FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number 2-47541
RIVER VALLEY BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1984567
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 Clifty Drive
Madison, Indiana 47250
- ------------------------------------ --------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (812) 265-3421
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
As of August 11, 1997, the latest practicable date 1,190,250 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 18 pages
River Valley Bancorp
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition ............ 3
Consolidated Statements of Earnings ....................... 4
Consolidated Statements of Cash Flows ..................... 5
Notes to Consolidated Financial Statements ................ 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................................ 11
PART II - OTHER INFORMATION ......................................... 17
SIGNATURES .......................................................... 18
2
River Valley Bancorp
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
ASSETS 1997 1996
Cash and due from banks ........................................................... $ 3,143 $ 4,209
Federal funds sold ................................................................ 850 -
Interest bearing deposits in other financial institutions ......................... 1,752 4,476
--------- ---------
Cash and cash equivalents ................................................ 5,745 8,685
Certificates of deposit in other financial institutions ........................... 896 100
Investment securities designated as available for sale - at market ................ 1,254 3,448
Investment securities - at amortized cost, approximate market value of
$3,451 and $5,434 as of June 30, 1997 and December 31, 1996 ..................... 3,500 5,500
Mortgage-backed securities designated as available for sale - at market ........... 3,867 5,041
Mortgage-backed and related securities - at cost, approximate market
value of $6,467 and $7,794 as of June 30, 1997 and December 31, 1996 ............ 6,480 7,805
Loans receivable - net ............................................................ 112,558 107,918
Loans held for sale - at lower of cost or market .................................. 298 1,076
Office premises and equipment - at depreciated cost ............................... 1,810 2,057
Real estate acquired through foreclosure .......................................... 82 -
Federal Home Loan Bank stock - at cost ............................................ 943 943
Federal Reserve Bank stock - at cost .............................................. 144 80
Accrued interest receivable on loans .............................................. 893 819
Accrued interest receivable on mortgage-backed securities ......................... 59 78
Accrued interest receivable on investments and interest-earning deposits .......... 85 171
Goodwill, net of accumulated amortization ......................................... 259 272
Cash surrender value of life insurance ............................................ 766 747
Prepaid expenses and other assets ................................................. 117 169
Prepaid federal income taxes ...................................................... 27 4
Deferred tax asset ................................................................ 659 628
---------- ----------
Total assets ............................................................. $140,442 $145,541
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits .......................................................................... $116,020 $125,656
Advances from the Federal Home Loan Bank .......................................... 5,000 1,100
Advances by borrowers for taxes and insurance ..................................... 55 70
Accrued interest payable .......................................................... 262 279
Other liabilities ................................................................. 1,467 1,422
Dividends payable ................................................................. 47 -
Minority interest in consolidated subsidiary ...................................... 187 209
---------- ----------
Total liabilities ........................................................ 123,038 128,736
Stockholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued .................................................. - -
Common stock - 5,000,000 shares without par value authorized;
1,190,250 shares issued and outstanding ....................................... - -
Additional paid in capital ...................................................... 11,173 11,173
Retained earnings - substantially restricted .................................... 7,253 6,635
Shares acquired by Employee Stock Ownership Plan (ESOP) ......................... (952) (952)
Unrealized losses on securities designated as available for sale,
net of related tax effects .................................................... (70) (51)
----------- -----------
Total stockholders' equity ............................................... 17,404 16,805
-------- --------
Total liabilities and stockholders' equity ............................... $140,442 $145,541
======= =======
3
River Valley Bancorp
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Six months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
Interest income
Loans ........................................................... $4,487 $2,251 $2,286 $1,134
Mortgage-backed and related securities .......................... 384 291 178 142
Investment securities ........................................... 156 291 69 141
Interest-earning deposits and other ............................. 196 109 79 66
------ ------ ------- -------
Total interest income .................................... 5,223 2,942 2,612 1,483
Interest expense
Deposits ........................................................ 2,451 1,691 1,201 837
Borrowings ...................................................... 34 44 30 8
------- ------- ------- --------
Total interest expense ................................... 2,485 1,735 1,231 845
----- ----- ----- ------
Net interest income ...................................... 2,738 1,207 1,381 638
Provision for losses on loans ..................................... 170 12 74 6
------ ------- ------- --------
Net interest income after provision for losses on loans .. 2,568 1,195 1,307 632
Other income
Insurance commissions ........................................... 7 104 - 44
Gain on sale of investment and mortgage-backed securities ....... 3 - 1 -
Gain on sale of loans ........................................... 14 - 18 -
Gain on sale of office premises and equipment ................... 203 - - -
Service fees, charges and other operating ....................... 397 97 194 49
------ ------- ------ -------
Total other income ....................................... 624 201 213 93
General, administrative and other expense
Employee compensation and benefits .............................. 1,082 592 521 298
Occupancy and equipment ......................................... 248 98 120 54
Federal deposit insurance premiums .............................. 15 88 9 43
Amortization of goodwill ........................................ 14 4 8 3
Data processing ................................................. 133 141 63 71
Other operating ................................................. 568 184 251 85
------ ------ ------ -------
Total general, administrative and other expense .......... 2,060 1,107 972 554
----- ----- ------ ------
Earnings before income taxes ............................. 1,132 289 548 171
Income taxes
Current ......................................................... 488 148 238 66
Deferred ........................................................ (21) (40) (14) (12)
------- ------- ------- -------
Total income taxes ....................................... 467 108 224 54
------ ------ ------ -------
NET EARNINGS ............................................. $ 665 $ 181 $ 324 $ 117
====== ====== ====== ======
EARNINGS PER SHARE ....................................... $.61 N/A $.30 N/A
=== === === ===
4
River Valley Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
1997 1996
Cash flows from operating activities:
Net earnings for the period ........................................................... $ 665 $ 181
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums and discounts on
investments and mortgage-backed securities - net .................................. (2) (1)
Gain on sale of investment and mortgage-backed securities
designated as available for sale .................................................. (3) -
Loans originated for sale in the secondary market ................................... (1,396) -
Proceeds from sale of loans in the secondary market ................................. 2,188 -
Loss on sale of loans ............................................................... 8 -
Amortization of deferred loan origination costs ..................................... 21 9
Provision for losses on loans ....................................................... 170 12
Depreciation and amortization ....................................................... 98 27
Amortization of goodwill ............................................................ 14 4
Proceeds from sale of office premises and equipment ................................. 402 -
Gain on sale of office premises and equipment ....................................... (203) -
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans .............................................. (74) 7
Accrued interest receivable on mortgage-backed securities ......................... 19 5
Accrued interest receivable on investments and interest-
bearing deposits ................................................................ 86 68
Prepaid expenses and other assets ................................................. 51 (219)
Accrued interest payable .......................................................... (17) 1
Other liabilities ................................................................. 23 75
Income taxes
Current ......................................................................... (23) 89
Deferred ........................................................................ (21) (40)
------- -------
Net cash provided by operating activities ...................................... 2,006 218
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities ....................................... 2,000 3,000
Proceeds from sale of investment securities designated as available for sale .......... 2,200 -
Proceeds from sale of mortgage-backed securities designated as available for sale ..... 1,158 -
Purchase of Federal Reserve Bank stock ................................................ (64) -
Purchase of mortgage-backed securities designated as available for sale ............... (67) -
Principal repayments on mortgage-backed securities .................................... 1,378 1,228
Loan principal repayments ............................................................. 17,271 7,729
Loan disbursements .................................................................... (22,206) (7,254)
Purchase of office equipment .......................................................... (50) -
(Increase) decrease in certificates of deposit in other financial institutions - net .. (796) 100
Purchase of single premium life insurance ............................................. - (188)
Increase in cash surrender value of life insurance .................................... (19) (12)
------- -------
Net cash provided by investing activities ...................................... 805 4,603
------ -----
Net cash provided by operating and investing
activities (subtotal carried forward) ........................................ 2,811 4,821
----- -----
5
River Valley Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
1997 1996
Net cash provided by operating and investing
activities (subtotal brought forward) ........................................ $2,811 $4,821
Cash flows provided by (used in) financing activities:
Decrease in deposit accounts .......................................................... (9,636) (506)
Proceeds from Federal Home Loan Bank advances ......................................... 5,000 -
Repayment of Federal Home Loan Bank advances .......................................... (1,100) (4,471)
Advances by borrowers for taxes and insurance ......................................... (15) 9
------- --------
Net cash used in financing activities .......................................... (5,751) (4,968)
----- -----
Net decrease in cash and cash equivalents ............................................... (2,940) (147)
Cash and cash equivalents at beginning of period ........................................ 8,685 2,389
----- -----
Cash and cash equivalents at end of period .............................................. $5,745 $2,242
===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes ................................................................ $ 344 $ 84
====== =====
Interest on deposits and borrowings ................................................. $2,502 $1,734
===== =====
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure ...................... $ 82 $ -
===== ====
Unrealized losses on securities designated as available
for sale, net of related tax effects ................................................ $ (19) $ (52)
===== =====
Recognition of mortgage servicing rights in accordance with
SFAS No. 122 ........................................................................ $ 22 $ -
===== ====
6
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 5, 1996, the Board of Directors of Madison First Federal Savings and
Loan Association ("First Federal") adopted an overall plan of conversion and
reorganization (the "Plan") whereby First Federal would convert to the stock
form of ownership, followed by the issuance of all of First Federal's
outstanding stock to a newly formed holding company, River Valley Bancorp
("River Valley" or the "Corporation"). Pursuant to the Plan, the Corporation
offered for sale up to 1,190,250 common shares to certain depositors of First
Federal and members of the community. The conversion was completed on December
20, 1996, and resulted in the issuance of 1,190,250 common shares of the
Corporation which, after consideration of offering and acquisition expenses
totaling approximately $730,000, and shares purchased by the ESOP totaling
$952,000, resulted in net capital proceeds of $10.2 million. The financial
statements included herein for periods prior to December 20, 1996, are those of
First Federal prior to the conversion to stock form.
In connection with the Conversion, River Valley acquired 95.6% of the
outstanding stock of Citizens National Bank of Madison (the "Bank") for $3.1
million. This acquisition was accounted for using the purchase method of
accounting and as such, the June 30, 1996, financial statements presented herein
have not been restated for this acquisition.
The Corporation is a financial institution holding company whose activities are
primarily limited to holding the stock of First Federal and the Bank
(collectively, "the Institutions"). The Institutions conduct a general banking
business in southeastern Indiana which consists of attracting deposits from the
general public and applying those funds to the origination of loans for
consumer, residential and commercial purposes. The Institutions' profitability
is significantly dependent on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e. loans and
investments) and the interest expense paid on interest-bearing liabilities (i.e.
customer deposits and borrowed funds). Net interest income is affected by the
relative amount of interest-earning assets and interest-bearing liabilities and
the interest received or paid on these balances. The level of interest rates
paid or received by First Federal and the Bank can be significantly influenced
by a number of competitive factors, such as governmental monetary policy, that
are outside of management's control.
1. Basis of Presentation
The accompanying unaudited financial statements were prepared in accordance with
instructions for Form 10-QSB and, therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of the
Corporation included in the Annual Report on Form 10-KSB for the year ended
December 31, 1996. However, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) which are necessary for a fair
presentation of the financial statements have been included. The results of
operations for the six and three month periods ended June 30, 1997 and 1996 are
not necessarily indicative of the results which may be expected for an entire
year.
7
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries, the Bank and First Federal and its subsidiary, Madison
First Service Corporation ("First Service"). All significant intercompany
balances and transactions have been eliminated in the accompanying consolidated
financial statements.
3. Effect of Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based compensation plans. SFAS No. 123 encourages all
entities to adopt a new method of accounting to measure compensation cost of all
stock compensation plans based on the estimated fair value of the award at the
financial statement date. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995, although companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management has
determined that the Corporation will continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25, and
therefore the disclosure provisions of SFAS No. 123 have no effect on
consolidated financial position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
8
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Effect of Recent Accounting Pronouncements (continued)
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on River Valley's consolidated financial position or results of
operations.
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share", which
requires companies to present basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully diluted earnings per
share, respectively. Basic earnings per share is computed without including
potential common shares, i.e., no dilutive effect. Diluted earnings per share is
computed taking into consideration common shares outstanding and dilutive
potential common shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods ending after
December 15, 1997. Early adoption is not permitted. Based upon the provisions of
SFAS No. 128, the Corporation's basic and diluted earnings per share for the six
months ended June 30, 1997 would each have been $.61.
4. Pending Legislative Changes
Congress has enacted legislation that provides for the merger of the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") by 1999,
but not until such time as bank and thrift charters are combined. A bill has
been introduced in the Congress that would consolidate the Office of Thrift
Supervision with the Office of the Comptroller of the Currency. If this statute
is approved, First Federal could be required to become a state or national
commercial bank and become subject to regulation by a different government
agency. If First Federal becomes a commercial bank, its investment authority and
the ability of River Valley to engage in diversified activities may be limited
or prohibited.
9
River Valley Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Earnings Per Share
Earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares deemed outstanding,
which gives effect to 95,220 unallocated ESOP shares, totaled 1,095,050 for each
of the three and six month periods ended June 30, 1997. Earnings per share is
not applicable for the three and six month periods ended June 30, 1996, as the
Corporation completed its conversion to stock form in December 1996.
6. Reclassification
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform to the June 30, 1997 presentation.
10
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1997 and 1996
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, legislative changes with respect to the federal thrift
charter and the effect of certain accounting pronouncements.
Discussion of Financial Condition Changes from December 31, 1996 to June 30,
1997
At June 30, 1997, River Valley's consolidated assets totaled $140.4 million, a
decrease of $5.1 million, or 3.5%, from the December 31, 1996 total of $145.5
million. The decrease in assets resulted primarily from a decrease in the
deposit portfolio of $9.6 million, which was partially offset by an increase in
advances from the Federal Home Loan Bank of $3.9 million and undistributed net
earnings of $618,000.
Liquid assets (i.e., cash, federal funds sold, interest-earning deposits and
certificates of deposit) decreased by $2.1 million from December 31, 1996 levels
to a total of $6.6 million at June 30, 1997. Investment securities totaled $4.8
million at June 30, 1997, a decrease of $4.2 million, or 46.9%, from December
31, 1996 levels. During the six month period ended June 30, 1997, maturities of
investment securities totaled $2.0 million, while sales of investment securities
designated as available for sale totaled $2.2 million. Mortgage-backed
securities decreased by $2.5 million, or 19.5%, to a total of $10.3 million at
June 30, 1997, primarily due to principal repayments of $2.5 million.
Loans receivable, including loans held for sale, totaled $112.9 million at June
30, 1997, an increase of $3.9 million, or 3.5%, over the $109.0 million total at
December 31, 1996. The increase resulted primarily from loan originations during
the period of $23.6 million, which were partially offset by principal repayments
of $17.3 million and sales of $2.2 million.
The Corporation's consolidated allowance for loan losses totaled $1.2 million
and $1.1 million at June 30, 1997 and December 31, 1996, respectively, which
represented 1.0% and .99% of total loans at those dates. Nonperforming loans
(defined as loans delinquent greater than 90 days and loans on nonaccrual
status) totaled $609,000 and $819,000 at June 30, 1997 and December 31, 1996,
respectively. The decrease in nonperforming loans was primarily due to
restoration of certain borrowers to a current status.
11
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Discussion of Financial Condition Changes from December 31, 1996 to June 30,
1997 (continued)
Although management believes that its allowance for loan losses at June 30, 1997
was adequate based upon the available facts and circumstances, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could negatively affect the Corporation's results of operations.
Deposits decreased by $9.6 million, or 7.7%, to a total of $116.0 million,
compared to the $125.7 million total at December 31, 1996. The decline can be
attributed primarily to $6.8 million of deposits sold in conjunction with the
sale of First Federal's branch located in Hanover, Indiana which was consummated
on February 28, 1997.
Advances from the Federal Home Loan Bank totaled $5.0 million at June 30, 1997,
an increase of $3.9 million, or 354.5%, over the $1.1 million total at December
31, 1996. The increase was due to current period borrowings of $4.5 million,
offset by repayments of $600,000. The borrowings were deployed into loan
originations.
Stockholders' equity totaled $17.4 million at June 30, 1997, an increase of
$599,000, or 3.6%, over the $16.8 million total at December 31, 1996. The
increase resulted primarily from current period earnings of $665,000, partially
offset by a $19,000 increase in the unrealized losses on securities designated
as available for sale and the declaration of a dividend totaling $47,000. The
Institutions are each required to maintain minimum regulatory capital pursuant
to federal regulations. At June 30, 1997, each of the Institutions' regulatory
capital exceeded all applicable regulatory capital requirements.
Comparison of Results of Operations for the Six Months Ended June 30, 1997 and
1996
Increases in the level of income and expenses during the six month period ended
June 30, 1997, as compared to the comparable period in 1996, are partially due
to the inclusion of the accounts of Citizens National Bank of Madison, which was
acquired by River Valley on December 20, 1996, in a transaction accounted for
using the purchase method of accounting. Accordingly, the statement of earnings
and the statement of cash flows for the six month period ended June 30, 1996,
were not restated for the Acquisition.
General
River Valley's net earnings for the six months ended June 30, 1997, totaled
$665,000, an increase of $484,000, or 267.4%, over the $181,000 of net earnings
reported in the comparable 1996 period. The increase in earnings in the 1997
period is primarily attributable to an increase in net interest income of $1.5
million and an increase of $423,000 in other income, which were partially offset
by an increase in the provision for losses on loans of $158,000, an increase in
general, administrative and other expense of $953,000 and an increase in the
provision for federal income taxes of $359,000.
12
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Six Months Ended June 30, 1997
and 1996 (continued)
Net Interest Income
Total interest income for the six months ended June 30, 1997, amounted to $5.2
million, an increase of $2.3 million, or 77.5%, over the comparable period in
1996, reflecting the effects of growth in average interest-earning assets
outstanding, coupled with an increase in yield year-to-year. Interest income on
loans and mortgage-backed securities totaled $4.9 million for the six months
ended June 30, 1997, an increase of $2.3 million, or 91.6%, over the comparable
1996 period. The increase resulted primarily from the $55.1 million, or 82.5%,
increase in the average balance outstanding year-to-year, coupled with a 39
basis point increase in yield, to 8.00% in 1997. Interest income on investments
and interest-earning deposits decreased by $48,000, or 12.0%, due to a decrease
in average balances of $4.1 million which was partially offset by an approximate
106 basis point increase in yield over the comparable 1996 period.
Interest expense on deposits increased by $760,000, or 44.9%, to a total of $2.5
million for the six months ended June 30, 1997, due primarily to a $43.7 million
increase in the average balance of deposits outstanding, which was partially
offset by a decline in the weighted-average cost of deposits of 35 basis points,
to 4.08% in 1997. Interest expense on borrowings totaled $34,000 for the six
months ended June 30, 1997, a decrease of $10,000, or 22.7%, from the comparable
period in 1996. The decrease resulted primarily from a decline in average
borrowings outstanding year-to-year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.5 million, or 126.8%, for the six months
ended June 30, 1997, compared to the comparable period in 1996. The interest
rate spread increased by approximately 103 basis points for the six months ended
June 30, 1997, to 3.79% from 2.76% in the 1996 period, while the net interest
margin amounted to 4.12% in 1997 and 2.94% in 1996.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by the
Institutions, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Institutions'
market area, and other factors related to the collectibility of the Institutions
loan portfolio. As a result of such analysis, management recorded a $170,000
provision for losses on loans for the six months ended June 30, 1997. The
current period provision generally reflects the growth in non-residential real
estate and commercial loans. While management believes that the allowance for
losses on loans is adequate at June 30, 1997, based upon the available facts and
circumstances, there can be no assurance that the loan loss allowance will be
adequate to cover losses on nonperforming assets in the future.
13
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Six Months Ended June 30, 1997
and 1996 (continued)
Other Income
Other income increased by $423,000, or 210.4%, for the six months ended June 30,
1997, as compared to the same period in 1996, due primarily to a $203,000 gain
on sale of office premises and equipment, coupled with a $300,000, or 309.3%,
increase in service fees, charges and other operating income, which were
partially offset by a decline of $97,000, or 93.3%, in insurance commissions
year-to-year. The gain on sale of office premises resulted from First Federal's
sale of a branch office facility, located in Hanover, Indiana, which was
consummated on February 28, 1997, as required in accordance with the terms of
regulatory approval of the acquisition of the Bank. The decline in insurance
commissions resulted from the Association's sale of its insurance agency
subsidiary during the last quarter of 1996.
General, Administrative and Other Expense
General, administrative and other expense increased by $953,000, or 86.1%,
during the six months ended June 30, 1997, compared to the same period in 1996.
This increase resulted primarily from a $490,000, or 82.3%, increase in employee
compensation ad benefits, a $150,000, or 153.1%, increase in occupancy and
equipment expense and a $384,000, or 208.7%, increase in other operating
expense, which were partially offset by a $73,000, or 83.0%, decrease in federal
deposit insurance premiums. The increase in employee compensation and benefits
resulted from costs associated with stock benefit plans and normal merit
increases, and by the inclusion of the Bank's operating expenses. The increase
in other operating expense reflects increases in professional fees and other
costs associated with the public reporting requirements of a public stock
company. The decline in federal deposit insurance premiums resulted from a
reduction in premium rates following the payment of the SAIF recapitalization
assessment in 1996 by First Federal.
Income Taxes
The provision for income taxes increased by $359,000, or 332.4%, for the six
months ended June 30, 1997, as compared to the same period in 1996. This
increase resulted primarily from an increase in net earnings before tax of
$843,000, or 291.7%. The effective tax rates were 41.3% and 37.4% for the six
months ended June 30, 1997 and 1996, respectively.
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996
Increases in the level of income and expense during the three month period ended
June 30, 1997, as compared to the comparable quarter in 1996, is partially due
to the inclusion of the accounts of Citizens National Bank of Madison, which was
acquired by River Valley on December 20, 1996, in a transaction accounted for
using the purchase method of accounting. Accordingly, the statement of earnings
for the quarter ended June 30, 1996 has not been restated for the Acquisition.
14
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996 (continued)
General
River Valley's net earnings for the three months ended June 30, 1997, totaled
$324,000, an increase of $207,000, or 176.9%, over the $117,000 of net earnings
in the comparable 1996 period. The increase in earnings in the 1997 period is
primarily attributable to an increase in net interest income of $743,000 and an
increase of $120,000 in other income, which were partially offset by an increase
in the provision for losses on loans of $68,000, an increase in general,
administrative and other expense of $418,000, and an increase in the provision
for federal income taxes of $170,000.
Net Interest Income
Total interest income for the three months ended June 30, 1997 amounted to $2.6
million, an increase of $1.1 million, or 76.1%, over the comparable quarter in
1996, reflecting the effects of growth in average interest-earning assets
outstanding, coupled with an increase in the yield year-to-year. Interest income
on loans and mortgage-backed securities totaled $2.5 million for the three
months ended June 30, 1997, an increase of $1.2 million, or 93.1%, over the
comparable 1996 quarter. The increase resulted primarily from the $61.0 million,
or 94.1%, increase in the average balance outstanding year-to-year. Interest
income on investments and interest-earning deposits decreased by $59,000, or
28.5%, due to a decrease in the average balances of $1.3 million which was an
approximate 72 basis point decrease in yield over the comparable 1996 period.
Interest expense on deposits increased by $364,000, or 43.5%, to a total of $1.2
million for the quarter ended June 30, 1997, due primarily to a $40.4 million
increase in the average balance of deposits outstanding. Interest expense on
borrowings totaled $30,000 for the three months ended June 30, 1997, an increase
of $22,000, or 275.0%, over the comparable quarter in 1996. The increase
resulted primarily from a $2.3 million increase in average borrowings
outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $743,000, or 116.5%, for the three months ended
June 30, 1997, as compared to the comparable quarter in 1996. The interest rate
spread amounted to 3.85% for the 1997 quarter, compared to 3.36% in 1996, while
the net interest margin totaled 4.16% in the 1997 quarter, compared to 3.31% in
1996.
Provision for Losses on Loans
Provision for losses on loans increased by $68,000 over the comparable 1996
quarter to a total of $74,000. The current period provision generally reflects
the growth in non-residential real estate and commercial loans.
15
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three and six month periods ended June 30, 1997 and 1996
Comparison of Results of Operations for the Three Months Ended June 30, 1997
and 1996 (continued)
Other Income
Other income increased by $120,000, or 129.0%, for the three months ended June
30, 1997, as compared to the same period in 1996, due primarily to an increase
of $18,000 on the gain on sale of loans coupled with a $145,000 increase in
service fees, charges, and other operating income, which were partially offset
by decline of $44,000, in insurance commissions year to year. The decline in
insurance commissions resulted from the Association's sale of its insurance
subsidiary during the last quarter of 1996.
General, Administrative and Other Expense
General, administrative and other expense increased by $418,000, or 75.5%,
during the three months ended June 30, 1997, compared to the same period in
1996. This increase resulted primarily from a $223,000, or 74.8%, increase in
employee compensation and benefits, a $66,000, or 122.2%, increase in occupancy
and equipment and a $166,000, or 195.3%, increase in other operating expense,
which were partially offset by a $36,000, or 83.7%, decrease in federal deposit
insurance premiums. The increase in other operating expense reflects increases
in professional fees and other costs associated with the reporting requirements
of a public stock company.
Income Taxes
The provision for income taxes increased by $170,000, or 314.8%, for the three
months ended June 30, 1997, as compared to the same period in 1996. This
increase resulted primarily from an increase in net earnings before tax of
$377,000, or 220.5%. The effective tax rates amounted to 40.9% and 31.6% for the
three months ended June 30, 1997 and 1996, respectively.
16
River Valley Bancorp
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 23, 1997, River Valley Bancorp held its Annual Meeting
of Stockholders. Three directors were elected to terms
expiring in 1998 by the following votes:
Jonnie L. Davis For: 1,050,225 Withheld: 13,464
Cecil L. Dorten For: 1,052,284 Withheld: 11,405
Earl W. Johann For: 1,053,409 Withheld: 10,280
Two directors were elected to terms expiring in 1999 by the following
votes:
Michael J. Hensley For: 1,053,359 Withheld: 10,330
Fred W. Koehler For: 1,052,909 Withheld: 10,780
Two directors were elected to terms expiring in 2000 by the following
votes:
Robert W. Anger For: 1,053,359 Withheld: 10,330
James E. Fritz For: 1,052,909 Withheld: 10,780
Two other matters were submitted to the stockholders, for which
the following votes were cast:
1) Approval and ratification of River Valley Bancorp Stock Option Plan.
For: 780,138 Against: 24,744 Abstain: 15,170
2) Approval and ratification of River Valley Bancorp Recognition and
Retention Plan and Trust.
For: 768,913 Against: 36,069 Abstain: 15,070
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None
Exhibit 27: Financial Data Schedule for the six month
period ended June 30, 1997
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1997 By: /s/James E. Fritz
--------------------- -----------------
James E. Fritz
CEO/President
Date: August 12, 1997 By: /s/J. Wayne Deveary
---------------------- -------------------
J. Wayne Deveary
Chief Financial Officer
18