SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number: 0-21765
RIVER VALLEY BANCORP
(Exact name of registrant specified in its charter)
Indiana 35-1984567
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
430 Clifty Drive
Madison, Indiana 47250
(Address of principal executive offices, including Zip Code)
(812) 273-4949
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the Registrant's common stock, without par value,
outstanding as of March 31, 2005 was 1,584,877.
1
RIVER VALLEY BANCORP
FORM 10-Q
INDEX
Page No.
FORWARD LOOKING STATEMENT 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 4
Consolidated Condensed Statements of Comprehensive Income 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Unaudited Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits 16
SIGNATURES 17
EXHIBITS 18
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
RIVER VALLEY BANCORP
Consolidated Condensed Balance Sheets
March 31, December 31,
2005 2004
--------------------- --------------------
(In Thousands, Except Share Amounts)
(Unaudited)
Assets
Cash and due from banks $ 3,949 $ 4,911
Interest-bearing demand deposits 4,146 7,526
--------------------- --------------------
Cash and cash equivalents 8,095 12,437
Investment securities available for sale 43,501 26,964
Loans held for sale - 337
Loans 233,205 233,400
Allowance for loan losses 2,293 2,364
--------------------- --------------------
Net Loans 230,912 231,036
Premises and equipment 7,389 6,798
Federal Home Loan Bank stock 3,735 3,281
Interest receivable 1,668 1,599
Other assets 6,550 6,975
--------------------- --------------------
Total assets $ 301,850 $ 289,427
===================== ====================
Liabilities
Deposits
Noninterest-bearing $ 17,459 $ 15,066
Interest-bearing 160,040 155,472
--------------------- --------------------
Total deposits 177,499 170,538
Borrowings 99,807 94,600
Interest payable 456 382
Other liabilities 1,590 1,514
--------------------- --------------------
Total liabilities 279,352 267,034
--------------------- --------------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, without par value
Authorized and unissued - 2,000,000 shares
Common stock, without par value
Authorized - 5,000,000 shares
Issued and outstanding - 1,584,877 and 1,584,377 shares
Additional paid-in capital 8,908 8,843
Retained earnings 14,015 13,800
Shares acquired by stock benefit plans (193) (215)
Accumulated other comprehensive loss (232) (35)
--------------------- --------------------
Total shareholders' equity 22,498 22,393
--------------------- --------------------
Total liabilities and shareholders' equity $ 301,850 $ 289,427
===================== ====================
See notes to consolidated condensed financial statements.
3
RIVER VALLEY BANCORP
Consolidated Condensed Statements of Income
(Unaudited)
Three Months Ended
March 31
------------------ -------------------
2005 2004
------------------ -------------------
(In Thousands, Except Share Amounts)
Interest Income
Loans receivable $ 3,409 $ 2,911
Investment securities 312 256
Interest-earning deposits and other 64 41
------------------ -------------------
Total interest income 3,785 3,208
------------------ -------------------
Interest Expense
Deposits 791 699
Borrowings 1,002 583
------------------ -------------------
Total interest expense 1,793 1,282
------------------ -------------------
Net Interest Income 1,992 1,926
Provision for loan losses 72 102
------------------ -------------------
Net Interest Income After Provision for Loan Losses 1,920 1,824
------------------ -------------------
Other Income
Gain on investment securities - 6
Service fees and charges 428 420
Net gains on loan sales 67 106
Other income 80 88
------------------ -------------------
Total other income 575 620
------------------ -------------------
Other Expenses
Salaries and employee benefits 929 758
Net occupancy and equipment expenses 278 239
Data processing fees 26 40
Advertising 61 51
Legal and professional fees 56 30
Other expenses 265 350
------------------ -------------------
Total other expenses 1,615 1,468
------------------ -------------------
Income Before Income Tax 880 976
Income tax expense 365 367
------------------
-------------------
Net Income $ 515 $ 609
================== ===================
Basic earnings per share $ .33 $ .38
Diluted earnings per share .31 .36
Dividends per share .19 .17
See notes to consolidated condensed financial statements.
4
RIVER VALLEY BANCORP
Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
------------------ ------------------
2005 2004
------------------ ------------------
(In Thousands)
Net income $ 515 $ 609
Other comprehensive income, net of tax
Unrealized gains (losses) on securities available for sale
Unrealized holding gains (losses) arising during the
period, net of tax benefit (expense) of $(130) and $33 (197) 51
Less: Reclassification adjustment for gains
Included in net income, net of tax expense of $ 0 and $2 -- 4
------------------ ------------------
(197) 47
------------------ ------------------
Comprehensive income $ 318 $ 656
================== ==================
See notes to consolidated condensed financial statements.
5
RIVER VALLEY BANCORP
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
-------------------- -------------------
2005 2004
-------------------- -------------------
Operating Activities (In Thousands)
Net income $ 515 $ 609
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Provision for loan losses 72 102
Depreciation and amortization 142 137
Loans originated for sale in the secondary market (2,942) (4,884)
Proceeds from sale of loans in the secondary market 3,306 4,698
Gain on sale of loans (67) (106)
Amortization of deferred loan origination cost 23 25
Amortization of expense related to stock benefit plans 80 83
Net change in:
Interest receivable (69) (14)
Interest payable 74 (46)
Other adjustments 579 (534)
-------------------- -------------------
Net cash provided by operating activities 1,713 70
-------------------- -------------------
Investing Activities
Purchases of securities available for sale (18,876) (1,002)
Proceeds from sales of securities available for sale -- 3,993
Proceeds from maturities of securities available for sale 2,001 3,196
Net change in loans 69 (6,882)
Purchases of FHLB stock (419) (397)
Purchases of premises and equipment (733) (295)
-------------------- -------------------
Net cash used in investing activities (17,958) (1,387)
-------------------- -------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits 825 (8,787)
Certificates of deposit 6,136 (2,665)
Short-term borrowings (3,793) --
Proceeds from borrowings 11,000 19,000
Repayment of borrowings (2,000) (10,000)
Cash dividends (299) (279)
Proceeds from exercise of stock options 4 78
Purchase of stock -- (935)
Advances by borrowers for taxes and insurance 30 10
-------------------- -------------------
Net cash provided by financing activities 11,903 (3,578)
-------------------- -------------------
Net Change in Cash and Cash Equivalents (4,342) (4,895)
Cash and Cash Equivalents, Beginning of Period 12,437 12,512
-------------------- -------------------
Cash and Cash Equivalents, End of Period $ 8,095 $ 7,617
==================== ===================
Additional Cash Flows and Supplementary Information
Interest paid 1,719 $ 1,328
Income tax paid -- --
See notes to consolidated condensed financial statements.
6
RIVER VALLEY BANCORP
Notes to Unaudited Consolidated Condensed Financial Statements
River Valley Bancorp (the "Corporation or Company") is a unitary savings and
loan holding company whose activities are primarily limited to holding the stock
of River Valley Financial Bank ("River Valley" or the "Bank"). The Bank conducts
a general banking business in southeastern Indiana which consists of attracting
deposits from the general public and applying those funds to the origination of
loans for consumer, residential and commercial purposes. River Valley's
profitability is significantly dependent on net interest income, which is the
difference between interest income generated from interest-earning assets (i.e.,
loans and investments) and the interest expense paid on interest-bearing
liabilities (i.e. customer deposits and borrowed funds). Net interest income is
affected by the relative amount of interest-earning assets and interest-bearing
liabilities and the interest received or paid on these balances. The level of
interest rates paid or received by the Bank can be significantly influenced by a
number of competitive factors, such as governmental monetary policy, that are
outside of management's control.
Note 1: Basis of Presentation
The accompanying unaudited consolidated condensed financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore, do not
include information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of the Corporation included in the Annual Report on
Form 10-KSB for the year ended December 31, 2004. However, in the opinion of
management, all adjustments (consisting of only normal recurring accruals) which
are necessary for a fair presentation of the financial statements have been
included. The results of operations for the three-month period ended March 31,
2005, are not necessarily indicative of the results which may be expected for
the entire year. The consolidated condensed balance sheet of the Corporation as
of December 31, 2004 has been derived from the audited consolidated balance
sheet of the Corporation as of that date.
Note 2: Principles of Consolidation
The consolidated condensed financial statements include the accounts of the
Corporation and its subsidiary, the Bank, and the Bank's subsidiary, Madison
First Service Corporation ("First Service"). All significant intercompany
balances and transactions have been eliminated in the accompanying consolidated
financial statements.
7
Note 3: Earnings Per Share
Earnings per share have been computed based upon the weighted-average common
shares outstanding. Unearned Employee Stock Ownership Plan shares have been
excluded from the computation of average common shares outstanding.
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
------------------ ------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------ -------- ------ ------ --------- ------
(Dollar Amounts in Thousands, Except Share Amounts)
Basic earnings per share
Income available to common
shareholders $ 515 1,573,118 $ .33 $ 609 1,613,408 $ .38
=========== ===========
Effect of dilutive RRP
awards and stock options 63,747 76,490
------------------------- -------------------------
Diluted earnings per share
Income available to
common shareholders
and assumed
conversions $ 515 1,636,865 $ .31 $ 609 1,689,898 $ .36
==================================== ====================================
Options to purchase 5,000 shares of common stock at $22.67 per share were
outstanding at March 31, 2005, but were not included in the computation of
diluted earnings per share because the option price was greater than the average
market price of the common shares.
Note 4: Stock Options
The Company has a stock-based employee compensation plan, which is described
more fully in Notes to Financial Statements included in the December 31, 2004
Annual Report to shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
8
Three Months Ended Three Months Ended March
March 31, 2005 31, 2004
----------------------------------------------------
(Dollar Amounts In Thousands, Except Share Amounts)
Net income, as reported $515 $609
Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes 5 6
----------------------------------------------------
Pro forma net income $510 $603
====================================================
Earnings per share:
Basic - as reported .33 .38
Basic - pro forma .32 .37
Diluted - as reported .31 .36
Diluted - pro forma .31 .36
In December, 2004, the Financial Accounting Standards Board (FASB) issued an
amendment to SFAS 123(SFAS 123R) which eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board Opinion
No. 25 and generally requires that such transactions be accounted for using a
fair value-based method. SFAS 123R will be effective for the Company beginning
January 1, 2006. SFAS 123R applies to all awards granted after the required
effective date and to awards modified, repurchased, or cancelled after that
date. The cumulative effect of initially applying this Statement, if any, is
recognized as of the required effective date.
As of the required effective date, the Company will apply SFAS 123R using either
the modified version of prospective application or the modified version of
retrospective application. Under prospective transition method, compensation
cost is recognized on or after the required effective date for the portion of
outstanding awards for which the requisite service has not yet been rendered,
based on the grant-date fair value of those awards calculated under SFAS 123 for
either recognition or pro forma disclosures. For periods before the required
effective date, a company may elect to apply a modified version of retrospective
application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods by
SFAS 123.
The Company is currently evaluating the effect of the recognition and
measurement provisions of SFAS 123R but believes the adoption of SFAS 123R will
not result in a material impact on the Company's results of operations or
financial condition.
Note 5: Reclassifications
Certain reclassifications have been made to the 2004 consolidated condensed
financial statements to conform to the March 31, 2005 presentation.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Corporation (as defined in the notes to
the consolidated condensed financial statements), its directors or its officers
primarily with respect to future events and the future financial performance of
the Corporation. Readers of this Form 10-Q are cautioned that any such forward
looking statements are not guarantees of future events or performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 10-Q identifies important
factors that could cause such differences. These factors include changes in
interest rates; loss of deposits and loan demand to other financial
institutions; substantial changes in financial markets; changes in real estate
values and the real estate market; or regulatory changes.
Critical Accounting Policies
The notes to the consolidated financial statements contain a summary of the
Corporation's significant accounting policies presented on pages 24 through 26
of the Annual Report to Shareholders for the year ended December 31, 2004.
Certain of these policies are important to the portrayal of the Corporation's
financial condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently
uncertain. Management believes that its critical accounting policies include
determining the allowance for loan losses and the valuation of mortgage
servicing rights.
Allowance for loan losses
The allowance for loan losses is a significant estimate that can and does change
based on management's assumptions about specific borrowers and current general
economic and business conditions, among other factors. Management reviews the
adequacy of the allowance for loan losses on at least a quarterly basis. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the loan portfolio, the current condition and amount of
loans outstanding, identified problem loans and the probability of collecting
all amounts due.
The allowance for loan losses represents management's estimate of probable
losses inherent in the Corporation's loan portfolios. In determining the
appropriate amount of the allowance for loan losses, management makes numerous
assumptions, estimates and assessments.
The Corporation's strategy for credit risk management includes conservative,
centralized credit policies, and uniform underwriting criteria for all loans as
well as an overall credit limit for each customer significantly below legal
lending limits. The strategy also emphasizes diversification on a geographic,
industry and customer level, regular credit quality reviews and quarterly
management reviews of large credit exposures and loans experiencing
deterioration of credit quality.
The Corporation's allowance consists of three components: probable losses
estimated from individual reviews of specific loans, probable losses estimated
from historical loss rates, and probable losses resulting from economic or other
deterioration above and beyond what is reflected in the first two components of
the allowance.
10
Larger commercial loans that exhibit probable or observed credit weaknesses are
subject to individual review. Where appropriate, reserves are allocated to
individual loans based on management's estimate of the borrower's ability to
repay the loan given the availability of collateral, other sources of cash flow
and legal options available to the Corporation. Included in the review of
individual loans are those that are impaired as provided in SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. Any allowances for impaired
loans are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or fair value of the underlying
collateral. The Corporation evaluates the collectibility of both principal and
interest when assessing the need for a loss accrual. Historical loss rates are
applied to other commercial loans not subject to specific reserve allocations
Homogenous loans, such as consumer installment and residential mortgage loans
are not individually risk graded. Rather, standard credit scoring systems are
used to assess credit risks. Reserves are established for each pool of loans
based on the expected net charge-offs for one year. Loss rates are based on the
average net charge-off history by loan category.
Historical loss rates for commercial and consumer loans may be adjusted for
significant factors that, in management's judgment, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the national and local economies, trends in
the nature and volume of loans (delinquencies, charge-offs and non-accrual
loans), changes in mix, credit score migration comparisons, asset quality
trends, risk management and loan administration, changes in the internal lending
policies and credit standards, collection practices and examination results from
bank regulatory agencies and the Corporation's internal loan review.
An unallocated reserve is maintained to recognize the imprecision in estimating
and measuring loss when evaluating reserves for individual loans or pools of
loans. Allowances on individual loans and historical loss rates are reviewed
quarterly and adjusted as necessary based on changing borrower and/or collateral
conditions and actual collection and charge-off experience.
The Corporation's primary market area for lending is southeastern Indiana and
portions of northwestern Kentucky. When evaluating the adequacy of allowance,
consideration is given to this regional geographic concentration and the closely
associated effect changing economic conditions have on the Corporation's
customers.
The Corporation has not substantively changed any aspect to its overall approach
in the determination of the allowance for loan losses. There have been no
material changes in assumptions or estimation techniques as compared to prior
periods that impacted the determination of the current period allowance.
Valuation of Mortgage Servicing Rights
The Company recognizes the rights to service mortgage loans as separate assets
in the consolidated balance sheet. The total cost of loans when sold is
allocated between loans and mortgage servicing rights based on the relative fair
values of each. Mortgage servicing rights are subsequently carried at the lower
of the initial carrying value, adjusted for amortization, or fair value.
Mortgage servicing rights are evaluated for impairment based on the fair value
of those rights. Factors included in the calculation of fair value of the
mortgage servicing rights include, estimating the present value of future net
cash flows, market loan prepayment speeds for similar loans, discount rates,
servicing costs, and other economic factors. Servicing rights are amortized over
the estimated period of net servicing revenue. It is likely that these economic
factors will change over the life of the mortgage servicing rights, resulting in
different valuations of the mortgage servicing rights. The differing valuations
will affect the carrying value of the mortgage servicing rights on the
consolidated balance sheet as well as the income recorded from loan servicing in
the income statement. As of March 31, 2005 and December 31, 2004, mortgage
servicing rights had carrying values of $932,000 and $860,000, respectively.
11
Financial Condition
At March 31, 2005, the Corporation's consolidated assets totaled $301.9 million,
an increase of $12.4 million, or 4.3%, from December 31, 2004. The increase in
assets resulted primarily from an increase in securities of $16.5 million and an
offsetting decrease of approximately $4.3 million in cash and cash equivalents.
Net loans receivable were $230.9 million at March 31, 2005, a decrease of $.1
million, from $231.0 million at December 31, 2004. Loan growth is expected in
the second and third quarters as a result of a new branch in a close
metropolitan area. This branch is to open mid year.
The Corporation's allowance for loan losses totaled $2.4 million at December 31,
2004 and $2.3 million at March 31, 2005, which represented 1.01% and .98%
respectively of total loans. Non-performing loans (defined as loans delinquent
greater than 90 days and loans on nonaccrual status) totaled $2,100,000 and
$2,175,000 at December 31, 2004 and March 31, 2005, respectively. Although
management believes that its allowance for loan losses at March 31, 2005, 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 totaled $177.5 million at March 31, 2005, an increase of $7.0 million,
or 4.1%, compared to total deposits at December 31, 2004. The increase for the
three-month period resulted from a combination of competitive interest rates,
and changes in our market competition.
Advances from the Federal Home Loan Bank totaled $74.0 million and $65.0 million
respectively at March 31, 2005 and December 31, 2004. These advances are a
readily available source of funding for periods when loan demand exceeds deposit
growth. Several million in advances are still available for future growth.
Shareholders' equity totaled $22.5 million at March 31, 2005, an increase of
$100,000, or .5 %, from $22.4 million at December 31, 2004. The increase
resulted primarily from net income, offset by cash dividends and the change in
accumulated other comprehensive income.
The Bank is required to maintain minimum regulatory capital pursuant to federal
regulations. At March 31, 2005, the Bank's regulatory capital exceeded all
applicable regulatory capital requirements.
Comparison of Operating Results for the Three Months Ended March 31, 2005 and
2004
General
The Corporation's net income for the three months ended March 31, 2005 totaled
$515,000, a decrease of $94,000, or 15.4 %, from the $609,000 reported for the
quarter ended March 31, 2004. The decrease in income for the 2005 period was
primarily attributable to an increase in salaries and benefits and a decrease in
other income.
Net Interest Income
Total interest income for the three months ended March 31, 2005 amounted to $3.8
million, an increase of $577,000, or 18.0%, from the comparable quarter in 2004.
This increase reflects an increase in average interest-earning assets
outstanding and a very slight increase in the loan yield .
12
Interest expense on deposits increased by $92,000, or 13.2%, to a total of
$791,000 for the quarter ended March 31, 2005, due primarily to a small increase
in the average cost of deposits and by an increase in the average balance of
deposits outstanding year-to-year. Interest expense on borrowings totaled
$1,002,000 for the three months ended March 31, 2004, an increase of $419,000
from the comparable period in 2004. The increase resulted primarily from an
increase in average borrowings outstanding year-to-year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $66,000 or 3.4%, for the three months ended
March 31, 2005, as compared to the comparable period in 2004.
Provision for Losses on Loans
A provision for losses on loans is charged to income to bring the total
allowance for loan losses to a level considered appropriate by management based
upon historical experience, the volume and type of lending conducted by the
Bank, the status of past due principal and interest payments, general economic
conditions, particularly as such conditions relate to the Bank's market area,
and other factors related to the collectibility of the Bank's loan portfolio. As
a result of such analysis, management recorded a $72,000 provision for losses on
loans for the three months ended March 31, 2005, compared to the $102,000 amount
recorded in the 2004 period. The 2005 provision amount was predicated on the
balance of funds already reserved, coupled with the fact that many of our
questionable loans have already been charged off. While management believes that
the allowance for losses on loans is adequate at March 31, 2005, based upon the
available facts and circumstances, there can be no assurance that the loan loss
allowance will be adequate to cover losses on non-performing loans in the
future.
Other Income
Other income decreased by $45,000, for the three months ended March 31, 2005, as
compared to the same period in 2004, due primarily to a decrease of $39,000 in
gain on sale of loans. River Valley sold $3.3 million in loans during the
quarter ended March 31, 2005 compared to $4.6 million during the first quarter
of 2004.
Other Expense
Other expense increased by $147,000, during the three months ended March 31,
2005, compared to the same period in 2004. The increase was due primarily to an
increase in the salaries and benefits category of $171,000 and a decrease in all
other categories of $24,000. Employee compensation and benefits increased due to
an increase in employees to service an increased asset base and expanded branch
network. Full time equivalent employees have gone from 66 on March 31, 2004 to
72 on March 31, 2005. Assets per employee were $3.8 million and $4.2 million
respectively.
Income Taxes
The provision for income taxes totaled $365,000 for the three months ended March
31, 2005, a decrease of $2,000, or .5%, as compared to the same period in 2004.
The effective tax rates amounted to 41.4% and 36.6% for the three months ended
March 31, 2005 and 2004, respectively.
13
Other
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including the
Corporation. The address is http://www.sec.gov.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
An important part of River Valley Financial Bank's asset/liability management
policy includes examining the interest rate sensitivity of the assets and
liabilities and monitoring the expected effects of interest rate changes on its
net portfolio value.
Presented below, as of December 31, 2004 and 2003, is an analysis performed by
the OTS of River Valley's interest rate risk as measured by changes in River
Valley's net portfolio value ("NPV") for instantaneous and sustained parallel
shifts in the yield curve, in 100 basis point increments, up 300 basis points
and down 100 basis points.
December 31, 2004
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
- -------- -------- -------- ------- --------- ------
(Dollars in thousands)
+300 bp 37,924 1,412 +4 % 13.10 % +80 bp
+200 bp 38,152 1,639 +4 % 13.05 % +75 bp
+100 bp 37,743 1,231 +3 % 12.80 % +50 bp
0 bp 36,512 12.30 %
- -100 bp 34,410 -2,103 -6 % 11.54 % -76 bp
December 31, 2003
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change %Change NPV Ratio Change
- -------- -------- -------- ------- --------- ------
(Dollars in thousands)
+300 bp 33,347 650 +2 % 13.08 % +55 bp
+200 bp 33,819 1,123 +3 % 13.14 % +60 bp
+100 bp 33,640 943 +3 % 12.96 % +43 bp
0 bp 32,697 12.53 %
- -100 bp 31,122 -1,575 -5 % 11.89 % -64 bp
Management believes at March 31, 2005 there have been no material changes in
River Valley's interest rate sensitive instruments which would cause a material
change in the market risk exposures which affect the quantitative and
qualitative risk disclosures as presented in Item 6., Management's Discussion
and Analysis or Plan of Operation, of the Company's Annual Report on Form 10-K
for the period ended December 31, 2004.
14
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Sections 13a-15(e) and 15d-15(e) of the regulations promulgated under the
Securities Exchange Act of 1934, as amended), as of the end of the most recent
fiscal quarter covered by this quarterly report (the "Evaluation Date"), have
concluded that as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and are designed to ensure that material information
relating to the Company would be made known to such officers by others within
the Company on a timely basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal control over financial reporting identified in connection
with the Company's evaluation of controls that occurred during the Company's
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
(c) We are currently evaluating the design and operating effectiveness of our
internal controls over financial reporting as part of our effort to comply with
Section 404 of the Sarbanes-Oxley Act of 2002 as of our fiscal year ending
December 31, 2006. Section 404 requires us to evaluate the effectiveness of our
internal controls over financial reporting and include a management report on
our assessment of the effectiveness of our internal controls over financial
reporting in all annual reports beginning with our report on Form 10-K for the
fiscal year ending December 31, 2006. We are currently designing and
implementing improvements that we believe will adequately mitigate any
deficiencies noted by our outside auditing firm and by the OTS, and we expect
that such improvements will be implemented in sufficient time to ensure their
operating effectiveness as of March 31, 2006. We do not believe that the
deficiencies noted by our auditing firm or the OTS have had or will have a
material impact on our financial statements. In addition, as a result of our
remediation initiatives and the testing of our key financial reporting systems,
we do not believe that the identified deficiencies will result in a material
weakness in our internal control over financial reporting. However, we cannot
provide any assurance that our remediation efforts will be successful or that
additional testing of our internal controls will not identify additional
deficiencies that, when aggregated with the existing deficiencies, would result
in a material weakness.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
No matter was submitted to a vote of the Company's shareholders during
the first quarter of 2005.
Item 5. Other Information.
None.
Item 6. Exhibits.
31(1) Certification required by 17 C.F.R. Section 240.13a-15(e)
31(2) Certification required by 17 C.F.R. Section 240.13a-15(e)
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted to
Section 906 of the Sarbanes-Oxley Act of 2002.
16
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIVER VALLEY BANCORP
Date: May 16, 2005 By: /s/ Matthew P. Forrester
--------------------------------
Matthew P. Forrester
President and Chief Executive Officer
Date: May 16, 2005 By: /s/ Larry C. Fouse
--------------------------------
Larry C. Fouse
Vice President of Finance
17