FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
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 0-21765
RIVER VALLEY BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1984567
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
430 Clifty Drive
P.O. Box 1590
Madison, Indiana 47250-0590
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(812) 273-4949
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. N/A
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of March 17, 2000 was $8,600,671.86.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of March 17, 2000, was 921,972 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1999, are incorporated into Part II. Portions of the Proxy Statement for the
2000 Annual Meeting of Shareholders are incorporated in Part I and Part III.
Exhibit Index on Page E-1
Page 1 of 31 Pages
RIVER VALLEY BANCORP
Form 10-K
INDEX
Page
Forward Looking Statement..................................................... 3
PART I
Item 1. Business....................................................... 3
Item 2. Properties.....................................................26
Item 3. Legal Proceedings..............................................27
Item 4. Submission of Matters to a Vote of Security Holders............27
Item 4.5. Executive Officers of the Registrant...........................27
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................28
Item 6. Selected Consolidated Financial Data...........................28
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................28
Item 7A. Quantitative and Qualitative Analysis of Financial Condition
and Results of Operation...................................28
Item 8. Financial Statements and Supplementary Data....................28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................28
PART III
Item 10. Directors and Executive Officers of Registrant.................29
Item 11. Executive Compensation.........................................29
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................29
Item 13. Certain Relationships and Related Transactions.................29
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K....................................29
SIGNATURES ...........................................................30
FORWARD LOOKING STATEMENT
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimates or expectations of the Holding Company (as defined below),
its directors, or its officers primarily with respect to future events and the
future financial performance of the Holding Company. Readers of this Form 10-K
are cautioned that any such forward looking statements are not guarantees of
future events or performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward looking
statements as a result of various factors. The accompanying information
contained in this Form 10-K identifies important factors that could cause such
differences. These factors include but are not limited to changes in interest
rates; loss of deposits and loan demand to other savings and financial
institutions; substantial changes in financial markets; changes in real estate
values and the real estate market; regulatory changes; or unanticipated results
in pending legal proceedings.
Item 1. Business
General
River Valley Bancorp, an Indiana corporation (the "Holding Company"),
was organized in May, 1996. On December 20, 1996, it acquired the common stock
of Madison First Federal Savings and Loan Association ("First Federal") upon the
conversion of First Federal from a federal mutual savings and loan association
to a federal stock savings and loan association (the "Conversion"), and acquired
120,434 shares of common stock, $8.00 par value per share (the "Citizens
Shares"), of Citizens National Bank of Madison ("Citizens"), constituting 95.6%
of the issued and outstanding shares of Citizens' common stock (the
"Acquisition").
On November 22, 1997, Citizens merged with and into First Federal (the
"Merger") pursuant to an Agreement and Plan of Reorganization entered into among
the Holding Company, First Federal and Citizens dated September 26, 1997 (the
"Agreement"). Pursuant to the Agreement, each outstanding share of Citizens
common stock held by shareholders other than the Holding Company was converted
into the right to receive $30 cash, payable by the Holding Company, and shares
of Citizens held by the Holding Company and its subsidiaries were cancelled.
Also, pursuant to the Agreement, First Federal changed its corporate title to
River Valley Financial Bank (the "Bank"). Following the effective time of the
Merger, the Holding Company remained as the sole shareholder of the Bank, and
Citizens' status as a national banking association terminated. For ease of
reference, First Federal will be referred to as the "Bank" hereinafter both with
respect to historical information concerning events and results of operations
prior to the Merger and with respect to information relating to events occurring
after the Merger.
The Conversion of the Bank was accounted for in a manner similar to a
pooling of interests, and the Acquisition of Citizens was accounted for as a
purchase transaction. Under purchase accounting, the acquired assets and
liabilities of Citizens were recorded at fair value as of December 20, 1996.
Because the assets and liabilities of the Bank were recorded at fair value as of
the date of the Acquisition, the financial data prior to December 20, 1996
provided herein does not include information derived from the financial
statements of Citizens. Rather, such financial data provided herein includes
only information derived from the financial statements of the Bank. From and
after December 20, 1996, the operating results of Citizens and the Bank are
consolidated with those of the Holding Company. The Merger was accounted for in
a manner similar to a pooling of interests.
The Bank was organized as a federally chartered savings and loan
association in 1875. The Bank is the oldest independent financial institution
headquartered in Jefferson County, Indiana. Citizens was organized as a national
bank in 1981 and, until the Merger, conducted its business from four
full-service offices, all located in Jefferson County, Indiana. Following the
Merger, these offices became branch offices of the Bank. Prior to the
Conversion, the Bank conducted its business from three full-service offices and
one stand-alone drive-through branch, all located in Jefferson County, Indiana.
As a result of the Acquisition, the Holding Company became subject to
regulation as a bank holding company by the Board of Governors of the Federal
Reserve System (the "FRB"). As a condition to the Holding Company obtaining the
requisite approval from the FRB for the Acquisition, the Holding Company
committed to cause the Bank to (i) enter into a definitive agreement to sell the
Bank's Hanover, Indiana branch prior to consummation of the Acquisition and (ii)
complete the sale of the Hanover, Indiana branch, including the physical
facilities and deposits originated at that branch, within 180 days of
consummation of the Acquisition. On February 28, 1997, the Bank sold its
Hanover, Indiana branch to People's Trust Company based in Brookville, Indiana
("People's Trust"), pursuant to that commitment. Deposits totaling $6.8 million
were assumed by People's Trust, and the Bank recorded an after tax gain of
$125,000 on the transaction. As a result of the Merger and the resulting
termination of Citizens' status as a national banking association, the Holding
Company is no longer subject to regulation by the FRB as a bank holding company
and is instead regulated by the Office of Thrift Supervision (the "OTS") as a
savings and loan holding company.
The Bank historically has concentrated its lending activities on the
origination of loans secured by first mortgage liens for the purchase,
construction, or refinancing of one- to four- family residential real property.
One- to four-family residential mortgage loans continue to be the major focus of
the Bank's loan origination activities, representing 58.6% of the Bank's total
loan portfolio at December 31, 1999. The Bank had not identified any loans held
for sale at December 31, 1999. The Bank also offers multi-family mortgage loans,
non-residential real estate loans, land loans, construction loans, nonmortgage
commercial loans and consumer loans. Its principal market area is Jefferson
County, Indiana and adjoining counties.
Loan Portfolio Data. The following table sets forth the composition of
the Bank's loan portfolio, including loans held for sale, as of December 31,
1999, 1998 and 1997 by loan type as of the dates indicated, including a
reconciliation of gross loans receivable after consideration of the allowance
for loan losses, deferred loan origination costs and loans in process.
At December 31,
--------------------------------------------------------------
1999 1998 1997
------------------ ----------------- -----------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
TYPE OF LOAN (Dollars in thousands)
Residential real estate:
One-to four-family..................... $69,588 58.6% $65,907 57.4% $72,072 63.7%
Multi-family........................... 2,918 2.5 1,775 1.6 2,781 2.5
Construction........................... 4,163 3.5 8,126 7.1 3,652 3.2
Nonresidential real estate................ 12,758 10.7 7,604 6.6 8,379 7.4
Land loans................................ 10,079 8.5 6,300 5.5 6,324 5.6
Consumer loans:
Automobile loans....................... 6,922 5.8 6,828 5.9 8,028 7.1
Loans secured by deposits.............. 548 .5 723 .6 1,041 .9
Home improvement loans................. 34 --- --- --- 205 .2
Other.................................. 2,040 1.7 5,089 4.4 5,707 5.1
Commercial loans.......................... 9,780 8.2 12,461 10.9 4,871 4.3
-------- ---- -------- ---- -------- ----
Gross loans receivable.................... 118,830 100.0 114,813 100.0 113,060 100.0
Add/(Deduct):
Deferred loan origination costs........ 245 .2 200 .2 202 .2
Undisbursed portions
of loans in process.................. (2,422) (2.0) (1,151) (1.0) (99) (.1)
Allowance for loan losses.............. (1,522) (1.3) (1,477) (1.3) (1,276) (1.1)
-------- ---- -------- ---- -------- ----
Net loans receivable...................... $115,131 96.9% $112,385 97.9% $111,887 99.0%
======== ==== ======== ==== ======== ====
The following table sets forth certain information at December 31,
1999, regarding the dollar amount of loans maturing in the Bank's loan portfolio
based on the contractual terms to maturity. Demand loans, loans having no stated
schedule of repayments and no stated maturity and overdrafts are reported as due
in one year or less. This schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses. Management expects
prepayments will cause actual maturities to be shorter.
Balance Due During Years Ended December 31,
Outstanding at 2003 2005 2010 2015
December 31, to to to and
1999 2000 2001 2002 2004 2009 2014 following
------------- ------ ------ ------- ------- ------ ------- ---------
(In thousands)
Residential real estate loans:
One-to four-family................. $69,588 $1,084 $ 225 $ 617 $1,387 $7,781 $20,992 $37,502
Multi-family....................... 2,918 --- --- --- 157 76 502 2,183
Construction....................... 4,163 4,050 --- --- --- 94 19 ---
Nonresidential
Real estate loans.................. 12,758 1,133 433 87 404 2,987 2,982 4,732
Land loans ......................... 10,079 3,037 592 515 583 802 1,185 3,365
Consumer loans:
Loans secured by deposits.......... 548 245 15 43 147 43 55 ---
Other loans........................ 8,996 1,040 1,463 1,435 2,730 1,117 89 1,122
Commercial loans...................... 9,780 5,467 665 471 1,959 662 318 238
-------- ------- ------ ------ ------ ------- ------- -------
Total............................ $118,830 $16,056 $3,393 $3,168 $7,367 $13,562 $26,142 $49,142
======== ======= ====== ====== ====== ======= ======= =======
The following table sets forth, as of December 31, 1999, the dollar
amount of all loans due after one year that have fixed interest rates and
floating or adjustable interest rates.
Due After December 31, 2000
-----------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Residential real estate loans:
One-to four-family.............. $14,871 $53,633 $68,504
Multi-family.................... 151 2,767 2,918
Construction.................... --- 113 113
Non-residential
Real estate loans............... 636 10,989 11,625
Land loans ...................... 1,309 5,733 7,042
Consumer loans:
Loans secured by deposits....... 276 27 303
Other loans..................... 6,323 1,633 7,956
Commercial loans................... 1,916 2,397 4,313
------- ------- --------
Total......................... $25,482 $77,292 $102,774
======= ======= ========
Residential Loans. Residential loans consist primarily of one- to
four-family loans. Approximately $69.6 million, or 58.6% of the Bank's portfolio
of loans, at December 31, 1999, consisted of one- to four-family residential
loans, of which approximately 78.3% had adjustable rates.
The Bank currently offers adjustable-rate one- to four-family
residential mortgage loans ("ARMs") which adjust annually and are indexed to the
one-year U.S. Treasury securities yields adjusted to a constant maturity,
although until late 1995, the Bank's ARMs were indexed to the 11th District Cost
of Funds. Some of the Bank's residential ARMs are originated at a discount or
"teaser" rate which is generally 150 to 175 basis points below the "fully
indexed" rate. These ARMs then adjust annually to maintain a margin above the
applicable index, subject to maximum rate adjustments discussed below. The
Bank's ARMs have a current margin above such index of 2.5% for owner-occupied
properties and 3.0% for non-owner-occupied properties. A substantial portion of
the ARMs in the Bank's portfolio at December 31, 1999 provide for maximum rate
adjustments per year and over the life of the loan of 1% and 4%, respectively,
although the Bank also originates residential ARMs which provide for maximum
rate adjustments per year and over the life of the loan of 1.5% and 6%,
respectively. The Bank's ARMs generally provide for interest rate minimums of 1%
below the origination rate. The Bank's residential ARMs are amortized for terms
up to 30 years.
Adjustable-rate loans decrease the risk associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payments by the borrowers may rise to the extent permitted by the
terms of the loan, thereby increasing the potential for default. Also,
adjustable-rate loans have features which restrict changes in interest rates on
a short-term basis and over the life of the loan. At the same time, the market
value of the underlying property may be adversely affected by higher interest
rates.
The Bank currently offers fixed-rate one- to four-family residential
mortgage loans which provide for the payment of principal and interest over
periods of 10 to 30 years. Prior to the Merger, the Bank retained all of its
fixed-rate residential mortgage loans in its portfolio; however, after the
effective date of the Merger, the Bank began underwriting its fixed-rate
residential mortgage loans for potential sale to the Federal Home Loan Mortgage
Corporation (the "FHLMC") on a servicing-retained basis. At December 31, 1999,
approximately 21.7% of the Bank's one- to four-family residential mortgage loans
had fixed rates.
Before the Merger, Citizens offered fixed-rate one- to four-family
residential mortgage loans in accordance with the guidelines established by the
FHLMC to facilitate the sale of such loans to the FHLMC in the secondary market.
These loans amortized on a monthly basis with principal and interest due each
month and were written with terms of 15, 20 and 30 years. Citizens retained the
servicing on all loans sold to the FHLMC. At December 31, 1999, the Bank had
approximately $40.2 million of fixed-rate residential mortgage loans which were
sold to the FHLMC and for which the Bank provides servicing.
The Bank generally does not originate one- to four-family residential
mortgage loans if the ratio of the loan amount to the lesser of the current cost
or appraised value of the property (i.e. the "Loan-to-Value Ratio") exceeds 95%
and generally does not originate one- to four-family residential ARMs if the
Loan-to-Value Ratio exceeds 80%. The Bank generally requires private mortgage
insurance on all conventional one- to four-family residential real estate
mortgage loans with Loan-to-Value Ratios in excess of 80%. The cost of such
insurance is factored into the APY on such loans, and is not automatically
eliminated when the principal balance is reduced over the term of the loan.
Substantially all of the one- to four-family residential mortgage loans
that the Bank originates include "due-on-sale" clauses, which give the Bank the
right to declare a loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the real property
subject to the mortgage and the loan is not repaid. However, the Bank does
permit assumptions of existing residential mortgage loans on a case-by-case
basis.
At December 31, 1999, the Bank had outstanding approximately $3.2
million of home equity loans, with unused lines of credit totalling
approximately $2.7 million. No home equity loans were included in non-performing
assets on that date. The Bank's home equity lines of credit are adjustable-rate
lines of credit tied to the prime rate and are amortized based on a 10- to
20-year maturity. The Bank generally allows a maximum 90% Loan-to-Value Ratio
for its home equity loans (taking into account any other mortgages on the
property). Payments on such home equity loans equal 1.5% of the outstanding
principal balance per month.
The Bank also offers indemnification mortgage loans ("ID Mortgage
Loans"), which are typically written as fixed-rate second mortgage loans. The
Bank's ID Mortgage Loans are written for terms of 5 years and generally have
maximum Loan-to-Value Ratios of 80%.
The Bank also offers standard second mortgage loans, which are
adjustable-rate loans tied to the U.S. Treasury securities yields adjusted to a
constant maturity with a current margin above such index of 3.0%. The Bank's
second mortgage loans have maximum rate adjustments per year and over the terms
of the loans equal to 1.0% and 4.0%, respectively. The Bank's second mortgage
loans have terms of 10 to 30 years.
At December 31, 1999, one- to four-family residential mortgage loans
amounting to $726,000, or .61% of total loans, were included in the Bank's
non-performing assets.
Construction Loans. The Bank offers construction loans with respect to
residential and nonresidential real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer).
Generally, construction loans are written as 12-month fixed-rate loans
with interest calculated on the amount disbursed under the loan and payable on a
semi-annual or monthly basis. The Bank generally requires an 80% Loan-to-Value
Ratio for its construction loans, although the Bank may permit an 85%
Loan-to-Value Ratio for one- to four-family residential construction loans.
Inspections are generally made prior to any disbursement under a construction
loan, and the Bank does not charge commitment fees for its construction loans.
At December 31, 1999, $4.2 million, or 3.5% of the Bank's total loan
portfolio, consisted of construction loans. The largest construction loan at
December 31, 1999, totalled $300,000. No construction loans were included in
non-performing assets on that date.
While providing the Bank with a comparable, and in some cases higher,
yield than a conventional mortgage loan, construction loans involve a higher
level of risk. For example, if a project is not completed and the borrower
defaults, the Bank may have to hire another contractor to complete the project
at a higher cost. Also, a project may be completed, but may not be saleable,
resulting in the borrower defaulting and the Bank taking title to the project.
Nonresidential Real Estate Loans. At December 31, 1999, $12.8 million,
or 10.7% of the Bank's portfolio, consisted of nonresidential real estate loans.
Nonresidential real estate loans are primarily secured by real estate such as
churches, farms and small business properties. The Bank originates
nonresidential real estate loans as one-year adjustable-rate loans indexed to
the one-year U.S. Treasury securities yields adjusted to a constant maturity,
written for maximum terms of 30 years. The Bank's adjustable-rate nonresidential
real estate loans have maximum adjustments per year and over the life of the
loan of 1% and 4%, respectively, and interest rate minimums of 1% below the
origination rate. The Bank generally requires a Loan-to-Value Ratio of up to
80%, depending on the nature of the real estate collateral.
The Bank underwrites its nonresidential real estate loans on a
case-by-case basis and, in addition to its normal underwriting criteria,
evaluates the borrower's ability to service the debt from the net operating
income of the property. The Bank's largest nonresidential real estate loan as of
December 31, 1999 was $1.6 million and was secured by three commercial buildings
in (or close in proximity to) Madison, Indiana. No nonresidential real estate
loans were included in non-performing assets at December 31, 1999.
Loans secured by nonresidential real estate generally are larger than
one- to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Multi-family Loans. At December 31, 1999, approximately $2.9 million,
or 2.5% of the Bank's total loan portfolio, consisted of mortgage loans secured
by multi-family dwellings (those consisting of more than four units). The Bank
writes multi-family loans on terms and conditions similar to its nonresidential
real estate loans. The largest multi-family loan in the Bank's portfolio as of
December 31, 1999 was $1.5 million and was secured by a 46 unit apartment
complex in Hanover, Indiana. No multi-family loans were included in
non-performing assets on that date.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "Nonresidential Real Estate Loans"
above. Also, the loans-to-one borrower limitations restrict the ability of the
Bank to make loans to developers of apartment complexes and other multi-family
units.
Land Loans. At December 31, 1999, approximately $10.1 million, or 8.5%
of the Bank's total loan portfolio, consisted of mortgage loans secured by
undeveloped real estate. The Bank's land loans are generally written on terms
and conditions similar to its nonresidential real estate loans. Some of the
Bank's land loans are land development loans; i.e., the proceeds of the loans
are used for improvements to the real estate such as streets and sewers. At
December 31, 1999, the Bank's largest land loan totalled $600,000.
Land loans totalling $36,000, or .03% of the Bank's total loan
portfolio, were included in non-performing assets as of December 31, 1999. Such
loans are more risky than conventional loans since land development borrowers
who are over budget may divert the loan funds to cover cost-overruns rather than
direct them toward the purpose for which such loans were made. In addition,
those loans are more difficult to monitor than conventional mortgage loans. As
such, a defaulting borrower could cause the Bank to take title to partially
improved land that is unmarketable without further capital investment.
Commercial Loans. At December 31, 1999, $9.8 million, or 8.2% of the
Bank's total loan portfolio, consisted of nonmortgage commercial loans. The
Bank's commercial loans are written on either a fixed-rate or an adjustable-rate
basis with terms that vary depending on the type of security, if any. At
December 31, 1999, approximately 93.6% of the Bank's commercial loans were
secured by collateral, such as equipment, inventory and crops. The Bank's
adjustable-rate commercial loans are generally indexed to the prime rate with
varying margins and terms depending on the type of collateral securing the loans
and the credit quality of the borrowers. At December 31, 1999, the largest
commercial loan was $1.2 million. As of the same date, commercial loans
totalling $23,000 were included in non-performing assets.
Commercial loans tend to bear somewhat greater risk than residential
mortgage loans, depending on the ability of the underlying enterprise to repay
the loan. Further, they are frequently larger in amount than the Bank's average
residential mortgage loans.
Consumer Loans. The Bank's consumer loans, consisting primarily of auto
loans, home improvement loans, unsecured installment loans, loans secured by
deposits and mobile home loans aggregated approximately $9.5 million at December
31, 1999, or 8.0% of the Bank's total loan portfolio. The Bank consistently
originates consumer loans to meet the needs of its customers and to assist in
meeting its asset/liability management goals. All of the Bank's consumer loans,
except loans secured by deposits, are fixed-rate loans with terms that vary from
six months (for unsecured installment loans) to 60 months (for home improvement
loans and loans secured by new automobiles). At December 31, 1999, 88.8% of the
Bank's consumer loans were secured by collateral.
The Bank's loans secured by deposits are made up to 90% of the current
account balance and accrue at a rate of 2% over the underlying passbook or
certificate of deposit rate.
The Bank offers both direct and indirect automobile loans. Under the
Bank's indirect automobile program, participating automobile dealers receive
loan applications from prospective purchasers of automobiles at the point of
sale and deliver them to the Bank for processing. The dealer receives a portion
of the interest payable on approved loans.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. In addition, consumer loan
collections depend upon the borrower's continuing financial stability, and thus
are more likely to be affected by adverse personal circumstances. Furthermore,
the application of various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans. At
December 31, 1999, consumer loans amounting to $72,000 were included in
non-performing assets.
Origination, Purchase and Sale of Loans. The Bank historically has
originated its ARMs pursuant to its own underwriting standards which did not
conform with the standard criteria of the FHLMC or Federal National Mortgage
Association ("FNMA"). The Bank's ARMs varied from secondary market criteria
because, among other things, the Bank did not require current property surveys
in most cases and did not permit the conversion of those loans to fixed rate
loans in the first three years of its term. If the Bank desired to sell its
non-conforming ARMs, it may experience difficulty in selling such loans quickly
in the secondary market.
The Bank began underwriting fixed-rate residential mortgage loans for
potential sale to the FHLMC on a servicing-retained basis after the Merger.
Prior to the Merger, Citizens also originated loans for sale to the FHLMC and
retained servicing rights for a fee of one-fourth of 1% of the principal balance
of all loans serviced. Loans originated for sale to the FHLMC in the secondary
market are originated in accordance with the guidelines established by the FHLMC
and are sold promptly after they are originated. The Bank receives a servicing
fee of one-fourth of 1% of the principal balance of all loans serviced. At
December 31, 1999, the Bank serviced $40.2 million in loans sold to the FHLMC.
The Bank confines its loan origination activities primarily to
Jefferson County and surrounding counties. At December 31, 1999, the Bank held
loans totalling approximately $7.1 million that were secured by property located
outside of Indiana. The Bank's loan originations are generated from referrals
from existing customers, real estate brokers and newspaper and periodical
advertising. Loan applications are taken at any of the Bank's five full-service
offices.
The Bank's loan approval processes are intended to assess the
borrower's ability to repay the loan, the viability of the loan and the adequacy
of the value of the property that will secure the loan. To assess the borrower's
ability to repay, the Bank studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors.
Under the Bank's lending policy, a loan officer may approve mortgage
loans up to $75,000, a Senior Loan Officer may approve mortgage loans up to
$150,000 and the President may approve mortgage loans up to $220,000. All other
mortgage loans must be approved by at least four members of the Bank's Board of
Directors. The lending policy further provides that loans secured by readily
marketable collateral, such as stock, bonds and certificates of deposit may be
approved by a Loan Officer for up to $75,000, by a Senior Loan Officer for up to
$150,000 and by the President up to $300,000. Loans secured by other non-real
estate collateral may be approved by a Loan Officer for up to $25,000, by a
Senior Loan Officer up to $75,000 and by the President up to $150,000. Finally,
the lending policy provides that unsecured loans may be approved by a Loan
Officer or senior loan officer up to $10,000 or by the President up to $25,000.
All other unsecured loans or loans secured by non-real estate collateral must be
approved by at least four members of the Bank's Board of Directors.
The Bank generally requires appraisals on all real property securing
its loans and requires an attorney's opinion or title insurance and a valid lien
on the mortgaged real estate. Appraisals for all real property securing mortgage
loans are performed by independent appraisers who are state-licensed. The Bank
requires fire and extended coverage insurance in amounts at least equal to the
principal amount of the loan and also requires flood insurance to protect the
property securing its interest if the property is in a flood plain. The Bank
also generally requires private mortgage insurance for all residential mortgage
loans with Loan-to-Value Ratios of greater than 80%. The Bank does not require
escrow accounts for insurance premiums or taxes.
The Bank's underwriting standards for consumer and commercial loans are
intended to protect against some of the risks inherent in making such loans.
Borrower character, paying habits and financial strengths are important
considerations.
The Bank occasionally purchases participations in commercial loans,
nonresidential real estate and multi-family loans from other financial
institutions. At December 31, 1999, the Bank held in its loan portfolio
participations in these types of loans aggregating approximately $25,000 that it
had purchased, all of which were serviced by others. The Bank generally does not
sell participations in any loans that it originates.
The following table shows loan origination and repayment activity for
the Bank during the periods indicated:
Year Ended December 31,
-------------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Loans Originated:
Residential real estate loans (1).......... $28,816 $37,537 $28,123
Multi-family loans......................... 2,092 326 ---
Construction loans......................... 4,838 5,108 5,740
Non-residential real estate loans.......... 3,995 447 3,516
Land loans................................. 4,554 2,909 3,473
Consumer loans............................. 5,945 6,423 8,276
Commercial loans........................... 6,625 16,771 4,489
------- ------- --------
Total loans originated................. 56,865 69,521 53,617
Reductions:
Sales...................................... 14,253 17,025 6,930
Principal loan repayments.................. 39,640 51,624 43,220
Transfers from loans to real estate owned.. --- --- 81
------- ------- --------
Total reductions....................... 53,893 68,649 50,231
Decrease in other items (2)................ (226) (374) (377)
------- ------- --------
Net increase .............................. $ 2,746 $ 498 $ 3,009
======= ======= ========
- ----------
(1) Includes loans originated for sale in the secondary market.
(2) Other items consist of amortization of deferred loan origination costs, the
provision for losses on loans and a charge to the allowance for loan
losses.
Origination and Other Fees. The Bank realizes income from loan
origination fees, loan servicing fees, late charges, checking account service
charges and fees for other miscellaneous services. Late charges are generally
assessed if payment is not received within a specified number of days after it
is due. The grace period depends on the individual loan documents.
Non-Performing and Problem Assets
Mortgage loans are reviewed by the Bank on a regular basis and are
placed on a non-accrual status when management determines that the
collectibility of the interest is less than probable or collection of any amount
of principal is in doubt. Generally, when loans are placed on non-accrual
status, unpaid accrued interest is written off, and further income is recognized
only to the extent received. The Bank delivers delinquency notices with respect
to all mortgage loans contractually past due 5 to 10 days. When loans are 30
days in default, personal contact is made with the borrower to establish an
acceptable repayment schedule. Management is authorized to commence foreclosure
proceedings for any loan upon making a determination that it is prudent to do
so.
Commercial and consumer loans are treated similarly. Interest income on
consumer, commercial and other nonmortgage loans is accrued over the term of the
loan except when serious doubt exists as to the collectibility of a loan, in
which case accrual of interest is discontinued and the loan is written-off, or
written down to the fair value of the collateral securing the loan. It is the
Bank's policy to recognize losses on these loans as soon as they become
apparent.
Non-performing Assets. At December 31, 1999, $857,000, or .62% of
consolidated total assets, were non-performing loans compared to $1.9 million,
or 1.5% of consolidated total assets, at December 31, 1998. At December 31,
1999, residential loans and consumer loans accounted for $726,000 and $72,000,
respectively, of non-performing assets. The Bank had no REO at December 31,
1999.
The table below sets forth the amounts and categories of the Bank's
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt restructurings) for the last three years. It is the policy of the Bank that
all earned but uncollected interest on all loans be reviewed monthly to
determine if any portion thereof should be classified as uncollectible for any
loan past due in excess of 90 days.
At December 31,
1999 1998 1997
---------------------------------------
(Dollars in thousands)
Non-performing assets:
Non-performing loans......................... $857 $1,947 $ 718
Troubled debt restructurings ................ 835 937 411
------ ------ ------
Total non-performing loans and troubled
debt restructurings...................... 1,692 2,884 1,129
Foreclosed real estate....................... --- 82 82
------ ------ ------
Total non-performing assets................ $1,692 $2,966 $1,211
====== ====== ======
Total non-performing loans and troubled debt
restructurings to total loans................ 1.42% 2.51% 1.00%
====== ====== ======
Total non-performing assets to total assets..... 1.22% 2.14% .88%
====== ====== ======
At December 31, 1999, the Bank held loans delinquent from 30 to 89 days
totalling $334,000. Other than in connection with these loans and other
delinquent loans disclosed in this section, management was not aware of any
other borrowers who were experiencing financial difficulties. In addition, there
were no other assets that would need to be disclosed as non-performing assets.
Delinquent Loans. The following table sets forth certain information at
December 31, 1999, 1998 and 1997, relating to delinquencies in the Bank's
portfolio. Delinquent loans that are 90 days or more past due are considered
non-performing assets.
At December 31, 1999 At December 31, 1998 At December 31, 1997
------------------------------------- ------------------------------------ ------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More 30-89 Days 90 Days or More
------------------ ----------------- ------------------ ----------------- ----------------- -----------------
Principal Principal Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- -------- -------- -------- -------- --------- -------- --------- -------- --------
(Dollars in thousands)
Residential real
estate loans...... 5 $186 15 $726 69 $2,194 26 $931 16 $673 12 $431
Multi-family loans... --- --- --- --- --- --- --- --- --- --- --- ---
Construction loans... --- --- --- --- --- --- 1 23 --- --- --- ---
Land loans........... --- --- 1 36 1 11 3 203 --- --- 2 107
Non-residential
real estate loans. --- --- --- --- --- --- 4 325 --- --- --- ---
Consumer loans....... 32 133 13 72 86 560 56 465 24 160 22 152
Commercial loans..... 2 15 2 23 10 477 --- --- 2 113 1 28
-- ---- -- ---- --- ------ -- ------ -- ---- -- ----
Total............. 39 $334 31 $857 166 $3,242 90 $1,947 42 $946 37 $718
== ==== == ==== === ====== == ====== == ==== == ====
Delinquent loans to
total loans....... 1.00% 4.52% 1.47%
==== ==== ====
Classified assets. Federal regulations and the Bank's Asset
Classification Policy provide for the classification of loans and other assets
such as debt and equity securities to be of lesser quality as "substandard,"
"doubtful," or "loss" assets. An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the Bank will sustain "some
loss" if the deficiencies are not corrected. Assets classified as "doubtful"
have all of the weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified as "loss" are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS, which can order the establishment of
additional general or specific loss allowances.
At December 31, 1999, the aggregate amount of the Bank's classified
assets and general and specific loss allowances were as follows:
At December 31, 1999
--------------------
(In thousands)
Substandard assets................................. $1,912
Doubtful assets.................................... ---
Loss assets........................................ 113
------
Total classified assets........................ $2,025
======
General loss allowances............................ $1,409
Specific loss allowances........................... 113
------
Total allowances............................... $1,522
======
The Bank regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations. Not all
of the Bank's classified assets constitute non-performing assets.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
loan losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with management's review and evaluation of current
economic conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs and other pertinent
information derived from a review of the loan portfolio. In management's
opinion, the Bank's allowance for loan losses is adequate to absorb probable
losses from loans at December 31, 1999. However, there can be no assurance that
regulators, when reviewing the Bank's loan portfolio in the future, will not
require increases in its allowances for loan losses or that changes in economic
conditions will not adversely affect the Bank's loan portfolio.
Summary of Loan Loss Experience. The following table analyzes changes in
the allowance during the five years ended December 31, 1999.
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ----
(Dollars in thousands)
Balance at beginning of period................... $1,477 $1,276 $1,190 $ 407 $252
Charge-offs:
Single-family residential................... (17) --- --- --- ---
Consumer.................................... (86) (140) (254) (3) ---
Commercial.................................. (20) (83) (15) --- ---
------ ------ ------ ------ ----
Total charge-offs......................... (123) (223) (269) (3) ---
Recoveries....................................... 28 149 51 --- 5
------ ------ ------ ------ ----
Net (charge-offs) recoveries.................. (95) (74) (218) (3) 5
Provision for losses on loans.................... 140 275 304 22 150
Increase due to Acquisition...................... --- --- --- 764 ---
------ ------ ------ ------ ----
Balance at end of period...................... $1,522 $1,477 $1,276 $1,190 $407
====== ====== ====== ====== ====
Allowance for loan losses as a percent of
total loans outstanding before net items...... 1.28% 1.29% 1.13% 1.07% 0.70%
====== ====== ====== ====== ====
Ratio of net (charge-offs) recoveries to average
loans outstanding before net items............ (0.08)% (0.06)% (0.20)% (0.01)% 0.01%
====== ====== ====== ====== ====
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of the Bank's allowance for loan losses at the dates
indicated.
At December 31,
-------------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- --------------------
Percent Percent Percent
of loans of loans of loans
in each in each in each
category category category
to total to total to total
Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of period applicable to:
Residential real estate............ $ 4 64.6% $ 11 66.1% $ 11 69.4%
Nonresidential real estate......... --- 19.2 --- 12.1 --- 13.0
Consumer loans..................... 109 8.0 111 10.9 12 13.3
Commercial loans................... --- 8.2 --- 10.9 --- 4.3
Unallocated........................ 1,409 --- 1,355 --- 1,253 ---
------ ----- ------ ----- ------ -----
Total............................ $1,522 100.0% $1,477 100.0% $1,276 100.0%
====== ===== ====== ===== ====== =====
Investments and Mortgage-Backed Securities
Investments. The Bank's investment portfolio consists of U.S.
government and agency obligations, commercial paper, corporate bonds, municipal
securities and Federal Home Loan Bank ("FHLB") stock. At December 31, 1999,
approximately $6.2 million, or 4.5%, of the consolidated total assets consisted
of such investments.
The following table sets forth the amortized cost and the market value
of the Bank's investment portfolio at the dates indicated.
At December 31,
-------------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------
(In thousands)
Held to Maturity:
U.S. Government and
agency obligations............... $1,000 $995 $1,000 $980 $3,500 $3,444
Available for Sale:
U.S. Government and
agency obligations............... --- --- --- --- 498 494
Commercial paper................... 2,972 2,957 --- --- --- ---
Corporate bonds.................... 1,000 1,000 --- --- --- ---
Muncipal securities................ 276 273 276 283 276 278
FHLB stock............................ 943 943 943 943 943 943
------ ------ ------ ------ ------ ------
Total available for sale........... 5,191 5,173 1,219 1,226 1,717 1,715
------ ------ ------ ------ ------ ------
Total investments................ $6,191 $6,168 $2,219 $2,206 $5,217 $5,159
====== ====== ====== ====== ====== ======
The following table sets forth the amount of investment securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at December 31, 1999.
Amount at December 31, 1999 which matures in
-----------------------------------------------------------------------------------
One Year One Year Five Years After
or Less to Five Years to Ten Years Ten Years
------------------- ------------------ ------------------ ------------------
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- ------- --------- ------- --------- ------- --------- -------
(Dollars in thousands)
U.S. Government and agency obligations.......... $1,000 5.03% $ --- ---% $ --- ---% $ --- ---%
Commercial paper................................ 2,972 6.01 --- --- --- --- --- ---
Corporate bonds................................. 1,000 6.05 --- --- --- --- --- ---
Municipal securities............................ --- --- 276 4.63 --- --- --- ---
Mortgage-Backed Securities. The Bank maintains a portfolio of
mortgage-backed pass-through securities in the form of FHLMC, FNMA and
Government National Mortgage Association ("GNMA") participation certificates.
Mortgage-backed pass-through securities generally entitle the Bank to receive a
portion of the cash flows from an identified pool of mortgages and gives the
Bank an interest in that pool of mortgages. FHLMC, FNMA and GNMA securities are
each guaranteed by its respective agencies as to principal and interest. Except
for a $15,000 investment in interest-only certificates, the Bank does not invest
in any derivative products.
Although mortgage-backed securities generally yield less than
individual loans originated by the Bank, they present less credit risk. Because
mortgage-backed securities have a lower yield relative to current market rates,
retention of such investments could adversely affect the Bank's earnings,
particularly in a rising interest rate environment. The mortgage-backed
securities portfolio is generally considered to have very low credit risk
because they are guaranteed as to principal repayment by the issuing agency.
In addition, the Bank has purchased adjustable-rate mortgage-backed
securities as part of its effort to reduce its interest rate risk. In a period
of declining interest rates, the Bank is subject to prepayment risk on such
adjustable rate mortgage-backed securities. The Bank attempts to mitigate this
prepayment risk by purchasing mortgage-backed securities at or near par. If
interest rates rise in general, the interest rates on the loans backing the
mortgage-backed securities will also adjust upward, subject to the interest rate
caps in the underlying mortgage loans. However, the Bank is still subject to
interest rate risk on such securities if interest rates rise faster than 1% to
2% maximum annual interest rate adjustments on the underlying loans.
At December 31, 1999, the Bank had $4.2 million of mortgage-backed
securities outstanding, $2.1 million of which were classified as held to
maturity, and $2.1 million of which were classified as available for sale. These
mortgage-backed securities may be used as collateral for borrowings and, through
repayments, as a source of liquidity.
The following table sets forth the amortized cost and market value of
the Bank's mortgage-backed securities at the dates indicated.
At December 31,
--------------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ------ --------- ------ --------- ------
(In thousands)
Held to Maturity:
Mortgage-backed
securities.................. $2,138 $2,147 $3,190 $3,220 $5,374 $5,432
Available for Sale:
Government
agency securities........... 1,511 1,466 2,196 2,177 3,023 2,992
Collateralized mortgage
obligations................. 627 605 627 619 627 612
------ ------ ------ ------ ------ ------
Total mortgage-backed
securities.............. $4,276 $4,218 $6,013 $6,016 $9,024 $9,036
====== ====== ====== ====== ====== ======
The following table sets forth the amount of mortgage-backed securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1999.
Amount at December 31, 1999 which matures in
------------------------------------------------------------------------------
One Year One Year to After
or Less Five Years Five Years
----------------------- ----------------------- ---------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
--------- -------- --------- -------- --------- --------
(Dollars in thousands)
Mortgage-backed securities
held to maturity............................. $857 4.93% $ 3 7.57% $1,278 6.29%
Mortgage-backed securities
available for sale........................... 8 7.09 235 6.54 1,895 6.25
---- ---- ------
Total...................................... $865 $238 $3,173
==== ==== ======
The following table sets forth the changes in the Bank's
mortgage-backed securities portfolio for the years ended December 31, 1999, 1998
and 1997.
Year Ended December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
Beginning balance........................... $5,986 $8,978 $12,846
Purchases................................... --- --- 1,350
Sales ..................................... --- --- (2,150)
Repayments.................................. (1,709) (2,970) (3,072)
Premium and discount
amortization, net........................ (30) (40) (1)
Unrealized gains (losses) on securities
available for sale....................... (38) 18 5
------ ------ ------
Ending balance.............................. $4,209 $5,986 $8,978
====== ====== ======
Sources of Funds
General. Deposits have traditionally been the Bank's primary source of
funds for use in lending and investment activities. In addition to deposits, the
Bank derives funds from scheduled loan payments, investment maturities, loan
prepayments, retained earnings, income on earning assets and borrowings. While
scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition. Borrowings from the FHLB of Indianapolis may be used in the
short-term to compensate for reductions in deposits or deposit inflows at less
than projected levels.
Deposits. Deposits are attracted, principally from within Jefferson County,
through the offering of a broad selection of deposit instruments including
fixed-rate certificates of deposit, NOW, MMDAs and other transaction accounts,
individual retirement accounts and savings accounts. The Bank does not actively
solicit or advertise for deposits outside of Jefferson County. Substantially all
of the Bank's depositors are residents of that county. Deposit account terms
vary, with the principal differences being the minimum balance required, the
amount of time the funds remain on deposit and the interest rate. The Bank does
not pay a fee for any deposits it receives.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by the Bank on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals and applicable regulations. The Bank relies, in
part, on customer service and long-standing relationships with customers to
attract and retain its deposits, but also closely prices its deposits in
relation to rates offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Bank has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, the Bank believes that its NOW and MMDAs are relatively stable
sources of deposits. However, the ability of the Bank to attract and maintain
certificates of deposit, and the rates paid on these deposits, have been and
will continue to be significantly affected by market conditions.
An analysis of the Bank's deposit accounts by type, maturity and rate at
December 31, 1999, is as follows:
Minimum Balance at Weighted
Opening December 31, % of Average
Type of Account Balance 1999 Deposits Rate
- --------------- ----------- ------------ -------- --------
(Dollars in thousands)
Withdrawable:
Non-interest bearing accounts......... $ 100 $ 7,903 6.9% ---%
Savings accounts...................... 50 26,640 23.3 3.52
MMDA.................................. 100 6,886 6.0 4.10
NOW accounts.......................... 100 14,329 12.6 2.62
-------- ----- ----
Total withdrawable.................. 55,758 48.8 2.86
Certificates (original terms):
I.R.A................................. 250 6,891 6.0 4.67
3 months.............................. 2,500 329 .3 4.31
6 months.............................. 2,500 6,940 6.1 4.55
9 months.............................. 2,500 1,025 .9 4.62
12 months............................. 500 13,880 12.1 4.85
15 months............................. 500 6,595 5.8 4.63
18 months............................. 500 820 .7 5.65
24 months............................. 500 339 .3 4.87
30 months ............................ 500 4,720 4.1 5.29
36 months............................. 500 517 .5 5.19
48 months............................. 500 489 .4 5.37
60 months............................. 500 2,063 1.8 5.89
Jumbo certificates....................... 100,000 13,885 12.2 5.07
-------- ----- ----
Total certificates.................... 58,493 51.2 4.90
-------- ----- ----
Total deposits........................... $114,251 100.0% 3.91%
======== ===== ====
The following table sets forth by various interest rate categories the
composition of time deposits of the Bank at the dates indicated:
At December 31,
-------------------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
3.01 to 5.00%..... $36,591 $23,200 $13,016
5.01 to 6.00%..... 14,250 31,364 36,010
6.01 to 7.00%..... 7,445 11,229 12,312
7.01 to 8.00%..... 207 214 2,896
8.01 to 9.00%..... --- --- 1
------- ------- -------
Total.......... $58,493 $66,007 $64,235
======= ======= =======
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following
December 31, 1999. Matured certificates, which have not been renewed as of
December 31, 1999, have been allocated based upon certain rollover assumptions.
Amounts at December 31, 1999
------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
-------- ------ -------- ------------
(In thousands)
3.01 to 5.00%............ $31,822 $3,168 $ 378 $1,223
5.01 to 6.00%............ 9,676 1,933 2,123 518
6.01 to 7.00%............ 4,265 2,196 974 10
7.01 to 8.00%............ 150 10 23 24
8.01 to 9.00%............ --- --- --- ---
------- ------ ------ ------
Total................. $45,913 $7,307 $3,498 $1,775
======= ====== ====== ======
The following table indicates the amount of the Bank's jumbo and other
certificates of deposit of $100,000 or more by time remaining until maturity as
of December 31, 1999.
At December 31, 1999
--------------------
Maturity Period (In thousands)
Three months or less................................. $ 8,582
Greater than three months through six months......... 1,687
Greater than six months through twelve months........ 2,001
Over twelve months................................... 1,614
-------
Total........................................... $13,884
=======
The following table sets forth the dollar amount of savings deposits in
the various types of deposits offered by the Bank at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
Balance Increase Balance Increase Balance
at (Decrease) at (Decrease) at
December 31, % of from December 31, % of from December 31, % of
1999 Deposits 1998 1998 Deposits 1997 1997 Deposits
-------- ----- ------- -------- ----- ------ -------- -----
(Dollars in thousands)
Withdrawable:
Non-interest bearing accounts...... $ 7,903 6.9% $ (462) $8,365 7.0% $2,737 $ 5,628 4.9%
Savings accounts................... 26,640 23.3 4,262 22,378 19.0 967 21,411 18.7
MMDA............................... 6,886 6.0 (98) 6,984 5.9 (1,273) 8,257 7.2
NOW accounts....................... 14,329 12.6 (88) 14,417 12.2 (1,007) 15,424 13.4
-------- ----- ------- -------- ----- ------ -------- -----
Total withdrawable............... 55,758 48.8 3,614 52,144 44.1 1,424 50,720 44.2
Certificates (original terms):
I.R.A.............................. 6,891 6.0 (359) 7,250 6.1 (497) 7,747 6.7
3 months........................... 329 .3 66 263 .2 (115) 378 .3
6 months........................... 6,940 6.1 (298) 7,238 6.1 2,549 4,689 4.1
9 months........................... 1,025 .9 (2,027) 3,052 2.6 1,920 1,132 1.0
12 months.......................... 13,880 12.1 7,298 6,582 5.6 (2,219) 8,801 7.7
15 months.......................... 6,595 5.8 (12,179) 18,774 15.9 2,072 16,702 14.5
18 months.......................... 820 .7 (222) 1,042 .9 (483) 1,525 1.3
24 months.......................... 339 .3 (115) 454 .4 (164) 618 .5
30 months ......................... 4,720 4.1 2,172 2,548 2.2 (2,387) 4,935 4.3
36 months.......................... 517 .5 (85) 602 .5 (2,234) 2,836 2.5
48 months.......................... 489 .4 (136) 625 .5 (133) 758 .7
60 months.......................... 2,063 1.8 (172) 2,235 1.9 (667) 2,902 2.5
96 months.......................... --- --- (219) 219 .2 1 218 .2
Jumbo certificates.................... 13,885 12.2 (1,238) 15,123 12.8 4,129 10,994 9.5
-------- ----- ------- -------- ----- ------ -------- -----
Total certificates................. 58,493 51.2 (7,514) 66,007 55.9 1,772 64,235 55.8
-------- ----- ------- -------- ----- ------ -------- -----
Total deposits........................ $114,251 100.0% $(3,900) $118,151 100.0% $3,196 $114,955 100.0%
======== ===== ======= ======== ===== ====== ======== =====
Borrowings. The Bank focuses on generating high quality loans and then
seeks the best source of funding from deposits, investments, or borrowings. At
December 31, 1999, the Bank had $500,000 in other borrowed money consisting of a
variable-rate one-year line of credit advance. The Bank does not anticipate any
difficulty in obtaining advances appropriate to meet its requirements in the
future.
The following table presents certain information relating to the Bank's
borrowings at or for the years ended December 31, 1999, 1998 and 1997.
At or for the Year
Ended December 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
FHLB Advances and Other Borrowed Money:
Outstanding at end of period.............. $6,500 $ 270 $2,000
Average balance outstanding for period.... 2,228 2,549 2,244
Maximum amount outstanding at any
month-end during the period............. 6,500 5,000 5,000
Weighted average interest rate
during the period....................... 6.43% 6.28% 6.02%
Weighted average interest rate
at end of period........................ 6.07% 6.63% 6.12%
Service Corporation Subsidiaries
Prior to the Acquisition and Conversion, the Bank had two subsidiaries:
Madison First Service Corporation ("First Service") and McCauley Insurance
Agency, Inc. ("McCauley"). First Service was incorporated under the laws of the
State of Indiana on July 3, 1973 and owned all of the outstanding capital stock
of McCauley. First Service had no other operations. McCauley was organized under
the laws of the State of Indiana under the name Builders Insurance Agency, Inc.
on August 2, 1957 and changed its name to McCauley Insurance Agency, Inc. on
August 29, 1957. McCauley engaged in the sale of general fire and accident, car,
home and life insurance to the general public. During the period ended December
31, 1996, McCauley received approximately $200,000 in commissions.
Upon consummation of the Acquisition, the Bank became a bank holding
company, subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA"). At that time, the insurance operations of McCauley were not permitted
under the BHCA, and the Bank was required to divest its ownership of McCauley.
On December 17, 1996, the Bank sold McCauley to the Madison Insurance Agency,
Inc. for a gain of $141,000. The Bank continues to hold First Service which
currently holds rental property but does not otherwise engage in significant
business activities.
The historic consolidated statements of earnings of the Bank and its
subsidiaries included elsewhere herein include the operations of First Service
and McCauley for the periods prior to the Holding Company's divestment of its
ownership of McCauley. All intercompany balances and transactions have been
eliminated in the consolidation.
Employees
As of December 31, 1999, the Bank employed 54 persons on a full-time
basis and five persons on a part-time basis. None of the employees is
represented by a collective bargaining group. Management considers its employee
relations to be good.
COMPETITION
The Bank originates most of its loans to and accepts most of its
deposits from residents of Jefferson County, Indiana. The Bank is subject to
competition from various financial institutions, including state and national
banks, state and federal savings associations, credit unions and certain
nonbanking consumer lenders that provide similar services in Jefferson County
and which have significantly larger resources available to them than does the
Bank. In total, there are 10 financial institutions located in Jefferson County,
Indiana, including the Bank. The Bank also competes with money market funds with
respect to deposit accounts and with insurance companies with respect to
individual retirement accounts.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. The Bank competes for loan
originations primarily through the efficiency and quality of services they
provide borrowers and through interest rates and loan fees charged. Competition
is affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors that are not readily predictable.
REGULATION
General
As a federally chartered, SAIF-insured savings association, the Bank is
subject to extensive regulation by the OTS and the FDIC. For example, the Bank
must obtain OTS approval before it may engage in certain activities and must
file reports with the OTS regarding its activities and financial condition. The
OTS periodically examines the Bank's books and records and, in conjunction with
the FDIC in certain situations, has examination and enforcement powers. This
supervision and regulation are intended primarily for the protection of
depositors and the federal deposit insurance funds. A savings association must
pay a semi-annual assessment to the OTS based upon a marginal assessment rate
that decreases as the asset size of the savings association increases, and which
includes a fixed-cost component that is assessed on all savings associations.
The assessment rate that applies to a savings association depends upon the
institution's size, condition and the complexity of its operations. The Bank's
semi-annual assessment is approximately $19,000.
The Bank is also subject to federal and state regulation as to such
matters as loans to officers, directors, or principal shareholders, required
reserves, limitations as to the nature and amount of its loans and investments,
regulatory approval of any merger or consolidation, issuances or retirements of
its securities, and limitations upon other aspects of banking operations. In
addition, the Bank's activities and operations are subject to a number of
additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
Savings and Loan Holding Company Regulation
As the holding company for the Bank, the Holding Company is regulated
as a "non-diversified savings and loan holding company" within the meaning of
the Home Owners' Loan Act, as amended ("HOLA"), and is subject to regulatory
oversight of the Director of the OTS. As such, the Holding Company is registered
with the OTS and is thereby subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, the Bank is subject to certain restrictions in its dealings
with the Holding Company and with other companies affiliated with the Holding
Company.
In general, the HOLA prohibits a savings and loan holding company,
without obtaining the prior approval of the Director of the OTS, from acquiring
control of another savings association or savings and loan holding company or
retaining more than 5% of the voting shares of a savings association or of
another holding company which is not a subsidiary. The HOLA also restricts the
ability of a director or officer of the Holding Company, or any person who owns
more than 25% of the Holding Company's stock, from acquiring control of another
savings association or savings and loan holding company without obtaining the
prior approval of the Director of the OTS.
The Holding Company currently operates as a unitary savings and loan
holding company. Prior to the enactment of the Gramm-Leach-Bliley Act (the "GLB
Act") on November 12, 1999, there were no restrictions on the permissible
business activities of a unitary savings and loan holding company. The GLB Act
included a provision that prohibits any new unitary savings and loan holding
company, defined as a company that acquires a thrift after May 4, 1999, from
engaging in commercial activities. This provision also includes a grandfather
clause, however, that permits a company that was a savings and loan holding
company as of May 4, 1999, or had an application to become a savings and loan
holding company on file with the OTS as of that date, to acquire and continue to
control a thrift and to continue to engage in commercial activities. Because the
Holding Company qualifies under this grandfather provision, the GLB Act did not
affect the Holding Company's authority to engage in diversified business
activities.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would be deemed to be a bank
holding company subject to all of the provisions of the Bank Holding Company Act
of 1956 and other statutes applicable to bank holding companies, to the same
extent as if the Holding Company were a bank holding company and the Bank were a
bank. See "-Qualified Thrift Lender." At December 31, 1999, the Bank's asset
composition was in excess of that required to qualify as a Qualified Thrift
Lender.
If the Holding Company were to acquire control of another savings
association other than through a merger or other business combination with the
Bank, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than the Bank or other subsidiary savings associations)
would thereafter be subject to further restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity other than (i) furnishing
or performing management services for a subsidiary savings association, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings association,
(iv) holding or managing properties used or occupied by a subsidiary savings
association, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by the FSLIC by regulation as of March 5, 1987,
to be engaged in by multiple holding companies, or (vii) those activities
authorized by the FRB as permissible for bank holding companies, unless the
Director of the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the Director of the OTS before a multiple holding
company may engage in such activities.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the association to be acquired is located
specifically permit associations to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings associations). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings association holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period or without
giving notice shall be invalid.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Indianapolis, which is one of
twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its
members within its assigned region. The FHLB is funded primarily from funds
deposited by savings associations and proceeds derived from the sale of
consolidated obligations of the FHLB system. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB. All FHLB advances must be fully secured by sufficient
collateral as determined by the FHLB. The Federal Housing Finance Board
("FHFB"), an independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
Prior to the enactment of the GLB Act, a federal savings association
was required to become a member of the FHLB for the district in which the thrift
is located. The GLB Act abolished this requirement, effective six months
following the enactment of the statute. At that time, membership with the FHLB
will become voluntary. Any savings association that chooses to become (or
remain) a member of the FHLB following the expiration of this six-month period
will have to qualify for membership under the criteria that existed prior to the
enactment of the GLB Act. The Bank currently intends to remain a member of the
FHLB of Indianapolis.
As a member of the FHLB, the Bank is required to purchase and maintain
stock in the FHLB of Indianapolis in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts, or similar
obligations at the beginning of each year. At December 31, 1999, the Bank's
investment in stock of the FHLB of Indianapolis was $943,000. The FHLB imposes
various limitations on advances such as limiting the amount of certain types of
real estate-related collateral to 30% of a member's capital and limiting total
advances to a member. Interest rates charged for advances vary depending upon
maturity, the cost of funds to the FHLB of Indianapolis and the purpose of the
borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have adversely
affected the level of FHLB dividends paid and could continue to do so in the
future. For the fiscal year ended December 31, 1999, dividends paid by the FHLB
of Indianapolis to the Bank totaled approximately $75,000, for an annual rate of
8.0%.
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of banks and thrifts
and safeguards the safety and soundness of the banking and thrift industries.
The FDIC administers two separate insurance funds, the BIF for commercial banks
and state savings banks and the SAIF for savings associations such as the Bank,
and for banks that have acquired deposits from savings associations. The FDIC is
required to maintain designated levels of reserves in each fund. During 1996,
the reserves of the SAIF were below the level required by law, primarily because
a significant portion of the assessments paid into the SAIF had been used to pay
the cost of prior thrift failures, while the reserves of the BIF met the level
required by law. In 1996, however, legislation was enacted to recapitalize the
SAIF and eliminate the premium disparity between the BIF and SAIF. See
"--Assessments" below.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital level and the FDIC's level of supervisory
concern about the institution.
In 1996, legislation was enacted that included provisions designed to
recapitalize the SAIF and eliminate the significant premium disparity between
the BIF and the SAIF. Under the new law, the Bank was charged a one-time special
assessment equal to $.657 per $100 in assessable deposits at March 31, 1995. The
Bank recognized this one-time assessment as a non-recurring operating expense
during the three-month period ending September 30, 1996, and paid this
assessment during the fourth quarter of 1996. The assessment was fully
deductible for both federal and state income tax purposes. Beginning January 1,
1997, the Bank's annual deposit insurance premium was reduced from .23% to
.0644% of total assessable deposits. BIF institutions pay lower assessments than
comparable SAIF institutions because BIF institutions pay only 20% of the rate
paid by SAIF institutions on their deposits with respect to obligations issued
by the federally-chartered corporation which provided some of the financing to
resolve the thrift crisis in the 1980's ("FICO"). Although Congress has
considered merging the SAIF and the BIF, until then, savings associations with
SAIF deposits may not transfer deposits into the BIF system without paying
various exit and entrance fees, and SAIF institutions will continue to pay
higher FICO assessments. Such exit and entrance fees need not be paid if a SAIF
institution converts to a bank charter or merges with a bank, as long as the
resulting bank continues to pay applicable insurance assessments to the SAIF,
and as long as certain other conditions are met.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
related surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
The OTS recently amended this requirement to require a core capital level of 3%
of total adjusted assets for savings associations that receive the highest
supervisory rating for safety and soundness, and no less than 4% for all other
savings associations. This amendment became effective April 1, 1999. Under the
tangible capital requirement, a savings association must maintain tangible
capital (core capital less all intangible assets except purchased mortgage
servicing rights which may be included after making the above-noted adjustment
in an amount up to 100% of tangible capital) of at least 1.5% of total assets.
Under the risk-based capital requirements, a minimum amount of capital must be
maintained by a savings association to account for the relative risks inherent
in the type and amount of assets held by the savings association. The risk-based
capital requirement requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general valuation allowances
and permanent or maturing capital instruments such as preferred stock and
subordinated debt less assets required to be deducted) equal to 8.0% of
risk-weighted assets. Assets are ranked as to risk in one of four categories
(0-100%). A credit risk-free asset, such as cash, requires no risk-based
capital, while an asset with a significant credit risk, such as a non-accrual
loan, requires a risk factor of 100%. Moreover, a savings association must
deduct from capital, for purposes of meeting the core capital, tangible capital
and risk-based capital requirements, its entire investment in and loans to a
subsidiary engaged in activities not permissible for a national bank (other than
exclusively agency activities for its customers or mortgage banking
subsidiaries). At December 31, 1999, the Bank was in compliance with all capital
requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with either "above
normal" interest rate risk (institutions whose portfolio equity would decline in
value by more than 2% of assets in the event of a hypothetical 200-basis-point
move in interest rates) to maintain additional capital for interest rate risk
under the risk-based capital framework. If the OTS were to implement this
regulation, the Bank would be exempt from its provisions because it has less
than $300 million in assets and its risk-based capital ratio exceeds 12%. The
Bank nevertheless measures its interest rate risk in conformity with the OTS
regulation and, as of September 30, 1999 would not have been required to deduct
any amounts from its total capital available to calculate its risk-based capital
requirement.
If an association is not in compliance with the capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations activities of
the association, imposing a capital directive, cease and desist order, or civil
money penalties, or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FedICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. At December 31,
1999, the Bank was categorized as "well capitalized," meaning that its total
risk-based capital ratio exceeded 10%, its Tier I risk-based capital ratio
exceeded 6%, its leverage ratio exceeded 5%, and it was not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital
to take corrective actions. For example, a savings association which is
categorized as "undercapitalized" would be subject to growth limitations and
would be required to submit a capital restoration plan, and a holding company
that controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
Dividend Limitations
The OTS recently adopted a regulation, which became effective on April
1, 1999, that revised the current restrictions that apply to "capital
distributions" by savings associations. The amended regulation defines a capital
distribution as a distribution of cash or other property to a savings
association's owners, made on account of their ownership. This definition
includes a savings association's payment of cash dividends to shareholders, or
any payment by a savings association to repurchase, redeem, retire, or otherwise
acquire any of its shares or debt instruments that are included in total
capital, and any extension of credit to finance an affiliate's acquisition of
those shares or interests. The amended regulation does not apply to dividends
consisting only of a savings association's shares or rights to purchase such
shares.
The amended regulation exempts certain savings associations from the
requirement under the prior version of the regulation that all savings
associations file either a notice or an application with the OTS before making
any capital distribution. As revised, the regulation requires a savings
association to file an application for approval of a proposed capital
distribution with the OTS if the association is not eligible for expedited
treatment under OTS's application processing rules, or the total amount of all
capital distributions, including the proposed capital distribution, for the
applicable calendar year would exceed an amount equal to the savings
association's net income for that year to date plus the savings association's
retained net income for the preceding two years (the "retained net income
standard"). A savings association must also file an application for approval of
a proposed capital distribution if, following the proposed distribution, the
association would not be at least adequately capitalized under the OTS prompt
corrective action regulations, or if the proposed distribution would violate a
prohibition contained in any applicable statute, regulation, or agreement
between the association and the OTS or the FDIC.
The amended regulation requires a savings association to file a notice
of a proposed capital distribution in lieu of an application if the association
or the proposed capital distribution do not meet the conditions described above,
and: (1) the savings association will not be at least well capitalized (as
defined under the OTS prompt corrective action regulations) following the
capital distribution; (2) the capital distribution would reduce the amount of,
or retire any part of the savings association's common or preferred stock, or
retire any part of debt instruments such as notes or debentures included in the
association's capital under the OTS capital regulation; or (3) the savings
association is a subsidiary of a savings and loan holding company. Because the
Bank is a subsidiary of a savings and loan holding company, this latter
provision requires, at a minimum, that the Bank file a notice with the OTS 30
days before making any capital distributions to the Holding Company.
In addition to these regulatory restrictions, the Bank's Plan of
Conversion imposes additional limitations on the amount of capital distributions
it may make to the Holding Company. The Plan of Conversion requires the Bank to
establish and maintain a liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders and prohibits the Bank from
making capital distributions to the Holding Company if its net worth would be
reduced below the amount required for the liquidation account.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place
limitations on the ability of insured depository institutions to accept, renew
or roll over deposits by offering rates of interest which are significantly
higher than the prevailing rates of interest on deposits offered by other
insured depository institutions having the same type of charter in the
institution's normal market area. Under these regulations, "well-capitalized"
depository institutions may accept, renew, or roll such deposits over without
restriction, "adequately capitalized" depository institutions may accept, renew
or roll such deposits over with a waiver from the FDIC (subject to certain
restrictions on payments of rates) and "undercapitalized" depository
institutions may not accept, renew or roll such deposits over. The regulations
contemplate that the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" will be the same as the definition adopted by the
agencies to implement the corrective action provisions of FedICIA. Management
does not believe that these regulations will have a materially adverse effect on
the Bank's current operations.
Liquidity
Federal law requires that savings associations maintain an average
daily balance of liquid assets in a minimum amount not less than 4% or more than
10% of their withdrawable accounts plus short-term borrowings. Liquid assets
include cash, certain time deposits, certain bankers' acceptances, specified
U.S. government, state or federal agency obligations, certain corporate debt
securities, commercial paper, certain mutual funds, certain mortgage-related
securities, and certain first-lien residential mortgage loans. The OTS recently
amended its regulation that implements this statutory liquidity requirement to
reduce the amount of liquid assets a savings association must hold from 5% of
net withdrawable accounts and short-term borrowings to 4%. The OTS also
eliminated the requirement that savings associations maintain short-term liquid
assets constituting at least 1% of their average daily balance of net
withdrawable deposit accounts and current borrowings. The revised OTS rule also
permits savings associations to calculate compliance with the liquidity
requirement based upon their average daily balance of liquid assets during each
quarter rather than during each month, as was required under the prior rule. The
OTS may impose monetary penalties on savings associations that fail to meet
these liquidity requirements. As of December 31, 1999, the Bank had liquid
assets of $8.1 million, and a regulatory liquidity ratio of 28.2%.
Safety and Soundness Standards
In 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. During 1996, the federal banking agencies added asset quality and
earning standards to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and be
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval and reporting requirements to monitor compliance with the association's
real estate lending policies. The association's written real estate lending
policies must be reviewed and approved by the association's Board of Directors
at least annually. Further, each association is expected to monitor conditions
in its real estate market to ensure that its lending policies continue to be
appropriate for current market conditions.
Loans to One Borrower
Under OTS regulations, the Bank may not make a loan or extend credit to
a single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. Additional amounts may be lent, not in excess of 10% of
unimpaired capital and surplus, if such loans or extensions of credit are fully
secured by readily marketable collateral, including certain debt and equity
securities but not including real estate. In some cases, a savings association
may lend up to 30 percent of unimpaired capital and surplus to one borrower for
purposes of developing domestic residential housing, provided that the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded lending authority. At December 31, 1999, the
Bank did not have any loans or extensions of credit to a single or related group
of borrowers in excess of its lending limits. Management does not believe that
the loans-to-one-borrower limits will have a significant impact on the Bank's
business operations or earnings.
Qualified Thrift Lender
Savings associations must meet a QTL test that requires the association
to maintain an appropriate level of qualified thrift investments ("QTIs")
(primarily residential mortgages and related investments, including certain
mortgage-related securities) and otherwise to qualify as a QTL. The required
percentage of QTIs is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the association in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, savings
associations may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months. As of December 31, 1999, the Bank was in compliance with
its QTL requirement, with approximately 85% of its portfolio assets invested in
QTIs.
A savings association which fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to the SAIF) or be subject to the following penalties: (i) it
may not enter into any new activity except for those permissible for a national
bank and for a savings association; (ii) its branching activities shall be
limited to those of a national bank; (iii) it shall be bound by regulations
applicable to national banks respecting payment of dividends. Three years after
failing the QTL test the association must dispose of any investment or activity
not permissible for a national bank and a savings association. If such a savings
association is controlled by a savings and loan holding company, then such
holding company must, within a prescribed time period, become registered as a
bank holding company and become subject to all rules and regulations applicable
to bank holding companies (including restrictions as to the scope of permissible
business activities).
Acquisitions or Dispositions and Branching
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located. Moreover, Indiana banks and savings associations are
permitted to acquire other Indiana banks and savings associations and to
establish branches throughout Indiana.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana enacted legislation establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law, which became effective in 1996, authorizes Indiana banks
to branch interstate by merger or de novo expansion, provided that such
transactions are not permitted to out-of-state banks unless the laws of their
home states permit Indiana banks to merge or establish de novo banks on a
reciprocal basis.
Transactions with Affiliates
The Bank is subject to Sections 22(h), 23A and 23B of the Federal
Reserve Act, which restrict financial transactions between financial
institutions and affiliated companies. The statute limits credit transactions
between a bank or savings association and its executive officers and its
affiliates, prescribes terms and conditions deemed to be consistent with safe
and sound banking practices for transactions between a financial institution and
its affiliates, and restricts the types of collateral security permitted in
connection with a financial institution's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company have been registered
with the SEC under the 1934 Act. The Holding Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the 1934 Act and the rules of the SEC thereunder. After three
years following the Bank's conversion to stock form, if the Holding Company has
fewer than 300 shareholders, it may deregister its shares under the 1934 Act and
cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration unless sold in accordance
with the resale restrictions of Rule 144 under the 1933 Act. If the Holding
Company meets the current public information requirements under Rule 144, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating - outstanding, satisfactory, needs to
improve, and substantial noncompliance - and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The OTS has designated the Bank's record of meeting community credit
needs as satisfactory.
TAXATION
Federal Taxation
Historically, savings associations, such as the Bank, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, the Bank can no longer use the percentage of taxable income
method of computing its allowable tax bad debt deduction and instead must
compute its allowable deduction using the experience method. As a result of the
repeal of the percentage of taxable income method, reserves taken after 1987
using the percentage of taxable income method generally must be included in
future taxable income over a six-year period, although a two-year delay may be
permitted for institutions meeting a residential mortgage loan origination test.
In addition, the pre-1988 reserve, for which no deferred taxes have been
recorded, will not have to be recaptured into income unless (i) the Bank no
longer qualifies as a bank under the Code or (ii) excess dividends or
distributions are paid out by the Bank.
Depending on the composition of its items of income and expense, a
savings association may be subject to the alternative minimum tax. A savings
association must pay an alternative minimum tax equal to the amount (if any) by
which 20% of alternative minimum taxable income ("AMTI"), as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain tax preferences and
adjustments, including depreciation deductions in excess of that allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and
75% of the excess of adjusted current earnings over AMTI (before this adjustment
and before any alternative tax net operating loss). AMTI may be reduced only up
to 90% by net operating loss carryovers, but alternative minimum tax paid can be
credited against regular tax due in later years.
For federal income tax purposes, the Bank has been reporting its income
and expenses on the accrual method of accounting. The Bank's federal income tax
returns have not been audited in recent years.
The Holding Company and the Bank do not anticipate electing to file a
consolidated federal income tax return for 1999. Accordingly, the Bank will be
taxed separately on its earnings.
The Holding Company is taxed as an ordinary corporation.
State Taxation
The Bank and the Holding Company are subject to Indiana's Financial
Bank Tax ("IFBT"), which is imposed at a flat rate of 8.5% on "adjusted gross
income." "Adjusted gross income," for purposes of IFBT, begins with taxable
income as defined by Section 63 of the Code and, thus, incorporates federal tax
law to the extent that it affects the computation of taxable income. Federal
taxable income is then adjusted by several Indiana modifications. Other
applicable state taxes include generally applicable sales and use taxes plus
real and personal property taxes. The Bank's state income tax returns have not
been audited in recent years.
Item 2. Properties.
The following table provides certain information with respect to the
Bank's offices as of December 31, 1999.
Net Book Value
of Property,
Year Furniture, Approximate
Opened or Fixtures and Square
Description and Address Acquired Equipment Footage
- ----------------------- -------- --------- -------
(Dollars in thousands)
Locations in Madison, Indiana
Downtown Offices:
233 E. Main Street.............. 1952 $233 9,110
Drive-Through Branch:
401 E. Main Street.............. 1984 48 375
Hilltop Locations:
303 Clifty Drive................ 1973 525 3,250
430 Clifty Drive................ 1983 605 6,084
Wal-mart Banking Center
567 Ivy Tech Drive.............. 1995 5 517
Locations in Hanover, Indiana
10 Medical Plaza Drive.......... 1995 175 656
The following table provides certain information with respect to real
estate owned by the Bank as of December 31, 1999. These properties were acquired
by the Bank for future expansion of its banking operations.
Address
----------------------
225 E. Main Street
Madison, Indiana 47250
227 E. Main Street
Madison, Indiana 47250
The Bank owns computer and data processing equipment which is used for
transaction processing, loan origination, and accounting. The net book value of
electronic data processing equipment owned by the Bank was approximately
$236,000 at December 31, 1999.
The Bank operates six automated teller machines ("ATMs"), one at each
office location and one at Hanover College. The Bank's ATMs participate in the
MAC(R) and MagicLine(R) networks.
Prior to the effective date of the Merger, the Bank had contracted for
the data processing and reporting services of BISYS, Inc. in Houston, Texas.
Following the Merger, the Bank performs these services in-house.
Item 3. Legal Proceedings.
Neither the Holding Company nor the Bank is a party to any pending
legal proceedings, other than routine litigation incidental to the Holding
Company's or the Bank's business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended December 31, 1999.
Item 4.5. Executive Officers of the Registrant.
The executive officers of the Holding Company are identified below. The
executive officers of the Bank are elected annually by the Holding Company's
Board of Directors.
Position with the Position with
Name Holding Company the Bank
- --------------------------------------------------------------------------------
Matthew P. Forrester President and Chief President and Chief
Executive Officer Executive Officer
Lonnie D. Collins Secretary Secretary
Larry C. Fouse Vice President of Finance Vice President of Finance
Matthew P. Forrester (age 43) has served as the Bank and Holding
Company President and Chief Executive Officer since October, 1999. Prior to that
Mr. Forrester served as the Chief Financial Officer for Home Loan Bank in Fort
Wayne, Indiana and Senior Vice President and Treasurer for its holding company,
Home Bancorp. Prior to joining Home Loan Bank Mr. Forrester was an examiner for
the Indiana Department of Financial Institutions.
Lonnie D. Collins (age 51) has served as Secretary of the Bank since
September, 1994, and as Secretary of the Holding Company since 1996. Mr. Collins
has also practiced law since October, 1975 and has served as the Bank's outside
counsel since 1980.
Larry C. Fouse (age 54) has served as the Holding Company's Controller
since 1997. From 1993 to 1997, he served as the Chief Financial Officer and
Controller of Citizens, and from 1989 to 1993, served as Citizens' Vice
President and Operations Officer.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Holding Company's common stock, without par value ("Common Stock"),
is quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), Small Cap Market, under the symbol "RIVR." The Holding
Company's shares began to trade on December 20, 1996. The high and low bid
prices for the 1999 fiscal year were $15.75 and $11.50, respectively. Since the
Holding Company has no independent operation or other subsidiaries to generate
income, its ability to accumulate earnings for the payment of cash dividends to
its shareholders directly depends upon the ability of the Bank to pay dividends
to the Holding Company and upon the earnings on its investment securities.
Under current federal income tax law, dividend distributions to the
Holding Company, to the extent that such dividends paid are from the current or
accumulated earnings and profits of the Bank (as calculated for federal income
tax purposes), will be taxable as ordinary income to the Holding Company and
will not be deductible by the Bank. Because the Holding Company and the Bank do
not file a consolidated federal income tax return, however, the dividends will
be eligible for a 100% dividends-received deduction by the Holding Company. Any
dividend distributions in excess of current or accumulated earnings and profits
will be treated for federal income tax purposes as a distribution from the
Bank's accumulated bad debt reserves, which could result in increased federal
income tax liability for the Bank. Moreover, the Bank may not pay dividends to
the Holding Company if such dividends would result in the impairment of the
liquidation account established in connection with the Conversion.
Generally, there is no OTS regulatory restriction on the payment of
dividends by the Holding Company unless there is a determination by the Director
of the OTS that there is reasonable cause to believe that the payment of
dividends constitutes a serious risk to the financial safety, soundness or
stability of the Bank. The FDIC also has authority under current law to prohibit
a bank from paying dividends if, in its opinion, the payment of dividends would
constitute an unsafe or unsound practice in light of the Bank's financial
condition. Indiana law, however, would prohibit the Holding Company from paying
a dividend, if, after giving effect to the payment of that dividend, the Holding
Company would not be able to pay its debts as they become due in the usual
course of business or the Holding Company's total assets would be less than the
sum of its total liabilities plus preferential rights of holders of preferred
stock, if any.
The Holding Company paid dividends to its shareholders in 1999 in the
amount of $.265 per outstanding share of common stock.
Item 6. Selected Consolidated Financial Data.
The information required by this item is incorporated by reference to
the material under the heading "Selected Consolidated Financial Data" on pages 4
and 5 of the Holding Company's 1999 Shareholder Annual Report (the "Shareholder
Annual Report").
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The information required by this item is incorporated by reference to
pages 6 through 18 of the Shareholder Annual Report.
Item 7A. Quantitative and Qualitative Analysis of Financial Condition and
Results of Operation.
The information required by this item is incorporated by reference to
pages 13 through 15 of the Shareholder Annual Report.
Item 8. Financial Statements and Supplementary Data.
The Holding Company's Consolidated Financial Statements and Notes
thereto contained on pages 19 through 50 in the Shareholder Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There were no such changes or disagreements during the applicable
period.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 through 4 and page 9 of the Holding
Company's Proxy Statement for its Annual Shareholder Meeting to be held April
19, 2000 (the "2000 Proxy Statement"). Information concerning the Registrant's
executive officers is included in Item 4.5 in Part I of this report.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 5 through 8 of the 2000 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
pages 2 through 3 of the 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
pages 8 and 9 of the 2000 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
Annual Report
Financial Statements Page No.
Independent Auditor's Report.....................................19
Consolidated Statements of Financial Condition
at December 31, 1999, and 1998...................................20
Consolidated Statements of Earnings for the
Years Ended December 31, 1999, 1998, and 1997....................22
Consolidated Statements of Comprehensive Income for the Year
Ended December 31, 1999, 1998, 1997..............................23
Consolidated Statements of Shareholders'
Equity for the Years Ended December 31,
1999, 1998, and 1997.............................................24
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997..........................25
Notes to Consolidated Financial Statements.......................27
(b) Reports on Form 8-K.
The Holding Company filed no reports on Form 8-K during the quarter
ended December 31, 1999.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index on page E-1.
(d) All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or
related notes.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
RIVER VALLEY BANCORP
Date: March 23, 2000 By: /s/ Matthew P. Forrester
-----------------------------------
Matthew P. Forrester, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 23rd day of March, 2000.
Signatures Title Date
---------- -------------- --------------
(1) Principal Executive Officer:
/s/ Matthew P. Forrester )
--------------------------- )
Matthew P. Forrester President and )
Chief Executive Officer )
)
)
(2) Principal Financial and )
Accounting Officer: )
)
)
/s/ Larry C. Fouse Treasurer )
--------------------------- )
Larry C. Fouse )
)
) March 23, 2000
)
(3) The Board of Directors: )
)
)
/s/ Robert W. Anger Director )
--------------------------- )
Robert W. Anger )
)
)
/s/ Jonnie L. Davis Director )
--------------------------- )
Jonnie L. Davis )
)
)
/s/ Matthew P. Forrester Director )
--------------------------- )
Matthew P. Forrester )
)
)
)
/s/ Michael J. Hensley Director )
--------------------------- )
Michael J. Hensley )
)
)
/s/ Earl W. Johann Director ) March 23, 2000
--------------------------- )
Earl W. Johann )
)
)
/s/ Fred W. Koehler Director )
--------------------------- )
Fred W. Koehler )
)
EXHIBIT INDEX
Exhibit No. Description Page
2 Agreement and Plan of Reorganization is incorporated by
reference to Exhibit 2 to the Registrant's Form 10-K for
the fiscal year ending December 31, 1997.
3(1) Registrant's Articles of Incorporation are incorporated
by reference to Exhibit 3(1) to the Registration
Statement on Form S-1 (Registration No. 333-05121) (the
"Registration Statement")
(2) Registrant's Amended Code of By-Laws are incorporated by
reference to Exhibit 3(2) to the Registrant's Form 10-K
for the fiscal year ending December 31, 1997
10(1) Employment Agreement between River Valley Financial Bank
and Matthew P. Forrester is included as Exhibit 10(5)
hereto
(2) Director Deferred Compensation Master Agreement is
incorporated by reference to Exhibit 10(8) to the
Registration Statement
(3) Director Deferred Compensation Joinder Agreement --
Jerry D. Allen is incorporated by reference to Exhibit
10(9) to the Registration Statement
(4) Director Deferred Compensation Joinder Agreement --
Robert W. Anger is incorporated by reference to Exhibit
10(10) to the Registration Statement
(5) Director Deferred Compensation Joinder Agreement -- Earl
W. Johann is incorporated by reference to Exhibit 10(12)
to the Registration Statement
(6) Director Deferred Compensation Joinder Agreement --
Frederick W. Koehler is incorporated by reference to
Exhibit 10(13) to the Registration Statement
(7) Director Deferred Compensation Joinder Agreement --
Michael Hensley is incorporated by reference to Exhibit
10(15) to the Registration Statement
(8) Special Termination Agreement between River Valley
Financial Bank, as successor to Madison First Federal
Savings and Loan Association and Robert W. Anger is
incorporated by reference to Exhibit 10(18) to the
Registration Statement
(9) Special Termination Agreement between River Valley
Financial Bank, as successor to Citizens National Bank
of Madison and Larry Fouse is incorporated by reference
to Exhibit 10(20) to the Registration Statement
(10) Special Termination Agreement between River Valley
Financial Bank, as successor to Citizens National Bank
of Madison and Mark Goley is incorporated by reference
to Exhibit 10(21) to the Registration Statement
(11) Exempt Loan and Share Purchase Agreement between Trust
under River Valley Bancorp Employee Stock Ownership Plan
and Trust Agreement and River Valley Bancorp is
incorporated by reference to Exhibit 10(22) to the
Registration Statement
(12) Special Termination Agreement between River Valley
Financial Bank, as successor to Citizens National Bank
of Madison and Robyne Hart
13 Shareholder Annual Report
21 Subsidiaries of the Registrant
27(1) Financial Data Schedule (Filed Electronically)