EXHIBIT 99
----------
River Valley Bancorp
P.O. Box 1590 Madison, Indiana 47250-0590 (812)273-4949 Fax - (812) 273-4944
To Our Shareholders, Customers, and Friends:
It is my pleasure to present to you River Valley Bancorp's sixth Annual Report
to Shareholders covering the year ending December 31, 2001.
The year of 2001 will always be defined by the events of September 11th. Our
lives have been scarred by those tragic events, but our souls have been lifted
by a new sense of patriotism and hope. America's well being was challenged, but
not our spirit. History will record the tragedy and the hatred of those events,
but the true newsmaker that we bore witness to was the rekindled spirit of
goodness. This renewal has transformed our nation, our people, and I am pleased
to say, our Company.
Our Company's own renewal is a process that began in 1999. I am proud to report
this commitment produced yet another record year for 2001. The Corporation has
not only prospered; it has positioned itself for continued growth and
profitability for the future. The Corporation has had solid balance sheet
growth, made strategic commitments in facilities and technology, and positioned
itself for meeting the needs of an expanded customer base. Through our
subsidiary, River Valley Financial Bank, we became our county's largest
financial institution, taking that century old distinction away from a bank that
is recognized as Indiana's oldest financial institution.
Operationally for the year ended December 31, 2001, net income was $1,976,000,
or basic earnings per share of $2.50, compared to $1,610,000, or $1.88 basic
earnings per share, reported in 2000. The return on average assets for fiscal
2001 was 1.09%; the return on average equity was 11.27%. For fiscal 2000 those
numbers were 1.05% and 9.45% respectively. The earnings per share reflected not
only stronger profitability, but prudent repurchase of outstanding shares. The
book value of shares outstanding as of December 31, 2001 was $22.21 compared to
$19.78 at December 31, 2000.
The Organization experienced good asset growth in fiscal 2001 led by strong loan
growth. Assets totaled $191.6 million as of December 31, 2001, an increase of
18.2%. Net loans, including loans held for sale, were $158.0 million, an
increase of $17.0 million from that recorded as of December 31, 2000, or a 12.1%
increase. Deposits also increased by $15.4 million, or 11.8% to $145.6 million
as of December 31, 2001.
In spite of the economic downturn reported in 2001, the Corporation diligently
controlled non-performing loans while providing adequate funding for its
allowance for loan losses. As of December 31, 2001, non-performing loans totaled
$690,000, or 0.36% of total assets, compared to 0.38% of total assets at
year-end 2000. The Corporation raised its loan loss reserve ratio to 1.25% of
total loans by providing $450,000 to allowances for loan losses in 2001, up from
the $227,000 provided for in 2000.
Your Corporation had another record year. We are proud of our accomplishments,
but most importantly, mindful of the realities of September 11th that say "what
we take for granted can hurt us." We thank you for your continued support and
patronage. May God continue to bless us all.
Respectfully Submitted,
/s/ Matthew P. Forrester
Matthew P. Forrester
President, CEO
River Valley Bancorp
BUSINESS OF RIVER VALLEY
River Valley Bancorp ("River Valley" or the "Corporation"), an Indiana
corporation, was formed in 1996 for the primary purpose of purchasing all of the
issued and outstanding common stock of River Valley Financial Bank (formerly
Madison First Federal Savings and Loan Association; hereinafter "River Valley
Financial" or the "Bank") in its conversion from mutual to stock form. The
conversion offering was completed on December 20, 1996, with the sale of
1,190,250 common shares at an initial offering price of $10.00 per share. On
December 23, 1996, the Corporation utilized approximately $3.0 million of the
net conversion proceeds to purchase 95.6% of the outstanding common shares of
Citizens National Bank of Madison ("Citizens") in a transaction that was
accounted for using the purchase method of accounting. River Valley Financial
and Citizens merged on November 20, 1997. Future references to River Valley,
River Valley Financial and Citizens are utilized herein, as the context
requires.
The activities of River Valley have been limited primarily to holding the stock
of the Bank. River Valley Financial was organized in 1875 under the laws of the
United States of America. River Valley Financial conducts operations from its
four full-service office locations in Jefferson County and offers a variety of
deposit and lending services to consumer and commercial customers in Jefferson
and surrounding counties. The Corporation is subject to regulation, supervision
and examination by the Office of Thrift Supervision of the U.S. Department of
Treasury (the "OTS"). River Valley Financial is subject to regulation,
supervision and examination by the OTS and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits in River Valley Financial are insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") of the
FDIC.
MARKET PRICE OF THE CORPORATION'S COMMON SHARES
AND RELATED SHAREHOLDER MATTERS
There were 809,951 common shares of River Valley Bancorp outstanding at February
19, 2002, held of record by 359 shareholders. The number of shareholders does
not reflect the number of persons or entities who may hold stock in nominee or
"street name." Since December of 1996, the Corporation's common shares have been
listed on The Nasdaq SmallCap Market ("Nasdaq"), under the symbol "RIVR".
Presented on the following page are the high and low sale prices for the
Corporation's common shares, as well as cash distributions paid thereon since
December 1999. Such sales prices do not include retail financial markups,
markdowns or commissions. Information relating to sales prices has been obtained
from Nasdaq.
MARKET PRICE OF THE CORPORATION'S COMMON SHARES
AND RELATED SHAREHOLDER MATTERS (CONTINUED)
Quarter Ended High Low Cash Distributions
2001
December 31, 2001 $20.70 $19.50 $0.150
September 30, 2001 21.07 17.72 0.125
June 30, 2001 18.00 16.02 0.125
March 31, 2001 17.00 15.19 0.100
2000
December 31, 2000 $16.00 $13.63 $0.100
September 30, 2000 14.25 12.88 0.085
June 30, 2000 13.00 10.44 0.085
March 31, 2000 12.63 10.25 0.075
1999
December 31, 1999 $12.63 $11.50 $0.075
September 30, 1999 14.38 13.00 0.065
June 30, 1999 14.75 12.25 0.065
March 31, 1999 15.75 13.13 0.060
The high and low sales prices for River Valley's common shares between December
31, 2001 and February 19, 2002 were $28.35 and $20.20, respectively.
Under OTS regulations applicable to converted savings associations, River Valley
Financial is not permitted to pay a cash dividend on its common shares if the
regulatory capital of River Valley Financial would, as a result of the payment
of such dividend, be reduced below the amount required for the liquidation
account (which was established for the purpose of granting a limited priority
claim on the assets of River Valley Financial, in the event of a complete
liquidation, to those members of River Valley Financial before the Conversion
who maintain a savings account at River Valley Financial after the Conversion)
or applicable regulatory capital requirements prescribed by the OTS.
Regulations of the OTS impose limitations on the payment of dividends and other
capital distributions by savings associations. The OTS recently amended its
capital distribution regulation in a final rule, which took effect on April 1,
1999. Because the Bank is a subsidiary of a savings and loan holding company, it
is required to file a notice with the OTS 30 days before making any capital
distributions to the Holding Company. It may also have to file an application
for approval of a proposed capital distribution with the OTS if the Bank is not
eligible for expedited treatment under the 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 Bank's net earnings for that year to date plus the Bank's retained net
earnings for the preceding two years. The Bank must also file an application for
approval of a proposed capital distribution if, following the proposed
distribution, the Bank 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 OTS or the FDIC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the consolidated
financial condition, earnings, and other data regarding River Valley at the
dates and for the periods indicated.
Selected consolidated financial condition data: At December 31,
2001 2000 1999 1998 1997
Total amount of: (In thousands)
Assets $191,618 $162,130 $138,695 $138,369 $136,933
Loans receivable - net (1) 157,972 140,970 115,131 112,385 111,887
Cash and cash equivalents (2) 5,641 6,382 8,052 12,307 5,765
Mortgage-backed and related securities 831 1,918 4,209 5,986 8,978
Investment securities 16,822 5,329 5,230 1,283 4,272
Deposits 145,571 130,225 114,251 118,151 114,955
FHLB advances and other borrowings 26,500 13,450 6,500 270 2,000
Shareholders' equity- net 17,971 17,184 16,866 18,613 17,989
Summary of consolidated earnings data: Year Ended December 31,
2001 2000 1999 1998 1997
(In thousands, except share data)
Total interest income $ 13,084 $ 11,118 $ 9,734 $ 10,108 $ 10,362
Total interest expense 6,617 5,637 4,617 4,842 5,049
-------- -------- -------- -------- --------
Net interest income 6,467 5,481 5,117 5,266 5,313
Provision for losses on loans 450 227 140 275 304
-------- -------- -------- -------- --------
Net interest income after provision for
losses on loans 6,017 5,254 4,977 4,991 5,009
Other income 1,922 1,053 844 1,188 1,134
General, administrative and other expense 4,706 3,764 4,080 4,093 4,003
-------- -------- -------- -------- --------
Earnings before income tax expense 3,233 2,543 1,741 2,086 2,140
Income tax expense 1,257 933 702 833 830
-------- -------- -------- -------- --------
Net earnings $ 1,976 $ 1,610 $ 1,039 $ 1,253 $ 1,310
======== ======== ======== ======== ========
Basic earnings per share $ 2.50 $ 1.88 $ 1.03 $ 1.13 $ 1.20
======== ======== ======== ======== ========
Diluted earnings per share $ 2.44 $ 1.87 $ 1.03 $ 1.12 $ 1.18
======== ======== ======== ======== ========
- --------------------------------
(1) Includes loans held for sale.
(2) Includes certificates of deposit in other financial institutions.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND
OTHER DATA (CONTINUED)
Selected financial ratios and other data:
Year ended December 31,
2001 2000 1999 1998 1997
Interest rate spread during period 3.58% 3.47% 3.63% 3.66% 3.64%
Net yield on interest-earning assets (1) 3.80 3.79 3.94 4.08 4.00
Return on assets (2) 1.09 1.05 0.76 0.92 0.99
Return on equity (3) 11.27 9.45 5.87 6.85 7.53
Equity to assets (4) 9.38 10.60 12.16 13.45 13.12
Average interest-earning assets to
average interest-bearing liabilities 105.94 108.02 108.81 111.07 109.56
Non-performing assets to total assets (4) 0.36 0.38 0.62 1.47 0.58
Allowance for loan losses to total
loans outstanding (4) 1.25 1.21 1.28 1.33 1.13
Allowance for loan losses to
non-performing loans (4) 285.80 274.07 164.41 75.78 177.72
Net charge-offs to average total
loans outstanding 0.12 0.04 0.08 0.06 0.20
General, administrative and other expense
to average assets (5) 2.60 2.47 2.97 3.01 2.83
Dividend payout ratio 20.49 18.45 25.73 19.64 11.02
Number of full service offices (4) 4 5 5 5 6
- ---------------------------------------
(1) Net interest income divided by average interest-earning assets.
(2) Net earnings divided by average total assets.
(3) Net earnings divided by average total equity.
(4) At end of period.
(5) General, administrative and other expense divided by average total
assets.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
As discussed previously, River Valley was incorporated for the primary purpose
of owning all of the outstanding shares of River Valley Financial. As a result,
the discussion that follows focuses on River Valley Financial's financial
condition and results of operations for the periods presented. The following
discussion and analysis of the financial condition as of December 31, 2001 and
River Valley's results of operations for periods prior to that date should be
read in conjunction with the consolidated financial statements and the notes
thereto, included elsewhere in this Annual Report.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. River Valley's operations and River Valley's actual results could
differ significantly from those discussed in the forward-looking statements.
Some of the factors that could cause or contribute to such differences are
discussed herein but also include, but are not limited to, changes in the
economy and interest rates in the nation and River Valley's general market area.
The forward-looking statements contained herein include those with respect to
the following matters:
1. Management's determination as to the amount and adequacy of the loan
loss allowance;
2. The effect of changes in interest rates on financial condition and
results of operations;
3. The effects of proposed legislation that would eliminate the federal
thrift charter and the separate federal regulation of thrifts; and
4. Management's opinion as to the effect of recent accounting
pronouncements on River Valley's consolidated financial position and
results of operations.
Discussion of Changes in Financial Condition from December 31, 2000 to December
31, 2001
At December 31, 2001, River Valley's consolidated assets totaled $191.6 million,
representing an increase of $29.5 million over the December 31, 2000 total. This
increase in assets was funded in part by a $15.4 million increase in deposits
and a $13.1 million increase in borrowings. Deposits increased to $145.6 million
as of December 31, 2001 from $130.2 million while borrowings increased from
$13.5 million as of December 31, 2000 to $26.5 million as of December 31, 2001.
Shareholders' equity was $18.0 million as December 31, 2001, a net increase of
$0.8 million from $17.2 million as of December 31, 2000. The modest increase in
equity was attributed primarily to net income of $2.0 million offset by the
repurchase of approximately $1.2 million or 64,293 shares of common stock.
Liquid assets (i.e., cash, federal funds sold, interest-earning deposits and
certificates of deposit) decreased by $0.7 million from December 31, 2000 levels
to a total of $5.6 million at December 31, 2001. Investment securities totaled
$17.7 million at December 31, 2001, an increase of $11.5 million over December
31, 2000. Mortgage-backed securities decreased by $1.1 million, to a total of
$831,000 at December 31, 2001, primarily due to principal repayments and the
sale of several issues.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from December 31, 2000 to December
31, 2001 (continued)
Loans receivable, including loans held for sale, totaled $158.0 million at
December 31, 2001, an increase of $17.0 million, or 12.1%, over the $141.0
million total at December 31, 2000. The increase resulted primarily from loan
originations during 2001 of $147.9 million, which were partially offset by
principal repayments of $85.3 million and sales of $46.1 million. Loan
origination volume for 2001 exceeded that of 2000 by $62.7 million, or 73.6%.
There were significant increases in all types of lending with the exception of
land and multi-family loans. The volume of loan sales into the secondary
mortgage market increased during 2001 from 2000 volume by $43.5 million, due in
large part to low interest rates.
River Valley's consolidated allowance for loan losses totaled approximately $2.0
million for the year ended December 31, 2001, which represented 1.25% of total
loans at that date. The allowance for loan losses totaled $1.7 million, or 1.21%
of total loans for the period ended December 31, 2000. Nonperforming loans
(defined as loans delinquent greater than 90 days and loans on nonaccrual
status) totaled $0.7 million and $0.6 million at December 31, 2001 and 2000,
respectively. The consolidated allowance for loan losses represented 286% and
274% of nonperforming loans at December 31, 2001 and 2000, respectively.
Although management believes that its allowance for loan losses at December 31,
2001 was adequate based upon the available facts and circumstances, there can be
no assurance that additions to such allowance will not be necessary in future
periods, which could negatively affect the Corporation's results of operations.
Deposits increased by $15.3 million, or 11.8%, to a total of $145.6 million at
December 31, 2001, compared to $130.2 million total at December 31, 2000.
Savings and demand deposits increased by $9.6 million, or 18.2%, during 2001,
while certificates of deposit increased by $5.7 million, or 7.4%. These
fluctuations in balances were attributed to competitive rates, marketing and
good community public relations.
Advances from the Federal Home Loan Bank and other borrowed money increased by
$13.0 million from the total at December 31, 2000, as current period borrowings
of $26.5 million were used in part to fund loan growth.
Shareholders' equity totaled $18.0 million at December 31, 2001, an increase of
$0.8 million from the $17.2 million total at December 31, 2000. The increase
resulted primarily from net income of $2.0 million, which was partially offset
by repurchases of shares totaling $1.2 million and cash dividends of $388,000.
This net increase also includes a net increase of $296,000 related to stock
benefit plans, proceeds of $68,000 from the exercise of stock options and
unrealized gain on securities available for sale of $17,000.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 31, 2001 and
2000
General
River Valley's net earnings for the year ended December 31, 2001, totaled $1.98
million, an increase of $366,000, or 22.7%, from net earnings reported in 2000.
The increase in net earnings in the 2001 period was primarily attributable to an
increase in net interest income of $986,000 and an increase of $869,000 in other
income, while general, administrative and other expense were $942,000 higher in
the current period. The provision for federal income taxes was $324,000 more in
fiscal year 2001 as compared to the same period in 2000. The provision for loan
losses in 2001 was $450,000 as compared to $227,000 in 2000.
Net Interest Income
Total interest income for the year ended December 31, 2001, amounted to $13.1
million, an increase of $2.0 million, or 18.0%, from the 2000 total, reflecting
the effects of higher average balances on interest earning assets. The average
balance of interest-earning assets outstanding year-to-year increased by $25.2
million and the yield on those assets increased from an average yield of 7.68%
in 2000 to 7.70% in 2001. Interest income on loans and mortgage-backed
securities totaled $12.3 million for 2001, an increase of approximately $1.8
million, or 16.9%, from 2000. Interest income on investments, FHLB stock and
interest-earning deposits increased by $183,000, or 32.6%, due to higher average
balances on those investments.
Interest expense on deposits increased by $524,000, or 10.2%, to a total of $5.7
million for the year ended December 31, 2001, due primarily to higher average
balances. The cost of deposits decreased from 4.1% in 2000 to 3.9% in fiscal
2001. Interest expense on borrowings totaled $956,000 for the year ended
December 31, 2001, an increase of $456,000 from 2000. The increase resulted
primarily from higher average borrowings year-to-year, partially offset by a 17
basis point decrease in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased during 2001 by $986,000, or 18.0%, compared to
2000. The interest rate spread increased by 11 basis points for 2001, to 3.58%
from 3.47% in the 2000 period, while the net interest margin amounted to 3.80%
in 2001 and 3.79% in 2000.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by River
Valley Financial, the status of past due principal and interest payments,
general economic conditions, particularly as such conditions relate to the
primary market area, and other factors related to the collectibility of the loan
portfolio. As a result of such analysis, management recorded a $450,000
provision for losses on loans in 2001, an increase of $223,000, or 98.2%,
compared to the $227,000 provision recorded in 2000. The current period
provision generally reflects growth in the loan portfolio, coupled with a change
in the loan mix; less 1-4 family and more commercial/non-residential.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 31, 2001 and
2000 (continued)
Nonperforming loans for the period ended December 31, 2001 were $690,000, an
increase of approximately $69,000 from the $621,000 recorded as of fiscal year
ended 2000. Net charge-offs amounted to $180,000 in 2001, compared to $47,000 in
2000. While management believes that the allowance for losses on loans is
adequate at December 31, 2001, based upon available facts and circumstances,
there can be no assurance that the loan loss allowance will be adequate to cover
losses on nonperforming assets in the future.
Other Income
Other income amounted to $1.9 million for the year ended December 31, 2001, an
increase of $869,000, or 82.5%, compared to 2000, due primarily to increases in
net gains on loan sales and service fees and charges. Net gains on loan sales
increased from $44,000 in 2000 to $772,000 in 2001, an increase of $728,000. The
volume of loan sales increased from $2.6 million in 2000 to $46.1 million in
2001.
General, Administrative and Other Expense
General, administrative and other expense totaled $4.7 million for the year
ended December 31, 2001, an increase of $942,000 over the 2000 total. Employee
compensation and benefits increased by $266,000 in fiscal 2001 as compared to
2000 primarily from cost of living, benefit expense and increase in ESOP
expenses. Occupancy and equipment expense increased by $44,000 in fiscal 2001 as
compared to 2000 due to higher depreciation costs. Other operating expenses
increased by $632,000 primarily from increases in advertising, data processing,
donations and mortgage servicing. The corporation also made a $100,000 donation
to a local school system in exchange for federal tax credits in future years.
Income Taxes
The provision for income taxes increased by $324,000, or 34.7 %, for the year
ended December 31, 2001, as compared to 2000. The effective tax rates were 38.8%
and 36.7% for the years ended December 31, 2001 and 2000, respectively.
Comparison of Results of Operations for the Years Ended December 31, 2000 and
1999
General
River Valley's net earnings for the year ended December 31, 2000 totaled $1.61
million, an increase of $571,000 or 55.0%, from net earnings reported in 1999.
The increase in net earnings in the 2000 period was primarily attributable to an
increase in net interest income of $364,000 and an increase of $209,000 in other
income. General, administrative and other expense for the year was marginally
lower. The provision for federal income taxes increased by $231,000 in fiscal
year 2000 as compared to the same period in 1999. The provision for loan losses
in 2000 was $227,000 as compared to $140,000 in 1999.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 2000 and 1999
(continued)
Net Interest Income
Total interest income for the year ended December 31, 2000, amounted to $11.1
million, an increase of $1.4 million, or 14.20%, from the 1999 total, reflecting
the effects of higher average balances on average assets. While the average
balance of interest-earning assets outstanding year-to-year increased by $14.7
million, and the yield on those assets increased from an average yield of 7.49%
in 1999 to 7.68% in 2000. Interest income on loans and mortgage-backed
securities totaled $10.6 million for 2000, an increase of approximately $1.5
million, or 16.8%, from 1999. Interest income on investments, FHLB stock and
interest-earning deposits decreased by $132,000, or 19.0%, due to a decrease in
the average balance outstanding.
Interest expense on deposits increased by $663,000, or 14.8%, to a total of $5.2
million for the year ended December 31, 2000, due primarily to a 28 basis point
increase in the weighted average cost of deposits. The cost of deposits rose
from 3.82% in 1999 to 4.10% in fiscal 2000. Interest expense on borrowings
totaled $500,000 for the year ended December 31, 2000 an increase of $357,000
from 1999. The increase resulted primarily from higher average borrowings
year-to-year, partially offset by a 75 basis point decrease in average cost.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased during 2000 by $364,000, or 7.1%, compared to
1999. The interest rate spread decreased by 16 basis points for 2000, to 3.47%
from 3.63% in the 1999 period, while the net interest margin amounted to 3.79 %
in 2000 and 3.94% in 1999.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by River
Valley Financial, the status of past due principal and interest payments,
general economic conditions, particularly as such conditions relate to the
primary market area, and other factors related to the collectibility of the loan
portfolio. As a result of such analysis, management recorded a $227,000
provision for losses on loans in 2000, an increase of $87,000 or 62.1% compared
to the $140,000 provision recorded in 1999. The current period provision
generally reflects growth in the loan portfolio, coupled with a decrease in the
level of nonperforming loans year-to-year. Nonperforming loans for the period
ended December 31, 2000 were $621,000, a reduction of approximately $236,000
from the $857,000 recorded as of fiscal year ended 1999. Net charge-offs
amounted to $47,000 in 2000, compared to $95,000 in 1999. While management
believes that the allowance for losses on loans was adequate at December 31,
2000, based upon available facts and circumstances, there can be no assurance
that the loan allowance will be adequate to cover losses on nonperforming assets
in the future.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Years Ended December 31, 2000 and
1999 (continued)
Other Income
Other income amounted to $1.1 million for the year ended December 31, 2000, an
increase of $209,000, or 24.8%, compared to 1999, due primarily to a $208,000
increase in service fees and charges.
General, Administrative and Other Expense
General, administrative and other expense totaled $3.8 million for the year
ended December 31, 2000, a decrease of $316,000 over the 1999 total. Employee
compensation and benefits decreased by $137,000 or 6.3% in fiscal 2000 as
compared to 1999 primarily from the decrease in staffing levels. Included in the
1999 compensation expense was $150,000 in non-recurring expense associated with
a severance agreement in a managerial restructuring completed in the third
quarter of fiscal 1999. Occupancy and equipment expense increased by $4,000 or
0.1% in fiscal 2000 primarily from charges associated with equipment upgrades.
All other operating expenses decreased by $183,000 or 13.5% due to decreases in
a variety of expense categories and were not attributable to any one item.
Income Taxes
The provision for income taxes increased by $231,000, or 32.9 %, for the year
ended December 31, 2000, as compared to 1999. The effective tax rates were 36.7%
and 40.3% for the years ended December 31, 2000 and 1999, respectively.
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table presents certain information relating to River Valley's
average balance sheet and reflects the average yield on interest-earning assets
and the average cost of interest-bearing liabilities for the periods indicated.
Such yields and costs are derived by dividing annual income or expense by the
average daily balance of interest-earning assets or interest-bearing
liabilities, respectively, for the years presented. Average balances are derived
from daily balances, which include nonaccruing loans in the loan portfolio.
Year ended December 31,
2001 2000 1999
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits $ 5,042 $ 185 3.67% $ 4,005 $ 240 5.99% $ 6,878 $ 342 4.97%
Other securities (1) 8,480 481 5.67 3,580 243 6.79 5,347 276 5.16
Mortgage-backed and related
securities 1,259 73 5.80 2,976 192 6.45 5,051 301 5.96
Loans receivable (2) 154,171 12,267 7.96 133,255 10,365 7.78 111,794 8740 7.82
FHLB stock 1,055 78 7.39 943 78 8.27 943 75 7.95
--------- ------ -------- ------ ---------- ------
Total interest-earning assets 170,007 13,084 7.70 144,759 11,118 7.68 130,013 9,734 7.49
Non-interest earning assets, ------ ------
net of allowance for loan losses 10,922 7,859 7,309
--------- -------- ----------
Total assets $ 180,929 $152,618 $ 137,322
========= ======== ==========
Liabilities/shareholder equity
Interest-bearing liabilities:
Savings deposits $ 32,108 1,006 3.13 $ 32,906 1,185 3.60 $ 34,250 1,220 3.56
Interest bearing demand (5) 26,719 330 1.24 24,265 392 1.62 23,430 372 1.59
Certificates of deposit 84,262 4,325 5.13 68,026 3,560 5.23 59,578 2,882 4.84
FHLB advances and other borrowings 17,385 956 5.50 8,813 500 5.67 2,228 143 6.42
--------- ------ ------ ------
Total interest-bearing liabilities 160,474 6,617 4.12 134,010 5,637 4.21 119,486 4,617 3.86
Other liabilities 2,915 ------ 1,561 ------ 347 ------
--------- -------- ----------
Total liabilities 163,389 135,571 119,833
Total equity 17,540 17,047 17,489
--------- -------- ----------
Total liabilities and equity $ 180,929 $152,618 $ 137,322
========= ======== ==========
Net interest earning assets $ 9,533 $ 10,749 $ 10,527
========= ======== ==========
Net interest income $6,467 $ 5,481 $5,117
====== ======= ======
Interest rate spread (3) 3.58% 3.47% 3.63%
Net yield on weighted average
interest-earning assets (4) 3.80% 3.79% 3.94%
Average interest-earning assets to
average Interest-bearing liabilities 105.94% 108.02% 108.81%
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process plus loans held for sale.
(3) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated.
(5) Includes Non-Interest DDA of $9,985, $8,512, and $8,113.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table
The following table describes the extent to which changes in interest rates and
changes in volume of interest-related assets and liabilities have affected River
Valley's interest income and expense during the years indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume), and (iii) total changes in rate and volume.
The combined effects of changes in both volume and rate, which cannot be
separately identified, have been allocated proportionately to the change due to
volume and the change due to rate:
Year ended December 31,
2001 vs. 2000 2000 vs. 1999
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest-earning assets:
Interest-earning deposits and other $ 64 $ (119) $ (55) $ (173) $ 74 $ (99)
Investment securities 284 (46) 238 (106) 73 (33)
Mortgage-backed and related securities (101) (18) (119) (132) 23 (109)
Loans receivable, net 1,659 243 1,902 1,670 (45) 1,625
------- ------ ------- ------- ------- -------
Total 1,906 60 1,966 1,259 125 1,384
------- ------ ------- ------- ------- -------
Interest-bearing liabilities:
Deposits 713 (189) 524 314 349 663
FHLB advances and other borrowings 472 (16) 456 375 (18) 357
------- ------ ------- ------- ------- -------
Total 1,185 (205) 980 689 331 1,020
------- ------ ------- ------- ------- -------
Net change in interest income $ 721 $ 265 $ 986 $ 570 $ (206) $ 364
======= ======= ======= ======= ======= =======
Asset and Liability Management
Like other financial institutions, River Valley Financial is subject to interest
rate risk to the extent that interest-earning assets re-price differently than
interest-bearing liabilities. As part of its effort to monitor and manage
interest rate risk, River Valley Financial is using the Net Portfolio Value
"NPV") methodology adopted by the OTS as part of its capital regulations.
Although River Valley Financial is not subject to the NPV regulation because
such regulation does not apply to institutions with less than $300 million in
assets and risk-based capital in excess of 12%, the application of the NPV
methodology can illustrate River Valley Financial's degree of interest rate
risk.
Presented on the following table is an analysis of River Valley Financial's
interest rate risk, as of December 31, 2001, (the latest information available)
and December 31, 2000, as measured by changes in NPV for an instantaneous and
sustained parallel shift of 100 through 300 basis points in market interest
rates.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
Generally, NPV is more sensitive to rising rates than declining rates. Such
difference in sensitivity occurs principally because, as rates rise, a bank's
assets re-price slower than the deposits that fund them. As a result, in a
rising interest rate environment, the amount of interest a bank would receive on
loans would increase as loans are slowly prepaid and new loans at higher rates
are made. Moreover, the interest the bank would pay on deposits would increase,
but generally slower than the bank's ability to re-price its interest-earning
assets. However, River Valley Financial Bank has addressed some of these issues,
which has generally reduced its overall exposure to interest rate risk.
As of December 31, 2001
(Dollars in thousands)
Change in
Interest Rates Estimated Amount
(basis points) NPV of Change Percent
+300 $ 22,166 $ (3,131) (12)%
+200 23,416 (1,881) (7)
+100 24,376 (921) (4)
- ------- 25,297 --------
- -100 25,957 661 3
- -200 (1) ------ -------- ------
- -300 (1) ------ -------- ------
As of December 31, 2000
(Dollars in thousands)
Change in
Interest Rates Estimated Amount
(basis points) NPV of Change Percent
+300 $ 17,112 $ (1,285) (7)%
+200 17,898 (499) (3)
+100 18,309 (88) 0
- 18,397 ------- ------
- -100 18,296 (101) (1)
- -200 19,025 628 3
- -300 20,294 1,897 10
(1) At December 31, 2001, the OTS did not provide information as to interest
rate risk for 200 and 300 point decreases.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of re-pricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
Liquidity and Capital Resources
The Corporation's principal sources of funds are deposits, loan and
mortgage-backed securities repayments, maturities of securities, borrowings and
other funds provided by operations. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and loan and
mortgage-backed securities prepayments are more influenced by interest rates,
general economic conditions and competition. The Corporation maintains
investments in liquid assets based upon management's assessment of (1) the need
for funds, (2) expected deposit flows, (3) the yield available on short-term
liquid assets and (4) the objectives of the asset/liability management program.
The Financial Regulatory Relief and Economic Efficiency Act of 2000, which was
signed into law on December 27, 2000, repealed the former statutory requirement
that all savings associations maintain an average daily balance of liquid assets
in a minimum amount of not less than 4% or more than 10% of their withdrawable
accounts plus short-term borrowings. The OTS adopted an interim final rule in
March 2001 that implemented this revised statutory requirement, although savings
associations remain subject to the OTS regulation that requires them to maintain
sufficient liquidity to ensure their safe and sound operation. At December 31,
2001, River Valley Financial Bank had commitments to originate loans totaling
$7.0 million and in addition, had undisbursed loans in process, unused lines of
credit and standby letters of credit totaling $10.3 million. At such date, River
Valley Financial Bank had $2.6 million in commitments to sell loans and no
outstanding commitment to purchase loans. The Corporation considers River Valley
Financial Bank's liquidity and capital resources sufficient to meet outstanding
short- and long-term needs.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of the funds provided by or used in the Corporation's operating,
investing and financing activities. These activities are summarized below for
the years ended December 31, 2001, 2000 and 1999:
Year ended December 31,
2001 2000 1999
(In thousands)
Cash flows from operating activities $ 756 $ 2,028 $ 5,346
Cash flows from investing activities:
Purchase of securities (19,262) (7,949) (21,537)
Proceeds from maturities of securities 5,204 8,297 19,399
Proceeds from sales of securities 3,689 2,002 -------
Net loan (originations) repayments (15,078) (26,165) (6,673)
Other (3,079) (1,087) (121)
Cash flows from financing activities:
Net increase (decrease) in deposits 15,346 15,974 (3,900)
Net increase (decrease) in borrowings 13,050 6,950 6,230
Purchase of stock (1,182) (1,367) (2,724)
Other (185) (353) (275)
--------- --------- ---------
Net increase (decrease) in cash and cash
Equivalents $ (741) $ (1,670) $ (4,255)
========= ========= =========
River Valley Financial is required by applicable law and regulation to meet
certain minimum capital standards. Such capital standards include a tangible
capital requirement, a core capital requirement, or leverage ratio, and a
risk-based capital requirement.
The tangible capital requirement requires savings associations to maintain
"tangible capital" of not less than 1.5% of the association's adjusted total
assets. Tangible capital is defined in OTS regulations as core capital minus
intangible assets. "Core capital" is comprised of common shareholders' equity
(including retained earnings), noncumulative preferred stock and related
surplus, minority interests in consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual associations. OTS
regulations require savings associations to maintain core capital generally
equal to 4% of the association's total assets except those associations with the
highest examination rating and acceptable levels of risk.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
OTS regulations require that savings associations maintain "risk-based capital"
in an amount not less than 8% of "risk-weighted assets." Risk-based capital is
defined as core capital plus certain additional items of capital, which in the
case of River Valley Financial includes a general loan loss allowance of $2.0
million at December 31, 2001.
River Valley Financial exceeded all of its regulatory capital requirements at
December 31, 2001. The following table summarizes River Valley Financial's
regulatory capital requirements and regulatory capital at December 31, 2001:
OTS Requirement Actual Amount
Percent of Percent of Amount
Assets Amount Assets(1) Amount of Excess
(Dollars in thousands)
Tangible capital 1.50% $ 2,863 9.6% $ 18,398 $ 15,535
Core capital (2) 4.00% 7,635 9.6% 18,398 10,763
Risk-based capital 8.00% 11,627 13.9% 20,162 8,535
(1) Tangible and core capital levels are shown as a percentage of total assets;
risk-based capital levels are shown as a percentage of risk-weighted
assets.
(2) The OTS has proposed and is expected to adopt a core capital requirement
for savings associations comparable to that adopted by the Office of the
Comptroller of the Currency for national banks. The regulation requires
core capital of at least 3% of total adjusted assets for savings
associations that received the highest supervisory rating for safety and
soundness, and 4% to 5% for all other savings associations. River Valley
Financial is in compliance with this requirement.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effect of Recent Accounting Pronouncements
Accounting for a Business Combination. Statement of Financial Accounting
Standards ("SFAS") No. 141, requires that all business combinations should be
accounted for using the purchase method of accounting; use of the pooling method
is prohibited.
This statement requires that goodwill be initially recognized as an asset in the
financial statement and measured as the excess of the cost of an acquired entity
over the net of the amounts assigned to identifiable assets acquired and
liabilities assumed. In addition, SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.
The provisions of Statement No. 141 are effective for any business combination
that is initiated after June 30, 2001.
Accounting for Goodwill. Under the provisions of SFAS NO. 142, goodwill should
not be amortized but should be tested for impairment at the reporting unit
level. Impairment test of goodwill should be done on an annual basis unless
events or circumstances indicate impairment has occurred in the interim period.
The annual impairment test can be performed at any time during the year as long
as the measurement date is used consistently from year to year.
Impairment testing is a two step process, as outlined within the statement. If
the fair value of the goodwill is less than its carrying value, then the
goodwill is deemed impaired and a loss recognized. Any impairment loss
recognized as a result of completing the transitional impairment test should be
treated as a change in accounting principle and recognized in the first interim
period financial statements.
The provisions of Statement No. 142 would be effective for fiscal years
beginning after December 15, 2001. Early adoption would be permitted for
companies with a fiscal year beginning after March 15, 2001 provided that the
first quarter financial statements have not been previously issued. In all
cases, the statement must be adopted as of the beginning of a fiscal year.
Goodwill and intangible assets acquired in a transaction completed after June
30, 2001 but before this Statement is initially applied would be accounted for
in accordance with the amortization and nonamortization provisions of the
statement. The useful economic life of previously recognized intangible assets
should be reassessed upon adoption of the Statement, and remaining amortization
periods should be adjusted accordingly. Intangible assets deemed to have an
indefinite life would no longer be amortized.
The Company adopted these new accounting rules on January 1, 2002. As a result,
the Company will not amortize the goodwill it has recorded prior to June 30,
2001, but will make an annual assessment of any impairment in goodwill and, if
necessary, recognize an impairment loss at that time. The Company had goodwill
of $31,000 at December 31, 2001, and amortization of $6,000 for the year ended
December 31, 2001.
River Valley Bancorp
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Impact of Inflation and Changing Prices
The consolidated financial statements and notes thereto included herein have
been prepared in accordance with generally accepted accounting principles, which
require River Valley to measure financial position and results of operations in
terms of historical dollars with the exception of investment and mortgage-backed
securities available-for-sale, which are carried at fair value. Changes in the
relative value of money due to inflation or recession are generally not
considered.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
rate of inflation. While interest rates are greatly influenced by changes in the
rate of inflation, they do not change at the same rate or in the same magnitude
as the rate of inflation. Rather, interest rate volatility is based on changes
in the expected rate of inflation, as well as changes in monetary and fiscal
policies.
River Valley Bancorp
Accountants' Report and Consolidated Financial Statements
December 31, 2001 and 2000
Independent Accountants' Report
To the Stockholders and
Board of Directors
River Valley Bancorp
Madison, Indiana
We have audited the accompanying consolidated balance sheets of River Valley
Bancorp as of December 31, 2001 and 2000, and the related consolidated
statements of income, comprehensive income, stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
financial statements for the year ended December 31, 1999 were audited by other
auditors whose report dated February 16, 2000, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of River
Valley Bancorp as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2000.
/s/ BKD, LLP
BKD, LLP
Indianapolis, Indiana
February 15, 2002
River Valley Bancorp
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
-------------------------------------------
(In Thousands, Except Share Amounts)
Cash and due from banks $ 4,689 $ 3,361
Interest-bearing demand deposits 952 3,021
---------------- ----------------
Cash and cash equivalents 5,641 6,382
Investment securities - available for sale 17,653 7,247
Loans held for sale 2,638 --
Loans, net of allowance for loan losses of $1,972 and $1,702 155,334 140,970
Premises and equipment 5,379 2,817
Federal Home Loan Bank stock 1,250 943
Interest receivable 1,475 1,468
Other assets 2,248 2,303
---------------- ----------------
Total assets $ 191,618 $ 162,130
================ ================
Liabilities
Deposits
Noninterest-bearing $ 11,406 $ 9,170
Interest-bearing 134,165 121,055
---------------- ----------------
Total deposits 145,571 130,225
Borrowings 26,500 13,450
Interest payable 613 598
Other liabilities 963 673
---------------- ----------------
Total liabilities 173,647 144,946
---------------- ----------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, no par value
Authorized and unissued - 2,000,000 shares
Common stock, no par value
Authorized - 5,000,000 shares
Issued and outstanding - 809,251 and 868,874 shares
Additional paid-in capital 7,654 8,135
Retained earnings 10,802 9,753
Shares acquired by stock benefit plans (532) (734)
Accumulated other comprehensive income 47 30
---------------- ----------------
Total stockholders' equity 17,971 17,184
---------------- ----------------
Total liabilities and stockholders' equity $ 191,618 $ 162,130
================ ================
River Valley Bancorp
Consolidated Statements of Income
Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
--------------------------------------------------------------
(In Thousands, Except Per Share Amounts)
Interest Income
Loans receivable $ 12,267 $ 10,365 $ 8,740
Investment securities 554 435 577
Interest-earning deposits and other 263 318 417
--------------- --------------- ---------------
Total interest income 13,084 11,118 9,734
--------------- --------------- ---------------
Interest Expense
Deposits 5,661 5,137 4,474
Borrowings 956 500 143
--------------- --------------- ---------------
Total interest expense 6,617 5,637 4,617
--------------- --------------- ---------------
Net Interest Income 6,467 5,481 5,117
Provision for loan losses 450 227 140
--------------- --------------- ---------------
Net Interest Income After Provision for Loan
Losses 6,017 5,254 4,977
--------------- --------------- ---------------
Other Income
Service fees and charges 1,099 931 723
Net realized gains (losses) on sales of
available-for-sale securities 17 (2) --
Net gains on loan sales 772 44 74
Other income 34 80 47
--------------- --------------- ---------------
Total other income 1,922 1,053 844
--------------- --------------- ---------------
Other Expenses
Salaries and employee benefits 2,291 2,025 2,162
Net occupancy and equipment expenses 612 568 564
Data processing fees 190 151 126
Advertising 208 190 182
Legal and professional fees 164 144 155
Other expenses 1,241 686 891
--------------- --------------- ---------------
Total other expenses 4,706 3,764 4,080
--------------- --------------- ---------------
Income Before Income Tax 3,233 2,543 1,741
Income tax expense 1,257 933 702
--------------- --------------- ---------------
Net Income $ 1,976 $ 1,610 $ 1,039
=============== =============== ===============
Basic Earnings per Share $ 2.50 $ 1.88 $ 1.03
=============== =============== ===============
Diluted Earnings per Share $ 2.44 $ 1.87 $ 1.03
=============== =============== ===============
River Valley Bancorp
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
---------------------------------------------------------------
(In Thousands)
Net Income $ 1,976 $ 1,610 $ 1,039
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities
available for sale
Unrealized holding gains (losses) arising
during the period, net of tax expense
(benefit) of $18, $55, and $(22) 27 85 (43)
Less: Reclassification adjustment for
gains (losses) included in net income,
net of tax expense (benefit) of $7 and
$(1) 10 (1) --
--------------- --------------- ---------------
17 86 (43)
--------------- --------------- ---------------
Comprehensive Income $ 1,993 $ 1,696 $ 996
=============== =============== ===============
River Valley Bancorp
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
Shares Accumulated
Acquired Other
Additional by Stock Comprehensive
Common Stock Paid-in Retained Benefit Income
Shares Amount Capital Earnings Plans (Loss) Total
------------------------------------------------------------------------------------
(In Thousands, Except for Share Amounts)
Balances, January 1, 1999 1,173440 $ -- $11,119 $ 8,706 $ (1,199) $ (13) $ 18,613
Net income 1,039 1,039
Unrealized losses on
securities (43) (43)
Cash dividends ($.265
per share) (277) (277)
Amortization of expense
related to stock
benefit plans 26 232 258
Purchase of stock (202,943) (2,029) (695) (2,724)
------- ------ ------- --------- -------- --------- ---------
Balances, December 31, 1999 970,497 9,116 8,773 (967) (56) 16,866
Net income 1,610 1,610
Unrealized gains on
securities, net of
reclassification
adjustment 86 86
Cash dividends ($.345
per share) (279) (279)
Contribution to stock
benefit plans (8) (8)
Amortization of expense
related to stock
benefit plans 35 241 276
Purchase of stock (101,623) (1,016) (351) (1,367)
------- ------ ------- --------- -------- --------- ---------
Balances, December 31, 2000 868,874 8,135 9,753 (734) 30 17,184
Net income 1,976 1,976
Unrealized gains on
securities, net of
reclassification
adjustment 17 17
Cash dividends ($.50 per
share) (388) (388)
Exercise of stock options 4,670 68 68
Tax benefit of stock
options exercised and
RRP 4 4
Amortization of expense
related to stock
benefit plans 90 202 292
Purchase of stock (64,293) (643) (539) (1,182)
------- ------ ------- --------- -------- --------- ---------
Balances, December 31, 2001 809,251 $ 0 $ 7,654 $ 10,802 $ (532) $ 47 $ 17,971
======= ====== ======= ========= ======== ========= =========
River Valley Bancorp
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------------------------------------------------
(In Thousands)
Operating Activities
Net income $ 1,976 $ 1,610 $ 1,039
Items not requiring (providing) cash
Provision for loan losses 450 227 140
Depreciation and amortization 311 240 250
Deferred income tax 3 (77) 38
Investment securities amortization (accretion), net 9 (26) (95)
Investment securities (gains) losses (17) 2 --
Loans originated for sale in the secondary market (48,428) (2,614) (10,552)
Proceeds from sale of loans in the secondary market 46,101 2,632 14,226
(Gain) loss on sale of loans (311) (18) 27
Amortization of deferred loan origination cost 157 99 93
Amortization of expense related to stock benefit
plans 292 276 258
Gain on sale of premises and equipment -- (42) (11)
Capitalized interest on construction (89) (8) --
Net change in
Interest receivable (7) (425) 13
Interest payable 15 268 (138)
Other adjustments 294 (116) 58
-------------- -------------- --------------
Net cash provided by operating activities 756 2,028 5,346
-------------- -------------- --------------
Investing Activities
Purchase of FHLB stock (307) -- --
Purchases of securities available for sale (19,262) (7,949) (21,537)
Proceeds from maturities of securities available for
sale 5,204 7,093 18,347
Proceeds from sales of securities available for sale 3,689 2,002 --
Proceeds from maturities of securities held to maturity -- 1,204 1,052
Net change in loans (15,078) (26,165) (6,673)
Purchases of premises and equipment (2,784) (1,143) (245)
Proceeds from sale of premises and equipment -- 56 49
Proceeds from sale of real estate acquired through
foreclosure 107 -- 75
Premiums paid on life insurance (95) -- --
-------------- -------------- --------------
Net cash used in investing activities (28,526) (24,902) (8,932)
-------------- -------------- --------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and
savings deposits 9,643 (2,991) 3,614
Certificates of deposit 5,703 18,965 (7,514)
Proceeds from borrowings 32,050 23,450 9,131
Repayment of borrowings (19,000) (16,500) (2,901)
Cash dividends (261) (350) (277)
Purchase of stock (1,182) (1,367) (2,724)
Proceeds from exercise of stock options 68 -- --
Advances by borrowers for taxes and insurance 8 5 2
Acquisition of stock for stock benefit plans -- (8) --
-------------- -------------- --------------
Net cash provided (used) by financing activities 27,029 21,204 (669)
-------------- -------------- --------------
Net Change in Cash and Cash Equivalents (741) (1,670) (4,255)
Cash and Cash Equivalents, Beginning of Year 6,382 8,052 12,307
-------------- -------------- --------------
Cash and Cash Equivalents, End of Year $ 5,641 $ 6,382 $ 8,052
============== ============== ==============
Additional Cash Flows Information
Interest paid $ 6,691 $ 5,369 $ 4,755
Income tax paid 1,119 876 657
Investment securities held to maturity transferred to
available for sale -- 1,934 --
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of River Valley Bancorp (Company) and
its wholly owned subsidiary, River Valley Financial Bank (Bank), and the
Bank's wholly owned subsidiary, Madison First Service Corporation (First
Service), conform to generally accepted accounting principles and reporting
practices followed by the thrift industry. The more significant of the
policies are described below.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal
thrift charter and provides full banking services, in a single significant
business segment. As a federally-chartered thrift, the Bank is subject to
regulation by the Office of Thrift Supervision, and the Federal Deposit
Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives
deposits from customers located primarily in southeastern Indiana. The
Bank's loans are generally secured by specific items of collateral
including real property, consumer assets and business assets.
Consolidation - The consolidated financial statements include the accounts
of the Company, the Bank and First Service after elimination of all
material intercompany transactions.
Cash Equivalents - The Company considers all liquid investments with
original maturities of three months or less to be cash equivalents.
Investment Securities - Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the securities
to maturity. Securities held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for
sale are carried at fair value with unrealized gains and losses reported
separately in accumulated other comprehensive income, net of tax.
Amortization of premiums and accretion of discounts are recorded as
interest income from securities. Realized gains and losses are recorded as
net security gains (losses). Gains and losses on sales of securities are
determined on the specific-identification method.
Loans held for sale are carried at the lower of aggregate cost or market.
Market is determined using the aggregate method. Net unrealized losses, if
any, are recognized through a valuation allowance by charges to income
based on the difference between estimated sales proceeds and aggregate
cost.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Loans are carried at the principal amount outstanding. A loan is impaired
when, based on current information or events, it is probable that the
Company will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Payments with
insignificant delays not exceeding 90 days outstanding are not considered
impaired. Certain nonaccrual and substantially delinquent loans may be
considered to be impaired. The Company considers its investment in
one-to-four family residential loans and consumer loans to be homogeneous
and therefore excluded from separate identification for evaluation of
impairment. Interest income is accrued on the principal balances of loans.
The accrual of interest on impaired and nonaccural loans is discontinued
when, in management's opinion, the borrower may be unable to meet payments
as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed when considered uncollectible. Interest income
is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans over the contractual lives of the loans.
When a loan is paid off or sold, any unamortized loan origination fee
balance is credited to income.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience,
changes in the composition of the portfolio, the current condition and
amount of loans outstanding, and the probability of collecting all amounts
due. Impaired loans are measured by the present value of expected future
cash flows, or the fair value of the collateral of the loan, if collateral
dependent.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in
the economic environment and market conditions. Management believes that as
of December 31, 2001, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the areas within which the Bank operates would increase the likelihood
of additional losses due to credit and market risks and could create the
need for additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally
on the estimated useful lives of the assets. Maintenance and repairs are
expensed as incurred while major additions and improvements are
capitalized. Gains and losses on dispositions are included in current
operations.
Federal Home Loan Bank stock is a required investment for institutions that
are members of the Federal Home Loan Bank system. The required investment
in the common stock is based on a predetermined formula.
Foreclosed assets are carried at the lower of cost or fair value less
estimated selling costs. When foreclosed assets are acquired, any required
adjustment is charged to the allowance for loan losses. All subsequent
activity is included in current operations.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Goodwill, resulting from the acquisition of Citizens National Bank of
Madison, is being amortized on the straight-line basis over a period of ten
years. During 1998, goodwill was reduced by approximately $168,000 for the
favorable resolution of certain preacquisition contingencies, and for the
purchase of minority interest shares at a price below the assigned value at
acquisition. It is periodically evaluated as to the recoverability of its
carrying value.
Mortgage servicing rights on originated loans are capitalized by allocating
the total cost of the mortgage loans between the mortgage servicing rights
and the loans based on their relative fair values. Capitalized servicing
rights are amortized in proportion to and over the period of estimated
servicing revenues.
Stock options are granted for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for and will continue to account for stock option
grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and, accordingly, recognizes no compensation expense for the
stock option grants.
Income tax in the consolidated statements of income includes deferred
income tax provisions or benefits for all significant temporary differences
in recognizing income and expenses for financial reporting and income tax
purposes.
Earnings per share have been computed based upon the weighted-average
common shares outstanding during each year. Unearned ESOP shares have been
excluded from the computation of average shares outstanding.
Reclassifications of certain amounts in the 2000 and 1999 consolidated
financial statements have been made to conform to the 2001 presentation.
Note 2 - Restriction on Cash and Due From Banks
The Bank is required to maintain reserve funds in cash and/or on deposit
with the Federal Reserve Bank. The reserve required at December 31, 2001,
was $1,031,000.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 3 - Investment Securities
2001
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------------
Available for sale
Federal agencies $ 14,756 $ 179 $ 100 $ 14,835
State and municipal 335 12 -- 347
Mortgage-backed and other
asset-backed securities 838 3 10 831
Corporate obligations 1,645 18 23 1,640
-------------- ------------- ------------- -------------
Total investment securities $ 17,574 $ 212 $ 133 $ 17,653
============== ============= ============= =============
2000
Gross
Amortized Gross Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------------
Available for sale
Federal agencies $ 4,921 $ 68 $ -- $ 4,989
State and municipal 336 4 -- 340
Mortgage-backed and other
asset-backed securities 1,941 5 28 1,918
-------------- ------------- ------------- -------------
Total investment securities $ 7,198 $ 77 $ 28 $ 7,247
============== ============= ============= =============
The amortized cost and fair value of securities available for sale at
December 31, 2001, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Available for Sale
Amortized Fair
Cost Value
-----------------------------------
One to five years $ 16,676 $ 16,759
Five to ten years 60 63
-------------- --------------
16,736 16,822
Mortgage-backed securities 212 214
Other asset-backed securities 626 617
-------------- --------------
Totals $ 17,574 $ 17,653
============== ==============
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Securities with a carrying value of $622,000 and $6,851,000 were pledged at
December 31, 2001 and 2000 to secure certain deposits and for other
purposes as permitted or required by law.
Proceeds from sales of securities available for sale during 2001 and 2000
were $3,689,000 and $2,002,000. Gross gains of $33,000 and $10,000 and
gross losses of $16,000 and $12,000 were realized on those sales. There
were no sales of securities available for sale during 1999.
On April 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting of Derivative Instruments and Hedging
Activities. As permitted by SFAS No. 133, all securities classified as held
to maturity were transferred to available for sale. The adoption of this
statement did not have a significant impact on the Company's financial
statements.
Note 4 - Loans and Allowance
2001 2000
-------------------------------------------
Residential real estate
One-to-four family residential $ 70,793 $ 77,304
Multi-family residential 3,932 3,319
Construction 6,874 6,827
Nonresidential real estate and land 41,892 30,213
Commercial 19,216 16,361
Consumer and other 17,406 14,686
---------------- ----------------
160,113 148,710
Unamortized deferred loan costs 356 324
Undisbursed loans in process (3,163) (6,362)
Allowance for loan losses (1,972) (1,702)
---------------- ----------------
Total loans $ 155,334 $ 140,970
================ ================
2001 2000 1999
----------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $ 1,702 $ 1,522 $ 1,477
Provision for losses 450 227 140
Recoveries on loans 31 37 28
Loans charged off (211) (84) (123)
---------------- ---------------- ----------------
Balances, December 31 $ 1,972 $ 1,702 $ 1,522
================ ================ ================
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Information on impaired loans is summarized below.
2001 2000
-------------------------------------------
Impaired loans with an allowance $ 339 $ 250
Impaired loans for which the discounted cash flows or
collateral value exceeds the carrying value of the loan 357 885
---------------- ----------------
Total impaired loans $ 696 $ 1,135
================ ================
Allowance for impaired loans (included in the Company's
allowance for loan losses) $ 78 $ 57
2001 2000
------------------------------------------
Average balance of impaired loans $ 1,352 $ 1,128
Interest income recognized on impaired loans 117 89
Cash-basis interest included above 110 85
At December 31, 1999, the Company had approximately $600,000 of impaired
loans.
At December 31, 2001, 2000 and 1999, the Company had nonperforming loans
totaling $690,000, $621,000, and $857,000, respectively.
Note 5 - Premises and Equipment
2001 2000
-------------------------------------------
Land $ 952 $ 805
Buildings 3,455 1,629
Leasehold improvements 2 117
Equipment 2,509 2,472
Construction in progress -- 853
---------------- ----------------
Total cost 6,918 5,876
Accumulated depreciation and amortization (1,539) (3,059)
---------------- ----------------
Net $ 5,379 $ 2,817
================ ================
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 6 - Deposits
2001 2000
-----------------------------------------
Demand deposits $ 42,321 $ 31,559
Savings deposits 20,089 21,208
Certificates and other time deposits of $100,000 or more 30,343 30,606
Other certificates and time deposits 52,818 46,852
---------------- ----------------
Total deposits $ 145,571 $ 130,225
================ ================
Certificates and other time deposits maturing in
2002 $ 64,564
2003 11,981
2004 4,244
2005 1,008
2006 883
Thereafter 481
----------------
$ 83,161
================
Note 7 - Borrowings
2001 2000
-----------------------------------------
Federal Home Loan Bank advances $ 25,000 $ 13,000
Line of credit 1,500 450
---------------- ----------------
Total borrowings $ 26,500 $ 13,450
================ ================
Maturities by year for advances at December 31, 2001 are $21,000,000 in
2002, $1,000,000 in 2003, $1,000,000 in 2006 and $2,000,000 in 2011. The
weighted-average interest rate at December 31, 2001 and 2000 was 4.54% and
6.35%.
The Federal Home Loan Bank advances are secured by first-mortgage loans
totaling $54,440,000 at December 31, 2001. Advances are subject to
restrictions or penalties in the event of prepayment.
The Company has a $1,500,000 line of credit with another financial
institution, which matures in February 2002 with a variable interest rate
of .5% under prime. The line of credit is collateralized by a pledge of
1,000 shares of the Bank's stock.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 8 - Loan Servicing
Loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid principal balances of loans serviced for others
totaled $56,057,000, $37,562,000 and $40,212,000 at December 31, 2001, 2000
and 1999, respectively.
The aggregate fair value of capitalized mortgage servicing rights at
December 31, 2001, 2000 and 1999 totaled $430,000, $290,000 and $286,000.
Comparable market values and a valuation model that calculates the present
value of future cash flows were used to estimate fair value. For purposes
of measuring impairment, risk characteristics including product type,
investor type, and interest rates, were used to stratify the originated
mortgage servicing rights.
2001 2000 1999
---------------------------------------------------------------
Mortgage Servicing Rights
Balances, January 1 $ 227 $ 225 $ 222
Servicing rights capitalized 441 26 102
Amortization of servicing rights (128) (24) (99)
---------------- ---------------- ----------------
540 227 225
Valuation allowance (110) -- --
---------------- ---------------- ----------------
Balances, December 31 $ 430 $ 227 $ 225
================ ================ ================
Activity in the valuation allowance for mortgage servicing rights was as follows:
2001
----------------------
Balance, beginning of year $ --
Additions 110
Reductions --
Direct write downs --
----------------
Balance, end of year $ 110
================
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 9 - Income Tax
2001 2000 1999
---------------------------------------------------------------
Income tax expense (benefit)
Currently payable
Federal $ 1,000 $ 805 $ 505
State 254 205 159
Deferred
Federal 2 (61) 38
State 1 (16) --
---------------- ---------------- ----------------
Total income tax expense $ 1,257 $ 933 $ 702
================ ================ ================
Reconciliation of federal statutory to
actual tax expense
Federal statutory income tax at 34% $ 1,099 $ 865 $ 592
Effect of state income taxes 168 125 105
Other (10) (57) 5
---------------- ---------------- ----------------
Actual tax expense $ 1,257 $ 933 $ 702
================ ================ ================
Effective tax rate 38.8% 36.7% 40.3%
A cumulative net deferred tax asset is included in other assets. The
components of the liability are as follows:
2001 2000
-------------------------------------------
Assets
Allowance for loan losses $ 759 $ 564
Deferred compensation 187 147
Pensions and employee benefits 35 60
Securities available for sale 72 83
Purchase accounting adjustments 80 131
Other 11 6
---------------- ----------------
Total assets 1,144 991
---------------- ----------------
Liabilities
Depreciation and amortization (119) (103)
Loan fees (139) (127)
Mortgage servicing rights (215) (93)
Other (17) --
---------------- ----------------
Total liabilities (490) (323)
---------------- ----------------
$ 654 $ 668
================ ================
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Retained earnings include approximately $2,100,000 for which no deferred
income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions as of December 31, 1987 for tax
purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net operating
losses would create income for tax purposes only, which income would be
subject to the then-current corporate income tax rate. The unrecorded
deferred income tax liability on the above amount was approximately
$714,000.
Note 10 - Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying financial
statements. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is represented
by the contractual or notional amount of those instruments. The Bank uses
the same credit policies in making such commitments as it does for
instruments that are included in the consolidated balance sheets.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
2001 2000
-------------------------------------
Commitments to extend credit $ 17,083 $ 14,070
Standby letters of credit 258 196
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation. Collateral held varies
but may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and Bank are also subject to claims and lawsuits, which arise,
primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated
financial position of the Company.
Note 11 - Dividend and Capital Restrictions
Without prior approval, current regulations allow the Bank to pay dividends
to the Company not exceeding net profits (as defined) for the current year
plus those for the previous two years. The Bank normally restricts
dividends to a lesser amount because of the need to maintain an adequate
capital structure. At December 31, 2001, the stockholder's equity of the
Bank was $19,016,000, of which approximately $1,709,000 was available for
the payment of dividends.
Note 12 - Regulatory Capital
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies and is assigned to a capital category. The
assigned capital category is largely determined by three ratios that are
calculated according to the regulations: total risk adjusted capital, Tier
1 capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to
an entity can also be affected by qualitative judgments made by regulatory
agencies about the risk inherent in the entity's activities that are not
part of the calculated ratios.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
There are five capital categories defined in the regulations, ranging from
well capitalized to critically undercapitalized. Classification of a bank
in any of the undercapitalized categories can result in actions by
regulators that could have a material effect on a bank's operations. At
December 31, 2001 and 2000, the Bank is categorized as well capitalized and
met all subject capital adequacy requirements. There are no conditions or
events since December 31, 2001 that management believes have changed the
Bank's classification.
Required for Adequate To Be Well
Actual Capital(1) Capitalized(1)
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
2001
Total risk-based capital(1) (to
risk-weighted assets) $ 20,162 13.9% $ 11,627 8.0% $ 14,534 10.0%
Tier 1 capital(1)(to
risk-weighted assets) 18,398 12.7% 5,814 4.0% 8,720 6.0%
Core capital(1)(to adjusted
total assets) 18,398 9.6% 7,635 4.0% 9,544 5.0%
Core capital(1)(to adjusted
tangible assets) 18,398 9.6% 3,818 2.0% -- N/A
Tangible capital(1)(to adjusted
total assets) 18,398 9.6% 2,863 1.5% -- N/A
2000
Total risk-based capital(1)(to
risk-weighted assets) $ 18,031 15.5% $ 9,293 8.0% $ 11,617 10.0%
Tier 1 capital(1)(to
risk-weighted assets) 16,867 14.5% 4,647 4.0% 6,970 6.0%
Core capital(1)(to adjusted
total assets) 16,867 10.5% 6,458 4.0% 8,072 5.0%
Core capital(1)(to adjusted
tangible assets) 16,867 10.5% 3,229 2.0% -- N/A
Tangible capital(1)(to adjusted
total assets) 16,867 10.5% 2,422 1.5% -- N/A
(1) As defined by regulatory agencies
Note 13 - Employee Benefits
The Bank provides pension benefits for substantially all of the Bank's
employees and is a participant in a pension fund known as the Pentegra
Group. This plan is a multi-employer plan; separate actuarial valuations
are not made with respect to each participating employer. There was no
pension expense or benefit for the years ended December 31, 2001, 2000 and
1999.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
The Bank has a retirement savings 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the
rate of 50 percent for the first 6 percent of W-2 earnings contributed by
participants. The Bank's expense for the plan was $35,000, $20,000 and
$24,000 for the years ended December 31, 2001, 2000 and 1999.
The Bank has a supplemental retirement plan, which provides retirement
benefits to all directors. The Bank's obligations under the plan have been
funded via the purchase of key man life insurance policies, of which the
Bank is the beneficiary. Expense recognized under the supplemental
retirement plan totaled approximately $42,000, $24,000 and $32,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
As part of the conversion in 1996, the Company established an ESOP covering
substantially all employees of the Company and Bank. The ESOP acquired
95,220 shares of the Company common stock at $10 per share in the
conversion with funds provided by a loan from the Company. Accordingly, the
$952,000 of common stock acquired by the ESOP is shown as a reduction of
stockholders' equity. Unearned ESOP shares totaled 38,023 and 48,695 at
December 31, 2001 and 2000 and had a fair value of $787,000 and $779,000 at
December 31, 2001 and 2000. Shares are released to participants
proportionately as the loan is repaid. Dividends on allocated shares are
recorded as dividends and charged to retained earnings. Dividends on
unallocated shares, which may be distributed to participants or used to
repay the loan, are treated as compensation expense. Compensation expense
is recorded equal to the fair market value of the stock when contributions,
which are determined annually by the Board of Directors of the Company and
Bank, are made to the ESOP. ESOP expense for the years ended December 31,
2001, 2000 and 1999 was $196,000, $156,000 and $147,000. At December 31,
2001, the ESOP had 57,197 allocated shares, 38,023 suspense shares and no
committed-to-be released shares. At December 31, 2000, the ESOP had 46,525
allocated shares, 48,695 suspense shares and no committed-to-be released
shares.
The Company also has a Recognition and Retention Plan (RRP), which provides
for the award and issuance of up to 47,610 shares of the Company's stock to
members of the Board of Directors and management. The RRP has purchased
32,920 shares of the Company's common stock in the open market. At December
31, 2001, 33,820 shares had been awarded. Common stock awarded under the
RRP vests ratably over a five-year period, commencing with the date of the
award. Expense recognized under the RRP plan totaled approximately $98,000,
$105,000 and $113,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
Note 14 - Related Party Transactions
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates
(related parties). Such transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
The aggregate amount of loans, as defined, to such related parties were as
follows:
Balances, January 1, 2001 $ 657
Change in composition 129
New loans, including renewals 885
Payments, etc., including renewals (527)
----------------
Balances, December 31, 2001 $ 1,144
================
Deposits from related parties held by the Banks at December 31, 2001 and
2000 totaled $732,000 and $915,000.
Note 15 - Stock Option Plan
Under the Company's incentive stock option plan, which is accounted for in
accordance with Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, and related interpretations, the
Company grants selected executives and other key employees stock option
awards which vest at a rate of 20 percent a year. During 1997, the Company
authorized the grant of options for up to 119,025 shares of the Company's
common stock. The exercise price of each option, which has a ten-year life,
was equal to the market price of the Company's stock on the date of grant;
therefore, no compensation expense was recognized.
Although the Company has elected to follow APB No. 25, SFAS No. 123
requires pro forma disclosures of net income and earnings per share as if
the Company had accounted for its employee stock options under that
Statement. The fair value of each option grant was estimated on the grant
date using an option-pricing model with the following assumptions:
2001 2000 1999
----------------------------------------------------------
Risk-free interest rates 5.1% 6.5 and 5.9% 5.5%
Dividend yields 2.8% 2.7% 2.2%
Volatility factors of expected market price of
common stock 7.8% 11.7% 10.0%
Weighted-average expected life of the options 10 years 10 years 10 years
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the
options' vesting period. The pro forma effect on net income and earnings
per share of this statement are as follows:
2001 2000 1999
-----------------------------------------------------
Net income As reported $ 1,976 $ 1,610 $ 1,039
Pro forma 1,941 1,575 999
Basic earnings per share As reported 2.50 1.88 1.03
Pro forma 2.45 1.83 .99
Diluted earnings per share As reported 2.44 1.87 1.03
Pro forma 2.40 1.83 .99
The following is a summary of the status of the Company's stock option plan
and changes in that plan as of and for the years ended December 31, 2001,
2000 and 1999.
2001 2000 1999
Weighted- Weighted- Weighted-
Average Average Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------------------------------------------------------------------------------------------------------------
Outstanding,
beginning of year 99,345 $ 14.17 93,959 $ 14.58 103,959 $ 14.81
Granted 2,000 17.90 24,000 13.17 10,000 12.63
Exercised (4,670) 14.61
Forfeited/expired (10,592) 14.78 (18,614) 14.78 (20,000) 14.78
-------- -------- -------
Outstanding, end of
year 86,083 $ 14.16 99,345 $ 14.17 93,959 $ 14.58
======== ======== ========
Options exercisable
at year end 53,287 51,725 39,787
Weighted-average
fair value of
options granted
during the year $ 3.08 $ 3.18 $ 2.79
As of December 31, 2001, options totaling 16,000 have exercise prices
ranging from $10.75 to $12.63 and a weighted-average remaining contractual
life of 8.0 years, options totaling 68,083 have exercise prices ranging
from $13.97 to $14.78 and a weighted-average remaining contractual life of
6.0 years, options totaling 2,000 have an exercise price of $17.90 and a
weighted-average remaining contractual life of 9.5 years.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 16 - Earnings Per Share
2001 2000 1999
Weighted- Weighted- Per Weighted-
Average Per Share Average Share Average Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
---------------------------------------------------------------------------------------------
Basic Earnings Per
Share
Income available
to common
stockholders $ 1,976 790,933 $ 2.50 $1,610 858,059 $ 1.88 $1,039 1,007,087 $ 1.03
======== ======== ========
Effect Of Dilutive
Stock Options 17,433 1,486
------- ------- ------- ------- ------ ---------
Diluted Earnings
Per Share
Income available
to common
stockholders
and assumed
conversions $ 1,976 808,366 $ 2.44 $1,610 859,545 $ 1.87 $1,039 1,007,087 $ 1.03
======= ======= ======== ====== ======= ======== ====== ========= ========
Options to purchase 65,345 shares of common stock with a weighted-average
exercise price of $14.78 per share and 93,959 shares with a
weighted-average exercise price of $14.58 per share were outstanding at
December 31, 2000 and 1999, respectively, but were not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares.
Note 17 - Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and Cash Equivalents - The fair value of cash and cash equivalents
approximates carrying value.
Investment Securities - Fair values are based on quoted market prices.
Loans Held for Sale - Fair values are based on quoted market prices.
Loans - The fair value for loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Interest Receivable/Payable - The fair values of interest
receivable/payable approximate carrying values.
FHLB Stock - Fair value of FHLB stock is based on the price at which it may
be resold to the FHLB.
Deposits - The fair values of noninterest-bearing, interest-bearing demand
and savings accounts are equal to the amount payable on demand at the
balance sheet date. The carrying amounts for variable rate, fixed-term
certificates of deposit approximate their fair values at the balance sheet
date. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated
expected monthly maturities on such time deposits.
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Federal Home Loan Bank Advances - The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates
for similar debt.
Line of Credit - The approximate market value for this variable borrowing
approximates carrying value.
Advance Payment by Borrowers for Taxes and Insurance - The fair value
approximates carrying value.
Off-Balance Sheet Commitments - For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between
current levels of interest rates and committed rates. The difference
between the fair value and notional amount of outstanding loan commitments
at December 31, 2001 and 2000, was not material.
The estimated fair values of the Company's financial instruments are as
follows:
2001 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
Assets
Cash and cash equivalents $ 5,641 $ 5,641 $ 6,382 $ 6,382
Investment securities available for
sale 17,653 17,653 7,247 7,247
Loans including loans held for sale,
net 157,972 158,931 140,970 139,660
Interest receivable 1,475 1,475 1,468 1,468
Stock in FHLB 1,250 1,250 943 943
Liabilities
Deposits 145,571 145,640 130,225 130,168
FHLB advances 25,000 25,284 13,000 13,034
Line of credit 1,500 1,500 450 450
Interest payable 613 613 598 598
Advance payments by borrowers for
taxes and insurance 49 49 41 41
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Note 18 - Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial
position, results of operations and cash flows of the Company:
Condensed Balance Sheets
2001 2000
-----------------------------------------
Assets
Cash and due from banks $ 400 $ 202
Investment in common stock of subsidiary 19,016 17,161
Other assets 182 271
---------------- ----------------
Total assets $ 19,598 $ 17,634
================ ================
Liabilities
Borrowings $ 1,500 $ 450
Dividends payable 127 --
---------------- ----------------
Total liabilities 1,627 450
Stockholders' Equity 17,971 17,184
---------------- ----------------
Total liabilities and stockholders' equity $ 19,598 $ 17,634
================ ================
Condensed Statements of Income
2001 2000 1999
-------------------------------------------------------------
Income
Dividends from subsidiary $ 425 $ 1,621 $ 3,158
Other income 45 65 62
---------------- ---------------- ----------------
Total income 470 1,686 3,220
---------------- ---------------- ----------------
Expenses
Interest expense 55 63 101
Other expenses 153 120 105
---------------- ---------------- ----------------
Total expenses 208 183 206
---------------- ---------------- ----------------
Income before income tax and equity in
undistributed (distribution in excess
of) income of subsidiary 262 1,503 3,014
Income tax benefit 65 47 58
---------------- ---------------- ----------------
Income before equity in undistributed
(distribution in excess of) income of
subsidiary 327 1,550 3,072
Equity in undistributed
(distribution in excess of)
income of subsidiary 1,649 60 (2,033)
---------------- ---------------- ----------------
Net Income $ 1,976 $ 1,610 $ 1,039
================ ================ ================
River Valley Bancorp
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Table Dollar Amounts in Thousands
Except Per Share Amounts)
Condensed Statements of Cash Flows
2001 2000 1999
-----------------------------
Operating Activities
Net income $ 1,976 $ 1,610 $ 1,039
Items not requiring (providing) cash (1,453) (4) 1,905
------- ------- -------
Net cash provided by operating activities 523 1,606 2,944
------- ------- -------
Financing Activities
Purchase of stock (1,182) (1,367) (2,724)
Proceeds from exercise of stock options 68 -- --
Acquisition of stock for stock benefit plans -- (8) --
Proceeds from borrowings 1,050 450 3,131
Repayment of borrowings -- (500) (2,901)
Cash dividends (261) (350) (277)
------- ------- -------
Net cash used in financing activities (325) (1,775) (2,771)
------- ------- -------
Net Change in Cash and Cash Equivalents 198 (169) 173
Cash and Cash Equivalents at Beginning of Year 202 371 198
------- ------- -------
Cash and Cash Equivalents at End of Year $ 400 $ 202 $ 371
======= ======= =======
GENERAL INFORMATION FOR SHAREHOLDERS
Transfer Agent and Registrar: Shareholder and General Inquiries:
Corporate Trust Services River Valley Bancorp
Fifth Third Center Attn: Matthew P. Forrester
38 Fountain Square Plaza 430 Clifty Drive, P.O. Box 1590
Cincinnati, Ohio 45263 Madison, Indiana 47250
Tel: (513) 579-5417 Tel: (812) 273-4949
Fax: (513) 744-6785 Fax: (812) 273-4944
Corporate Counsel: Special Counsel:
Lonnie D. Collins, Attorney Barnes & Thornburg
307 Jefferson Street 11 S. Meridian Street
Madison, Indiana 47250 Indianapolis, Indiana 46204
Tel: (812) 265-3616 Tel: (317) 236-1313
Fax: (812) 273-3143 Fax: (317) 231-7433
Annual and Other Reports:
Additional copies of this Annual Report to Shareholders and copies of the most
recent Form 10-K may be obtained without charge by contacting the Corporation.
Offices of River Valley Financial Bank:
Hilltop: 430 Clifty Drive
Downtown: 233 East Main Street
Drive thru: 401 East Main Street
Wal-Mart: 567 Ivy Tech Drive
Hanover: 10 Medical Plaza
Internet and E-MAIL Address: rvfbank.com
Annual Meeting:
The Annual Meeting of Shareholders of River Valley Bancorp will be held on
Wednesday, April 17, 2002, at 3:00 PM, at 430 Clifty Drive, Madison, IN 47250.
DIRECTORS OF THE COMPANY AND THE BANK
Fred W. Koehler Matthew P. Forrester Charles J. McKay
Chairman Director & President Director
Robert W. Anger Michael J. Hensley *****************
Director Director
Jonnie L. Davis Earl W. Johann Lonnie D. Collins
Director Director Secretary
EXECUTIVE OFFICERS OF RIVER VALLEY FINANCIAL BANK
Matthew P. Forrester Mark A. Goley Anthony D. Brandon
President, CEO Vice President of Lending Vice President of Loan
Compliance Officer Administration
Barbara J. Eades
Vice President of Retail Larry C. Fouse Deanna J. Liter
Banking Vice President of Finance Vice President of Data
Services
Loy M. Skirvin Dawn M. Moore
Vice President of Human Internal Audit
Resources
OFFICERS AND MANAGERS OF RIVER VALLEY FINANCIAL BANK
Loan Officers Other Managers
James B. Allen Kenneth L. Cull - Collection Officer
Theresa A. Dryden Donald R. Davidson - Accounting Manager
Rick T. Nelson Mary Ellen McClelland - Executive Secretary
Robert J. Schoenstein--AVP Luann Nay - Loan Administrator
Natasha Wells Kelly Shelton - Loan Operations Manager
Teresa J. Smith - Data Processing Manager
Sandy Stilwell - Customer Service Manager
Mary Ellen Wehner - Commercial Loan
Operations Manager
Branch Managers
Angela D. Adams
Debbie R. Finnegan
Rachael A. Goble
Linda L. Ralston
Rhonda E. Wingham