RVRF 10-Q Quarterly Report June 30, 2016

RIVER FINANCIAL CORP

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10-Q 1 ck0001641601-10q_20160630.htm RIVERFINANCIAL-Q2-2016063 ck0001641601-10q_20160630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

¨	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)

Registrant’s telephone number, including area code: (334) 290-1012

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a small reporting company)	Smaller reporting company	x

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

As of August 1, 2016, the registrant had 5,075,576 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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
Signatures		46
Exhibit Index

FORWARD-LOOKIN G 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. The forward-looking statements contained in this annual 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 annual report and not place undue reliance on these forward-looking statements. Factors that might cause such differences include, but are not limited to:

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;

Changes in asset quality and credit risk of our bank;

Inflation;

Customer acceptance of the 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;

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; and

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

You should also consider carefully the risk factors discussed 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.

PART I – FINANC IAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

RIVER FINANCIAL CORPORATION

Consolidated Statements of Financial Condition

(in thousands except share data)

	June 30, 2016			December 31, 2015
	Unaudited			Audited
Assets
Cash and due from banks	$	15,591		$	12,415
Interest-bearing deposits in banks		25,013			18,580
Federal funds sold		3,826			7
Cash and cash equivalents		44,430			31,002

Certificates of deposit in banks		5,722			6,070
Securities available-for-sale		136,629			144,721
Loans held for sale		3,406			2,771
Loans, net of deferred fees and discounts		499,396			479,271
Less allowance for loan losses		(4,121	)		(3,827	)
Net loans		495,275			475,444
Premises and equipment, net		21,005			20,553
Accrued interest receivable		2,135			2,234
Bank owned life insurance		14,945			14,731
Foreclosed assets		1,546			1,949
Deferred income taxes		1,587			2,445
Core deposit intangible		2,430			2,763
Goodwill		10,050			9,410
Other assets		3,088			3,941
Total assets	$	742,248		$	718,034
Liabilities and Shareholders' Equity
Noninterest-bearing deposits	$	145,493		$	124,345
Interest-bearing deposits		495,009			486,054
Total deposits		640,502			610,399
Securities sold under agreements to repurchase		7,980			10,166
Federal Home Loan Bank advances		2,000			10,500
Note payable		6,964			-
Payable to Keystone shareholders		-			7,274
Accrued interest payable and other liabilities		3,237			4,771
Total liabilities		660,683			643,110
Common stock ($1 par value; 10,000,000 shares authorized; 5,079,188 and 4,876,104 shares issued; 5,077,563 and 4,809,594 shares outstanding, respectively)		5,079			4,876
Additional paid in capital		64,459			62,493
Retained earnings		10,833			7,941
Accumulated other comprehensive income		1,222			571
Treasury stock at cost (1,625 and 66,510 shares, respectively)		(28	)		(957	)
Total stockholders' equity		81,565			74,924
Total liabilities and stockholders' equity	$	742,248		$	718,034

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

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Income

(in thousands except per share data)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Interest income:
Loans, including fees	$	6,788	$	3,437	$	13,267	$	6,724
Taxable securities		374		394		787		857
Nontaxable securities		272		182		543		359
Federal funds sold		8		-		14		1
Other interest income		53		5		100		10
Total interest income		7,495		4,018		14,711		7,951
Interest expense:
Deposits		506		291		1,015		582
Short term borrowings		4		6		8		10
Federal Home Loan Bank advances		12		10		31		21
Note payable		64		-		127		-
Total interest expense		586		307		1,181		613
Net interest income		6,909		3,711		13,530		7,338
Provision for loan losses		215		139		447		278
Net interest income after provision for loan losses		6,694		3,572		13,083		7,060
Noninterest income:
Service charges and fees		593		486		1,193		940
Investment brokerage revenue		91		76		134		150
Mortgage operations		350		56		545		119
Bank owned life insurance income		108		76		214		152
Net gain on sale of investment securities		14		9		14		13
Other noninterest income		77		70		145		125
Total noninterest income		1,233		773		2,245		1,499
Noninterest expense:
Salaries and employee benefits		2,651		1,574		5,199		3,100
Occupancy expenses		363		221		714		439
Equipment rentals, depreciation, and maintenance		246		121		486		234
Telephone and communications		62		36		124		67
Advertising and business development		92		122		204		245
Data processing		435		264		915		529
Foreclosed assets, net		49		68		99		104
Federal deposit insurance and other regulatory assessments		116		80		222		158
Legal and other professional services		214		281		428		364
Other operating expense		852		374		1,617		751
Total noninterest expense		5,080		3,141		10,008		5,991
Income before income taxes		2,847		1,204		5,320		2,568
Provision for income taxes		865		343		1,616		749
Net income	$	1,982	$	861	$	3,704	$	1,819

Basic net earnings per common share	$	0.39	$	0.29	$	0.75	$	0.61
Diluted net earnings per common share	$	0.39	$	0.28	$	0.73	$	0.59
Dividends per common share	$	-	$	-	$	0.16	$	0.14

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

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income	$	1,982		$	861		$	3,704		$	1,819
Other comprehensive income (loss), net of tax:
Investment securities available-for-sale:
Net unrealized gains (losses)		509			(1,099	)		1,045			(672	)
Reclassification adjustments for net gains realized in net income		(14	)		(9	)		(14	)		(13	)
Income tax effect		(182	)		432			(380	)		267
Other comprehensive income (loss)		313			(676	)		651			(418	)
Comprehensive income	$	2,295		$	185		$	4,355		$	1,401

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

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Changes in Stockholders' Equity

(in thousands except share and per share data)

								Accumulated
			Additional					Other					Total
	Common		Paid In		Retained			Comprehensive		Treasury			Stockholders'
	Stock		Capital		Earnings			Income		Stock			Equity
Balance at December 31, 2015	$	4,876	$	62,493	$	7,941		$	571	$	(957	)	$	74,924
Net income		—		—		3,704			—		—			3,704
Other comprehensive income		—		—		—			651		—			651
Exercise of stock options and warrants (269,594 shares)		203		1,297		—			—		957			2,457
Purchase of treasury stock (1,625 shares)		—		—		—			—		(28	)		(28	)
Dividends declared ($0.16 per share)		—		—		(812	)		—		—			(812	)
Purchase accounting adjustment - Keystone merger		—		640		—			—		—			640
Stock compensation expense		—		29		—			—		—			29
Balance at June 30, 2016	$	5,079	$	64,459	$	10,833		$	1,222	$	(28	)	$	81,565

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

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	For the Six Months
	Ended June 30,
	2016			2015
Cash Flows From (Used For) Operating Activities:
Net Income	$	3,704		$	1,819
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		447			278
Provision for losses on foreclosed assets		90			100
Amortization of securities available-for-sale		804			717
Accretion of securities available-for-sale		(16	)		(2	)
Realized net gain on securities available-for-sale		(14	)		(13	)
Accretion of discount on acquired loans		(1,040	)		-
Amortization of deferred loan fees		(221	)		(113	)
Amortization of core deposit intangible asset		333			-
Stock compensation expense		29			12
Bank owned life insurance income		(214	)		(152	)
Depreciation and amortization of premises and equipment		416			256
Loss (gain) on sale of foreclosed assets		9			(12	)
Deferred income tax (benefit)		478			(100	)
(Increase) decrease in operating assets and
(Decrease) increase in operating liabilities:
Loans held-for-sale		(593	)		-
Accrued interest receivable		99			99
Other assets		746			79
Accrued interest payable and other liabilities		(1,533	)		58
Net cash from operating activities		3,524			3,026
Cash Flows From (Used For) Investing Activities:
Maturity of certificate of deposit		-			498
Activity in securities available-for-sale:
Sales		13,306			5,425
Maturities, payments, calls		7,564			12,918
Purchases		(12,173	)		(6,946	)
Loan principal originations, net		(19,015	)		(26,542	)
Proceeds from sale of foreclosed assets		304			999
Payment to Keystone shareholders		(7,274	)		-
Purchases of premises and equipment		(868	)		(855	)
Sale (purchase) of restricted equity securities, net		62			(158	)
Net cash used for investing activities		(18,094	)		(14,661	)
Cash Flows From (Used For) Financing Activities:
Net increase (decrease) in deposits		30,103			(2,667	)
Net decrease in securities sold under agreements to repurchase		(2,186	)		(1,055	)
Proceeds from Federal Home Loan Bank advances		6,750			4,000
Repayment of Federal Home Loan Bank advances		(15,250	)		-
Proceeds from issuance of note payable		7,500			-
Repayment of note payable		(536	)		-
Proceeds from exercise of common stock options and warrants		2,457			-
Purchase of treasury stock		(28	)		(195	)
Sale of treasury stock		-			90
Cash dividends		(812	)		(418	)
Net cash from (used for) financing activities		27,998			(245	)
Net Change In Cash And Cash Equivalents		13,428			(11,880	)
Cash and Cash Equivalents At Beginning Of Period		31,002			25,369
Cash and Cash Equivalents At End Of Period	$	44,430		$	13,489

Supplemental Disclosures Of Cash Flows Information:
Cash Payments For:
Interest paid to depositors	$	1,141		$	595
Interest paid on borrowings	$	169		$	31
Income taxes	$	1,200		$	969

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

River Financial Corporation

Notes to Unaudited Consolid ated 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 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.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly River Financial Corporation’s consolidated balance sheets, statements of income, statements of comprehensive income, statements of stockholders’ equity and statements of cash flows for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions are eliminated. 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 according to 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, 2015, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

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 River 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 River include the determination of the allowance for loan losses, investment securities impairment, assessment of deferred tax assets and liabilities, and business combination related fair value estimates, 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 2016. These reclassifications had no material effect on the operations, financial condition or cash flows of the Company.

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.

The reconciliation of the components of the basic and diluted earnings per share is as follows:

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2016		2015		2016		2015
Net earnings available to common shareholders	$	1,982	$	861	$	3,704	$	1,819
Weighted average common shares outstanding		5,077,167		2,990,249		4,971,608		2,992,727
Dilutive effect of stock options		60,884		58,337		69,625		58,582
Dilutive effect of stock warrants		-		50,625		27,985		50,625
Diluted common shares		5,138,051		3,099,211		5,069,218		3,101,934
Basic earnings per common share	$	0.39	$	0.29	$	0.75	$	0.61
Diluted earnings per common share	$	0.39	$	0.28	$	0.73	$	0.59

Note 4 – Investment Securities

Securities available-for-sale at June 30, 2016 and December 31, 2015 are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2016:
Securities available-for-sale:
Residential mortgage-backed	$	56,241	$	435	$	(58	)	$	56,618
U.S. govt. sponsored enterprises		19,537		269		(16	)		19,790
State, county, and municipal		56,852		1,436		(92	)		58,196
Corporate debt obligations		2,063		-		(38	)		2,025
Totals	$	134,693	$	2,140	$	(204	)	$	136,629

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2015:
Securities available-for-sale:
Residential mortgage-backed	$	60,756	$	224	$	(295	)	$	60,685
U.S. govt. sponsored enterprises		22,985		114		(146	)		22,953
State, county, and municipal		58,018		1,011		(6	)		59,023
Corporate debt obligations		2,057		3		—			2,060
Totals	$	143,816	$	1,352	$	(447	)	$	144,721

Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Details concerning investment securities with unrealized losses as of June 30 , 2016 and December 31, 2015 are as follows:

	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2016:
Securities available-for-sale:
Residential mortgage-backed	$	9,347	$	48	$	1,484	$	10	$	10,831	$	58
U.S. govt. sponsored enterprises		—		—		3,853		16		3,853		16
State, county & municipal		17,725		92		-		-		17,725		92
Corporate debt obligations		2,025		38		-		-		2,025		38
Totals	$	29,097	$	178	$	5,337	$	26	$	34,434	$	204

December 31, 2015:
Securities available-for-sale:
Residential mortgage-backed	$	20,841	$	110	$	10,937	$	185	$	31,778	$	295
U.S. govt. sponsored enterprises		9,489		13		4,820		133		14,309		146
State, county & municipal		-		-		557		6		557		6
Totals	$	30,330	$	123	$	16,314	$	324	$	46,644	$	447

As of June 30, 2016, 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. River has the ability and intent to hold its securities for a period of time sufficient to allow for a recovery in fair value. There were no other-than-temporary impairments charged to earnings during the six months ended June 30, 2016 or 2015. The Company owned a total of 78 securities with a net unrealized loss of $204 at June 30, 2016.

During the six months ended June 30, 2016, River sold investment securities for proceeds of $13,306 and realized gains of $14. During the six months ended June 30, 2015, investment securities were sold for proceeds of $5,425 and realized gains of $13.

The amortized cost and estimated fair value of securities available-for-sale at June 30, 2016, 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.

	Amortized Cost		Fair Value
	(In Thousands)
Securities available-for-sale
Less than 1 year	$	6,146	$	6,145
1 to 5 years		23,541		23,725
5 to 10 years		15,166		15,264
After 10 years		33,599		34,877
		78,452		80,011
Residential mortgage-backed securities		56,241		56,618
Totals	$	134,693	$	136,629

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

Major classifications of loans at June 30, 2016 and December 31, 2015 are summarized as follows:

	June 30, 2016						December 31, 2015
	Amount			% of Total			Amount			% of Total
Residential real estate:
Closed-end 1-4 family - first lien	$	110,274			22.3	%	$	111,476			23.4	%
Closed-end 1-4 family - junior lien		4,838			1.0	%		5,246			1.1	%
Multi-family		17,475			3.5	%		17,553			3.7	%
Total residential real estate		132,587			26.8	%		134,275			28.2	%
Commercial real estate:
Nonfarm nonresidential		156,649			31.5	%		149,597			31.5	%
Farmland		14,245			2.9	%		15,456			3.3	%
Total commercial real estate		170,894			34.4	%		165,053			34.8	%
Construction and land development:
Residential		27,690			5.6	%		21,302			4.5	%
Other		38,162			7.7	%		34,459			7.2	%
Total construction and land development		65,852			13.3	%		55,761			11.7	%
Home equity lines of credit		33,289			6.7	%		32,969			6.9	%
Commercial loans:
Other commercial loans		75,642			15.3	%		71,247			15.0	%
Agricultural		919			0.2	%		946			0.2	%
State, county, and municipal loans		6,978			1.4	%		7,414			1.6	%
Total commercial loans		83,539			16.9	%		79,607			16.8	%
Consumer loans		20,168			4.1	%		19,557			4.1	%
Total gross loans		506,329			102.2	%		487,222			102.5	%
Allowance for loan losses		(4,121	)		-0.8	%		(3,827	)		-0.8	%
Net deferred loan fees and discounts		(6,933	)		-1.4	%		(7,951	)		-1.7	%
Net loans	$	495,275			100.0	%	$	475,444			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.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the periods indicated:

	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, 2015	$	368	$	1,302		$	569	$	150		$	1,250		$	188		$	3,827
Provision for loan losses		106		(282	)		576		(23	)		22			48			447
Loan charge-offs		—		—			—		(10	)		(206	)		(9	)		(225	)
Loan recoveries		—		—			7		20			38			7			72
Balance - June 30, 2016	$	474	$	1,020		$	1,152	$	137		$	1,104		$	234		$	4,121

Ending balance:
Individually evaluated for impairment	$	73	$	333		$	5	$	—		$	751		$	—		$	1,162
Collectively evaluated for impairment	$	401	$	687		$	1,147	$	137		$	353		$	234		$	2,959
Total	$	474	$	1,020		$	1,152	$	137		$	1,104		$	234		$	4,121

Loans:
Individually evaluated for impairment	$	1,215	$	4,937		$	78	$	100		$	838		$	—		$	7,168
Collectively evaluated for impairment	$	131,372	$	165,957		$	65,774	$	33,189		$	82,701		$	20,168		$	499,161
Total	$	132,587	$	170,894		$	65,852	$	33,289		$	83,539		$	20,168		$	506,329

	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, 2014	$	304		$	1,267		$	627		$	437		$	652		$	491		$	3,778
Provision for loan losses		(28	)		(18	)		(173	)		(1	)		723			(225	)		278
Loan charge-offs		—			—			—			(333	)		(2	)		(41	)		(376	)
Loan recoveries		—			—			188			—			28			24			240
Balance - June 30, 2015	$	276		$	1,249		$	642		$	103		$	1,401		$	249		$	3,920

Ending balance:
Individually evaluated for impairment	$	—		$	594		$	62		$	—		$	975		$	—		$	1,631
Collectively evaluated for impairment	$	276		$	655		$	580		$	103		$	426		$	249		$	2,289
Total	$	276		$	1,249		$	642		$	103		$	1,401		$	249		$	3,920

Loans:
Individually evaluated for impairment	$	1,010		$	3,180		$	200		$	—		$	1,212		$	—		$	5,602
Collectively evaluated for impairment	$	62,719		$	107,789		$	29,620		$	18,017		$	56,801		$	11,432		$	286,378
Total	$	63,729		$	110,969		$	29,820		$	18,017		$	58,013		$	11,432		$	291,980

Among other loans the Bank individually evaluates for impairment all nonaccrual loans and troubled debt restructured loans. A loan is considered impaired when, based on current events and circumstances it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Management may also elect to apply an additional collective reserve to groups of impaired loans based on current economic or market factors. Interest payments received on impaired loans are generally applied as a reduction of the outstanding principal balance.

The following table presents impaired loans by class of loans as of June 30 , 2016.

	Total		Impaired Loans		Impaired Loans
	Impaired		With No		With		Allowance for
Nonaccruing Impaired Loans	Loans		Allowance		Allowance		Loan Losses
Mortgage loans on real estate:
Residential	$	301	$	172	$	129	$	55
Commercial real estate		1,853		1,013		840		43
Construction and land development		—		—		—		—
Total mortgage loans on real estate		2,154		1,185		969		98
Equity lines of credit		—		—		—		—
Commercial loans		409		—		409		322
Consumer loans		—		—		—		—
Total Loans	$	2,563	$	1,185	$	1,378	$	420

	Total		Impaired Loans		Impaired Loans
	Impaired		With No		With		Allowance for
Accruing Impaired Loans	Loans		Allowance		Allowance		Loan Losses
Mortgage loans on real estate:
Residential	$	914	$	629	$	285	$	18
Commercial real estate		3,084		2,279		805		290
Construction and land development		78		—		78		5
Total mortgage loans on real estate		4,076		2,908		1,168		313
Equity lines of credit		100		100		—		—
Commercial loans		429		—		429		429
Consumer loans		—		—		—		—
Total Loans	$	4,605	$	3,008	$	1,597	$	742

	Total		Impaired Loans		Impaired Loans
	Impaired		With No		With		Allowance for
Total Impaired Loans	Loans		Allowance		Allowance		Loan Losses
Mortgage loans on real estate:
Residential	$	1,215	$	801	$	414	$	73
Commercial real estate		4,937		3,292		1,645		333
Construction and land development		78		—		78		5
Total mortgage loans on real estate		6,230		4,093		2,137		411
Equity lines of credit		100		100		—		—
Commercial loans		838		—		838		751
Consumer loans		—		—		—		—
Total Loans	$	7,168	$	4,193	$	2,975	$	1,162

The following table presents impaired loans by class of loans as of December 31, 2015.

			Impaired Loans		Impaired Loans
	Total Impaired		With No		With		Allowance for
Nonaccruing Impaired Loans	Loans		Allowance		Allowance		Loan Losses
Mortgage loans on real estate:
Residential	$	375	$	375	$	-	$	-
Commercial real estate		1,415		1,050		365		188
Construction and land development		—		—		—		—
Total mortgage loans on real estate		1,790		1,425		365		188
Equity lines of credit		—		—		—		—
Commercial loans		1,021		—		1,021		491
Consumer loans		—		—		—		—
Total Loans	$	2,811	$	1,425	$	1,386	$	679

			Impaired Loans		Impaired Loans
	Total Impaired		With No		With		Allowance for
Accruing Impaired Loans	Loans		Allowance		Allowance		Loan Losses
Mortgage loans on real estate:
Residential	$	1,069	$	1,069	$	-	$	-
Commercial real estate		827		—		827		304
Construction and land development		100		—		100		45
Total mortgage loans on real estate		1,996		1,069		927		349
Equity lines of credit		100		100		—		—
Commercial loans		422		—		422		285
Consumer loans		—		—		—		—
Total Loans	$	2,518	$	1,169	$	1,349	$	634

			Impaired Loans		Impaired Loans
	Total Impaired		With No		With		Allowance for
Total Impaired Loans	Loans		Allowance		Allowance		Loan Losses
Mortgage loans on real estate:
Residential	$	1,444	$	1,444	$	-	$	-
Commercial real estate		2,242		1,050		1,192		492
Construction and land development		100		—		100		45
Total mortgage loans on real estate		3,786		2,494		1,292		537
Equity lines of credit		100		100		—		—
Commercial loans		1,443		—		1,443		776
Consumer loans		—		—		—		—
Total Loans	$	5,329	$	2,594	$	2,735	$	1,313

The following table presents the average recorded investment in impaired loans and the interest income recog nized on impaired loans in the six months ended June 30 , 2016 and 2015 by loan category.

	Six Months Ended						Six Months Ended
	June 30, 2016						June 30, 2015
	Average		Ending				Average		Ending
	Recorded		Recorded		Interest		Recorded		Recorded		Interest
	Investment		Investment		Income		Investment		Investment		Income
Mortgage loans on real estate:
Residential real estate	$	1,221	$	1,215	$	37	$	1,144	$	1,010	$	21
Commercial real estate		4,035		4,937		71		2,641		3,180		57
Construction and land development		83		78		3		154		200		—
Total mortgage loans on real estate		5,339		6,230		111		3,939		4,390		78
Equity lines of credit		100		100		2		231		—		—
Commercial loans		1,137		838		13		1,231		1,212		4
Consumer loans		—		—		—		24		—		—
Total Loans	$	6,576	$	7,168	$	126	$	5,425	$	5,602	$	82

The following tables present the aging of loans and non-accrual loan balances as of June 30, 2016 and December 31, 2015, by class of loans.

	Accruing Loans
As of June 30, 2016	Current		30-89 Days Past Due		90+ Days Past Due		Nonaccrual Loans		Total Loans
Mortgage loans on real estate:
Residential	$	130,102	$	1,982	$	55	$	448	$	132,587
Commercial real estate		168,366		675		—		1,853		170,894
Construction and land development		65,157		603		21		71		65,852
Total mortgage loans on real estate		363,625		3,260		76		2,372		369,333
Equity lines of credit		33,209		20		60		—		33,289
Commercial loans		82,964		151		—		424		83,539
Consumer loans		19,946		143		—		79		20,168
Total Loans	$	499,744	$	3,574	$	136	$	2,875	$	506,329

	Accruing Loans
As of December 31, 2015	Current		30-89 Days Past Due		90+ Days Past Due		Nonaccrual Loans		Total Loans
Mortgage loans on real estate:
Residential	$	131,608	$	2,058	$	129	$	480	$	134,275
Commercial real estate		163,638		—		—		1,415		165,053
Construction and land development		55,676		21		—		64		55,761
Total mortgage loans on real estate		350,922		2,079		129		1,959		355,089
Equity lines of credit		32,934		35		—		—		32,969
Commercial loans		78,282		249		17		1,059		79,607
Consumer loans		19,264		134		91		68		19,557
Total Loans	$	481,402	$	2,497	$	237	$	3,086	$	487,222

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 June 30, 2016 and December 31, 2015, and based on the most recent analysis performed as of those dates, the risk category of loans by class of loans is as follows:


As of June 30, 2016	Pass		Special Mention		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential	$	122,743	$	6,433	$	3,411	$	-	$	132,587
Commercial real estate		161,409		3,954		5,531		-		170,894
Construction and land development		64,413		690		749		-		65,852
Total mortgage loans on real estate		348,565		11,077		9,691		-		369,333
Equity lines of credit		33,010		155		124		-		33,289
Commercial loans		80,137		2,370		1,032		-		83,539
Consumer loans		19,691		267		210		-		20,168
Total Loans	$	481,403	$	13,869	$	11,057	$	-	$	506,329


As of December 31, 2015	Pass		Special Mention		Substandard		Doubtful		Total
Mortgage loans on real estate:
Residential	$	123,862	$	6,765	$	3,648	$	-	$	134,275
Commercial real estate		155,235		7,019		2,799		-		165,053
Construction and land development		54,083		845		833		-		55,761
Total mortgage loans on real estate		333,180		14,629		7,280		-		355,089
Equity lines of credit		32,740		104		125		-		32,969
Commercial loans		75,335		2,598		1,674		-		79,607
Consumer loans		18,924		428		205		-		19,557
Total Loans	$	460,179	$	17,759	$	9,284	$	-	$	487,222

Note 6 – Fair Value Measurements and Disclosures

River 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, River may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and foreclosed 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

River groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded or disclosed at fair value.

Cash and cash equivalents – 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 – 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 included mortgage-backed securities issued by government sponsored enterprises and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

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

Loans – River Financial Corporation 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, including collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. As of June 30, 2016 and December 31, 2015, 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, River Financial Corporation records the impaired loan as nonrecurring Level 2. When the fair value is based on an appraised value, River Financial Corporation 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.

Cash value of 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.

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.

Short-term debt – For disclosure purposes, the carrying amounts of borrowings under repurchase agreements and other short-term borrowings maturing within 90 days 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.

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

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. Information related to River’s assets and liabilities measured at fair value on a recurring basis at Ju ne 30 , 2016 and December 31, 2015 is as follows:

	Fair Value Measurements At Reporting Date Using:
June 30, 2016	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	$	56,618	$	—	$	56,618	$	—
U.S. government agencies		19,790		—		19,790		—
State, county, and municipal		58,196		—		58,196		—
Corporate obligations		2,025		—		1,373		652
Totals	$	136,629	$	—	$	135,977	$	652

	Fair Value Measurements At Reporting Date Using:
December 31, 2015	Fair Value		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Securities available-for-sale:
Residential mortgage -backed	$	60,685	$	—	$	60,685	$	—
U.S. government agencies		22,953		—		22,953		—
State, county, and municipal		59,023		—		59,023		—
Corporate obligations		2,060		—		1,408		652
Totals	$	144,721	$	—	$	144,069	$	652

Assets measured at fair value on a nonrecurring basis - River has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. The following table presents the financial instruments carried on the balance sheet by caption and by level in the fair value hierarchy, for which a non-recurring change in fair value has been recorded as of June 30, 2016 and December 31, 2015:

	Fair Value Measurements At Reporting Date Using:
June 30, 2016	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	$	6,005	$	—	$	—	$	6,005
Foreclosed assets		1,546		—		—		1,546
Totals	$	7,551	$	—	$	—	$	7,551

December 31, 2015	Fair Value		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	4,016	$	—	$	—	$	4,016
Foreclosed assets		1,949		—		—		1,949
Totals	$	5,965	$	—	$	—	$	5,965

River has estimated the fair values of these assets using Level 3 inputs, specifically the appraised value of the collateral. Impaired loan balances represent those collateral dependent impaired loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the impaired loan for the amount of the credit loss.

The estimated fair values, and related carrying or notional amounts, of River’s financial instruments as of June 30 , 2016 and December 31, 2015 are as follows:

			Estimated Fair Value
June 30, 2016	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	44,430	$	44,430	$	—	$	—
Certificates of Deposit		5,722		—		5,722		—
Securities Available for Sale		136,629		—		135,977		652
Loans held-for-sale		3,406		—		3,406		—
Restricted Equity Securities		836		—		—		836
Loans Receivable		495,275		—		500,036		—
Bank Owned Life Insurance		14,945		—		14,945		—
Financial Liabilities:
Deposits		640,502		—		635,457		—
Securities sold under agreements to repurchase		7,980		—		7,980		—
Federal Home Loan Bank advances		2,000		—		2,000		—
Note Payable		6,964		—		6,964		—

			Estimated Fair Value
December 31, 2015	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	31,002	$	31,002	$	—	$	—
Certificates of Deposit		6,070		—		6,070		—
Securities Available for Sale		144,721		—		144,069		652
Loans held-for-sale		2,771		—		2,771		—
Restricted Equity Securities		1,270		—		—		1,270
Loans Receivable		475,444		—		475,892		—
Bank Owned Life Insurance		14,731		—		14,731		—
Financial Liabilities:
Deposits		610,399		—		599,988		—
Securities sold under agreements to repurchase		10,166		—		10,166		—
Federal Home Loan Bank advances		10,500		—		10,492		—

The estimated fair values of the standby letters of credit and loan commitments on which the committed interest rate is less than the current market rate are insignificant at June 30, 2016 and December 31, 2015.

River assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of River’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to River. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed-rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed-rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling-rate environment. Management monitors rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Corporation’s overall interest rate risk.

Note 7 – Acquisition

On December 31, 2015, Keystone Bancshares, Inc. (“Keystone”) was merged with and into River. Concurrent with the merger of River and Keystone, Keystone Bank was merged with and into River Bank & Trust. Under the terms of the merger agreement, shareholders of Keystone immediately prior to the effective time of the merger received one share of River common stock in exchange for each outstanding share of Keystone common stock held and $4.00 in cash. In addition, persons holding options or warrants to acquire Keystone common stock received options or warrants to acquire 1.25 shares of River common stock for each option or warrant at a purchase price equal to the original exercise price divided by 1.25. River issued 1,818,492 shares of River common stock to Keystone shareholders and made cash payments to Keystone shareholders of approximately $7,274.

During the first quarter of 2016, an adjustment to the acquisition values was recorded to recognize the fair va lue of the Keystone stock options and stock warrants assumed in the merger. The value was computed using the Black-Sholes option pricing model and totaled $640. The adjustment resulted in an increase to additional paid in capital of $640 and a correspond ing increase in goodwill of $640.

Note 8 – Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. These amendments are intended to reduce diversity in the timing and content of going concern disclosures. This ASU clarifies management’s responsibility to evaluate and provide related disclosures if there are any conditions or events, as a whole, that raise substantial doubt about the entity’s ability to continue as a going concern for one year after the date on which the financial statements are issued (or, if applicable, available to be issued). The amendments in this ASU will be effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company does not believe that this ASU will have an impact on its financial position or results of operations.

In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis. The amendment substantially changes the way that reporting entities are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the new amendment. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, and affect the consolidation analysis of reporting entities that are involved with VIEs. The amendments in this update will be effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The adoption of this ASU did not have a significant impact on the Company’s financial position or results of operations.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers—Deferral of the Effective Date. ASU 2015-14 defers the effective date of ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, by one year. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. Under ASU 2015-14, ASU 2014-09 is now effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company is currently evaluating the effects of ASU 2014-09 on its financial statements and disclosures, if any.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 simplifies the accounting for measurement-period adjustments in a business combination by requiring the acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are determined, thereby eliminating the requirement to retrospectively account for those adjustments. The acquirer is also required to record in the reporting period in which the adjustments are determined the effect on earnings of changes in depreciation, amortization and other items resulting from the change to the provisional amounts. ASU 2015-16 is effective for annual periods beginning after December 31, 2015, with early application permitted, and applies to adjustments to provisional amounts that occur after the effective date. The Company did adopt this ASU during the first quarter of 2016 and applied its provisions to the adjustments to goodwill during the quarter ended June 30, 2016 as discussed in Note 7.

In January 2016, the FASB issued ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This will enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments include the following: 1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2)Simplify the impairment assessment of equity investment’s without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require public business entities to use exit price notion when measuring fair value of financial instruments for disclosure purposes; 4)Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting in a change in the fair value of a liability resulting in a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. For public business entities, the amendments of this ASU are effective fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In February 2016 , the FASB issued ASU 2016-02, Leases (Topic 842) . This will require lessees to recognize assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. T he amendment should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating t he impact of the new guidance on its consolidated financial statements.

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 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. However, entities can apply these amendments as early as fiscal years beginning after December 15, 2018. The Company is evaluating the impact to its consolidated financial statements upon adoption.

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, 2015, which are contained in the Annual Report on Form 10-K for the year ended December 31, 2015. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those contained in forward-looking statements as a result of many factors, including those discussed in our 2015 Annual Report on Form 10-K under “Part I, Item 1A - Risk Factors,” as well as other unknown risks and uncertainties.

All dollar amounts in the tables in this section are in 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.

Our Business

River is 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 June 30, 2016, we operated ten full-service banking offices in Alabama in the cities of Montgomery, Prattville, Millbrook, Wetumpka, Auburn, Opelika, Gadsden and Alexander City.

Overview of Second Quarter 2016 Results

Net income was $1,982 in the quarter ended June 30, 2016, compared with $861 in the quarter ended June 30, 2015. Several significant measures from the 2016 second quarter include:

Net interest margin (taxable equivalent) of 4.26%, compared with 3.74% for the second quarter of 2015.

Net interest income increase of $3,198 for the quarter ended June 30, 2016, representing an 86.2% rate of increase over the quarter ended June 30, 2015.

Annualized return on average assets for the quarter ended June 30, 2016 of 1.08% compared with 0.77% for the quarter ended June 30, 2015.

Annualized return on average equity for the quarter ended June 30, 2016 of 9.86% compared with 7.68 % for the quarter ended June 30, 2015.

Loan growth of $16,237 during the quarter, representing a 13.4% annualized growth rate.

Deposit growth of $27,361 during the quarter, representing a 17.8% annualized growth rate.

Stockholders’ equity growth of $2,307, representing a 11.6% annualized growth rate.

Book value per share of $16.06 at June 30, 2016, compared with $15.58 per share at December 31, 2015.

Tangible book value per share of $13.61 at June 30, 2016, compared with $13.05 at December 31, 2015.

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, 2015, 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, 2015, 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 recover in value, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value. The credit portion of the impairment, if any, is recognized as a realized loss in current earnings.

Income Taxes

Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognized in the financial statements. A valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “more likely than not” that the tax assets or benefits will be realized. Realization of tax benefits depends on having sufficient taxable income, available tax loss carrybacks or credits, the reversing of taxable temporary differences and/or tax planning strategies within the reversal period and that current tax law allows for the realization of recorded tax benefits.

Business Combinations

Assets purchased and liabilities assumed in a business combination are recorded at their fair value. The fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities. On the date of acquisition, when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that we 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 non-accretable difference. We must estimate cash flows at each reporting date. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increase in cash flows result in a reversal of the provision for loan losses to the extent or prior charges and adjusted accretable yield, which will have a positive impact on interest income. In addition, purchased loans with evidence of credit deterioration are also handled under this method.

Comparison of the Results of Operations for the three and six months ended June 30 , 2016 and 2015

The following is a narrative discussion and analysis of significant changes in our results of operations for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015.

Net Income

During the three months ended June 30, 2016, our net income was $1,982, compared to $861 for the three months ended June 30, 2015, an increase of $1,121, or 130.2%. Our results of operations for the three months ended June 30, 2016 included the merger with Keystone Bancshares.

The primary reason for the increase in net income for the second quarter of 2016 as compared to the second quarter of 2015 was an increase in net interest income. During the three months ended June 30, 2016, net interest income was $6,909 compared to $3,711 for the three months ended June 30, 2015, an increase of $3,198, or 86.2%. This increase is a result of higher levels of loan volume and other earning assets from organic growth and the merger with Keystone. Total noninterest income for the second quarter of 2016 was $1,233 compared to $773 for the quarter ended June 30, 2015. This increase was primarily the result of the Keystone merger and an increase of $294 from mortgage operations. Total noninterest expense increased from $3,141 in the second quarter of 2015 to $5,080 in the second quarter of 2016. This increase also primarily resulted from the Keystone merger.

During the six months ended June 30, 2016, our net income was $3,704, compared to $1,819 for the six months ended June 30, 2015, an increase of $1,885, or 103.6%. Our results of operations for the six months ended June 30, 2016 included the merger with Keystone Bancshares.

The primary reason for the increase in net income for the first half of 2016 as compared to the first half of 2015 was an increase in net interest income. During the first half of 2016, net interest income was $13,530 compared to $7,338 in the first half of 2015, an increase of $6,192, or 84.4%. This increase is a result of higher levels of loan volume and other earning assets from organic growth and the merger with Keystone. Total noninterest income for the first half of 2016 was $2,245 compared to $1,499 in the first half of 2015. The increase was primarily a result of the Keystone merger and an increase of $426 from mortgage operations. Total noninterest expense in the first half of 2016 was $10,008 compared to $5,991 in the first half of 2015, an increase of $4,017, or 67.1%. This increase also primarily resulted from the Keystone merger.

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 RFC’s net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the yield on interest earning assets and the cost of interest bearing liabilities. Our net interest margin can also be affected by economic conditions, the competitive environment, loan demand, and deposit flow. Management’s ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the primary source of earnings. This is discussed in greater detail under the heading “Interest Sensitivity and Market Risk”

Comparison of net interest income for the three months ended June 30 , 2016 and 2015

The following table shows, for the three months ended June 30, 2016 and 2015, the average balances of each principal category of our earning assets and interest bearing liabilities and the average taxable equivalent yields on assets and average costs of liabilities. These yields and costs are calculated by dividing the income or expense by the average daily balance of the associated assets or liabilities.

	Three months Ended June 30, 2016								Three months Ended June 30, 2015
			Interest								Interest
	Average		Income/			Average			Average		Income/			Average
	Balance		Expense			Yield/Rate			Balance		Expense			Yield/Rate
Interest earning assets
Loans	$	495,466	$	6,805			5.52	%	$	285,244	$	3,456			4.86	%
Mortgage loans held for sale		3,942		5			0.51	%		179		1			2.24	%
Investment securities:
Taxable securities		82,422		374			1.83	%		96,252		394			1.64	%
Tax-exempt securities		55,902		405			2.91	%		26,005		275			4.24	%
Interest bearing balances in other banks		22,539		53			0.95	%		1,928		5			1.04	%
Federal funds sold		6,450		8			0.50	%		196		-			0.00	%
Total interest earning assets	$	666,721	$	7,650			4.61	%	$	409,804	$	4,131			4.04	%

Interest bearing liabilities
Interest bearing transaction accounts	$	174,032	$	108			0.25	%	$	116,307	$	55			0.19	%
Savings and money market accounts		178,434		164			0.37	%		82,695		46			0.22	%
Time deposits		137,399		234			0.68	%		97,460		189			0.78	%
Short-term debt		10,600		4			0.15	%		7,986		6			0.30	%
Federal Home Loan Bank advances		7,043		12			0.69	%		6,711		11			0.66	%
Note Payable		7,229		64			3.50	%		-		-			0.00	%
Total interest bearing liabilities	$	514,737	$	586			0.46	%	$	311,159	$	307			0.40	%
Noninterest-bearing funding of earning assets		151,984		-			0.00	%		98,645		-			0.00	%
Total cost of funding earning assets	$	666,721	$	586			0.35	%	$	409,804	$	307			0.30	%
Net interest rate spread							4.16	%							3.65	%
Net interest income/margin (taxable equivalent)			$	7,064			4.26	%			$	3,824			3.74	%
Tax equivalent adjustment				(155	)							(113	)
Net interest income/margin			$	6,909			4.17	%			$	3,711			3.63	%

The following table reflects, for the three months ended June 30 , 2016 and 2015, the changes in our net interest income due to variances in the volume of interest e arning assets and interest bearing liabilities and variances in the associated rates earned or paid on these assets and liabilities.

	Three Months Ended June 30, 2016 vs.
	Three Months Ended June 30, 2015
				Variance
				due to
	Volume			Yield/Rate			Total
Interest earning assets
Loans	$	2,526		$	823		$	3,349
Mortgage loans held for sale		30			(26	)		4
Investment securities:		—			—
Taxable securities		(57	)		37			(20	)
Tax-exempt securities		314			(184	)		130
Interest bearing balances in other banks		48			—			48
Federal funds sold		8			—			8
Total interest earning assets	$	2,869		$	650		$	3,519


Interest bearing liabilities
Interest bearing transaction accounts	$	27		$	26		$	53
Savings and money market accounts		53			65		$	118
Time deposits		78			(33	)	$	45
Short-term debt		2			(4	)	$	(2	)
Federal Home Loan Bank advances		-			1		$	1
Note Payable		64			-		$	64
Total interest bearing liabilities	$	224		$	55		$	279

Net interest income
Net interest income (taxable equivalent)	$	2,645		$	595		$	3,240
Taxable equivalent adjustment		(98	)		56			(42	)
Net interest income	$	2,547		$	651		$	3,198

Total interest income for the three months ended June 30, 2016 was $7,495 and total interest expense was $586, resulting in net interest income of $6,909 for the period. For the same period of 2015, total interest income was $4,018 and total interest expense was $307, resulting in net interest income of $3,711 for the period. This represents a 86.2% increase in net interest income when comparing the same period from 2016 and 2015. When comparing the variances related to interest income and interest expense for the three months ended June 30, 2016 and 2015, the increase and decrease, respectively, were attributed to the following: (1) the increases in interest income and interest expense related to increases in average volumes resulted primarily from the Keystone merger, and (2) the increase in interest income on loans related to variance in the yield resulted primarily from the accretion of discount on the loans acquired in the Keystone merger which totaled $584 in the second quarter of 2016 with none in the second quarter of 2015.

Comparison of net interest income for the six months ended June 30, 2016 and 2015

The following table shows, for the six months ended June 30, 2016 and 2015, 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.

	Six months Ended June 30, 2016								Six months Ended June 30, 2015
			Interest								Interest
	Average		Income/			Average			Average		Income/			Average
	Balance		Expense			Yield/Rate			Balance		Expense			Yield/Rate
Interest earning assets
Loans	$	487,884	$	13,304			5.48	%	$	277,721	$	6,759			4.91	%
Mortgage loans held for sale		3,145		7			0.45	%		167		2			2.42	%
Investment securities:
Taxable securities		85,831		791			1.85	%		99,776		857			1.73	%
Tax-exempt securities		55,941		809			2.91	%		25,808		540			4.22	%
Interest bearing balances in other banks		18,971		97			1.03	%		2,097		10			0.96	%
Federal funds sold		5,932		14			0.47	%		702		1			0.29	%
Total interest earning assets	$	657,704	$	15,022			4.59	%	$	406,271	$	8,169			4.05	%

Interest bearing liabilities
Interest bearing transaction accounts	$	172,039	$	215			0.25	%	$	116,307	$	110			0.19	%
Savings and money market accounts		177,105		326			0.37	%		82,159		91			0.22	%
Time deposits		138,248		474			0.69	%		97,894		381			0.78	%
Short-term debt		10,618		8			0.15	%		8,175		10			0.25	%
Federal Home Loan Bank advances		9,509		31			0.66	%		6,356		21			0.67	%
Note Payable		7,363		127			3.47	%		-		-			0.00	%
Total interest bearing liabilities	$	514,882	$	1,181			0.46	%	$	310,891	$	613			0.40	%
Noninterest-bearing funding of earning assets		142,822		-			0.00	%		95,380		-			0.00	%
Total cost of funding earning assets	$	657,704	$	1,181			0.36	%	$	406,271	$	613			0.30	%
Net interest rate spread							4.13	%							3.66	%
Net interest income/margin (taxable equivalent)			$	13,841			4.23	%			$	7,556			3.75	%
Tax equivalent adjustment				(311	)							(218	)
Net interest income/margin			$	13,530			4.14	%			$	7,338			3.64	%

The following table reflects, for the six months ended June 30, 2016 and 2015, the changes in our net interest income due to variances in the volume of interest earn ing assets and interest bearing liabilities and variances in the associated rates earned or paid on these assets and liabilities.

	Six Months Ended June 30, 2016 vs.
	Six Months Ended June 30, 2015
				Variance
				due to
	Volume			Yield/Rate			Total
Interest earning assets
Loans	$	5,144		$	1,401		$	6,545
Mortgage loans held for sale		38			(33	)		5
Investment securities:
Taxable securities		(117	)		51			(66	)
Tax-exempt securities		633			(364	)		269
Interest bearing balances in other banks		77			10			87
Federal funds sold		7			6			13
Total interest earning assets	$	5,782		$	1,071		$	6,853

Interest bearing liabilities
Interest bearing transaction accounts	$	54		$	51		$	105
Savings and money market accounts		107			128			235
Time deposits		157			(64	)		93
Short-term debt		3			(5	)		(2	)
Federal Home Loan Bank advances		11			(1	)		10
Note Payable		127			-			127
Total interest bearing liabilities	$	459		$	109		$	568

Net interest income
Net interest income (taxable equivalent)	$	5,323		$	962		$	6,285
Taxable equivalent adjustment		(205	)		112			(93	)
Net interest income	$	5,118		$	1,074		$	6,192

Total interest income for the six months ended June 30, 2016 was $14,711 and total interest expense was $1,181, resulting in net interest income of $13,530 for the period. For the same period of 2015, total interest income was $7,951 and total interest expense was $613, resulting in net interest income of $7,338 for the period. This represents an 84.4% increase in net interest income when comparing the same period from 2016 and 2015. When comparing the variances related to interest income and interest expense for the six months ended June 30, 2016 and 2015, the increase and decrease, respectively, were attributed to the following: (1) the increases in interest income and interest expense related to increases in average volumes resulted primarily from the Keystone merger, and (2) the increase in interest income on loans related to variance in the yield resulted primarily from the accretion of discount on the loans acquired in the Keystone merger which totaled $1,040 in the six months ended June 30, 2016 with none in the six months ended June 30, 2015.

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 June 30, 2016, management recorded a provision of $215 in the second quarter of 2016 compared to a provision of $139 in the second quarter of 2015. The increase in the provision was primarily related to the increase in loans excluding the loans acquired in the Keystone merger. A provision of $447 was recorded in the six months ended June 30, 2016 compared to $278 in the six months ended June 30, 2015. The increase in the provision was primarily related to the increase in loans excluding the loans acquired in the Keystone merger.

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 Ju ne 30 , 2016, the recorded allowance related to impaired loans was $1, 162 . As of June 30 , 2015, the recorded allowance related to impaired loans was $1 ,631 .

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 deposits 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.

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2016		2015		2016		2015
Service charges and fees	$	593	$	486	$	1,193	$	940
Investment brokerage revenue		91		76		134		150
Mortgage operations		350		56		545		119
Bank owned life insurance income		108		76		214		152
Net gain on sale of investment securities		14		9		14		13
Other noninterest income		77		70		145		125
Total noninterest income	$	1,233	$	773	$	2,245	$	1,499

Noninterest income for the three months ended June 30, 2016 was $1,233 compared to $773 for the same period in 2015. The increases in service charges and fees, bank owned life insurance and other noninterest income were primarily related to the Keystone merger. The increase in mortgage operations revenue of $294 resulted from the Keystone merger and from an increase in the volume of mortgage loans originated for sale in the quarter ended June 30, 2016 as compared to the second quarter of 2015.

Noninterest income for the six months ended June 30, 2016 was $2,245 compared to $1,499 for the same period of 2015. The increases in service charges and fees, bank owned life insurance and other noninterest income were primarily related to the Keystone merger. The increase in mortgage operations revenue of $426 resulted from the Keystone merger and from an increase in the volume of mortgage loans originated for sale in the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

Noninterest Expense

Noninterest expenses consist primarily of salaries and employee benefits, building occupancy and equipment expenses, advertising and promotion expenses, data processing expenses, legal and professional services expense and miscellaneous other operating expenses.

The following table sets forth the principal components of noninterest expense for the periods indicated.

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2016		2015		2016		2015
Salaries and employee benefits	$	2,651	$	1,574	$	5,199	$	3,100
Occupancy expenses		363		221		714		439
Equipment rentals, depreciation, and maintenance		246		121		486		234
Telephone and Communications		62		36		124		67
Advertising and business development		92		122		204		245
Data processing		435		264		915		529
Foreclosed assets, net		49		68		99		104
Federal deposit insurance and other regulatory assessments		116		80		222		158
Legal and other professional services		214		281		428		364
Other operating expense		852		374		1,617		751
Total noninterest expense	$	5,080	$	3,141	$	10,008	$	5,991

Noninterest expense for the three months ended June 30, 2016 totaled $5,080 compared with $3,141 for the same period of 2015. The increase was primarily a result of the Keystone merger. Salaries and employee benefits increased $1,077, or 68.4%, to $2,651 in the second quarter of 2016 from $1,574 in the second quarter of 2015. The number of full-time equivalent employees increased from approximately 82 to approximately 122 as a result of the Keystone merger for an increase of approximately 48.8%. Occupancy expenses increased $142, or 64.3%, in the second quarter of 2016 as compared to the second quarter of 2015. The number of banking offices increased from six in the second quarter of 2015 to ten in the second quarter of 2016 as a result of the Keystone merger and the opening of a new branch office in Alexander City, Alabama and a new branch office in Millbrook, Alabama in 2016. Similarly, equipment rental, depreciation, and maintenance increased $125, or 103.3% from $121 in the second quarter of 2015 to $246 in the second quarter of 2016. Data processing expenses totaled $435 in the second quarter of 2016 compared to $264 in the second quarter of 2015 for an increase of $171, or 64.8%. In addition to increases resulting from the Keystone merger, the Company is preparing to convert to a new core processing system during 2016 and approximately $45 of the increase in data processing expense was related to the conversion preparation. Legal and professional fees decreased to $214 in the second quarter of 2016 from $281 in the second quarter of 2015 for a decrease of $67, or 23.8%. This decrease was related to reduced expenses for legal, accounting, and other professional services related to the Keystone merger that were recorded in the second quarter of 2015. Other operating expense increased $478, or 127.8%, from $374 in the second quarter of 2015 to $852 in the second quarter of 2016. The amortization of the core deposit intangible recognized at the time of the Keystone merger amounted to $163 in the second quarter of 2016 compared to none in the second quarter of 2015 and is included in other noninterest expense.

Noninterest expense for the six months ended June 30, 2016 totaled $10,008 compared with $5,991 for the same period of 2015. The increase was primarily a result of the Keystone merger. Salaries and employee benefits increased $2,099, or 67.7%, to $5,199 in the first half of 2016 from $3,100 in the first half of 2015. The number of full-time equivalent employees increased from approximately 82 to approximately 122 as a result of the Keystone merger for an increase of approximately 48.8%. Occupancy expenses increased $275, or 62.6%, in the first half of 2016 as compared to the first half of 2015. The number of banking offices increased from six at June 30, 2015 to ten in at June 30, 2016 as a result of the Keystone merger and the opening of a new branch office in Alexander City, Alabama and a new branch office in Millbrook, Alabama in 2016. Similarly, equipment rental, depreciation, and maintenance increased $252, or 107.7% from $234 in the first half of 2015 to $486 in the first half of 2016. Data processing expenses totaled $915 in the first half of 2016 compared to $529 in the first half of 2015 for an increase of $386, or 73.0%. In addition to increases resulting from the Keystone merger, the Company is preparing to convert to a new core processing system during 2016 and approximately $90 of the increase in data processing expense was related to the conversion preparation. Legal and professional fees increased from $364 in the first half of 2015 to $428 in the first half of 2016 for an increase of $64, or 17.6%. This increase was related to the Keystone merger. Other operating expense increased $866, or 115.3%, from $751 in the first half of 2015 to $1,617 in the first half of 2016. The amortization of the core deposit intangible recognized at the time of the Keystone merger amounted to $333 in the first half of 2016 compared to none in the first half of 2015 and is included in other noninterest expense.

Provision for Income Taxes

We recognized income tax expense of $865 for the three months ended June 30, 2016, compared to $343 for the three months ended June 30, 2015. The increase of $522, or 152.2%, resulted from the increase in net income before taxes of $1,643 in the second quarter of 2016 as compared to the second quarter of 2015. The effective tax rate for the three months ended June 30, 2016 was 30.4%

compared to 2 8 . 5 % for the same period in 2015. The effective tax rate is affected by items of income that are not subject to federal and/or state taxation and by items of expense that are not deductib le for federal and/or state income tax purposes.

We recognized income tax expense of $1,616 for the six months ended June 30, 2016, compared to $749 for the six months ended June 30, 2015. The increase of $867, or 115.8%, resulted from the increase in net income before taxes of $2,752 in the first half of 2016 as compared to the first half of 2015. The effective tax rate for the six months ended June 30, 2016 was 30.4% compared to 29.2% for the same period in 2015. The effective tax rate is affected by items of income that are not subject to federal and/or state taxation and by items of expense that are not deductible for federal and/or state income tax purposes.

Comparison of Financial Condition at June 30, 2016, and December 31, 2015

Overview

Our total assets increased $24,214, or 3.4%, from December 31, 2015 to June 30, 2016. Loans, net of deferred fees and discounts, increased $20,125, or 4.2%, from December 31, 2015 to June 30, 2016. Securities available-for-sale decreased by $8,092, or 5.6%, from December 31, 2015 to June 30, 2016 as net cash inflows from these securities were used to fund a portion of the growth in net loans. Cash and cash equivalents increased $13,428 or 43.3%. Total deposits increased $30,103, or 4.9%, with the growth occurring in mainly in noninterest-bearing deposits. Total stockholders’ equity increased $6,641, or 8.9%.

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. 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. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

During the six months ended June 30, 2016, we purchased investment securities totaling $12,173 and sold investment securities with proceeds received of $13,320 including net realized gains of $14. The following tables summarize the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of securities available-for-sale at June 30, 2016 and December 31, 2015.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2016:
Securities available-for-sale:
Residential mortgage-backed	$	56,241	$	435	$	(58	)	$	56,618
U.S. govt. sponsored enterprises		19,537		269		(16	)		19,790
State, county, and municipal		56,852		1,436		(92	)		58,196
Corporate debt obligations		2,063		-		(38	)		2,025
Totals	$	134,693	$	2,140	$	(204	)	$	136,629

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2015:
Securities available-for-sale:
Residential mortgage-backed	$	60,756	$	224	$	(295	)	$	60,685
U.S. govt. sponsored enterprises		22,985		114		(146	)		22,953
State, county, and municipal		58,018		1,011		(6	)		59,023
Corporate debt obligations		2,057		3		—			2,060
Totals	$	143,816	$	1,352	$	(447	)	$	144,721

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 $495,466 during the three months ended June 30, 2016, or 74.3% of average interest earning assets, as compared to $285,244, or 69.6% of average interest earning assets, for the three months ended June 30, 2015. At June 30, 2016, total loans, net of deferred loan fees, were $499,396, compared to $479,271 at December 31, 2015, an increase of $20,125, or 4.2%.

The growth in the loan portfolio is primarily attributable to the Bank’s ability to attract new customers from other financial institutions. We have hired experienced bankers in the markets we serve and these employees were successful in transitioning many of their former clients as well as bringing new clients to the Bank. Our bankers are expected to maintain calling efforts to develop relationships with clients and our philosophy is to be responsive to customer needs by providing service and decisions in a timely manner. Additionally, the markets we serve have shown some signs of economic recovery over the last few years which has increased demand for the services we provide.

The following table provides a summary of the loan portfolio as of June 30, 2016, and December 31, 2015.

	June 30, 2016						December 31, 2015
	Amount			% of Total			Amount			% of Total
Residential real estate:
Closed-end 1-4 family - first lien	$	110,274			22.3	%	$	111,476			23.4	%
Closed-end 1-4 family - junior lien		4,838			1.0	%		5,246			1.1	%
Multi-family		17,475			3.5	%		17,553			3.7	%
Total residential real estate		132,587			26.8	%		134,275			28.2	%
Commercial real estate:
Nonfarm nonresidential		156,649			31.5	%		149,597			31.5	%
Farmland		14,245			2.9	%		15,456			3.3	%
Total commercial real estate		170,894			34.4	%		165,053			34.8	%
Construction and land development:
Residential		27,690			5.6	%		21,302			4.5	%
Other		38,162			7.7	%		34,459			7.2	%
Total construction and land development		65,852			13.3	%		55,761			11.7	%
Home equity lines of credit		33,289			6.7	%		32,969			6.9	%
Commercial loans:
Other commercial loans		75,642			15.3	%		71,247			15.0	%
Agricultural		919			0.2	%		946			0.2	%
State, county, and municipal loans		6,978			1.4	%		7,414			1.6	%
Total commercial loans		83,539			16.9	%		79,607			16.8	%
Consumer loans		20,168			4.1	%		19,557			4.1	%
Total gross loans		506,329			102.2	%		487,222			102.5	%
Allowance for loan losses		(4,121	)		-0.8	%		(3,827	)		-0.8	%
Net deferred loan fees and discounts		(6,933	)		-1.4	%		(7,951	)		-1.7	%
Net loans	$	495,275			100.0	%	$	475,444			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.

Real estate loans are the largest component of our loan portfolio and include residential real estate loans, commercial real estate loans, construction and land development loans, and home equity lines of credit. At June 30, 2016, this category totaled $369,333, or 72.9% of total gross loans, compared to $355,089, or 72.9%, at December 31, 2015. Real estate loans increased $14,244, or 4.0%, during the period December 31, 2015 to June 30, 2016. Commercial loans increased $3,932, or 4.9% during the same period. Our management team and lending officers have a great deal of experience and expertise in real estate lending and commercial lending.

The Federal regulatory agencies issued two “guidance” documents that have a significant impact on real estate related lending and, thus, on the operations of the Bank. One part of the gu idance could require lenders to restrict lending secured primarily by certain categories of commercial real estate to a level of 300% of their capital or raise additional capital. This factor, combined with the current economic environment, could affect th e 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. Man agement 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 allows 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, 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 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.

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 concentrations, and loan growth. The loss allocations for specifically impaired loans, smaller impaired loans not specifically measured for impairment, and unimpaired loans are totaled to yield the allowance for loan losses.

Management believes the data it uses in determining the allowance for loan losses is sufficient to estimate potential losses in the loan portfolio; however, actual results could differ from management’s estimate.

The following table presents a summary of changes in the allowance for loan losses for the period s indicated.

	As of and for the						As of and for the
	Three Months Ended:						Six Months Ended:
	June 30,			June 30,			June 30,			June 30,
	2016			2015			2016			2015
Allowance for loan losses at beginning of period	$	4,071		$	3,925		$	3,827		$	3,778
Charge-offs:
Mortgage loans on real estate:
Residential		—			—			—			—
Commercial real estate		—			—			—			—
Construction and land development		—			333			—			—
Total mortgage loans on real estate		—			333			—			—
Equity lines of credit		10			—			10			333
Commercial		181			2			206			2
Consumer		9			24			9			41
Total		200			359			225			376

Recoveries:
Mortgage loans on real estate:
Residential		—			—			—			—
Commercial real estate		—			—			—			—
Construction and land development		3			186			7			188
Total mortgage loans on real estate		3			186			7			188
Equity lines of credit		13			—			20			—
Commercial		15			16			38			28
Consumer		4			13			7			24
Total		35			215			72			240

Net Charge-offs (Recoveries)		165			144			153			136
Provision for loan losses		215			139			447			278
Allowance for loan losses at end of period	$	4,121		$	3,920		$	4,121		$	3,920

Total loans outstanding, net of deferred loan fees		499,396			291,455			499,396			291,455
Average loans outstanding, net of deferred loan fees		495,466			285,244			487,884			277,721
Allowance for loan losses to period end loans		0.83	%		1.34	%		0.83	%		1.34	%
Net charge-offs (recoveries) to average loans (annualized)		0.13	%		0.20	%		0.06	%		0.10	%

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.

	June 30, 2016					December 31, 2015
			Percent of					Percent of
	Amount		Total			Amount		Total
Mortgage loans on real estate:
Residential	$	474		11.5	%	$	368		9.6	%
Commercial real estate		1,020		24.7	%		1,302		34.0	%
Construction and land development		1,152		28.0	%		569		14.9	%
Total mortgage loans on real estate		2,646		64.2	%		2,239		58.5	%
Equity lines of credit		137		3.3	%		150		3.9	%
Commercial		1,104		26.8	%		1,250		32.7	%
Consumer		234		5.7	%		188		4.9	%
Total	$	4,121		100.0	%	$	3,827		100.0	%

Nonperforming Assets

The following table presents our nonperforming assets as of the dates indicated:

	June 30,						December 31,
	2016			2015			2015
Nonaccrual loans	$	2,875		$	2,432		$	3,086
Accruing loans past due 90 days or more		136			297			237
Total nonperforming loans		3,011			2,729			3,323
Foreclosed assets		1,546			1,453			1,949
Total nonperforming assets	$	4,557		$	4,182		$	5,272

Allowance for loan losses to period end loans		0.83	%		1.34	%		0.80	%
Allowance for loan losses to period end nonperforming loans		136.86	%		143.64	%		115.17	%
Net charge-offs (recoveries) to average loans (annualized)		0.06	%		0.10	%		0.18	%
Nonperforming assets to period end loans and foreclosed property		0.91	%		1.43	%		1.10	%
Nonperforming loans to period end loans		0.60	%		0.94	%		0.69	%

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower’s financial condition is such that the collection of interest is doubtful. When a loan is placed on nonaccrual status, all accrued interest on the loan is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Payments received while the loan is on nonaccrual status are applied to the loan’s outstanding principal balance. When a problem loan is fully resolved, there may ultimately be an actual write-down or charge-off of the principal balance of the loan which would necessitate additional charges to the allowance for loan losses.

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 June 30 , 2016, and December 31, 2015.

	June 30, 2016					December 31, 2015
			Percent of					Percent of
	Amount		Total			Amount		Total
Demand deposits, non-interest bearing	$	145,493		22.7	%	$	124,345		20.4	%
Demand deposits, interest bearing		178,958		28.0	%		174,827		28.6	%
Money market accounts		155,320		24.2	%		149,664		24.5	%
Savings deposits		22,458		3.5	%		19,524		3.2	%
Time certificates of $250 or more		31,870		5.0	%		30,929		5.1	%
Other time certificates		106,403		16.6	%		111,110		18.2	%
Totals	$	640,502		100.0	%	$	610,399		100.0	%

Total deposits were $640,502 at June 30, 2016, and increase of $30,103 from December 31, 2105 with the increase resulting mainly in the balances of demand deposits. We have aggressively managed interest rates on deposits and maintained an emphasis on increasing the number and volume of accounts other than time certificates of deposit to lower the cost of funding for the Bank during the previous few years as general interest rates have remained low with many at historical lows. This strategy led to the decrease in time certificates of deposit during the period from December 31, 2015 to June 30, 2016 of $3,766.

The following table presents the Bank’s time certificates of deposits by various maturities as of June 30, 2016.

	All Time Deposits		Time Deposits $100 or more		Time Deposits less than $100
Three months or less	$	29,743	$	18,673	$	11,070
Greater than three months through six months		24,196		14,425		9,771
Greater than six months through one year		44,689		30,057		14,632
Greater than one year through three years		31,153		19,111		12,042
Greater than three years		8,492		5,216		3,276
Total	$	138,273	$	87,482	$	50,791

Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning and management or when the terms are attractive and will not disrupt our offering rates in our markets. A source we have used for wholesale funding is the Federal Home Loan Bank of Atlanta (FHLB). We had FHLB borrowings of $2,000 at June 30, 2016 and $10,500 at December 31, 2015 drawn on a line of credit. The line of credit with the FHLB is secured by pledges of various loans in our loan portfolio. At June 30, 2016, the FHLB line of credit remaining available was $68,736 and at December 31, 2015 it was $54,002. We also have lines of credit for federal funds borrowings with other banks that totaled $28,500 at June 30, 2016 and $31,500 at December 31, 2015. Furthermore, we have pledged certain loans to the Federal Reserve Bank (FRB) to secure a line of credit. At June 30, 2016, the FRB line of credit available was $48,094 and at December 31, 2015, the FRB line of credit available was $36,995. 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.

River borrowed $7,500 on January 4, 2016 and used the proceeds to fund the cash payments made to Keystone shareholders according to the merger agreement. The loan matures on December 31, 2022. The interest rate is floating and is equal to the Wall Street Journal Prime Rate. Quarterly principal payments of $268 plus accrued interest are due on March 31, June 30, September 30, and December 31 of each year.

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 fun d 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 cu rrent 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 June 30, 2016 and December 31, 2015, were $44,430 and $31,002, respectively. Based on recorded cash and cash equivalents, management believes River Financial Corporation’s liquidity resources were sufficient at June 30, 2016 to fund loans and meet other cash needs as necessary.

Commitments

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. Those 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 June 30, 2016 and December 31, 2015 were as follows in (thousands):

	June 30, 2016		December 31, 2015
Commitments to extend credit	$	110,259	$	101,238
Stand-by and performance letters of credit		2,550		2,935
Total	$	112,809	$	104,173

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 June 30, 2016.

			Due after 1		Due after 3
	Due in 1		through		through		Due after
	year or less		3 years		5 years		5 years		Total
Federal Home Loan Bank advances	$	2,000	$	—	$	—	$	—	$	2,000
Certificates of deposit of less than $250		72,787		26,057		7,325		234		106,403
Certificates of deposit of $250 or more		25,839		5,097		934		—		31,870
Securities sold under agreements to repurchase		7,980		—		—		—		7,980
Note payable		1,071		2,142		2,142		1,609		6,964
Operating leases		507		948		942		1,271		3,668
Total contractual obligations	$	110,184	$	34,244	$	11,343	$	3,114	$	158,885

Capital Position and Dividends

At June 30, 2016 and December 31, 2015, total stockholders’ equity was $81,565 and $74,924, respectively. The increase of $6,641 resulted mainly from retained earnings and incentive stock options and stock warrants exercised during the six months ended June 30, 2016. A total of $2,457 was received and a total of 269,594 shares were issued for the exercise of incentive stock options and stock warrants. Retained earnings for the first six months of 2016 amounted to $2,892. The ratio of stockholders’ equity to total assets was 10.92% and 10.43% at June 30, 2016 and December 31, 2015, respectively.

River Bank & Trust is subject to various regulatory capital requirements administered by the federal banking agencies. Certain items such as goodwill and other intangible assets are deducted from total capital in arriving at the var ious regulatory capital measures such as Common Equity Tier 1capital, 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, the River Bank & Trust must meet specific capital guide lines 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 & Trust’s capital amounts and classifications are also subject to qualitat ive judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures, established by regulation to ensure capital adequacy effective January 1, 2015, require River Bank & Trust to maintain minimum amounts and ratios (set forth in the table below) of total risk based capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).

Management believes, as of June 30, 2016, 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 June 30, 2016 with the required minimum levels for capital adequacy purposes including the phase in of the capital conservation buffer under Basel III and minimum levels to be well capitalized (as defined) under the regulatory prompt corrective action regulations.

As of June 30, 2016:
									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)	$	77,857		13.82	%	$	48,590	>= 8.625%	$	56,336	>= 10.00%
Common Equity Tier 1 Capital (To Risk-weighted Assets)		73,734		13.08	%		28,890	>= 5.125%		36,642	>= 6.50%
Tier 1 Capital (To Risk-Weighted Assets)		73,734		13.08	%		37,346	>= 6.625%		45,097	>= 8.00%
Tier 1 Capital (To Average Assets)		73,734		10.24	%		28,802	>= 4.00%		36,003	>= 5.00%

Management believes, as of December 31, 2015, 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, 2015 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, 2015:
									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)	$	75,020		13.89	%	$	43,208	>= 8.00%	$	54,010	>= 10.00%
Common Equity Tier 1 Capital (To Risk-weighted Assets)		71,193		13.18	%	$	24,307	>= 4.50%	$	35,110	>= 6.50%
Tier 1 Capital (To Risk-Weighted Assets)		71,193		13.18	%		32,410	>= 6.00%		43,213	>= 8.00%
Tier 1 Capital (To Average Assets)		71,193		15.76	%		18,069	>= 4.00%		22,587	>= 5.00%

River Financial Corporation’s principal source of funds for dividend payments and debt service is dividends received from River Bank & Trust. There are statutory limitations on the payment of dividends by River Bank & Trust to River Financial Corporation. As of June 30, 2016, the maximum amount the Bank could dividend to River Financial Corporation without prior regulatory authority approval was approximately $9,844. In addition to dividend restrictions, federal statutes prohibit unsecured loans from banks to bank holding companies.

During the six months ending June 30, 2016 there were 108,000 incentive stock options issued with a weighted average exercise price of $16 per share. During the same period, there were 288,625 incentive stock options and warrants exercised at a weighted average exercise price of $9.59 per share. A total of 277,375 incentive stock options and warrants were outstanding as of June 30, 2016 with a weighted average exercise price of $13.96 per share and a weighted average remaining life of 6.6 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.

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 June 30, 2016, assuming the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities.

	0-1 Mos			1-3 Mos			3-12 Mos			1-2 Yrs			2-3 Yrs			>3 Yrs			Total
Interest earning assets
Loans	$	101,911		$	22,953		$	89,580		$	80,812		$	63,883		$	140,257		$	499,396
Securities		1,236			8,775			13,749			23,485			23,155			66,229			136,629
Certificates of deposit in banks		958			256			—			995			249			3,264			5,722
Cash balances in banks		25,013			—			—			—			—			—			25,013
Federal funds sold		3,826			—			—			—			—			—			3,826
Total interest earning assets	$	132,944		$	31,984		$	103,329		$	105,292		$	87,287		$	209,750		$	670,586

Interest bearing liabilities
Interest bearing transaction accounts	$	74,076		$	3,556		$	15,999		$	21,332		$	21,332		$	42,663		$	178,958
Savings and money market accounts		100,638			3,156			14,202			18,937			18,936			21,909			177,778
Time deposits		8,911			20,176			68,853			24,818			5,888			9,627			138,273
Securities sold under repurchase agreements		7,980			—			—			—			—			—			7,980
Federal Home Loan Bank advances		—			—			2,000			—			—			—			2,000
Long term borrowings		—			268			804			1,072			1,072			3,748			6,964
Total interest bearing liabilities	$	191,605		$	27,156		$	101,858		$	66,159		$	47,228		$	77,947		$	511,953

Interest sensitive gap
Period gap	$	(58,661	)	$	4,828		$	1,471		$	39,133		$	40,059		$	131,803		$	158,633
Cumulative gap	$	(58,661	)	$	(53,833	)	$	(52,362	)	$	(13,229	)	$	26,830		$	158,633
Cumulative gap - Rate Sensitive Assets/ Rate Sensitive Liabilities		-8.7	%		-8.0	%		-7.8	%		-2.0	%		4.0	%		23.7	%

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.

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
	June 30, 2016			December 31, 2015
Change in prevailing rates:
+ 400 basis points		-4.45	%		-0.87	%
+ 300 basis points		-3.14	%		-0.49	%
+ 200 basis points		-2.52	%		-0.81	%
+ 100 basis points		-1.65	%		-0.79	%
+ 0 basis points		—			—
- 100 basis points		0.37	%		0.16	%
- 200 basis points		-1.25	%		-3.10	%
- 300 basis points		-2.18	%		-4.56	%
- 400 basis points		-2.74	%		-5.50	%

ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

This item is not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the six months ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various legal proceedings to which River Financial Corporation (the “Company”) or a subsidiary of the Company is a party arise from time to time in the normal course of business. There are no material pending legal proceedings to which the Company or a subsidiary is a party or of which any of their property is the subject.

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, 2015 that could materially affect the Company’s business, financial condition or future results. 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.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Item 6. Exhibits.

Exhibit Number		Description

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 Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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 Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 *		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

SIGNA TURES

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 FTNANCIAL CORPORATION

Date: August 15, 2016	By:	/s/ James M. Stubbs
		James M. Stubbs
		Chief Executive Officer (principal executive officer)

Date: August 15, 2016	By:	/s/ Kenneth H . Givens
		Kenneth H. Givens
		Chief Financial Officer

TABLE OF CONTENTS

Part I Financ Item 1. Consolidated Financial Statements (unaudited)Note 1 Basis Of Presentation Note 2 Reclassifications Note 3 Earnings Per Share Note 4 Investment Securities Note 5 Loans, Allowance For Loan Losses and Credit Quality Note 5 Loans, Allowance For Note 6 Fair Value Measurements and Disclosures Note 7 Acquisition Note 8 Recently Issued Accounting Pronouncements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management S Discussion and Analysis Of Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualitati Item 4. Controls and Procedures Part II. Other Information Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

RVRF 10-Q Quarter ended June 30, 2016