in 2021, net interest income was $49.5 million compared to $40.3 million for the same period in 2020, an increase of $9.2 million, or 22.90%. This increase is a result of higher levels of loan and securities volume and other earning assets from organic growth as well as from the recognition of origination fee income from the SBA Paycheck Protection Program. We were also able to lower interest expense by reducing deposit rates despite a significant amount of deposit growth during the period.  The provision for loan losses also decreased approximately $4.2 million from the third quarter of 2020 to the third quarter of 2021.  The decrease in the provision for loan loss was a result of improving economic conditions as the local economy has improved.  Total noninterest income for the first nine months of 2021 was $11.0 million compared to $8.6 million in the first nine months of 2020. This increase was primarily the result of the $1.4 million increase in in secondary market mortgage origination income.  Total noninterest expense in the first nine months of 2021 increased $5.1 million, or 19.06%, from the first nine months of 2020. The most significant increase was an increase of $3.7 million in salaries and employee benefits.

 

33


 

 

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 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 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”.

 

Comparison of net interest income for the three months ended September 30, 2021 and 2020

The following table shows, for the three months ended September 30, 2021 and 2020, 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 September 30, 2021

 

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

Average

 

Income/

 

 

Average

 

 

Average

 

 

Income/

 

 

Average

 

 

 

Balance

 

Expense

 

 

Yield/Rate

 

 

Balance

 

 

Expense

 

 

Yield/Rate

 

Interest earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

1,224,244

 

$

15,901

 

 

 

5.15

%

 

$

1,164,557

 

 

$

14,238

 

 

 

4.85

%

Mortgage loans held for sale

 

 

23,743

 

 

103

 

 

 

1.84

%

 

 

22,324

 

 

 

143

 

 

 

2.54

%

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Taxable securities

 

 

716,354

 

 

2,093

 

 

 

1.16

%

 

 

310,144

 

 

 

1,105

 

 

 

1.41

%

  Tax-exempt securities

 

 

90,603

 

 

697

 

 

 

3.05

%

 

 

81,602

 

 

 

667

 

 

 

3.25

%

Interest bearing balances in other banks

 

 

55,351

 

 

34

 

 

 

0.24

%

 

 

32,068

 

 

 

26

 

 

 

0.33

%

Federal funds sold

 

 

10,349

 

 

7

 

 

 

0.25

%

 

 

6,305

 

 

 

4

 

 

 

0.25

%

  Total interest earning assets

 

$

2,120,644

 

$

18,835

 

 

 

3.52

%

 

$

1,617,000

 

 

$

16,183

 

 

 

3.97

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing transaction accounts

 

$

478,154

 

$

98

 

 

 

0.08

%

 

$

321,185

 

 

$

123

 

 

 

0.15

%

Savings and money market accounts

 

 

686,134

 

 

355

 

 

 

0.21

%

 

 

491,840

 

 

 

578

 

 

 

0.47

%

Time deposits

 

 

290,339

 

 

525

 

 

 

0.72

%

 

 

273,400

 

 

 

966

 

 

 

1.40

%

Short-term debt

 

 

10,143

 

 

3

 

 

 

0.11

%

 

 

10,417

 

 

 

2

 

 

 

0.10

%

Subordinated debt

 

 

39,327

 

 

410

 

 

 

4.13

%

 

 

-

 

 

 

-

 

 

 

0.00

%

Note payable

 

 

-

 

 

-

 

 

 

0.00

%

 

 

21,667

 

 

 

333

 

 

 

6.05

%

  Total interest bearing liabilities

 

$

1,504,097

 

$

1,391

 

 

 

0.37

%

 

$

1,118,509

 

 

$

2,002

 

 

 

0.71

%

Noninterest-bearing funding of earning assets

 

 

616,547

 

 

-

 

 

 

0.00

%

 

 

498,491

 

 

 

-

 

 

 

0.00

%

Total cost of funding earning assets

 

$

2,120,644

 

$

1,391

 

 

 

0.26

%

 

$

1,617,000

 

 

$

2,002

 

 

 

0.49

%

Net interest rate spread

 

 

 

 

 

 

 

 

 

3.15

%

 

 

 

 

 

 

 

 

 

 

3.26

%

Net interest income/margin (taxable equivalent)

 

 

 

 

$

17,444

 

 

 

3.26

%

 

 

 

 

 

$

14,181

 

 

 

3.48

%

Tax equivalent adjustment

 

 

 

 

 

(205

)

 

 

 

 

 

 

 

 

 

 

(203

)

 

 

 

 

Net interest income/margin

 

 

 

 

$

17,239

 

 

 

3.23

%

 

 

 

 

 

$

13,978

 

 

 

3.43

%

 

34


 

 

The following table reflects, for the three months ended September 30, 2021 and 2020, 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 September 30, 2021 vs.

 

 

 

Three Months Ended September 30, 2020

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

 

due to

 

 

 

 

 

 

 

Volume

 

Yield/Rate

 

 

Total

 

Interest earning assets

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

737

 

$

926

 

 

$

1,663

 

Mortgage loans held for sale

 

 

2

 

 

(42

)

 

 

(40

)

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

  Taxable securities

 

 

1,439

 

 

(451

)

 

 

988

 

  Tax-exempt securities

 

 

76

 

 

(46

)

 

 

30

 

Interest bearing balances in other banks

 

 

21

 

 

(13

)

 

 

8

 

Federal funds sold

 

 

3

 

 

-

 

 

 

3

 

  Total interest earning assets

 

$

2,278

 

$

374

 

 

$

2,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

Interest bearing transaction accounts

 

$

59

 

$

(84

)

 

$

(25

)

Savings and money market accounts

 

 

230

 

 

(453

)

 

 

(223

)

Time deposits

 

 

56

 

 

(497

)

 

 

(441

)

Short-term debt

 

 

1

 

 

-

 

 

 

1

 

Subordinated debentures

 

 

424

 

 

(14

)

 

 

410

 

Note payable

 

 

(333

)

 

-

 

 

 

(333

)

  Total interest bearing liabilities

 

$

437

 

$

(1,048

)

 

$

(611

)

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

 

 

 

 

 

 

Net interest income (taxable equivalent)

 

$

1,841

 

$

1,422

 

 

$

3,263

 

Taxable equivalent adjustment

 

 

(13

)

 

11

 

 

 

(2

)

    Net interest income

 

$

1,828

 

$

1,433

 

 

$

3,261

 

 

Total interest income for the three months ended September 30, 2021 was $18.6 million and total interest expense was $1.4 million, resulting in net interest income of $17.2 million for the period. For the same period of 2020, total interest income was $16.0 million and total interest expense was $2.0 million, resulting in net interest income of $14.0 million for the period. This represents a 23.33% increase in net interest income when comparing the same period from 2021 and 2020. When comparing the variances related to interest income for the three months ended September 30, 2021 and 2020, the increase was primarily attributed to increases in average volumes in loans and investment securities as well as from the recognition of origination fee income from the SBA Paycheck Protection Program. The volume related increase in interest income for the three months ended September 30, 2021 was accompanied by an increase in the yield on loans and a decrease in the yields on investment securities.  When comparing variances related to interest expense for the three months ended September 30, 2021 and 2020, the decrease primarily resulted from a decrease in deposit rates beginning in 2020 and continuing into 2021. This decrease was partially offset by an increase in the average volume of non-maturity deposits and time deposits.  

 

35


 

 

Comparison of net interest income for the nine months ended September 30, 2021 and 2020

The following table shows, for the nine months ended September 30, 2021 and 2020, 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.

 

 

 

Nine Months Ended September 30, 2021

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

 

 

 

 

Average

 

Income/

 

 

Average

 

 

Average

 

 

Income/

 

 

Average

 

 

 

Balance

 

Expense

 

 

Yield/Rate

 

 

Balance

 

 

Expense

 

 

Yield/Rate

 

Interest earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

1,210,272

 

$

46,817

 

 

 

5.17

%

 

$

1,053,457

 

 

$

41,135

 

 

 

5.20

%

Mortgage loans held for sale

 

 

22,801

 

 

332

 

 

 

1.95

%

 

 

15,132

 

 

 

303

 

 

 

2.67

%

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Taxable securities

 

 

582,115

 

 

5,119

 

 

 

1.18

%

 

 

270,839

 

 

 

3,829

 

 

 

1.88

%

  Tax-exempt securities

 

 

89,531

 

 

2,055

 

 

 

3.07

%

 

 

75,850

 

 

 

1,862

 

 

 

3.27

%

Interest bearing balances in other banks

 

 

55,222

 

 

95

 

 

 

0.23

%

 

 

37,525

 

 

 

201

 

 

 

0.71

%

Federal funds sold

 

 

11,111

 

 

21

 

 

 

0.25

%

 

 

2,119

 

 

 

4

 

 

 

0.25

%

  Total interest earning assets

 

$

1,971,052

 

$

54,439

 

 

 

3.70

%

 

$

1,454,922

 

 

$

47,334

 

 

 

4.35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing transaction accounts

 

$

438,365

 

$

275

 

 

 

0.08

%

 

$

295,048

 

 

$

477

 

 

 

0.22

%

Savings and money market accounts

 

 

629,382

 

 

1,088

 

 

 

0.23

%

 

 

431,069

 

 

 

1,858

 

 

 

0.57

%

Time deposits

 

 

285,165

 

 

1,776

 

 

 

0.83

%

 

 

259,471

 

 

 

3,111

 

 

 

1.60

%

Securities sold under repurchase agreements

 

 

10,856

 

 

8

 

 

 

0.10

%

 

 

8,993

 

 

 

14

 

 

 

0.21

%

Subordinated debentures

 

 

27,450

 

 

939

 

 

 

4.57

%

 

 

-

 

 

 

-

 

 

 

0.00

%

Note payable

 

 

6,537

 

 

242

 

 

 

4.95

%

 

 

22,509

 

 

 

1,029

 

 

 

6.09

%

  Total interest bearing liabilities

 

$

1,397,755

 

$

4,328

 

 

 

0.41

%

 

$

1,017,090

 

 

$

6,489

 

 

 

0.85

%

Noninterest-bearing funding of earning assets

 

 

573,297

 

 

-

 

 

 

0.00

%

 

 

437,832

 

 

 

-

 

 

 

0.00

%

Total cost of funding earning assets

 

$

1,971,052

 

$

4,328

 

 

 

0.29

%

 

$

1,454,922

 

 

$

6,489

 

 

 

0.59

%

Net interest rate spread

 

 

 

 

 

 

 

 

 

3.29

%

 

 

 

 

 

 

 

 

 

 

3.50

%

Net interest income/margin (taxable equivalent)

 

 

 

 

$

50,111

 

 

 

3.40

%

 

 

 

 

 

$

40,845

 

 

 

3.74

%

Tax equivalent adjustment

 

 

 

 

 

(606

)

 

 

 

 

 

 

 

 

 

 

(564

)

 

 

 

 

Net interest income/margin

 

 

 

 

$

49,505

 

 

 

3.36

%

 

 

 

 

 

$

40,281

 

 

 

3.69

%

36


 

 

 

The following table reflects, for the nine months ended September 30, 2021 and 2020, 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.

 

 

 

Nine Months Ended September 30, 2021 vs.

 

 

 

Nine Months Ended September 30, 2020

 

 

 

 

 

 

Variance

 

 

 

 

 

 

 

 

 

 

due to

 

 

 

 

 

 

 

Volume

 

Yield/Rate

 

 

Total

 

Interest earning assets

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

5,954

 

$

(272

)

 

$

5,682

 

Mortgage loans held for sale

 

 

152

 

 

(123

)

 

 

29

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

  Taxable securities

 

 

4,338

 

 

(3,048

)

 

 

1,290

 

  Tax-exempt securities

 

 

327

 

 

(134

)

 

 

193

 

Interest bearing balances in other banks

 

 

72

 

 

(178

)

 

 

(106

)

Federal funds sold

 

 

(4

)

 

21

 

 

 

17

 

  Total interest earning assets

 

$

10,839

 

$

(3,734

)

 

$

7,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

Interest bearing transaction accounts

 

$

236

 

$

(438

)

 

$

(202

)

Savings and money market accounts

 

 

846

 

 

(1,616

)

 

 

(770

)

Time deposits

 

 

306

 

 

(1,641

)

 

 

(1,335

)

Short-term debt

 

 

3

 

 

(9

)

 

 

(6

)

Subordinated debentures

 

 

529

 

 

410

 

 

 

939

 

Note payable

 

 

(729

)

 

(58

)

 

 

(787

)

  Total interest bearing liabilities

 

$

1,191

 

$

(3,352

)

 

$

(2,161

)

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

 

 

 

 

 

 

Net interest income (taxable equivalent)

 

$

9,648

 

$

(382

)

 

$

9,266

 

Taxable equivalent adjustment

 

 

(64

)

 

22

 

 

 

(42

)

    Net interest income

 

$

9,584

 

$

(360

)

 

$

9,224

 

 

Total interest income for the nine months ended September 30, 2021 was $53.8 million and total interest expense was $4.3 million, resulting in net interest income of $49.5 million for the period. For the same period of 2020, total interest income was $46.8 million and total interest expense was $6.5 million, resulting in net interest income of $40.3 million for the period. This represents a 22.90% increase in net interest income when comparing the same period from 2021 and 2020. When comparing the variances related to interest income for the nine months ended September 30, 2021 and 2020, the increase was primarily attributed to increases in average volumes in loans and investment securities as well as from the recognition of origination fee income from the SBA Paycheck Protection Program. The volume related increase in interest income for the period was partially offset by a decrease in the yield on loans and investment securities.  When comparing variances related to interest expense for the nine months ended September 30, 2021 and 2020, the decrease resulted primarily from a decrease in deposits rates.  The decrease in deposit rates was partially offset by an increase in the average volume of non-maturity deposits and time deposits.

 

37


 

 

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 September 30, 2021, management recorded a provision of $1.2 million in the third quarter of 2021 compared to a provision of $2.9 million in the third quarter of 2020. The decrease in provision allocated was primarily due to continued improvement in economic conditions as the country recovers from the COVID-19 pandemic.

The allowance for loan 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 adequacy 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 amount. Subsequent changes in the impairment amount will generally cause corresponding changes in the allowance related to the impaired loan and corresponding changes to the loan loss provision. As of September 30, 2021, the recorded allowance related to impaired loans was $285 thousand. As of September 30, 2020, the recorded allowance related to impaired loans was $467 thousand.

Noninterest Income

In addition to net interest income, we generate various types of noninterest income from our operations. Our banking operations generate revenue from service charges and fees mainly on deposit accounts. Our mortgage division generates revenue from originating and selling mortgage loans. 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 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 (amounts in thousands).

 

 

 

For the Three Months

 

 

For the Nine Months

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service charges and fees

 

$

1,527

 

 

$

1,269

 

 

$

4,313

 

 

$

3,673

 

Investment brokerage revenue

 

 

70

 

 

 

43

 

 

 

195

 

 

 

128

 

Mortgage operations

 

 

1,946

 

 

 

1,555

 

 

 

5,354

 

 

 

3,917

 

Bank owned life insurance income

 

 

292

 

 

 

201

 

 

 

835

 

 

 

599

 

Net gain (loss) on sale of investment securities

 

 

-

 

 

 

-

 

 

 

7

 

 

 

(48

)

Other noninterest income

 

 

95

 

 

 

90

 

 

 

311

 

 

 

317

 

Total noninterest income

 

$

3,930

 

 

$

3,158

 

 

$

11,015

 

 

$

8,586

 

 

Noninterest income for the three months ended September 30, 2021 was $3.9 million compared to $3.2 million for the same period in 2020.  The most significant increase was a $258 thousand increase in service charges and fees which was primarily a result of deposit growth and a $391 thousand increase in secondary market mortgage origination income.   

 

Noninterest income for the nine months ended September 30, 2021 was $11.0 million compared to $8.6 million for the same period of 2020.   The most significant increase was a $1.4 million increase in secondary market mortgage operations income.  Activity within the secondary market continues to be high due to the low interest rate environment.

 

 

38


 

 

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 and miscellaneous other operating expenses.

The following table sets forth the principal components of noninterest expense for the periods indicated (amounts in thousands).

 

 

 

For the Three Months

 

 

For the Nine Months

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Salaries and employee benefits

 

$

7,117

 

 

$

5,437

 

 

$

19,681

 

 

$

15,974

 

Occupancy expenses

 

 

598

 

 

 

592

 

 

 

1,776

 

 

 

1,759

 

Equipment rentals, depreciation, and maintenance

 

 

240

 

 

 

281

 

 

 

804

 

 

 

863

 

Telephone and communications

 

 

132

 

 

 

116

 

 

 

445

 

 

 

361

 

Advertising and business development

 

 

196

 

 

 

184

 

 

 

508

 

 

 

400

 

Data processing

 

 

740

 

 

 

681

 

 

 

2,169

 

 

 

2,155

 

Foreclosed assets, net

 

 

50

 

 

 

32

 

 

 

136

 

 

 

152

 

Federal deposit insurance and other regulatory assessments

 

 

331

 

 

 

265

 

 

 

880

 

 

 

548

 

Legal and other professional services

 

 

309

 

 

 

181

 

 

 

932

 

 

 

588

 

Other operating expense

 

 

1,552

 

 

 

1,299

 

 

 

4,511

 

 

 

3,944

 

Total noninterest expense

 

$

11,265

 

 

$

9,068

 

 

$

31,842

 

 

$

26,744

 

 

Noninterest expense for the three months ended September 30, 2021 totaled $11.3 million compared with $9.1 million for the same period of 2020. The overall increase was primarily a result of increases in salaries and employee benefits. Salaries and employee benefits increased $1.7 million, or 30.90%, to $7.1 million in the third quarter of 2021 from $5.4 million in the third quarter of 2020. The number of full-time equivalent employees increased from approximately 224 at September 30, 2020 to approximately 259 at September 30, 2021 for an increase of approximately 15.63%.

 

Noninterest expense for the nine months ended September 30, 2021 totaled $31.8 million compared with $26.7 million for the same period of 2020. The increase was primarily a result of increases in salaries and employee benefits expense. Salaries and employee benefits increased $3.7 million, or 23.21%, to $19.7 million in the first nine months of 2021 from $16.0 million in the first nine months of 2020.   

 

Provision for Income Taxes

We recognized income tax expense of $1.9 million for the three months ended September 30, 2021, compared to $1.1 million for the three months ended September 30, 2020. The effective tax rate for the three months ended September 30, 2021 was 21.6% compared to 21.1% for the same period in 2020. 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 $5.5 million for the nine months ended September 30, 2021, compared to $2.9 million for the nine months ended September 30, 2020. The increase of $2.5 million, or 86.25%, resulted from the increase in net income before taxes of $10.8 million in the first nine months of 2021 as compared to the first nine months of 2020. The effective tax rate for the nine months ended September 30, 2021 was 21.8% compared to 20.5% for the same period in 2020. 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.  

39


 

 

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

 

Overview

 

Our total assets increased $444.7 million, or 23.85%, from December 31, 2020 to September 30, 2021. Loans, net of deferred fees and discounts, increased $51.1 million, or 4.31%, from December 31, 2020 to September 30, 2021. Securities available-for-sale increased by $356.0 million, or 72.18%, from December 31, 2020 to September 30, 2021. Cash and cash equivalents increased $11.1 million, or 18.50% from December 31, 2020 to September 30, 2021. Total deposits increased $413.6 million, or 25.01%, from December 31, 2020 to September 30, 2021 which funded our loan growth and purchase of securities.  Total stockholders’ equity increased $13.9 million, or 8.34% from December 31, 2020 to September 30, 2021 primarily due to strong earnings of $19.6 million during the period.  Stockholders’ equity was reduced approximately $3.3 million due to a decrease in the net unrealized gain on securities available-for-sale and $2.6 million due to the dividend paid in the first quarter.

 

Investment Securities

 

We use our securities portfolio primarily to enhance our overall yield on interest-earning assets, as a source of liquidity, 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 as available-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. However, on a case by case basis we will evaluate whether a security is better suited being classified as held-to-maturity. 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 deferred taxes. Held-to-maturity securities are reported at amortized cost. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

 

During the nine months ended September 30, 2021, we purchased investment securities totaling $481.7 million and sold investment securities with proceeds received of $4.4 million including net realized gains of $7 thousand.  

The following tables summarize the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of debt securities at September 30, 2021 and December 31, 2020 (amounts in thousands).

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

615,955

 

 

$

3,929

 

 

$

(2,631

)

 

$

617,253

 

    U.S. treasury securities

 

 

97,474

 

 

 

52

 

 

 

(155

)

 

 

97,371

 

    U.S. govt. sponsored enterprises

 

 

26,381

 

 

 

835

 

 

 

-

 

 

 

27,216

 

    State, county, and municipal

 

 

93,552

 

 

 

4,740

 

 

 

(93

)

 

 

98,199

 

    Corporate debt obligations

 

 

9,225

 

 

 

69

 

 

 

(18

)

 

 

9,276

 

        Total available-for-sale

 

$

842,587

 

 

$

9,625

 

 

$

(2,897

)

 

$

849,315

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

    U.S. treasury securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    U.S. govt. sponsored enterprises

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

    State, county, and municipal

 

 

10,936

 

 

 

2

 

 

 

(119

)

 

 

10,819

 

    Corporate debt obligations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

        Total held-to-maturity

 

$

10,936

 

 

$

2

 

 

$

(119

)

 

$

10,819

 

40


 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Residential mortgage-backed

 

$

346,001

 

 

$

5,034

 

 

$

(438

)

 

$

350,597

 

    U.S. govt. sponsored enterprises

 

 

34,963

 

 

 

1,272

 

 

 

(4

)

 

 

36,231

 

    State, county, and municipal

 

 

98,026

 

 

 

5,220

 

 

 

(17

)

 

 

103,229

 

    Corporate debt obligations

 

 

3,166

 

 

 

51

 

 

 

-

 

 

 

3,217

 

        Total available-for-sale

 

$

482,156

 

 

$

11,577

 

 

$

(459

)

 

$

493,274

 

41


 

 

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 $1.22 billion during the three months ended September 30, 2021, or 57.7% of average interest earning assets, as compared to $1.16 billion, or 72.0% of average interest earning assets, for the three months ended September 30, 2020. At September 30, 2021, total loans, net of deferred loan fees and discounts, were $1.24 billion, compared to $1.19 billion at December 31, 2020, an increase of $51.1 million, or 4.31%.

The organic, or non-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 following table provides a summary of the loan portfolio as of September 30, 2021, and December 31, 2020.

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Amount

 

 

% of Total

 

 

Amount

 

 

% of Total

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closed-end 1-4 family - first lien

 

$

295,527

 

 

 

24.3

%

 

$

252,528

 

 

 

21.6

%

Closed-end 1-4 family - junior lien

 

 

6,151

 

 

 

0.5

%

 

 

8,343

 

 

 

0.7

%

Multi-family

 

 

10,570

 

 

 

0.8

%

 

 

10,817

 

 

 

0.9

%

Total residential real estate

 

 

312,248

 

 

 

25.6

%

 

 

271,688

 

 

 

23.2

%

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonfarm nonresidential

 

 

341,837

 

 

 

28.1

%

 

 

317,279

 

 

 

27.1

%

Farmland

 

 

41,034

 

 

 

3.4

%

 

 

34,586

 

 

 

3.0

%

Total commercial real estate

 

 

382,871

 

 

 

31.5

%

 

 

351,865

 

 

 

30.1

%

Construction and land development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

89,556

 

 

 

7.4

%

 

 

71,784

 

 

 

6.1

%

Other

 

 

92,549

 

 

 

7.6

%

 

 

78,818

 

 

 

6.7

%

Total construction and land development

 

 

182,105

 

 

 

15.0

%

 

 

150,602

 

 

 

12.8

%

Home equity lines of credit

 

 

47,942

 

 

 

3.9

%

 

 

43,424

 

 

 

3.7

%

Commercial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other commercial loans

 

 

208,503

 

 

 

17.0

%

 

 

279,385

 

 

 

23.9

%

Agricultural

 

 

44,753

 

 

 

3.7

%

 

 

29,854

 

 

 

2.6

%

State, county, and municipal loans

 

 

23,528

 

 

 

1.9

%

 

 

25,922

 

 

 

2.2

%

Total commercial loans

 

 

276,784

 

 

 

22.6

%

 

 

335,161

 

 

 

28.7

%

Consumer loans

 

 

42,780

 

 

 

3.5

%

 

 

40,646

 

 

 

3.5

%

Total gross loans

 

 

1,244,730

 

 

 

102.1

%

 

 

1,193,386

 

 

 

102.0

%

Allowance for loan losses

 

 

(20,047

)

 

 

-1.6

%

 

 

(16,803

)

 

 

-1.4

%

Net discounts

 

 

(541

)

 

 

0.0

%

 

 

(1,010

)

 

 

-0.1

%

Net deferred loan fees

 

 

(6,458

)

 

 

-0.5

%

 

 

(5,794

)

 

 

-0.5

%

Net loans

 

$

1,217,684

 

 

 

100.0

%

 

$

1,169,779

 

 

 

100.0

%

 

In this context, a “real estate loan” is defined as any loan, secured by real estate, regardless of the purpose of the loan. It is common practice for financial institutions in our market areas, and for our Bank, 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.

42


 

Real estate loans are the largest component of our loan portfolio and include residential real estate loans, commercial real estate loans, and construction and land development loans. At September 30, 2021, this category totaled $877.2 million, or 70.47% of total gross loans, compared to $774.2 million, or 64.87%, at December 31, 2020. Real estate loans increased $103.0 million, or 13.30%, during the period December 31, 2020 to September 30, 2021. Commercial loans decreased $58.4 million, or 17.42% 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 recently issued two “guidance” documents that have a significant impact on real estate related lending and, thus, on the operations of the 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 to raise additional capital. This factor, combined with the current economic environment, could affect the 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 Corporation’s lending strategy. This could also have a negative impact on our lending and profitability. Management actively monitors the composition of the Bank’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 allow negative amortization of consumer mortgage loans. Although the Bank does not engage at present in lending using these types of instruments, the guidance could have the effect of making the Bank 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 previously charged-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 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 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 or loan relationship.

All other loans are deemed to be unimpaired and are grouped into various homogeneous risk pools primarily utilizing regulatory reporting classification codes. The Bank’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 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. 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.  Although we have not seen any significant changes in credit quality as a result of the pandemic, management has added several significant qualitative adjustments to our allowance for loan loss calculation that are related to the uncertainties of how the pandemic will affect our loan quality.  As a result of these qualitative adjustments, our provision for loan losses and the allowance for loan losses increased significantly during pandemic.  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.

43


 

The following table presents a summary of changes in the allowance for loan losses for the periods indicated (amounts in thousands).

 

 

 

As of and for the

 

 

As of and for the

 

 

 

Three Months Ended:

 

 

Nine Months Ended:

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

 

2020

 

 

2021

 

 

 

2020

 

Allowance for loan losses at beginning of period

 

$

18,913

 

 

$

13,480

 

 

$

16,803

 

 

$

8,679

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

4

 

 

 

-

 

 

 

105

 

 

 

52

 

Commercial real estate

 

 

4

 

 

 

-

 

 

 

181

 

 

 

-

 

Construction and land development

 

 

2

 

 

 

59

 

 

 

2

 

 

 

59

 

Total mortgage loans on real estate

 

 

10

 

 

 

59

 

 

 

288

 

 

 

111

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial

 

 

170

 

 

 

73

 

 

 

254

 

 

 

232

 

Consumer

 

 

27

 

 

 

10

 

 

 

56

 

 

 

94

 

Total

 

 

207

 

 

 

142

 

 

 

598

 

 

 

437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

60

 

 

 

1

 

 

 

60

 

 

 

6

 

Commercial real estate

 

 

-

 

 

 

9

 

 

 

35

 

 

 

17

 

Construction and land development

 

 

3

 

 

 

12

 

 

 

7

 

 

 

109

 

Total mortgage loans on real estate

 

 

63

 

 

 

22

 

 

 

102

 

 

 

132

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19

 

Commercial

 

 

57

 

 

 

49

 

 

 

122

 

 

 

108

 

Consumer

 

 

34

 

 

 

8

 

 

 

60

 

 

 

34

 

Total

 

 

154

 

 

 

79

 

 

 

284

 

 

 

293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs

 

 

53

 

 

 

63

 

 

 

314

 

 

 

144

 

Provision for loan losses

 

 

1,187

 

 

 

2,916

 

 

 

3,558

 

 

 

7,798

 

Allowance for loan losses at end of period

 

$

20,047

 

 

$

16,333

 

 

$

20,047

 

 

$

16,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans outstanding, net of deferred loan fees

 

 

1,237,731

 

 

 

1,191,368

 

 

 

1,237,731

 

 

 

1,191,368

 

Average loans outstanding, net of deferred loan fees

 

 

1,224,244

 

 

 

1,164,557

 

 

 

1,210,272

 

 

 

1,053,457

 

Allowance for loan losses to period end loans

 

 

1.62

%

 

 

1.37

%

 

 

1.62

%

 

 

1.37

%

Net charge-offs to average loans (annualized)

 

 

0.02

%

 

 

0.02

%

 

 

0.03

%

 

 

0.02

%

 

44


 

 

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 (amounts in thousands).

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

Amount

 

 

Total

 

 

Amount

 

 

Total

 

Mortgage loans on real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

2,160

 

 

 

10.8

%

 

$

1,676

 

 

 

10.0

%

Commercial real estate

 

 

8,428

 

 

 

42.1

%

 

 

6,807

 

 

 

40.5

%

Construction and land development

 

 

2,569

 

 

 

12.8

%

 

 

1,749

 

 

 

10.4

%

Total mortgage loans on real estate

 

 

13,157

 

 

 

65.7

%

 

 

10,232

 

 

 

60.9

%

Home equity lines of credit

 

 

347

 

 

 

1.7

%

 

 

268

 

 

 

1.6

%

Commercial

 

 

6,217

 

 

 

31.0

%

 

 

5,897

 

 

 

35.1

%

Consumer

 

 

326

 

 

 

1.6

%

 

 

406

 

 

 

2.4

%

Total

 

$

20,047

 

 

 

100.0

%

 

$

16,803

 

 

 

100.0

%

Nonperforming Assets

The following table presents our nonperforming assets as of the dates indicated (amounts in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

2020

 

Nonaccrual loans

 

$

2,515

 

 

$

3,356

 

 

$

4,264

 

Accruing loans past due 90 days or more

 

 

123

 

 

 

54

 

 

 

398

 

Total nonperforming loans

 

 

2,638

 

 

 

3,410

 

 

 

4,662

 

Foreclosed assets

 

 

650

 

 

 

471

 

 

 

240

 

Total nonperforming assets

 

$

3,288

 

 

$

3,881

 

 

$

4,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses to period end loans

 

 

1.62

%

 

 

1.37

%

 

 

1.42

%

Allowance for loan losses to period end nonperforming loans

 

 

759.93

%

 

 

478.97

%

 

 

360.42

%

Net charge-offs (recoveries) to average loans (annualized)

 

 

0.03

%

 

 

0.02

%

 

 

0.05

%

Nonperforming assets to period end loans and foreclosed property

 

 

0.27

%

 

 

0.33

%

 

 

0.41

%

Nonperforming loans to period end loans

 

 

0.21

%

 

 

0.29

%

 

 

0.39

%

Nonperforming assets to total assets

 

 

0.14

%

 

 

0.22

%

 

 

0.26

%

Period end loans

 

 

1,237,731

 

 

 

1,191,368

 

 

 

1,186,582

 

Period end total assets

 

 

2,309,314

 

 

 

1,781,624

 

 

 

1,864,650

 

Allowance for loan losses

 

 

20,047

 

 

 

16,333

 

 

 

16,803

 

Average loans for the period

 

 

1,210,272

 

 

 

1,053,457

 

 

 

1,087,007

 

Net charge-offs for the period

 

 

314

 

 

 

144

 

 

 

491

 

Period end loans plus foreclosed property

 

 

1,238,381

 

 

 

1,191,839

 

 

 

1,186,822

 

 

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 or charge-off of the principal balance of the loan that would necessitate additional charges to the allowance for loan losses.


45


 

 

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 the 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 September 30, 2021, and December 31, 2020.

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

Amount

 

 

Total

 

 

Amount

 

 

Total

 

Demand deposits, non-interest bearing

 

$

568,220

 

 

 

27.4

%

 

$

436,885

 

 

 

26.4

%

Demand deposits, interest bearing

 

 

519,023

 

 

 

25.1

%

 

 

377,745

 

 

 

22.8

%

Money market accounts

 

 

575,884

 

 

 

27.9

%

 

 

473,714

 

 

 

28.6

%

Savings deposits

 

 

116,938

 

 

 

5.7

%

 

 

89,914

 

 

 

5.4

%

Time certificates of $250 thousand or more

 

 

104,873

 

 

 

5.1

%

 

 

96,839

 

 

 

5.9

%

Other time certificates

 

 

182,322

 

 

 

8.8

%

 

 

178,538

 

 

 

10.9

%

Totals

 

$

2,067,260

 

 

 

100.0

%

 

$

1,653,635

 

 

 

100.0

%

 

 

Total deposits were $2.07 billion at September 30, 2021, an increase of $413.6 million from December 31, 2020 with the increase resulting mainly in the balances of money market accounts and demand deposit accounts. Some of our demand deposit accounts are seasonal and have expected balance fluctuations. The seasonality of these demand deposits is related to property tax collections and to agricultural production. However, the third round of stimulus checks were sent out in mid-March which led to an increase in deposits from year-end when we would normally see a decrease from year-end.

The following table presents the Bank’s time certificates of deposits by various maturities as of September 30, 2021 (amounts in thousands).

 

 

 

All Time Deposits

 

 

Time Deposits

$100 or more

 

 

Time Deposits

less than $100

 

Three months or less

 

$

61,923

 

 

$

42,165

 

 

$

19,758

 

Greater than three months through six months

 

 

82,579

 

 

 

63,167

 

 

 

19,412

 

Greater than six months through one year

 

 

88,082

 

 

 

61,654

 

 

 

26,428

 

Greater than one year through three years

 

 

30,992

 

 

 

20,488

 

 

 

10,504

 

Greater than three years

 

 

23,619

 

 

 

18,107

 

 

 

5,512

 

Total

 

$

287,195

 

 

$

205,581

 

 

$

81,614

 

 

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). The line of credit with the FHLB is secured by pledges of various loans in our loan portfolio. At September 30, 2021, the FHLB line of credit available was $253.0 million and at December 31, 2020 it was $214.4 million. As of September 30, 2021 and December 31, 2020, we have no Federal Home Loan Bank advances outstanding.  We also have lines of credit for federal funds borrowings with other banks that totaled $38.5 million at September 30, 2021 and December 31, 2020, respectively. Furthermore, we have pledged certain loans to the Federal Reserve Bank (FRB) to secure a line of credit. At September 30, 2021, the FRB line of credit available was $137.3 million and at December 31, 2020, the FRB line of credit available was $123.3 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.

On August 9, 2021, the Company entered into a line of credit agreement with ServisFirst Bank for $10 million.  The line of credit is to be used for general capital needs and investments.  The line when drawn will require quarterly payments of interest only, and matures two years from the origination date. The interest rate floats at Wall Street Journal Prime with a floor of 3.25%.  The line of credit is secured by 51% of the Company’s stock.  

 

46


 

 

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 Bancshares, Inc. shareholders of $24.5 million in accordance with the PSB merger agreement and for general corporate purposes.  The loan carried a fixed interest rate of 6%.  The loan was secured by all of the common stock of the Bank.  The balance at December 31, 2020 was $20.4 million.  This note was paid off in March 2021 when the Company issued a private placement of $40 million fixed-to-floating rate subordinated debentures in March 2021 which are described in detail below.

On March 9, 2021, River Financial Corporation (“the Company”) entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with the purchasers signatory thereto providing for a private placement of $40 million in aggregate principal amount of 4.00% fixed-to-floating rate Subordinated Notes due March 15, 2031 (the “Notes”).  The Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount.   Interest on the Notes will accrue from March 9, 2021, and the Company will pay interest semi-annually on March 15th and September 15th of each year, beginning on September 15, 2021, until the Notes mature. The Notes will bear interest at a fixed rate of 4.00% per year, from and including March 9, 2021 to, but excluding, March 15, 2026.  From and including March 15, 2026, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 342 basis points.  The Notes may not be prepaid by the Company prior to March 15, 2026. From and after March 15, 2026, the Company may prepay all or, from time to time, any part of the Notes at 100% of the principal amount (plus accrued interest) without penalty, subject to any requirement under Federal Reserve Board regulations to obtain prior approval from the Board of Governors of the Federal Reserve System before making any prepayment. The Notes may also be prepaid by the Company at any time after the occurrence of an event that would preclude the Notes from being included in the Tier 2 Capital of the Company.  The Purchase Agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including the requirement that, subject to certain limitations, the Company restructure any portion of the Notes that ceases to be deemed Tier 2 Capital. The Company used approximately $19.7 million of the net proceeds from the issuance of the Notes to pay off its note with CenterState Bank dated October 31, 2018, including interest accrued on such notes, and the remaining proceeds for general corporate purposes, including providing capital to support the organic growth of its bank subsidiary, River Bank.  

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 both on- and off-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 September 30, 2021 and December 31, 2020, were $71.4 million and $60.3 million, respectively. Based on recorded cash and cash equivalents, management believes River Financial Corporation’s liquidity resources were sufficient at September 30, 2021 to fund loans and meet other cash needs as necessary.


47


 

 

Off-Balance Sheet Arrangements

The Company is party to financial instruments with off-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 the Company 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.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.  In most cases, the Company requires collateral or other security to support financial instruments with credit risk.  

Financial instruments whose contract amount represents credit risk at September 30, 2021 and December 31, 2020 were as follows  (amounts in thousands):

 

 

September 30, 2021

 

 

December 31, 2020

 

Commitments to extend credit

$

288,660

 

 

$

246,700

 

Stand-by and performance letters of credit

 

2,366

 

 

 

2,659

 

Total

$

291,026

 

 

$

249,359

 

 

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 September 30, 2021 (amounts in thousands).

 

 

 

 

 

 

 

Due after 1

 

 

Due after 3

 

 

 

 

 

 

 

 

 

 

 

Due in 1

 

 

through

 

 

through

 

 

Due after

 

 

 

 

 

 

 

year or less

 

 

3 years

 

 

5 years

 

 

5 years

 

 

Total

 

Deposits without a stated maturity

 

$

1,780,065

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,780,065

 

Certificates of deposit of less than $100

 

 

65,598

 

 

 

10,504

 

 

 

5,512

 

 

 

-

 

 

 

81,614

 

Certificates of deposit of $100 or more

 

 

166,986

 

 

 

20,488

 

 

 

18,107

 

 

 

-

 

 

 

205,581

 

Securities sold under agreements to repurchase

 

 

9,432

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,432

 

Subordinated debt, net of loan costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39,325

 

 

 

39,325

 

Operating leases

 

 

684

 

 

 

1,201

 

 

 

507

 

 

 

422

 

 

 

2,814

 

Total contractual obligations

 

$

2,022,765

 

 

$

32,193

 

 

$

24,126

 

 

$

39,747

 

 

$

2,118,831

 

Capital Position and Dividends

At September 30, 2021 and December 31, 2020, total stockholders’ equity was $180.3 million and $166.4 million, respectively. The increase of approximately $13.9 million resulted mainly from the net change in retained earnings and other comprehensive income for the nine months ended September 30, 2021. Retained earnings for the first nine months of 2021 increased $17.0 million and other comprehensive income decreased $3.3 million. The ratio of stockholders’ equity to total assets was 7.81% and 8.93% at September 30, 2021 and December 31, 2020, respectively.

River Bank 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, Tier 1 capital, and total 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 Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, River 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 regulations and guidelines. River Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

River Bank is eligible to utilize the community bank leverage ratio (CBLR) framework.  The Bank has evaluated this option and has elected not to utilize the CBLR framework at this time, but may do so in the future.

Quantitative measures, established by regulation to ensure capital adequacy effective January 1, 2015, require River Bank to maintain minimum amounts and ratios (set forth in the table below) of total risk based capital, Common Equity Tier 1 capital, and Tier

48


 

1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier 1 capital (as defined in the regulations) to average assets (as defined in the regulations).

Management believes, as of September 30, 2021, that the Bank meets all capital adequacy requirements to which it is subject. The following table presents the Bank’s capital amounts and ratios as of September 30, 2021 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 September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

Required For Capital

 

Under Prompt Corrective

 

 

Actual

 

 

Adequacy Purposes

 

Action Regulations

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

Total Capital (To Risk-Weighted Assets)

 

$

197,134

 

 

 

14.143

%

 

$

146,360

 

 

>= 10.500%

 

$

139,390

 

 

>= 10.00%

Common Equity Tier 1 Capital (To Risk-Weighted Assets)

 

 

179,678

 

 

 

12.890

%

 

 

97,573

 

 

>= 7.000%

 

 

90,604

 

 

>= 6.50%

Tier 1 Capital (To Risk-Weighted Assets)

 

 

179,678

 

 

 

12.890

%

 

 

118,482

 

 

>= 8.500%

 

 

111,512

 

 

>= 8.00%

Tier 1 Capital (To Average Assets)

 

 

179,678

 

 

 

8.074

%

 

 

89,020

 

 

>= 4.000%

 

 

111,275

 

 

>= 5.00%

 

Management believes, as of December 31, 2020, that the Bank met all capital adequacy requirements to which it was subject at the time. The following table presents the Bank’s capital amounts and ratios as of December 31, 2020 with the required minimum levels for capital adequacy purposes and minimum levels to be well capitalized (as defined) under the prompt corrective action regulations.  

 

As of December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

Required For Capital

 

Under Prompt Corrective

 

 

Actual

 

 

Adequacy Purposes

 

Action Regulations

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

Total Capital (To Risk-Weighted Assets)

 

$

161,566

 

 

 

13.548

%

 

$

125,219

 

 

>= 10.500%

 

$

119,256

 

 

>= 10.00%

Common Equity Tier 1 Capital (To Risk-Weighted Assets)

 

 

146,636

 

 

 

12.296

%

 

 

83,479

 

 

>= 7.000%

 

 

77,516

 

 

>= 6.50%

Tier 1 Capital (To Risk-Weighted Assets)

 

 

146,636

 

 

 

12.296

%

 

 

101,368

 

 

>= 8.500%

 

 

95,405

 

 

>= 8.00%

Tier 1 Capital (To Average Assets)

 

 

146,636

 

 

 

8.229

%

 

 

71,277

 

 

>= 4.000%

 

 

89,096

 

 

>= 5.00%

 

River Financial Corporation’s principal source of funds for dividend payments and debt service is dividends received from River Bank. There are statutory limitations on the payment of dividends by River Bank to River Financial Corporation. As of September 30, 2021, the maximum amount the Bank could dividend to River Financial Corporation without prior regulatory authority approval was approximately $51.8 million. In addition to dividend restrictions, federal statutes prohibit unsecured loans from banks to bank holding companies.

 

During the nine months ending September 30, 2021 there were 6,500 incentive stock options issued with a weighted average exercise price of $26.77 per share. During the same period, there were 34,121 incentive stock options exercised at a weighted average exercise price of $17.31 per share. A total of 369,629 incentive stock options were outstanding as of September 30, 2021 with a weighted average exercise price of $22.95 per share and a weighted average remaining life of 6.16 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 the Bank is simulation analysis.

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.

49


 

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 of off-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 September 30, 2021, assuming the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities (amounts in thousands).

 

 

 

0-1 Mos

 

 

1-3 Mos

 

 

3-12 Mos

 

 

1-2 Yrs

 

 

2-3 Yrs

 

 

>3 Yrs

 

 

Total

 

Interest earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

264,609

 

 

$

114,646

 

 

$

229,098

 

 

$

168,449

 

 

$

122,499

 

 

$

338,430

 

 

$

1,237,731

 

Securities

 

 

16,124

 

 

 

30,621

 

 

 

105,880

 

 

 

105,577

 

 

 

79,092

 

 

 

522,957

 

 

 

860,251

 

Certificates of  deposit in banks

 

 

-

 

 

 

704

 

 

 

498

 

 

 

495

 

 

 

1,740

 

 

 

223

 

 

 

3,660

 

Cash balances in banks

 

 

33,977

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33,977

 

Federal funds sold

 

 

9,500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,500

 

Total interest earning assets

 

$

324,210

 

 

$

145,971

 

 

$

335,476

 

 

$

274,521

 

 

$

203,331

 

 

$

861,610

 

 

$

2,145,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing transaction accounts

 

$

108,137

 

 

$

8,666

 

 

$

38,994

 

 

$

51,993

 

 

$

51,993

 

 

$

259,240

 

 

$

519,023

 

Savings and money market accounts

 

 

215,644

 

 

 

15,594

 

 

 

70,167

 

 

 

93,558

 

 

 

93,558

 

 

 

204,301

 

 

 

692,822

 

Time deposits

 

 

19,995

 

 

 

42,298

 

 

 

168,975

 

 

 

21,253

 

 

 

8,893

 

 

 

25,781

 

 

 

287,195

 

Securities sold under agreements to repurchase

 

 

9,432

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,432

 

Subordinated debentures, net of loan costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39,325

 

 

 

39,325

 

Total interest bearing liabilities

 

$

353,208

 

 

$

66,558

 

 

$

278,136

 

 

$

166,804

 

 

$

154,444

 

 

$

528,647

 

 

$

1,547,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest sensitive gap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period gap

 

$

(28,998

)

 

$

79,413

 

 

$

57,340

 

 

$

107,717

 

 

$

48,887

 

 

$

332,963

 

 

$

597,322

 

Cumulative gap

 

$

(28,998

)

 

$

50,415

 

 

$

107,755

 

 

$

215,472

 

 

$

264,359

 

 

$

597,322

 

 

 

 

 

Cumulative gap - Rate Sensitive Assets/ Rate

   Sensitive Liabilities

 

 

-1.4

%

 

 

2.4

%

 

 

5.0

%

 

 

10.0

%

 

 

12.3

%

 

 

27.8

%

 

 

 

 

 

The Bank generally benefits from increasing market interest rates 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, the Bank 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 than market-based rates such as those paid on non-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 given interest rate environment, including changes in volume and mix of interest earning assets and interest bearing liabilities.

The Bank’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.

50


 

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 the Bank’s net interest income to those changes that is acceptable to management and within established Bank policy limits as of both dates shown.

 

 

 

Impact on net interest income

 

 

 

As of

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Change in prevailing rates:

 

 

 

 

 

 

 

 

+ 400 basis points

 

 

4.25

%

 

 

(7.80

)%

+ 300 basis points

 

 

3.76

%

 

 

(5.16

)%

+ 200 basis points

 

 

2.81

%

 

 

(3.53

)%

+ 100 basis points

 

 

1.19

%

 

 

(2.19

)%

+ 0 basis points

 

 

-

 

 

 

-

 

- 100 basis points

 

 

(1.80

)%

 

 

1.57

%

- 200 basis points

 

 

(1.97

)%

 

 

1.44

%

- 300 basis points

 

 

(2.01

)%

 

 

1.35

%

- 400 basis points

 

 

(2.04

)%

 

 

1.30

%

 

51


 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable to smaller reporting companies.

ITEM 4. 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 September 30, 2021, 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 it 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.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the nine months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

52


 

 

PART II. OTHER INFORMATION

 

From time to time the Company is a party to legal proceedings.  At the present time the Company is not part of any proceeding which the Company deems to be material.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 that could materially affect the Company’s business, financial condition or future results as well as those in the Company’s Report on Form 10-Q for the quarter ended September 30, 2021. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

 

The risk factors in our Annual Report on Form 10-K for the year ended December 31, 2020 should be reviewed, especially in the context of the risk factors set forth below.

Possible Effects of the COVID-19 Pandemic

 

The current COVID-19 pandemic could result in negative effects on our financial condition and results of operations.

 

As a result of the COVID-19 pandemic, we have instituted procedures, consistent with federal, state and local government guidelines, to institute social distancing among employees and customers, and encourage employees to work from home when possible.   We believe these measures have been undertaken to date with minimal negative effects on our operations and have been well received by employees and customers.  We believe our daily operations and services to customers have not been materially interrupted in an adverse way, but we cannot be certain of the long-term effects of such procedures.  

 

Because of the potential negative effects of the COVID-19 pandemic on the economy, including rising unemployment and closings of non-essential businesses during the pandemic, we may experience an adverse effect on our loans.

 

Rising unemployment, the closing, even if temporary, of non-essential businesses, and the overall negative effect on the economy could result in the inability of some of our customers to meet their loan obligations to our Bank.   Loan modifications and payment deferrals provide our borrowers with temporary relief, but such relief may be insufficient, depending on the length and severity of the COVID-19 pandemic and its effects on the economy. In addition to loan deferrals and modifications, we are participating in certain government programs designed to bolster the economy during the pandemic, such as the PPP, which is intended to fund borrowers’ payrolls and certain operating expenses, not to support existing borrowers’ loans. Our customers’ participation in other government programs also may stabilize their cash flows during a short to medium term pandemic, but may not prevent significant loan delinquencies and losses. In addition, we have loans which are not covered by any government guarantee protection program.  Thus, we could experience various impairments of such loans, including a delay in payments of principal and interest, the inability of borrowers to pay the loans in full, the loss in value of collateral securing such loans, and the inability to sell such collateral at a reasonable price if the collateral is taken in foreclosure.   All of the foregoing could have adverse consequences on our income and eventually on our capital.

 

Although we are participating in certain government programs to assist customers and borrowers, we may nevertheless incur long-term adverse results.

 

We have received requests from our borrowers for loan and lease deferrals and modifications including the deferral of principal payments or the deferral of principal and interest payments for terms generally 90-180 days.  Requests are evaluated individually and approved modifications are based on the unique circumstances of each borrower.  We are committed to working with our clients to allow time to work through the challenges of this pandemic.   In keeping with guidance from regulators, we are also working with COVID-19 affected customers to waive fees from a variety of sources, such as but not limited to, insufficient funds and overdraft fees, ATM fees, and account maintenance fees.  These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crises.  We are unable to project the materiality of such an impact, but we recognize the breadth of the economic impact is likely to impact our fee income in future periods.  Thus, it is uncertain what future impact these measures related to COVID-19 difficulties will have on our financial condition, results of operations and reserve for loan and lease losses.

53


 

As a participating lender in the U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP), River Financial and River Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some PPP loan guaranties.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which included a loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for unsecured, low-interest rate loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.  Borrowers are eligible for up to 100% forgiveness on PPP loans if certain conditions are met.  The PPP loans are 100% guaranteed by the SBA.  The Bank participated as a lender in the PPP. The PPP opened on April 3, 2020.  The PPP was launched by SBA and the US Department of Treasury in an expedient timeframe, and because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. River Financial and River Bank may be exposed to the risk of similar litigation, from both customers and non‑customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a favorable manner, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse effect on our business, financial condition and results of operations.  The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a material deficiency in the manner in which the loan was originated, funded, or serviced by the Bank. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a material deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Bank.  There is also a risk that not all PPP loans will be forgiven and any unforgiven amount will remain on the Bank’s balance sheet preventing such funds from being redeployed into higher-earning assets.

 

A continuation of the pandemic could have longer-term and unforeseen results.

 

A continuation of the COVID-19 pandemic, or a resurgence of the pandemic, could have longer adverse effects on our capital, income and relationships with customers.  There could be longer-term effects which are unforeseen at the present time.

 

The COVID-19 pandemic could adversely affect our growth plans.

 

The pandemic’s effect on the economy could deter our growth plans.  We have always planned upon and anticipated solid growth organically, including the opening of new branches when opportunities arise, along with the development of further business opportunities where we currently have branches.   In addition, we have grown by making select acquisitions of other banks, and we have planned to be alert for future acquisition opportunities.   The COVID-19 pandemic, its adverse effects on the economy, both short-term and long-term, and uncertainty by the public in general of the stability of the economy could hinder such growth plans.

 

The COVID-19 pandemic could adversely affect us in other areas where we may be uncertain of the effects.

 

In addition to the risks noted above, the COVID-19 pandemic could affect us in a number of other areas of our operations with consequences at the present time of which we cannot be certain.   These include:   the effectiveness, or lack thereof, of the current COVID-19 vaccination efforts; the general economic stability of our geographic markets; a change in demand for financial products in general; fewer financial resources that are generally available to small and medium size business; changes in government monetary policy; interest rate fluctuations; the need for additional increases in our allowance for loan and lease losses; a reduction in values set forth in appraisals that provide back-up for loans; stress on our liquidity caused by a reduction in deposits as customers need additional cash for their own liquidity needs; increased cyber and payment fraud risk; and increased oversight on our internal controls and procedures to ensure that we are taking necessary steps to manage any increased risks associated with the COVID-19 pandemic.

 

54


 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In February 2021, the Company sold 22,661 shares of its common stock for a cash total of $629 thousand to its employee stock ownership plan.  In June 2021, the Company sold 14,444 shares of its common stock for a cash total of $419 thousand to its employee stock ownership plan.  The Company relied upon exemptions from registration under SEC Rule 147A.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

          Not applicable.

55


 

Item 6. Exhibits.

 

Exhibit

Number

 

Description

 

 

 

2.1*

 

Agreement and Plan of Merger by and among River Financial Corporation, RFC Acquisition Corporation, and PSB Bancshares, Inc., dated as of July 10, 2018, filed as Exhibit 2.1 to River Financial Corporation’s Form 8-K filed July 16, 2018, incorporated herein by reference.

 

 

 

2.2*

 

Agreement and Plan of Merger by and between River Financial Corporation and Trinity Bancorp, Inc., dated as of June 4, 2019, filed as Exhibit 2.1 to River Financial Corporation’s Form 8-K filed June 5, 2019, incorporated herein by reference.  

 

 

 

3.1

 

Articles of Incorporation of River Financial Corporation, as amended, included as Exhibit 3.1 in the River Financial Corporation Form 10-Q filed May 7, 2019 and incorporated herein by reference.

 

 

 

3.2

 

Bylaws of River Financial Corporation, as amended, included as Exhibit 3.2 in the River Financial Corporation 10-K filed March 28, 2016 and incorporated herein by reference.

 

 

 

3.3

 

Amendments to Bylaws of River Financial Corporation dated October 16, 2019, included as Exhibit 3.3 in the River Financial Corporation 10-Q filed November 5, 2019 and incorporated herein by reference.

 

 

 

4.1

 

Article IV and Article V of the Articles of Incorporation, as amended, filed at Exhibit 3.1 to the Registrants’ Form 10-Q filed May 7, 2019, and Article II and Article VI of the Bylaws, as amended, included as Exhibit 3.2 of the Registrants’ Form 10-K filed March 28, 2016, and incorporated herein by reference.

 

 

 

10.1

 

River Financial 2006 Stock Compensation Plan filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.2

 

River Financial Change in Control Agreement for Jimmy Stubbs filed as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.3

 

River Financial Change in Control Agreement for Kenneth H. Givens filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.4

 

River Financial Change in Control Agreement for Joel K. Winslett filed as Exhibit 10.4 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.5

 

River Financial Change in Control Agreement for Ray Smith filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.6

 

River Financial Change in Control Agreement for Boles Pegues filed as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.7

 

River Financial Employment Term Sheet for Ray Smith filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.8

 

River Financial Employment Term Sheet for Boles Pegues filed as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.9

 

River Bank & Trust Form of Warrant Agreement, assumed by River Financial filed as Exhibit 10.9 to the Registrant’s Registration statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.10

 

River Financial 2015 Incentive Stock Compensation Plan filed as Annex E to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

 

 

 

10.11

 

Loan Agreement between River Financial Corporation and CenterState Bank (now SouthState Bank) filed as Exhibit 10.1 to the Registrant’s Form 8-K/A filed November 2, 2018 and incorporated herein by reference.

 

 

 

56


 

Exhibit

Number

 

Description

10.12

 

Form of Subordinated Note Purchase Agreement, dated March 9, 2021, between River Financial Corporation and certain accredited investors, included as Exhibit 10.1 in the River Financial Corporation Form 8-K, filed on March 10, 2021 and incorporated herein by reference.

 

 

 

10.13**

 

Loan and Security Agreement, dated August 9, 2021, between River Financial Corporation and ServisFirst Bank.

 

 

 

31.1**

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

 

 

 

31.2**

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

 

 

 

32 **

 

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

 

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

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

*

Schedules omitted.  Registrant agrees to furnish a copy of any omitted schedule to the SEC upon request.

**

Filed herewith.

 

57


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

RIVER FINANCIAL CORPORATION

 

 

 

 

 

Date: November 9, 2021

 

 

By:

 

/s/ James M. Stubbs

 

 

 

 

James M. Stubbs

 

 

 

 

Chief Executive Officer

(principal executive officer)

 

 

 

 

 

Date: November 9, 2021

 

 

By:

 

/s/ Jason B. Davis

 

 

 

 

Jason B. Davis

 

 

 

 

Chief Financial Officer

 

 

58